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Lawyers propose $2.5 million bail for Madoff deputy

Tue Aug 11, 2009 12:45pm EDT

http://www.reuters.com/article/2009/08/11/us-madoff-dipascali-bail-sb-idUSTRE57A3WN20090811

NEW YORK - Bernard Madoff's long-time right-hand man, Frank DiPascali, should be released on $2.5 million bond and his travel restricted following an expected guilty plea to criminal charges later on Tuesday, according to a proposal by U.S. prosecutors and his lawyer.

DiPascali, who worked for Bernard L. Madoff Investment Securities LLC for 33 years, including as chief financial officer, faces charges in Wall Street's biggest investment fraud of as much as $65 billion. He will make his first court appearance and plead guilty to criminal charges, according to court documents. Acting federal prosecutor Lev Dassin said in a letter to presiding Manhattan federal court Judge Richard Sullivan that the personal recognizance bond would be signed by three financially responsible people and secured by $400,000 of equity in the house of DiPascali's sister by August 18. The letter, which said the bail conditions were jointly proposed by prosecutors and DiPascali, proposed a tentative sentencing date for May 2010. Court documents released last Friday said U.S. prosecutors expect DiPascali to plead guilty to "a criminal information," which is an alternative charging document to a grand jury indictment. No further details have been provided on the charges, and his lawyer declined to comment. Madoff, 71, pleaded guilty to securities fraud, money laundering, perjury and other charges in March. He is serving an effective life term of 150 years in prison. (Reporting by Grant McCool ; editing by John Wallace)

U.S. home prices fall, but rate slows: report

Tue Aug 11, 2009 1:28pm EDT

http://www.reuters.com/article/2009/08/11/us-usa-economy-housing-idUSTRE57A0K720090811

NEW YORK - The value of U.S. homes fell by 12.1 percent in the second quarter from a year earlier, but the rate of decline shrank for the first time since prices began to fall in 2007, real estate website Zillow.com said on Tuesday.

Even so, stabilization of the hard-hit housing market, which is seen as key to an economic recovery in the United States, is not yet in view, with mounting foreclosures and a high level of "underwater" mortgages still posing threats, Zillow said. U.S. home values posted their 10th consecutive quarterly decline, falling to $186,500 on the Zillow Home Value Index, according to the second-quarter Zillow Real Estate Market Reports. The report encompass 161 metropolitan areas and covers value changes in all homes, not just those that have recently sold. Home values in the first quarter had fallen by 12.4 percent from the prior-year period. But distress signals tracked by Zillow remain high, suggesting that for most U.S. metropolitan areas housing prices have not yet hit bottom. "While we are encouraged by the increasing sales in many markets and the overall improvement in the rate of decline of the Zillow Home Value Index, I hesitate to be overly optimistic for the near future," Stan Humphries, Zillow's chief economist, said in a statement. "Foreclosure resales are buoying overall sales numbers, but their low prices are keeping home values down," he said. Sales of previously foreclosed homes accounted for 22 percent of all home sales nationally in June, and 29.2 percent of homes sold for less than the original purchase price, the report showed. "Reports of increasing mortgage defaults signal that foreclosures are likely to increase again and peak in mid-2010," Humphries said. Increasing unemployment and high rates of negative equity should spur even more foreclosures, which will add to the already-high level of for-sale inventory that needs to be cleared before values begin to rise, he said. In the second quarter, 23 percent of all owners of single-family homes with mortgages were "underwater," meaning the amount owed on their mortgage exceeded the value of the home. That compared to 22 percent in the first quarter, Zillow said. Negative equity has been one of the biggest banes for many homeowners, making them unable to refinance their loans and preventing some from selling their homes. Nationally, the number of home sales in June fell 23.7 percent versus a year earlier, but June sales were up 3.8 percent over May. Additionally, in 39 markets home sales increased year-over-year, including Miami-Fort Lauderdale, Los Angeles and Phoenix, the report showed. FLOOD OF FORECLOSURES LOOM With the housing market showing strength in some regions, more supply may be in the pipeline. In Zillow's separate second-quarter Homeowner Confidence Survey, 29 percent of homeowners said they would be at least somewhat likely to put their home on the market if they saw signs of a turnaround. In total, 142 U.S. metropolitan areas experienced year-over-year home value declines, eight markets were flat, and 11 markets had year-over-year gains in home values, the reports showed. While the abundance of affordable foreclosure properties is a boon for many first-time home buyers, there will likely not be a significant housing market recovery until more move-up and move-across buyers reenter the market, Humphries said. Some markets, however, are giving signs of being near a bottom. Eighteen of the 142 declining metropolitan areas have posted at least three consecutive quarters of smaller year-over-year home value declines, with nine of those markets in California, the reports showed. (Reporting by Julie Haviv; Editing by Leslie Adler)

Distressed-debt deals in 2009 reach $84.4 billion: report

Tue Aug 11, 2009 7:12am EDT

http://www.reuters.com/article/2009/08/11/us-debt-distressed-idUSTRE57A0SD20090811

- The total value of distressed-debt deals, where creditors use their debt positions to take ownership of troubled companies, has touched $84.4 billion this year, the Wall Street Journal said, at a pace close to double that of 2008.

The newspaper, citing data compiled by data provider Dealogic, said 140 distressed-debt deals have been struck during 2009, compared with 102 for all of 2008. It said the deals involved every sector of the U.S. economy from auto parts maker Delphi Corp to retailer Eddie Bauer and included corporate takeovers, covering several kinds of transactions related to bankruptcies, restructurings, recapitalizations or liquidations. The total value of distressed-debt deals in 2008 was about $20 billion, according to the paper. (Reporting by Ajay Kamalakaran in Bangalore; Editing by Valerie Lee )

T. Boone Pickens: I'm long oil

Tue Aug 11, 2009 3:56pm EDT

http://www.reuters.com/article/2009/08/11/us-pickens-oil-interview-idUSTRE5795OP20090811

LAS VEGAS - Oil man turned wind power fan T. Boone Pickens sees the price of a barrel of oil rising slightly to $75 by the end of this year and $85 next year.

"I'm long oil," said Pickens in an interview on the sidelines of U.S. Senate Majority Leader and Nevada Democrat Harry Reid's National Clean Energy Summit, a meeting of industry leaders and policy makers. Pickens has written a blueprint for U.S. energy policy, called the Pickens Plan, that focuses on converting heavy vehicles like big long-distance trucks, to natural gas. Pickens, traditional environmentalists and those fearing U.S. dependence on foreign oil sources have argued that the nation should focus its efforts on alternative energy, like wind. As the economy has soured, potential jobs for building new energy infrastructure has taken a leading role in debates for changing the economy away from oil. Nevertheless, "when the global economy gets going again, demand will be above supply," said Pickens, explaining his forecast for oil prices, which has been constant for most of the year. U.S. crude fell 33 cents to $70.60 a barrel on Monday. The billionaire recently delayed plans to build the nation's largest wind farm in the Texas panhandle, blaming financing problems and transmission limitations. "You've got wind corridors all the way from Sweetwater, Texas to the Canadian border, so we're looking at projects all up and down that corridor," he said, adding that he was talking to groups with transmission capacity to decide where to site more than 600 windmills. Pickens' Mesa Power ordered the windmills for the first $2 billion phase of the project. Originally he had planned to install turbines that could power about 1.2 million homes by 2014 at a cost of about $8 billion. He is still having trouble lining up financing for the first installment. "I'm in the wind business and I'm trying to finance a big project, and I can see it, but I can't touch it," he said, adding that he was sure he would get there.

GM claims unprecedented mileage from Volt

Tue Aug 11, 2009 7:18pm EDT

http://www.reuters.com/article/2009/08/11/us-gm-volt-idUSTRE57A3GJ20090811

DETROIT - The Chevrolet Volt, the electric car General Motors Co is counting on to revitalize its lineup, is on track to achieve an unprecedented fuel economy rating of 230 miles per gallon in city driving, GM said on Tuesday.

GM's Chief Executive Fritz Henderson said the Volt would get a "triple-digit" fuel economy rating for combined highway and city driving based on a draft standard developed by the U.S. Environmental Protection Agency. He did not provide the combined highway and city figure. Toyota Motor Corp's Prius hybrid, which accounted for over 60 percent of U.S. hybrid sales from January through July 2009, has a combined fuel economy rating of 50 miles per gallon. "The Volt is becoming very real, very fast," Henderson said in an announcement at GM's technical center that was Webcast to the public. The Volt, expected late next year, is designed to run for 40 miles from a single charge of a lithium-ion battery pack. When the battery is partly depleted, a small combustion engine kicks in to recharge the battery and power the vehicle. Industry tracking firm Edmunds.com said that while the Volt might fall short of mileage expectations, it would still be the most fuel-efficient mass-market vehicle and would help GM to break its association with gas-guzzling trucks and SUVs. "For most people, it is not realistic to expect that kind of mileage in real world driving," said Michelle Krebs, an analyst at Edmunds.com. But, he added, "The Volt should easily get more than 50 miles to the gallon, and that will make it an industry leader." In drafting standards to calculate the published mileage rating for the Volt and other upcoming electric vehicles, U.S. regulators have made assumptions about how much a typical driver would rely on the traditional gas engine. Those standards are due to be published later this year. Henderson said GM has engineers working on second- and third-generation versions of the Volt to cut production costs. GM has been racing to make Volt the first mass-market plug-in hybrid in the United States and generate buzz for its lineup that will take aim at competitors led by Toyota Motor Corp. The Volt is designed to be recharged at a standard electric outlet. Henderson said that would reduce the cost of the first 40 miles of driving for some Americans to about 40 cents, the cost of recharging the car overnight in a garage. The national average price of a gallon of gasoline on Tuesday was $2.643 for regular, according to the Automobile Association of America's daily fuel gauge report. On that basis, it would cost about $8.81 for a vehicle getting 12 miles per gallon to travel 40 miles. Toyota is developing a rechargeable Prius, but it appears the Volt could be the first vehicle of its kind in U.S. showrooms. THE COST OF SUCCESS GM executives have said the Volt could cost as much as $40,000 before a $7,500 consumer tax credit. The company has said the car would not be profitable in its first version because of development costs. "I don't want to say we're going to subsidize things," Henderson said, "but that said, we need volumes to get to (the second generation)." The announcement about Volt's projected fuel economy comes a month after GM exited a fast-track bankruptcy, and is part of an effort by Henderson to shift attention back to GM's vehicles and away from the financial problems it has had. GM emerged from bankruptcy under the majority ownership of the U.S. Treasury, and is planning an initial public offering by July 2010 to pay back part of what it owes the government. Henderson said GM was on track to post a net profit as early as 2011 after cutting costs and improved sales. U.S. auto sales rose in July as Americans took advantage of a government "Cash for Clunkers" incentive program to trade in old gas guzzlers for more fuel efficient vehicles. With GM's inventory levels low, the company is looking at raising production in the current and coming quarters, Henderson said. "We certainly feel very good about our inventory position, feel better about the market at least hitting the bottom and maybe starting to bounce, and we will adjust accordingly." (Reporting by Kevin Krolicki and Soyoung Kim, additional reporting by Bernie Woodall in Los Angeles)

Lehman can pursue CDO claim: court

Tue Aug 11, 2009 5:04pm EDT

http://www.reuters.com/article/2009/08/11/businesspro-us-lehman-cdo-court-idUSTRE57A5RV20090811

NEW YORK - Lehman Brothers Holdings Inc LEHMQ.PK can pursue claims on assets in a bankruptcy case expected to set a precedent for treatment of derivatives in complex investment products, a New York court said on Tuesday.

The case will decide whether the bank has the first claim on $70 million in assets in a collateralized debt obligation (CDO)-- securities backed by a pool of assets -- or whether investors in the deal have the right to jump ahead of Lehman in being repaid the funds because of the bank's collapse in September 2008. The case in the United States Bankruptcy Court for the Southern District of New York is being widely watched as it is expected to establish a benchmark for the priority of claims in bankruptcy cases involving CDOs that use derivatives. Lawyers have estimated an additional $12 billion in claims could be made based on the outcome and judge James Peck acknowledged the case would likely set a precedent. "It is potentially a landmark decision on the treatment of derivative contracts in bankruptcy, and to what extent you can look at things such as protecting investors' original expectations with respect to the transaction," said Robert Claassen, partner at law firm Paul Hastings. The dispute centers around a credit default swap that Lehman was a counterparty to in a CDO, called Dante. The credit default swap was used to sell protection on a portfolio of debt held in the deal. Payments received from the swap were then passed on to the deal's investors. A credit default swap, or CDS, is an insurance-type contract used to protect against default risk or bet on the credit quality of an issuer. The English High Court last month ruled investors in the deal, represented by Australian investment service company Perpetual Trustee Co, had a senior claim to Lehman. The court said terms in the deal allowed the investors to jump ahead of Lehman's claim because its collapse in September 2008 constituted a default. Lehman, however, argued the case should be tried in the United States because terms of the deal were contrary to the "anti-deprivation" provision in U.S. Bankruptcy Code. "If the decision is in favor of Lehman, the US Bankruptcy Court would probably ask the English court to cooperate with it and potentially provide assistance to implement its decision," said Neil Hamilton, partner at Clifford Chance in London. The New York bankruptcy court on Tuesday rejected a motion by the Bank of New York Mellon Corp, which is trustee to the CDO's assets, to dismiss the case. The case is expected to be tried the same day as a similar dispute involving Lehman and insurer Aflac ( AFL.N ), and will take place in September, or later. WIDE RANGING IMPACT The outcome of the case is expected to have a wide ranging impact on the securitization market, because of the prevalence of derivatives in CDOs. These may include CDSs, total return swaps, interest rate swaps or other derivatives. "It would be an unwelcome surprise to the securitization market if the case were to go in Lehman's favor," said Clifford Chance's Hamilton. "It would invalidate the provision in the priority of payments that the swap counterparty loses its senior priority if it becomes insolvent. This is a common provision in securitizations generally," he said. The decision could also spark ratings changes. "I think it would certainly cause rating agencies to reassess some securitization ratings because it would mean potentially that there could be a senior priority for swap counterparties even where the counterparty was insolvent and unable to perform," Hamilton said. Meanwhile bankrupt swap counterparties, including Lehman, are likely to be challenged by a slew of additional claims if the case is found in favor of investors. In some cases, investors may also look for other instances of default, aside from bankruptcy, in order to void the priority claims of swap counterparties, lawyers said.

Rio says seen no evidence for China detentions

Tue Aug 11, 2009 8:22am EDT

http://www.reuters.com/article/2009/08/11/us-china-rio-idUSSYD54007120090811

CANBERRA - Anglo-Australian miner Rio Tinto said on Tuesday it had yet to be presented with any evidence to support the detention of four of its China-based staff on suspicions of stealing state secrets.

The mining giant said it had also not been informed of any charges against its detained staff, which include Rio Tinto's top iron-ore salesman in China, Australian Stern Hu. Hu and three Chinese colleagues were detained a month ago on suspicion of spying on Chinese steel mills. Rio, the world's second-largest iron ore producer, and Anglo-Australian firm BHP Billiton,, the third-largest producer, are currently locked in iron ore price negotiations with China. "We are still not aware of any evidence that would support their detention," said Rio's iron ore division chief Sam Walsh. "We continue to be concerned for the health and welfare of our three other employees detained at the same time as Stern Hu," Walsh said in a statement, noting that the Australian government had informed the company that Hu was well. The Rio detentions have cast a shadow over Australia-China trade, worth $53 billion in two-way terms in 2008. In a growing war of words between Australia and China, Smith delivered a veiled warning on Tuesday for Beijing to rein in its diplomats after its embassy tried to block a speech in Canberra by an exiled leader of China's Uighur Muslim minority. An online article published in a magazine run by China's state secrets agency at the weekend said Rio spied on Chinese mills for six years, resulting in the mills overpaying $102 billion for iron ore, Rio Tinto's biggest earner. The Australian government on Tuesday brushed off the Chinese report accusing Rio of overcharging and spying on Chinese steel mills, saying it had not been officially sanctioned. "It is now quite clear, given that the article has been taken off the website, that it was essentially the opinion of the individual writer, and not if you like officially sanctioned," Australian Foreign Minister Stephen Smith said. Rio Tinto's shares were some 2.2 percent lower at A$57.22 at midday on Tuesday, continuing a 3 percent slide the previous day amid investors nerves over the miner's relations with China. AUSTRALIA-CHINA TIES Australian diplomats had made a fresh appeal for China to grant legal representation to China-born Hu after they were allowed only their second visit to his Shanghai detention center late last week, Smith said. "We were very pleased to see that his health and welfare continues to be in good order," Smith told state radio. Jiang Ruqin, the author of the article that laid out the allegations, said the claim of losses came from Chinese media reports, including his statement that indications that Rio had been spying for six years came from seized computers. "I don't have any special knowledge. I am not a steel industry insider," he told Reuters. The website (www.baomi.org) was inaccessible on Tuesday, but the article could be found on other Chinese-language websites. The figure of $102 billion appeared to derive from an academic assessment of how much more the steel industry has paid for iron ore since 2003, but that higher cost was more than offset by rising steel prices as China's economy grew. David Kelly, a professor of Chinese studies at the University of Technology, Sydney, speaking in Beijing, said it was unclear how much Chinese government weight was reflected in the article. "I would suggest that at least it reflected a powerful view of at least part of the bureaucracy," said Kelly. In a further sign of brittle relations, the Chinese embassy's political counsellor, Liu Jing, asked management at Canberra's National Press Club last week to drop an invitation to Rebiya Kadeer to speak on Tuesday, the club said. Kadeer is blamed by Beijing for instigating last month's ethnic riots in Xinjiang province, which left 197 people dead, mostly Han Chinese, and wounded more than 1,600. "Embassies, diplomats, officials are entitled to put views in Australian society, but when they put those views, those views have to be put appropriately," Smith said. (Additional reporting by Chris Buckley and Lucy Hornby in BEIJING and James Grubel in CANBERRA) (Writing by Michael Perry ; Editing by Sanjeev Miglani )

SEC investigating Huron for accounting errors

Tue Aug 11, 2009 7:21am EDT

http://www.reuters.com/article/2009/08/11/us-huron-idUSTRE57A2HL20090811

- Huron Consulting Group Inc ( HURN.O ), whose shares plunged in the wake of an accounting scandal, said it is being investigated by the U.S. Securities and Exchange Commission for acquisition-related payments and will delay filing its latest quarterly report.

