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Euro group to issue statement on Spain, Cyprus

Wed Jun 27, 2012 10:20am EDT

http://www.reuters.com/article/2012/06/27/us-eurogroup-cyprus-spain-idUSBRE85Q0XO20120627

BRUSSELS - The finance ministers of the 17 countries in the euro zone will issue a statement on Cyprus and Spain later on Wednesday, the Euro group spokesman said.

The statement is expected to relate to Cyprus's application for financial assistance from the euro zone's EFSF bailout fund, and to Spain's ongoing discussions over accessing up to 100 billion euros to recapitalize its banks. The Euro group ministers, who also serve as the board of the EFSF, held a conference call earlier on Wednesday, officials said. (Writing by Luke Baker ; reporting by Gernot Heller and Luke Baker)

Greeks seen slowly returning cash to banks

Wed Jun 27, 2012 9:35am EDT

http://www.reuters.com/article/2012/06/27/us-greece-banks-deposits-idUSBRE85Q0U420120627

ATHENS - Millions of euros are trickling back into Greek banks from savers reassured by the result of the June 17 election, though amounts remain a fraction of what was withdrawn ahead of the poll, bankers said on Wednesday.

Bankers said the pace of deposit inflows set immediately after the vote had slowed, but money was still returning after the formation of a conservative-led government reduced the chances of the country crashing out of the euro zone, at least in the short to medium term. Yannis Stournaras, a liberal economist who was named finance minister on Tuesday, told a book presentation hours before his appointment that total inflows after the vote had touched 2 billion euros ($2.5 billion). That is still well below the sum that Greeks withdrew in the days leading up to the election, when up to 800 million euros was flying out daily from major Greek lenders, according to bankers. "It is mostly money stashed at home that is returning. We are seeing about 10 million euros a day, down from about 15 to 20 million previously," said a banker at small Greek lender, who asked not to be named. Much of the withdrawals had been stashed away at home or in safe deposit boxes, out of fear that victory for the radical leftist Syriza bloc committed to tearing up the terms of Greece's international bailout could send the country back to the drachma currency. A second banker at a large Greek bank said: "The numbers are not huge but there is a daily return. We are seeing about 20 million euros brought back daily." Between the onset of the debt crisis in late 2009 and April 2012, Greek banks had lost around 30 percent of their deposit base, or 72 billion euros. Outflows have picked up at times of acute political instability. NO BIG REVERSAL The pool of household and business bank deposits shrank from 238 billion euros in December 2009 to 166 billion in April, based on Greek central bank data. Though small savers may be slowly bringing back their cash, the private banking sector has not seen a big reversal of outflows. "We have not seen any serious return of private banking money that was sent abroad," said one private banker at a mid-sized bank, while another private banker at a small bank said: "We had some clients return funds, transactions of 700 to 800,000 euros, but this will take time". Deposit outflows and the so-called cash burn as Greeks tap savings to pay bills, has forced banks - without access to interbank funding - to derive liquidity from the European Central Bank and the Bank of Greece. ECB funding for Greek banks dropped to 62 billion euros in April from 78.9 billion in March, while borrowing from the national central bank's emergency liquidity assistance (ELA) facility reached 59 billion euros. The radical leftist Syriza came a strong second in the June 17 vote but the government was formed last week by the first-placed New Democracy party in a coalition with the Socialist PASOK and small Democratic Left. Responding to intense public pressure, Prime Minister Antonis Samaras has said he wants to renegotiate the punishing bailout conditions, but not at the risk of leaving the euro. (Editing by David Holmes )

Cyprus EU bailout bid accepted, IMF involved

Wed Jun 27, 2012 3:09pm EDT

http://www.reuters.com/article/2012/06/27/us-cyprus-bailout-idUSBRE85Q1HO20120627

NICOSIA - Cyprus won support from its euro zone partners on Wednesday for emergency funding to prop up its banks, crippled by their Greek debt holdings, in assistance which will probably include aid from the IMF.

The Mediterranean island, whose economy accounts for just 0.2 percent of the euro zone, is the fifth country to be forced to seek protection from the crisis enveloping the bloc. Heavily exposed to debt-laden Greece, Cyprus's banks nudged the island into seeking emergency aid from its EU partners on Monday, after being shut out of international debt markets for over a year. "We have suffered a huge loss which led to this economic predicament," Cypriot Finance Minister Vassos Shiarly told reporters. "It is an unfortunate chapter in the economic history of Cyprus but we will overcome it." It is unclear how much aid Cyprus may require, but two euro zone officials put the potential bailout bill as high as 10 billion euros ($12.5 billion) -- more than half of Cyprus's gross domestic product of 17.3 billion euros. Cypriot officials have declined to specify how much the island may need. ECB Executive Board member Joerg Asmussen told Reuters on Wednesday that the "Troika" of lenders, which includes the International Monetary Fund, would probably start work on its mission to Cyprus in situ next Monday, July 2. "In my view it should be a wide-reaching program," he said. "Structural questions should be part of the EFSF/IMF program," he added, referring to the European Financial Stability Facility bailout fund. TROIKA GETS TO WORK The European Commission, the European Central Bank and the International Monetary Fund would look at the banking sector 'taking into account the need for support was primarily due to the need to recapitalize the banks', minister Shiarly said. "If those needs affect the fiscal requirements they will process anything else related to that," he said. Euro zone finance ministers, which approved Cyprus's request for assistance along with that of Spain on Wednesday, said in a statement that any support would come with a program of 'determined action' to ensure fiscal adjustment and structural reforms. A May 30 report from the European Commission had urged Cyprus to do more to address deteriorating public finances. Cyprus says it is already taking steps in that regard; its budget deficit this year is expected to fall to 2.5 percent from 6.3 percent in 2011, and it has submitted legislation to parliament for a balanced budget from 2014. "We stand ready to join the efforts of our European partners to help Cyprus return to stable and sustainable economic growth and restore a solid financial sector," IMF Managing Director Christine Lagarde said. TUMBLE FROM GRACE Cyprus's exposure to Greece is disproportionately large compared to its economy. After taking the hit from Athens' official debt write down, it is also carrying the risks of some 23 billion euros in private-sector Greek debt. Once a darling of credit ratings agencies but still a magnet for Russian offshore money, it has tumbled rapidly from grace. It was shut out of international financial markets last year when its borrowing costs became prohibitive, forcing it to secure a 2.5 billion euros bilateral loan from Russia because it was worried at the strings attached to aid from its EU partners. It was also hit by its worst peace-time disaster when a cargo of decaying munitions accidentally exploded, destroying its largest power station which impacted economic output. The longer term outlook is slightly better. It discovered huge natural gas deposits offshore in 2011, but these are unlikely to come on stream for several years. And the cost of supporting its banks jumped unexpectedly on Wednesday after its largest lender said it too needed state support to meet a regulatory shortfall in capital by June 30. In addition to 1.8 billion euros to help recapitalize Popular Bank, its second-largest lender, Bank of Cyprus, said it would need "temporary capital support" of about 500 million euros - effectively jacking up the nation's exposure to its banks to 2.3 billion euros. ($1 = 0.8028 euros) (Reporting by Michele Kambas, additional reporting by Eero Vassinen; Editing by Ruth Pitchford)

World Bank sees steep growth slowdown in east EU

Wed Jun 27, 2012 6:29am EDT

http://www.reuters.com/article/2012/06/27/us-easteurope-worldbank-idUSBRE85Q0C120120627

PRAGUE - The impact of the euro zone debt crisis and the global economic slowdown will cut growth in half in the European Union's developing east, but the region's economies will accelerate again in 2013, the World Bank said on Wednesday.

The global development bank saw Poland leading growth among the EU's 10 former communist states and member-in-waiting Croatia, with a 2.9 percent expansion in 2013. Baltic states Latvia and Lithuania, which are recovering from huge economic downturns that have wiped more than a fifth off of their economies since 2008, will follow with growth of 2.3 percent apiece. Most of the other countries in the region were seen growing or stagnant, with the exception of Hungary, Slovenia, and Croatia, which were expected to contract by 0.4 to 1.2 percent, the World Bank said in a report. It cited a worse-than-expected slowdown in western Europe, and the short-lived nature of economic policy interventions in late 2011 and early this year that had failed to calm financial markets and weak confidence among consumers and investors. "In this volatile environment, economic growth in EU11 countries is set to decrease from 2011 levels to 1.5 percent in 2012, with all EU11 countries growing slower than a year before and three countries slipping into recession," the World Bank said in a regular economic report. "However, given the heightened uncertainty, even this projected modest growth assumes that policies will be adopted in the Euro area to successfully avoid a serious deterioration in international financial market conditions." The bank urged central banks to maintain accommodative economic policy and for authorities to shore up confidence of financial markets. It also cautioned governments who have engaged in fiscal consolidation to ensure their efforts did not smother recovery. "In designing the composition of fiscal consolidation, governments should take into account the fragility of the economic outlook and try to limit the negative impact of fiscal consolidation on growth," it said. The bank saw all the new EU members returning to positive growth in 2013, with the entire region growing 2.5 percent, versus 1.2 percent for the EU's original 15 western members. (Reporting by Michael Winfrey ; Editing by Catherine Evans )

SEC charges Falcone, Harbinger with fraud

Wed Jun 27, 2012 4:47pm EDT

http://www.reuters.com/article/2012/06/27/us-sec-falcone-idUSBRE85Q1FI20120627

BOSTON/WASHINGTON - The bad news keeps coming for Philip Falcone, once one of the hedge fund industry's most successful fund managers.

The U.S. Securities and Exchange Commission filed a lawsuit in federal court on Wednesday charging Falcone with market manipulation, giving preferential treatment to several big investors who wanted to get their money out and borrowing cash from his hedge fund to pay personal expenses. The filing of the charges comes roughly two months after LightSquared, a wireless telecommunications upstart backed by Falcone's Harbinger Capital Partners filed for bankruptcy. The one-two punch of the LightSquared bankruptcy and the SEC civil charges raise serious questions about Falcone's future in the $2 trillion hedge fund industry. Much of the $3 billion in money managed by his Harbinger fund is tied to LightSquared. While Falcone and his lawyers say he will fight the charges, the suit raises questions about how he can still manage money. "It is clearly a challenge to spend your time defending charges on the one hand and managing a fund on the other. It is like having two full-time jobs, at the same time," said Richard Heller, a partner at law firm Thompson Hine. The SEC charges were not a surprise. The manager told his investors late last year that regulators might be preparing a case against him and the SEC filed its case after months of settlement talks proved fruitless. Regulators were seeking to bar Falcone, 49, from operating as an officer of a public company. Falcone, once oversaw $26 billion and ranked among the world's most successful hedge fund managers. But his fortunes faltered earlier this year after a critical waiver LightSquared needed to operate its wireless network was thrown into jeopardy. The SEC case against him underscores how U.S. financial regulators have been working relentlessly to root out improper trading in the $2 trillion hedge fund industry at a time when many public pension funds are relying on these funds to boost the retirement savings of average Americans. Among the charges are that Falcone and others manipulated the markets with a series of distressed high-yield bonds between 2006 and 2008. Regulators also charged that Falcone treated his investors unfairly during the height of the financial crisis, when many of the fund's assets were tied up in the collapse of Lehman Brothers. He allegedly let out two big clients, even though he told others on Christmas Eve in 2008 that they would not be allowed to get their money back for quite some time. And to top things off, the government said Falcone illegally gave himself a $113 million loan from the fund to pay for his personal taxes, something that made investors especially angry because they could not access their own money. But Falcone contends that lawyers signed off on his loan, which sources close to Falcone said he has repaid. Separately, the Securities and Exchange Commission also charged Peter Jenson, Harbinger's former chief operating officer, with aiding and abetting the misappropriations scheme. In addition to those charges, Harbinger also settled a separate SEC action alleging unlawful trading by agreeing to pay a $428,975 fine, plus $857,950 in disgorgement and $91,838 in prejudgment interest. A spokesman for Harbert Management, which had a big stake in Falcone, was not immediately available for comment. (Additional reporting by Katya Wachtel ; editing by Matthew Goldstein , Gerald E. McCormick and Andre Grenon )

Pending home sales match two-year high

Wed Jun 27, 2012 10:15am EDT

http://www.reuters.com/article/2012/06/27/us-usa-economy-homes-idUSBRE85Q0VX20120627

WASHINGTON - Contracts to purchase previously owned U.S. homes matched a two-year high in May, fueling optimism the housing market is poised for a recovery.

The National Association of Realtors said on Wednesday its Pending Home Sales Index, based on contracts signed last month, rose 5.9 percent to 101.1. The index level matched the two-year high reached in March, while the gain was the largest since October 2011. Before March, the last time pending home sales were as high was April 2010 when buyers were rushing to beat the deadline for a home-buyer tax credit, which was about to expire, the NAR said. "The housing market is clearly superior this year compared with the past four years," Lawrence Yun, NAR chief economist said in a statement. "We're on track to see a 9 to 10 percent improvement in total sales for 2012." Economists polled by Reuters had expected signed contracts, which lead home sales by a month or two, to rise 1.0 percent after a previously reported 5.5 percent drop in April. (Reporting By Margaret Chadbourn ; Editing by Neil Stempleman )

Instant View: Durable goods orders rebound in May

Wed Jun 27, 2012 8:54am EDT

http://www.reuters.com/article/2012/06/27/us-usa-economy-durablegoods-idUSBRE85Q0QI20120627

NEW YORK - Demand for long-lasting U.S. manufactured goods rebounded more than expected in May and a gauge of business spending plans increased, but slowing global growth suggest the momentum might not be sustained.

COMMENTS: BORIS SCHLOSSBERG, MANAGING DIRECTOR, BK ASSET MANAGEMENT, NEW YORK "The problem with durable goods is that it was just not strong enough to really give a push to risk as the core number was just a little lower than expected. But still, it may be supportive of equities early in the morning and to that extent that should be supportive of the euro, aussie and all the risk currencies." ANDREW GRANTHAM, ECONOMIST, CIBC WORLD MARKETS, TORONTO "Overall, today's figures are not far enough from consensus expectations to see a large market reaction, or to alter the view that durable goods orders have been pretty much flat since the start of the year." BRICKLIN DWYER, ECONOMIST, BNP PARIBAS, NEW YORK "What is surprising is the rise in non-defense aircraft orders. It's not consistent with the Boeing orders we have been seeing. But core durable goods are running quite weak." DAVID CARTER, CHIEF INVESTMENT OFFICER AT LENOX WEALTH ADVISORS IN NEW YORK "It was better than expected, which is surprising to see since recent economic reports have been less positive. I'm still concerned we'll see a third summer of an economic deceleration. While this is an important number, news out of Europe is still dominating equity markets." MARKET REACTION STOCKS: U.S. stock index futures add slight gains. BONDS: U.S. Treasury debt prices extended losses slightly. FOREX: The dollar held onto gains against the euro and yen.

U.S. durable goods orders up but trend, outlook weak

Wed Jun 27, 2012 4:59pm EDT

http://www.reuters.com/article/2012/06/27/us-usa-economy-durables-idUSBRE85Q0PR20120627

WASHINGTON - Demand for long-lasting U.S. manufactured goods rebounded more than expected in May and a gauge of planned business spending increased, but a cooling global economy suggests the momentum might not be sustained.

Durable goods orders rose 1.1 percent last month on strong demand for transportation equipment, the Commerce Department said on Wednesday. Economists had expected orders to rise just 0.4 percent. Still, the report showed underlying softness and analysts said the outlook does not look much better. "With global and domestic demand continuing to weaken, we believe that this relatively brisk pace of new orders activity is unlikely to be sustained," said Millan Mulraine, senior macro strategist at TD Securities in New York. A slowdown in China and a looming recession in the euro zone have taken some of the shine off the U.S. manufacturing sector, leaving the economy stuck in a soft patch. Excluding transportation and defense, durable goods orders were down in May. However, a budding recovery in the housing market should provide a buffer for the economy. The National Association of Realtors said signed contracts for home purchases increased 5.9 percent in May, the most since October. Investors took some encouragement from the housing data and bought U.S. stocks. Lingering pessimism over Europe lifted the dollar against the euro for a third straight day, but U.S. Treasury debt prices were little changed after an auction of five-year notes was met with tepid demand. UNCERTAIN OUTLOOK Demand for durable goods - items from toasters to aircraft that are meant to last at least three years - tends to be volatile. But a rolling three-month average showed a softening trend and orders in May remained below their December level. Last month, however, represented a relative bright spot. Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased 1.6 percent in May after dropping 1.4 percent in April. The gain snapped two straight months of declines. Shipments of non-defense capital goods orders excluding aircraft, used to calculate equipment and software spending for the government's measure of gross domestic product, rose 0.4 percent in May after declining 1.5 percent in April. Regional surveys of factory activity have suggested a weakening in orders this month, a trend that is likely to be highlighted in a report on national manufacturing next week. An early manufacturing gauge last week showed activity in June at its slowest pace in 11 months. "The underlying trends in orders and shipments of investment goods not only remain weak but point to further deceleration from the already subdued levels," said Harm Bandholz, chief economist at UniCredit Research in New York. Economists said businesses appeared reluctant to invest, given an uncertain global economic outlook. Europe is struggling with a debt crisis and the United States faces the prospect of a sharp budgetary tightening at the start of next year. While the U.S. economy is slowing, the housing market is proving to be a bright spot. The rise in pending home sales in May took them back to a level that matched March as the highest since April 2010, when buyers were rushing to take advantage of an expiring tax credit. Other data this week showed new home sales at a two-year high in May and house prices rising in April for a third straight month. The improving tone was captured in homebuilder Lennar Corp's quarterly orders, which soared 40 percent. America's third-largest homebuilder was also able to demand higher prices. (Reporting by Lucia Mutikani; Editing by Chizu Nomiyama )

BMW in talks to build cars at Mitsubishi's NedCar

Wed Jun 27, 2012 1:07pm EDT

http://www.reuters.com/article/2012/06/27/us-bmw-mitsubishi-nedcar-idUSBRE85Q1A220120627

MUNICH/FRANKFURT - German premium carmaker BMW ( BMWG.DE ) is considering building vehicles at the endangered Born plant in the Netherlands that belongs to Japan's Mitsubishi Motors ( 7211.T ), a spokesman for BMW said on Wednesday.

"We're in talks with NedCar over a third party manufacturing contract," he said. NedCar could not be reached for a comment. Early in February, parent Mitsubishi decided not to allocate any further new models to NedCar for production for next year after announcing in December 2010 that it would cease building the Mitsubishi Colt and Outlander at the end of this year. Should an agreement with BMW fail to be reached, it would likely spell the end for the Born plant, making it the fourth major factory to be closed in recent years. Previously GM's ( GM.N ) site in Antwerp, Saab's plant in Trollhattan, and Fiat's ( FIA.MI ) Termini plant in Sicily have been shut down or sold off. (Reporting by Irene Preisinger and Christiaan Hetzner )

JPMorgan Chase puts new payment devices in stores

Wed Jun 27, 2012 8:03am EDT

http://www.reuters.com/article/2012/06/27/us-jpmorgan-cards-digital-payments-idUSBRE85Q0NV20120627

NEW YORK - JPMorgan Chase & Co said on Wednesday it has begun equipping merchants with devices that accept payments from mobile phone signals and cards embedded with computer chips as well as traditional magnetic strips.

Chase is trying to protect a key part of its credit card business and speed up use in the United States of mobile phone payments and cards with chips that are in widespread use in Europe and more secure than cards with magnetic strips. JPMorgan Chase ranked fourth in card processing for U.S. merchants in 2011, with 11.6 percent of the market. It handled 8.2 billion transactions at 307,000 stores, according to the Nilson Report. Chase has a business processing transactions as well as a unit issuing cards. No more than 5 percent of point-of-sale card readers in the U.S. work with embedded chips to standards known as EMV, according to David Robertson, publisher of the Nilson Report. Visa Inc and MasterCard Inc are pushing merchants and processing banks to take EMV cards in the United States to thwart counterfeiting and make it easier for international visitors carrying the cards. Outside of the U.S., more than 75 percent of card readers take EMV cards, according to MasterCard. The new terminals from JPMorgan Chase are being marketed to merchants under the name "Future Proof" to signal their ability to be adapted to advances in payment technology, such as so-called "open wallets" in mobile phones and systems delivering price discounts to spur sales. The terminals will allow customers to make small purchases without standing in long lines to write their signatures. Established card companies are trying to keep from losing business to innovators in digital payments that could cut into revenue they get from merchant customers. "We, and our customers, are not going to be put in the position of playing catch-up," said Bob Nadeau, group executive for product development at JPMorgan Chase Paymentech processing unit. Paymentech last year earned a 47 percent return on equity for JPMorgan, which is three times the goal for the entire company. Processing by the bank for merchants rose 22 percent to $152.8 billion in the first quarter of 2012 from a year earlier. The bank, the biggest in the U.S. and one of the most profitable, has been investing to provide services for fees at a time when demand for loans is weak and interest rates are low. (Reporting by David Henry in New York; editing by Jeffrey Benkoe)

Porsche plaintiffs suffer setback to $5 billion claims

Wed Jun 27, 2012 11:20am EDT

http://www.reuters.com/article/2012/06/27/us-porsche-damages-suits-idUSBRE85Q0ZN20120627

BERLIN - Investors suing Porsche SE over its botched 2008 takeover of Volkswagen suffered a setback to claims for more than 4 billion euros ($4.99 billion) of damages as German court hearings on Wednesday exposed initial cases as sketchy.

Swiss investment company My Capital-MC and a German private investor, seeking compensation for 4.7 million euros of losses from short-selling VW shares in a bet that the price would fall, have yet to convince German judges of Porsche's wrongdoings. "There are high hurdles" to prove that the sports car manufacturer violated legal standards defined by Germany's top civil court, said judge Stefan Puhle after three hours of hearings at the regional court in Brunswick, northern Germany. "This is a tough act to prove," Puhle added, pointing out that one of the two claimants even failed to adequately explain the level of damages claims. Investors say that throughout 2008 Porsche concealed its plans to acquire VW and instead secretly piled up its holding. In March 2008, Porsche dismissed rumors that it was pursuing a takeover of the much-bigger VW. Seven months later, however, it disclosed that it held almost 75 percent of VW shares, of which 31.5 percent were previously undisclosed cash-settled options. The Brunswick court has scheduled a ruling on both cases for September 19. Hearings on three other lawsuits, including a case brought by Elliott Associates and other U.S. investment funds for 2 billion euros in damages, have yet to be scheduled. "At the moment, the court does not yet follow our reasoning," said Franz Braun, who represents plaintiffs in three of the five lawsuits. Porsche's statement of October 26, 2008, caused VW shares to surge to 1,005 euros within days, briefly making the Wolfsburg-based carmaker the world's most valuable company as short-sellers raced to cover positions. Porsche SE, the publicly traded holding company that owns stakes of just over 50 percent in the German sports car maker and in VW, has repeatedly denied the allegations. "We're satisfied with the negotiations," Porsche spokesman Wolfgang Glabus told reporters in Brunswick. "Today was a step in the right direction." Europe's biggest auto manufacturer and Porsche have been working for almost three years to combine their operations after VW turned the tables in the tug-of-war and bought 49.9 percent of Porsche in December 2009. The risks related to the pending lawsuits caused VW to drop initial plans for a merger with Porsche's holding company. VW is now aiming to buy the remainder of Porsche's car-making operations with minimum taxation costs. The hearings in Germany coincide with ongoing legal proceedings in the United States. In December 2010 a New York court dismissed a $2.5 billion lawsuit by short-sellers claiming that Porsche used manipulative trades to hide its stock positions. Most of the plaintiffs lodged an appeal, while other cases are pending at a separate New York court. (Reporting By Andreas Cremer; Editing by David Goodman)

Barclays Libor fix trail leads to senior managers

Wed Jun 27, 2012 6:13pm EDT

http://www.reuters.com/article/2012/06/27/us-barclays-libor-management-idUSBRE85Q1PQ20120627

LONDON - Senior Barclays managers were worried over negative headlines during the financial crisis and contributed to a culture that fixed key funding rates artificially low, U.S. and UK regulators said in reaching a settlement with the bank.

The findings based on internal emails and other communications raise questions about how high up the Barclays management chain came instructions to submit lower rates, and who knew about the rate rigging. Without naming individuals, the regulators' reports refer to pressure and directives from "senior management" at the firm. Barclays was fined $453 million on Wednesday for manipulating interbank lending rates over several years. These are known as Libor and Euribor, underpinning trillions of dollars of derivatives deals plus corporate and personal borrowing rates. The U.S. Commodity Futures Trading Commission, the U.S. Department of Justice and the UK's Financial Services Authority settled with Barclays on a civil basis, while Canadian authorities said they still had an open investigation. The Justice Department said it still had a criminal investigation in progress. Barclays Chief Executive Bob Diamond, the investment bank unit's boss at the time of the rate fixings, and three of his key lieutenants, said they were giving up their 2012 bonuses in response. Investigators faulted individual derivatives traders for fixing rate submissions for their own profit, while Barclays was slammed for regularly reporting lower borrowing rates than it was actually paying throughout the financial crisis. Staff responsible for submitting rates in some instances told colleagues of "internal political" pressure to set these low, the FSA's report shows. Barclays "senior management at high levels" became concerned over the media scrutinizing the bank's funding access early in the financial crisis, in August 2007. "Senior management's concerns in turn resulted in instructions being given by less senior managers at Barclays to reduce Libor submissions in order to avoid negative media comment," the UK's FSA said in its report. "The origin of these instructions is unclear." The U.S. CFTC said specific instructions to lower submissions came from "senior Barclays Treasury managers". They asked submitters to provide rates at a level where Barclays wouldn't be "sticking its head above the parapet". Barclays' submissions to Libor - a rate compiled daily through a panel of banks quoting the rate at which they estimate they can borrow from one another, in various currencies - were higher than many competitors, attracting attention. It was this scrutiny, at a time when negative headlines could be incredibly damaging - by September 2007, British savings bank Northern Rock had to be bailed out - that made the bank change its approach to Libor submissions, the regulators said. CONCERNS RELAYED "UPSTAIRS' The submission process and the artificial rates were discussed in several conference calls and in emails among Barclays staff, including with senior managers. The regulators' reports do not show any evidence of specific instructions being relayed to and from the top ranks of the bank, which would have included finance director Chris Lucas or then CEO John Varley. But there are various references to management above senior treasury functions. In one phone discussion with senior treasury managers from November 2007, a supervisor of the dollar Libor rate submitters raised concerns that submitting Barclays' truer borrowing rate would "cause a shit storm," the two regulators said. He then asked that the issue be taken "upstairs", to be discussed among higher level managers, the CFTC's report says. A day later, a senior treasury manager reported back his understanding that "senior management" had discussed the issue, and gave submitters guidance to "stick within the bounds so no head above parapet," the CFTC report added. Barclays did flag concerns that the Libor rate as a whole was flawed to the rate compiler the British Bankers' Association, and to the FSA and other authorities. But the bank did not tell the FSA it was making submissions influenced by press perceptions, and for many months no changes to the internal submission process were made. The regulators' reports also lay bare how concerns were not always systematically followed up between compliance units, submitters and senior management, sometimes allowing confusion to reign. At one stage in late 2008, the FSA's report shows rate submitters thought they were operating under instructions from the Bank of England to lower submissions, after a phone conversation between a "senior individual at Barclays" and the BoE was relayed down the chain of command and miscommunicated. Though the error was brought up internally, compliance never followed up and spoke with submitters to make sure they were not following this instruction, the FSA said. (Reporting by Sarah White; Editing by Tim Dobbyn )

EU leaders need to look at short-term rescue steps: EU's Rehn

Wed Jun 27, 2012 11:18am EDT

http://www.reuters.com/article/2012/06/27/us-eu-rehn-spain-idUSBRE85Q11920120627

BRUSSELS - European leaders must work on short-term measures to help resolve the region's sovereign debt crisis and relieve market pressure on at-risk countries, the European commissioner for economic and monetary affairs said on Wednesday.

"It is essential that policy measures of short-term are decided by the European Council," Olli Rehn told reporters, referring to the leaders' summit on Thursday and Friday. "We continue to work to facilitate decisions on such measures for short-term market stabilization. "That's the only thing I can say for the moment because we are working with member states in order to have decisions at the European Council," he said. Rehn said direct recapitalization for euro zone banks would be more possible once pan-European banking supervision was in place, something that remains some way off. "Direct bank recapitalization was discussed in the context of the ESM treaty about a year ago," he said, referring to the euro zone's permanent bailout mechanism. "It is no secret that the European Commission has been supportive of direct bank recapitalization on the condition that we have a stronger and genuinely Europe-wide banking regulation and regulatory authority, which is one element of the forthcoming banking union." Asked whether Spain could receive aid directly for its banks, rather than via the government, a move that will drive up Spain's budget deficit and debt, Rehn replied: "We have to work on the basis of existing instruments in order to prepare the sectoral program for the recapitalization of Spanish banks soon. In that context we will make decision on the basis of the existing treaty." (Reporting by Jan Strupczewski ; Writing by Luke Baker )

U.S. recovery varies greatly by state, county, city

Wed Jun 27, 2012 5:32pm EDT

http://www.reuters.com/article/2012/06/27/us-usa-states-economy-idUSBRE85Q1NT20120627

- In a twist on the old aphorism about real estate, the three most important factors for the current U.S. economic recovery seem to be location, location, location.

Growth right now is "extremely concentrated" in a few states, said Chris Mauro head of U.S. Municipal Research Strategy at RBC Capital Markets, adding that there has been "a general stagnation, with the exception of some of the resource-rich states." Three reports released on Wednesday show wide variations in the rebound from the 2007-09 economic recession, both at the state and local levels. Unlike past downturns, the recession spared only a few states, largely because it hit nearly every economic sector and the states' economies are interconnected, said Arturo Perez at the National Conference of State Legislatures. "When things started going south, no state was able to ward off the bad stuff that was happening," he said. But the states did not enter recession at the same time and some suffered less than others. "They're not in lockstep going into a recession. They're not going to be in lockstep coming out," he said, pointing to Kansas, which did not have the same run-up in housing prices - and therefore not as steep a drop - as Nevada. Now, energy-rich states are sprinting toward prosperity, helped by a surge in natural gas, while others are closer to shuffling back to stability. That is creating disparities on the personal level and the political one - some states are considering cutting taxes while others are having to close budget gaps. In the first quarter of 2012, personal income rose in 47 of the 50 states, according to a Commerce Department report released on Wednesday that found state personal income growth was 0.8 percent in the first quarter, compared with 0.4 percent in the fourth quarter of 2011. Personal income declined 0.3 percent in Mississippi and 0.1 percent in Kansas and was unchanged in Oklahoma in the first three months of 2012. On the other end of the spectrum, income grew the most in commodity-abundant North Dakota, 2.3 percent from the quarter before. Total earnings grew 0.81 percent in the first quarter, according to the report. They ranged from dropping 0.34 percent in Oklahoma to rising 1.12 percent in Washington. Earlier this month, the US. Census reported that economic growth was scattered across the states in 2011. A boom in mining helped North Dakota's economy grow 7.6 percent, while in six states the economies shrank. PATCHINESS AT LOCAL LEVEL Cities and counties also did not enter recession in a uniform way. Some were immediately affected by the housing crisis, while others did not see the downturn until there were massive problems on the national level, said Jackie Byers, a researcher at the National Association of Counties. In its quarterly review of metropolitan economies released on Wednesday, the Brookings Institution described the wide variations in recovery as "significant patchiness." Brookings found that from January to March, employment growth accelerated across most of the nation's 100 largest metro areas, while output growth weakened. Unemployment rates fell in more than half of all metropolitan areas, but remained above 6 percent in almost all of them. Housing prices hit new lows in 73 of the 100 largest metropolitan areas, which typically include a major city and its surrounding suburbs, after showing signs of growth in previous quarters, Brookings found. "Until there's a recovery across all sectors you won't see a smoothing out in the economy," said Alec Friedhoff, a research analyst for the group's Metropolitan Policy Program. Brookings found that, yet again, cities in Texas are having the fastest recoveries, largely because they experienced mild recessions and are now benefiting from a boom in natural gas. Cities in California's Central Valley, such as financially tottering Stockton and other western metropolitan areas such as Colorado Springs, Las Vegas and Tucson continue to lag. U.S. Labor Department data also released on Wednesday showed the patchiness likely persisted past March. In May, employment increased in 266 metropolitan areas from a year before, decreased in 101 areas and had no change in five areas. The jobless rate was at least 10 percent in 45 areas, but was lower than 7 percent in 140. (Additional reporting by Hilary Russ in New York; editing by Andre Grenon )

Conoco fights MF Global trustee over $93.5 million

Wed Jun 27, 2012 6:06pm EDT

http://www.reuters.com/article/2012/06/27/us-mfglobal-trustee-conoco-idUSBRE85Q1P720120627

CHICAGO - ConocoPhillips ( COP.N ) and MF Global Inc's bankruptcy trustee are squaring off in a $93.5 million dispute that illustrates how hard it is to divvy up the assets of the failed brokerage, a Reuters analysis of a court filing shows.