Earlier this month, the consulting firm's entire top management team left as it announced the scandal that forced it to restate more than three years of results, slashing its profits by almost half because it misreported costs related to acquisitions. Huron's board audit committee discovered that shareholders of four businesses that Huron acquired between 2005 and 2007 redistributed portions of their acquisition-related payments among themselves and to certain Huron employees. The company continues to evaluate the impact of the restatement, it said in a regulatory filing. It intends to file its quarterly report for the three months ended June 30, as well as the restated results of the prior periods, as soon as possible. Chicago-based Huron, which was founded by two dozen partners from the collapsed accounting firm Arthur Andersen, said it intends to cooperate with the SEC in its investigation. Huron built a reputation as an expert on litigation and regulatory issues. It advised United Airlines, a unit of UAL Corp UAUA.O, on its bankruptcy and helped uncover accounting shortfalls at mortgage giant Fannie Mae FNM.N. That eventually led the SEC to charge Fannie Mae with fraud. Shares of Huron closed at $13.54 on Nasdaq Monday. They have fallen 69 percent since July 31, when the company first announced it would restate results and its chief executive resigned. (Reporting by Sweta Singh in Bangalore; Editing by Mike Miller)

Bad assets may need more support

Tue Aug 11, 2009 5:20pm EDT

http://www.reuters.com/article/2009/08/11/us-financial-bailout-watchdog-idUSTRE57A0JO20090811

WASHINGTON - The U.S. Treasury Department should consider expanding programs to cleanse troubled assets from bank balance sheets if current efforts fail to restart markets or if economic conditions worsen, a U.S. bailout watchdog panel said on Tuesday.

The Congressional Oversight Panel said in its latest monthly report that toxic loans and securities continue to pose a threat to the financial system, particularly for smaller banks that face mounting losses on commercial real estate loans. These banks may need similar stress tests and capital support afforded to larger institutions, the panel added. It also advocated that stress tests for the largest 19 institutions be repeated if the economy worsens beyond the worst-case assumptions used in initial tests conducted in April. Despite improved financial market conditions, the panel said a "continuing uncertainty is whether the troubled assets that remain on bank balance sheets can again become the trigger for instability." In an interview on Reuters Television, the chairman of the congressional oversight panel, Elizabeth Warren, said no one even knows the value of the toxic assets still on banks' books. VALUE OF TOXIC ASSETS UNKNOWN "No one has a good handle how much is out there," Warren said. "Here we are 10 months into this crisis...and we can't tell you what the dollar value is." Estimates are that "somewhere between $600 billion and $1.5 trillion in toxic assets (is) spread across the balance sheets of the small and the large banks," Warren said, adding: "That's a lot." In its report, the panel said the Treasury needs to either assure that a robust program is available for handling toxic assets as they go into default or else consider a different strategy for restarting markets for the assets. The critical report comes as the Treasury prepares to launch a significantly scaled-down version of its toxic asset program, a series of public-private investment funds to purchase toxic mortgage securities with $30 billion in government subsidies. Last October, the entire $700 billion U.S. bailout program was aimed at buying up the toxic assets that threatened to bring down the financial system. But due to the plan's complexity and with market confidence rapidly deteriorating, then-Treasury Secretary Henry Paulson quickly shifted gears to use the money for direct capital injections into banks. Since then, Paulson's successor, Timothy Geithner, announced plans to entice private investors to buy "legacy" securities and whole loans from banks. But accounting forbearance that allowed banks to avoid recognizing losses on these assets combined with large institutions' ability to raise capital after regulator "stress tests" in May reduced investor angst over toxic assets. COMMERCIAL PROPERTY TIME BOMB The Congressional Oversight Panel said, however, that smaller U.S. banks faced billions of dollars in losses from delinquent commercial property loans and were far less able to raise capital and absorb losses than their larger counterparts. An analysis done by the panel showed that under a scenario 20 percent worse than assumptions used in the Federal Reserve's stress tests, about 719 banks with assets between $600 million and $100 billion would need to raise some $21 billion in new capital to offset loan losses. "Treasury must be prepared to turn its attention to small banks in crafting solutions to the growing problem of troubled whole loans," the panel said, adding that it should consider using similar stress tests -- along with pledges for additional capital -- on smaller institutions. It said triggers for further supportive actions could come if unemployment remains high and residential foreclosures continued to mount. The five-member panel approved the report by a 4 to 1 vote, with a dissent by U.S. Rep. Jeb Hensarling, a Texas Republican and the committee's only sitting congressman. Hensarling said he could not approve the report because it advocated intervention with additional government funds when that may not be necessary. "It is possible that the toxic asset market is already beginning to heal itself and that the intervention proposed by the Panel could be inappropriate -- if not counterproductive. "For this reason, I think it premature to endorse one or more of the approaches proposed by the Panel, but, instead, suggest that Treasury and the Fed continue to monitor the toxic asset market," Hensarling said in an addendum to the report. (Additional reporting by Glenn Somerville ; Editing by Andrea Ricci )

Judge OKs UnitedHealth $925.5 million backdating pact

Tue Aug 11, 2009 5:49pm EDT

http://www.reuters.com/article/2009/08/11/us-unitedhealth-lawsuit-options-idUSTRE57A5ZO20090811

NEW YORK - UnitedHealth Group Inc ( UNH.N ) and former chief executive William McGuire will pay $925 million to resolve an investor class-action lawsuit accusing the health insurer of improperly backdating stock options.

The Minnetonka, Minnesota-based company will pay $895 million toward the settlement fund, while McGuire will pay $30 million and former general counsel David Lubben will pay $500,000. McGuire will also relinquish options to buy 3.68 million UnitedHealth shares. Judge James Rosenbaum of the U.S. District Court in Minneapolis approved the settlement in an order made public on Tuesday. Given that there was "significant risk" to the plaintiffs recovering nothing had the case been fully tried, "the $925.5 million settlement amount is substantial," Rosenbaum wrote in his 26-page order, which was dated August 10. He had granted preliminary approval for the settlement last year. The lead plaintiff in the more than 3-year-old case is the California Public Employees' Retirement System, or CalPERS, the nation's largest public pension fund. Stock options let holders buy shares in the future at fixed prices. Backdating involves the retroactive granting of options on dates when the stock price was low, which can make the awards more valuable. Concealing the practice can inflate a company's earnings. McGuire was forced to resign from UnitedHealth in October 2006 after the backdating surfaced. In December 2007, he agreed with the U.S. Securities and Exchange Commission to a $468 million settlement that included a $7 million fine and reimbursement of four years of incentive- and equity-based compensation. He did not admit wrongdoing. UnitedHealth is one of more than 200 companies subjected to internal or regulatory probes of backdating since the practice first became widely understood earlier this decade. Rosenbaum also awarded legal fees of about $64.8 million in the case. CalPERS was represented by Coughlin Stoia Geller Rudman & Robbins LLP, a securities class-action specialist. UnitedHealth spokesman Don Nathan said the company welcomed approval of the agreement "and the closure it brings to these matters." McGuire in a statement said he was pleased with the settlement's approval, and that he now plans to focus on business and philanthropic interests. Shares of UnitedHealth closed Tuesday up 75 cents at $27.82 on the New York Stock Exchange. The case is In re UnitedHealth Group Inc PSLRA Litigation, U.S. District Court, District of Minnesota (Minneapolis), No. 06-1691. (Additional reporting by Ransdell Pierson; Editing by Steve Orlofsky)

Applied Materials sees Q4 at least break-even

Tue Aug 11, 2009 5:33pm EDT

http://www.reuters.com/article/2009/08/11/us-applied-materials-idUSTRE57A5N020090811

SAN FRANCISCO - Applied Materials Inc ( AMAT.O ), the world's largest producer of chip-making gear, said it would at least break even this quarter, thanks to new orders and deep cost cuts, sending its shares up almost 4 percent.

The company posted sharply narrower losses in the third fiscal quarter on Tuesday, and forecast earnings per share of zero to 4 cents in the current quarter. It has posted three consecutive quarters of losses. But Applied, whose competitors include closest rival Tokyo Electron Ltd ( 8035.T ) and KLA Tencor Corp ( KLAC.O ), also endured a steep fall in new orders for solar gear in the third quarter, boding ill for that closely monitored business. Shares of the Santa Clara, California-based company rose 3.8 percent in after-hours trading to $13.72, after closing down 1.86 percent at $13.22 on Nasdaq. Applied Materials said revenue fell 38.9 percent in the fiscal third quarter ended July 26 to $1.13 billion from $1.85 billion a year ago, as the global IT spending downturn and a glut in solar materials continued to take their toll. But that still surpassed expectations for $953.06 million, according to Reuters Estimates. It also reported a net loss in the third quarter ended July 26 of $55 million, or 4 cents a share, versus a profit of $164.77 million, or 12 cents a share, a year earlier. Excluding certain items, the company reported a non-GAAP loss of $2 million -- near break-even on a per-share basis -- versus a $228 million or 17 cent-per-share profit a year ago. But including the impact of equity-based compensation, Applied Materials had a loss of 3 cents per share, bettering expectations for an 8 cent-per-share loss according to Reuters Estimates. EYES ON SOLAR Overall, new orders for the quarter totaled $1.07 billion -- a quarter of which came from China and southeast Asia -- versus $649 million in the fiscal second quarter. But sales from its key environmental division fell as expected. Investors scrutinize the solar business for signs of industry weakness. Applied Materials itself is relying on its solar equipment arm to bolster sales and growth as its traditional chip business falters. Net sales in the third quarter from its energy and environmental solutions division -- which includes Applied's solar unit -- plummeted 37 percent from the previous quarter to $224 million. Applied Materials had forecast a decline of at least 30 percent in its energy and environmental solutions business in the third quarter from the second quarter. New orders held steady at $136 million in the third quarter, compared with $141 million in the second quarter. On Monday, research firm iSuppli said nearly half of all solar panels made in 2009 will not be sold, a massive glut it expects to persist until 2012. The oversupply, triggered by Spain's decision to cut subsidies, is also one of the main reasons Applied in April said it expected full-year revenue from photovoltaic solar installations to plummet 40 percent from the year-ago period, to $18.2 billion. (Reporting by Clare Baldwin ; Editing by Edwin Chan and Richard Chang )

Wall Street dragged lower by financials

Tue Aug 11, 2009 5:13pm EDT

http://www.reuters.com/article/2009/08/11/us-markets-stocks-idUSTRE57325J20090811

NEW YORK - Stocks fell on Tuesday after a prominent banking analyst warned the sector's fundamentals have yet to improve, and an unexpectedly large drop in wholesale inventories raised worries about an economic recovery.

Financial stocks, which had gained about 25 percent in the last month, tumbled after Rochdale Securities analyst Richard Bove painted a gloomy outlook for the banking industry. He said bank stocks are trading on "fumes," and he expects a short-term pull-back in their stock prices. The financial sector of the S&P 500 .GSPF shed 3.5 percent while the KBW Bank Index .BKX was down 4.4 percent. The stocks were also affected by a report late Monday from the Congressional Oversight Panel, which highlighted the risks of toxic assets still on the books of many banks. "Banks aren't out of the woods yet," said Kevin Kruszenski, head of listed trading at KeyBanc Capital Markets in Cleveland. "There are some worries about additional equity that needs to be raised. The market is going to have a hard time moving meaningfully higher without them," Kruszenski said. The drop in U.S. wholesale inventories in June, which was nearly double expectations, suggests that businesses remained skeptical about a return in demand. The Dow Jones industrial average .DJI closed down 96.28 points, or 1.03 percent, to 9,241.67. The Standard & Poor's 500 Index .SPX fell 12.77 points, or 1.27 percent, to 994.33. The technology-laced Nasdaq Composite Index .IXIC slid 22.51 points, or 1.13 percent, to 1,969.73. Adding to losses for financials, Miller Tabak cut its price targets on Zions Bancorp ( ZION.O ) and Regions Financial Corp ( RF.N ). Shares of Zions stumbled 8.4 percent to $16.43, while Regions dropped 4.2 percent to $4.76. The S&P Regional Banks sub-index .GSPBNKS slipped 4.2 percent. The Congressional Oversight Panel, a watchdog for the government's bailout program, said toxic loans and securities continue to pose a threat to the financial system, particularly for smaller banks that face mounting losses on commercial real estate loans. After the closing bell, Applied Materials Inc ( AMAT.O ) shares rose 3.6 percent to $13.70 as the world's largest chip equipment maker reported a sharply narrower quarterly loss on better-than-expected revenue, due to a jump in new orders and deep cost cuts. Investors were also cautious as a two-day monetary policy meeting by the U.S. Federal Reserve got under way on Tuesday. The focus will be on signs from the Fed of an exit strategy from its quantitative easing policy. Also weighing was a report on July retail sales, due Thursday. Earnings reports are due this week from retailers Wal-Mart Stores Inc ( WMT.N ), J.C. Penney Co Inc ( JCP.N ) and Macy's Inc ( M.N ), which may provide some insight on whether consumer spending, which accounts for roughly two-thirds of the U.S. economy, is stabilizing. Another worrying sign of a still-weak economy came from hedge fund firm Atticus Capital LLC, which told investors that it is closing two of its three funds and would return $3 billion to shareholders. The negative news overshadowed better-than-expected data on U.S. non-farm productivity in the second quarter, which showed worker productivity rose at its fastest pace in six years as hours worked fell much more steeply than output. Volume was light on the New York Stock Exchange, with 1.17 billion shares changing hands, below last year's estimated daily average of 1.49 billion, while on the Nasdaq, about 1.91 billion shares traded, below last year's daily average of 2.28 billion. Declining stocks outnumbered advancing ones on the NYSE by a ratio of 2,226 to 801, and declining stocks beat advancers on the Nasdaq, by about 1,931 to 719. (Editing by Leslie Adler)

Australia's Smith rejects China Rio report

Tue Aug 11, 2009 12:42am EDT

http://www.reuters.com/article/2009/08/11/us-china-rio-idUSSYD48963820090811

CANBERRA - Australia brushed off on Tuesday a Chinese report accusing iron ore miner Rio Tinto Ltd ( RIO.AX ) ( RIO.L ) of overcharging and spying on Chinese steel mills, saying it had not been officially sanctioned.

In a growing war of words with its biggest export partner, Australian Foreign Minister Stephen Smith also delivered a veiled warning to China to rein in its diplomats after China's embassy tried to block a speech in Canberra on Tuesday by an exiled leader of China's Uighur Muslim minority. An article published online by China's state secrets agency at the weekend said Rio spied on Chinese mills for six years, resulting in the mills overpaying $102 billion for iron ore, Rio Tinto's biggest earner. "It is now quite clear, given that the article has been taken off the website, that it was essentially the opinion of the individual writer, and not if you like officially sanctioned," Smith said. Smith said the report bore little relevance to the detention of Australian Rio Tinto executive Stern Hu and three other China-based staff of the Anglo-Australian company. The four were detained a month ago on suspicion of stealing state secrets, but they have yet to be officially charged. Rio Tinto's shares were some 2.2 percent lower at A$57.22 at midday on Tuesday, continuing a 3 percent slide the previous day amid investors nerves over the miner's relations with China. Australian diplomats had made a fresh appeal for China to grant legal representation to China-born Hu after they were allowed only their second visit to his Shanghai detention center late last week, Smith said. "We were very pleased to see that his health and welfare continues to be in good order," Smith told state radio. Chinese newspaper the 21st Century Business Herald on Tuesday quoted Jiang Ruqin, the author of the article that laid out the Rio allegations, as saying it reflected only his own views. Jiang said his claim of losses from Rio's spying activities came from earlier media reports, but he did not reveal where he had got information that Rio had been spying for six years. The website (www.baomi.org) was inaccessible on Tuesday, but the article could be found on other Chinese-language websites. David Kelly, a professor of Chinese studies at the University of Technology, Sydney, speaking in Beijing, said it was unclear how much Chinese government weight was reflected in the article. "I would suggest that at least it reflected a powerful view of at least part of the bureaucracy," said Kelly. In a further sign of brittle relations, the Chinese embassy's political counselor, Liu Jing, asked management at Canberra's National Press Club last week to drop an invitation to Rebiya Kadeer to speak on Tuesday, the club said. Kadeer is blamed by Beijing for instigating last month's ethnic riots in Xinjiang province, which left 197 people dead, mostly Han Chinese, and wounded more than 1,600. "Embassies, diplomats, officials are entitled to put views in Australian society, but when they put those views, those views have to be put appropriately," Smith said. The Australian newspaper said in an editorial on Tuesday that Australia's Mandarin-speaking prime minister, Kevin Rudd, was increasingly irritating Chinese leaders with his conviction that he had a special relationship with Beijing and could therefore be outspoken on Chinese internal affairs. (Additional reporting by Chris Buckley in BEIJING and James Grubel in CANBERRA; Editing by Jeremy Laurence )

Stocks at U.S. wholesalers drop for 10th month

Tue Aug 11, 2009 11:47am EDT

http://www.reuters.com/article/2009/08/11/us-usa-economy-inventories-sb-idUSTRE57A3IL20090811

WASHINGTON - Stocks at U.S. wholesalers plummeted 1.7 percent in June, the tenth straight monthly drop, which drove inventories to their lowest level in more than two years, Commerce Department reported on Tuesday.

The magnitude of the drop in inventories from May was nearly double the 0.9 percent decline analysts polled by Reuters had expected. May's drop was revised to 1.2 percent from the originally reported 0.8 percent. U.S. stocks added to losses after the data and U.S. Treasury prices posted session highs as investors worried businesses were cutting inventories sharply because they remained skeptical about a return in demand. "The drop in inventories suggests that businesses continue to be cautious and that production is below demand," said Alan Gayle, senior investment strategist at Ridgeworth Investments in Richmond, Virginia, suggesting it could be a factor in an economic recovery. "Most analysts are expecting inventory cuts to slow over the third quarter and it looks as though that hasn't materialized." Businesses have been trimming inventories during the longest U.S. downturn since the Great Depression. In June, wholesalers' stocks stood at $393.93 billion, the lowest level since $393.49 billion in January 2007. Sales rose 0.4 percent, the second straight increase, which pushed the inventory-to-sales ratio down to 1.26 months' worth from May's 1.28 months'. It was the lowest ratio since October's 1.21 months'. However, sales were down 21 percent from a year earlier, Commerce said, while inventories were off 10.3 percent. Durable goods, which make up nearly two-thirds of wholesale inventories, were down 1.5 percent in June, while their sales were up 0.7 percent. Stocks of autos and parts fell 1.2 percent, while their sales rose 4.5 percent. (Additional reporting by Ryan Vlastelica in New York, Editing by Neil Stempleman)

U.S. productivity surges, inventories lean

Tue Aug 11, 2009 5:12pm EDT

http://www.reuters.com/article/2009/08/11/us-usa-economy-idUSN1152477420090811

WASHINGTON - U.S. output per worker rose at its fastest pace in six years during the second quarter as businesses wrung more productivity from fewer staff in a sign that a recovery from recession will be slow and unlikely to create a surge in hiring.

A Labor Department report on Tuesday showed non-farm productivity, a gauge of hourly output per worker, jumped at a 6.4 percent annual rate, the sharpest since the third quarter of 2003 after a 0.3 percent gain in the January-March quarter. "The bounce in productivity is another indication that the nasty U.S. recession is drawing to a close. The bad news is, however, that firms are still reluctant to hire," said Harm Bandholz, an economist at UniCredit Markets and Investment Banking in New York. A separate government report showed U.S. wholesalers cut their inventories of unsold goods for a 10th straight month in July as businesses continued running as lean as possible in the face of uncertainty about how durable a recovery will be. U.S. stocks fell and government bond prices rallied to session highs as investors worried businesses were cutting inventories sharply because they remained skeptical about a rebound in consumer demand. The Dow Jones industrial average ended down 1 percent at 9,241.45 points, while the Standard & Poor's 500 index dropped 1.27 percent to 994.35. White House economic adviser Larry Summers said on Tuesday a foundation for economic recovery was being laid, but warned the economy still had a long way to go. Analysts said the sustained drop in wholesale inventories posed a risk that second-quarter gross domestic product could be revised lower to show a annual rate of decline steeper than the 1 percent reported by the government last month. "We are lowering our estimate of the percent change in second-quarter real GDP from -1.2 percent to -1.8 percent," said Abiel Reinhart, an economist at JPMorgan in New York. "We also expect that the change in real business inventories in the second quarter will be revised down from what was already a record $141 billion decline (annual rate) to a $162 billion decline," he added. DATA REASSURING FOR THE FED The productivity data is likely to be reassuring for the Federal Reserve, as it indicates inflation remains muted. The U.S. central bank is set to start a regular two-day meeting on Tuesday and is widely expected to leave overnight lending rates unchanged near zero. "It gives the Fed more room to keep rates lower for longer in order to move the economy as quickly as possible through the recovery phase to an expansion mode," said Brian Bethune, chief U.S. financial economist at IHS Global Insight in Lexington, Massachusetts. The worst economic downturn in over 60 years has forced companies to aggressively cut costs -- mostly their work force -- to shield profits from further erosion. Since the start of recession in December 2007, about 6.7 million workers have been laid off, according to the latest government statistics. Analysts said the surge in productivity helped to explain better-than-expected earnings from some companies, despite weak demand across all sectors of the economy. Deeper cost cuts, including layoffs and plant closures, have helped companies such as Caterpillar Inc and 3M Co to post better-than-expected second-quarter results. Separately, the Commerce Department said that stocks at U.S. wholesalers plummeted 1.7 percent in June, driving inventories to their lowest level in more than two years. The inventory-to-sales ratio fell to 1.26 months' worth from May's 1.28 months, the lowest ratio since October. "We believe that firms will continue to shed stocks in the second half of the year, but at a much more moderate pace, which implies a significant positive impetus to GDP, especially in the current quarter," said Stephen Stanley, an economist at RBS in Greenwich, Connecticut. According to the productivity report, hours worked plunged at a 7.6 percent rate in the second quarter, while output fell 1.7 percent. In a sign that inflation pressures remained benign and deflation was a threat, unit labor costs fell 5.8 percent, the biggest decline since the second quarter of 2000, after dropping a revised 2.7 percent in the January-March quarter. Unit labor costs are closely watched by the Fed for hints of inflation. Compensation per hour rose at a 0.2 percent pace, but adjusted for inflation, it was down 1.1 percent. "The decline in wage costs will lead to a decline in prices, which is exactly the sort of downward wage-price spiral the Fed will be desperate to avoid," said Paul Ashworth, a senior U.S. economist at Capital Economics in Toronto. "The economy may be tentatively emerging from recession, but the threat of deflation will remain for some time." Compared with the April-June quarter of 2008, non-farm productivity was up 1.8 percent. Unit labor costs fell 0.6 percent year-on-year. Compensation from a year earlier rose 1.3 percent and was up 2.2 percent once adjusted for inflation. Output, measured on a year-on-year basis, was down 5.6 percent in July. (Additional reporting by Lisa Lambert in Washington and Scott Malone in Boston; Editing by Neil Stempleman , Gary Crosse)

U.S. and European stocks fall on recovery doubts

Tue Aug 11, 2009 5:22pm EDT

http://www.reuters.com/article/2009/08/11/us-markets-global-idUSTRE5794XR20090811

NEW YORK - U.S. and European stocks slumped on Tuesday on weakness in banking shares, failing to follow through on strength in Asia where Japanese shares hit a 10-month high.

The Japanese yen rose against other major currencies on disappointing Chinese economic data and investors' increased risk aversion. Financial shares led U.S. stocks lower after an influential analyst said recent gains were overdone and after a report showed American businesses have not signaled confidence in the economy by boosting inventory. The two factors led to increased caution among investors, who are questioning a five-month rally in major stock indexes. Wall Street turned lower after the U.S. Commerce Department said inventories at wholesalers fell 1.7 percent in June, marking a 10th consecutive decline to the lowest level in more than two years. The decline was nearly double what analysts had expected, casting a bearish tone over markets that had been grasping at signs that the U.S. recession will soon end. Richard Bove, a veteran banking analyst at Rochdale Securities, said financial stocks would likely see a short-term pullback because fundamentals have yet to improve and bank earnings may be weak into the third and fourth quarters. Bank of America Corp ( BAC.N ) fell 4.98 percent to $15.85 and JPMorgan Chase & Co ( JPM.N ) declined 3.4 percent to $41.24. The benchmark Standard & Poor's 500 index .SPX declined 12.75 points, or 1.27 percent, to 994.35, edging further from last week's peak at 1,081. The Dow Jones Industrial Average .DJI slumped 96.50 points, or 1.03 percent, to 9,241.45. The downbeat mood extended to Europe where the pan-European FTSEurofirst 300 .FTEU3 index of top shares fell 1.31 percent. Denmark's biggest financial group, Danske Bank ( DANSKE.CO ), fell 2.5 percent after it reported a drop in second-quarter profit. France's Natixis ( CNAT.PA ) plunged 17.5 percent after the firm's parent, BCPE bank, told French market regulator AMF it does not plan to delist Natixis as part of a strategic review. In Asia, Japan's Nikkei .N225 rose 0.58 percent to 10,585.46, its highest close since October 3, with construction stocks gaining on expectations for reconstruction efforts after recent Asian floods and a earthquake. As in Europe and the United States, the Japanese market is also anticipating recovery in stronger earnings that have yet to materialize, said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management. "Evidence so far is not yet convincing enough for such a recovery for real," Akino said. "Trade could be rangebound until earnings reports for the first half (April-September) run their course." China reported below-forecast growth in factory output and investment, also reminding financial markets that the world's third-largest economy is not yet back on a solid footing. The U.S. data eroded gains broadly around the globe, with the MSCI-all-country world index .MIWD00000PUS, the global benchmark for many investors, edging lower about 1.0 percent. The index has gained about 19 percent this year and is up some 58 percent since its March low. Investors are divided about whether a bull market or a retrenchment will follow. "We do have concerns about the sustainability of the rally, but we would also point out that valuation measures remain attractive and that there is still a large amount of cash on the sidelines waiting to be invested," Bob Doll, global chief investment officer for equities at BlackRock, said in a note. "As a result, we believe the current cyclical bull market remains intact." Stock declines helped revived the bid for government debt, which for weeks had suffered as expectations of faster global growth enticed investors to buy more volatile equity assets. Traders were looking ahead to the conclusion on Wednesday of a meeting of the Federal Reserve, which is expected to leave U.S. interest rates unchanged. Two-year U.S. Treasury note yields declined 0.06 percentage point to 1.18 percent, while 10-year levels fell 0.1 percentage point to 3.67 percent. The two-year Schatz yield declined 0.04 point to 1.49 percent as the 10-year yield was near unchanged at 3.47 percent. The U.S. dollar declined 0.15 percent against a basket of major currencies .DXY. The yen gained against most major currencies on Tuesday as investors bought the Japanese unit in a risk-aversion tactic following the disappointing data from China. Against the yen, the dollar declined 1.27 percent to 95.88. The euro edged up 0.04 percent to $1.4149. In energy and commodities prices, U.S. light sweet crude oil fell $1.21, or 1.71 percent, to $69.39 per barrel, and gold rose 75 cents, or 0.08 percent, to $945.40. (Editing by Kenneth Barry)

White House divides CDS regulatory jurisdiction

Tue Aug 11, 2009 5:35pm EDT

http://www.reuters.com/article/2009/08/11/us-financial-regulation-derivatives-idUSTRE57A56720090811

WASHINGTON - The Obama administration's plan to regulate the $450 trillion private swaps market would give the two main market regulators a share of the duties by splitting oversight of credit default swaps, which were responsible for exacerbating the financial crisis.

The swaps, which increased financial distress by spreading losses from bets on risky mortgages and other debt, would be overseen by securities and futures regulators, the White House said in legislative language delivered to Congress on Tuesday. Under the proposal, the Securities and Exchange Commission and Commodity Futures Trading Commission would work together to create rules for the industry. Although the market regulators have been helping the administration finesse its derivatives plan, the SEC and CFTC have a long history of not being able to sort out financial products that can be viewed as both securities and futures. The administration said the Treasury Department would be required to act quickly to resolve any disputes should they arise, noting on a conference call with reporters on Tuesday that they expected the SEC and CFTC to be "able to work well together." "While there is never 100 percent agreement ... the SEC and CFTC have been acting in good faith and partnership and we expect they will continue to do so," said one official who asked not to be named. Banking regulators would oversee derivatives dealers that are banks while securities and futures regulators would supervise other dealers, according to legislative language. Key congressional members have already sketched out plans to supervise the loosely regulated industry. The administration's plan is similar in most points to what Congress is crafting and includes giving the SEC and CFTC power to limit holdings of the swaps. CFTC Commissioner Bart Chilton said he was particularly pleased that the administration proposed position limits. The CFTC is weighing whether to set such limits on oil contracts, which soared to record highs last year amid complaints of speculation. However, a House of Representatives outline would deny a role to banking agencies in the regulation of derivatives. For months policymakers have pushed for more so-called standardized contracts to be cleared by a central clearinghouse. According to the White House language, all standardized contracts would be required to be cleared and be traded on exchanges or via a "swap execution facility." The administration shied away from the thorny issue of defining "standardized contract," and instead said regulators would write a broad definition within six months of the law being enacted.

Adecco downbeat on staffing markets after Q2 loss

Tue Aug 11, 2009 5:35am EDT

http://www.reuters.com/article/2009/08/11/us-adecco-idUSTRE57A1MN20090811

ZURICH - Adecco, the world's largest staffing group, said on Tuesday it had still not seen any recovery in its main European and U.S. markets and launched a new round of cost-cutting to protect profitability after a sharp drop in sales in the second quarter.

"Looking ahead, management anticipates no material pick-up of business activities and has therefore initiated further restructuring measures," the company said after announcing an unexpected second-quarter net loss due to one-off charges. Revenue slipped 31 percent to 3.6 billion euros ($5.10 billion) as firms across the world slashed their workforces to offset the fallout from the economic slump, but Adecco said the pace of decline had eased in most markets during the quarter. Shares in the group were down 2.7 percent at 51.40 euros by 5:14 a.m. EDT, when the DJ Stoxx European industrial goods and services index was up 0.1 percent. "Overall results are below expectations even if we applaud the continued cost discipline of the company," Vontobel analyst Michael Foeth said in a note. In debt markets five-year credit default swaps on Adecco's debt were 8.5 basis points wider at 127.5 basis points, a trader said, with some concern about the possibility of a credit rating downgrade to a very low investment grade. Adecco would be able to give a more detailed outlook after the third quarter, Chief Executive Patrick De Maeseneire, who has been at the helm since June, told Reuters in an interview. The cautious comments echoed those made recently by Dutch rivals Randstad and USG People as well as America's Manpower, which have yet to see a recovery in their employment markets despite having seen the pace of decline ease in recent months. Michael Page, Britain's second-largest recruiter behind Hays, also said it had seen a stabilization in some markets but did not expect a firm recovery until next year. Adecco swung to a second-quarter net loss of 147 million euros after making impairment charges of 192 million euros on goodwill and intangible assets which it said were mainly due to the severe impact of the economic downturn on its German market. Analysts had on average expected the company to make a second-quarter net profit of 29 million euros. Adecco, which has already shut branches and cut jobs to protect its profitability, said it expected to incur another 40 million euros of restructuring costs in the second half for various countries after charging 54 million euros in the second quarter, 40 million euros more than previously indicated. Staffing company stocks jumped at the end of last week after the latest U.S. employment data showed the first decline in the U.S. jobless rate since April 2008. But analysts cautioned seasonal factors had to be considered and questions remained about the pace and sustainability of the expected recovery in temporary staffing. SPRING SALE However, the company also said on Tuesday it hoped to boost its professional staffing business with the buy of Britain's Spring Group for 108 million pounds ($180 million), or 62 pence a share. "With this transaction Adecco will strengthen its position in the fragmented UK market and further increase its professional staffing exposure," Adecco said. Spring Group had sales of 517 million pounds in 2008. "The acquisition seems like a reasonable one. They have pretty low margins, but they are paying a pretty low price for it," Fortis analyst Teun Teeuwisse said. Adecco failed last year in its bid to buy the bigger Michael Page, which would have improved its foothold in the higher-margin professional market. Adecco's adjusted EBITA (earnings before interest, tax and amortization) margin rose 30 basis points sequentially in the second quarter to 2.4 percent as selling, general and administrative expenses fell 21 percent on an adjusted basis and in constant currencies. The group is also likely to cut more full-time equivalent employees after this number was reduced by 19 percent in the period, Chief Financial Officer Dominik de Daniel told Reuters. USG People, Hays and Michael Page have also cut jobs to preserve margins in the face of weak sales. ($1=.6000 pounds) ($1=.7059 euros) (Editing by Greg Mahlich)

Rio says seen no evidence yet against China staff

Tue Aug 11, 2009 1:44am EDT

http://www.reuters.com/article/2009/08/11/us-china-rio-detentions-sb-idUSTRE57A0UU20090811

SYDNEY - Anglo-Australian miner Rio Tinto has yet to be presented with any evidence to support the detention of four of its China-based staff on suspicions of stealing state secrets, the firm said on Tuesday.

Chinese authorities detained Rio Tinto's top iron-ore salesman in China, Australian Stern Hu, and three Chinese colleagues a month ago, accusing them of spying on Chinese steel mills, major buyers of the company's iron ore. The four have yet to be officially charged. "We are still not aware of any evidence that would support their detention," Rio Tinto's iron ore division chief, Sam Walsh, said in a statement. "We continue to be concerned for the health and welfare of our three other employees detained at the same time as Stern Hu," he said, noting that the Australian government had informed the company that Hu was well. (Reporting by Mark Bendeich ; Editing by Jonathan Standing )

CIT shares fall on bankruptcy warning

Tue Aug 11, 2009 11:29am EDT

http://www.reuters.com/article/2009/08/11/us-cit-filing-idUSTRE57A2NG20090811

NEW YORK - Shares of CIT Group Inc sank 20 percent on Tuesday after the troubled lender delayed filing its second-quarter report with regulators and again warned it may have to file for bankruptcy.

CIT, which has been battling to restructure its debt, said in a filing with the U.S. Securities and Exchange Commission that management is focused on restructuring the company to avoid bankruptcy and it was unable to file its quarterly report by the deadline on Monday. The 101-year-old lender, which last month secured $3 billion in emergency funding from bondholders, has launched a tender offer for $1 billion of floating-rate notes due August 17. In the filing on Tuesday, it warned that if the tender offer is not successful and if the company is unable to secure alternative financing, it may be forced into bankruptcy. New York-based CIT last week said it had met the conditions for the offer, after it passed the 58 percent mark for the minimum tender. CIT plans to use the proceeds from its emergency funding to complete the tender offer and make the payment on the August 17 notes, according to the filing on Tuesday. The lender had already postponed its results, originally expected on July 23, while arranging the emergency funding. It said last month it expected a second-quarter loss of more than $1.5 billion. CIT is still reviewing assets and businesses that it may sell as well as the related valuation adjustments that must be included in the quarterly report, it said on Tuesday. CIT shares were down 30 cents to $1.18 in morning trade on the New York Stock Exchange after falling as low as $1.09 earlier in the session. (Reporting by Elinor Comlay , editing by Gerald E. McCormick and John Wallace)

Summers says U.S. economy getting back to normal

Tue Aug 11, 2009 3:16pm EDT

http://www.reuters.com/article/2009/08/11/us-usa-economy-summers-idUSTRE57A4F220090811

WASHINGTON - White House economic adviser Larry Summers said on Tuesday the foundations for a return to growth had been laid and there were many signs economic life was getting back to normal.

Speaking to a conference on social security at the national Press Club, Summers cited large and small signs the financial crisis was easing, even if it will take some time to be able to firmly declare it over. "In more obvious indicators like the stock market, less obvious indicators like credit spreads, the spread between LIBOR and federal funds, forward markets and what they suggest about housing prices...what one sees is a substantial return to normality," Summers said. Summers' address echoed remarks he made last month at the Peterson Institute when he defended the effectiveness of the Obama administration's $787-billion economic stimulus program. As he did then, Summers said the economy was back from the brink of what some feared was potential depression when the Obama administration took office in January. "It is reasonable to say that we are in a very different place," he said. But he said the severity of the crisis that struck the financial system, and hurt the entire economy, was so great that recovery was likely to be slow. "We have a long way to go," Summers said. "The problems were not created in a week or a month or a year and they will not be resolved in a week or a month or a year." He said that now that economic freefall has been contained, it was time to think about the type of recovery that will most benefit the country. Recent expansions were fueled largely by "asset bubbles that drove consumption" in the high-tech industry in the late 1990s and in housing in the early 2000s. Summers suggested past bubble-driven expansions "coincided with important lags in crucial systems within the economy" like improving healthcare and boosting funding for education and energy development. Such lags produced inequality that made downturns more damaging, he said. As Summers spoke, President Barack Obama was in New Hampshire urging support for his healthcare reform plan, which seeks to provide coverage to nearly 46 million uninsured Americans, rein in rising medical costs and regulate insurers. Critics say it would result in higher government budget deficits and hurt the economy. Summers said restoring growth should be twinned with efforts like reforming health care and considering future Social Security needs in order to bring more stability to the economy. (Reporting by Emily Kaiser and Glenn Somerville ; Editing by Andrew Hay)

Yahoo chairman exits, review drags on

Tue Feb 7, 2012 6:57pm EST

http://www.reuters.com/article/2012/02/07/us-yahoo-idUSTRE81626T20120207

SAN FRANCISCO - Yahoo Inc Chairman Roy Bostock and three other directors will step down as the struggling company ploughs ahead with an internal overhaul, including discussions on dealing with its stakes in China's Alibaba Group and Yahoo Japan.