On Friday last week, the oil company -- a longstanding MF Global MFGLQ.PK customer -- filed an objection to the trustee's treatment of its claim, calling his approach "flawed" and saying Conoco had not received the bulk of the distributions from its MF Global accounts to which it was entitled. The filing does not say how much Conoco ( COP.N ) believes it is still owed. A Reuters analysis based on figures included in the court filing, the trustee's determination of Conoco's claim, and the amounts the trustee has returned to most other customers shows the figure is around $35 million. The same analysis shows bankruptcy trustee James Giddens believes he has overpaid Conoco by about $58 million. The difference lies in the way Conoco and Giddens view $205 million in letters of credit that Conoco and its Canadian unit had lodged with MF Global to back energy trades. Giddens has returned the letters to Conoco, counting their full face value toward fulfillment of Conoco's claim, but did not return any of the other collateral -- amounting to about $92 million -- in the accounts whose treatment Conoco is disputing. In Friday's objection, Conoco called such an approach a "miscalculation". It argued that the trustee should have distributed payments based on the amount in the accounts above and beyond the face value of the letters of credit. There is no indication in the filing that the trustee has sought the return of funds from Conoco. But an agreement covering part of the disputed claim, included as an exhibit to the filing, spells out the trustee's view that Conoco has received more than its fair share so far. A Conoco spokesman declined to comment, citing ongoing litigation. A spokesman for Giddens declined to comment on the $93.5 million difference of opinion, but said the trustee would respond to Conoco's objection by the August deadline. "This effort is just one more example of how the trustee is working to expand the estates available for all customers in a fair and equitable manner," said Kent Jarrell, Giddens' spokesman. MF Global filed for bankruptcy on October 31, after investors and customers became rattled over the firm's roughly $7 billion bet on European sovereign debt and downgrades by credit rating agencies, resulting in a liquidity crunch. Before its collapse, MF Global had improperly dipped into client funds for its own purposes, leaving customer accounts with a $1.6 billion shortfall, Giddens has said. Most customers have received, or are soon to receive, distributions totaling 80 percent of their funds. Those who traded on foreign exchanges are set to receive the first 5 percent of their money back in coming weeks. The trustee should have applied those percentages only to the amounts in Conoco's accounts, excluding letters of credit, Conoco argued. The trustee never had any right to draw on the letters of credit, Conoco argued in its objection, and therefore should not have included them when calculating the payments to Conoco. That reasoning suggests the trustee should have distributed about $32.6 million to Conoco from accounts for U.S. exchange trading, and about $2.5 million for accounts using non-U.S. exchanges. Conoco, among MF Global's largest ex-clients, is one of five former MF Global customers disputing the treatment of letters of credit held by MF Global, Giddens' spokesman said, adding that the trustee is negotiating with all parties in an effort to find a resolution. The more success the trustee has in recovering the $1.6 billion in missing customer funds, the less the dispute with Conoco and other former customers matters. That is because with more assets available, the trustee will distribute more to all customers, including those with which he has disputes. But the trustee's efforts to recover funds look likely to take years. Giddens is suing MF Global's British unit for the return of about $640 million in a case not set for trial until next April. Meanwhile, at least one former MF Global customer with a letter of credit has agreed to Giddens' treatment of such letters: CME Group ( CME.O ), whose GFX unit had a $15 million letter of credit at MF Global when the brokerage collapsed. As in Conoco's case, CME's letter of credit was never drawn, and the trustee simply returned it to the account holder. In return, CME paid the trustee $3 million, bringing the distribution from its account in line with the 80 percent that other account holders have, or will soon have, received. (Editing by Alden Bentley and Dale Hudson )

American Airlines, pilots reach tentative contract

Wed Jun 27, 2012 6:52pm EDT

http://www.reuters.com/article/2012/06/27/us-american-pilots-idUSBRE85Q1QY20120627

- Pilot union leaders at American Airlines reached a tentative agreement with management on Wednesday on a steep cost-cutting contract aimed at heading off a threat by the carrier to abandon the current deal in bankruptcy and impose stricter terms.

The Allied Pilots Association board voted 9 to 7 to send the last and best offer to its membership for consideration, the union and the company said. A vote by members is expected in coming weeks, prompting the judge overseeing American's case in New York to postpone a ruling that had been scheduled for Friday on whether to allow the airline to abrogate the pilots' contract, the airline said. The deal was revisited over the past several days after union board members rejected a previous proposal from American's parent, AMR Corp ( AAMRQ.PK ). Details of the tentative deal were not released. Proposed terms released over the past few days included $315 million in annual cost savings, no layoffs, a gradual pay raise, and an offer to freeze the union's pension plan, rather than terminating it to save money. (Reporting by Nick Brown and John Crawley ; Editing by Gary Hill )

Analysis: Maybe the biggest risk is it's all OK

Wed Jun 27, 2012 4:26am EDT

http://www.reuters.com/article/2012/06/27/us-investment-risks-idUSBRE85Q0BQ20120627

LONDON - Perhaps the biggest investor shock of the second half of 2012 would be if everything turns out OK and the world doesn't fall apart at the seams.

As stock and bond markets hit the half-way point in yet another year of bank stress, euro crisis and disappointing global growth, early-year optimism has dissipated just as it did last year and the year before that. But this year the gloom is already pervasive. Europe's inability to draw a line under the euro bloc's debt crisis has been the chief frustration but there's also a weary suspicion the already five-year-old credit crisis may have ushered in a western economic funk that could last a decade. Global growth and earnings forecasts have been slashed again; euro breakup scenarios are now commonplace in investment thinking, if not positioning; hard-landing fears for the giant emerging economies of China and India are rife and nerves abound about the impact of built-in U.S. budget tightening next year. Few could accuse strategists and fund managers of being over-optimistic. Punch-drunk from a credit crunch most didn't foresee, investors have now become obsessed with hedging against negative "tail risks" - or events of statistically low probability, but high impact. But is the relentless pessimism already reflected in markets and are investor positions overly skewed to now negative real returns of cash and top-rated government debt? "Bear in mind that tail risk is a two-way concept and we focus only on the negative at our peril," said JP Morgan Asset Management strategist David Shairp, flagging an increase in equity exposure relative to bonds in JPMAM's multi-asset funds and a shift to overweight European equity from underweight. The twists and turns of the euro crisis and fiscal debate surrounding the U.S. presidential election may be difficult to second guess. But, assuming worst-case scenarios are avoided, Shairp said there are other potential positives on the horizon. One was declining, but still positive inflation rates worldwide as a commodity price retreat and a 20 percent year-on-year drop in crude oil prices feeds in. Assuming this disinflation allows further monetary easing by central banks while putting more spending power in consumer pockets, the outcome could prove surprising for an unsuspecting market. "At a time when investors are nervous and running low levels of risk exposure to the asset class, any positive catalysts could prompt a shift back into equities," Shairp said. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Econ surprise vs equity premium: link.reuters.com/fuw47s Reuters May asset poll: link.reuters.com/tej58s Asset markets in 2012 so far: link.reuters.com/muc46s ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ POSITIVE SURPRISE? So how skewed is market positioning? Equity prices tell a story of stasis. When you strip away the euphoric leaps and gut-wrenching lurches, the MSCI all-country index of global stocks .MIWD00000PUS is back where it started 2012. And that's also where it started 2010. The fear factor and tail-risk hedging, however, is more obvious in bonds. At paltry, sub-inflation rates of between 1.5 and 1.7 percent, U.S., German and British 10-year government borrowing costs have fallen yet further this year and have now more than halved since early 2010. Repeated central bank bond buying, regulatory pressure on commercial banks to buy more domestic government bonds and the "de-risking" of pension funds are all big factors depressing yields. But investor shifts are more widespread. Cash positions in global investment portfolios have surged again to more than 7 percent and are already back to levels not seen since the aftermath of the Lehman Brothers collapse, according to Reuters May poll of asset managers. And the retreat from stocks has been steep, with aggregate holdings of equity in global portfolios falling below 50 percent in May to lows not seen since the bleak post-Lehman recession. But the bit that gets many fund managers is what this does to relative valuations, particularly in Europe as the euro crisis drives outside investors away and depresses the regional economic outlook. The implied future returns on equities over top-rated government bonds, the so-called equity risk premium, remains way above historical averages. What's more, ThomsonReuters Starmine data shows western European equity prices currently imply a decline in earnings per share of more than 4 percent per annum for the next five years and a drop of more than 10 percent a year for eastern European equities over the same period. "Investors generally have become caught up with an awful lot of the short-term volatility and noise. But if, as history tells us, we're in mean-reverting world, then there are a lot of attractive valuations now out there," said Philip Poole, investment strategy head at HSBC Global Asset Management. "A risk rally from here is perfectly conceivable. It's hard to see the catalyst right now but you have to think an awful lot of negativity is already in the price." (Graphics by Scott Barber; Editing by Ruth Pitchford)

RBC cuts P&G, not convinced by turnaround plan

Wed Jun 27, 2012 9:02am EDT

http://www.reuters.com/article/2012/06/27/us-procterandgamble-research-rbc-idUSBRE85Q0RW20120627

- RBC Capital Markets downgraded Procter & Gamble Co ( PG.N ) to "sector perform" from "outperform," expressing doubts over the management's ability to execute a recent plan to cut costs and drive growth for its key businesses.

The downgrade comes after the world's largest household products maker lowered its growth forecasts last week for the second time in two months and unveiled plans to cut costs and focus on its core businesses. "We no longer have the conviction that PG can pull this off with near flawless execution," RBC analyst Jason Gere wrote in a note titled 'Too Much Gamble, Not Enough Procter.' "On paper, it sounds right and we agree with management's decision to focus on the core but we aren't certain that we have seen the end of missteps over the next year." Rocky economic conditions and a stronger dollar will continue to hamper P&G's sales growth, and may force the maker of Tide laundry detergent and Gillette razors to reduce prices or increase promotions, said Gere, who cut his price target on the stock to $64 from $70. P&G shares were down slightly at $59.15 in premarket trade. They closed at $59.27 on Tuesday on the New York Stock Exchange. (Reporting by Ranjita Ganesan; Editing by Viraj Nair)

EU, U.S., Japan seek WTO steps on China rare earths

Wed Jun 27, 2012 4:50pm EDT

http://www.reuters.com/article/2012/06/27/us-eu-china-rareearths-idUSBRE85Q0KJ20120627

BRUSSELS - The European Union, the United States and Japan on Wednesday requested a dispute settlement panel at the World Trade Organization (WTO) after failing to resolve a battle over China's export restrictions on rare earth minerals.

The move followed a complaint the three trade powers took to the WTO in March, the first they have launched jointly, and comes amid a series of clashes with China over economic issues, including the value of the Chinese currency. "China's restrictions on rare earths and other products are violating its WTO commitments and continue to significantly distort global markets to the disadvantage of our companies," EU Trade Commissioner Karel De Gucht said in a statement. "We regret that we are left with no other choice but to solve this through litigation." After the March complaint, the parties talked in April to try to find a solution. But De Gucht said the Chinese response had not been adequate. "We had consultations with them, they didn't lead us anywhere," he said on the sidelines of a conference in Brussels. "The next step was to ask for a panel and we've just done that." The case concerns the 17 rare earth metals, as well as tungsten and molybdenum, which are used in advanced technologies for the defense, electronics and renewable-energy industries. They go into products such as the iPhone, disk drives and wind turbines. The damage done to European manufacturing runs into billions of euros because it is nearly impossible to diversify away from the Chinese supply, according to EU officials. China accounts for about 97 percent of world output of the 17 rare earths and the three powers accuse Beijing of trying to hold down prices for its domestic manufacturers and pressure international companies into moving operations to China. The European Union and United States say this hurts their producers and consumers, as foreign companies pay up to twice as much as Chinese companies for rare earth metals. "These materials are key inputs in a multitude of U.S. manufacturing sectors and American-made products, including hybrid car batteries, wind turbines, energy-efficient lighting, steel, advanced electronics, automobiles, petroleum and chemicals," U.S. Trade Representative Ron Kirk said in a statement. "It is vital that U.S. workers and manufacturers obtain the fair and equal access to raw materials like rare earths that China specifically agreed to when it joined the WTO," he said. In March, China described the trade complaint as unfair, arguing that it only controlled 90 percent of global production because other countries, notably the United States, had long ago closed their own rare earths refineries due to pollution concerns. Beijing also says its export curbs aim to both control environmental problems and preserve supplies of an exhaustible natural resource. Refining rare earths requires large amounts of acid and also produces low-level radioactive waste. In a separate development, U.S. business groups held a news conference on Wednesday to urge Congress to pass the 30-year-old Law of the Sea Convention, which they argued would give U.S. companies the legal certainty they need to make huge investments to mine rare earths in the ocean seabed. "We think the Law of the Sea treaty offers the best path to breaking China's dominance in the rare earth area," said Roger Ballantine, a board member of RARE, a U.S. rare earth association. "The current situation with China having a stranglehold in the area is not sustainable." The groups hope the treaty, which has been blocked in the past by concerns over U.S. sovereignty, will finally be passed by the Senate after the November U.S. elections. The EU directly imports 350 million euros worth of rare earths from China each year and also brings in products of far greater value containing rare earths from Japan and elsewhere. Once appeals are lodged and heard, the WTO process could take as long as two years to complete. The European Union, the United States and Mexico won a similar case against China in January concerning other raw materials. "Despite the very clear WTO ruling earlier this year in the first raw materials case, Beijing has not taken steps to remove these export restrictions," De Gucht said in his statement. (Additional reporting by Doug Palmer in Washington and Robin Emmott in Brussels; Editing by Susan Fenton)

Spain wins time from EU on bank liquidity support

Wed Jun 27, 2012 11:18am EDT

http://www.reuters.com/article/2012/06/27/us-eu-bankia-idUSBRE85Q10H20120627

BRUSSELS/MADRID - Spain on Wednesday won time to negotiate the terms of European aid for its banks and gained approval for a state liquidity guarantee of 19 billion euros for Bankia, the country's biggest problem lender.

Spain has been seeking a temporary mechanism to fund four nationalized banks that urgently need money, since it could take three to four months for a European aid package of up to 100 billion euros to reach the country's financial system. The EC said it gave Spain temporary approval to provide the guarantee for Bankia, which has asked for funds as soon as July, as well as to convert existing state-owned preference shares in Bankia into equity. The approval is contingent on Spain presenting a restructuring plan for Bankia, which the state will soon fully control, within six months. "There is no doubt that the beneficiary will need to undergo deep restructuring," EU Competition Commissioner Joaquin Almunia, who regulates state aid, said in a statement. It was not immediately clear where the guarantee funds would come from since Spain's bank rescue fund, the FROB, is down to some 5 billion euros and the government does not want to go to markets to raise funds with its borrowing costs near euro lifetime highs. An economy ministry spokesman told Reuters to ask the EC where the money would come from. A press officer at the Commission said to ask Spain. As Spain's soaring borrowing costs sent it into a danger zone in recent weeks, Europe came to the rescue with the pledge of up to 100 billion euros for banks that crumbled because of heavy exposure to a property bubble that burst in 2007-2008. Spain has formally requested the aid but has not said exactly how much of the package it will use. An independent audit said the banking system could need 62 billion euros to weather a severe economic downturn, but a more detailed bank-by-bank audit is not due for several months. Prime Minister Mariano Rajoy said on Wednesday he is still pushing for the aid to go directly to banks - to avoid any impact on public accounts - although Germany and Brussels have repeatedly said it must be channeled through the state. Spain's formal request letter for the aid specifies that it would be given to the FROB, a state agency. The conditions of the Spanish bank rescue will be on the agenda at this week's European leaders' summit in Brussels. Details of the terms of the aid will be laid out in a memorandum of understanding by July 9. On Monday, Spain's Secretary of State for Economy Fernando Jimenez Latorre said a temporary liquidity mechanism would be used for those banks that urgently needed funds, since it would take three or four months for the European aid to reach banks. A high-level government source told Reuters Spain was exploring other mechanisms to fund banks quickly while negotiations continue regarding the terms for using money from the European bailout funds, the EFSF and ESM. Four nationalized banks - Bankia, CatalunyaCaixa, NovaGalicia and Banco de Valencia - could need cash injections of around 40 billion euros as soon as July, according to financial and government sources. Bankia was taken over by the state in May, in Spain's biggest ever banking rescue, and asked the government for 19 billion euros in aid. Spain's central bank must still sign off on Bankia's request, after the detailed audits are completed and confirm the 19 billion euros figure, but the Commission's approval of the liquidity guarantee implicitly recognizes the amount the bank says it needs. The Commission still has to approve this capital injection into Bankia by the government. (Additional reporting by Carlos Ruano in Santander and Fiona Ortiz in Madrid; Editing by Rex Merrifield and David Cowell)

Turkey sees France's Hollande lifting EU veto

Wed Jun 27, 2012 12:20pm EDT

http://www.reuters.com/article/2012/06/27/us-turkey-eu-idUSBRE85Q16820120627

ISTANBUL - Turkey expects France to unblock talks that are essential if it is ever to join the European Union, now that Socialist President Francois Hollande has replaced Nicolas Sarkozy who was outspoken in opposing the Muslim country's bid to join the bloc.

"We are entering a new period in relations with France after Hollande's election," EU Affairs Minister Egemen Bagis said in an interview late on Tuesday. "It now makes sense for the block that stemmed from Sarkozy's own personal whim to be lifted." Hollande has backed away from Sarkozy's stark opposition to Turkey entering the EU but any shift in position from Paris will have more symbolic resonance than practical effect. Turkey began talks in 2005 but has only completed one of the 35 policy "chapters" that every candidate must conclude to join the EU. Bagis expects Paris to lift its veto on talks about five chapters, but even that would leave other areas stalled. All but 13 chapters are blocked by France, Cyprus - the island state which Turkey does not recognize - and the European Commission, the EU's executive arm which says Turkey does not yet meet the required standards on human rights and freedom of speech and religion. Ankara said last week it would restore all ties with France after Prime Minister Tayyip Erdogan met Hollande, smoothing over a row about the World War One killings of Armenians by Ottoman Turks. Last year Turkey cancelled economic, political and military meetings with Paris after the French parliament voted to make it illegal to deny that the massacres were genocide. The law was struck down by a top court. While Hollande has stopped short of endorsing Turkey's EU candidacy, he has said it should be judged on political and economic criteria - a contrast to Sarkozy's position that Turkey did not form part of Europe. But public opinion in France makes it difficult for politicians to explicitly back the candidacy. A survey by pollster IFOP in 2008 found 80 percent of the French were opposed to Turkey joining, the highest among the seven EU countries questioned. France's foreign ministry was not available for comment, but a French diplomatic source said that while the lifting of the Turkish sanctions "transforms our bilateral relations", no decision had yet been made on the accession talks. "I think Bagis is going a little bit far. What we will do is to study at European level what is on the table with the Turks, the chapters etcetera, but at this stage we haven't defined a position," the source said. Despite the slow progress, Turkey still expects to join the EU before 2023, the centenary of its founding as a secular republic, Bagis said, adding that the euro zone's economic crisis was no deterrent. "This economic crisis will soon be over, and the EU will continue to be the grandest peace project in the history of mankind," he said. "As a Muslim, secular democracy ... what Turkey can do is turn this continental peace project into a global one." CYPRUS HEADS EU Turkey's position on Cyprus means that it will decline to open any new talks for the next six months during which Cyprus holds the rotating EU presidency. Cyprus has been divided between ethnic Greeks and Turks since 1974 when Turkey invaded in response to a short-lived coup by Greek Cypriots aimed at uniting the island with Greece. The Greek Cypriot-run state joined the EU in 2004. Erdogan said last year Turkey would freeze ties with the EU when Cyprus assumes the presidency on July 1, something European Parliament President Martin Schulz called "impossible". Bagis said the presidency was largely symbolic and Turkey would continue working on membership criteria with the European Commission. "We will not be forced into recognizing a country we have not recognized so far just because others call it the president," Bagis said. "No chapter will open during this time, because we have declared we will not engage with the president, but we expect several chapters to open in the subsequent period when Ireland takes over the presidency," he said. As for talks between Cypriot President Demetris Christofias and Turkish Cypriot leader Dervis Eroglu, which sources says are deadlocked, Bagis said Turkey and its Turkish Cypriot partners would not allow Greek Cypriots to return to the deserted district of Varosha until a full settlement is reached. That rebuffs an offer from Christofias to open policy chapters it has blocked in exchange for Varosha, Cyprus' main tourism hub until Turkish forces seized it after the invasion. "Varosha is part of a comprehensive settlement," Bagis said. "We will not play our trump card to open a chapter. We're not going to grow any taller with the opening of a new chapter." Turkey refuses to open its sea and air ports to Cyprus, required by the EU for its negotiations to progress, until the EU allows direct trade with Turkish Cypriots, diplomatically isolated and economically dependent on Turkey, despite voting in a 2004 referendum to join the EU and reunify with Greek Cypriots, who rejected the U.N. plan. (Additional reporting by Daniel Flynn and John Irish in Paris; Editing by Robin Pomeroy )

ECB lays ground for rate cut, impact could be minor

Wed Jun 27, 2012 1:11pm EDT

http://www.reuters.com/article/2012/06/27/us-ecb-praet-idUSBRE85Q13N20120627

BERLIN/FRANKFURT - There is nothing to stop the European Central Bank cutting interest rates further, a senior policymaker said on Wednesday, adding to expectations it could act as soon as next week to counter dimming growth prospects and help tackle the euro zone crisis.

Executive Board member Peter Praet's intervention followed his colleague Benoit Coeure, who said last week cutting rates was an option and one that would be discussed at the ECB's July 5 meeting. "There is no doctrine that interest rates cannot fall below 1 percent," Praet told German daily Financial Times Deutschland in an interview. "They (rate cuts) are justified if they contribute to guaranteeing price stability in the medium term." A Reuters poll found 48 out of 71 analysts tipped the central bank to cut rates next week, most of them forecasting a 25 basis point cut to 0.75 percent. <ECB/INT> Praet's comments came only three weeks after ECB President Mario Draghi had said that rate cuts would have only limited impact due to malfunctioning markets. Until recently, analysts doubted the bank would ever push rates below their record low of 1.0 percent, where they have stuck since December last year. Now it is increasingly clear that such doubts will not stop the ECB. "This is another signal that they're warming up to a rate cut," said Danske Bank economist Anders Moller Lumhortz, who expects the refinancing rate to be cut by 25 basis points to 0.75 percent in July and remain low for a long time. "It's a signal that the ECB will do more to support the economy," Lumhortz said. Praet himself warned against expecting too much from a rate cut, saying: "Rate cuts always have an impact, even if it's limited." An important effect would be an immediate reduction in the rates banks pay for the money they have borrowed from the ECB, including the 1.02 trillion euros they took in the twin 3-year LTRO operations. For that money, they now pay 10.2 billion euros in interest annually, which would be cut by 2.5 billion were the main policy rate reduced by a quarter point. Spanish, Italian and French banks took up the money most heavily. There is no sign that the ECB will heed to calls from Spain and others to revive its bond-buying program to push euro zone borrowing costs lower. IMPACT QUESTIONED Price data released on Wednesday left the ECB with room to cut. Annual inflation in the euro zone's largest economy, Germany, eased more than expected to 1.7 percent in June from 1.9 percent in May, helped by falling oil prices. "The data add to the already strong case for ECB action at next week's meeting," said Berenberg economist Christian Schulz. Draghi said recently he could see no sign of inflationary pressure anywhere in the euro zone. At the same time, the ECB does not expect lower interest rates to solve the 17-nation bloc's problems. Governing Council member Josef Bonnici said on Tuesday that cutting rates would have a limited impact on the euro zone economy. "Interest rates are already very low, so the impact of even lower interest rates is ... limited," Malta's Bonnici told Reuters. Two other Governing Council members, Austria's Ewald Nowotny and Slovakia's Jozef Makuch, have said they could imagine the deposit rate going to zero. The Council is made up of the six Executive Board members and the 17 national central bank chiefs. "There is a concern this will emphasize the fact that the ECB's policy options are effectively exhausted," Societe Generale economist James Nixon said of a rate cut. "My concern is that this may actually undermine confidence rather than have a positive effect - the ECB is effectively clutching at straws." DEPOSIT RATE Cutting the deposit rate - the interest the ECB gives banks for their overnight deposits at the central bank - from 0.25 percent would be at least as important as lowering the main refinancing rate, analysts said. Banks have regularly parked close to 800 billion euros at the ECB's overnight facility following the second of the twin LTROs on February 28, money that the ECB would rather see circulating more in the economy. "Whatever arguments they've used in the past have now been overcome by the desire to reduce the incentives to use the deposit facility," Nixon said. "There is no point in just cutting the refinancing rate, it has to be a cut in the deposit rate." He also said that a rate cut could inflict more pain on money markets, which are already barely functioning. "There is a concern that if you go too low, you end up with an interest rate that doesn't even cover the operating costs of money market funds," Nixon said, but added that the ECB seems to have decided that the merits of cuts outweigh the drawbacks. (Reporting by Sarah Marsh and Gareth Jones , editing by Mike Peacock)

Portugal clings to austerity on edge of abyss

Wed Jun 27, 2012 6:29am EDT

http://www.reuters.com/article/2012/06/27/us-portugal-euro-idUSBRE85Q0A720120627

LISBON - Portugal's traditional fado music is taking on new meaning with the country's economic crisis, as variants of the age-old melancholic songs offer an outlet for young people reeling from relentless austerity.

"I come from the generation with no income," blare the powerful lyrics of 'How silly I am' by popular fado-inspired band Deolinda, pondering the increasingly hopeless outlook for the one-in-three people under 25 who are out of work. The euro zone crisis has led Portugal into its deepest recession since the 1970s, with overall unemployment at a record 15 percent as the centre-right government slashes spending under a 78-billion-euro bailout deal with the European Union and IMF. Still, strikes and protests against austerity, which has included wage cuts of up to 20 percent for civil servants, have been low-key compared with places like Greece and Spain. While die-hard leftists rail in parliament and the largest union organizes poorly-attended strikes, the general mood has, until recently, been best summed up by the fatalism expressed in songs like 'How silly I am'. The government, elected a year ago with clear warnings of the hardship to come, is determined to meet fiscal goals under the bailout and sees no alternative to more of the same. "We received a country on the edge of the abyss, our obligation is to do everything within our reach so that with the help of the Portuguese we will be able to reform it into a free, autonomous country," said Foreign Minister Paulo Portas. Such unswerving commitment to reform means Lisbon scores high marks in Berlin and Brussels, but criticism of austerity is beginning to extend well beyond fado, and, more importantly, the abyss is still there. CHOKED "Nobody is turning against the single currency, but they are turning against (Europe's) austerity system," said Mario Soares, 87, Portugal's Socialist elder statesman, considered by many as the father of its modern-day democracy. Business leaders are increasingly calling for budget targets to be extended or relaxed to avoid killing the patient with austerity and urging Europe to take action to end the crisis. "I personally believe that the ECB should inject money into these countries," said Alexandre Soares dos Santos, Portugal's second richest man and chairman of Jeronimo Martins, the second biggest retailer in Portugal and biggest in Poland. "Why three years and not five (to meet deficit reduction goals), if you can reduce the number of people unemployed?" he asked, saying the government needed more time to distribute its harsh medicine. Jose Avelino, 45, who drives a tourist bus, said people were getting ever more desperate. "We have choked on the measures." There are no signs yet of discontent fuelling big strikes or protests and no whispers of dissent within Prime Minister Pedro Passos Coelho's centre-right coalition, which has an absolute majority in parliament. The previous Socialist government collapsed last year after Portugal became the third country in the euro zone -- after Greece and Ireland -- to seek a bailout, because its financing costs had soared due to its high debt levels. The country has approved the "fiscal compact" for budget discipline in Europe and the government has said it would support closer political and fiscal union, though it is sees economic reform and fixing state finances as priorities. "The first obligation of a country is to stick to its word, to honor and fulfill the terms of its (loan) program," the prime minister told parliament on Monday. The problem is that despite Portugal's best efforts, it remains the second most risky country in the euro zone after Greece, in terms of bond spreads. Portugal's 10-year bond yields are at 9.7 percent, above neighboring Spain's 6.7 percent. That makes it especially vulnerable to further flare ups in the euro zone crisis, whether in Greece or in increasingly troubled Spain, its biggest export market. EURO FEARS Most in Portugal believe it is unthinkable that such pressures could eventually drive Portugal out of the euro -- 80 percent back the single currency in polls. But Joao Ferreira do Amaral, professor of macroeconomics at Lisbon's School of Economics and Management, is one of those lonely voices and his view has only been reinforced by the crisis. "I always had the view that we did not have a sufficiently strong economy for a strong currency," said Ferreira do Amaral, who is one of Portugal's most high profile Eurosceptics, having been an advisor to former Socialist President Jorge Sampaio. "Even without the crisis that started in 2008, we were on an unsustainable path," he said, advocating a gradual exit with the euro and a new escudo functioning in parallel at first. Debts and bank deposits should remain in euros, Ferreira do Amaral says, while the central bank would carry out "monetary financing" of a new escudo used for all other payments. "Either we have debt forgiveness or inflation," he said. Those views get little backing from the Portuguese, despite the country having experienced one of Europe's lowest growth rates in the run-up to the financial crisis. "If we went back to the escudo we would be more competitive as a country but citizens would be subject to mass devaluation of everything they own," said Paula Fazendas, 42, a cardiologist. "If I could, I would take my money, put it in Switzerland and leave the country, but I won't do it because I have kids." Business leaders worry about Portugal's euro future. "I am very much in favor of the euro, for me it would be an enormous disappointment if we were forced to leave," said Soares dos Santos. "Now, how can I invest in this country if I don't know if we remain in the euro or we go back to the escudo?" For a country stuck on the edge of Europe with Spain on one side and the Atlantic on the other, joining the euro was always a way of joining the continent's mainstream. As such, most Portuguese think lasting solutions to the euro crisis can only come from the centre. "The day that the European Central Bank can print money the crisis will end, it's that simple," the veteran former prime minister Soares said. The ECB has heard a chorus of such calls. Its reluctance to heed them means Portugal's hopes may go unrealized. (Editing by Paul Taylor and Philippa Fletcher )

Euro group details aid plans for Spain and Cyprus

Wed Jun 27, 2012 11:18am EDT

http://www.reuters.com/article/2012/06/27/us-eurogroup-spain-cyprus-statement-idUSBRE85Q10420120627

BRUSSELS - Euro zone finance ministers welcomed Spain's request for assistance from the euro zone's rescue funds on Wednesday and said it was likely to require between 51-62 billion euros as well as an additional "safety margin".