The corporation -- once a Web powerhouse but now agonizing over a range of options to revive flagging growth -- on Tuesday said it appointed former Rovi Corp CEO and IBM veteran Alfred Amoroso and ex-eBay COO Maynard Webb as independent directors. Yahoo's board has come under fire from investors impatient with the company's persistent inability to effect a turnaround, and frustrated with the apparent indecisiveness of stakeholders over how to handle its investments in Alibaba and other prized Asian assets. "We have engaged with potential investors and reviewed proposals concerning an equity investment in the company, although at this time there have not been any proposals which have been deemed by the committee to be attractive to our shareholders," Bostock said in a letter to shareholders released on Tuesday. "We are also in active discussions with our partners in Asia regarding the possibility of restructuring our holdings in Alibaba Group and Yahoo Japan. The complexity and unique nature of these transactions is significant," the letter said. Bostock will leave soon after the surprise departure of cofounder Jerry Yang, blamed for turning down a rich acquisition offer by Microsoft Corp near the height of Yahoo's valuation. It comes shortly after the appointment of former PayPal President Scott Thompson to the CEO post, replacing the fired Carol Bartz. A Web pioneer, Yahoo has seen its revenue growth stall in recent years as rivals Facebook and Google Inc have increased their share of online advertising spending. Thompson, credited with driving growth at eBay's online payments division PayPal, joins Yahoo during a period of turmoil, as the company plows ahead with a strategic review in which discussions have included the possibility of being sold, taken private or broken up. Many investors hope Yahoo will sell or spin off its Asian assets, with some speculating that Thompson may focus on developing Yahoo's core online media business. But one of Yahoo's major institutional investors described the company's efforts at striking a deal to spin off its Asian assets as "painfully slow." While the shareholder said the departure of Bostock was "monstrously overdue," he noted that the changes to the board would not necessarily accelerate the dealmaking process or bolster his confidence in the company. "I'm not highly confident about anything given that group, and now I don't know who the group is," said the shareholder, who wished to remain anonymous. "I have a choice of uncertainty or almost a certainty that they'll make a bad decision. It's like the lesser of two evils." Bostock and fellow board members Vyomesh Joshi, Gary Wilson and Arthur Kern will not stand for re-election at the next shareholders' meeting, Bostock said in Tuesday's letter. The changes come a few weeks before dissident shareholders can nominate rival directors to Yahoo's board. In November, activist hedge fund manager and Yahoo shareholder Dan Loeb, of Third Point LLC, called for Bostock and Yang to resign from the board and demanded the right to appoint two of his own directors to the board. Third Point did not immediately respond to a request for comment. Shares of Yahoo were up one penny at $15.83 in after-hours trading on Tuesday. "A lot of this change was expected. That's why you're not seeing as big a reaction to the stock," said Herman Leung, an analyst with Susquehanna Financial Group. "Most investors are getting a little numb on the corporate governance that's going on. At this point it's either get your head down and focus on the business or get something sold," he said. Under a "cash rich split" plan being discussed, Yahoo would effectively transfer most of its 40 percent slice of Alibaba back to the Chinese company and all of its stake in Yahoo Japan to Softbank Corp in return for cash and assets, sources have told Reuters. Yahoo had also entertained separate proposals from private equity firms TPG and Silver Lake about minority investments in the company, but those offers fell short of Yahoo's expectations. "Those talks are pretty much done," said a person familiar with the matter The person added that Yahoo had not received any offers to purchase the entire company in the five months since it undertook a broad "strategic review" of its business. (Reporting by Alexei Oreskovic and Edwin Chan ; Editing by Richard Chang , Bernard Orr )

World watches as China economic leaders take stage

Tue Feb 7, 2012 12:46pm EST

http://www.reuters.com/article/2012/02/07/us-economy-global-china-idUSTRE8161SI20120207

LONDON - A new guessing game is about to begin: will China's incoming generation of leaders show more courage than the current incumbents in tackling deep economic imbalances that threaten to bring growth to a sudden stop?

The question, easier to frame than to answer, is critical for the world economy. China has accounted for about a quarter of global growth in recent years, yet as far back as 2007 Premier Wen Jiabao characterized the expansion as "unsteady, unbalanced, uncoordinated and unsustainable." It still is. The urgency of finding a solution is grabbing attention for three reasons. First, fears persist of a crash in the property market - exhibit A for critics who say China's unprecedented investment rate of 49 percent of GDP is creating white elephants and incubating bad loans. Second, debate has intensified in China about how "vested interests" - well-connected politicians, bureaucrats and state firms - are obstructing efforts to put the economy on a more stable footing and alienating the man in the street. Third, the men who will chart China's course over the next decade are stepping out more onto the world stage. Vice-President Xi Jinping, who meets U.S. President Barack Obama at the White House next Tuesday, is all but certain to take the reins of the ruling Communist Party from Hu Jintao in the fourth quarter and assume his title as state president in 2013. Wen is due to be succeeded by Vice-Premier Li Keqiang. Eswar Prasad, a scholar at the Brookings Institution in Washington, believes the new leaders will want to correct the imbalances in the economy but will not attempt drastic changes until they have solidified their political base. Senior bankers, for example, can be expected to put up fierce resistance to any attempt to compete away the plump margins they enjoy because of a state-mandated spread between deposit and lending rates. "The system as it is structured works very well for those in positions of power," said Prasad, co-author of a new pamphlet on the role of the yuan in the global monetary system. "But once they have gone through cementing their political position and once the external environment improves, I expect the new leadership will push forward much more aggressively with domestic reforms, including financial sector reforms, that are essential to rebalance the economy," Prasad said. LOST DECADE Just how badly Hu and Wen have dragged their feet on rebalancing is the underlying theme of a book by another prominent U.S. China-watcher, Nicholas Lardy of the Peterson Institute for International Economics in Washington. Lardy argues that since 2004 reforms have been "anemic," ranging from "cautious and incremental to non-existent." In other words, for all its stellar growth, China is closing in on a lost decade of reform. If anything, the imbalances have got worse in the past five years because Beijing has failed to overcome opposition to key reforms such as freeing up the exchange rate, decontrolling interest rates, curbing energy subsidies and requiring state-owned enterprises to pay dividends into the central budget. The result is a significant misallocation of resources that contributes to a situation in which wages account for a low share and profits a high share of national income. In turn, low household disposable income depresses consumption, while artificially low interest rates force households to salt away even more cash or invest in property to meet their savings targets. And an undervalued exchange rate funnels too much of China's cheap capital into manufacturing, keeping the external surplus high. "The longer the currency remains undervalued, the longer the allocation of investment resources will remain distorted and the greater the ultimate costs of economic rebalancing will become," Lardy writes in 'Sustaining China's Growth After The Global Financial Crisis'. VESTED INTERESTS Even if the new leaders are more reform-minded than their predecessors, they will need at least a year to establish their authority, Lardy believes. "So the risk is that China will continue for another two or more years on the path of slow incremental economic reforms that are not aggressive enough to result in economic rebalancing," he argues. Michael Pettis, a professor of finance at Peking University, believes policymakers will have to actively consider privatization within two or three years as a means of redistributing income and wealth away from the state sector to households. He said he had been struck by the growing number of commentators within China who see the rigidities of the state system as an obstacle to future economic and political growth. "Their main concern seems to be over the constraints these special interests impose on further Chinese development, with the entrenched interests that have benefited over the last decade or two having become so powerful that they are making it increasingly difficult for China to adjust," Pettis wrote in his newsletter. Will Xi and Li take on these entrenched interests or be captured by them? "Cutting through this morass of interests and fears is not easy - but the success of the 2013-23 administration of Premier Li Keqiang will depend upon it," according to Stephen Green, Standard Chartered Bank's chief China economist. In China's opaque politics, working out just who is advocating or resisting this or that reform is a thankless task, even for close observers such as Green. In a report commending Lardy's book, he agreed that central government politics were to blame for the lack of reform but craved more detail about the people and mechanisms at work. "Maybe one day, when the State Council archives are opened up, we will understand more about how the decision-making process changed from the reform-intense 1990s to the reform-timid 2000s. Was it fear, money, bureaucratic in-fighting, or just that the leadership was too occupied with fighting fires?" Green asked. (Editing by Catherine Evans )

SEC weighs two money market fund proposals

Tue Feb 7, 2012 5:36pm EST

http://www.reuters.com/article/2012/02/07/us-sec-moneymarketfunds-idUSTRE81609D20120207

- The chairman of the Securities and Exchange Commission is eyeing two potential plans to bolster the stability of money market funds, but their fate remains uncertain due to internal disagreement at the SEC over the need for more regulations.

Last month, agency staff circulated early drafts for either a capital buffer or a floating fund valuation, both aimed at preventing runs on money market funds and investor losses in the $2.6 trillion industry, people familiar with the matter said. Regulators began to focus on new rules for the money market fund industry after the Reserve Primary Fund "broke the buck" in 2008, at the height of the financial crisis, when its net asset value below the $1 mark. In 2010, the SEC adopted a series of new rules in response to that event, including tightening credit quality standards, shortening the maturities of fund investments and imposing a new liquidity requirement. The industry and several SEC commissioners have questioned whether any further changes are required. One of the new plans, favored by some SEC staff and banking regulators, would consist of both a capital buffer requirement and a 30-day hold-back on redemption requests by investors. Under that proposal, funds would need to maintain a 1 percent capital cushion and they would hold back 3 percent of investor funds for 30 days after a redemption request. The alternative plan calls for a floating net asset value to help curb investor complacency over the stable $1-per-share value that funds currently quote. The concepts were first discussed by SEC Chairman Mary Schapiro in a major speech to the brokerage industry last November. The Wall Street Journal reported on Tuesday that the SEC would unveil the plans in the coming weeks. SEC staff are hoping to put both plans out for public comment, but would anticipate only adopting one of the two proposals, people with knowledge of the matter told Reuters. The goal is to unveil them sometime in the spring. Schapiro, the Federal Reserve and other members of the Financial Stability Oversight Council, have argued that more changes are needed to prevent a run on money market funds. "The Chairman has long called for reform of money market funds to avoid the destabilizing events that occurred following the breaking of the buck of the Reserve Primary Fund in 2008," SEC spokesman John Nester said on Tuesday. "As a first step of reform, the SEC adopted meaningful measures to increase the resiliency of money market funds by shortening their maturities and enhancing their liquidity. As a second step, the Chairman is advocating structural reforms to money market funds to address their susceptibility to runs and provide a buffer against losses," Nester said. To put these latest proposed reforms out for comment, the SEC needs approval from at least three of the five commissioners. But three commissioners have expressed some doubts about the need for more reforms, with at least some of them unlikely to even agree to propose a rule, let alone vote to implement one, one person familiar with their thinking said. Part of their concern stems from the fact that the SEC already acted to put new rules on the books in 2010 and that the latest proposals might harm the industry. "As far as I know, these issues were fully vetted in 2010," said Dan Gallagher, the SEC's newest commissioner, in an interview with Reuters last week. "There has to be data that shows the need to act in this space or data that shows that you don't. But I just haven't seen that yet." Money market fund executives have said the proposals could drive investors out of money funds and into bank accounts and reduce a key source of credit for U.S. businesses. Fidelity Investments has warned regulators that more than half of its money-fund clients would move some or all of their assets out of the investments if the net asset value of the funds were allowed to fluctuate. The U.S. Chamber of Commerce is due to host a discussion on money market reforms on Wednesday. (Reporting by Sarah N. Lynch; Editing by Tim Dobbyn )

CalSTRS invests $500 million in infrastructure

Tue Feb 7, 2012 9:35am EST

http://www.reuters.com/article/2012/02/07/us-calstrs-infrastructure-idUSTRE8161BJ20120207

- The California State Teachers' Retirement System, the second-largest public pension fund, has made what it called one of the largest single U.S. fund management commitments to infrastructure, investing up to $500 million.

Infrastructure has emerged as a separate asset class to private equity in the last decade, offering lower returns but also stable cash flows that are hedged against inflation and are underpinned by physical assets such as roads and pipelines. With interest rates at historic lows and inflation not seen as an immediate threat in developed markets, infrastructure fund managers have found it more difficult to make average returns of just above 10 percent appealing to investors. But infrastructure typically has a longer investment horizon than private equity, which tends to flip assets within three to seven years, and so appeals to pension funds looking to match their long-term liabilities with long-term assets. "What the recent economic crisis demonstrated was the need for greater diversification in our investment portfolio, in areas that would also serve as a hedge against inflation," Harry Keiley, chairman of the CalSTRS investment committee, said in a statement on Tuesday. CalSTRS, which ranks behind the California Public Employees Retirement System, said it had awarded a commitment of up to $500 million to Industry Funds Management to invest in a portfolio of core infrastructure assets in North America and Europe across a range of sectors, such as transport and regulated utilities. The first $300 million will be invested immediately, with the second tranche of $200 million expected to be invested within the next 18 months, CalSTRS said. Headquartered in Melbourne, IFM manages more than $31 billion in assets, much of it on behalf of the 32 Australian superannuation funds that own it. Australian pension funds are the world's largest investors in infrastructure, with their cash powering infrastructure M&A deals around the world. (Reporting by Greg Roumeliotis in New York; Editing by Lisa Von Ahn)

Honeywell sees defense, space sales down four to five percent

Tue Feb 7, 2012 9:24am EST

http://www.reuters.com/article/2012/02/07/us-honeywell-defense-idUSTRE8161AJ20120207

- Diversified manufacturer Honeywell International Inc ( HON.N ) said it expects sales at its defense and space business to fall by 4 percent to 5 percent this year as the United States pares back its military spending.

The world's largest maker of cockpit electronics said on Tuesday the forecast decline follows a 2 percent drop in 2011. It looks for defense revenue to stabilize in 2013 and resume slow growth the year after. This forecast was included in its previously disclosed full-year earnings target of $4.25 per share to $4.50 per share, up 5 to 11 percent from 2011. The U.S. Defense Department's aims to cut spending by $487 billion over the next decade by eliminating 100,000 ground troops as it winds down from major operations in Afghanistan and Iraq and aims for a smaller, more mobile force. (Reporting By Scott Malone ; Editing by Gerald E. McCormick)

MGM gets $500 mln loan to expand film, TV slate

Mon Feb 6, 2012 8:46pm EST

http://www.reuters.com/article/2012/02/07/us-mgm-idUSTRE81600Z20120207

LOS ANGELES - Metro-Goldwyn Mayer said its lenders agreed to loan the studio $500 million to retire debt it took on when it emerged from bankruptcy about a year ago and to expand its film and TV production.

The revolving credit facility replaces a term loan and smaller revolving facility the studio received as part of a prepackaged bankruptcy and will improve its cash flow to allow the studio to acquire content, Co-Chairman and Chief Executive Officer Roger Birnbaum said. "A year ago we were struggling to get films made," said Birnbaum, who runs the studio with Co-Chairman and CEO Gary Barber. "Now we have the financial strength to make acquisitions not only in film and TV but other areas as well." He did not specify the other areas on which MGM might focus. The loan replaces a $325 million term loan with a 6.5 percent rate and a $175 million term loan, according to people familiar with the borrowing. The new loan carries an interest rate of about half the 6.5 percent rate, the person said. MGM will use the funds to produce the next James Bond installment, "Skyfall," in partnership with Sony Pictures and a pair of movies based on "The Hobbit" that it will make with Warner Brothers, the company said. It also plans to make films based on movies from its library, including "Robocop," "Carrie," and "Poltergeist." The loan was arranged by a syndicate headed by JP Morgan Chase and Deutsche Bank and includes Bank of America Merrill Lynch, Royal Bank of Canada and Union Bank, among others. (Reporting by Ronald Grover; Editing by Andre Grenon and Richard Chang )

EU watchdog to assess bank recapitalization plans

Tue Feb 7, 2012 5:41am EST

http://www.reuters.com/article/2012/02/07/us-eu-banks-eba-idUSTRE8160S320120207

LONDON - European banking regulators pore over plans this week from 31 lenders to plug a 115 billion euro ($150 billion) hole in their capital cushions and help restore investor confidence shattered by the euro zone debt crisis.

The European Banking Authority (EBA) will review recapitalization blueprints from top names like Deutsche Bank and UniCredit. The 31 were singled out in a healthcheck of 71 lenders last year as needing extra capital to lift core ratios to 9 percent by June. The EBA meets on Wednesday and Thursday. The London-based authority signaled on Monday it was generally pleased with what it has seen so far though it was likely to request some changes. "Whilst it is too early to comment on the feasibility of those plans, the EBA has been impressed with the banks' willingness to undertake all appropriate measures to meet the requirements set out in the EBA's recommendation," it said. Regulators worried that UniCredit's struggle with a 7.5 billion euro capital increase in January would spur other lenders to offload risky assets to bolster ratios instead. Fewer risky assets on a bank's balance sheet means it does not need as much capital to hit the ratio target. The EBA will study several areas as banks have options to plug the capital gap. They can retain earnings, shrink loans to customers, convert hybrid debt into equity, buy back their own bonds, sell assets, and cut dividends or staff pay. The EBA should take a tough line on banks' assumptions, analysts say, particularly given more gloomy economic assumptions across Europe. For example, Italy's Banca Monte dei Paschi di Siena is aiming to sell 1 billion euros of assets and the EBA could force it to have a back-up plan. "The EBA is right to stand up and say 'are these plans do-able?' A number of the banks are unlikely to make their plans, and earnings are under further pressure, so some of those assumptions will have to go down," said Chris Wheeler, analyst at Mediobanca. NO WINDOW DRESSING Banks worldwide are being encouraged to rely less on external credit ratings for assessing how much capital they must set aside against risky assets. Critics fear a shift by banks to use their own internal ratings model will tempt them to "window dress" by downplaying risks to reduce the capital needed to reach the EBA target. The EBA is likely to accept a shift to an internal ratings model only if lenders began the switch before the watchdog unveiled its 9 percent capital target last November. Another core EBA concern is to avoid banks making fire sales of assets at distressed prices to meet the June deadline, so some flexibility may emerge in this area too. Banks, for example, may get some leeway if they can show the sale process is well underway, if an independent valuation has been made or there is evidence of initial pricing. Most banks are likely to have to scale back how much capital they will generate from earnings in the fourth quarter of last year and the first half of this year. For some that could cause a problem -- Germany's Commerzbank, for example, has said it is confident it can avoid state help to plug a 5.3 billion euro shortfall as long as there is no deterioration in the economy. Banks have been pushing for some relief on the "temporary" buffer some are also required to build up against their heavy exposures to sovereign debt of euro zone countries like Greece, Portugal, Italy and Spain which is under pressure in the market. The EBA, however, is unlikely to conclude this week that debt markets are back to normal and instead will continue keeping an eye on them, helped by the European Systemic Risk Board. This week's two-day board meeting will be followed by meetings of each of the 31 lenders' college of supervisors -- the regulators from each country the bank operates in -- to examine the individual plans in greater detail. A handful of banks could need to raise capital if their plans are not accepted, and may need to turn to the state for help. Analyst scrutiny is on Commerzbank, MPS, Banco Popolare, Millennium bcp, Bank of Cyprus and Marfin. The aim is for all 31 plans to be signed off by early March. ($1 = 0.7646 euros) (Editing by Helen Massy-Beresford)

Greek parties delay bailout talks despite EU threats

Tue Feb 7, 2012 4:25pm EST

http://www.reuters.com/article/2012/02/07/us-greece-idUSTRE8120HI20120207

ATHENS - Greek political parties delayed yet again on Tuesday making the tough choice of accepting painful reforms in return for a new international bailout to avoid a chaotic default, seemingly deaf to EU warnings that the euro zone can live without Athens.

With a series of deadlines come and gone, leaders of the three parties in the coalition of Prime Minister Lucas Papademos postponed what was supposed to be a crunch meeting until Wednesday. On a day when protesters burned a German flag in Athens, Chancellor Angela Merkel tried to ease growing tension by promising she would not try to force Greece out of the euro. But the Dutch prime minister said the currency bloc could take a Greek exit in its stride. One party official blamed Tuesday's delay, which is likely to enrage euro zone leaders desperate to tie up the 130 billion euro rescue after months of argument, on missing paperwork - the same reason given when the meeting was postponed from Monday to Tuesday. "The reason is that the political leaders will not have the time to assess the measures in the bailout," said the party official, who declined to be named. The heads of the conservative, socialist and far-right parties had yet to receive the draft agreement with the European Union and IMF only half an hour before the 1900 GMT scheduled start of the meeting on Tuesday. "We can't say a plain yes or no unless we have assurances from the relevant authorities of the state that these actions are constitutional and will lead the country out of the crisis," far-right LAOS leader George Karatzaferis said. "There is time. When it comes to future of the country, we will find the time." Party leaders have hesitated to accept the tough terms of the deal, which are certain to mean a big drop in living standards for many Greeks. Adding to the pressure, unions staged a 24-hour strike on Tuesday, and protesters tussled with police outside parliament, chanting: "No to mediaeval labor conditions!" Deadlines are rapidly losing any significance as one after another passes. Last weekend, Finance Minister Evangelos Venizelos said a deal had to be done by Sunday. Then the parties sailed past a Monday deadline to give their response to the EU, promising that Tuesday would be the day for decisions. A CHALLENGE TO MERKEL Such dithering is a challenge to the authority of Merkel, whose government is a major funder of Greek bailouts. She said on Monday that "time is of the essence" and expressed bewilderment about what the repeated delays could achieve. With Greek resentment increasingly focusing on Germany, Merkel tried to calm the atmosphere on Tuesday, warning that forcing Greece to abandon the euro would have "unforeseeable consequences." "I will have no part in forcing Greece out of the euro," she said in response to a question from a Greek student at a meeting with young people in a Berlin museum. Euro zone countries cannot be forced out of the currency bloc by their peers. But some policymakers in the bloc are starting to say in public what they have been saying in private; that if Athens doesn't accept the terms, they might not do much to prevent Greece falling out of its own accord. Dutch Prime Minister Mark Rutte said the euro zone could live without Greece if it didn't keep its side of the bargain. "We are currently so strong in the rest of the euro zone, in the countries who have the euro, that we can handle an exit of Greece - a Greece which runs into serious trouble," Rutte told Dutch public broadcaster NOS. "They really have to implement all the measures they have promised to take. If that doesn't happen we can't help them." Such comments will hurt Greeks, who have a deep fear of being cast adrift from the euro zone and left with a new national drachma currency which would probably dive in value. Papademos, a technocrat parachuted in to lead the Greek government late last year, has been trying to persuade the party leaders to accept the EU/IMF conditions. With elections likely in April, the party political leaders - who Europe insists must all sign up to the austerity program - face an obvious incentive not to heap more misery on their voters. But if they do not, an unruly default looms. Euro zone officials say the full package must be agreed with Greece and approved by the euro zone, European Central Bank and International Monetary Fund before February 15. This is to allow time for complex legal procedures involved in a bond swap deal - under which the value of private investors' holdings of Greek debt will be cut radically in value - so Athens can get rescue funds before March 20 when it has to meet heavy debt repayments or suffer a chaotic default. After days of negotiations, officials said sticking points on cutting the minimum wage and scrapping holiday bonuses appeared to have been largely resolved but the level of cuts on top-up, supplementary pensions still remained. "DON'T BOW YOUR HEADS!" The funds come at the price of deeply unpopular wage and spending cuts that have infuriated ordinary Greeks struggling through the country's fifth year of recession. Tuesday's strike closed tourist sites and the country's biggest port, and disrupted public transport. Scuffles broke out as protesting strikers tried to climb steps leading to parliament, chanting: "Don't bow your heads, show resistance!" Riot police rushed to block their way as some protesters sprayed red paint on the steps and a wall next to the tomb of the unknown soldier, which commemorates the fallen in past Greek campaigns. Other protesters burned a German and a Nazi flag. Ceremonial guards in traditional Greek kilts, a top Athens tourist attraction, were evacuated and the protesters were pushed back on to the adjacent Syntagma Square, where riot police created a defensive line. However, the turnout was noticeably smaller than at other protests in recent months, with heavy showers dampening the marchers' spirits. One civil servant watching the protests expressed a weary anger at the austerity imposed already, which has almost halved her monthly pay to 900 euros, and higher taxes. "I wouldn't mind paying for the next two years if I knew austerity would take us somewhere," said 32-year-old Leto Papadopoulou. "But this crisis seems endless. In 10 years from now, I will be a lost case for the labor market." ($1 = 0.7646 euros) (Additional reporting by Ingrid Melander , Yannis Behrakis , Karolina Tagaris and Harry Papachristou in Athens, Gareth Jones , Stephen Brown and Andreas Rinke in Berlin and Sara Webb in Amsterdam; Writing by David Stamp and Deepa Babington ; Editing by Mike Peacock)

UBS warns of poor Q1 as investment bank struggles

Tue Feb 7, 2012 1:02pm EST

http://www.reuters.com/article/2012/02/07/us-ubs-idUSTRE8160AA20120207

ZURICH - Swiss bank UBS predicted further weakness in investment banking after a restructuring of the business failed to prevent an earnings hit from the euro zone debt crisis and worries about the global economy.

"Traditional improvements in first-quarter activity levels and trading volumes may fail to materialize fully, which would weigh on overall results for the coming quarter, most notably in the investment bank," UBS said on Tuesday. The bank said fourth-quarter net profit shrank to 393 million Swiss francs ($425.95 million) from 1.66 billion francs in the 2010 period and compared with a forecast for 737 million in a Reuters poll. Investment banks had a torrid time last year as trading and advisory income was hammered as clients pulled back from markets due to the euro zone debt crisis, and stopped doing deals. The outlook is set to remain dour as tougher regulations and economic slowdown bite. U.S. rivals including Goldman Sachs and JPMorgan posted weak fourth quarter income, and Deutsche Bank also fell to a fourth quarter loss due to a slump in bond trading. UBS, which announced in November it would scale back its investment bank business to focus on its flagship private bank, said it had cut risky assets by 20 billion Swiss francs in the fourth quarter with "no significant impact on profitability." Kepler Capital Markets analyst Dirk Becker welcomed the reduction in risky assets but said there were still questions over the future of the investment bank. "Revenues have recovered from the really poor third quarter levels, but are still too low to feed a division with still over 17,000 employees," he said. "The downsizing plans of the management will reduce this revenue base further and make it impossible to achieve satisfactory returns for this division, which will still consume the largest part of the capital." Shares in UBS fell 2.8 percent in afternoon trade. UBS said it saw a few "bright spots" in the performance of its investment bank, including foreign currency trading, short- and long-term rates and cash equities in Asia-Pacific. The unit, hit by a $2 billion rogue trader scandal uncovered in September, pared its pretax loss to 256 million from a loss of 650 million the previous quarter. UBS said it was making progress on delivering on plans to cut total headcount by almost 4,000, with total staff down 1,101 in the quarter to 64,820 at the end of 2011, but said it would have to slash more costs if market conditions worsen. WEAKER PRIVATE BANK Meanwhile, the private bank failed to show it can pick up the slack from UBS's fading investment bank ambitions. Pretax profit and revenue both shriveled, in large part because clients shunned trading and investments amid market turmoil and uncertainty over Europe's debt and the U.S. budget deficit. UBS, which missed its own private banking margin target by far, appears to be sacrificing short-term profits in favor of a payout later and restoring its credibility as a trusted advisor to the wealthy. UBS's reputation has been battered by a series of scandals, beginning with an in-house hedge fund which gorged on U.S. mortgage securities and a messy U.S. probe into offshore accounts, and most recently, an alleged rogue trader. Now, the bank is advising many clients to be cautious in view of the euro zone troubles, arguably at the expense of revenue from fees and commissions, which live from client activity. "I certainly don't think the third and fourth quarter are the new normal. It could be around for another quarter or so, but I don't believe that is the environment of the future," UBS's financial head Tom Naratil said. Inflows at the UBS flagship private banking arm slipped to 3.1 billion Swiss francs in the fourth quarter from 3.8 billion in the previous quarter, while the gross margin on invested assets fell 6 basis points to 91 basis points. UBS stressed its eurozone exposure was relatively low, in comparison to Deutsche Bank which recently posted a fourth-quarter loss amid one-off charges such as Greek debt writedowns into the quarter. The trading scandal surrounding former UBS trader Kweku Adoboli will linger as he is set to stand trial in September after pleading not guilty to trades the Swiss bank says were unauthorized. UBS said investment banking head Carsten Kengeter would voluntarily forgo a bonus for 2011 after the scandal, while total bonuses for the bank will fall 40 percent and 60 percent in the investment bank. The bank is amortizing roughly 300 million francs this year for bonuses, in a bid to appease select managing directors at UBS's investment bank in areas including deal advisors, forex trading and leveraged loans buyouts. UBS said it had been granted some immunity by Switzerland's antitrust authority in return for cooperating with its probe into the potential manipulation of LIBOR. [ID:nL5E8D71M6] Several countries are investigating "improper attempts" to manipulate LIBOR rates, which is the benchmark price big banks set for interbank borrowing costs. WEKO said last week it was investigating 12 banks, including UBS. [ID:nL5E8D30I7] ($1 = 0.9227 Swiss francs) (Writing by Emma Thomasson ; Editing by Sophie Walker and Jon Loades-Carter)

Yum profit up as China keeps growing

Mon Feb 6, 2012 7:45pm EST

http://www.reuters.com/article/2012/02/07/us-yum-idUSTRE81524320120207

- KFC parent Yum Brands Inc ( YUM.N ) reported fourth-quarter earnings that topped Wall Street's view after accelerating sales and operating profit at established restaurants in China helped ease worries that growth in its top market was slowing.

The shares of the fast-food chain, which are up more than 25 percent from a year ago and trading around all-time highs, were up 2.3 percent to $64.62 in extended trading after Yum also reported better-than-expected restaurant sales growth in up-and-coming international markets. "They demonstrated once again that they're one of the best consumer plays on emerging markets," said Tucker Brown, research principal at Sustainable Growth Advisors, which holds Yum in its SGA Global Growth Fund. China - the world's fastest growing major economy - is Yum's biggest earnings driver, accounting for just over 40 percent of overall profits. Yum's unexpectedly strong 21 percent gain in sales at established restaurants in China took many analysts by surprise. That result overshadowed an expected but still sharp rise in food and labor costs, which took a bite out of margins during the fourth quarter. "I think the topline growth in China trumped the cost pressures in this case," Morningstar analyst R.J. Hottovy told Reuters. Recent price increases also helped the company deliver a 15 percent operating profit for its China division and should help sustain high-quality growth, Brown said. During the third quarter, Yum's China same-restaurant sales rose 19 percent and operating profit was 7 percent. Based in Louisville, Kentucky, the company has almost 4,500 restaurants, mostly KFC outlets, in China. In 1987, it was the first Western fast-food brand to enter China and now has far more restaurants than competitors such as McDonald's Corp ( MCD.N ) and Starbucks Corp ( SBUX.O ). Yum's other brands in China are Pizza Hut, East Dawning and Little Sheep, in which it has a controlling stake. China's government is attempting to gently cool the country's red hot economic growth, a prospect that has investors on edge because the growth helps underpin the global economy. A Reuters poll in January showed China's economic growth is likely to moderate to 8.4 percent from 2011's 9.2 percent as demand at home and abroad slackens. PROFIT BEAT Yum's net income in the fourth quarter ended December 31 grew 30 percent to $356 million, or 75 cents per share -- topping analysts' average view by 1 cent, according to Thomson Reuters I/B/E/S. Same-restaurant sales at Yum Restaurants International (YRI) were up 3 percent during the quarter. That division included Yum's other non-U.S. markets such as France, India and Russia. Beginning in the first quarter, India will become a separate business segment at Yum. While Yum's business is robust in international markets, it has been working on a turnaround in its U.S. business. Yum's overall sales at U.S. restaurants open at least one year were up 1 percent in the fourth quarter. That included an expectations-topping 6 percent rise at Pizza Hut and declines of 2 percent at Taco Bell and 1 percent at KFC. The overall growth of 1 percent "should be seen as a victory for the chronically underperforming U.S. segment of the business," said Channing Smith, managing director of Capital Advisors, which holds Yum in its Capital Advisors Growth Fund. He recommended that investors use any pullbacks in Yum's stock price to build a position in the company. (Reporting By Lisa Baertlein in Los Angeles; editing by Andre Grenon , Phil Berlowitz)

Swiss central banker a euro crisis Nostradamus?

Tue Feb 7, 2012 10:35am EST

http://www.reuters.com/article/2012/02/07/us-eurozone-crisis-swiss-idUSTRE8161GJ20120207

ZURICH - Nearly two decades ago, the man now likely to become the head of Switzerland's central bank foresaw the neighboring euro zone's troubles in a doctoral thesis, saying the likes of Ireland, Italy and Greece would not be able to control their debt.

Vice Chairman Thomas Jordan, who has served on the Swiss National Bank's governing board since 2007 and is currently interim chairman, also said a currency union gave some states the incentive to load up on debt and could lead to a banking crisis. Jordan was thrust into the limelight last month when SNB chairman Phillip Hildebrand stepped down amid an uproar over a currency trade made by his wife. In his dissertation for the University of Berne, published in 1994, roughly eight years before Europeans handled their first euro notes and coins, Jordan prophetically warned of strained public finances in exactly those countries that have actually needed a bailout or where debt levels seem particularly precarious. "Achieving the 60 percent debt limit is hardly possible for Belgium, Ireland, Italy and Greece," he wrote. "Italy and Greece need to undertake major steps even to stabilize their debts." Jordan is far from the only economist to express reservations about Europe's common currency, especially because the bloc lacked a fiscal union. But his views are significant because he is likely to become SNB chairman, in charge of defending a cap of 1.20 per euro on the Swiss franc. The cap was introduced in September to stop the currency soaring as investors sought a safe haven from the euro zone crisis. Ernst Baltensperger, who supervised Jordan's thesis, said the fact it reads like a story of what actually transpired demonstrated his capacity to combine sharp analysis and policy judgment. "A careful reading of his thesis further shows his great intellectual independence and tenacity in pursuing and developing complex arguments," Baltensperger said. PRESCIENT VIEW When countries with varying levels of debt form a currency union, interest rates for those with relatively low borrowings rise while they fall for those with high debts, Jordan wrote. This raised the incentive for countries with high debts to borrow more within a bloc than they would alone. Yet because of the currency union, governments also lost the ability to monetize debts via inflation or debasement. Exactly this has happened, leading to huge debt problems in Greece, Portugal, Spain, Italy and Ireland and stress elsewhere. "The inability of a state to pay its debts could lead to a banking and financial crisis if these institutions hold large portions of national debt," Jordan wrote, forecasting investors' current anxiety about the large sums of Greek debt held by banks and insurers across Europe. Among the most controversial episodes of the now two-year-old debt crisis is the European Central Bank's controversial decision to buy the bonds of troubled sovereigns. Jordan explained in his thesis that if the financial system were to seize up due to a government's inability to fund itself, the central bank would have to act as a lender of last resort and effectively bail out the insolvent state. "When a member state faces severe problems, the union, which is fundamentally a community of solidarity, cannot avoid giving financial assistance," he said. (Reporting by Catherine Bosley; Editing by Jeremy Gaunt )

Factbox: Glencore deal to buy Xstrata

Tue Feb 7, 2012 3:27am EST

http://www.reuters.com/article/2012/02/07/us-glencore-xstrata-factbox-idUSTRE8160ID20120207

- Glencore is to buy the two thirds of Xstrata it does not own for an agreed 26.1 billion pounds ($41 billion) in an all-share deal creating a commodities powerhouse spanning mining, agriculture and trading.

Following are details of the transaction: * Glencore, the world's largest diversified commodities trading house, will issue 2.8 new shares for each Xstrata share. * That valued Xstrata shares at 1,290.1 pence, based on Monday's close, for a 15.2 percent premium to their price last week before talks between the two companies were announced. * The number of Xstrata shares in issue is 2,964,692,076, of which 1,010,403,999 are held by Glencore. * A further 66,257,054 Xstrata shares will be created by the exercise of options linked to deferred bonus schemes, etc, giving a total of 3,030,949,130. * That fully diluted total number of shares values Xstrata at 39.1 billion pounds, based on Glencore's close at 460.75 pence on Monday and the 2.8 exchange ratio. * Glencore, which has 6,922,713,511 shares in issue, will have to pay 5,657,526,366 new shares for the Xstrata shares it does not own. Those new shares were worth 26.1 billion pounds, based on Monday's close. * The enlarged Glencore will have around 12.6 billion shares, of which Xstrata shareholders other than Glencore will own 45 percent. * The enlarged company will have a market value of around 58 billion pounds based on Monday's closing prices. ($1 = 0.6331 pound) (Reporting by Dan Lalor, Editing by Mark Potter)

Portugal sell-off still has juicy bits: advisor

Tue Feb 7, 2012 8:10am EST

http://www.reuters.com/article/2012/02/07/us-portugal-privatisations-idUSTRE81613C20120207

LISBON - Portugal's state sell-off plan still has companies that are likely to lure investors, after the successful sale of stakes in two major firms which defied the impact of the debt crisis, an advisor to the process said on Tuesday.