In a statement, the Euro group said that once the final amount was determined, the aid would be paid from the temporary EFSF fund before being moved to the permanent ESM bailout mechanism. It said the final amount would be "well within" the 100 billion euro limit set by the Euro group. The funds will be paid into the Spanish government's bank restructuring fund, known as the FROB, but the Spanish government "will remain fully liable and will sign the memorandum of understanding", the Euro group said. In a separate statement released at the same time, the Euro group welcomed Cyprus's request for aid and said it too would shortly receive assistance from the EFSF and/or the ESM, once an assessment of its needs was complete. In exchange for the assistance, which is expected to amount to about 10 billion euros, according to officials, Cyprus will have to commit to budget cuts and structural reforms, as well as steps to strengthen its banking and financial sector. (Writing by Luke Baker ; editing by Rex Merrifield )

Stockton, California, to file for bankruptcy

Wed Jun 27, 2012 7:16pm EDT

http://www.reuters.com/article/2012/06/27/us-economy-stockton-idUSBRE85Q1S120120627

STOCKTON, California - Stockton, California, is expected to file for bankruptcy before the end of the week, becoming the largest U.S. city to seek protection from its creditors.

Officials said that the city of nearly 300,000 could file for Chapter 9 bankruptcy by Friday afternoon, after the city council approved on Tuesday a budget that includes savings from the bankruptcy. The $26 million budget gap that was expected for fiscal 2013 is filled half by savings from missed payments on the debt service and half by lower payments to employees, Standard & Poor's analyst Chris Morgan told Reuters. The decision to file for bankruptcy triggered on Wednesday ratings cuts into default by Moody's Investors Service and Standard & Poor's Ratings Services. "The Caa3 rating level assumes losses to bondholders will be greater than 20 percent. The negative outlook reflects the high likelihood that losses could exceed our estimates," Moody's said in its statement. The $3.7 trillion U.S. municipal bond market has so far taken in stride Stockton's march toward bankruptcy despite the city's more than $700 million in bond debt. Bondholders and bond insurers are among Stockton's 18 creditors. Other creditors are the 1,400 employees of the city including police officers, firefighters, non-public safety employees and their supervisors and retired city employees. On Tuesday, Stockton's city council voted six to one in favor of the 2012-2013 budget after a contentious five-hour meeting during which angry retired city workers pressed council members to reject the $155 million spending plan. It proposes eliminating retirees' medical benefits. The council's vote followed three months of confidential talks between Stockton and its creditors aimed at averting bankruptcy. The negotiations ended on Monday with the city failing to win enough concessions to help close its shortfall for the fiscal year starting on July 1. That left bankruptcy as the only way for Stockton to balance its budget in the near term while maintaining its current level of services and bringing stability to its finances. SERVICES WILL STILL BE PROVIDED "Like corporations such as American Airlines and General Motors, we will continue to operate and provide services. We will use this opportunity to restructure and come out of bankruptcy with a stronger, healthier and sustainable future," city manager Bob Deise said. Since February, Stockton officials have said the city's finances were suffering the combined effects of fiscal mismanagement over two decades, too much debt taken on in good times and generous pay and unsustainable benefits for city employees and retirees. Stockton has also had a sharp decline in revenue since the collapse of its once red-hot housing market. The housing boom transformed the farming city into a distant bedroom community of the San Francisco Bay area, but its bust put Stockton at or near the top of national foreclosure rankings in recent years. Stockton has defaulted on about $2 million in debt since February, allowing the trustee for one of its bond insurers to seize a building once slated to be its future city hall and three parking garages. Because municipal bankruptcies under Chapter 9 of the federal bankruptcy code are rare, especially for larger cities, Stockton could set important precedents for how different types of creditors are treated in such cases. In the past, large cities such as Bridgeport, Connecticut, have seen filings for bankruptcy protection rejected by the court. In the most recent case in October 2011, a filing by Harrisburg, Pennsylvania, a city of nearly 50,000, was rejected because a state law barred municipalities of a certain size from seeking legal protection from creditors. (Editing by Toni Reinhold )

Court finds Glencore grain unit bribed EU official

Wed Jun 27, 2012 2:09pm EDT

http://www.reuters.com/article/2012/06/27/us-glencore-trial-idUSBRE85Q0UK20120627

BRUSSELS - A Belgian court convicted a subsidiary of commodities trader Glencore ( GLEN.L ) and others on Wednesday of bribing a European Union official in return for market-sensitive information.

Glencore Grain Rotterdam, part of the world's largest diversified commodities trader, was found guilty of paying the official's large mobile phone bills and laying on a French holiday to secure information about grain subsidies. "The holiday offered by Glencore Grain Rotterdam to Karel Brus in the south of France in June 2003 was in relation to the obtaining of secret information," Judge Pierre Hendrickx told the court before fining the unit 500,000 euros ($623,600). In 2002 and 2003 Glencore paid 20,000 euros in phone bills for Brus. "The mobile telephone was at the same time an element to be used to facilitate the violation of professional secrets ... and an advantage used to incite him to agree to commit these indiscretions," Hendrickx said. Since the fraud took place, the European Commission's Agriculture department has introduced measures to discourage similar problems. It has adopted a policy of moving staff in some sensitive positions every five years and put the analysis of market information and the preparation of market decisions into separate directorates, a spokesman said. Since 2003 there has been a significant decrease in expenditure on export refunds, the subject of the case, he said. "Spending on cereals export refunds in 2000 was more than 800 million euros, and was zero in 2011, and remains at zero this year," the spokesman said in an emailed statement. The court also convicted some other companies and individuals, including French agricultural cooperative Union Invivo, of providing or facilitating bribes. The case centered on Brus, a former EU agriculture department official, who was accused of passing confidential information about EU export subsidy applications in 2002 and 2003. Brus was sentenced to 40 months in jail. On receiving the judgment, Brus, dressed in a crumpled grey jacket and a light shirt, bowed his head and stared at the floor. The companies received confidential information that allowed them to put in favorable bids in tenders for European export subsidies. Asked whether it would appeal, a spokesman for Glencore said: "We're considering our position." The lawyer for Brus, Gert Warson, described his client as a "scapegoat". ($1 = 0.8019 euros) (Additional reporting by Charlie Dunmore; Editing by Philip Blenkinsop , Anthony Barker and Jane Baird)

Spanish bank rescue won't free up credit: Sabadell

Wed Jun 27, 2012 12:18pm EDT

http://www.reuters.com/article/2012/06/27/us-spain-banks-sabadell-idUSBRE85Q16220120627

SANTANDER, Spain - A European bailout of Spanish banks will not free up credit but rather restrict it even more, the chairman of Spain's fifth largest bank Banco Sabadell warned on Wednesday.

Spanish consumers and businesses have suffered a drastic decline in credit as banks struggle under the weight of debt from the collapse of a property boom five years ago. Spain requested up to 100 billion euros ($125 billion) of European funds to recapitalize its weakest banks on June 9, but Sabadell's chairman said the tough conditions imposed on banks in need of aid will make it even harder for them to lend. "Solvent firms are going to reduce their bank credit ... the nationalized ones are already out of the market and the ones in the middle that receive some type of temporary loan will have no choice but to restrict lending," Josep Oliu said at a conference organized by the economic journalists' association APIE in the northern city of Santander. Euro zone finance ministers on Wednesday said Spain was likely to require between 51-62 billion euros in assistance for its banks from the euro zone's rescue funds, as well as an additional "safety margin". (Reporting By Carlos Ruano; Writing by Tracy Rucinski; Editing by Amanda Cooper and Elaine Hardcastle)

Merkel says Europe in "serious" situation

Wed Jun 27, 2012 1:40pm EDT

http://www.reuters.com/article/2012/06/27/us-eurozone-germany-merkel-idUSBRE85Q1C220120627

PARIS - German Chancellor Angela Merkel said on Wednesday that the situation in Europe was "serious" on the eve of an EU summit, but leaders were determined to take steps to ensure the continued strength of their single currency.

Speaking at the Elysee Palace in Paris ahead of a working dinner with French President Francois Hollande, Merkel said: "We will talk about the political future of the economic and monetary union." "I say we need more Europe and I think we are in agreement there," she added. "We need a Europe that functions effectively, markets are looking for this, and a Europe where countries help each other." Merkel said she hoped the summit would produce a pact to boost economic growth in Europe. (Writing by Sarah Marsh and Noah Barkin )

Italy debt costs keep rising ahead of EU summit

Wed Jun 27, 2012 6:45am EDT

http://www.reuters.com/article/2012/06/27/us-italy-bills-auction-idUSBRE85Q0HY20120627

MILAN - Italy's six-month borrowing costs neared 3 percent at auction on Wednesday, their highest since December, piling pressure on the government as it pushes for concrete steps to ease market tensions at a European Union summit later this week.

Italy sold 9 billion euros of six-month bills at an average 2.96 percent yield, up from 2.10 percent it paid only a month ago. The Treasury faces a tougher market test on Thursday when it offers up to 5.5 billion euros in five- and 10-year debt. "Today's bill sale points to the sovereign getting this supply away but at yield levels sufficiently elevated to leave a niggling doubt at least as to the medium-term sustainability of the country's public finances," said Richard McGuire, a rate strategist at Rabobank. On Tuesday, Spain paid 3.24 percent to sell six-month bills. Madrid is seen at risk of having to ask for more aid after formally requesting a European rescue for its banks this week. But doubts are also growing on Italy's ability to keep funding its 1.95 trillion euro debt, which makes it the world's fourth-largest sovereign debtor. Wednesday's sale was covered 1.6 times, in line with a month ago, with demand helped by 9.9 billion euros of maturing bills. Domestic appetite has so far allowed the Treasury to complete 56 percent of its 445-billion-euro annual funding plan. But Italian banks may find it increasingly difficult to keep shouldering the country's large funding needs as foreign investors continue to shun its debt. Italy's third-largest lender Monte dei Paschi dei Siena said on Wednesday it would progressively reduce its holdings of Italian government bonds, after tapping state aid to plug a capital shortfall partly due to its exposure to sovereign risk. Prime Minister Mario Monti promised on Tuesday to press for joint action by EU countries to help ease pressure on Italian bonds, risking a showdown with Germany which refuses to share the burden of other countries' debt. With its benchmark 10-year yields above 6 percent, Italy is calling for the euro zone's rescue funds to be used to ease pressure on its bonds. On Tuesday, it saw its two-year borrowing costs rise to 4.71 percent, also a six-month high, at a sale of zero-coupon paper. Italian yields are still below peaks hit at the height of the crisis in November, when the threat of default precipitated a change of government. At that time, Italy paid a record 6.5 percent yield on six-month paper. "While yields are not as high as they were in November, psychologically speaking things are almost just as dire," said Nicholas Spiro, at Spiro Sovereign Strategy. A reform push by Italy's unelected government has stalled amid growing opposition from parties that back it in parliament and falling approval rates among recession-stricken Italians. Monti is seeking final parliamentary approval on Wednesday for a long-awaited labor reform to strengthen his bargaining position ahead of the EU summit. But German Chancellor Angela Merkel on Tuesday all but ruled out common euro zone bonds, seen by some economists as vital to restoring confidence in the euro, saying Europe would not share total debt liability for "as long as I live". "While Italy has serious domestic problems, what concerns the markets is Germany's reluctance to do what is necessary in the short-term to shore up Spanish and Italian debt," Spiro said. (Additional reporting by London and Milan government bond teams; Editing by Catherine Evans )

Global stocks up on U.S. data, oil; euro slips pre-summit

Wed Jun 27, 2012 5:20pm EDT

http://www.reuters.com/article/2012/06/27/us-markets-global-idUSBRE8520GN20120627

NEW YORK - Stocks rose on major world markets on Wednesday after encouraging U.S. data and a rally in crude oil prices, but the euro slipped ahead of a European summit seen as unlikely to produce a credible solution to the region's debt crisis.

Wall Street stocks logged their largest gain in a week, with the S&P 500 index rising nearly 1.0 percent. The rally came after data showed demand for long-lasting U.S. manufactured goods rose sharply more than expected in May and U.S. pending home sales hit a two-year high. On commodity markets, U.S. crude oil prices recovered to above $80 per barrel and Brent crude in London erased early losses as a strike by Norwegian oil workers dragged on. <O/R> The rally in oil helped accelerate gains in U.S. stocks, with shares of energy firms among the biggest gainers. .N While investors welcomed the rebound, few had illusions about the market's long-term trend as the euro zone crisis rumbled on without a solution. "Sentiment is pretty negative - when you get people this depressed markets have a tendency to bounce and that is pretty much where we are at right now," said Doug Foreman, director of equities at Kayne Anderson Rudnick Investment Management, an affiliated manager of Virtus Investment Partners in Los Angeles, California. European Union leaders remained unusually divided ahead of the two-day summit beginning Thursday over how to stem the bloc's spreading debt crisis, now in its third year. EUROPEAN LEADERS AT ODDS Bridgewater Associates, the world's largest hedge fund with $120 billion in assets, doubts Germany will back off its tough austerity stand at the upcoming EU summit in Brussels. "For this reason, we think the popular assumption that the Germans and the ECB (which requires agreement of the key factions within it) will come through with the money to make all these debts good should not be taken for granted," the fund said in its daily market note. "This 'fat tail' event must be considered a significant possibility." Indeed, on the eve of the EU summit German Chancellor Angela Merkel brushed aside increasingly shrill calls from Spain and Italy for emergency action to lower their soaring borrowing costs. "I fear that at the summit we will talk too much about all these ideas for joint liability and too little about improved controls and structural measures," she said, renewing her mantra that Germany, Europe's strongest economy, should not be overburdened. At the close, the Dow Jones industrial average .DJI was up 92.34 points, or 0.74 percent, at 12,627.01. The Standard & Poor's 500 Index .SPX was up 11.86 points, or 0.90 percent, at 1,331.85. The Nasdaq Composite Index .IXIC was up 21.26 points, or 0.74 percent, at 2,875.32. European shares .FTEU3 also rallied on the upbeat U.S. data, closing up 1.4 percent for their largest gain since June 19. The MSCI world equity index .MIWD00000PUS rose 0.9 percent, though it remained down week-to-date. The euro edged lower, slipping against the U.S. dollar for a third straight day as it traded 0.2 percent down at $1.2467. Growing concerns that more peripheral euro zone nations will be shut out from capital markets and expectations that fiscal austerity will drag the region into a more painful recession will see the euro stay under pressure. Any bounce toward the $1.27 or $1.28 level would attract sellers, traders said. "I am going short euro/dollar into the summit," said Stuart Frost, head of absolute returns and currency at RWC Capital, a London-based fund manager. "The euro should be a lot lower than what it is and even if there is an agreement, chances of which are very low, the currency is headed towards $1.20." EURO BONDS Debt markets continued to reflect the worsening funding outlook for many euro zone nations, with investors reluctant to increase their exposure even to safe-haven debt ahead of the leaders' summit. Italy's six-month borrowing costs rose to 2.957 percent at auction on Wednesday, their highest since December. The spike comes just ahead of a five- and 10-year debt sale for up to 5.5 billion euros on Thursday. On Tuesday, Spain saw its short-term borrowing costs nearly triple. The benchmark 10-year U.S. Treasury note was up 2/32, its yield at 1.6211 percent. Markets had been hoping this week's summit would deliver at least a high-level agreement on greater fiscal and financial integration across the euro area that could then ultimately lead to the issuance of common euro bonds. "It is slightly different than what we saw before other summits in the past when hopes were quite high," said Norbert Wuthe, senior government bond strategist at Bayerische Landesbank. "Now we are disappointed going into the summit and there is a positive surprise potential." (Additional reporting by Angela Moon , Rodrigo Campos , Ryan Vlastelica , Nick Olivari and Wanfeng Zhou in New York, and Richard Hubbard and Marius Zahariain London; Editing by Andrew Hay and Chizu Nomiyama )

Portugal pledges to honor bailout terms, reforms

Wed Jun 27, 2012 12:13pm EDT

http://www.reuters.com/article/2012/06/27/us-portugal-minister-idUSBRE85Q15V20120627

LISBON - Portugal signaled on Wednesday it had no intention of requesting changes to the terms of its 78-billion-euro bailout ($97 billion), arguing that sticking to the plan was the only way to win credibility, Economy Minister Alvaro Santos Pereira said.

Santos Pereira told Reuters in an interview that the country's strong commitment to the bailout terms has boosted credibility in the country and helped reduce its bond yields. Portugal's stance contrasts with Greece which has repeatedly requested changes to its bailout and Ireland which has suggested it could request easier terms if Spain wins improved conditions for a bailout for its banks. Portugal was the third euro zone country to receive a full bailout after Greece and Ireland. "I believe we have to maintain the strategy we have, to implement and deepen structural reforms so that we can grow and continue to gain credibility as we have done in the past few months," Santos Pereira said. "That is why we have made such great efforts to fully meet the memorandum of understanding and we intend to continue to meet it." Portugal's single-minded reform drive in the past few months has rewarded the country with falling bond yields. Ten-year bond yields are currently at 9.8 percent, sharply down from highs around 17 percent at the beginning of the year. However, they are still too high for Portugal to be able to go back to the markets for funding, something Lisbon currently plans to do next year. Many economists believe Portugal will struggle to meet this year's budget goals and think more bailout funding will be needed. Santos Pereira also played down expectations for so-called euro bonds, which German Chancellor Angela Merkel appeared to rule out on Wednesday. "We understand that the question of euro bonds is not on the negotiating table at this moment," he said. Portugal has not joined Spain and Italy in demanding rapid action by the European Central Bank to help overcome the crisis. Santos Pereira repeated the centre-right government's stance that the country would do what it takes to regain credibility. "What is external we cannot control, we have confidence in the authorities in other countries," the minister said. "What we are doing is our homework so that we can return to growth as fast as possible." Portugal has been susceptible to bouts of contagion and it remains the second-most risky country in the euro after Greece, in terms of bond spreads. Lisbon's fulfillment of the terms of its bailout from the European Union and International Monetary Fund has been praised by Berlin and Brussels but Portugal is in its worst recession since the 1970s as the government slashes spending. So far Lisbon has met all budget goals under the bailout, which it sought last year, becoming the third country in the euro zone to get financial aid after Greece and Ireland. (Writing by Axel Bugge ; Editing by Jon Boyle )

BMW and Toyota extend technology ties: sources

Wed Jun 27, 2012 1:07pm EDT

http://www.reuters.com/article/2012/06/27/us-bmw-toyota-idUSBRE85Q18Z20120627

MUNICH/HAMBURG - BMW ( BMWG.DE ) and Toyota ( 7203.T ) plan to expand a technological partnership, two sources close to the companies told Reuters, a deal that could prompt a shift in auto industry allegiances.

The agreement will be extended to include hybrid power trains and lightweight design, the sources said on Wednesday. However, BMW has not agreed a deal to tap General Motors' ( GM.N ) advanced hydrogen fuel cell technology, a spokesman for the German luxury carmaker said. BMW has primarily preferred France's PSA Peugeot Citroen ( PEUP.PA ) as a partner when it comes to reducing development and production costs. But the cash-strapped French have recently sought savings through an alliance with GM. By aligning more with Toyota, BMW would have a partner that offers greater scale than Peugeot and a financially healthy one at that. BMW will host a news conference at 0630 EDT on Friday to mark a visit from Toyota scion and chief executive Akio Toyoda to the German carmaker's Munich headquarters. The companies declined to comment on the conference's subject matter, but the sources said Toyoda and BMW CEO Norbert Reithofer would explain their new ideas. The sources added, however, no contracts have been drafted for them to sign. Eager to bulk up its diesel engine line-up in a sagging European market, Toyota agreed to collaborate with BMW on lithium-ion battery research in exchange for a steady supply of BMW-made diesel engines starting in 2014. This time BMW looks to be the partner in need. Now that Peugeot is devoting resources to cementing an alliance with GM, the joint venture with the French firm on hybrid parts looks shaky. Additionally, BMW, whose hydrogen concept of burning the gas in an internal combustion engine never took off, has failed to reach an agreement to access GM's technology in this area. "We are still in talks with GM, but no longer about this issue," a spokesman said on Wednesday, confirming a report in Germany's Handelsblatt. A successful partnership with the Detroit-based automaker could have helped build trust with the new large shareholder of PSA. BMW needs to reduce the carbon emissions of its new car fleet by roughly a third, to 101 grams per kilometer, by 2020, which Reithofer argues can only be achieved if it ramps up the number of hybrid and electric cars in its range. "I would bet that there will soon be BMW cars equipped with Toyota's hybrid power trains," one of the sources said. The Japanese carmaker could then gain access to the carbon fiber joint venture with SGL ( SGCG.DE ), which produces cutting-edge lightweight materials that BMW aims to use on an industrial scale to mass produce its Megacity electric car, dubbed the i3. (Reporting by Irene Preisinger and Jan Schwartz, additional reporting by Christiaan Hetzner; Editing by David Hulmes)

Exclusive: Deutsche Bank walks away from iWatt IPO

Wed Jun 27, 2012 2:16pm EDT

http://www.reuters.com/article/2012/06/27/us-iwatt-ipo-underwriters-idUSBRE85Q1EO20120627

NEW YORK - Deutsche Bank ( DBKGn.DE ) has resigned as the lead underwriter for a proposed initial public offering by iWatt Inc, which makes chips used in Apple ( AAPL.O ) products, following a dispute over valuation with the company's chief executive, two sources familiar with the matter said.

iWatt CEO Ron Edgerton confirmed the company has decided to "part ways" with Deutsche Bank but declined to provide reasons for the breakup in an interview with Reuters on Wednesday. "We had a conversation where we said that we will be mutually respectful of each other's confidentiality and we would part ways in a professional manner," Edgerton said. "Our intent is to move forward and we're looking forward to moving ahead." It is rare for the lead underwriter to drop out of a deal in the run-up to a stock offering. iWatt had initially expected to launch the deal as early as July, but the development -- along with a moribund market for IPOs in general -- has put the timing of the Campbell, California-based company's offering in question, according to the sources. The sources could not be identified because the discussions were private. iWatt Inc filed with U.S. regulators earlier this month to raise up to $75 million in a public stock offering. In that June 4 filing, the company had listed Deutsche Bank as the "lead left," or main lead, underwriter and Barclays ( BARC.L ) as the other lead underwriter. Canaccord Genuity, Baird, and Needham & Company were also listed as underwriters. iWatt's chief executive did not agree with the valuation of the company proposed by the underwriters and sent an email to the banks that concerned at least some of them, the sources said. Further details of the communication between the company and its underwriters were not available. Deutsche Bank, Barclays, Canaccord Genuity and Needham & Company declined to comment. Baird could not be reached for comment. Edgerton became iWatt's CEO in March 2008. He was previously the president and CEO of Austin, Texas-based audio chip maker SigmaTel. He resigned from SigmaTel in 2007 amid sluggish sales growth for the company's chips. iWatt intends to list on the Nasdaq under the symbol "IWAT," it said in a preliminary prospectus that did not reveal how many shares the company or stockholders plan to sell or their expected price. The amount of money a company says it plans to raise in its first IPO filings is used to calculate registration fees. The final size of the IPO could be different. iWatt has shipped more than 1 billion power management integrated circuits (IC) since 2007, including more than 400 million ICs in 2011, according to the regulatory filing. Its chips are also used by Cree Inc ( CREE.O ), Konka Group Co ( 000016.SZ ) and Royal Philips Electronics. The company, which qualifies as an 'emerging growth company' under the JOBS Act, is backed by Vantage Point Capital Partners, Sigma Partners and Horizon Partners among others. The JOBS Act is intended to make it easier for young companies - with less than $1 billion in annual revenue -- to raise money, by reducing regulatory barriers and exempting them from some accounting standards for up to five years. The U.S. IPO window has begun to open up again, with four offerings this week, including technology company ServiceNow. But the market has chilled considerably in the aftermath of Facebook Inc's ( FB.O ) botched public debut in May as well as ongoing concerns about the European debt crisis. (Reporting by Olivia Oran and Soyoung Kim in New York, Editing by Paritosh Bansal, Martin Howell and Bernard Orr )

Moody's cuts Stockton, California's various ratings to Caa3

Wed Jun 27, 2012 6:38pm EDT

http://www.reuters.com/article/2012/06/27/us-stockton-moodys-idUSBRE85Q1QF20120627

NEW YORK - Moody's Investors Service on Wednesday cut to Caa3 various general fund-supported debts of the City of Stockton, California, citing the city's announcement that it likely will file for bankruptcy after talks with its creditors failed.

"The city is running out of cash and faces limited time and options to fix its structural imbalance," the Wall Street credit agency said in a statement. The downgrade puts Stockton's ratings in the "substantial risk" category, just one notch above the "may be in default, extremely speculative" grouping. "We have downgraded the city's pension obligation debt to Caa3 from B3 and its lease revenue debt to Caa3 from Caa1. The outlook on these bonds is negative" the rating agency added. Moody's said that its rating decision "reflects the city's June 26 adoption of a budget that would suspend payments on some of its lease and pension obligation bonds backed by its general fund in fiscal 2013 in order to close an approximately $26 million budget gap." Stockton's elected officials approved a 2013 budget on Tuesday night based on the city filing for bankruptcy as soon as Wednesday. A bedroom community of 300,000 located some 85 miles east of San Francisco and a casualty of the real estate bust, Stockton is set to become the most populous U.S. city to file for bankruptcy. It has $700 million of outstanding debt. Stockton officials say the city's finances have been mismanaged for over two decades and a bankruptcy filing would shield it from its creditors. The process could last several years, Moody's said. The Wall Street credit agency said the Caa3 ratings assume investor losses will top 20 percent. "The negative outlook reflects the high likelihood that losses could exceed our estimates," Moody's warned. Stockton is proposing to balance its new budget partly by suspending $12 million of debt service. "Moody's believes that the magnitude of the budget gap and heavy reliance on debt service reductions as part of the budget solutions is an indication of the likelihood of a high level of losses that the city's pension obligation and lease bonds would experience in bankruptcy," the agency said. In a bankruptcy, that debt would be considered unsecured. In contrast, Moody's said it confirmed ratings on the city's water and sewer enterprise debt at Ba3, sewer enterprise debt at Ba1, and two of the community facilities districts' special tax bonds at Baa2. All of that debt was assigned a "developing outlook" because of how long a bankruptcy could last. Moody's said it made these determinations because "losses are unlikely, although how the bonds continue to perform in a potential bankruptcy remains uncertain." (Reporting By Tiziana Barghini and Joan Gralla ; Editing by Eric Walsh )

Cyprus requests IMF financial help: Lagarde

Wed Jun 27, 2012 11:25am EDT

http://www.reuters.com/article/2012/06/27/us-cyprus-imf-idUSBRE85Q12020120627

WASHINGTON - Cyprus has asked the International Monetary Fund for financial assistance to help it deal with the country's banking crisis, the head of the IMF said on Wednesday.

"Today, the IMF received an invitation from the Cypriot authorities to participate in the external financial assistance to contain the risks to the Cypriot economy," IMF Managing Director Christine Lagarde said in a statement. The request comes a day ahead of a crucial summit of European leaders on Thursday and Friday to deal with the ongoing euro zone debt crisis that has enveloped the continent. It will be the fourth euro zone country that has turned to the IMF for a rescue loan. The fund is already involved in bailouts for Greece, Portugal and Ireland. It is helping to monitor a 100 billion euros ($124.71 billion) European bailout for Spain. "We expect to send an IMF team to Cyprus to evaluate the situation in the field as soon as possible in preparation for discussions on an economic program that will help Cyprus meet the economic challenges it is facing," Lagarde added. Cyprus has also requested an EU bailout for its second-largest lender, Cyprus Popular Bank, which needs 1.8 billion euros in regulatory capital. The aid is expected to amount to about 10 billion euros, according to EU officials. In exchange, Cyprus will have to commit to budget cuts and structural reforms, as well as steps to strengthen its banking and financial sector. (Reporting by Neil Stempleman and Lesley Wroughton ; Editing by James Dalgleish )

Wall Street gains on data, rising oil prices

Wed Jun 27, 2012 4:58pm EDT

http://www.reuters.com/article/2012/06/27/us-markets-stocks-idUSBRE84S0BG20120627

NEW YORK - Stocks rose on Wednesday as stronger-than-expected economic data helped lift energy stocks, overshadowing concerns a European Union summit will not yield tangible progress in easing the debt crisis.

The energy sector .GSPE showed the strongest gains among the 10 major S&P 500 groups, rising 1.9 percent as oil prices settled higher at $80.21 a barrel. Cabot Oil & Gas Corp ( COG.N ) jumped 9 percent to $41.24 and was the biggest advancer on the S&P 500. <O/R> Worries about Europe have fed dramatic selloffs in stocks lately, but the declines have been tempered by enough short-term buying to keep the market confined to a range. Sentiment was helped by better-than-expected sales of long-lasting U.S. manufactured goods in May, although excluding transportation and defense items, orders were down. In other data, signed contracts for home purchases jumped to a seven-month high. The PHLX housing sector index .HGX climbed 3 percent, taking the year-to-date gains near 26 percent. Shares of Lennar Corp ( LEN.N ), the third-largest U.S. homebuilder, rose 4.8 percent to $28.70 after it reported a rise in new orders for the fifth straight quarter. "Sentiment is pretty negative. When you get people this depressed, markets have a tendency to bounce and that is pretty much where we are at right now," said Doug Foreman, director of equities at Kayne Anderson Rudnick Investment Management, an affiliated manager of Virtus Investment Partners in Los Angeles, California. Arena Pharmaceuticals Inc's ( ARNA.O ) surged 28.7 percent to $11.39 on news that U.S. health regulators approved the drugmaker's pill to treat obesity, the first weight-loss drug in 13 years. The Nasdaq biotech index .NBI gained 1.5 percent. But uncertainty remained ahead of the euro zone leaders' summit, which begins on Thursday. Few anticipate anything concrete to emerge from the two-day meeting after German Chancellor Angela Merkel said debt sharing, an idea backed by France, Italy and Spain, would not happen in her lifetime. Healthcare stocks were in focus heading into Thursday's U.S. Supreme Court decision on President Barack Obama's 2010 healthcare law. Some investors have their attention on stocks less likely to be affected by the ruling, such as large pharmaceuticals. Many investors expect the requirement that uninsured Americans purchase health insurance to be overturned, "so people have had plenty of time to position their portfolios for that," said Foreman. The Dow Jones industrial average .DJI gained 93.32 points, or 0.74 percent, to 12,627.99. The Standard & Poor's 500 Index .SPX advanced 11.89 points, or 0.90 percent, to 1,331.88. The Nasdaq Composite Index .IXIC added 21.26 points, or 0.74 percent, to 2,875.32. The market's rise came on light volume of 5.75 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq. The daily average year-to-date is 6.84 billion. Shares of Vivus Inc ( VVUS.O ) and Orexigen Therapeutics Inc ( OREX.O ) jumped following the FDA approval of Arena's obesity drug. The companies are also hoping to bring their medicines to market. Vivus shares were up 7.4 percent to $28.33 and Orexigen Therapeutics rose 20.3 percent to $4.92. Some of Wall Street's top analysts published their research on Facebook Inc ( FB.O ), and most are cautiously optimistic. Facebook shares fell 2.6 percent to $32.32 after gaining more than 20 percent in the prior two weeks. Advancing stocks outnumbered declining ones on the NYSE by 2,354 to 654, while on the Nasdaq, advancers beat decliners 1,766 to 706. (Reporting by Chuck Mikolajczak; Editing by Kenneth Barry)

Exclusive: Venezuela wants OPEC price band restored

Wed Jun 27, 2012 11:29am EDT

http://www.reuters.com/article/2012/06/27/us-venezuela-oil-idUSBRE85Q0TX20120627

CARACAS - Venezuela on Wednesday proposed that OPEC set an oil price band of $80 to $120 a barrel, Energy Minister Rafael Ramirez told Reuters, bidding to restore a policy the cartel tried 12 years ago in a failed attempt to control prices in a tight range by adjusting supply.