Privatizations make part of the terms of a 78 billion euro ($102 billion) EU/IMF bailout program for Portugal and, unlike Greece, the Iberian country has managed to crank up the process quickly and sell some prized assets. Jorge Cardoso, CEO of Caixa Banco de Investimento, which advised the government on the sale of stakes in power utility Energias de Portugal and power grid operator REN, said airport infrastructure management firm ANA and airline TAP were likely to easily find buyers. "We have the conditions to attract sizeable international interest for some of the assets like TAP and ANA, especially ANA," Cardoso told reporters. "There is quite a bit if interest in ANA and TAP has a lot of interesting routes." This year, Portugal plans to sell a small stake still owned by the state in oil company Galp, as well as wholly privatize ANA, TAP, postal service CTT and the cargo service of the national railway company Comboios de Portugal. It also plans to sell part of its stakes in water utility Aguas de Portugal and the insurance arm of state-controlled bank Caixa Geral de Depositos. Last week, Portugal agreed to sell a quarter of power grid operator REN to China State Grid and 15 percent to Oman Oil for a total of 592 million euros ($781 million), despite recent concerns that Portugal may follow Greece in restructuring its debts. Last month, China Three Gorges, the state-owned operator of the world's largest hydropower project, paid 2.7 billion euros for a 21 percent holding in EDP, also promising additional investment in EDP's wind energy parks. "These deals were emblematic, they were good and put Portugal on the radar," Cardoso said. He acknowledged TAP's sale was likely to be more complicated than that of ANA because an airline is a "more complex asset, but with a well-managed process one can find buyers." The remaining assets to be sold are "more domestic businesses, which are regulated and stable, making them attractive as well," he said, singling out CTT and CGD's insurance businesses. ($1 = 0.7646 euros) (Writing by Andrei Khalip; Editing by David Holmes )

AIG reviewing succession as chairman takes new job

Tue Feb 7, 2012 2:49pm EST

http://www.reuters.com/article/2012/02/07/us-aig-idUSTRE81620W20120207

BOSTON - Bailed-out insurer American International Group ( AIG.N ) will review its succession plans after its chairman accepted a job as the chief executive of an airplane maker, the company said on Tuesday.

AIG CEO Bob Benmosche has been in treatment for cancer since late 2010. Chairman Steve Miller was to become interim CEO if Benmosche were unable to continue with the job. But on Tuesday, business plane maker Hawker Beechcraft named turnaround expert Miller its chief executive, effective immediately. "The board has an active succession planning process and will be assessing its plans in light of Mr. Miller's announcement," AIG said in a statement, adding that he will remain chairman of the board. AIG's succession plan was a hot topic in late 2010 and early 2011 as the company tried to execute a recovery plan following its $182 billion government rescue. Benmosche has been widely acknowledged as key to that plan. But he has remained in good health and has indicated a desire to remain with the company and in the job, making succession less of an issue. Miller is one of the most heralded turnaround experts in the country, having led companies like Delphi Corp, Bethlehem Steel and Waste Management in recent decades. AIG shares fell 8 cents to $26.72 in afternoon trading. The stock lost half its value last year but has rebounded sharply in 2012. Even so, it remains roughly $2 below the U.S. Treasury's break-even point on its 77 percent stake in the company. (Reporting By Ben Berkowitz ; editing by Mark Porter )

Watchdogs to drag shadow banks into the light

Tue Feb 7, 2012 11:41am EST

http://www.reuters.com/article/2012/02/07/us-banking-shadow-idUSTRE81610Z20120207

LONDON - Beyond the reach of regulators, and about half the size of the world's banking industry, a thriving breed of "shadow banks" is emerging that could trigger the next chapter in the global financial crisis.

Spurred by this concern, the watchdogs are turning their attention to the fringes of the global financial system, where hedge funds and money market funds are filling the gaps left by retreating banks. "In America, increased financial activity is taking place between non-banks which are subject to little or no regulation, and Europe is catching up fast," said Godfried De Vidts, director of European Affairs a ICAP, a brokerage firm that trades only with large professional clients, such as investment banks. The effort is the latest attempt by regulators to make the financial system safer, four years after the start of the global banking crisis. This has already led to a rewriting of the rules that will change the face of banking for good. Tough new rules on capital requirements for banks -- known as Basel III -- are forcing banks to increase their safety buffers, while the U.S. "Volcker rule" bans overly risky bets by banks on financial markets. And opaque unlisted derivatives will have to be traded on exchanges in the future, rather than directly between banks in "over the counter" deals. But despite these efforts, large swathes of the financial system remain outside the remit of the regulators, even though they provide essential funding to banks, and were at the heart of the global financial crisis. This sector, known as "shadow banking" -- much to the chagrin of the people operating in it -- is huge. The size of the sector was some $60 trillion in 2010, making it as big as roughly half the global banking industry. "Shadow banking is not really well named. It would be preferable to have a better description of what is a wide range of non-bank intermediaries. As it stands, it sounds a bit pejorative," said ICAP's De Vidts. A run on its funds is as much a real risk for a shadow bank as it is for a normal bank, regulators say, and could have devastating consequences for the global financial system because the two sectors are so closely linked. Paul McCulley, the former PIMCO portfolio manager credited with coining the expression "shadow banking," warned as early as 2009 that the system "drove one of the biggest lending booms in history, and collapsed into one of the most crushing financial crisis we've ever seen." Governments stood behind their banks when the interbank lending market dried up at the onset of the crisis, bailing them out with billions of dollars to protect depositors. But shadow banks would have no such fall-back option. POLITICAL TARGET Another risk identified by the Financial Stability Board (FSB)- the powerful body mandated by the G20 group of the world's richest economies to draw up new rules for shadow banking - is that they could be used to avoid financial regulation and attract risky activities that are banned elsewhere. "What we're doing now is looking at the types of data that the FSB will be gathering. The scope is pretty broad but it's important to get the facts on table and consider what activities could pose a risk," said Rick Watson at the Association for Financial Markets in Europe (AFME), a group that lobbies on behalf of securities firms and investment banks. The FSB has signaled a two-pronged approach to regulating shadow banking, with tough rules such as possible capital charges and limits on the size and nature of a mainstream bank's exposure to shadow banks. Other shadow banking activities which are seen as less systemically risky could face greater transparency requirements. Critics of this regulatory drive say that the definition the FSB uses to describe shadow banks is intentionally vague, allowing them to probe and potentially regulate corners of the financial universe that are seen as harmless. "The politicians want a reason for the crisis and shadow banking seems to be the target," said Richard Comotto, an academic at the ICMA center at Reading University. Much of the debate centers around collateral - securities such as bonds or shares that guarantee a loan much in the same way as a property in a mortgage - which has become scarce after the crisis, making it harder for banks to lend. The unsecured interbank lending market has almost completely dried up because banks have stopped lending to each other, so banks need more collateral to continue lending to clients. Much of this originates in shadow banks. Europe's banks for instance, are paying insurers and pension funds to take bonds that are hard to sell in exchange for better quality ones, in a desperate bid to secure much-needed cash from the European Central Bank (ECB). And blue-chip companies like Johnson & Johnson, Pfizer and Peugeot are among firms providing cash to banks, in a reversal of the established roles of clients and lenders. These deals between companies and banks take place in the so-called repo market, another large part of shadow banking, used to raise short-term funding against collateral. NO LOBBYING Money market funds - which pool money from largely institutional investors to put it in low-risk financial assets and that resemble deposits in a bank - are particularly worried they may be subject to tighter rules. "A money market fund is an investment product. It's not a bank and it's not bank-like," said Jonathan Curry who heads up HSBC Global Asset Management's $75 billion money market business. "The investors in the fund, they are the ones who bear the risks of the underlying investments - not the provider and not the broader financial system." The repo market, which in Europe alone is roughly 6 trillion euros in size, is another explicit target for the FSB, which has suggested these markets need the help of clearing and settlement houses to reduce risk. People working in the repo industry say the instruments themselves are safe and regulators should instead focus on the way banks use them. But many bankers are unwilling to take a public position, as the FSB has started working on the matter. Behind-the-screens discussions are already taking place with people in the industry. That meant banks have little to gain from picking a battle over shadow banking, said Karen Peetz, vice chairman at Bank of New York Mellon, a large player in the repo market. "We know they are examining it because it potentially creates a competitive divide for those that are heavily regulated and those that aren't," she told Reuters. (Additional reporting by Sinead Cruise ; Editing by Alexander Smith and Giles Elgood )

PIMCO's El-Erian favors bonds, gold

Tue Feb 7, 2012 12:07pm EST

http://www.reuters.com/article/2012/02/07/us-pimco-bonds-idUSTRE8161AE20120207

NEW YORK - Given the fragile state of the global economy and brewing geopolitical risks, investors should be underweight equities while favoring "selected commodities" such as gold and oil, Mohamed El-Erian, CEO and co-chief investment officer of bond fund giant PIMCO, told CNBC on Tuesday.

El-Erian also said that bond investors should "concentrate exposures seven years and within because that's what the Fed can secure in terms of the yield curve." He added that investors should be "careful of the long end of the yield curve, which is more vulnerable." With the Standard & Poor's 500 index up 6.6 percent this year, investors have grown cautious ahead of the outcome of discussions on a bailout package for Greece that would help the country avoid a chaotic default. Aside from Greece, investors have also been keeping close eye on Iran. Tension with the West rose last month when the United States and the European Union targeted Iranian oil exports in their efforts to halt Tehran's suspected quest for an atomic bomb. Regarding positive U.S. economic data, El-Erian said it was too premature to "declare victory" after the Labor Department's latest employment data, which showed 243,000 jobs created in January, because of the "headwinds" of geopolitical risk in Iran and European debt issues. El-Erian contrasted the situation in Europe from the Lehman Brothers collapse in 2008, and said that while central banks "have become much more proactive" with refinancing operations, the current economy may not be as prepared for economic shock. Regarding the "Lehman moment," El-Erian said, "If you define it as the economy being able to take the shock, that's in fact a higher risk because we are in a worse place than we were in '08." (Reporting by Sam Forgione; Editing by Chizu Nomiyama and W Sion)

BlackRock's top lawyer to leave company

Tue Feb 7, 2012 10:37am EST

http://www.reuters.com/article/2012/02/07/us-blackrock-counsel-idUSTRE8161GP20120207

- The top lawyer at BlackRock Inc ( BLK.N ) is leaving the company, a spokeswoman at the global asset management firm confirmed.

Robert P. Connolly, who joined BlackRock as general counsel in 1997, announced his retirement internally about two weeks ago, according to Bobbie Collins, a BlackRock spokeswoman. Connolly is staying temporarily to help with the transition of his responsibilities, Collins said. Circumstances surrounding his exit were unclear. Connolly's departure is abrupt, according to people familiar with the matter, who said that internal conflicts factored into the decision. Efforts to reach Connolly on Tuesday were unsuccessful. Matthew Mallow, a former partner at Skadden Arps, Slate, Meagher & Flom LLP, is now serving as interim general counsel, she said. Mallow joined BlackRock as a senior adviser in 2010, she said. (Reporting By Suzanne Barlyn and Jessica Toonkel; editing by Mark Porter )

January deficit fell sharply to $27 billion: CBO

Tue Feb 7, 2012 2:24pm EST

http://www.reuters.com/article/2012/02/07/us-usa-deficit-idUSTRE8161WV20120207

WASHINGTON - The budget deficit shrank by nearly half in January compared to a year earlier as tax collections from individuals rose and outlays fell, the Congressional Budget Office said on Tuesday.

The CBO said it expects the Treasury Department to report a $27 billion deficit for January, versus a $50 billion deficit in January 2011. The January budget gap will bring the total deficit for the first four months of fiscal 2012 to $349 billion, a decrease of about $70 billion from the same period of fiscal 2011. The CBO last week predicted that the United States would rack up a $1-trillion-plus deficit for a fourth straight year, forecasting a $1.08 trillion gap for fiscal 2012, which ends on September 30. The fiscal 2011 U.S. deficit was $1.3 trillion. January U.S. receipts were up about $9 billion, or 4 percent from a year earlier, largely because of higher withholdings of individual income and payroll taxes, CBO said. Outlays were $13 billion, or 5 percent, lower in January 2012 than they were a year earlier. But because of the New Year's holiday, some benefit payments were shifted into December, reducing outlays during the month. Were it not for these timing changes, the January deficit would have been slightly higher at about $31 billion, CBO said. The Treasury is expected to report official January budget details on Friday. (Reporting By David Lawder ; Editing by Chizu Nomiyama )

Feuding Greek leaders united by desire to avoid blame

Tue Feb 7, 2012 11:14am EST

http://www.reuters.com/article/2012/02/07/us-greece-leaders-idUSTRE8161KM20120207

ATHENS - With the eyes of an impatient Europe on them, Greece's feuding leaders are united by a desire to avoid blame for the harsh austerity required to save their country from a catastrophic default.

Analysts say that despite their posturing, the leaders of the conservative New Democracy party, the centre-left PASOK socialists and the far-right LAOS nationalists, which back Lucas Papademos' government, will ultimately accept the bailout terms demanded by the European Union and the International Monetary Fund to avert chaos. But some want to dump the internationally respected Papademos and revert to politics as usual as soon as the money is in the bank, while others want to keep him in office for tactical reasons. Antonis Samaras, 60, New Democracy's leader, is battling to distance himself from unpopular austerity measures and trying to force an early general election shortly after a planned March bailout while his party is ahead in the polls. "A very important consideration in his movements and calculations is his great desire to become the next prime minister," said Theodore Couloumbis, professor of international relations at the University of Athens. "The last thing he wants is to be blamed for an unruly default for Greece, whose consequence would be an exit from the euro zone and later from the EU." Samaras' strategy of denouncing austerity has helped New Democracy recover surprisingly quickly from a disastrous election defeat in October 2009 and the subsequent revelation that its government had concealed a gigantic budget deficit. Since Athens received its first EU/IMF bailout in 2010, he has steadfastly refused to support tax rises, pay and pension cuts required by international lenders and has been very reluctant to give written undertakings to back such steps in future, despite pressure from German Chancellor Angela Merkel and other EU conservatives. "Greece needs a strong medicine but the one administered was the wrong one since it did not allow for any recovery," Samaras told Reuters in an interview last month. "What we need to do now is reduce tax rates and implement structural changes so as to speed up deficit cutting and recovery." New Democracy is hoping to win an absolute majority in a general election which Samaras wants held on April 8, but with 30 percent support in opinion polls it is not quite there yet. PASOK AT HISTORIC LOW The two other party leaders in the room - PASOK's George Papandreou and LAOS' George Karatzaferis - are keen to ensure that Samaras shares responsibility for the unpopular measures, and to keep Papademos in office and defer an election. Papandreou, 59, resigned as prime minister in November after an attempt to organize a referendum was met with anger among socialist lawmakers tired of taking responsibility for pay and welfare cuts that hit their core supporters in organized labor, the public sector and the rural poor. The party's popularity has slipped to a mere 12 percent, the lowest since his father, Andreas, founded PASOK 36 years ago. While he has made clear he will not seek re-election as party leader in a ballot expected soon, Papandreou remains influential and still controls a large number of PASOK deputies. To vindicate his past decision and policies, Papandreou is now trying to make the Papademos government work. He wants the technocratic premier to stay in office as long as possible, possibly even until 2013, to give PASOK time to recover. Ironically, Papandreou and Samaras went to the same elite Athens high school and were room-mates at Amherst College in Massachusetts in the mid-1960s. But their personal relations have soured in the last two years of rivalry, in which Samaras maneuvered to help force Papandreou's departure. Finance Minister Evangelos Venizelos, 55, the key negotiator with Greece's creditors seen as best placed to win the PASOK leadership, has staked his political future on a successful outcome to the bailout talks. "If the talks fail, bankruptcy would entail even more sacrifices... Too many people spend their force on conventional, petty party politics as if nothing has happened, as if we are still in the year 2009 or 1999," he said on February 6. Political analyst Couloumbis said the finance minister, a brilliant orator and constitutional lawyer, needed a successful, early outcome of the talks as a springboard for his leadership ambitions. FAR RIGHT STAKE The far right also has a stake in a deal that keeps the temporary national unity government in office longer. Karatzaferis, 64, a former New Democracy lawmaker, entered government to try to give respectability to the anti-immigration People's Orthodox Rally (LAOS) that he founded in 2000. His deputies were the only ones who were visibly happy when Papademos was sworn in. The former bodybuilder and journalist, who once ran a modeling agency, wants to keep the government going as long as possible to boost LAOS' ratings, which are still in the high single figures, and make it an indispensable coalition partner. "His main concern is to be playing a significant role in a future coalition government," Couloumbis said. Karatzaferis too has sought to distance himself from austerity, writing in an open letter to the EU authorities: "Reform cannot happen at gunpoint, especially when it requires the participation of the complex structure of an entire society. It is a time bomb for the entire western world." Papademos, 64, a former Greek and European central banker, is widely respected in public opinion but has struggled to exert authority over the hard men of Greek politics despite having the support of international lenders. "Since he has not been involved in politics he does not suffer from the public fatigue with Greek politicians. They look at him as a Mario Monti type of person, who does not have the kind of support that would have permitted him to have a small technocratic government rather than this huge circus of 50 people or so in his cabinet," Couloumbis said. (Writing by Paul Taylor; editing by Janet McBride )

Toyota raises annual profit forecast, eyes recovery

Tue Feb 7, 2012 6:54am EST

http://www.reuters.com/article/2012/02/07/us-toyota-idUSTRE81524J20120207

TOKYO - Toyota Motor Corp raised its full-year profit forecast by more than a third as it cuts costs, trims spending and expects Japanese government schemes to boost sales, though the guidance was still some way below analysts' expectations.