The Organization of the Petroleum Exporting Countries in 2000 adopted a $22 to $28 price band, requiring its members to cut or raise output in an effort to keep prices in that range for an OPEC basket of crudes. The policy quickly proved unworkable, however, and increasing demand from China pushed prices irreversibly through $30 in 2004. "We need to restore the band system," Ramirez told Reuters late Tuesday. "It could be between $80 and $120 right now, that would be sufficiently wide to allow flexibility." A Middle East OPEC official immediately dismissed the idea as a non-starter. "Having a band was never successful in the past and won't be successful now," the official said. "Its OK to have a band when the prices are going up, but what happens when the price goes down? You'll have to keep cutting production? This is out of the question." Iran, an ally of Venezuela in OPEC, did not dismiss the idea out of hand, pointing out that the $100 middle of the band proposed by Caracas is where many producers including Saudi Arabia want prices. "Venezuela is not the only country to believe the price should be around $100. The question is how do we protect this level. This issue should be discussed if it is proposed officially to OPEC," said Iran's OPEC governor, Mohammad Ali Khatibi. An official at OPEC declined comment. Venezuela's Ramirez, who is also head of state oil company PDVSA, said a fall in global crude prices to $90 a barrel was a threat to core oil projects around the world. "Right now it's a case of holding on to see if the prices are going down for circumstantial reasons, but if the situation continues, we are entering a risk zone. Anyone who enters into play like this in the oil market is shooting himself in the foot," he added. Saudi Arabia, which said earlier this year it was happy with $100 a barrel, has shown no sign of cutting production to support prices that sank last week below $90 for global benchmark Brent for the first time in 18 months. Brent traded just over $93 on Wednesday. Venezuela relies on oil for more than 90 percent of export revenue and has been heavily critical of the Saudis for increasing production to help suppress prices and support global economic growth. President Hugo Chavez's socialist government has been using oil revenues to spend big on welfare projects ahead of an October 7 election, but economists warn that the price fall will hit its coffers hard. (Writing by Andrew Cawthorne , editing Richard Mably and John Picinich)

Cyprus bank bailout grows on largest bank bid

Wed Jun 27, 2012 8:11am EDT

http://www.reuters.com/article/2012/06/27/us-cyprus-bailout-idUSBRE85Q0OE20120627

NICOSIA - The cost of Cyprus's EU bailout to support a major bank jumped unexpectedly on Wednesday after the island's largest lender said it too needed state support to meet a regulatory shortfall in capital by June 30.

The tiny Mediterranean island became the fifth euro zone nation on Monday to seek emergency funding from Europe, with a bailout bill that could potentially amount to more than half the size of its economy. Cyprus already needs 1.8 billion euros ($2.2 billion) to help recapitalize Popular Bank, its second-largest lender. Bank of Cyprus followed with a call for aid on Wednesday, saying it would need "temporary capital support" from the state to the tune of about 500 million euros - effectively jacking up the nation's exposure to its banks to 2.3 billion euros. Cyprus banks have been crushed by a writedown on Greek sovereign bonds negotiated in an attempt to make Greece's debt mountain more sustainable. Bank of Cyprus and Popular recorded record losses in 2011, depleting their regulatory capital. Combined, a 2.3 billion euro figure is a considerable chunk of Cyprus's 17.3 billion euro economy, and two euro zone sources on Tuesday put a potential bailout amount at up to 10 billion euros. The government says no amounts have been discussed. Officials from the ECB, which will carry out an assessment with the European Commission of precisely how much aid Cyprus may require, were due on the island on Monday, two sources said. It was unclear whether the International Monetary Fund, which already has a team in Cyprus on a previously-scheduled and unrelated mission, would get involved. PUT UP COLLATERAL, FINNS SAY Although a 10 billion euro figure would easily be within the firepower of the European Financial Stability Facility (EFSF), it could lead to calls for collateral. Finland will demand collateral for its share in rescuing Cyprus, if the EFSF is used, Prime Minister Jyrki Katainen said on Wednesday. "If the non permanent fund is used to aid Cyprus, then yes, Finland will demand collateral," Katainen told reporters. "In Finland's view... over some time span it could prove wise for larger European banks to have a crisis fund, which the banks would gather themselves." Cyprus kept markets guessing for weeks as to whether it would seek aid from its EU partners or resort to bilateral lending, an option which remains open and one which would supplement a bailout. One fear in Nicosia is pressure that its low-tax status could be challenged, and unpopular austerity measures imposed with a general election in eight months. Cypriot finance minister Vassos Shiarly said any speculation on bailout conditions was premature. "I believe what we will discuss and conclude on won't be so painful as some may believe," he told state radio. (Reporting by Michele Kambas , additional reporting by Eero Vassinen; Editing by Ruth Pitchford)

Nomura CEO taken to task over insider probe, keeps job

Wed Jun 27, 2012 4:51am EDT

http://www.reuters.com/article/2012/06/27/us-nomura-agm-election-idUSBRE85Q0CM20120627

TOKYO - Kenichi Watanabe was re-elected as CEO of Nomura Holdings ( 8604.T ) on Wednesday, but faced a series of tough questions from shareholders about the Japanese broker's slumping share price and his handling of a protracted insider trading probe.

The 59-year old bowed in apology at the annual shareholders' meeting in central Tokyo's Hotel Okura and vowed to shore up compliance in the wake of the third insider trading scandal to rattle the broker since he took the helm in April 2008. "We have caused worry and trouble, and for that I would like to humbly apologize," Watanabe said in his first public appearance since the first of three insider trading cases linked to Japan's largest investment bank was announced in late March. Watanabe said he would publish an internal investigation into the matter by the end of the month. That report will be followed by a penalty from the regulator ranging from an order to improve compliance to a more damaging suspension of some operations for weeks, sources with knowledge of the situation have said. Shareholders voiced their discontent on a range of issues - from a near-30 percent drop in the stock price over the past year to progress on Nomura's overseas expansion following its purchase of Lehman Brothers' Asian and European operations in 2008. Some of the harshest criticism was reserved for management's handling of the insider trading scandal, which has dragged on for months as the broker struggles to come to a consensus with the regulator on how widespread the problems were. One shareholder drew applause from a packed banquet hall when he said management's stated emphasis on compliance "rang hollow", adding that not completing the internal investigation in time for Wednesday's meeting was an "underhanded" move. A second shareholder took aim at the broker's sales tactics, which have come under scrutiny. One salesman, for instance, entertained a client 39 times over nine months and showered him with expensive gifts, according to a report commissioned by an asset management firm implicated in the probe. "The quality of the Nomura salesman is in decline. What happened to the pride of being No.1?," the shareholder said, triggering more applause. Shareholders voted in all 13 directors on the slate, including board chairman Nobuyuki Koga, who along with Watanabe had been opposed by proxy advisory firm Institutional Shareholder Services, which argued the two leaders should take responsibility for the insider trading scandal. The voting percentages will not be available until Thursday, Nomura said. Earlier this month, Nomura confirmed regulators' findings in admitting it was the source of leaks on planned share offerings by energy firm Inpex ( 1605.T ), Mizuho Financial Group ( 8411.T ) and Tokyo Electric Power ( 9501.T ). In all three cases, employees at its institutional sales department tipped off clients who profited by selling the shares short ahead of the offering and then buying them back at a lower price. BETTER ETHICS Watanabe said he would make improving professional ethics awareness one of three key focus areas of the firm's strategy - along with expanding in Asia and bolstering cooperation between operations in Europe, the United States and Japan. In a regulatory filing, Nomura said Watanabe was paid 128 million yen ($1.6 million) in the business year to end-March, including stock options. Takumi Shiabata, the company's chief operating officer, received 113 million yen. Early in the meeting, Watanabe offered the floor to the unnamed shareholder who had managed to place 18 mostly frivolous proposals on the AGM docket - including a call for Nomura to switch its toilets to squat-down Japanese style units to improve staff physique and discipline, and ultimately boost the stock price. The shareholder did not respond, and the proposals were dismissed. Nomura shares closed up 2.2 percent, outperforming a 0.8 percent gain on the benchmark Nikkei average .N225 . Nomura has lost nearly half its market value since Watanabe took the helm, roughly in line with the performance of global rivals Morgan Stanley ( MS.N ) and Goldman Sachs ( GS.N ). (Reporting by Emi Emoto and Nathan Layne; Editing by Chang-Ran Kim and Ian Geoghegan )

Exxon CEO says hopes Mexico extends oil reforms

Wed Jun 27, 2012 1:43pm EDT

http://www.reuters.com/article/2012/06/27/us-exxonmobil-mexico-idUSBRE85Q14P20120627

NEW YORK - Exxon Mobil ( XOM.N ) would be interested in investing in Mexico's oil and gas sector, but only if the Mexican government allows the company to own some energy reserves, its chief executive said on Wednesday.

"We're not real keen on service contracts, we're not real keen on fixed margin contracts. Although we have some of those, they're not particularly great for us," Exxon Mobil CEO Rex Tillerson told reporters after a speech. Mexico's constitution bars outside exploitation of the country's oil resources, making joint ventures or profit sharing with private companies difficult. But the country has been seeking to open the door to attract investment from foreign oil and gas producers to help tap the vast reserves there. Mexico's state oil monopoly Pemex PEMX.UL awarded contracts to some foreign companies earlier this month to help develop offshore fields, but those contracts pay bonuses based on performance and do not allow for ownership of oil and gas. Tillerson said he was encouraged by the initial moves to open the Mexican energy sector, which could eventually attract financing and technology from the global industry. "I think it's going to be a long process. And what we're advocating is just for Mexico to take the next step," he said. In addition to its offshore oil fields, Mexico has the world's fourth-largest reserves of shale gas, according to the U.S. Energy Information Administration. But so far, Pemex has drilled relatively few wells in the those fields near the Rio Grande because it has little capital to develop those areas. Tillerson also said the United States, Canada and Mexico should work together to develop energy supplies and promote "energy security" that would keep a flow of oil and gas to North America. Currently, North America produces about 15 million barrels of oil per day, he said, and Exxon expects that figure to grow to 18 million barrels a day by 2020. "That is a force to be dealt with in global oil markets," he said. "It's my hope that at some point energy security can become a policy issue in our foreign policy discussion with Mexico, Canada and the United States," he said. (Reporting by Matt Daily ; Editing by Leslie Gevirtz )

Shenzhen's "mini-Hong Kong" to test China's financial ambitions

Wed Jun 27, 2012 11:06am EDT

http://www.reuters.com/article/2012/06/27/us-china-minihongkong-idUSBRE85Q0Z520120627

SHENZHEN/HONG KONG - China's southern boomtown of Shenzhen, a pioneer of economic reforms but long in the shadow of Hong Kong, is plotting another bold ploy: a $45 billion 'mini-Hong Kong' to return it to the limelight and aid China's rise as a financial power.

On a barren stretch of reclaimed land in western Shenzhen and near the Hong Kong border, China wants to build another financial services hub from scratch in the Qianhai Bay economic zone, offering the low taxes, rigorous legal regime and anticorruption vigilance enjoyed by its affluent neighbor. For the former British colony, which this weekend will mark the 15th anniversary of its return to China, the project could bring fresh business opportunities and bolster its position as China's financial window on the global markets. But Shenzhen's ambitions are running into the brick wall of Beijing's caution over reform, as China's grand hopes of becoming a global financial powerhouse struggle to overcome its fear of freeing markets from government control. Local officials have given up, for example, on the idea of an independent antigraft body similar to Hong Kong's, settling for a hybrid that mixes features of the Hong Kong and mainland systems, said Cao Hailei, head of the Qianhai Authority overseeing the project. "The structure of the two governments is different," Cao told Reuters in an interview at a Shenzhen municipal government office. Chinese President Hu Jintao is expected to announce preferential tax rates and other incentives for the Qianhai Bay zone when he visits Hong Kong this week to fete the anniversary of the city's return and swear in a new administration. China has been steadily expanding the role Hong Kong plays in internationalizing the yuan, which it hopes one day will be a global currency like the dollar, and in building up the Chinese financial markets. Beijing announced a series of new measures on Wednesday for Hong Kong, including allowing joint ventures among the stock exchanges of Shanghai, Shenzhen and Hong Kong, and letting Hong Kong financial firms set up consumer arms in Guangdong province, which includes Shenzhen. BUCOLIC BACKWATER Now a bustling metropolis of 10 million crammed with ports and skyscrapers and home to Chinese corporate goliaths such as carmaker BYD Co ( 1211.HK ) and telecommunications firm Huawei Technologies ( 002502.SZ ), Shenzhen was no more than a bucolic backwater of 30,000 villagers living off paddy fields and the sea in 1980. Shenzhen's stock market, while smaller than its Shanghai counterpart, has become the most active global IPO center on a wave of domestic listings, eclipsing London and Hong Kong. China has also laid out plans to build up Shanghai, which already boasts the world's fourth-largest stock market by value of shares traded, into a bona fide global financial center by 2020, but it still has far to go to compete broadly with established centers such as New York and London. Despite giant economic strides in the past two decades, China's still difficult and fickle business environment needs to mature into one of greater openness and legal rigor, foreign investors say, and those are elements that have long been part of Hong Kong's institutional and commercial fabric. Qianhai, which will focus on financial, logistics and IT services and is set for completion in 2020, would allow the mainland to leverage Hong Kong's expertise. Through close cooperation with Hong Kong, Qianhai would forge an "innovative financial reform program", Zhang Jianmin, an official with China's top economic planning agency, the National Development and Reform Commission, said this month. The Qianhai Authority's Cao said he hoped to establish a new arbitration court with juries partly comprised of Hong Kong residents to settle commercial disputes, addressing common concerns among Hong Kong and foreign investors toward the vagaries of Chinese law. "We expect the policies will be approved before the end of June," he said. Hong Kong officials have publicly backed the Qianhai project, offering expertise on financial markets and legal systems. They see it as a key part of the rapidly expanding conglomeration of cities in the Pearl River Delta, which comprises much of Guangdong province and is often called the world's workshop for its concentration of export-oriented manufacturers. The region, along with Hong Kong and Macau, has a combined GDP exceeding the Netherlands and nearly the size of Australia. "Hong Kong is suffering from limited land supply," said Thomas Chan, head of the China Business Centre at the Hong Kong Polytechnic University. "With the help of Qianhai, (Hong Kong) could expand some of its financial business across the border. In fact, this is what the mainland planners have in mind. The 15 square-kilometer area is twelve times the size of Hong Kong's central district." Qianhai will be largely self-financed by bank loans, bonds and revenue from land-use rights of the area, as well as co-development projects, Cao said, with infrastructure development costs estimated at 285 billion yuan ($44.8 billion). Analysts say the project's endorsement at the highest levels in Beijing should reduce the risk of any financing difficulties even as China's credit environment tightens. (Editing by Edmund Klamann)

Merkel stands firm on euro bonds before EU summit

Wed Jun 27, 2012 8:58am EDT

http://www.reuters.com/article/2012/06/27/us-eurozone-merkel-idUSBRE85Q0JI20120627

BERLIN - German Chancellor Angela Merkel accused other European leaders on Wednesday of wanting to put the cart before the horse by pressing for common bond issuance to fight the euro zone crisis before agreeing to tough new budget controls.

Speaking in the Bundestag lower house of parliament before a summit in Brussels on Thursday and Friday, Merkel did leave the door open for the first time to using proceeds from a proposed financial transactions tax (FTT) to boost growth and competitiveness in struggling euro countries. But she offered no other obvious concessions to governments in Europe that have pushed Germany to drop its opposition to joint debt liability, and she sharply criticized a report from top EU officials released before the summit that suggested common bonds as a solution to the three-year old crisis. "I fear that at the summit we will talk too much about all these ideas for joint liability and too little about improved controls and structural measures," Merkel said. "Euro bonds, euro bills, debt redemption funds are not only unconstitutional in Germany but also economically wrong and counterproductive." On Tuesday, Merkel told a closed-door party meeting that she did not expect joint euro bonds to be introduced in her lifetime. She did not go that far in her speech, but made clear that they could not be considered until euro states agreed to give up control over their national budgets. "Joint liability can only happen when sufficient controls are in place. I would point out that neither the federal government and states in Germany nor countries like the United States or Canada have total joint debt liability for the bonds they issue." As leader of Europe's biggest economy, Merkel faces enormous pressure to take radical steps to save the single currency bloc from a devastating breakup. Greece, Portugal and Ireland have all been bailed out, and both Spain and Cyprus will soon receive rescues. Were another big country like Italy to require aid, the bloc's existing rescue funds would be quickly depleted, stoking fears of a catastrophic rupture. "SCHOOLMISTRESS" Speaking after Merkel, the parliamentary leader of the opposition Social Democrats (SPD), Frank-Walter Steinmeier, accused her of misdiagnosing the crisis and lecturing others "like a schoolmistress". "The crisis is cutting a swath through Europe, there is no end in sight, and the crisis is now reaching us," the former foreign minister said. Merkel acknowledged that all eyes would be focused on Germany at the summit, saying she was "under no illusions" and predicting a "controversial discussion" with other leaders. But she reiterated that Germany could only go so far to save the bloc. If Berlin did too much, it would have "unforeseeable consequences" at home and for Europe, she said. "Germany is an engine for growth and an anchor of stability in Europe. But Germany's strength is not infinite, Germany's power is not unlimited, Germany's strength should not be overestimated," Merkel said. One area where she did appear to signal a readiness to compromise was on the use of revenues from a proposed financial tax on buying and selling shares, bonds and derivatives that a group of about 10 euro zone countries want to introduce next year. Merkel said she could envision using these funds to help boost growth and competitiveness in stricken European countries. Until now, Germany has said the proceeds from such a tax should flow back to the member states where they are raised. (Reporting by Noah Barkin, Stephen Brown, Andreas Rinke, editing by Mike Peacock)

Fed's Lockhart: not time for the bigger guns yet

Wed Jun 27, 2012 6:46pm EDT

http://www.reuters.com/article/2012/06/27/us-usa-fed-lockhart-idUSBRE85Q1QO20120627

WASHINGTON - The Federal Reserve would only likely launch another full-on round of bond buying if the economy took a turn for the worse or if Europe's problems flared out of control, a top policymaker said on Wednesday.

"I don't think the conditions have developed that require us to bring out bigger guns quite yet," Atlanta Fed President Dennis Lockhart said in an interview with Nightly Business Report. Lockhart is a voter this year on the central bank's policy-setting panel. Another round of quantitative easing "is certainly an option," he added. A dramatic slowing of growth, a wave of job layoffs, or falling prices that raise the specter of damaging deflationary spiral are all possible triggers for Fed action, he said. (Reporting By Mark Felsenthal ; Editing by Sandra Maler )

Fairfax denies top shareholder Rinehart board seats

Wed Jun 27, 2012 4:43am EDT

http://www.reuters.com/article/2012/06/27/us-fairfax-rinehart-idUSBRE85Q0CF20120627

SYDNEY - Australia's Fairfax Media ( FXJ.AX ) on Wednesday rejected calls from mining magnate and top shareholder Gina Rinehart for board representation, saying it would not compromise its editorial independence.

Rinehart, the Asia-Pacific region's richest woman with a fortune estimated by Forbes at $18 billion, has built an 18.7 percent stake in the publisher of the Australian Financial Review and Sydney Morning Herald. Rinehart had been seeking up to three seats on the board. "I regret that agreement has not been reached for Mrs Rinehart to join the Fairfax Media board of directors," Fairfax Chairman Roger Corbett said in a statement. "I hope that this might be possible in the future. However key elements yet to be agreed include acceptance of the charter of editorial independence as it stands and the Fairfax board governance principles as agreed by all existing directors." Rinehart, a critic of Australia's Labor government and its controversial mining and carbon taxes, has pitched herself as a white knight for Fairfax. But said she might sell her stake in the media company, which is struggling with a fragmented advertising market and shift in the publishing landscape, if she did not get influence at the board level. "Unless director positions are offered without unsuitable conditions, Mrs Rinehart is unable to assist Fairfax at this time," Rinehart's company, Hancock Prospecting, said in an email statement to the Australian Broadcasting Corp that was published on Tuesday. Rinehart also owns 10 percent of TV broadcaster Ten Network ( TEN.AX ) and has a seat on its board. Hancock did not immediately respond to a request for comment. Shares in Fairfax closed on Wednesday up 0.9 percent at A$0.555, just off an all-time low of A$0.53 touched on Tuesday. The stock peaked near A$5.00 in 2007. (Reporting by Lincoln Feast ; Editing by Chris Gallagher )

Analysis: Morgan Stanley faces Facebook fallout, limits damage

Wed Jun 27, 2012 8:52am EDT

http://www.reuters.com/article/2012/06/27/us-facebook-morganstanley-idUSBRE85Q0R820120627

NEW YORK - Morgan Stanley ( MS.N ) was quick to dismiss suggestions its status as the king of initial public offerings for Silicon Valley was under threat because of the botched Facebook Inc ( FB.O ) IPO last month. And that confidence may be warranted.

While Morgan Stanley has been snubbed by some technology companies, the repercussions for the Wall Street investment bank have been limited, according to sources familiar with the situation. Just a week after the Facebook debut, Ruckus Wireless chose Goldman Sachs Group Inc ( GS.N ) over Morgan Stanley as the lead underwriter for its IPO, sources familiar with the matter said. One of the sources said the company's decision had nothing to do with the social networking website's debacle, but a second said Facebook had at least some influence on the decision. Ruckus, which supplies WiFi products to mobile operators, chose Goldman primarily because it liked the firm's banker and the pitch, the sources said. Morgan Stanley is now one of the bookrunners on the IPO. Some companies and rivals have railed against Morgan Stanley's tendency to monopolize IPOs - a practice that is not uncommon on Wall Street. The bank retained tight control over information, decisions and the allocation of Facebook shares, even though there were 33 bookrunners on the offering, other underwriters have said. In fact, the bank has long argued it is right to do so, telling clients it offers them "one throat to choke" if something goes wrong, sources familiar with the situation said. But at least one client, Palo Alto Networks, which has hired Morgan Stanley as its lead bookrunner, is no longer buying into that argument. The security software maker has asked its other underwriters, which include Goldman and Citigroup Inc ( C.N ), to be more active in its IPO, which is planned for later this summer, sources familiar with the company said. That will likely mean having more of a voice in book-building, as well as pricing discussions. Palo Alto Networks' executives also expressed concern about the botched Facebook IPO, but Morgan Stanley remains the lead underwriter, the sources said. Helping Morgan Stanley is a recognition that it won a large part of its mandate in the Facebook IPO by successfully raising $16 billion for the company and its early shareholders. The bank and Facebook have been criticized for increasing the number of shares sold and the price range, while the company cut its outlook. BLAME NASDAQ However, it is Nasdaq OMX Group Inc ( NDAQ.O ) that has been in the firing line for most for the technical glitches that led to a disastrous opening day, with many orders delayed and a number of market makers each losing tens of millions of dollars. The confusion is being at least partially blamed for the subsequent decline of Facebook shares by as much as 33 percent, although they have regained more than half of those losses. Another Morgan Stanley technology client, IT software maker GFI Software went so far as to think about removing the bank as the lead bookrunner on its IPO, according to sources close to the matter. Morgan Stanley remains on the deal, but the other underwriters, including JPMorgan Chase & Co ( JPM.N ) and Jefferies Group Inc JEF.N, are playing an active role, the sources said. GFI is expected to file for the IPO with U.S. securities regulators shortly, they added. Morgan Stanley bankers have often had to explain its handling of the Facebook IPO in discussions with clients, sources familiar with the situation said. But years of relationship-building by technology banker Michael Grimes and others has given the bank a second chance in Silicon Valley after the disaster. Morgan Stanley will get that chance as soon as this week, when business software company ServiceNow is expected to go public. The company, which has kept Morgan Stanley as lead underwriter, will be the first technology public offering for the bank since Facebook. Morgan Stanley, Citigroup and Goldman declined to comment, as did Ruckus Wireless, Palo Alto Networks and GFI Software. (Reporting By Olivia Oran and Nadia Damouni; editing by Paritosh Bansal , Martin Howell and Andre Grenon ) (This story has been refiled to add dropped word in first paragraph)

U.S. charges 24 people in massive hacking sting

Tue Jun 26, 2012 8:02pm EDT

http://www.reuters.com/article/2012/06/27/us-usa-cyberarrests-idUSBRE85P15I20120627

NEW YORK - U.S. law enforcement officials on Tuesday said 24 suspected hackers had been arrested in a sting operation spanning four continents that targeted online financial fraud of stolen credit card and bank information.

In a two-year investigation, FBI agents posed as hackers on Internet forums, watching as other hackers swapped methods for breaching data security walls and creating fake credit cards that would work for Internet and in-person purchases. The probe prevented $205 million in possible losses on over 411,000 compromised consumer credit and debit cards, U.S. authorities in New York said. Eleven people were arrested in the United States, the Federal Bureau of Investigation and the Manhattan U.S. Attorney's office said. The thirteen others were arrested in countries from Britain to Japan, the authorities said. Officials in Australia also conducted searches. "Clever computer criminals operating behind the supposed veil of the Internet are still subject to the long arm of the law," Manhattan U.S. Attorney Preet Bharara said. During the operation, the FBI said, it not only monitored the hackers' activities but also contacted "multiple" people and institutions hit by the hackers and showed them how to repair their security breaches and protect themselves in the future. No credit card companies or banks were named in Tuesday's court documents. The 24 people arrested were all men aged 18 to 25. Some face up to 40 years or more in prison if convicted on conspiracy to commit wire fraud charges and access device fraud charges. The FBI operation centered around a "carding forum" that it had secretly created in June 2010, and was in charge of running unbeknownst to its participants, authorities said. The forum, called "Carder Profit," was essentially an online market for registered users to exchange stolen account numbers. It was shut down in May. Two people were arrested in the New York area and were later released on bail after appearing in Manhattan federal court. One of the men, Mir Islam, known online as "JoshTheGod," was charged with trafficking in 50,000 stolen credit card numbers. Authorities said Islam had admitted to helping emerging hacker outfit UgNazi, which said it had launched a cyber attack against the microblogging platform Twitter last week. Islam, 18, who lives in the New York borough of the Bronx, appeared before U.S. Magistrate Judge James Francis in flip-flop sandals and jeans. His parents, who are from Pakistan, watched the proceeding from a back bench. Islam was released on a $50,000 bond. Fellow Bronx resident Joshua Hicks, 19, also known as "OxideDox," was charged with one count of access device fraud. Wearing red basketball shorts, Hicks was released on a $20,000 bond after a brief hearing before the same judge. Meanwhile on Tuesday, the U.S. Federal Trade Commission filed a complaint against Wyndham Worldwide Corp and three subsidiaries, alleging that the hotel operator failed to keep customer data secure. That failure resulted in the theft of hundreds of thousands of consumers payment card numbers, which were sent to an Internet address registered in Russia and $10.6 million in fraudulent charges, according to the complaint. The cases are U.S. v Joshua Hicks and U.S. v. Mir Islam, U.S. District Court for the Southern District of New York, Nos 12-1639 and 12-1701 (Reporting By Basil Katz; Editing by Carol Bishopric, Gary Hill )

Spain says summit will debate direct bank recapitalization

Wed Jun 27, 2012 6:29am EDT

http://www.reuters.com/article/2012/06/27/us-spain-economy-banks-idUSBRE85Q0DS20120627

MADRID - Direct recapitalization of Spain's troubled lenders using European Union aid funds will be discussed at the summit of EU leaders in the next two days, Economy Minister Luis de Guindos said on Wednesday.

De Guindos said he held a conference call with his French, German and Italian counterparts earlier this morning and would take part in another at 1100 GMT, after the "top 4" euro zone ministers met in Paris on Tuesday evening. The leaders' summit will also discuss greater banking union across the monetary union, along the lines laid out in a report by European Council President Herman Van Rompuy, de Guindos said. "I believe the Eurogroup will make some important contributions in this respect and, as Prime Minister (Rajoy) said earlier, I think the possibility of direct capital injections to the banks will be there (in the discussion)," he told Parliament. Spain has asked for aid of up to 100 billion euros ($124.71 billion) to recapitalize its recession-hit banks, though current rules dictate European aid money must first go to the state, adding to already high public debt levels. ($1 = 0.8019 euros) (Reporting By Fiona Ortiz ; Writing by Paul Day)

U.S. should be open to crude oil exports: EIA head

Wed Jun 27, 2012 4:12pm EDT

http://www.reuters.com/article/2012/06/27/us-usa-oil-exports-idUSBRE85Q1KE20120627

WASHINGTON - The United States should be open to exporting domestically produced crude oil, the head of the Energy Information Administration said on Wednesday, arguing that such exports could actually benefit the U.S. economy.

Adam Sieminski, the former Deutsche Bank economist who was sworn in as EIA administrator earlier this month, said selling U.S. oil abroad could help provide a market for light sweet crude produced from shale formations in places like North Dakota, since the Gulf coast refining hub is more suited to process heavier crudes. With the shale boom dramatically increasing U.S. oil and gas output, U.S. energy export policy is getting a closer look. "I'm not sure we should just automatically assume that would be bad," Sieminski told reporters at a conference focused on EIA's annual energy outlook, referring to U.S. oil exports. "It might actually be a way to grow the economy, create jobs and ultimately help reduce prices," Sieminski added. Even if the United States continues to be a net importer of crude oil, Sieminski said it might make sense to export some light sweet crude produced from shale and to continue to use heavy crude in the refineries on the Gulf coast. Some lawmakers argue that the Obama administration needs to focus on keeping newly tapped domestic resources in the United States to keep prices low, while some in industry say the government should allow the market to determine the necessary course for exports. While crude oil products such as gasoline and diesel can be exported from the United States, the Mineral Leasing Act of 1920 and the Outer Continental Shelf Lands Act requires a presidential waiver for the sale of most unrefined crude oil abroad, essentially blocking exports. The United States is expected to import 8.49 million barrels per day of crude oil in 2012, about 45 percent of U.S. oil consumption, according to EIA data. The EIA is the independent statistical arm of the Energy Department. The agency does not advocate for specific policy positions, Sieminski said. Sieminski's comments come as the Energy Department weighs whether it is in the country's interest to sell more of the nation's excess natural gas to other countries. Opponents have raised concerns that natural gas exports could lead to higher prices and hurt resurgent manufacturing sector, but drillers say exports are needed to alleviate the glut of gas in the market and keep output going strong. The Energy Department must approve gas exports to all but a handful of countries that have free trade agreements with the United States. (Editing by Leslie Gevirtz )

Citi cuts retailers on lower high-end consumer spend

Wed Jun 27, 2012 9:08am EDT

http://www.reuters.com/article/2012/06/27/us-usretailers-research-citi-idUSBRE85Q0SF20120627

- Citi Investment Research & Analysis downgraded retailers Macy's Inc ( M.N ), Nordstrom Inc ( JWN.N ) and Saks Inc SKS.N to "neutral" from "buy," citing contraction in spending by high-end consumers.

April-May comparable sales at high-end department stores fell 3 to 4 percentage points from a year earlier, Citi said. Confidence among high-end consumers slowed to 80.7 in May from 86.0 in April, the brokerage wrote in a note. High-income consumers, who account for about half of spending in the United States, will likely be hurt by a volatile stock market, it added. "We are incrementally more concerned about the health of the consumer, given the softening U.S. economic outlook and declining consumer confidence," Citi analysts said. The brokerage said it expects slowing same-store sales to pressure Macy's repurchase program, and cut its price target on the retailer's stock to $37 from $49. Aggressive investment will limit upside for Nordstrom, Citi said, lowering its price target on the stock to $52 from $63. It also cut its price target on Saks to $11 from $14 and said it expects weakness in the women's designer apparel to likely weigh on its same-store sales growth. Macy shares were down nearly 2 percent in premarket trading. They closed at $34.20 on the New York Stock Exchange on Tuesday. Shares of Saks fell about 3 percent in premarket trading. They had closed at $10.03 on Tuesday on the same exchange. Nordstorm's stock had closed at $48.62 on Tuesday. (Reporting by Juhi Arora in Bangalore; Editing by Joyjeet Das)

Eastern EU members attack bank plan

Wed Jun 27, 2012 1:01pm EDT

http://www.reuters.com/article/2012/06/27/us-eurozone-easteurope-idUSBRE85Q19Q20120627

PRAGUE - The Czech government and Bulgarian central bank stepped up criticism of proposals for an EU banking union on Wednesday, raising new obstacles to agreement at a summit this week.

Changes to EU banking supervision are seen as important for resolving the euro zone debt crisis and are up for discussion at a summit that is already set to be heated as Germany faces off with Italy, France and Spain over how to save the currency bloc. Some states outside the euro zone, including economic heavyweight Britain, fear EU-wide banking rules could rob them of sovereignty and damage their economies. Czech Prime Minister Petr Necas said his government would not accept initial proposals circulated so far. "Some proposals like the banking union could have an extremely damaging impact on the Czech economy," he said, adding that he did not expect any major conclusion from the summit. Bulgarian central bank governor Ivan Iskrov expressed concern over any proposal to extend banking supervision across the European Union, rather than just to the euro zone, and said small states would find that hard to support. A failure by all EU members to agree on EU bank regulation would undermine prospects for any changes which could in any case take years to implement. The particular worry of the Czech Republic and some other eastern European countries is that their banking systems could be undermined by lighter EU-wide regulation. Many banks in eastern European countries are owned by those in bigger states. The fear is that under EU regulation, less well capitalized parent banks could drain the capital of their healthier subsidiaries in other countries. European Council President Herman Van Rompuy released a seven-page report this week envisaging an "integrated financial framework (that) should cover all EU states". EU-wide banking rules could make it easier for the European Union to support troubled banks, which are currently reliant on national governments for help in what has become a mutual spiral of debt and decline in some countries. SINGLE SUPERVISOR At the summit in Brussels, EU leaders will look at how to establish a banking union, including a single supervisor for the largest banks, a fund to wind down cross-border lenders in trouble and more-assured guarantees to protect depositors. The European Commission, the EU's executive, wants the banking union to apply to all countries to preserve the functioning of the bloc's borderless single market. But Britain, whose financial sector makes up a much bigger part of the economy than it does in most European countries, insists any EU banking rules should be limited to the euro zone. It is joined by the Czech Republic and Bulgaria. Other eastern European countries have so far declined to comment. But some, such as Poland, have similar concerns about keeping a tight hold on their banking systems. "It is very important for the countries which are not in the euro zone, like us, to make sure that these proposals concern the euro zone," Bulgaria's Iskrov told reporters. Neither Bulgaria nor the Czechs have joined the euro. Prague, like London, has also opted out of an EU fiscal pact. Its main political parties are at odds on how to approach further EU integration. Van Rompuy's proposal allows for differences between EU members and those outside the currency zone, but it also makes clear that the final word be at the European level. "For this country and its financial stability, some of the things proposed on the EU level over the last two weeks present substantial mid-term risks for financial stability," Czech central bank governor Miroslav Singer said in Prague. (Additional reporting by Robert Muller and Tsvetelia Ilieva; writing by Michael Winfrey; Editing by Matthew Tostevin )

Fewer troubled mortgages hobble banks in first quarter

Wed Jun 27, 2012 10:48am EDT

http://www.reuters.com/article/2012/06/27/us-financial-regulation-occ-idUSBRE85Q0WH20120627

WASHINGTON - U.S. banks held fewer troubled mortgages in the first quarter of 2012, according to a report issued on Wednesday by the Office of the Comptroller of the Currency, as loans serviced by national banks performed better in the first three months of the year.

The report said the overall quality of serviced mortgages improved, and the percentage of serviced loans that were current and performing at the end of March was 88.9 percent, the highest level in three years. The improvement was due to an uptick in the economy and continued emphasis on programs intended to keep borrowers in their houses, the OCC said. Overall, the percentage of mortgages that were 30 to 59 and 60 to 89 days delinquent also decreased to their lowest levels since the OCC began tracking the mortgage data in the first quarter of 2008. The percentage of mortgages in the portfolio that were 30 to 59 days delinquent at the end of the first quarter decreased by 17.3 percent from the previous quarter and by 3.8 percent from a year earlier. "This improvement can be attributed to several factors, including strengthening economic conditions during the quarter, seasonal effects, servicing transfers, and the ongoing effects of both home retention loan modification programs as well as home forfeiture actions," the OCC said in the quarterly report. The number of foreclosures in process decreased from a year ago, edging down 1.8 percent from the previous quarter and by 8.1 percent from a year earlier. However, the percentage of mortgages in the process of foreclosure at the end of the first quarter of 2012 increased, rising by 1.8 percent from the previous quarter and 2.3 percent from a year earlier. "This reduction in new foreclosures is attributable to servicers' ongoing emphasis on modifications and other loss mitigation programs, a declining number of seriously delinquent mortgages over the last year, and slower initiation of new foreclosure referrals," according to the OCC. Banks have been forced to change their foreclosure processes after illegal filings and improper handling of documents surfaced and institutions were accused of taking shortcuts in the years following the 2007-2009 financial crisis to speed up foreclosures. In February, Bank of America, JPMorgan Chase & Co , Citigroup Inc, Wells Fargo and Ally Financial struck a $25 billion deal with state attorneys general and the Justice Department to settle allegations of foreclosure abuses. The report covers the performance of about 60 percent of all mortgages outstanding in the United States, or 31 million loans totaling $5.3 trillion. The OCC Mortgage Metrics Report provides performance data on first-lien residential mortgages serviced by national banks and federally regulated thrifts. (Reporting by Margaret Chadbourn ; Editing by Chizu Nomiyama )

ECB's Asmussen: mission to Spain starts this evening

Wed Jun 27, 2012 12:47pm EDT

http://www.reuters.com/article/2012/06/27/us-ecb-asmussen-idUSBRE85Q18M20120627

BERLIN - The European Union and European Central Bank's mission to Spain, with support from the International Monetary Fund, will start work this evening in Madrid, ECB Executive Board member Joerg Asmussen told Reuters on Wednesday.

Asmussen said the aim was to present a memorandum of understanding regarding a 100 billion euros ($125 billion) European bailout for Spain to the Euro group of finance ministers on July 9, including conditions for the financial sector. "To reach the 9 July date is an ambitious but do-able time frame," he told Reuters by email. Asmussen also said that the Troika of international lenders would probably start work on its mission to Cyprus, which has also sought help in supporting its banks, in situ next Monday, July 2. "In my view it should be a wide-reaching program," he said. "Structural questions should be part of the EFSF/IMF program." (Reporting By Gernot Heller , Writing by Sarah Marsh; Editing by Ruth Pitchford)

Big banks craft "living wills" in case they fail

Wed Jun 27, 2012 4:29am EDT

http://www.reuters.com/article/2012/06/27/us-banks-bailouts-wills-idUSBRE85Q0AZ20120627

NEW YORK/WASHINGTON - Five of the biggest banks in the United States are putting finishing touches on plans for going out of business as part of government-mandated contingency planning that could push them to untangle their complex operations.

The plans, known as living wills, are due to regulators no later than July 1 under provisions of the Dodd-Frank financial reform law designed to end too-big-to-fail bailouts by the government. The living wills could be as long as 4,000 pages. Since the law allows regulators to go so far as to order a bank to divest subsidiaries if it cannot plan an orderly resolution in bankruptcy, the deadline is pushing even healthy institutions to start a multi-year process to untangle their complex global operations, according to industry consultants. "The resolution process is now going to be part of the cost-benefit analysis on where banks will do business," said Dan Ryan, leader of the financial services regulatory practice at PricewaterhouseCoopers in New York. "The complexity of the organizations will shrink." JPMorgan Chase & Co ( JPM.N ), Bank of America Corp ( BAC.N ), Citigroup Inc ( C.N ), Goldman Sachs & Co ( GS.N ) and Morgan Stanley ( MS.N ) are among those submitting the first liquidation scenarios to regulators at the Federal Reserve and the Federal Deposit Insurance Corp, according to people familiar with the matter. The five firms, which declined to discuss their plans for this story, have some of the biggest balance sheets, trading desks and derivatives portfolios of financial institutions in the United States. Great Britain and other major countries are imposing similar requirements for "resolution" plans on their big banks, too. The liquidation plans are coming amid renewed questions about the safety of big banks following JPMorgan's stunning announcement last month that a trading debacle has cost it more than $2 billion - a sum far too small to endanger the bank, but shocking enough to bring back memories of the financial crisis. A NOD TO GLASS-STEAGALL If the extensive planning and review process works as proponents hope, big banks will become less hazardous to the public and regulators will be more confident that they can let wounded institutions die without wrecking the economy. In congressional hearings earlier this month, JPMorgan CEO Jamie Dimon said that the bank's contingency plan for going out of business would let it fail without cost to taxpayers. Living wills reduce the systemic risk of a big bank failing, Dimon said. The living will requirement could actually yield similar results to restoring Glass-Steagall without actual re-enactment of the Depression-era laws separating commercial banking from investment banking, former FDIC Chairman Sheila Bair told Reuters TV earlier this month. Bair said regulators may determine that for a liquidation plan to work, a bank must separate traditional banking and insured deposits into subsidiaries set apart from volatile securities trading and securities underwriting. The rules push banks to untangle their complex structures, which can include thousands of legal entities, and which, in Bair's opinion, have effectively blocked proposals for breaking up the corporations. Whether the Fed and the FDIC would actually force any banks to sell businesses or cordon off insured deposits remains to be seen, cautioned Richard Herring, a banking professor at the University of Pennsylvania. "We don't know if they will have the guts to do it, but the tools are there," said Herring, a leading proponent of living wills for more than a decade, who was appointed to an FDIC advisory panel on the plans. Herring worries, too, that the plans will be so long and complex that they will overwhelm the staff at the agencies. Still, that the plans are being written at all is progress, Herring said. PLAN FOR TWO WAYS TO DIE Under the Dodd-Frank Act, banks and regulators must imagine liquidations in two different ways. The first is through bankruptcy courts with banks negotiating with their creditors. This is the going-out-of-business method planned in the living wills due July 1. The living wills must include how subsidiaries in foreign jurisdictions will be liquidated. The second way is through a new kind of liquidation process in which the FDIC takes control of putting a financial giant down. This method has more flexibility than is allowed in bankruptcy courts, but still uses critical information collected in the banks' living wills, such as where exactly to find collateral. The new rules stagger deadlines for the banks to file plans, depending on their size and complexity. Nine banks will file first, including five based in the United States and four owned abroad. Regulators have declined to name the nine banks included in the first round. Other large banks will have until July and December of next year to hand in their plans, according to the FDIC. Eventually about 124 banks are expected to submit plans, according to the FDIC. There are about 7,300 banks in the United States. Regulators and the big banks have been meeting since January on what the plans are expected to include. Fed and FDIC officials have said they expect the back-and-forth to continue once the plans have been submitted. The rules give the banks a series of chances to refine their plans. But if banks cannot come up with feasible liquidation plans, regulators could order the banks to get rid of businesses. Government intervention is a last resort, said John Simonson, the FDIC's deputy director of Systemic Resolution Planning and Implementation in the Office of Complex Financial Institutions. "I think a lot of progress can be made in having these firms make themselves more resolvable before you get to that point of actually imposing those severe remedies," Simonson said. The regulators will want to see evidence that the banks can safely resolve their debts and transfer vital customer services and assets to healthy institutions. The plans could easily be 2,000 or 4,000 pages long, depending on the complexity of the banks, said Ryan of PricewaterhouseCoopers. The plans include "very granular detail" about bank operations, he noted, adding that "in many cases, this is a large documentation exercise." For example, the banks must spell out plans for hiring lawyers and contacting regulators in key countries. The rules for crafting the living wills are 74 pages long, including an explanatory supplement. The plans could even include drafts of press releases showing how the banks would announce that they are going out of business, Herring said. The plans are to include summaries for the public, but most of the data will be kept confidential at the request of the banks concerned about revealing trade secrets, according to the rules. The FDIC has not said when the summaries would be released. The regulators estimated it will take all of the 124 banks combined about 1.3 million hours of work to write their initial plans, and each year afterwards, 267,544 hours to keep them up to date. A 40-hour work week for a single employee equals 2,080 hours a year. (Reporting by David Henry in New York, Dave Clarke and Karey Wutkowski in Washington and Rick Rothacker in Charlotte, North Carolina; Editing by Alwyn Scott and Jan Paschal )

Microsoft loses EU battle, fine trimmed by 4.3 percent

Wed Jun 27, 2012 11:01am EDT

http://www.reuters.com/article/2012/06/27/us-eu-microsoft-idUSBRE85Q0B720120627

LUXEMBOURG - Microsoft Corp lost its appeal against an EU decision penalizing it for defying an antitrust ruling, bringing nearer to an end a decade-long battle with the European Commission over the U.S. software group's business practices.

Antitrust experts said the verdict by the General Court, Europe's second-highest, may strengthen the Commission's hand in ongoing cases against Google, Samsung Electronics and Motorola Mobility related to their patents. Judges at the General Court reduced Microsoft's fine by 4.3 percent to 860 million euros ($1.1 billion) from the 899 million imposed in 2008. The 2008 fine - about $1.3 billion at the time - amounted to just over 2 percent of Microsoft's revenue for the fiscal year ended June 30, 2008. The European Commission imposed the penalty four years ago - a record at the time - after Microsoft defied an antitrust ruling issued four years previously to provide information to make business easier for its rivals. The EU regulator said at the time Microsoft delayed implementing its order for 488 days. "The General Court essentially upholds the Commission's decision imposing a periodic penalty payment on Microsoft for failing to allow its competitors access to interoperability information on reasonable terms," the court said in a statement on Wednesday. But it cut the fine "to take account of the fact that the Commission had permitted Microsoft to apply, until September 17, 2007, restrictions concerning the distribution of 'open source' products". Microsoft expressed disappointment at the verdict but did not say if it would appeal to the EU Court of Justice, Europe's highest. "Although the General Court slightly reduced the fine, we are disappointed with the court's ruling," the company said in a statement. The Commission welcomed the court ruling. "The judgment confirms that the imposition of such penalty payments remains an important tool at the Commission's disposal," EU Competition Commissioner Joaquin Almunia, who enforces antitrust regulations, said in a statement. Big companies on the Commission's radar should take note of the court ruling, said Michael Reynolds, a partner at Allen & Overy. The law firm represented Sun Microsystems, whose original complaint triggered off the EU probe. "Dominant companies such as Google will take notice of this in the way they handle their case and how they come to a settlement," he said. Last month, Almunia gave the world's most popular search engine until early July to settle an 18-month probe and avoid a fine that could reach up to 10 percent of its global turnover. Reynolds said the ruling also clarifies the regulator's role regarding the setting of fair and reasonable prices, the core of the Commission's investigations into patent cases involving Google, Samsung and Huawei. "It does make clear that the Commission is not there to make specific orders on rates, it is up to the companies to satisfy the Commission that they are not infringing the law," he said. The Microsoft case highlighted the prickly relations between the software giant and the European Commission over the last decade. The company has in recent years taken a more conciliatory approach, marked by a decision to settle another antitrust investigation in 2009 related to the choice of a browser in its Windows operating system. It has also lodged its own complaints to the Commission about the business activities of Google. (Editing by David Holmes ; editing by Rex Merrifield )

BMW and Toyota extend technology ties -sources

Wed Jun 27, 2012 8:15am EDT

http://www.reuters.com/article/2012/06/27/us-bmw-toyota-idUSBRE85Q0ON20120627

MUNICH/HAMBURG - BMW ( BMWG.DE ) and Toyota ( 7203.T ) plan to expand a technological partnership, two sources close to the companies told Reuters, a deal that could prompt a shift in auto industry allegiances.

The agreement will be extended to include hybrid powertrains and lightweight design, the sources said on Wednesday. BMW has primarily preferred France's PSA Peugeot Citroen ( PEUP.PA ) as a partner when it comes to reducing development and production costs. But the cash-strapped French have recently sought savings through an alliance with General Motors ( GM.N ). By aligning more with Toyota, BMW would have a partner that offers greater scale than Peugeot and a financially healthy one at that. BMW will host a news conference at 0630 EDT on Friday to mark a visit from Toyota scion and chief executive Akio Toyoda to the German luxury carmaker's Munich headquarters. The companies declined to comment on the conference's subject matter, but the sources said Toyoda and BMW CEO Norbert Reithofer would explain their new ideas. The sources added, however, no contracts have been drafted for them to sign. Eager to bulk up its diesel engine line-up in a sagging European market, Toyota agreed to collaborate with BMW on lithium-ion battery research in exchange for a steady supply of BMW-made diesel engines starting in 2014. This time BMW looks to be the partner in need. Now that Peugeot is devoting resources to cementing an alliance with GM, the joint venture with Peugeot on hybrid parts looks shaky. BMW needs to reduce the carbon emissions of its new car fleet by roughly a third, to 101 grams per kilometer, by 2020, which Reithofer argues can only be achieved if it ramps up the number of hybrid and electric cars in its range. "I would bet that there will soon be BMW cars equipped with Toyota's hybrid powertrains," one of the sources said. The Japanese carmaker could then gain access to the carbon fiber joint venture with SGL ( SGCG.DE ), which produces cutting-edge lightweight materials that BMW aims to use on an industrial scale to mass produce its Megacity electric car, dubbed the i3. (Reporting by Irene Preisinger and Jan Schwartz, additional reporting by Christiaan Hetzner; Editing by David Hulmes)

Italy asset sale plan no fix for debt woes

Wed Jun 27, 2012 7:36am EDT

http://www.reuters.com/article/2012/06/27/us-italy-privatisations-idUSBRE85Q0LF20120627

ROME - Prime Minister Mario Monti's recently announced plan to sell state assets is likely to be hampered by depressed markets and political opposition, and economists say it will make only a marginal contribution to cutting Italy's huge stock of debt.

As Italy's borrowing costs rise, Monti has come under mounting pressure to accompany his tough austerity measures with asset sales that can eat into a debt worth more than 120 percent of output, the second highest in the euro zone after Greece's. In a keynote speech on May 31, Bank of Italy Governor Ignazio Visco lent his voice to the chorus, saying "the scope for reducing the public debt by selling assets in the public domain must be exploited to the full". Monti finally unveiled a plan this month, but analysts say that having soft-pedaled on privatizations since taking office in November, his latest initiative looks half hearted. The government seems to have been discouraged by the prospect of selling state companies or real estate into a buyers' market, with the head of the country's audit court warning against the risk of a "fire sale" of valuable assets. "What they are proposing is really not going to make much difference to Italy's debt situation," said Giorgio Barba Navaretti, economics professor at Milan University. Perhaps the most significant aspect of the plan was an omission - the government said it had no intention of selling stakes in its largest and most valuable assets, oil producer Eni, utility Enel or defense contractor Finmeccanica. "The problem is that equity markets are terribly depressed so there really is a risk of undervaluing these assets," said Barba Navaretti. However Tito Boeri, economics professor at the same Bocconi university where Monti was rector, said the prime minister should have pushed ahead regardless, to give a clear message to markets that have driven Italy's benchmark borrowing costs back up to a dangerously high 6 percent. Selling the state's remaining stakes in the three companies, together with road builder Anas, could have brought in close to 100 billion euros, he said, which would not only have meant a significant cut in a debt of nearly 2 trillion euros, but also an annual saving of at least 6 billion euros in interest payments. "FINANCIAL ENGINEERING" Instead, Monti said three much smaller entities owned by the Treasury would be sold for 10 billion euros to a state holding company, the Cassa di Depositi and Prestiti (CDP), which is largely owned by the Treasury itself with a 70 percent stake. "This is moving things from the right pocket to the left pocket," said Nicola Rossi, an economist and president of the Istituto Bruno Leoni, a Milan-based free-market think tank. Navaretti said it was "certainly not a real privatization", while Boeri called the operation "financial engineering" and "a "totally improper use of the CDP", which was originally set up to provide financing to town councils by using postal savings. The companies are Sace, an insurer of Italian companies' activities abroad, Simest, a service provider to Italian companies operating abroad, and Fintecna, a holding company. Because the CDP is considered outside the public administration under EU definitions, the operation will cut public debt by up to 10 billion euros - or 0.6 percent of output - while increasing the CDP's debt by the same amount. Though the sum is modest and the operation has raised eyebrows from an accounting point of view, 0.6 percent of GDP may still prove handy as the risk increases that Italy will miss its debt reduction targets due to a severe recession, spooking already nervous markets. The CDP is also at the heart of Monti's other debt-cutting plans. It will run two funds with the aim of selling state-owned real estate, from barracks to farmland, and locally run public utilities, but the government gave no revenue targets or time frame. "It's all rather vague and improvised, as though Monti wants to be seen to be doing something on asset sales but without much conviction," said Bocconi University's Boeri. A third fund, run directly by the Treasury, aims to sell up to 4.5 billion euros of real estate, a drop in the ocean compared with estimates of huge potential revenue of around 400 billion euros. Again, no time frame was given. Real estate sales have been cited as a quick route to debt reduction for Italy for at least 20 years but numerous schemes have brought scant results, while depressed market conditions will make the task even less rewarding than usual. The attempts by former Treasury Minister Giulio Tremonti to use securitization schemes to sell homes, offices and other buildings owned largely by state pensions agencies ended in failure, with the vast majority of buildings returned to their original owners and revenue far below target. In the last five years governments led by Silvio Berlusconi and Romano Prodi have managed to sell less than 3 billion euros of state property. FIRE SALE The president of Italy's audit court, Raffaele Squitieri, told parliament last week that Monti's plans were threatened by the depressed housing market, with purchases down 20 percent in the first quarter of this year, and warned against a "fire sale" which would undervalue important state assets. Stefano Scalera, the head of the Treasury's state property agency, L'Agenzia del Demanio (AD), also said tight credit conditions and weak property prices made selling conditions extremely difficult, and the agency was now proposing more in the form of medium- and long-term concessions than sales. Illustrating the difficulties, he said the AD was about to put up for sale a former barracks near the northern town of Bologna for the fourth time. "It will be the umpteenth test of whether or not it's possible to sell in this period," Scalera said. For the CDP fund to buy stakes in locally run utilities and eventually sell them on the market looks even less promising, Boeri said. The sale of such utilities has always been resisted by the political parties which covet them as a power base and with Monti's popularity and political clout waning and elections due in less than a year, the impression is that the government is moving too late. In a letter to Italy last summer as the country slid into the centre of the euro zone debt crisis, the European Central Bank set out precise policy prescriptions in return for buying Italian bonds on the market to lower surging borrowing costs. Among the recommendations were "the full liberalization of local public services" through "large scale privatizations". Monti's latest plan is probably not what the central bank had in mind. (additional reporting by Luca Trogni, editing by Mike Peacock)

Merck, Astra keep drug alliance for two more years

Wed Jun 27, 2012 9:26am EDT

http://www.reuters.com/article/2012/06/27/us-merck-astrazeneca-idUSBRE85Q0NH20120627

- Merck & Co will keep booking sales and profits for two more years tied to AstraZeneca Plc's widely used acid reflux medicines Nexium and Prilosec under an amended agreement between the two large drugmakers.

Merck previously assumed it would record contributions from the longstanding partnership only through September this year. Now the alliance will last until 2014, when AstraZeneca will have the option of buying Merck's interest in the partnership. The continuation of the partnership is expected to add about $200 million to Merck's revenue and 3 cents to 5 cents in earnings per share in 2012, but does not change the U.S. firm's full-year profit guidance, Merck said on Wednesday. The revised deal will help shore up Merck's financial performance through the U.S. patent expiration later this year of its big-selling Singulair allergy and asthma drug, although the benefits will dwindle as sales of Nexium decline. The partnership agreement dates back to a selling and distribution joint venture originally set up between Merck and Sweden's Astra in 1982. Astra later merged with Britain's Zeneca to form AstraZeneca. Under the amended deal, the two partners have agreed an option price of $327 million payable to Merck in 2014, plus an amount equal to 10 times Merck's average 1 percent annual profit allocation in the partnership, expected to be some $80 million. The price paid by AstraZeneca could also include the net present value of up to 5 percent of future U.S. sales of painkiller Vimovo. ISI Group analyst Mark Schoenebaum said buying out Merck this year would probably have cost AstraZeneca around $800 million and delaying until 2014 would likely reduce the amount to about $450 million. (Reporting by Lewis Krauskopf and Ben Hirschler ; Editing by Maureen Bavdek and Hans-Juergen Peters)

Summit may be most crucial since EU founding: IIF chief

Wed Jun 27, 2012 6:29am EDT

http://www.reuters.com/article/2012/06/27/us-germany-summit-dallara-idUSBRE85Q0DM20120627

BERLIN - Charles Dallara, managing director of the Institute of International Finance (IIF) and a key negotiator in the restructuring of Greece's debt, said the European Union was facing possibly its most important summit since its founding.

EU leaders meet in Brussels on Thursday and Friday to discuss proposals for a banking and fiscal union amid mounting alarm in financial markets over the euro zone crisis. "Not only the future of the euro (but also) the future of Europe is at stake... (The summit) is perhaps the most important since the founding of the European Union," Dallara told German weekly Die Zeit, according to a preview of his comments ahead of Thursday's publication. "This is about winning back the confidence of long-term oriented investors such as pension funds and insurance companies - and I fear that they will be convinced only by comprehensive solutions." Dallara was involved in the protracted talks on the Greek debt restructuring, where the IIF represented private sector creditors. (Writing by Gareth Jones )

Instant View: Pending home sales match two-year high

Wed Jun 27, 2012 10:26am EDT

http://www.reuters.com/article/2012/06/27/us-usa-economy-instant-idUSBRE85Q0XC20120627

NEW YORK - Contracts to purchase previously owned U.S. homes matched a two-year high in May, fueling optimism the housing market is poised for a recovery.

COMMENTS: SAM COFFIN, ECONOMIST, UBS SECURITIES, STAMFORD, CONNECTICUT "It reversed the prior month's decline, which was useful, and it's consistent with a gradual improvement in demand. We've seen other housing demand numbers which have looked that way, and this seems to corroborate that improvement." JOE MANIMBO, SENIOR MARKET ANALYST, WESTERN UNION BUSINESS SOLUTIONS, WASHINGTON "The pending home sales report builds on the positive housing numbers earlier this week and gives some hope that the housing sector could be on its way to recovery. The forex market though had a fairly muted response to the number and only because investors are focused squarely on the EU summit." JACOB OUBINA, SENIOR U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK "The reality is that this is just an unwind of the massive decline from the previous month when sales got crushed. This indicator tends to be volatile so a large increase does not necessarily translate into sales, with underwriting standards stringent. Contract failure is relatively high. Sales will likely continue to bump around the bottom." OMER ESINER, CHIEF ANALYST, COMMONWEALTH FOREIGN EXCHANGE, WASHINGTON "It looks like a pretty strong number that's consistent with some other upside surprises in recent housing data. So that could get the market thinking the spring home buying season is off to a good start, which is positive for the economy. Whether that has much impact on trading right now is unlikely as we're still being driven by Europe." LEN BLUM, MANAGING PARTNER OF WESTWOOD CAPITAL LLC IN NEW YORK "This will probably contribute to the rally, but it is too early to get excited about the housing market. We have a massive amount in shadow inventory across the country. Until that overhang is removed the economy won't recover." MARKET REACTION STOCKS: U.S. stocks hold onto earlier gains. BONDS: Long-dated U.S. Treasury debt prices briefly erase small earlier gains. FOREX: The dollar held onto earlier gains versus the euro.

Italy wins labor reform votes ahead of EU summit

Wed Jun 27, 2012 11:18am EDT

http://www.reuters.com/article/2012/06/27/us-italy-labour-idUSBRE85Q12E20120627

ROME - Italian Prime Minister Mario Monti scored a hard-fought victory for his landmark labor reform on Wednesday, bolstering his position for a European Union summit where he will ask for more growth policies and a mechanism to stem borrowing costs.

The lower house in Rome voted overwhelmingly in favor of the law in the last of four confidence ballots held to accelerate the approval process ahead of Thursday's negotiations in Brussels on the future of the euro. First promised when he took office in November, the legislation aims to ease firing procedures, broaden unemployment benefits from 2017 and end abuses to temporary hiring schemes that allowed employers to avoid taking on full-time workers. The Chamber of Deputies was due to definitively approve the measure later on Wednesday in a routine vote. The reform was formally sent to parliament three months ago after weeks of negotiations with labor unions and employers, but it ran aground as political parties sought to modify it. The result is a watered-down reform that trade unions have criticized fearing an increase in lay-offs, that employers say will raise labor costs, and that many economists view as timid for a labor market that needs a major shake-up. Unions have already held several strikes and protests against the proposed changes. Labour Minister Elsa Fornero, the main proponent of the reform, defended it on Wednesday in an interview with the Wall Street Journal. "We're trying to protect individuals, not their jobs," she said. "People's attitudes have to change. Work isn't a right; it has to be earned, including through sacrifice." SUMMIT Monti asked parliament last week to hasten approval of the package "so that the European Council on June 28 can take note of the passage of this important structural reform." He has promised to push for a shift away from austerity towards boosting economic growth, and for joint action by EU countries to help ease market pressure on Italian bonds. His agenda risks a showdown with Germany, the EU's biggest, most robust economy and effective paymaster, which has refused to share the burden of other countries' debt. Monti replaced discredited Silvio Berlusconi as prime minister late last year as recession-hit Italy teetered on the edge of a Greek-style default, and passed a tough austerity package to try to restore investor confidence. The measures, including 24 billion euros in new taxes for this year alone, pushed down Rome's borrowing costs for awhile. But concern over the future of the euro currency zone has pushed benchmark bond yields back above 6 percent. Difficulties over the labour reform have accelerated a slide in Monti's popularity ratings that started with discontent over the tax hikes and spending cuts in his austerity plan. His approval rating has dropped to 33 percent, less than half the 71 percent he had when he took office in November, according to an SWG poll published this month. (Reporting by Catherine Hornby and Steve Scherer; editing by Philip Pullella and Mark Heinrich )

Cyprus, Spain EFSF bids accepted: Cypriot Finance Minister

Wed Jun 27, 2012 10:22am EDT

http://www.reuters.com/article/2012/06/27/us-cyprus-bailout-minister-idUSBRE85Q0XW20120627

- Cyprus's and Spain's applications to join the EFSF have been accepted by finance ministers of the euro zone, Cypriot finance minister Vassos Shiarly said on Wednesday.

"Today, a short while ago, in a teleconference of the finance ministers of the euro zone the application of Cyprus was accepted with that of Spain," Shiarly told reporters. (Reporting by Michele Kambas ; Editing by Catherine Evans )

Lennar orders jump as housing market picks up

Wed Jun 27, 2012 6:34pm EDT

http://www.reuters.com/article/2012/06/27/us-lennar-results-idUSBRE85Q0GO20120627

- In another sign the U.S. housing market is stabilizing, Lennar Corp ( LEN.N ) reported a rise in new orders for a fifth straight quarter, as the homebuilder was able to charge higher prices to buyers looking to take advantage of record-low interest rates.