Japan's No.1 automaker now expects operating profit - earnings from its core operations - for the year to end-March of 270 billion yen ($3.5 billion), a drop of 42 percent from last year, and lagging a consensus forecast of 331 billion yen from 23 analysts surveyed by Thomson Reuters I/B/E/S. Toshiyuki Kanayama, senior market analyst at Monex Securities, said the revised profit guidance was a bit of a disappointment. "But the market is looking at the next financial year. The key for Toyota shares will be whether profit (next year) will rise to around 800 billion yen." Toyota, which has a market value of $135 billion -- more than rivals Honda Motor Co Ltd, Nissan Motor Co Ltd and Suzuki Motor Corp combined -- raised its annual forecast for net profit, which includes earnings made in China, by 11 percent to 200 billion yen. October-December operating profit jumped 51 percent to 149.7 billion yen ($1.95 billion) from a year earlier, well ahead of the average estimate of a small decline to 93.9 billion yen. Those results defied the impact of a stronger yen and the disruption to production and supply chains from widespread flooding in Thailand late last year that battered Toyota just as it was recovering from the March earthquake in Japan. Toyota reckons the Thai floods will cost it 240,000 vehicles in lost production worldwide, allowing General Motors Co and Volkswagen AG to overtake it in 2011 vehicle sales. Quarterly net profit slid 13.5 percent to 80.9 billion yen. With the two natural disasters mostly behind it, Toyota expects its sales to jump by more than a fifth this year to a record 9.58 million vehicles, including subsidiaries Daihatsu Motor Co and Hino Motors Ltd. All its car factories, bar Thailand, are back at full speed. "It's premature to talk about any (sales) trends by looking only at our performance from last year when we had all those natural disasters," Toyota President Akio Toyoda told reporters last week. "I would want Toyota to be measured on how we do this year, provided it's a peaceful one." Senior Managing Officer Takahiko Ijichi said Toyota aimed to increase sales in China, the world's biggest market, by around 14 percent to more than 1 million vehicles this year. He expects competition, particularly in North America, to be tough. "The Big Three have improved their financial standing quite a bit, partly thanks to support from the government. Their cars are also getting better, and in that sense the competitive landscape has gotten a lot tougher," Ijichi said, referring to Ford Motor Co, General Motors and Chrysler Group LLC. "Korean brands are also pushing hard, so, for Toyota and Japanese brands, it's a very tough race." Still, Ijichi said Toyota's 19 new or refreshed models due in the United States this year should help it recover lost ground after a difficult 2011. YEN WEIGHS With the dollar trading at 76-77 yen, Toyota's Achilles' heel remains its heavy exposure to Japan. Toyota last year built 2.76 million cars at home, accounting for one-third of Japan's total vehicle production. It exported 57 percent of that, much of it at a loss. A plan to return its Japan-based parent operations to break-even assumes a dollar rate of 85 yen. "Compared with Honda and Nissan, the pace of Toyota's profit recovery is very slow," said Koji Endo, analyst at Advanced Research Japan. "The issue of high fundamental costs appears not to have improved at all." Last week, Honda reported weak profits hit hard by the twin natural disasters, but flagged a big leap next year. Nissan, Japan's No.2 automaker, reports on Wednesday. Toyota is scrambling to make its domestic factories more efficient to keep its promise of building at least 3 million vehicles a year at home. Ijichi said the company was also looking to import more components for Japan-made cars, setting up a special task force to speed up those efforts. Toyota now sources "a few percent" of its parts from abroad, he said. For now, Toyota is counting on Japan's re-instatement of cash-for-clunkers subsidies and the extension of tax incentives to ease some of the pain at home. The incentives particularly benefit hybrids and other cars that use new technologies. Its newest Aqua hybrid received orders equivalent to 10 times the sales target in its first month. Toyota shares have risen 28 percent since the market's trough in late-November, and Monday touched a 6-month high. Tokyo's main Topix index is up 10 percent over the same period, while Nissan has gained 16 percent and Honda 29 percent. Ahead of the results Tuesday, Toyota shares closed flat at 2,986 yen, and the Topix gained 0.4 percent. ($1 = 76.5850 Japanese yen) (Additional reporting by Hideyuki Sano , Yoko Kubota and James Topham ; Editing by Matt Driskill and Ian Geoghegan )

Banks face exposure issues on Glencore-Xstrata merger

Tue Feb 7, 2012 1:17pm EST

http://www.reuters.com/article/2012/02/07/us-glencore-xstrata-loans-idUSTRE8161V120120207

LONDON - Glencore and Xstrata may have to put in place new multibillion dollar loans if their proposed $90 billion merger goes ahead, to help banks manage their huge exposures to the mammoth company, banking sources said on Tuesday.

The two companies are some of the biggest borrowers of syndicated loans globally. Banks have already lent billions of dollars to them and a combined group would blow through lending limits. "The combined company would have to do something with its loans. We have $1 billion out to both companies which we would have to reduce to $1 billion to stay within ratings limits," a senior banker said. Glencore's 34.4 percent ownership of Xstrata may avoid triggering change-of-control provisions which would normally force a loan renegotiation. But while the companies do not have to raise fresh debt to fund the merger, they are likely to have to recast their existing loans for the sake of their lenders. Banks are restricted in the amount of exposure they can have to individual companies, sectors, countries and regions to help avoid concentration risk. Glencore is rated BBB and Baa2 while Xstrata is rated BBB+ and Baa2 by Standard & Poor's and Moody's, which could further limit banks' exposure, although lenders may be able to make temporary exceptions. SINGLE NAME "Banks would be willing to waive single-name concentration risk for a while and work it out with the company," a banker said. Both companies are listed in the UK and may also have to show the UK regulator certainty of funds for the merger, banking sources said. Banks are talking to the companies and have indicated they are available when plans are clearer. A financing of $8 billion or more could emerge by May, two bankers said. Citigroup and Morgan Stanley are advising Glencore. Deutsche Bank, JP Morgan, Goldman Sachs and Nomura are advising Xstrata. Glencore signed a $11.875 billion loan refinancing in May 2011, which consisted of a $3.54 billion, 364-day revolving credit and a one-year extension to an existing $8.34 billion, three-year loan. The company has net debt of $12.9 billion. Xstrata, which has net debt of $8.1 billion, agreed a new, five-year $6 billion syndicated loan in September 2011 which included two one-year extension options. Banks with exposure to both deals include ANZ Banking Group, Banco Santander, Barclays Bank, BBVA, Citigroup, Commerzbank, Commonwealth Bank of Australia, Credit Agricole CIB, Deutsche Bank, HSBC, JP Morgan, Lloyds TSB Bank, Mizuho Bank, National Australia Bank, Royal Bank of Canada, Royal Bank of Scotland, Standard Chartered, Toronto Dominion Bank and Westpac. The companies may also have bilateral facilities, which may further bump up some banks' exposure. (Editing by David Holmes )

Money fund firms, clients sour on SEC proposals

Tue Feb 7, 2012 4:43pm EST

http://www.reuters.com/article/2012/02/07/us-fidelity-funds-idUSTRE81613T20120207

BOSTON - Fund management firms voiced sharp objections Tuesday to proposals that would tighten regulations on money market funds in an effort to make them more safe.

That outcry comes in response to several proposals the U.S. Securities and Exchange Commission is considering that would significantly alter the $2.6 trillion money-market fund industry. One proposal would allow the value of the funds to float, rather than being fixed at $1 per share as it is now. Another would require investors to stagger withdrawals. They could get 97 percent out at once and the remainder after 30 days. A formal SEC proposal could come within a month, according to mutual fund industry executives. "It definitely has the potential to completely change the economics of the money market fund industry," said Tom Bradley, president of TD Ameritrade Institutional. He added companies would fight rules changes. "This will not happen without a battle," he said. Shares of some major fund companies fell Tuesday in response to news of the potential changes, including Federated Investors Inc and Charles Schwab Corp Fidelity Investments, the nation's largest money-market fund manager, has warned regulators that more than half of its money-fund clients would move some or all of their assets out of the investments if the net asset value of the funds were allowed to fluctuate. Fidelity said a poll of customers found 52 percent of retail investors surveyed would invest less, or stop investing altogether, in money market funds if there were a waiting period on part of their redemptions. Results did not change significantly when the holdback scenario was dropped to 1 percent of redemptions, Fidelity said. Fidelity General Counsel Scott Goebel shared the Boston-based company's research on how investors might react to potential reforms in a February 3 letter to the SEC. Fidelity had $433 billion in money-market fund assets under management at the end of 2011, representing 10.9 million accounts among retail and institutional investors. Peter Crane, president of Crane Data LLC, a company that tracks the money-market industry, said he doubted there will be a permanent holdback on money fund redemptions. "I think the SEC will propose something like the HSBC letter - an emergency holdback that the board can declare if they think the NAV is in danger," Crane said Tuesday. Even though the discussions about the rules are preliminary, investors already have moved money out of some money-market funds after one of them, Reserve Primary, failed to maintain its $1 per share net asset value in 2008. Bradley said many clients are now using Insured Deposit Accounts, or IDAs, some of which are backed by the Federal Deposit Insurance Corp. "We still do have our money market fund," Bradley said. "But for the most part, most of the cash on our platform was moved into the IDA accounts by our clients, and it was done for a reason - you are in a near-zero interest rate environment, nothing is really paying that much and so the cash that is held with us is generally cash that is held on the sidelines in between investments and you don't want to put that at risk . (IDAs) can pay a competitive yield and you get the FDIC insurance, you get that government guarantee." Jason Weyeneth, an analyst at Sterne Agee Asset Management, said in a recent research note that the likelihood of new rules being implemented is reasonably low, given the industry's outcry and the prospect of legal challenges. Nevertheless, money fund managers are on high alert to beat back any more regulation. Reforms being considered by the SEC "could spark retail and institutional investors to pull significant amounts of assets out of money-market mutual funds, leading to unintended consequences for the financial markets and U.S. economy," Fidelity said in its letter to the SEC. Nearly 60 percent of institutional investors surveyed by Fidelity said they would move all or some of their assets out of money funds if the net asset value were allowed to fluctuate. And 47 percent of retail investors said they would do the same. Fidelity and other money market managers oppose more regulations, especially since reforms in 2010 required the industry to hold more-liquid and shorter-duration investments. Fidelity also said it tested the idea of a 1 percent non-refundable redemption fee to be triggered if a fund's share price dipped below $0.9975. Of the retail money-market fund clients surveyed, 70 percent said they would invest less, or stop investing altogether, if they were subjected to that sort of redemption fee. "Given the importance retail investors place on the liquidity feature of money-market mutual funds, it is not surprising that investors reacted so negatively to a potential rule that would restrict access to principal," Fidelity said in its report. (Reporting By Tim McLaughlin, Ross Kerber and John McCrank; Editing by Maureen Bavdek, Alwyn Scott , Gerald E. McCormick and Gunna Dickson)

BofA investor lawsuit wins class-action status

Mon Feb 6, 2012 7:08pm EST

http://www.reuters.com/article/2012/02/07/us-bankofamerica-shareholder-lawsuits-idUSTRE81528D20120207

- Investors suing Bank of America Corp ( BAC.N ) won class-action status for their lawsuit accusing the bank of fraudulently misleading them about the 2008 takeover of Merrill Lynch & Co and the size of Merrill's losses and bonus payouts.

U.S. District Judge P. Kevin Castel in Manhattan on Monday rejected the second-largest U.S. bank's argument that the investors could not prove they suffered losses by relying on materially misleading statements or omissions. Among the other defendants who were also sued and opposed class certification were former Bank of America Chief Executive Kenneth Lewis, former Merrill Chief Executive John Thain, former Bank of America Chief Financial Officer Joe Price, and Bank of America's board of directors. Lewis had won initial praise for saving Merrill from possible collapse when he agreed to buy it on September 15, 2008, the day Lehman Brothers Holdings Inc LEHMQ.PK went bankrupt. But investors later faulted the bank for not disclosing the scope of Merrill's soaring losses, which reached $15.84 billion in the fourth quarter of 2008, before December 2008 shareholder votes on the merger. They also objected to Merrill's having paid $3.6 billion of bonuses despite the losses. Merrill losses forced Bank of America in January 2009 to get a second bailout from the federal Troubled Asset Relief Program, and contributed to a 93 percent drop in the Charlotte, North Carolina-based bank's stock price. The lawsuit consolidated litigation that had been brought nationwide, and names pension funds in Ohio, Texas, the Netherlands and Sweden as lead plaintiffs. It covers a variety of investors who owned Bank of America stock or call options between September 2008 and January 2009. Class certification lets plaintiffs pursue their case as a group, which can cut costs, and can lead to larger recoveries than if plaintiffs were to sue individually. Bank of America spokesman Lawrence Grayson declined to comment. David Hoffner, a lawyer for Thain, had no immediate comment. Lawyers for the remaining defendants and the investors did not immediately respond to requests for comment. AVOIDING WASTE In his ruling, Castel pointed to comments by Lewis on a January 2009 conference call about "much, much higher deterioration" of Merrill assets than expected to support the plaintiffs' claims that Merrill's losses should have been revealed sooner. He also said the record supported claims that the alleged misrepresentations about the bonuses were material. Class certification was also appropriate because litigation of each claim separately "would likely result in wasteful and repetitive lawsuits," he added. Bank of America, Lewis and Price are also defendants in a civil fraud lawsuit led by New York Attorney General Eric Schneiderman. He took over that case from his predecessor Andrew Cuomo, who is now New York's governor. The law firms Bernstein Litowitz Berger & Grossmann; Kaplan Fox & Kilsheimer; and Kessler Topaz Meltzer & Check were named lead counsel for the plaintiffs in the class-action case. Bank of America shares closed Monday up 13 cents at $7.97. They closed at $33.74 on the last trading day before the Merrill takeover was announced, and bottomed at $2.53 on February 20, 2009. The case is In re: Bank of America Corp Securities, Derivative, and Employee Retirement Income Security Act (ERISA) Litigation, U.S. District Court, Southern District of New York, No. 09-md-02058. (Reporting By Jonathan Stempel; Editing by Bernard Orr )

Exclusive: China buys up Saudi, Russian oil to squeeze Iran

Tue Feb 7, 2012 12:38pm EST

http://www.reuters.com/article/2012/02/07/us-china-oil-supplies-idUSTRE8161RG20120207

BEIJING/LONDON - China is scouring the world for alternative oil supplies to replace a fall in its imports from Iran, as it seeks to negotiate lower prices from Tehran, and has been drawing heavily on Saudi Arabia.

Industry sources told Reuters that Beijing had bought the bulk of an increase in crude oil supplies from top oil exporter Saudi Arabia in the last few months. The world's second-largest oil consumer is also importing more cargoes from West Africa, Russia and Australia to replace reduced supplies from Iran. China is the top buyer of Iranian oil, taking around 20 percent of its total exports, but since January it has cut purchases by around 285,000 barrels per day (bpd), or just over half of the total daily amount it imported in 2011. Saudi Arabian output reached 9.76 million barrels per day (bpd) in December, up 360,000 bpd from October, OPEC data show, and has remained near that level in January, according to a Reuters survey. Several sources in the oil industry said China has bought a good part of the extra oil. "On average, Saudi exports went up by 200,000 barrels per day and this went to the East, overwhelmingly to China," said one of the sources, a senior executive with the trading arm of a U.S. oil company. A source familiar with the matter, who declined to be identified by name, also said the kingdom had been supplying about an extra 200,000 bpd to China since November. Oil traders believe Unipec, the trading arm of China's top refiner Sinopec Corp. ( 0386.HK ), has been using a flexibility clause in deals, known as tolerance, to buy more oil under term contracts, especially as Saudi official selling prices in the past two months have been attractive. "Under the current circumstances, it is necessary to use the tolerance to adjust lifting volumes," a Chinese oil trader said. Unipec declined to comment. Official Chinese data also show an increase in crude oil imports from Saudi Arabia in the last few months, but on a smaller scale than the rise given by the industry sources. China imported 1.12 million bpd of crude from Saudi Arabia in December, customs data show, down from 1.17 million bpd in November. That is still up from October's 1.07 million bpd. "GAMBLING' Industry sources were unsure if the trend towards higher supplies from Saudi and others would continue, once China finishes negotiations with Iran over term purchasing contracts. Some traders suspect China's increased buying of alternatives may be a ploy to bolster its bargaining position in the supply talks with Tehran. Iran is keen to secure customers as new EU sanctions banning its oil, designed to discourage the country's nuclear program, add to U.S. measures. Officials from the two countries were expected to hold talks as early as this week in Beijing. "Unipec is gambling now," said a Beijing-based oil trader. "If the Iranian side can compromise and reach a term deal, Unipec will get a large volume of crude at favorable prices, offsetting the premiums it paid to buy alternative oil over the past months." Those alternatives include Unipec's purchase of five Russian ESPO cargoes, or 3.65 million barrels, for March loading at a premium of around $6.00 a barrel to Dubai quotes, traders said. Unipec also bought a cargo of Russian Urals crude, which will arrive in China around March. "ESPO are all spot cargoes and are close to China. Buying ESPO is practical and easy to handle," a trader said. As well as crude, Unipec has bought four shipments of Australian North West Shelf (NWS) condensate and Bayu Undan condensate from the Timor Sea for March to fill in for lower Iranian supplies. A Reuters survey of oil flows from West Africa on Monday suggested Asia's imports of crude from the region are at a record high. Even so, China still needs Iranian oil and even Saudi Arabia and the rest of the Organization of the Petroleum Exporting Countries do not have the capacity to replace it. With production believed to be around 9.75 million bpd in January, Saudi Arabia holds about 2.75 million bpd of idle production capacity to meet any sudden shortages - less than Iran's output of 3.5 million bpd. Saudi holds the world's only significant unused capacity. "Iranian crude is important," said an official at a Chinese state oil firm, who declined to be identified. "It is not very easy to replace all Iranian crude." (Additional reporting by Nidhi Verma in New Delhi, Chen Aizhu in Beijing, Francis Kan in Singapore and Peg Mackey in London; Editing by Anthony Barker)

Schroders plans to vote against Xstrata-Glencore deal

Tue Feb 7, 2012 4:58am EST

http://www.reuters.com/article/2012/02/07/us-schroders-xstrata-idUSTRE8160PC20120207

LONDON - Schroders head of UK equities who controls one of the largest independently held stakes in miner Xstrata has said he intends to vote against the planned merger with suitor Glencore.

Richard Buxton said he thought the terms of the proposed merger represent a poor deal for Xstrata's independent shareholders, shortly after Standard Life issued its own statement saying it would vote against the deal. "I'm in complete agreement with Standard Life and we intend to do exactly the same. This is a fabulous deal for Glencore, it's probably a great deal for the Xstrata management, but it's a poor deal for Xstrata's majority shareholders," he told Reuters. (Reporting by Chris Vellacott)

MF Global shortfall worsened as bankruptcy neared

Tue Feb 7, 2012 1:25pm EST

http://www.reuters.com/article/2012/02/07/us-mfglobal-idUSTRE8161VE20120207

- In its chaotic final days, MF Global's floundering brokerage used increasingly large chunks of customer money in an effort to keep the company afloat, creating a massive shortfall in customer funds, the trustee liquidating the brokerage has found.