"They do not want to miss this moment in time," Lennar Chief Executive Officer Stuart Miller said on Wednesday during a second-quarter earnings conference call with analysts. "There's this feeling of not wanting to miss the boat." The Miami-based builder, the third-largest in the United States by revenue, said orders jumped 40 percent to 4,481 homes. New home orders are a bellwether for builders. The results provided further evidence of housing market momentum. In his prepared statements, Miller seemed upbeat about the housing market. But with analysts on the earnings call, he was cautious about using the word recovery. Coming on the heels of mounting reports showing rising home sales and prices, Lennar's sales rise did seem to bolster the evidence of the housing market's gathering strength, if not full-blown turn. Lennar shares closed nearly 5 percent higher on Wednesday on the New York Stock Exchange. They initially surged 7.5 percent. The Lennar news sent the homebuilding sector on a solid rise. The S&P homebuilding index .GSPHOME was at 3 percent at the close of trading. D.R. Horton Inc ( DHI.N ) shares closed up 2.3 percent and PulteGroup Inc ( PHM.N ) closed 1.6 percent higher. Lennar is benefiting from higher margins, reduced incentives and better pricing in its subdivisions across the country, said Miller. Its starter homes are now going for an average $250,000, up from $245,000 in the same quarter last year. One of the homebuilder's most pernicious problems, Miller said, remains the mortgage lending environment. "Consumers recognize the mortgage approval process is extremely difficult and very conservative, and it's difficult to get approved," Miller said. "Demand is constrained by the mortgage qualification process." Yet net income rose to $452.7 million, or $2.06 per share, for the quarter ended May 31, from $13.8 million, or 7 cents per share, a year earlier. The spike in net income was mostly due to a tax maneuver. Lennar included a $403 million partial reversal of deferred tax assets, which stemmed from losses incurred during the housing bust. Excluding that, Lennar earned 21 cents per share, still three times the year-earlier profit. Analysts on average expected Lennar to earn 17 cents per share, on revenue of $885.7 million, according to Thomson Reuters I/B/E/S. In the past, Lennar has attributed part of its recent success to the "Multi Gen Home" design it introduced at the beginning of the year. After the financial crash, company executives assumed more households would start to combine generations under one roof. The new design contains a separate, 600-square-foot apartment with its own entrance. This allows Baby Boomers to live with their ailing parents or boomerang children to move home, while still maintaining their own space. The relatives also get the financial benefit of combining living expenses. "People aren't living on top of each other, they're living next to each other," Lennar Regional Vice President Jeff Roos said. "It's like adjoining hotel rooms where you're just doors away." The homes, introduced last year on the West Coast and due to be available throughout the United States by the end of this year, have been a hit with home buyers, the company has said in the past. However, Lennar has declined to break out financial details on their sales, other than to say they have higher profit margins and helped Lennar deliver 20 percent more homes this quarter. LOCAL RECOVERY New U.S. single-family home sales surged in May to a two-year high and prices rose from a year earlier, further signs the housing market is gaining velocity. But there are dueling views on the housing market's health. Some analysts have said the housing market is in a recovery. Others are skittish, saying the housing market remains anemic. They add that further price declines could be in the offing this year. On Wednesday's earnings call, Miller characterized the housing depression as national, but the recovery as local. In response to one analyst's question, he said: "I'm nervous about saying the word recovery. We'll see how things evolve over the next couple of quarters." He added that the housing market is "not yet in full recovery. The actual data is still slightly negative in some cases. After a full, seven-year decline, it's rocky and erratic and certainly not broad based." Lennar reported its earnings just two days after news it struck a $1.7 billion financing deal with China Development Bank to rekindle the Treasure Island and Hunters Point Shipyard developments in San Francisco, according to two people familiar with the matter. Those projects sit on two of the most prized pieces of real estate in the United States, two former naval bases that are the biggest and last remaining slabs of open space in San Francisco's Bay. Lennar is using the Chinese money to build what will be the largest urban development project ever in San Francisco and one of the largest in U.S. history. The company has been working on developing the land for more than a decade. The new development will span 1,300 acres, include 4.9 million feet of commercial space, 100,000 square feet of office space, a five-star, 470-room hotel, 20,000 homes and house 50,000 people, all of whom will live along the waterfront of San Francisco's Bay. The housing developments will be of the Jane Jacobs variety, with housing that ranges from the affordable to the ultra-high end and communities where people can live, do errands and send kids to school - all without needing a car. "We are very excited about the fact that, first of all, the market is recovering and also the fact that we are going to be moving forward on construction and infrastructure," says Emile Haddad, Chief Executive Officer of FivePoint Communities, Lennar's managing partner on the deal. (Reporting by Michelle Conlin; editing by Alwyn Scott , Jan Paschal and Andre Grenon )

Xstrata offers revised Glencore retention scheme

Wed Jun 27, 2012 10:11am EDT

http://www.reuters.com/article/2012/06/27/us-glencore-xstrata-package-idUSBRE85Q0WT20120627

LONDON - Miner Xstrata XTA.L revised the terms of its controversial pay scheme designed to retain staff following the proposed merger with Glencore ( GLEN.L ), pledging awards that were linked to cost-saving targets and paid entirely in shares.

Xstrata's chairman John Bond said that the company had listened to feedback from shareholders since publishing the merger documents and the amendments had been made with these in mind. "These amendments now allow shareholders to focus on the strategic rationale for the merger," he said in a statement. The retention awards will only fully vest if an additional $300 million of incremental cost savings are achieved from the merger in the two years after the deal completes. (Reporting by Kate Holton ; editing by Sarah Young )

New Chesapeake chair gets stock valued at $750,000

Wed Jun 27, 2012 7:12pm EDT

http://www.reuters.com/article/2012/06/27/us-chesapeake-board-compensation-idUSBRE85Q1OS20120627

- Chesapeake Energy Corp's ( CHK.N ) new independent chairman will receive Chesapeake stock awards valued at $750,000 along with cash compensation that will based on his length of service, according to a regulatory filing on Wednesday.

Archie Dunham, former chairman of ConocoPhillips ( COP.N ), replaced Chief Executive Aubrey McClendon as chairman on Thursday. The company's board stripped McClendon of the title in part due to a governance crisis at the U.S. oil and gas company. Dunham received an initial restricted stock awards valued at about $500,000 and an annual restricted stock award valued at $250,000, according to a filing with the U.S. Securities and Exchange Commission. Chesapeake's directors' compensation was cut 20 percent in May after criticism from investors. Directors now receive an annual stock award of $250,000 and a cash retainer of $100,000. The company's four new directors and Dunham who were named on Thursday will receive cash compensation this year on a pro-rated basis, the filing said. (Reporting By Anna Driver ; Editing by David Gregorio )

Bernard Madoff's brother to plead guilty, U.S. says

Wed Jun 27, 2012 6:25pm EDT

http://www.reuters.com/article/2012/06/27/us-madoff-plea-idUSBRE85Q1L020120627

- Peter Madoff, the brother of imprisoned swindler Bernard Madoff, is expected to plead guilty to criminal charges on Friday, the first family member to do so since the Ponzi schemer's fraud was uncovered in December 2008.

In a letter filed Wednesday in Manhattan federal court, U.S. Attorney Preet Bharara said Peter Madoff is expected to plead guilty to charges of conspiracy to commit securities fraud and other crimes, as well as falsifying records. He agreed not to seek a sentence other than 10 years in prison. Madoff, who had been chief compliance officer at Bernard L. Madoff Investment Securities LLC, also agreed to a criminal forfeiture of about $143.1 billion, including all real and personal property, the letter said. The amount is symbolic, being more than twice the estimated size of the fraud. John Wing, a lawyer for Madoff, did not immediately respond to a request for comment. Prosecutors have not said whether criminal cases are also being prepared against Bernard Madoff's son, Andrew, who was co-director of trading, or his niece, Shana, who was a compliance officer at the firm. Both are being sued by Irving Picard, the trustee seeking money for the Ponzi scheme's victims. He has filed a $255 million lawsuit against them and other Madoff family members. Martin Flumenbaum, a lawyer for Andrew Madoff, did not immediately respond to a request for comment. A lawyer for Shana Madoff could not be identified immediately. Mark Madoff, another of Bernard Madoff's sons, committed suicide in December 2010. RIGHT-HAND MAN HAS COOPERATED Peter Madoff is charged with one count of conspiracy to commit securities fraud and mail fraud as well as making false statements about the firm's compliance program and investment advisory business. A second charge accuses him of falsifying records of an investment adviser. About a dozen people have now been implicated in criminal wrongdoing related to Bernard Madoff's former firm. Five have pleaded not guilty: Annette Bongiorno, Daniel Bonventre, Joann Crupi, Jerome O'Hara and George Perez. Frank DiPascali, the firm's former chief financial officer and often called Bernard Madoff's right-hand man, pleaded guilty in August 2009 and has been praised by prosecutors for his subsequent cooperation. DiPascali has yet to be sentenced. His lawyer, Marc Mukasey, declined comment. Picard has estimated that customers of the Madoff firm lost about $20 billion. On Monday, the U.S. Supreme Court let stand a lower court ruling on the trustee's methods for calculating losses. That decision could help Picard repay customers faster. A spokeswoman said Picard had no comment on the expected guilty plea. Bernard Madoff, 74, is serving a 150-year prison sentence after pleading guilty in March 2009. He was ordered to forfeit $170.8 billion. The case is U.S. v. O'Hara et al, U.S. District Court, Southern District of New York, No. 10-cr-00228. (Reporting by Basil Katz in New York and Jonathan Stempel in Washington; Editing by Gary Hill , Richard Chang and Leslie Gevirtz )

China's city banks still barred from listing: paper

Tue Jun 26, 2012 10:22pm EDT

http://www.reuters.com/article/2012/06/27/us-china-banks-listing-idUSBRE85Q03220120627

SHANGHAI - China's small and medium-sized banks, including city commercial banks, are not allowed to list on the mainland yet because regulators are still studying the risks and merits of such IPO requests, the state-backed China Securities Journal reported.

The comment, attributed to an official from the China Securities Regulatory Commission (CSRC), made clear for the first time that the government will, for the moment, decline all requests by smaller banks to list. But city commercial banks are still allowed to list in Hong Kong, as Bank of Shanghai is preparing to do. An earlier newspaper report said the CSRC is reluctant to approve applications by smaller banks because a wave of bank IPOs may further dampen investor confidence in an already sluggish A-shares market. The regulator could also be worried about the risks of city commercial banks expanding their businesses beyond their regions, as these banks are criticized by some analysts for outright bankrolling of local governments, which are not always creditworthy. Many of the country's 185 city and rural commercial banks are in desperate need of capital to fend off rising competition from rivals and meet tougher capital requirement rules. Chinese regulators have not approved any mainland IPO plans by smaller banks since 2007, when Bank of Ningbo ( 002142.SZ ), Bank of Beijing ( 601169.SS ) and Bank of Nanjing ( 601009.SS ) were listed, seen partly due to worries that a wave of new IPO shares may hurt the stock markets in Shenzhen and Shanghai. (Reporting by Carrie Ho; Editing by Eric Meijer)

Whitefox to appeal against Tate & Lyle's U.S. court win

Wed Jun 27, 2012 4:59am EDT

http://www.reuters.com/article/2012/06/27/us-tateandlyle-idUSBRE85Q0CX20120627

LONDON - British group Whitefox Technologies is to appeal against a U.S. court ruling made against it in a dispute with Tate & Lyle ( TATE.L ) which an analyst said could win the London-based sweeteners and starch company over 10 million pounds ($16 million).

The trial before the Supreme Court of the State of New York related to equipment and technologies supplied by Whitefox for use in Tate's U.S. ethanol plants at Loudon in Tennessee and Fort Dodge in Iowa which Tate claimed were not fit for purpose. "We are very surprised and disappointed at this verdict and we will be pursuing an appeal. We have done absolutely nothing wrong and we have complete faith in our technology which is being used successfully by our customers," Whitefox's chief executive Gillian Harrison said in a statement on Wednesday. No comment was made by Tate on the level of the award granted to Tate, although analyst Graham Jones at brokers Panmure Gordon estimated that the award is in the order of a low double-digit millions of pounds figure. Tate's shares were off 2 percent at 633 pence at 0840 GMT in a slightly firmer London market. ($1=0.6411 British pounds) (Reporting by David Jones ; Editing by Greg Mahlich)

News Corp board expected to approve split

Wed Jun 27, 2012 5:10pm EDT

http://www.reuters.com/article/2012/06/27/us-newscorp-split-meeting-idUSBRE85Q1N720120627

- Rupert Murdoch will oversee one of the most important board meetings of his more than 40-year career on Wednesday afternoon as News Corp directors vote on whether to divide the $60 billion media conglomerate into two separate publicly traded companies.

Most of the board members will meet at News Corp's Sixth Avenue headquarters in Midtown Manhattan, but several will have to phone in to the hastily arranged meeting. Ever unpredictable, Murdoch, after years of resisting calls by some large shareholders to spin out or sell off the company's slow-growth -- and in some cases, money-losing -- newspapers, decided to propose the move rather suddenly. "As recently as a month ago he was still saying no way would he do this," said one News Corp insider with knowledge of the internal conversations. News Corp's terse statement Tuesday said only that it was "considering" splitting the company. While that may have given the impression that the process was still at an early stage, both long-time Murdoch watchers and insiders expect an announcement imminently. According to people familiar with the matter, News Corp has already enlisted investment banks JP Morgan, Goldman Sachs and Centerview to advise on a process. The board, long criticized for being dominated by Murdochs or beholden to them, is expected to approve the split. It was not immediately clear if it will be put to a shareholder vote. Even if it is, Murdoch controls just under 40 percent of the vote and would likely have no problem getting the extra 10 percent needed. Given that, Wall Street and others see today's meeting as little more than a formality. "It sounds pretty well along," said Canaccord Genuity Inc analyst Thomas Eagan. The process of separating the company's broadcast, cable and film assets from its publishing and education operations stands to be complicated by issues such as regulatory and tax implications and could take up to a year to complete. The most speculation revolves around how Murdoch handles the reassigning of his top executives, including his three adult children associated with the company. With the company predicted to be split between its struggling publishing business and its much larger, faster-growing entertainment business, the majority of the big names are anticipated to jockey for key roles on the entertainment side. Chase Carey, News Corp's current No. 2, is widely seen as the likely CEO designate for the entertainment business. Liz Murdoch and James Murdoch are expected to report to him. That could raise questions about the current heads of the Fox TV business, Peter Rice and Kevin Reilly. Less clear is who would run the publishing business. One obvious candidate is Joel Klein, the former New York City chancellor for education who joined News Corp last year to run its new education business, which so far consists only of Wireless Generation, a digital company for schools. Murdoch's eldest son, Lachlan, a former New York Post publisher and currently a director, is another prospect. Eagan believes News Corp stock has room to rise even with an 11 percent gain since news of the split plans broke Tuesday. "News Corp is still trading below its peers at 6.5 times EBITDA, even after you take out the publishing business and the expected litigation costs," said Eagan. (Reporting by Yinka Adegoke; Editing by Peter Lauria and Prudence Crowther)

World Bank's Zoellick to join policy think tanks

Wed Jun 27, 2012 9:12am EDT

http://www.reuters.com/article/2012/06/27/us-worldbank-zoellick-idUSBRE85Q0SR20120627

WASHINGTON - Outgoing World Bank chief Robert Zoellick said on Wednesday he will join think tanks at Harvard University and in Washington when he steps down from the global development institution at the end of this week.

Zoellick said in a statement he will join the Belfer Center for Science and International Affairs at Harvard University and the Peterson Institute for International Economics in Washington when he leaves the bank at the end of his five-year term on June 30. He will become the first distinguished visiting fellow at Peterson and a senior fellow at the Belfer Center, which is linked to the Kennedy School of Government at Harvard. "I hope to work on the intersection of economics and security, applying history to policy questions of today," Zoellick said. "Both institutions have been at the cutting edge of research and policy development, and I have benefited greatly from both in the past." Zoellick, a Republican who has served as U.S. trade representative and deputy secretary of state, has often been cited as a possible U.S. treasury secretary if presumed Republican presidential nominee Mitt Romney is elected in the November 6 election. The World Bank's new president Jim Yong Kim, former president of Dartmouth University and a physician and anthropologist, takes the reins at the World Bank on July 1. (Reporting By Lesley Wroughton ; Editing by Vicki Allen )

Boeing taps salesman Conner to run commercial planes

Tue Jun 26, 2012 9:13pm EDT

http://www.reuters.com/article/2012/06/27/us-boeing-managementchanges-idUSBRE85P1EY20120627

SEATTLE - Boeing Co ( BA.N ) appointed a new head of its commercial plane unit on Tuesday, turning to a veteran engineer-turned-salesman to help gain the upper hand in its battle with Airbus for the $100 billion-a-year aircraft market.

The surprise move, just weeks before the Farnborough Airshow, comes as Boeing attempts to ramp up production of its civil aircraft, including the troubled 787, and regain its leading position in the key single-aisle market after losing a large American Airlines ( AAMRQ.PK ) order to rival Airbus. Boeing said Raymond Conner would be the new head of its best-known unit with immediate effect, replacing another longtime Boeing executive, Jim Albaugh. Conner, 57, joined Boeing in 1977 as a mechanic and worked his way up the company's engineering, supply chain and marketing groups to become head of sales. Albaugh, 62, who came to prominence at Boeing's defense operations, is to retire on October 1 -- three years before Boeing's standard retirement age -- after 37 years with the company. The move was greeted positively by industry analysts, who applauded the appointment of a sales-oriented head in place of the engineering-minded Albaugh. "Commercial aircraft sales is a very customer-centric job," said Carter Leake, an analyst at BB&T Capital Markets. "Conner is more from true-blue aircraft sales than Albaugh. Arguably Conner has touched more Boeing customers than any person in the entire company." SALES JOB One industry source said Albaugh wanted to hand over the reins now so that his successor would have a chance to represent Boeing at Farnborough, one of the most important events in the company's calendar where it will be under pressure to announce new orders. "It's a good time to step aside and open the door to increased effort on sales where Conner has most recently focused his attention," said Stifel Nicolaus analyst Stephen Levenson. Conner was only recently appointed to his second stint in the top sales job after a shake-up prompted by Airbus ( EAD.PA ) marching into core Boeing territory last July and persuading American Airlines to buy 260 of its narrow-body A320s, alongside 200 Boeing 737s. The 737 is the work-horse for most airlines and Boeing's biggest cash generator, but Boeing upset some customers by delaying a decision on what to do with its replacement, eventually deciding to follow Airbus and offer a revamped version, called the 737 MAX, instead of building an all-new airplane . Since the launch of the MAX last August, the quiet-spoken Conner has led Boeing's rebound in the aircraft market and the company is expected to outsell Airbus this year for the first time since 2006, largely on the back of orders for the MAX. After Farnborough, Conner must turn his attention to Boeing's audacious attempt to ramp up production of its revolutionary, carbon-fiber 787 to 10 a month by the end of next year from 3.5 a month now, as well as oversee increased production of 737s and 777s. In a memo to Boeing employees sent on Tuesday and obtained by Reuters, Conner said he aimed to focus on delivering the planes in Boeing's bulging order book. "Our job going forward together in the near term is to stay the course on the product and services strategies that have resulted in our record backlog, and to turn up the gain on performance and execution to ensure we meet our commitments," said Conner in the memo. MANAGEMENT CHANGE One analyst said Albaugh's retirement signaled a broader process of management change at Boeing. "The generational shift in Boeing management is now almost done, with only CEO Jim McNerney left of the old guard," said Rob Stallard at RBC Capital Markets. "Who succeeds him remains to be seen, but Boeing now has two relatively new and capable executives heading each division, and each could be vying for the top slot in due course." Dennis Muilenburg took over as head of Boeing's defense, space and security unit in 2009, when Albaugh left to take charge at the commercial airplanes unit as the company looked for a steady hand to guide the early production of the troubled 787 Dreamliner program. Industry-watchers agree that Albaugh achieved that, while he also brought the new 747-8 jumbo to market and presided over an unprecedented labor agreement at Boeing's volatile Seattle-area plants. Albaugh's support was key to Boeing's winning back a multibillion-dollar U.S. Air Force contract to build 179 new refueling planes that had been awarded to Northrop Grumman Corp ( NOC.N ) and its European partner, Airbus parent EADS ( EAD.PA ). "Realistically, he's accomplished everything he was trying to do at Boeing Commercial Aircraft," said defense consultant Loren Thompson at the Lexington Institute. One senior industry official said Albaugh likely wanted to exit Boeing at the "top of his game". "He's run Boeing defense. He's run Boeing commercial, and he's not going to be CEO at Boeing." (Additional reporting by Tim Hepher in Paris, Karen Jacobs in Atlanta, Andrea Shalal-Esa in Washington and A. Ananthalakshmi in Bangalore.; Editing by Matthew Lewis , M.D. Golan and Richard Pullin )

Citi fills global retail role with Larsen in Hong Kong

Tue Jun 26, 2012 9:22pm EDT

http://www.reuters.com/article/2012/06/27/us-citi-asia-larsen-idUSBRE85Q02020120627

HONG KONG - Citigroup Inc ( C.N ) has named Jonathan Larsen as global head of its retail bank, filling the position for the first time with an Asia-based banker.

Citigroup has a far-reaching investment banking operation in Asia, although its consumer business in the region is a massive driver of revenue for the New York-based bank. In the first quarter, Citi's Asia profit rose 18 percent to $1.1 billion, comprising 37 percent of Citi's global net income. Within Asia, Citi's consumer business produces about half of the region's annual profit figure. Larsen, a 25-year industry veteran, will be based in Hong Kong and will continue to serve as head of Asia Consumer Banking, according to an internal memo. (Reporting by Michael Flaherty ; Editing by Chris Lewis)

Not all of Wall Street "friending" Facebook

Wed Jun 27, 2012 5:56pm EDT

http://www.reuters.com/article/2012/06/27/us-facebook-research-idUSBRE85Q09L20120627

SAN FRANCISCO - Facebook Inc may be having trouble connecting with Wall Street.

Banks behind Facebook's initial public offering kicked off formal coverage of the social network on Wednesday by warning about its uncertain business model, margin pressures and a difficult transition to mobile technology. Of 17 brokerages that issued research reports, only eight recommended that investors buy Facebook shares, including Morgan Stanley, Goldman Sachs and JP Morgan - the Internet company's three lead underwriters. Eight brokerages gave neutral ratings and one had a "sell" rating. The panoply of neutral or equivalent ratings is notable because Wall Street research analysts have a reputation for favoring "buy" ratings, particularly in the high-profile Internet industry where "buy" or equivalent recommendations outnumber "hold" ratings nearly 2 to 1, according to Thomson Reuters Starmine data. "It says there are real questions out there about the strength of this business model, the fundamental strength of this company, together with its valuation," said Tim Ghriskey, a portfolio manager at Solaris Asset Management. "We're not buying right now, that's for sure." Facebook shares fell 2.6 percent to close at $32.23 on Nasdaq, remaining far below their IPO price of $38. The reports, released by banks involved in the IPO after a 40-day quiet period expired, represent Wall Street's broadest assessment of Facebook, the first U.S. company to debut with a market value of more than $100 billion. Banks are required to keep their employees handling IPOs apart from analysts recommending stocks in order to avoid conflicts of interest. The average target stock price for Facebook was $37.64, but the range was wide, from $25 to $45. Morgan Stanley, which has come under scrutiny for its role in driving an IPO price that now appears lofty, set a price target of $38 and "overweight" recommendation. It said it remained unclear how Facebook plans to make money from a growing number of users logging on to the No. 1 social network via smartphones and tablets. "Sell" ratings are rare in stock research, where access to corporate executives is considered crucial. HOW LOFTY? Facebook's IPO was to have been the culmination of eight years of breakneck growth for a company that became a social and cultural phenomenon. Instead, it was marred by a series of trading glitches on its debut, and the company and its underwriters subsequently faced accusations of pumping up the price and inadequate disclosure. In the IPO, banks sold their clients shares in the company started by Mark Zuckerberg in his Harvard dorm room, at a price equivalent to a whopping 100 times 2011 net income per share. Facebook more recently traded around 65 times expected earnings, according to Solaris' Ghriskey. That compares with Google Inc's recent price-to-earnings ratio of about 13. "I respect that a Chinese wall exists, but I think it feeds into the cynicism that Main Street has for Wall Street - that one side of the business was telling them to buy at $38 and the other side of the business now at $32 says we shouldn't buy it," said Steve Birenberg, a portfolio manager at North Lake Capital in Winnetka, Illinois. Most analysts expect Facebook's large user base to help it corner a substantial share of the Internet advertising market in the long term. BMO Capital Markets' Daniel Salmon began his coverage with an "underperform" recommendation and a $25 target, translating into a nearly 25 percent discount from current levels. "Slowing user growth is one of our primary concerns for Facebook's current valuation," said Salmon, the only analyst giving Facebook a negative rating on Wednesday. He estimated Facebook's annual user growth would be 22 percent next year and 16 percent the year after, much slower than expansion in the past. The 33 banks that participated in the stock listing were required by securities regulators to wait until 40 days after the first day of trading on May 18 before publishing their views, limiting the research on Facebook until now to a handful of analysts. Scott Devitt at lead underwriter Morgan Stanley, who told the firm's major clients that he had cut his revenue estimates on Facebook just days before the IPO, said he expects Facebook's ability to turn its mobile features into profit to be a challenge for the next several quarters to several years. He expects revenue to climb 31 percent in 2012, far less than the 88 percent growth in 2011. "No one is debating the potential opportunity in front of Facebook," said Channing Smith, a portfolio manager at Capital Advisors. "However, there is disagreement in the analyst community on the trajectory of the earnings and revenue growth in the coming years. The assumptions analysts are making are guesswork at this point." Morgan Stanley's Devitt, BMO's Salmon and the two lead analysts at JPMorgan and Goldman Sachs covering Facebook have all been near the middle of the pack at stock picking over the past two years, according to Thomson Starmine data ranking analysts' performance. TOPSY-TURVY IPO Analysts at JP Morgan set a price target of $45 for the stock, suggesting a rise of 36 percent compared with its close of $33.10 on Tuesday. The company's stock offering, one of the most highly anticipated in history, was marred by a series of technical glitches at the Nasdaq exchange. Facebook's decision to increase the size of the offering by 25 percent just days ahead of the IPO, as well as concerns about decelerating revenue, also weighed on the stock, which traded as low as $25.52 before regaining some ground to trade in a $31-$33 range in recent days. The rush of research comes ahead of Facebook's second-quarter results, expected sometime in mid-to-late July. With about 900 million users, Facebook has become one of the Web's top destinations, challenging established players such as Google and Yahoo Inc. Even so, revenue growth from ads and other services is slowing. The company, which last year was more than doubling the amount of money collected every quarter compared with a year earlier, reported growth of 45 percent in the first three months of 2012, and revenue declined from the preceding quarter. General Motors Co's announcement a few days before the IPO that it would stop advertising on Facebook has added to the concerns about Facebook's ability to generate business from advertising. Despite $4.8 billion in expected revenue in 2012, the average amount of money that Facebook makes through each user is still relatively low, said BofA Merrill Lynch, which expects new advertising formats to accelerate revenue growth in the second half of the year. In recent weeks, Facebook has unveiled a string of enhancements to its advertising service, allowing marketers to target ads to users on the mobile version of Facebook and to show Facebook users ads based on previous websites that they have visited. "The company is in the midst of a mobile usage transition and we are cautious on Facebook's revenue trends until new mobile ad revenue models start driving the top line," the analysts at BofA Merrill Lynch wrote. Several analysts working for the underwriters, including Morgan Stanley and Goldman Sachs, cut financial forecasts for Facebook days before the IPO, after the company cautioned about revenue growth due to a rapid shift of users to mobile devices, where Facebook is less effective at generating revenue. The analysts briefed some institutional clients about their revised forecasts, sources have previously told Reuters, but retail investors were left in the dark. That revelation has resulted in lawsuits alleging the banks and Facebook failed to fully disclose the company's weakened financial outlook ahead of its IPO. (Additional reporting By Alexei Oreskovic in San Francisco and Tenzin Pema in Bangalore; Editing by Joyjeet Das, Ted Kerr , John Wallace, Matthew Lewis and Richard Chang )

T-Mobile USA CEO calls it quits after two years

Wed Jun 27, 2012 4:08pm EDT

http://www.reuters.com/article/2012/06/27/us-deutschetelekom-idUSBRE85Q1CU20120627

NEW YORK, June 27 - Barely two years after signing on as chief executive with T-Mobile USA, Philipp Humm is leaving the company and will be succeeded on an interim basis by Jim Alling.

T-Mobile USA, owned by German parent Deutsche Telekom, said on Wednesday that Humm was leaving for personal reasons to spend more time with his family - echoing the statement released in May 2010 when Robert Dotson announced he would be leaving and that Humm would take over. The company said Alling, chief operating officer of T-Mobile USA, will take over the duties of CEO on an interim basis while a search is under way. In a letter to employees - seen by Reuters - Deutsche Telekom CEO Rene Obermann said Humm had informed him of his decision in April and that Humm was leaving to join a competitor. Talks with potential successors were promising, Obermann said in the letter. Jefferies analyst Ulrich Rathe said the departure was unexpected. It likely did not "signal incremental operating difficulties," he noted, but might be taken as an indirect signal that Deutsche Telekom continued to look for a strategic solution in the U.S. such as a spin-off, an initial public listing or a merger or acquisition. "We have long argued that notwithstanding current measures to stabilize the operating performance (including the rollout of high-speed LTE wireless technology), DT is working towards a strategic solution to the fundamental problem at T-Mobile USA: lack of scale driving sub-par returns," Rathe said in a note. "Clearly, working as the CEO of an asset that is subject to such uncertainty would likely increase the attractiveness of competing career options," he added. Humm faced a tough job when he took over from Dotson, who left after 15 years saying he wanted "to step away from the business to devote more time to family and to pursue new opportunities." T-Mobile USA, once prized as Deutsche Telekom's growth engine, struggled so much with customer cancellations that the German company had been looking at new options for the unit ranging from buying competitor Sprint to an IPO. Humm, who had a reputation as a turnaround specialist, might have been the right man for the job but his hands were essentially tied from March to December 2011 as the company waited for approval to be bought by AT&T. In March 2011, Deutsche Telekom and AT&T announced that the U.S. carrier planned to buy T-Mobile USA for $39 billion but the deal eventually fell apart in the face of regulatory concerns. The deal would have solved Deutsche Telekom's problems in the United States in one fell swoop. Instead T-Mobile USA was back at square one, leaving Humm to pick up the pieces. Humm said in February he planned to reinvigorate T-Mobile USA with a $1.4 billion investment and reallocate spectrum in order to upgrade T-Mobile's service in 2013 with LTE technology. He achieved part of that plan: On Monday, T-Mobile USA announced a spectrum deal with Verizon that gives the smaller carrier more access in areas in the country where it has been historically weak. (Additional reporting by Peter Maushagen and Marilyn Gerlach in Frankfurt; Editing by Gary Hill and Richard Chang )

Spain sends alarm signal to EU ahead of summit

Wed Jun 27, 2012 6:37am EDT

http://www.reuters.com/article/2012/06/27/us-spain-economy-idUSBRE85Q0AU20120627

MADRID - Spain is determined to retain access to market funding and will push for European institutions to use available options to stabilize financial markets, premier Mariano Rajoy said, maintaining his policy stance ahead of an EU summit.

With Spain and the rest of the euro zone's 'big four', struggling to narrow their differences over how to tackle the bloc's worsening debt crisis, Rajoy also said he would fight to secure aid for the country's banks directly and without enhanced creditor status from Europe's rescue funds. Speaking in parliament ahead of the two-day meeting of European leaders starting on Thursday in Brussels, Rajoy said Spain would not be able continue financing itself at current yields for long. "I will propose measures to stabilize financial markets, using the instruments at our disposal right now," Rajoy said, referring to policy options such as the European Central Bank's bond-buying program and long-term funding tenders (LTROs). Twin three-year tenders offered by the ECB in December and February unleashed over 1 trillion euros into the financial system and were credited with staving off the worst effects of the debt crisis late last year and early in 2012. But the ECB has given no indications it is planning to offer further LTROs or revive the dormant bond-buy program, instead putting the onus on the region's governments to come up with a concerted response to the crisis. DIRECT BANK AID Mindful of the need to minimize the political stigma associated with a bailout after agreeing to a bank sector rescue worth up to 100 billion euros ($125 billion), Rajoy said he would keep working for a direct recapitalization of Spain's debt-scarred lenders with European funds. That would cut the vicious circle between indebted sovereigns borrowers and weak banks. Rajoy said Spain would continue to press to remove the preferred creditor status of Europe's permanent rescue fund, the ESM, thereby avoiding further increases of the country's debt pile and reassuring other investors they would not drop down the repayments queue. "I will keep working to obtain a direct recapitalization of banks and to make sure the European aid doesn't override the rights of other holders of public debt," Rajoy said. On that score, he may win support at the summit from Germany, the EU's biggest economy and paymaster, which appears ready to budge on using the rescue funds more flexibly to help banks and reassure investors spooked by the increased risk of facing writedowns on government bonds. Spain's banks were crippled by a 2008 property crash. Madrid is under intense pressure from nervous debt markets to tame one of the highest funding gaps in the euro zone and, to garner support within the bloc for its policy preferences, will be keen to show new austerity measures to European leaders at the summit. Madrid said on Tuesday it was considering raising consumer, energy and property taxes to control a public deficit that may have already exceeded one of its budgeted ceilings for the full year. "The most urgent issue is the one of financing. We can't keep funding ourselves for a long time at the prices we're currently (paying)," Rajoy said on Wednesday. Madrid's short-term borrowing costs nearly tripled from a month ago at an auction on Tuesday, while demand shrank as investors continue to seek ever higher premiums to hold Spanish debt. On Wednesday, Spain's 10-year debt yields were flat at 6.84 percent, still uncomfortably close to the 7 percent level that triggered full-scale bailouts for Greece, Ireland and Portugal. (Editing by Fiona Ortiz ; Editing by John Stonestreet)

Merkel to face down summit pleas for crisis action

Wed Jun 27, 2012 7:30pm EDT

http://www.reuters.com/article/2012/06/27/us-eurozone-idUSBRE85O0CS20120627

BRUSSELS - German Chancellor Angela Merkel will pit herself against France and Italy on Thursday at an EU summit that could shape the euro zone's future, insisting they must put the bloc's fundamental problems ahead of pleas for emergency action.

European Union leaders go into the two-day meeting in Brussels more openly divided than at any time since the debt crisis erupted in Greece in 2010 and spread over the euro zone. On the eve of the EU summit, which is due to start at 1300 GMT, Merkel brushed aside demands from Italy and Spain for rapid action to lower their soaring borrowing costs, and poured cold water on proposals backed by France that euro zone countries should assume joint liability for each other's debts. Many international investors have deserted Spanish and Italian debt, pushing bond yields to levels that Madrid at least cannot afford for long as it simultaneously tries to save its banks ravaged by a property market collapse and cut its spiraling budget deficit. Merkel accused top EU officials of getting their priorities wrong by proposing common euro zone debt before EU controls are in place on national budgets and economic policies. "I fear that at the summit we will talk too much about all these ideas for joint liability and too little about improved controls and structural measures," she told parliament in Berlin on Wednesday. French President Francois Hollande is championing joint "eurobonds" to bring down borrowing costs for the weaker euro zone countries as the pool of guarantors would include the strongest - meaning Germany. But before the summit - the EU's 20th since the crisis began - Merkel repeated her objections to the plan, saying even Europe's strongest economy must not be overburdened. She left the door ajar to eventual joint debt issuance. But she offered no immediate moves to ease the crisis and insisted governments must commit to giving EU institutions the power to override their budgets and make them change policy before there could be any shared liability for Europe's debt. "Joint liability can only happen when sufficient controls are in place," she said. The remarks appeared to be a less definitive rejection of common euro zone bonds than she made behind closed doors on Tuesday, when she said she did not expect to see shared debt liability in her lifetime. This insistence that the summit focus on long-term fixes put her at odds with a top European Commission official. Economic and Monetary Affairs Commissioner Olli Rehn said European leaders would work at the summit on short-term steps to relieve market pressure on countries at risk. "It is essential that (short-term policy measures) are decided by the European Council," Rehn told reporters. RAJOY'S PLEA Spanish Prime Minister Mariano Rajoy said he would ask other EU leaders to allow the bloc's bailout funds or the European Central Bank to stabilize financial markets. Rajoy warned that Spain could not live indefinitely with yields on its 10-year bonds near seven percent. "The most urgent issue is the one of financing. We can't keep funding ourselves for a long time at the prices we're currently funding ourselves," he told parliament. Spain is one of five euro zone countries - more than a quarter of the total - to request euro zone bailout funds as it needs up to 100 billion euros to recapitalize its banks. Madrid won time on Wednesday to negotiate the terms of the bank aid when it gained approval for a state liquidity guarantee of 19 billion euros for Bankia, the country's biggest problem lender. Spain has been seeking a temporary mechanism to fund four nationalized banks that urgently need money, since it could take three to four months for the European aid to reach the country's financial system. EU divisions have been more openly displayed since Hollande, a Socialist, ousted conservative Nicolas Sarkozy as French president last month, challenging Merkel to move away from austerity, promote economic growth and mutualise Europe's debts. Merkel finds herself in a dwindling minority in the EU, backed only by the Netherlands and Finland, but she holds the euro zone's purse strings and therefore nearly all the cards. Rome and Madrid, now in the financial markets' firing line, have muscled into the traditional Franco-German axis. Leaders of the four countries held a discordant news conference in Rome on Friday and Merkel met Hollande on Wednesday evening to try to repair the damage. "I say we need more Europe and I think we are in agreement there," Merkel said in Paris. "We need a Europe that functions effectively, markets are looking for this, and a Europe where countries help each other." Cyprus - which this week joined Greece, Ireland, Portugal and Spain in requesting European bailout money - won support from its euro zone partners for emergency funding to prop up its banks, crippled by their Greek debt holdings, in assistance which will probably include aid from the IMF. In Rome, Italian Prime Minister Mario Monti said on Tuesday he would not simply rubber stamp conclusions at the EU summit and was ready to go on negotiating into Sunday evening if necessary to agree on measures to calm markets. Stock markets perked up last week on hopes that the summit would come up with dramatic measures. Investors have since thought better of that view. (Writing by David Stamp ; Editing by Michael Roddy)

Overhaul at Italy's oldest bank looks to new investors

Wed Jun 27, 2012 10:13am EDT

http://www.reuters.com/article/2012/06/27/us-montepaschi-idUSBRE85Q0X220120627

SIENA, Italy - Banca Monte dei Paschi di Siena laid out a painful restructuring plan on Wednesday, a day after the world's oldest bank was forced to take state aid, and said it would be looking to new investors in seeking to raise up to 1 billion euros ($1.25 billion) in new equity capital over the next five years.

Monte dei Paschi is the first Italian bank to have to resort to state aid since 2010, with the bank hit hard as the euro zone crisis deepens by its 25 billion-euro exposure to Italian government bonds, which is proportionally higher than that of its domestic peers. Under its restructuring plan Italy's third biggest lender said it aims to slash its loan book, close 400 branches and cut 4,600 jobs, and also estimated it would sell 1.5 billion euros of new special bonds to the Italian treasury, against a maximum of 2 billion euros approved by the government on Tuesday. That will bring total state support to the bank to 3.4 billion euros, including similar bonds that Monte Paschi already sold to the state in 2009. The bank pledged to almost entirely pay them back by the end of its 2012-2015 plan. "MPS is de facto in the hands of the state but after the plan we will be again completely independent from state aid," newly appointed chairman Alessandro Profumo told Reuters in an interview. In the new restructuring plan, drawn up by Profumo and Chief Executive Fabrizio Viola, the bank said it would seek approval for a capital increase in the form of new shares, convertible bonds and/or warrants of up to 1 billion euros, to be carried out by the end of 2015. It also said existing shareholders' option rights to buy into the cash call would be waived, indicating it intends to aim the capital hike at new investors. That would further dilute its cash-strapped top shareholder - a charitable foundation with close political ties that has already been forced to cut its stake to 36.3 percent from nearly 50 percent to pay back its own debts. "We are hoping to attract investors to invest a significant amount ... We are thinking private investors," Profumo said, adding that the bank had no names in mind yet. Asked whether a merger might be in the pipeline, he said the plan was for a stand-alone bank. "I guess a dilution of the Foundation is one option to convince somebody to enter MPS. With a very scarce appetite for any Italian kind of paper, the issue price of whatever instrument will be very penalizing in terms of dilution," said Fabrizio Bernardi, an analyst at Fidentiis Equities. However, should the bank not be able to find private investors willing to buy in, analysts say the capital increase could be underwritten by state holding Cassa Depositi e Prestiti, increasing the government's grip on the bank. JOB CUTS, BRANCHES TO CLOSE More immediately the bank aims to cut 15 percent of its workforce and more than 10 percent of its branch network with a view to reducing costs by 565 million euros by 2015. Also Monte dei Paschi's exposure to Italian government bonds will be gradually phased out and the consumer and corporate loan-to-deposit ratio cut to 110 percent from 131 percent as it seeks to repair its balance sheet. Thanks to the state loans, by the end of the month the bank will be compliant with European Banking Authority target for a Core Tier 1 solvency ratio of 9 percent of assets. In 2015 the ratio will be 8.07 percent, above the Basel III global banking rules requirement of 7 percent. The Treasury said state aid was needed to plug a capital shortfall estimated at between 1.3 billion and 1.7 billion euros to comply with the tougher requirements set by the European Banking Authority. The shortfall is higher than market expectations of around 1 billion euros. CEO Viola said the bank did not know yet the coupon it will have to pay on the so-called Tremonti bonds, which are named after former Economy Minister Giulio Tremonti who first launched the scheme in 2009, but he expected it to top 8.5 percent. Analysts have warned that would wipe out a large chunk of any MPS profits for years to come. The plan targets net profits of 630 million euros in 2015. The shares were up 0.8 percent by 1034 at 0.19 euros, having lost half of their value in the past three months. "The plan is OK. They did what they had to do - deleverage the balance sheet, reduce sovereign exposure, cut branches. But that said, why should anyone invest in MPS because they're taking Tremonti bonds?" said a London-based analyst who declined to be named. "There are lots of other banks with stronger capital bases and that don't have to pay a coupon to the state every year." After posting a 4.7 billion euro loss in 2011 due to massive goodwill writedowns, MPS also said on Wednesday it had started a new impairment test on goodwill as of June 2012 and will announce its outcome with first-half results. (With additional reporting by Lisa Jucca and Stephen Jewkes; Editing by Greg Mahlich)

Czech PM against EU integration plans ahead of summit

Wed Jun 27, 2012 6:29am EDT

http://www.reuters.com/article/2012/06/27/us-eurozone-czech-pm-idUSBRE85Q0GL20120627

PRAGUE - The Czech government will not accept proposals for deeper European banking and fiscal integration circulated ahead of an EU summit this week, Prime Minister Petr Necas said on Wednesday.

European Council President Herman Van Rompuy has released a seven-page report envisaging a euro zone treasury that would issue common debt in the medium term, as well as elevating banking regulation to the European level. Such structures are seen by many as the minimum necessary to finally bring the euro zone debt crisis under control, but they are facing resistance in a number of European capitals. "The (government's) mandate orders me not to accept the proposals that have been in circulated in the media so far," Necas told a news conference ahead of the EU summit on Thursday. "Some proposals like the banking union could have extremely damaging impact on the Czech economy." The Czechs have not joined the euro and the EU's fiscal pact and the main political parties have been in conflict on how to approach further EU integration. Necas said he did not expect any major conclusions from the summit. German Chancellor Angela Merkel has rejected the idea of issuing common debt, which would help weaker countries but put a greater burden on Germany. The Czech banking sector is controlled by foreign banks like Erste Bank, KBC, Societe Generale and Unicredit, and their local subsidiaries have high capital buffers. No Czech banks required bailouts in the financial crisis and they have very low holdings of risky assets. This has led to fears that unified bank regulation would remove the ability of Czech regulators to oversee and limit capital and asset flows between Czech banks and their foreign parent institutions. (Reporting by Robert Muller, writing by Jan Lopatka)

Canada's Libor probe ongoing despite Barclays deal

Wed Jun 27, 2012 11:27am EDT

http://www.reuters.com/article/2012/06/27/us-barclays-libor-canada-idUSBRE85Q13220120627

OTTAWA - The probe by Canada's Competition Bureau into alleged collusion in the setting of the Libor interbank lending rate is still going on despite settlements reached by U.S. and British authorities with British bank Barclays, an official said on Wednesday.

"We are aware of the settlement. We cannot discuss the details of the Bureau's ongoing investigation, as by law our investigations are conducted confidentially," Competition Bureau spokeswoman Gabrielle Tasse said. Barclays will pay at least $450 million to U.S. and British authorities to settle their probes. Other authorities probing Libor manipulation include the European Commission and Japan's Financial Service Authority. (Reporting by Randall Palmer ; Editing by Jeffrey Hodgson )

Boeing taps salesman Conner to run commercial planes

Wed Jun 27, 2012 1:10pm EDT

http://www.reuters.com/article/2012/06/27/us-boeing-executives-idUSBRE85Q17W20120627

SEATTLE - Boeing Co ( BA.N ) appointed a new head of its commercial plane unit on Tuesday, turning to a veteran production expert and salesman to help gain the upper hand in its battle with Airbus for the $100 billion-a-year aircraft market.

The surprise move, just weeks before the Farnborough Airshow, comes as Boeing attempts to ramp up production of its civil aircraft, including the troubled 787, and regain its leading position in the key single-aisle market after losing a large American Airlines ( AAMRQ.PK ) order to rival Airbus. Boeing said Ray Conner would be the new head of its best-known unit with immediate effect, replacing another longtime Boeing executive, Jim Albaugh. Conner, 57, joined Boeing in 1977 as a mechanic and worked his way up the company's production, supply chain and marketing operations to become head of sales. Albaugh, 62, who came to prominence at Boeing's defense unit, is to retire on October 1 - three years before Boeing's standard retirement age - after 37 years with the company. The move was greeted positively by industry analysts, who applauded the appointment of a sales-oriented head in place of the engineering-minded Albaugh. "Commercial aircraft sales is a very customer-centric job," said Carter Leake, an analyst at BB&T Capital Markets. "Conner is more from true-blue aircraft sales than Albaugh. Arguably Conner has touched more Boeing customers than any person in the entire company." SALES JOB One industry source said Albaugh wanted to hand over the reins now so his successor would have a chance to represent Boeing at Farnborough, one of the most important events in the company's calendar where it will be under pressure to announce new orders. "Now that production lines are running smoothly, and Albaugh accomplished his stated objectives, it's a good time to step aside and open the door to increased effort on sales where Conner has most recently focused his attention," said Stifel Nicolaus analyst Stephen Levenson. Conner was only recently appointed to his second stint in the top sales job after a shake-up prompted by Airbus ( EAD.PA ) marching into core Boeing territory last July and persuading American Airlines to buy 260 of its narrow-body A320s, alongside 200 Boeing 737s. The 737 is the work-horse for most airlines and Boeing's biggest cash generator, but Boeing upset some customers by delaying a decision on what to do with its replacement, eventually deciding to follow Airbus and offer a revamped version, called the 737 MAX, instead of building an all-new airplane. Since the launch of the MAX last August, the quiet-spoken Conner has led Boeing's rebound in the aircraft market and the company is expected to outsell Airbus this year for the first time since 2006, largely on the back of orders for the MAX. After Farnborough, Conner must turn his attention to Boeing's audacious attempt to ramp up production of its revolutionary, carbon-fiber 787 to 10 a month by the end of next year from 3.5 a month now, as well as oversee increased production of 737s and 777s. In a memo to Boeing employees sent on Tuesday and obtained by Reuters, Conner said he aimed to focus on delivering the planes in Boeing's bulging order book. "Our job going forward together in the near term is to stay the course on the product and services strategies that have resulted in our record backlog, and to turn up the gain on performance and execution to ensure we meet our commitments," said Conner in the memo. MANAGEMENT CHANGE One analyst said Albaugh's retirement signaled a broader process of management change at Boeing. "The generational shift in Boeing management is now almost done, with only CEO Jim McNerney left of the old guard," said Rob Stallard at RBC Capital Markets. "Who succeeds him remains to be seen, but Boeing now has two relatively new and capable executives heading each division, and each could be vying for the top slot in due course." Dennis Muilenburg took over as head of Boeing's defense, space and security unit in 2009, when Albaugh left to take charge at the commercial airplanes unit as the company looked for a steady hand to guide the early production of the troubled 787 Dreamliner program. With 787 production now stabilized, Albaugh's retirement is the second high-profile departure after Boeing's finance chief James Bell retired earlier this year. Industry-watchers agree that Albaugh achieved that, while he also brought the new 747-8 jumbo to market and presided over an unprecedented labor agreement at Boeing's volatile Seattle-area plants [ID:nN1E7AT23A]. Albaugh's support was key to Boeing's winning back a multibillion-dollar U.S. Air Force contract to build 179 new refueling planes that had been awarded to Northrop Grumman Corp ( NOC.N ) and its European partner, Airbus parent EADS ( EAD.PA ). "Realistically, he's accomplished everything he was trying to do at Boeing Commercial Aircraft," said defense consultant Loren Thompson at the Lexington Institute. One senior industry official said Albaugh likely wanted to exit Boeing at the "top of his game." "He's run Boeing defense. He's run Boeing commercial, and he's not going to be CEO at Boeing." (Additional reporting by Tim Hepher in Paris, Karen Jacobs in Atlanta, Andrea Shalal-Esa in Washington and A. Ananthalakshmi in Bangalore.; Editing by Matthew Lewis , M.D. Golan, Richard Pullin and Andre Grenon )

Overhaul at Italy's oldest bank looks to new investors

Wed Jun 27, 2012 7:19am EDT

http://www.reuters.com/article/2012/06/27/us-montepaschi-idUSBRE85Q0K920120627

SIENA, Italy - Banca Monte dei Paschi di Siena laid out a painful restructuring plan on Wednesday, a day after the world's oldest bank was forced to take state aid, and said it would be looking to new investors in seeking to raise up to 1 billion euros ($1.25 billion)in new equity capital over the next five years.

Monte dei Paschi is the first Italian bank to have to resort to state aid since 2010 as the euro zone crisis deepens, with the bank hit hard by its 25 billion-euro exposure to Italian government bonds, which is proportionally higher than that of its domestic peers. Under its restructuring plan Italy's third biggest lender said it aims to slash its loan book, close 400 branches and cut 4,600 jobs, and also estimated it would sell 1.5 billion euros of new special bonds to the Italian treasury, against a maximum of 2 billion euros approved by the government on Tuesday. That will bring total state support to the bank to 3.4 billion euros, including similar bonds that Monte Paschi already sold to the state in 2009. The bank pledged to almost entirely pay them back by the end of its 2012-2015 plan. "We've gone back to being a state bank," said a frustrated MPS employee. In the new restructuring plan, drawn up by newly appointed chief executive Fabrizio Viola and Chairman Alessandro Profumo, the bank said it would seek approval for a capital increase in the form of new shares, convertible bonds and/or warrants of up to 1 billion euros, to be carried out in the next five years. It said existing shareholders' option rights to buy into the cash call would be waived, indicating it intends to aim the capital hike at new investors. That would further dilute its cash-strapped top shareholder - a charitable foundation with close political ties that has already been forced to cut its stake to 36.3 percent from nearly 50 percent to pay back its own debts. "With 3.4 billion of Tremonti bonds the bank is already in the hands of the Government, virtually," said Fabrizio Bernardi, an analyst at Fidentiis Equities, referring to the special bonds underwritten by the Treasury and named after former economy minister Giulio Tremonti who first launched the scheme in 2009. "I guess a dilution of the Foundation is one option to convince somebody to enter MPS. With a very scarce appetite for any Italian kind of paper, the issue price of whatever instrument will be very penalizing in terms of dilution." If the bank cannot find private investors willing to buy, the capital increase could be underwritten by state holding Cassa Depositi e Prestiti, increasing the government's grip on the bank. JOB CUTS, BRANCHES TO CLOSE Meanwhile the bank aims to cut 15 percent of its workforce and more than 10 percent of its branch network with a view to reducing costs by 565 million euros by 2015. Also the bank's exposure to Italian government bonds will be gradually phased out and the consumer and corporate loan-to-deposit ratio cut to 110 percent from 131 percent as it seeks to repair its balance sheet. By the end of the month the bank will also be compliant with European Banking Authority requirements for a Core Tier 1 solvency ratio of 9 percent of assets. In 2015 the ratio will be 8.07 percent, above the Basel III global banking rules requirement of 7 percent. The Treasury said the so-called "Tremonti" bonds were needed to plug a capital shortfall estimated at between 1.3 billion and 1.7 billion euros to comply with the tougher requirements set by the European Banking Authority. The shortfall is higher than market expectations of around 1 billion euros. The coupon the bank will have to pay on the Tremonti bonds is yet to be unveiled, but analysts estimate it will be in the region of 10 percent, wiping out a large chunk of any MPS profits for years to come. The plan targets net profits of 630 million euros in 2015. The shares rallied after the plan was unveiled, but they were flat by 1034 at 0.19 euros, having lost half of their value in the past three months. "The plan is OK. They did what they had to do - deleverage the balance sheet, reduce sovereign exposure, cut branches. But that said, why should anyone invest in MPS because they're taking Tremonti bonds?" said a London-based analyst who declined to be named. "There are lots of other banks with stronger capital bases and that don't have to pay a coupon to the state every year," the analyst said. After posting a 4.7 billion euro loss in 2011 due to massive goodwill writedowns, MPS also said on Wednesday it had started a new impairment test on goodwill as of June 2012 and will announce its outcome with first-half results. (With additional reporting by Stephen Jewkes, Valentina Za and Antonella Ciancio; Editing by Greg Mahlich)

Tepco shareholders OK $12.6 billion government injection

Wed Jun 27, 2012 6:39am EDT

http://www.reuters.com/article/2012/06/27/us-tepco-takeover-idUSBRE85Q09Q20120627

TOKYO - Tokyo Electric Power Co ( 9501.T ) shareholders voted on Wednesday to approve the Japanese government's 1 trillion yen ($12.58 billion) capital injection, to avert the collapse of the utility in the aftermath of the Fukushima nuclear crisis.

The capital injection will hand control of Tepco to the government and brings total state support for the company to at least 3.5 trillion yen since reactor meltdowns at the Fukushima Daiichi plant triggered by last year's earthquake and tsunami. Shareholders at the utility's annual general meeting also rejected a proposal to scrap all seven reactors at Tepco's Kashiwazaki-Kariwa plant, the world's biggest nuclear facility, on the Sea of Japan coast. The proposal called for replacing the plant with a new fuel-efficient, gas-fired combined cycle power station at the site. The eventual cost of the Fukushima nuclear disaster, including compensation and cleanups, has been estimated at more than $100 billion. ($1 = 79.4650 Japanese yen) (Reporting by Osamu Tsukimori; Editing by Aaron Sheldrick and Michael Watson )

U.S. court backs Tate & Lyle in Whitefox dispute

Wed Jun 27, 2012 3:45am EDT

http://www.reuters.com/article/2012/06/27/us-tateandlyle-idUSBRE85Q0AV20120627

LONDON - Britain's Tate & Lyle Plc ( TATE.L ) said on Wednesday that a U.S. court had found in its favor in a dispute with Whitefox Technologies which an analyst said could win the London-based sweeteners and starch group over 10 million pounds ($15.6 million).

The trial before the Supreme Court of the State of New York related to equipment and technologies supplied by Whitefox for use in Tate's U.S. ethanol plants at Loudon in Tennessee and Fort Dodge in Iowa which Tate claimed were not fit for purpose. No comment was made by the company on the level of the award granted to Tate as this is subject to appeal, although analyst Graham Jones at brokers Panmure Gordon estimated that the award is in the order of low double-digit millions of pounds. Tate's shares were off 2 percent at 633 pence at 0715 GMT in a slightly firmer London stock market. ($1 = 0.6411 British pounds) (Reporting by David Jones ; Editing by Hans-Juergen Peters)

Analysis: High costs, delays, and tough timing vex Barclays' Asia plan

Tue Jun 26, 2012 8:17pm EDT

http://www.reuters.com/article/2012/06/27/us-barclays-asia-idUSBRE85Q00C20120627

- Three years into Barclays' costly global expansion from fixed-income shop to full investment bank, the Asia leg of the build-out is struggling to gain ground on its rivals.

Barclays hired an A-list of veteran and expensive Asia investment bankers after the 2008 financial crisis, with the hope of forming a banking and equities business that would put them in the same league as Goldman Sachs and Morgan Stanley. While the U.S. and European arms of the new Barclays muscled into Wall Street, the Asia operation was hit by delays in its equity platform roll-out, heavier-than-expected competition from local firms, and a quick rebound in Asian markets that allowed competitors to regain momentum. "Unfortunately the high hopes of 2009 for Asia are not in the bucket today, with economic prospects in China not as good as hoped and Japan not yet turned around," said Crispin Odey, founding partner of Odey Asset Management, a hedge fund that owned 16.7 million shares in Barclays as of February 29th. Thomson Reuters estimated fee data shows only incremental gains in market share since 2009 in both equity capital markets (ECM) and mergers and activity (M&A), while the bank remains a strong player in its established businesses of fixed income sales and trading. In the Asia equity and equity-related league table standings for 2011 (excluding Japan and Australia), Barclays failed to make the top 20, according to Thomson Reuters. Barclays Capital ranked 16th in the region's M&A standings last year, the data show. First-quarter estimated fee data show Barcap in 8th place globally and in 17th place in Asia Pacific. Building up a complicated business in such a competitive market takes time. But for Barclays' Asian aspirations, some investors are getting impatient as markets sour again. With regulation putting pressure on banks' spare cash worldwide, scrutiny on Barclays' spending in Asia will only heighten if the region's revenues fail to jump. "The real issue for Barclays at the moment is the threat to their cost of funding... and that outweighs anything they might be doing in investment banking," Odey said. Odey's wife, former JO Hambro Capital Management CEO Nichola Pease, is a member of one of the families that founded Barclays. DELAYED ROLL-OUT When Barclays launched the Asia expansion, a key ingredient was a global roll-out of the equity platform it picked up when it bought the U.S. business of Lehman Brothers after Lehman's 2008 collapse. In September 2009, Barclays Asia CEO Robert Morrice told Reuters of the plan for a single platform to buy, sell, and distribute stocks worldwide, which he acknowledged was unusual. "I don't think people could do that in the past because of different investments in different regions," he said then. The bank turned to Japan first, and planned to have the Hong Kong phase finished by September 2010. While Japan was complete that year, only in recent months has the all-important Hong Kong roll-out been finalized. The execution was hit by several delays and it still does not reach Australia. "I think they underestimated how complicated the technology part of this whole thing was," said a source involved with the Asia part of the plan. One problem with the equity roll-out plan, according to the source, was the technology systems of each region were not compatible with each other. One minor example was that in equity derivatives, Barclays used Microsoft Windows while Lehman was on Linux. On a larger scale, the source said, Barclays discovered less connectivity and synergies than it hoped, and instead found that what worked for an equity product in New York, did not work in Japan under one system. Morrice told Reuters in an interview last week that the renewed downturn in markets had forced the bank to re-calibrate its goal to increase Asia's contribution to corporate and investment bank revenues to 20 percent by 2015 from historical levels of 8 to 13 percent. "You're not seeing equities transactions yet because the deals aren't there across the market. But if I believed that the markets will stay like this for five years, we wouldn't be doing this," Morrice said. "Those who have seen for themselves the scale of opportunity in the region will grind it out as long as they can." Asia contributed just 4 percent of global income for the Barclays group in 2011, the same as it did in 2010 and just one percentage point higher than in 2009, according to filings. MISSING CHINA TICK Barclays has a fully loaded Japan bank yet has struggled to build its China-focused business, which undercuts efforts to sell itself as a full-service Asian investment bank. Some smaller rivals who attempted to build an Asia equities platform after the 2008 crisis also ran into headwinds, with Samsung Securities and Daiwa among those that also built up, and later, scaled back. "If we had predicted this market environment when we began the build-out, we might have adjusted our strategy," Morrice said. Barclays still lacks a joint venture with a local securities firm in China, unlike most of its peers, and has failed to win the big China equity underwriting mandates that bring fees and league-table standing. "That is a tick in the box missing versus the competition," he said. "However, China is not somewhere where you want to rush in and do the wrong thing. We are looking for the right partner." It wasn't until May that the equities research team started mainland China property coverage, one of the most eagerly followed sectors in Asia. HIRING SPREE The heavy-spending, hard-charging approach of Barclays in Asia was illustrated by the two-year stint of Stephen O'Sullivan, who was poached from Macquarie at the end of 2009 as head of Asia research. O'Sullivan immediately set to work hiring senior analysts in batches from the competition. Two sources with knowledge of the matter say his initial target was to hire more than 100 analysts for the equity research division, though what remains now is somewhere around 50, they say. While Barclays was able to build a list of talented and respected analysts, it came at a cost. Unlike some banks that have one senior, managing director-level veteran at the top of the research division, Barclays' has six managing directors in that division, sources say. Managing directors are typically the highest ranked and highest paid bracket of an investment bank. Even a relatively junior floor of research analysts is an expensive operation at a bank, because these positions typically do not bring in direct revenues. They are a key cog in the equities machine, but the groups are often referred to as a cost center, as they cost more than they make. Whether the research division wants to be a costly leader in market share or a scrappy, profitable bunch, appears to be unclear, according to an analyst at Barclays. "There's no strategy," said the analyst, who did not want to be named. "Everybody's an MD," the analyst quipped. O'Sullivan left Barclays at the end of last year, sources with knowledge of the matter said. Reuters was unable to reach O'Sullivan for comment. Morrice said that building a research division from the ground up required hiring senior people. "Yes, we might have a different shaped pyramid compared to some competitors, but that's because we're building from scratch," Morrice said. "There is an emphasis on producing high-quality research early on, which means hiring senior analysts first and then over time they can bring along others." Barclays also suffered a blow in the increasingly important world of electronic trading of shares. Michael Kim and Shun Yet Jan were hired from Bank of America Merrill Lynch to build out the bank's e-trading platform in Asia; both lasted just one year before leaving. SMALL GAINS In investment banking, the build-out began in earnest with the poaching from Morgan Stanley of the respected Matthew Ginsburg in September 2009. He was followed the next year by lieutenants Ed King, head of M&A; and Peter Ding and Gary Kuo, who would run Greater China investment banking together. Financial industry headhunters said at the time, that batch of hires alone would cost the bank more than $10 million. The bank continued its run of hiring talent from top-tier Asia firms by naming former Goldman Sachs M&A banker Johan Leven as co-head of corporate finance in March 2010, the same month that Morrice told the Financial Times the goal was to hire another 100 M&A bankers in a year. "A key metric we look at is productivity, or revenue per head, and we're within 10-15 percent of the top names on the street already," Morrice told Reuters In equity deals, the bank's estimated Asia-Pacific fees were $49 million in 2011, a market share of 0.68 percent, up from $33.9 million in 2010 (0.42 percent market share)and $6.4 million in 2009 (0.11 percent). In M&A, Barclays has made similar small gains, increasing market share in estimated fees from 0.19 percent in 2009 to 0.96 percent in 2010 and 1.49 percent in 2011, the data show. The 2011 figure represents a total estimated fee haul in M&A for Asia excluding Japan of $57 million last year. That is around half the fees in that category earned by Morgan Stanley, the data show. "Market conditions need to stabilize and improve before we will begin to see improved returns on the investments we have made in equities and investment banking," Morrice said. (Editing by John Mair )

Mortgage applications fell last week: MBA

Wed Jun 27, 2012 7:58am EDT

http://www.reuters.com/article/2012/06/27/us-usa-economy-mortgages-idUSBRE85Q0MU20120627

NEW YORK - Applications for U.S. home mortgages fell last week as refinancing applications for government loans slowed, an industry group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 7.1 percent in the week ended June 22. The MBA's seasonally adjusted index of refinancing applications decreased by 8.3 percent, while the gauge of loan requests for home purchases, a leading indicator of home sales, fell by 1.4 percent. The refinance share of total mortgage activity fell to 79 percent of applications from more than 81 percent the week before. Michael Fratantoni, MBA's vice president of research and economics, attributed the decline to a fall-off in refinance applications for government-backed loans, which had soared the previous week. "The large swings in activity were due to the implementation of FHA's new premiums on streamline refinances, and borrowers timing their application to lower their premiums," he said in a statement. Fixed 30-year mortgage rates averaged 3.88 percent in the week, a gain of a single basis point from 3.87 the week before. The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA. (Reporting by Anna Louie Sussman ; Editing by Diane Craft )

Nomura CEO grilled over insider probe, but re-elected

Tue Jun 26, 2012 11:48pm EDT

http://www.reuters.com/article/2012/06/27/us-nomura-agm-election-idUSBRE85Q04I20120627

TOKYO - Kenichi Watanabe was re-elected as CEO of Nomura Holdings ( 8604.T ) on Wednesday despite a grilling from shareholders about the Japanese broker's slumping share price and his handling of a protracted insider trading probe.

The 59-year old bowed in apology at the annual shareholders' meeting at the Hotel Okura in central Tokyo and vowed to complete an internal investigation into the insider trading scandal as planned by the end of the month. Earlier this month, Nomura acknowledged that its employees had tipped off clients about three planned company share offerings it underwrote in 2010, highlighting a serious breach in compliance at Japan's largest investment bank. "It has been found that confidential information in three insider trading cases was leaked from Nomura," Watanabe said in his first public appearance since the first insider trading case was announced in late March. "We have caused worry and trouble, and for that I would like to humbly apologize." Shareholders also voted to appoint 12 other directors including board chairman Nobuyuki Koga. Proxy advisory firm Institutional Shareholder Services (ISS) had recommended shareholders vote against both Watanabe and Koga, arguing they should be held accountable for the scandal. Nomura shares were up 1.8 percent at 280 yen in early afternoon trade, outperforming a 0.3 percent rise in the benchmark Nikkei average .N225 . Nomura has lost nearly half its market value since Watanabe took the helm four years ago - roughly in line with the stock performance of global rivals Morgan Stanley ( MS.N ) and Goldman Sachs ( GS.N ). (Reporting by Emi Emoto and Nathan Layne ; Editing by Chang-Ran Kim and Ian Geoghegan )

"Done...for you big boy": how emails nailed Barclays

Wed Jun 27, 2012 4:00pm EDT

http://www.reuters.com/article/2012/06/27/us-barclays-libor-emails-idUSBRE85Q1JY20120627

LONDON - "Done ... for you big boy," read a message sent by a Barclays banker to one of the lender's traders, who had asked him to fix a key lending rate artificially low.

"Dude, I owe you big time! Come over one day after work and I'm opening a bottle of Bollinger," a trader from another firm emailed a banker at Barclays, showing his thanks for the rate set artificially low. UK-based Barclays has agreed to pay $453 million in fines to UK and U.S. regulators to settle its part of an investigation into whether banks manipulated the London Interbank Lending Rate, know as Libor. Investigators were helped by extensive emails and other messages about Libor, a set of benchmarks designed to indicate the rate at which banks estimate they are able to lend to each other. Libor is used to set corporate and personal borrowing rates worldwide. Communications released by authorities on Wednesday showed Barclays traders calling each other "superstar" and with little concern for covering their tracks as they urged colleagues responsible for submitting Barclays' Libor rates to try and influence final prices. Requests came in such as: "We need a really low 3m fix, it could potentially cost a fortune. Would really appreciate any help." And: "Your annoying colleague again ... Would love to get a high one month. Also if poss a low three month ... if poss ... thanks." Traders made their requests in person, via email and through electronic "chats" over an instant messaging system. On a few occasions, some traders even made entries in electronic calendars to remind themselves what requests to make of Barclays' Libor submitters the next day. One trader would shout across the desk to make sure other traders had no conflicting preference to ask the Libor submitters. "The traders were barking orders like they were at a fast food drive-through and the submitters were so accommodating that they might as well have said, 'do you want fries with that'," said Bart Chilton, a commissioner at the U.S. Commodity Futures Trading Commission, which led the settlement agreement. DON'T TELL ANYBODY Some 257 requests were made to rate submitters from at least 14 Barclays derivatives traders over four years. Traders at other banks also tried to influence Barclays' rate, while Barclays' traders put pressure on the rates offered by others. Most of the world's biggest banks are under investigation as regulators from Europe, North America and Japan attempt to prove banks rigged rates. Barclays is the first to settle. "This is the way you pull off deals like this chicken, don't talk about it too much, 2 months of preparation... the trick is you do not do this alone ... this is between you and me but really don't tell ANYBODY," a Barclays trader told a trader at another bank. Investigators said Barclays derivatives traders got the bank to submit inaccurate rates between 2005 and 2008 so they could profit. The bank also submitted artificially low rates from September 2007 to May 2009 to ease fears it faced funding problems during the financial crisis. Judging by the messages, Barclays was not alone in having an interest in lowering their submitted rates during the crisis to avoid signaling to markets their distress. On one occasion, a manager said if Barclays submitted its correct rate, "It's going to cause a shit storm," and the bank submitted a lower rate. "NO-ONE'S CLEAN-CLEAN" But the bank's treasury staff were beginning to become uneasy. In late 2007, Barclays told the UK Financial Services Authority and the British Bankers' Association, the trade body under whose auspices Libor is set, of its concerns that rivals were setting rates too low. Months later, a senior Barclays treasury manager called the BBA and warned them that rates were not accurate, but that Barclays was not the worst offender. "We're clean, but we're dirty clean, rather than clean-clean," he said. "No-one's clean-clean," the BBA representative responded. (Additional reporting by Alexandra Alper in New York, and Sarah White and Kylie MacLellan in London; Editing by Tim Dobbyn )

Nasdaq to detail compensation to SEC next week: source

Wed Jun 27, 2012 7:52pm EDT

http://www.reuters.com/article/2012/06/27/us-nasdaq-facebook-sec-idUSBRE85Q1TO20120627

NEW YORK - Nasdaq aims to file a plan next week with the Securities and Exchange Commission detailing how it will compensate market makers who lost money during the botched trading debut of Facebook, according to a person familiar with the matter.

The plan may also lay some of the blame for losses sustained by at least one of the market-markets on that firm's own technical problems, according to the person who had been briefed on Nasdaq's plans, but had not seen the proposal. The filing would come more than six weeks after Facebook's May 18 initial public offering on Nasdaq, which is owned by Nasdaq OMX Group, and will be publicly available following the July 4 holiday, said the person, who asked to remain anonymous. The SEC process allows for a public comment period on such a plan. The exchange and the SEC have been working together to make sure the language of the proposal is acceptable, according to this source and another person with knowledge of the situation. Nasdaq did not immediately respond to a request for comment late Wednesday. The SEC declined comment. Nasdaq's four largest market-makers in the $16 billion Facebook IPO - UBS, Knight Capital, Citadel Securities, and Citigroup's Automated Trading Desk - have estimated that they lost $200 million from Facebook trades entered May 18. In addition, news reports have said UBS may have lost considerably more, perhaps $350 million. The losses were caused at least in part by Nasdaq technical problems and a communications breakdown that prevented market makers from knowing for hours if their orders had gone through. Market-makers facilitate trades for brokers and are crucial to the smooth operation of stock trading. The person briefed on Nasdaq's filing with the SEC said the document may point out that there also were internal issues at the market-makers that contributed to their losses. The person and two market insiders said UBS in particular had internal system issues during the Facebook IPO that added to its losses. UBS declined to comment. Nasdaq has said it plans to put aside $40 million in compensation - $13.7 million in cash and the rest in trading discounts - to compensate market-makers for the losses. Nasdaq needs SEC approval for any amount over $3 million, based on current regulations that cap the exchange's liability. Market makers have said Nasdaq's compensation plan falls short of what they are seeking. Knight Capital and UBS have hinted that they could bring legal action against Nasdaq if the compensation does not cover their losses. Once Nasdaq files its plan with the SEC, the Financial Industry Regulatory Authority can begin reviewing client transactions and claims from the Facebook IPO. The SEC can take up to 240 days to consider Nasdaq's plan. (Reporting By John McCrank; Additional reporting by Jonathan Spicer and by Suzanne Barlyn.; Editing by Jennifer Merritt, Alwyn Scott and Bernard Orr.)

Obama, Hollande discuss euro zone growth-White House

Wed Jun 27, 2012 3:15pm EDT

http://www.reuters.com/article/2012/06/27/us-eurozone-usa-france-idUSBRE85Q1HV20120627

WASHINGTON - U.S. President Barack Obama spoke with French President Francois Hollande by telephone on Wednesday about economic conditions in Europe, the White House said.

"They discussed the importance of continued efforts to promote growth and stability in the euro zone," the White House said in a statement. (Reporting By Laura MacInnis ; Editing by Sandra Maler )

Simon rejects General Growth terms for talks

Fri Feb 19, 2010 10:37pm EST

http://www.reuters.com/article/2010/02/20/us-generalgrowth-simon-idUSTRE61H57T20100220

NEW YORK - Simon Property Group Inc ( SPG.N ) said it could not agree to conditions General Growth Properties Inc GGWPQ.PK wanted to impose before talks about Simon's $10 billion bid for the No. 2 U.S. mall owner.

General Growth's terms for a nondisclosure agreement were not constructive and "make clear your apparent interest in precluding our offer from moving forward or being considered by your stakeholders," Simon said in a letter to its smaller rival. The letter is the latest salvo in a battle that has rapidly escalated after the No. 1 U.S. mall owner went public with its offer for General Growth on Tuesday, following months of behind-the-scenes maneuvering. General Growth, which became the biggest real estate failure in U.S. history when it filed for bankruptcy in April, has said it is pursuing an exit plan, which includes emerging from bankruptcy as a stand-alone entity as well as potential deals. General Growth has said it wants Simon to take part in its process, but the two sides have not been able to agree on the terms of a nondisclosure agreement, which is usually signed before a company opens up its books to another. The company said in a statement that its "non-disclosure agreement is designed to promote a level playing field and a competitive process to maximize value for all GGP stakeholders, and its terms are customary and reasonable." "We do not believe it is productive to attempt to negotiate the terms of an NDA with Simon through press releases," General Growth said. But Simon said the terms proposed by General Growth would prohibit it from making a proposal to buy the company without its prior approval, preclude it from talking with other stakeholders about their talks, and not allow it to talk with third parties regarding a possible transaction involving General Growth. Calling the restrictions unreasonable, Simon said it rendered General Growth's "'process' a charade from the start by seeking to exclude the most logical and capable acquirer." "In light of the lack of interest General Growth has shown to date in engaging with us, SPG clearly cannot, and we will not, accede to terms that do not guarantee us fair treatment in your process," Simon Property Group wrote in the letter. It added that the terms "seem to be intended specifically to sideline us, while you pursue discussions with other parties -- as you have previously threatened to do -- without engaging with us." General Growth, owner of such marquee properties as Fashion Show in Las Vegas, Ala Moana Center in Hawaii and Faneuil Hall Marketplace in Boston, did not have an immediate comment. Simon stock closed up 0.7 percent at $77.72, while General Growth closed up 0.4 percent at $12.74 on Friday. (Reporting by Paritosh Bansal and Ilaina Jonas ; Editing by Gary Hill )

Icelandic PM optimistic on new Icesave deal: report

Sat Feb 20, 2010 2:00pm EST

http://www.reuters.com/article/2010/02/20/us-iceland-icesave-idUSTRE61I29Y20100220

REYKJAVIK - Iceland's Prime Minister said on Saturday that a new Icesave debt repayment deal from Britain and the Netherlands would considerably ease the island nation's financial burden, state radio reported.

The two European countries have offered new terms for repaying more than $5 billion lost by savers during Iceland's financial crisis, potentially heading off a politically risky referendum on the Icesave debt crisis. "I believe this is something we could work with," Prime Minister Johanna Sigurdardottir said in comments posted on the web site of Iceland's state radio. The new proposal would mean "considerably easing the payment burden on Iceland," she added. The Icelandic government will respond to Britain and the Netherlands with its assessment of the new proposal within the next two days following a meeting between party leaders on Saturday, the radio reported on its web site. The main feature of the plan is a floating interest rate designed to ease Iceland's burden as it repays $5 billion to the two European Union countries, a source familiar with the situation said on Friday. The offer maintains other elements of a deal the three sides agreed in October, including full debt repayment and a seven-year grace period, the source told Reuters. Iceland owes Britain and the Netherlands more than $5 billion lost by savers when Icelandic bank Landsbanki collapsed in late 2008. The British and Dutch governments reimbursed their citizens, and now they want their money back. Iceland has been pushing for a new deal with the two European nations after its president refused to sign a repayment plan which was approved by parliament in December, triggering a public vote on the divisive issue. Opinion polls indicate that Icelanders will reject the Icesave deal in a March 6 referendum. A rejection of the bill would further damage Iceland's standing with capital markets and could be interpreted as a vote of no confidence in the government and cause a political crisis. (Reporting by Omar Valdimarsson; Editing by Michael Roddy)

NY's Bloomberg moves funds from Quadrangle: sources

Fri Feb 19, 2010 10:30pm EST

http://www.reuters.com/article/2010/02/20/us-quadrangle-idUSTRE61J0GH20100220

NEW YORK - Private equity firm Quadrangle Group will no longer be managing the assets of New York City Mayor Michael Bloomberg, who is extracting his funds from the firm, two sources said on Friday.

The news was earlier reported by the Wall Street Journal and New York Times, which said that Bloomberg is pulling roughly $5 billion of his personal assets from Quadrangle. The founder of Bloomberg LP, a news and financial information company that competes with Thomson Reuters, had a total net worth of $17.5 billion in March 2009, according to Forbes' website. The arrangement for Quadrangle to manage Bloomberg's money was an unusual one for a private equity firm. They typically focus on investing funds in buying and selling companies. Quadrangle gained the account because its co-founder, Steven Rattner, is a close friend of Bloomberg, one of the sources said. However, Rattner left Quadrangle in 2009. The team that currently manages Bloomberg's assets will continue to do so, and the decision to transfer the team to a separate, stand-alone entity was not because of any issue with performance, the second source, who is familiar with Quadrangle, said. Discussions over the move have been ongoing for some time, that source said, and the transfer was "amicable." It will also allow Quadrangle to focus on its private equity business, which includes stakes in businesses such as movie studio Metro-Goldwyn-Mayer, the source said. Quadrangle and Rattner were last year linked to the New York Attorney General's probe into a state pension pay-to-play scheme although neither was accused of wrongdoing. Spokesmen for Bloomberg were not immediately available for comment. (Additional reporting by Mike Erman in New York; Editing by Gary Hill )

Bernanke, retailers hold key for stocks

Sat Feb 20, 2010 6:21pm EST

http://www.reuters.com/article/2010/02/20/us-column-stocks-outlook-idUSTRE61I61T20100220

NEW YORK - Wall Street could keep rallying after notching its best week this year if Federal Reserve Chairman Ben Bernanke gives a reassuring assessment of the recovery and retail earnings show improvement.

Investors are eager to hear more on the thinking behind the Fed's surprise move to raise its discount rate, especially because the Fed's loose monetary policy has provided a crucial spur to equities' advance since their March 2009 bottom. While the rate hike suggested that the Fed now considers the financial sector to have healed sufficiently to warrant taking back extraordinary liquidity, the hike also sparked unease about a possible broader removal of economic stimuli. Bernanke's semiannual testimony on monetary policy before congressional panels next week takes on an even more important dimension as investors look for clarity on the Fed's intentions and how Bernanke sees the recovery progressing. "We will be watching for more confirmation of which track the Fed is on," said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey. "We will be looking for more color on the timing of the (exit strategy)." The Fed has said its benchmark fed funds rate would remain exceptionally low for an extended period to sustain the recovery, but there has been little light on the timeline of its exit strategy and what risks might that entail, more so with a high U.S. unemployment rate still a big menace. "Is (the rate hike) a reflection of its confidence in the stabilization of markets and the economic recovery, or are they very worried about inflation and therefore are hiking rates?" added Praveen. RETAILERS IN THE BULL'S-EYE Earnings from major retailers, including Home Depot Inc ( HD.N ), Target Corp ( TGT.N ) and Macy's Inc ( M.N ) will also be in the spotlight, along with key economic data, including February consumer sentiment and January new home sales. For the full economic diary, see <ECI/US> Luxury homebuilder Toll Brothers ( TOL.N ), gold miner Newmont Mining Corp ( NEM.N ) and grocer Safeway Inc ( SWY.N ) are on the earnings scoreboard. For the full earnings diary, see <RESF/US> With consumer spending accounting for about two-thirds of U.S. economic activity, any indication that consumers are again spending should go a long way in reassuring investors about the outlook for profits and add to the prevailing optimism that has underpinned the stock market's rebound from the recent selloff. Of the 422 S&P 500 companies that have reported earnings as of Friday, 72 percent have beaten analyst expectations, 10 percent have matched estimates and 18 pct have missed estimates, according to Thomson Reuters data. That is well above the 61 percent that have beaten estimates in a typical quarter since Thomson Reuters began tracking data in 1994. BIG BOUNCE Optimism about the recovery has helped the benchmark S&P 500 .SPX trim its losses since its January 19 peak to 3.6 percent decline through Friday. The index fell by as much as 8 percent through February 8. Investors have been scouring for beaten-down shares in growth-oriented stocks like commodities, technology and consumer discretionary sectors in the market's latest rebound, helping the S&P 500 score its biggest weekly advance since November on Friday. On the week, the S&P 500 rose 3.1 percent, the Nasdaq .IXIC gained 2.8 percent and Dow Jones industrial average .DJI climbed 3 percent. "The reason stocks begin to work from here is that the data that came out of the fourth quarter was generally positive, visibility is improving and now we are starting to see that delinquencies are stabilizing," said Thomas Lee, chief U.S. equity strategist at J.P. Morgan in New York. "The macro trends are all moving in the right direction." Bernanke is scheduled to testify before the U.S. House of Representatives Financial Services Committee on Wednesday and the next day he is due to testify before the U.S. Senate Banking Committee. In addition to Bernanke's comments, the direction of the stock market could turn on how much progress the European Union makes in its efforts to allay investors' fears about Greece's fiscal deficit problems and concerns about the stability of the euro. (Additional reporting by Leah Schnurr ; Editing by Kenneth Barry) (Wall St Week Ahead runs every Sunday)

Greece's woes scared countries into action: Finland

Sat Feb 20, 2010 4:51am EST

http://www.reuters.com/article/2010/02/20/us-finland-katainen-idUSTRE61J18Y20100220

HELSINKI - Greece's financial problems have scared other government into taking action to strengthen their finances, and any talk of a "chain reaction" affecting other countries should be avoided, Finland said on Saturday.

"Greece has been such a hard lesson," Finnish Finance Minister Jyrki Katainen told national broadcaster YLE in an interview. "It has scared political decision makers into taking ... comprehensive actions." Concern over Athens' ability to repay its debt has shaken confidence in the euro and prompted European Union leaders to pledge they will take coordinated action, if needed, to preserve the stability of the single currency. The Greek government has said it plans to slash its public deficit from 12.7 percent of gross domestic product to less than three percent by 2012. Katainen said it was important not to link the problems in Greece with other European countries. "There has been a fashion in recent days to say that Spain, Portugal and Italy are next in line because they are southern European countries and they have economic worries," Katainen said. "It is very dangerous to link, via rumors, these countries, who through their own actions can very well get their economies into shape," he said. "This speculation ... has to be avoided." On Spain, Katainen said: "The market believes that Spain can recover when it takes comprehensive actions, large budget cuts, and I believe that this is still possible." (Reporting by Brett Young )

Hard to know where dollar headed: Pianalto

Sat Feb 20, 2010 3:40pm EST

http://www.reuters.com/article/2010/02/20/us-usa-fed-pianalto-idUSTRE61J2FD20100220

CLEVELAND - So many variables affect the value of the dollar that it is hard to know where the greenback is headed, Cleveland Federal Reserve Bank President Sandra Pianalto said on Saturday.

Taking questions after addressing a group of high school students, Pianalto, a voting member of the Fed's policy panel this year, was asked what policies were being put in place to safeguard the dollar's value. Pianalto noted that dollar policy was not under the purview of the Federal Reserve, but added: "The value of the dollar is set by the markets and there are so many variables. It is just very hard to know what direction it is going to go." U.S. dollar policy is directed by the Treasury Department. Asked about the Fed's decision to increase the interest rate it charges banks for emergency loans, Pianalto described it as response to improving market conditions. "As the credit situation improved and the financial markets improved ... we tried to get it so the banks would access those funds in the market," she said. The Fed said on Thursday it was raising the so-called discount rate by a quarter point to 0.75 percent. It made no move in the federal funds rate governing overnight lending between banks, which can broadly influence credit costs and has been the Fed's main monetary policy tool. That rate still stands in a zero to 0.25 percent range. Pianalto did not address the outlook for the economy or monetary policy in her remarks, and largely sidestepped questions on fiscal policy, which she said was not the Fed's domain. "It is important to step back and come out of this recession with recovery and to make sure that the correct fiscal policy is created," she said. The Obama administration has forecast a record $1.56 trillion budget deficit this year. At 10.6 percent of GDP, it would be the largest deficit since 1945. (Reporting by Kim Palmer; Editing by Peter Cooney )

Oil demand and price will rise in H2: Iran official

Sat Feb 20, 2010 3:32am EST

http://www.reuters.com/article/2010/02/20/us-iran-oil-demand-idUSTRE61J15T20100220

TEHRAN - Iran sees an increase in oil demand in the second half of 2010 by between 1 and 1.4 million bpd which the major OPEC producer thinks will cause a rise in oil prices, Iranian media said on Saturday.

"Based on projections, the global demand for oil in the second half of 2010 will increase on average by 1-1.4 million bpd, and this will push up oil prices," Iran's OPEC governor, Mohammad Ali Khatibi, was quoted as saying in daily paper Mardomsalari. Oil investors are looking for signs of economic recovery and a potential rebound in energy demand. Oil prices have firmed gradually from lows of near $30 a barrel in December 2008 to the current range of between $70 and $85 a barrel. Oil prices rose toward $80 a barrel on Friday as refinery strikes in France and tensions about Iran's nuclear program outweighed fears that U.S. monetary tightening could slow demand growth in the world's largest oil consumer. (Reporting by Hashem Kalantari, writing by Andrew Hammond, editing by Nick Macfie)

Blackstone, Hilton lenders agree on debt: source

Fri Feb 19, 2010 10:33pm EST

http://www.reuters.com/article/2010/02/20/us-hilton-idUSTRE61J0HA20100220

NEW YORK - Private equity giant Blackstone Group has come to an agreement to restructure its Hilton hotels chain debt, a source familiar with the situation said on Friday.

The agreement with Hilton's lenders would cut about $4 billion of debt at the hotel firm, the source said. The news was first reported by the Wall Street Journal. Private equity firms have struggled to keep debt-laden portfolio companies healthy as the financial crisis took its toll on employment and demand. The $26 billion deal to buy Hilton was struck at the peak of the buyout bubble in July 2007 and was financed with $20.6 billion of debt and about $5.7 billion of equity. The hotel market, however, was hit badly by the economic crisis as consumers and businesses cut back on travel. While business travel has improved in the past months, it is below levels of 2008 and earlier. Rival Marriott International Inc said earlier this month it would be difficult to predict the pace of recovery for the hotel industry, although its profits beat expectations. Starwood Hotels & Resorts and Wyndham Worldwide, also reported results that beat Wall Street estimates, showing that bookings have strengthened in recent months. Blackstone has been in talks to cut Hilton's debt for some months. A source previously said that the company was weighing putting in $800 million of fresh equity. The Wall Street Journal said that Blackstone's funds would contribute that $800 million to buy back debt at a discount, and would extend the maturity of some debt issues. The source who spoke to Reuters declined to be identified because the talks are not public. (Editing by Marguerita Choy)

UK regulator files $3.3 billion Nortel claim: report

Sat Feb 20, 2010 10:15am EST

http://www.reuters.com/article/2010/02/20/us-nortel-idUSTRE61J1S420100220

TORONTO - A British pension-fund regulator has filed a claim for 2.1 billion pounds ($3.3 billion) against failed telecom equipment giant Nortel Networks Corp, Canada's Globe and Mail newspaper reported on Saturday.

The report said the move sets the stage for a potential international tug of war between the fallen company's far-flung creditors. The article said a filing to an Ontario court showed the UK Pensions Regulator set a March 1 deadline for action that could lead to an order against Nortel's assets. Officials with Nortel and Britain's Pension Regulator could not immediately be reached for comment on the report. Once North America's biggest telecommunications equipment maker, Nortel filed for bankruptcy protection in January 2009 and is auctioning off its assets in an effort to pay back debtholders, rather than restructuring the business. (Reporting by Jeffrey Hodgson ; editing by Todd Eastham )

Up to 25 billion euros in aid mulled for Greece: report

Sat Feb 20, 2010 10:39am EST

http://www.reuters.com/article/2010/02/20/us-greece-germany-idUSTRE61J19O20100220

BERLIN - Germany's finance ministry has sketched out a plan in which countries using the euro currency will provide aid worth between 20 billion and 25 billion euros ($27-$33.7 billion) for Greece, a magazine reported on Saturday.

Citing "initial considerations" by the ministry, German weekly Der Spiegel said the share of financial aid for Greece would be calculated according to the proportion of capital each country holds in the European Central Bank. A spokesman for the German finance ministry said he would not comment on the report, which stated that the financial assistance should take the form of loans and guarantees. The report said all euro countries would shoulder the burden and that Germany's share in the package would amount to 4-5 billion euros, and be handled by state-owned bank KfW. According to the German planning, the aid should be tied to strict conditions, the magazine said, adding that loan tranches should only be paid out once these are met. Spokesmen for both the Greek finance ministry and the European Commission declined to comment on the report. Chancellor Angela Merkel's government has so far resolutely deflected appeals to promise Greece aid despite fears that failure to help Athens could threaten the euro. Germany in public argues that leniency would take pressure off Athens and other euro zone debtors to cut their budget deficits. Behind the scenes, lawmakers acknowledge that Berlin has prepared measures if a rescue becomes inevitable. Merkel's position has been complicated by the fact the country is embroiled in a highly charged debate on the sustainability of Germany's welfare state. This has helped to galvanize public opposition to Berlin funding a bailout just as her center-right coalition braces for a big test of its popularity in May, when voters go to the polls in Germany's most populous state, North Rhine-Westphalia. TRANSPARENCY Speaking to Der Spiegel, Greek Prime Minister George Papandreou told Germany he was not seeking aid, and criticized the Commission for failing to ensure member states adhered to the EU's Stability and Growth Pact that limits budget deficits. "The union could in the past have more rigorously policed whether the stability pact was being observed -- with us too," he said. "In future we should allow the European statistics office direct access to individual member states' data." "We suggested that, but not all countries wanted to have so much transparency," Papandreou said. Greece's deficit swelled to 12.7 percent of gross domestic product in 2009, way above the EU's cap of 3 percent, and Athens needs to sell some 53 billion euros of debt this year, including at least 20 billion euros in April and May. In case demand should falter, German lawmakers have been quietly thinking about how Greece could be helped. A senior financial official in the ruling coalition told Reuters last week Germany was considering using the KfW to buy Greek government bonds. A separate proposal saw the KfW issuing guarantees to German banks that bought the Greek bonds. Separately, Der Spiegel said that an internal report by Germany's financial market watchdog BaFin concluded that German banks could be seriously threatened if Greece or other countries including Spain, Portugal and Italy become insolvent. (Additional reporting by Holger Hansen, Renee Maltezou and Bate Felix ; editing by Sue Thomas)

Head of Dutch pension fund resigns over probe: ANP

Sat Feb 20, 2010 3:32am EST

http://www.reuters.com/article/2010/02/20/us-abp-idUSTRE61J15N20100220

AMSTERDAM - The head of Dutch ABP, the world's third-largest sovereign pension fund, has resigned over an investigation into a failed savings bank where he once sat on the board, ANP-Reuters said.

Ed Nijpels sent a letter to ABP's board late Friday saying he could not continue given the investigation into the collapse of DSB and the likely months of public debate after its release, the agency said. Nijpels, a former parliamentary leader of the center-right VVD party and housing minister, became chairman of ABP in August 2009. ABP ranks behind only Japan and Norway among sovereign pension funds, with 208 billion euros in fund assets. DSB collapsed in October after a run on the bank and months of public pressure over its lending practices. A commission is currently investigating DSB's collapse and the roles played in its supervision and management by a number of politically connected people, including Nijpels. (Reporting by Ben Berkowitz ; Editing by Nick Macfie )

General Growth sued by shareholder: report

Sat Feb 20, 2010 3:43pm EST

http://www.reuters.com/article/2010/02/20/us-generalgrowth-simon-lawsuit-idUSTRE61J2FK20100220

CHICAGO - A General Growth Properties Inc GGWPQ.PK shareholder has filed suit against the company's directors, saying they should not have rejected Simon Property Group Inc's ( SPG.N ) buyout offer of $10 billion, Bloomberg News reported on Saturday.

It reported the suit was filed on Friday in Cook County Circuit Court in Chicago by investor James Young and accused John Bucksbaum, chairman of the bankrupt Chicago-based mall operator, and six board members with breach of fiduciary duty. General Growth spokesman David Keating declined comment, saying in an email message that he has not seen the suit and that he refrains from making comments about litigation matters. Attempts to contact Simon Property and Young for comment were not successful. Simon Property, the No. 1 U.S. shopping mall owner, revealed its buyout offer on Tuesday, saying it decided to go public after General Growth rebuffed its offer of serious negotiations. Simon Property said on Friday it could not agree to conditions General Growth Properties wanted to impose before talks on Simon's bid for the No. 2 U.S. mall owner. General Growth's terms for a nondisclosure agreement were not constructive and "make clear your apparent interest in precluding our offer from moving forward or being considered by your stakeholders," Simon said in a letter to its smaller rival. The letter is the latest salvo in a battle that has rapidly escalated after Simon went public with its offer following months of behind-the-scenes maneuvering. General Growth, which became the biggest real estate failure in U.S. history when it filed for bankruptcy in April, has said it is pursuing an exit plan which includes emerging from bankruptcy as a stand-alone entity as well as potential deals. General Growth has said it wants Simon to take part in its process, but the two sides have not been able to agree on the terms of a nondisclosure agreement, which is usually signed before a company opens up its books to another. (Reporting by Jim Marshall , editing by Vicki Allen)