The activity occurred while a flurry of cash transactions, totaling more than $105 billion, took place in the five days leading up to the October 31 bankruptcy of its parent, MF Global Holdings Ltd MFGLQ.PK, the trustee James Giddens said in a statement. That suggests that customer cash could be scattered among hundreds of affiliates, exchanges, clearing houses and banks on the other end of those transactions, Kent Jarrell, a spokesman for Giddens, said in an interview on Monday. The shortfall first appeared on October 26 and grew until MF Global went bankrupt, Giddens said. About $1.2 billion remains missing from customer accounts, and recovering that amount could require lengthy court battles, Jarrell said. Customers have long been frustrated with the inability of MF Global and investigators examining the futures and commodities brokerage's collapse to determine where their money went. Giddens said he will now focus on determining which transactions were funded with customer cash and, where possible, submit claims to get that money back. MOVING CUSTOMER CASH In his investigation, Giddens said he found that MF Global regularly used customer money in small amounts of less than $50 million for corporate needs. But as MF Global's financial position worsened last fall, with exposure to $6.3 billion in risky European debt, "much larger amounts" of customer money were used, "apparently with the assumption that funds would be restored by the end of the day." That didn't happen, he said. Rather, as MF Global's finances grew more dire and its credit ratings dropped, there was an "unprecedented" swell in transaction activity, including billions of dollars in securities sales, draws on credit facilities and a web of inter-company loans, Giddens said. "The heightened risk and apparent loss of confidence drove customers to close their accounts and withdraw funds, resulting in even greater demands on a relatively limited amount of available cash," Giddens said in the statement. In the end, he said MF Global was unable to replenish customer accounts, and its parent filed for Chapter 11 protection with the shortfall still unresolved. Amid the chaos and flurry of transactions, workers may not have been aware that they were operating with a customer pool that had a deficit, Giddens said. The trustee said the company's computer systems had a hard time keeping up with the flood of transfers. "A number of transactions were recorded erroneously or not at all," Giddens said. So-called 'fail' transactions -- where either the buyer or seller fails to deliver the cash or the security -- were five times the normal volume during the firm's final week, he said. Giddens said he is working with third parties to seek more complete information about transfers to "select" parties prior to that bankruptcy. Bart Chilton, a democratic commissioner at the Commodity Futures Trading Commission, said Giddens' statement shows how bankruptcies are inherently messy and that MF Global was no different. "The question now is what sort of job can the clean up crews do to get customers their money back and to fully punish those that may have broken the law," Chilton said in an emailed statement. SHORTFALL STANDS PAT The $1.2 billion shortfall figure is the same estimate Giddens first released in November. Other regulators have challenged the figure as too high, including CME Group Inc ( CME.O ), MF Global's primary exchange, whose chairman Terry Duffy pegged the deficit between $700 million and $900 million. Jarrell told Reuters last month it was possible Giddens would "sharpen" the estimate once his team finished processing claims from customers. That process is ongoing, according to the statement. Customers have received about $3.8 billion of the amounts in their accounts when the broker-dealer's parent filed for bankruptcy, about 72 percent of the total value. The trustee said it remains unclear when they might receive any more. "We're just about out of money to give back," Jarrell said. "We have a reserve, but we have to keep it in case claims come against us." The cases are In re: MF Global Inc, U.S. Bankruptcy Court, Southern District of New York, No. 11-2790; and In re: MF Global Holdings Ltd et al in the same court, No. 11-15059. (Reporting Nick Brown; Additional reporting by Jonathan Stempel; Editing by Phil Berlowitz, Tim Dobbyn and Bernard Orr ) (This story corrects paragraph 2 in Feb. 6 story to clarify that customer money not used to fund all cash transfers in days leading up to bankruptcy)

Coca-Cola beats Street, eyes cost savings

Tue Feb 7, 2012 2:09pm EST

http://www.reuters.com/article/2012/02/07/us-cocacola-idUSTRE81611G20120207

NEW YORK - Coca-Cola Co ( KO.N ) reported better-than-expected quarterly results and announced a new cost-savings program that it will use to boost its brands and mitigate higher commodity costs.

Coke's results on Tuesday were "solid" given the weak global economy, said Consumer Edge Research analyst Bill Pecoriello. In particular, a 1 percent increase in North American sales volume was better than the 1 percent drop he expected. "Key issues heading into 2012 include managing against continued tough global macroeconomic conditions, commodity inflation, foreign exchange headwinds and stepped-up competitive spending," Pecoriello said. Rival PepsiCo Inc's ( PEP.N ) CEO Indra Nooyi is expected to announce a large investment in that company's North American brands when it reports earnings on Thursday, as a way to narrow the gap in sales performance with Coke. Her plan comes after an in-depth business review, and is likely to include more advertising but could also include discounts at retail, say analysts and other market observers. "Great advertising and marketing can probably move the needle in a two- to three-year time frame," said Beverage Digest publisher John Sicher. "The only thing that moves the needle quickly is pricing, and in a commodity environment we're in now, using pricing to move the needle is very tricky." Like most food and beverage companies, Coke and Pepsi have been facing higher costs for raw materials like corn sweetener and packaging. That has turned up the need for price increases, which can hurt consumer demand, especially in a weak economy. Coke said on Thursday that it expects higher costs for juices and sweeteners to contribute to a $350 million to $450 million increase in costs in 2012. That is down from an $800 million increase in 2011. For a graphic on Coke results: link.reuters.com/guz46s INVESTING IN GROWTH Coke's fourth-quarter net income was $1.65 billion, or 72 cents per share, down from $5.77 billion, or $2.46 per share, a year earlier, when the company recorded a gain related to the acquisition of its North American bottling operations. Excluding items, earnings were 79 cents per share, beating the average estimate of 77 cents, as compiled by Thomson Reuters I/B/E/S. Revenue rose 5 percent to $11.04 billion as Coke gained market share in several drink categories. Sales volume rose 3 percent, growing 4 percent in Latin America and Eurasia and Africa, 5 percent in the Pacific and 1 percent in Europe and North America, where weak economies and growing health consciousness has curbed demand. Coke announced a new productivity program targeting annual savings of $350 million to $400 million by the end of 2015. The company also raised its target for savings from the integration of its North American bottling operations by $200 million to $250 million. Together, these initiatives should lead to savings of $550 million to $650 million a year by the end of 2015. Coke said it will reinvest those savings into "brand building initiatives" and to help mitigate potential near-term commodity inflation. "If Pepsi starts discounting to gain share, Coke will have to be able to respond to that," said Edward Jones analyst Jack Russo. "I think that's the reason they're trying to get a lot of costs out of their system so they can reinvest if they have to," he said, referring to Coke. In an interview with Reuters, Coke CEO Muhtar Kent declined to comment on the company's competition with Pepsi. On a conference call with analysts, Kent said he expects North American soda prices to increase, after gaining 4 percent in the fourth quarter. "I think it will be right to assume that this kind of rational pricing would continue in terms of rates for 2012," Kent said. "There is no room in business for irrationality over the long term." Coca-Cola shares were up 63 cents at $68.66 on the New York Stock Exchange. (Reporting By Martinne Geller in New York; Editing by Maureen Bavdek, Mark Porter and Gunna Dickson)

Eyes on dissident states as U.S. mortgage deal nears

Tue Feb 7, 2012 5:45pm EST

http://www.reuters.com/article/2012/02/07/us-mortgage-settlement-delaware-idUSTRE8161M020120207

- Announcement of a broad mortgage settlement with major banks, that would bring relief to distressed U.S. homeowners, could come as early as Thursday, two people familiar with the matter said.

Negotiators said the federal-state mortgage servicing settlement already has the backing of over 40 states and the final number will depend on whether dissident states such as California and New York decide to join, New York Attorney General Eric Schneiderman said he planned an announcement at 6 p.m. (2300 GMT) on Tuesday about the settlement, but spokesman Danny Kanner declined to provide further details on Tuesday afternoon. A decision from California Attorney General Kamala Harris also remained elusive, and her office had no comment on Tuesday. Florida Attorney General Pam Bondi, who has been on the team of states negotiating the deal, has also not confirmed her participation the deal. "Florida is active on the negotiating committee, and when we are able to speak publicly about the matter we will," Bondi told Reuters on Tuesday. Some hard-hit states did make their support public on Tuesday. Michigan Attorney General Bill Schuette, for example, said in a statement he was joining the settlement. Michigan expects to receive around $500 million in benefits under the deal, including $101 million directly to the state to fund housing and foreclosure prevention efforts, he said. Under a settlement that state and federal officials have spent more than one year negotiating, top U.S. banks would resolve civil government claims about improper foreclosures and abuses in originating and servicing mortgage loans. In exchange, the banks - Bank of America ( BAC.N ), Wells Fargo & Co ( WFC.N ), JPMorgan Chase & Co ( JPM.N ), Citigroup ( C.N ) and Ally Financial Inc - would pay up to $25 billion, much in the form of cutting mortgage debt for distressed homeowners. Negotiators are trying to get as many states on board as possible to maximize the value of the settlement. Delaware's banking commissioner has come out in support of the deal, while the state's attorney general remains on the sidelines, for now. Delaware stands to leave up to $40 million in homeowner relief on the table, if it does not join a multi-state mortgage settlement, according to a letter from the state's banking commissioner seen by Reuters on Tuesday. Delaware homeowners would receive some $32 million in relief, and the state would receive $8 million to provide housing counseling and foreclosure prevention services, according to the letter. PRESERVING LAWSUITS Delaware Attorney General Beau Biden, who is the son of U.S. Vice President Joe Biden, has said he is opposed to the settlement as it is drafted, and wants to make sure he can preserve his lawsuit against MERS, the banks' mortgage electronic registry, which he filed last year. MERS is not a party to the settlement, but the proposed deal is expected in part to resolve claims against the banks for their use of MERS. In a statement provided to Reuters on Tuesday, Biden's office said he "continues to consider the terms of the settlement and advocate for improvements that address his concerns." But the state's banking commissioner, Robert Glen, in a letter dated Monday, said he would support the nationwide deal because it provides "immediate, substantial relief to struggling homeowners nationwide and in Delaware." It is unclear if Delaware would still get some relief even if Biden does not sign on. Glen said in his letter that not all of the benefits would be available to Delaware in the absence of the attorney general's agreement. State attorneys general faced a Monday deadline to report whether they planned to support the settlement. State banking commissioners, too, had to report their position to the Conference of State Bank Supervisors by February 6. Late on Monday Iowa Attorney General Tom Miller, who is leading the settlement negotiations on behalf of the states, said more than 40 states agreed to join the deal. AN ALTERNATIVE PLAN? States - including Delaware, California and New York - and several activist groups have criticized the terms of the proposed deal as too lenient toward the banks. Two top concerns have been whether the settlement would prohibit the states from lawsuits they had either already launched or were considering, and whether attorneys general would get relief tailored to their state's needs. Under a draft of the settlement, the banks would provide $17 billion in loan modifications for delinquent borrowers; $3 billion in refinancing for homeowners who are current on their payments but unable to refinance because they owe more than their homes are worth; and around $1.5 billion in direct payments of up to $2,000 each to borrowers who lost their homes to foreclosure, according to Glen's letter. Participating states will also receive a total of $2.5 billion for housing programs. (Reporting By Aruna Viswanatha in Washington, D.C. and Rick Rothacker in Charlotte N.C., additional reporting by Karen Freifeld in New York and Michael Peltier in Tallahassee; Editing by Tim Dobbyn )

Euro, stocks gain on Greece bailout hopes

Tue Feb 7, 2012 5:58pm EST

http://www.reuters.com/article/2012/02/07/us-markets-global-idUSTRE81101T20120207

NEW YORK - The euro hit an eight-week high against the dollar on Tuesday, helping lift stocks and commodities on signs a Greek bailout agreement was near, but the rally paused after a key meeting on Greece was postponed by a day.

The euro rallied after Greece appeared to be close to terms on a 130-billion-euro bailout. A government official said Athens was drafting a list of painful reforms to clinch a new financial package, moving it a step closer to a deal that is needed to avoid a chaotic debt default. But a meeting of Greek political leaders was postponed until Wednesday because a draft of the bailout's terms was still not available, a party official said. The euro at one point jumped more than 1 percent to a session high of $1.3270, hitting its highest level since December 12. After paring some gains, the euro traded near session highs, up 1 percent on the day. <USD/> Greek political leaders have balked at the austerity plan, with the meeting already having been put off from Monday to Tuesday, as it is certain to mean a big drop in living standards for many Greeks. "The market is expecting a Greek deal, so there's greater optimism overall," said Greg Moore, currency strategist at TD Securities in Toronto. "But it's certainly up in the air at this point," he said. "All these are very fluid headlines and that highlights the high level of uncertainty at the moment." The Standard & Poor's 500 Index has gained almost 7 percent so far this year on better-than-expected economic data. In a sign of the sentiment underlying the rally, the 10-day moving average of stocks hitting 52-week highs on the New York Stock Exchange is 203, the highest since May 2010, according to Thomson Reuters Datastream. The Dow Jones industrial average .DJI closed up 33.07 points, or 0.26 percent, at 12,878.20. The S&P .SPX rose 2.72 points, or 0.20 percent, at 1,347.05. The Nasdaq Composite Index .IXIC gained 2.09 points, or 0.07 percent, at 2,904.08. U.S. Federal Reserve Chairman Ben Bernanke, in congressional testimony that mirrored his remarks last week, renewed a pledge to prevent Europe's crisis from damaging the U.S. economy, also helping sentiment for risk assets. The euro was also underpinned by short covering. Bets by traders that the common currency would fall have been running at record levels, according to data from the U.S. Commodity Futures Trading Commission, although the positions were trimmed slightly in the latest week. European stocks, up more than 6 percent for the year, fell as weak earnings from Swiss bank UBS AG ( UBSN.VX ) ( UBS.N ) signaled the debt crisis may further damage the banking sector. UBS shares fell 1.4 percent in Zurich and 0.7 percent in New York, while the FTSEurofirst 300 .FTEU3 index of top European shares pared losses as the euro rallied. The index closed down 0.22 percent at 1,072.79. Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut, said U.S. stocks were holding up despite profit-taking as investors bet a Greece deal would be completed. "If investors thought the Greek talks were going to collapse, financial markets will be a lot weaker than they are," he said. Still, "a lasting solution continues to be something that is hard to come by." MSCI's all-country world equity index .MIWD00000PUS added 0.3 percent, having gained almost 9 percent so far this year. COMMODITIES WHIPSAWED Gold prices pared early losses and bounced back into positive territory, in line with a rallying euro. Spot gold prices rose $25.54 to $1,745.30 an ounce. Oil prices rose in volatile, heavy trade as intermarket spread trading buffeted both Brent and U.S. crude futures, and the dollar turned weaker on another round of optimism about an agreement on Greece's debt problems. Brent crude settled 30 cents higher at $116.23 a barrel, while U.S. crude settled up $1.50 at $98.41. U.S. Treasury debt prices fell as investors prepared for this week's $72 billion quarterly refunding and as safety bids waned on expectations of a Greek bailout. The benchmark 10-year U.S. Treasury note was down 16/32 in price to yield 1.98 percent.

FSB official outlines shadow banking concerns

Tue Feb 7, 2012 9:15am EST

http://www.reuters.com/article/2012/02/07/us-bankofcanada-regulations-correcte-idUSTRE81619R20120207

TORONTO - The Financial Stability Board (FSB) will develop policy recommendations for the world's shadow banking sector by the end of 2012, according to a senior Bank of Canada official who also chairs a key FSB committee.

Tiff Macklem, senior deputy governor at the Bank of Canada, said the FSB's recommendations will cover five areas: * the interactions of regulated banks with shadow banking entities and activities * money market mutual funds * other shadow-banking entities * securitization * securities lending and repos. The FSB is a global body of central bankers, regulators and finance officials tasked with implementing the G20's financial reform agenda. Macklem's speech contained no reference to Canadian monetary policy. (Reporting By Jennifer Kwan ; Writing by Louise Egan ; Editing by Jeffrey Hodgson )

Global watchdog official says banking reforms must proceed

Tue Feb 7, 2012 10:15am EST

http://www.reuters.com/article/2012/02/07/us-bankofcanada-regulations-idUSTRE81613520120207

TORONTO - The underperforming global economy should not be allowed to delay financial system reforms, a senior official at the Financial Stability Board (FSB), a global watchdog set up by the Group of 20 nations, said on Tuesday, adding that the FSB will propose new rules on so-called shadow banking by year-end.

Bank of Canada Senior Deputy Governor Tiff Macklem, who chairs a key FSB committee, pushed back against bankers who argue now is not the time to impose tougher new capital standards on lenders due to the recession in Europe and a weak U.S. economy. "The current challenges are not an excuse for delay. Quite the opposite," Macklem said in a speech in Toronto. "In a risky world, the need to make the financial system safer and restore confidence is vital. If there is a reproach to be made, it is that progress has not been faster," he said. The roll-out of the new capital rules for banks around the world, known as Basel III, is the "biggest and most immediate test," he said. The FSB groups central bankers, regulators and finance officials tasked with implementing the G20's mandate to rewrite financial sector regulations to avoid another global financial crisis. Macklem chairs the FSB committee on standards and implementation. The FSB is headed by Bank of Canada Governor Mark Carney. Among the FSB's next reform targets are nonbank players such as hedge funds and money market funds, often referred to as the shadow banking sector and currently beyond the reach of regulators. Macklem said the FSB will draft policy recommendations for regulations for the sector by the end of this year, covering five areas: * the interactions of regulated banks with shadow banking entities and activities * money market mutual funds * other shadow-banking entities * securitization * securities lending and repos. Policymakers are concerned that risky transactions in the $60 trillion shadow-banking sector are growing in light of the crackdown on traditional banks, and that could trigger the next chapter in the financial crisis. Macklem said reforms of the sector should strike a balance between preserving the benefits of shadow banking, such as innovation and diversification, while limiting risks. The FSB is "significantly enhancing" the resources devoted to monitoring implementation, Macklem said, and has enough teeth to see the process through under its current structure. "Some commentators are concerned that the FSB lacks the authority to enforce the rules, and have argued that it must evolve to a treaty-based organization with the power to sanction its members," he said. "While this may ultimately prove to be the case, so far, this has not been demonstrated." The speech contained no reference to Canadian monetary policy. (Reporting By Jennifer Kwan; Writing by Louise Egan ; Editing by Jeffrey Hodgson , Janet Guttsman and Peter Galloway)

EU seeks to patch up differences with UK over banks

Tue Feb 7, 2012 12:43pm EST

http://www.reuters.com/article/2012/02/07/us-britain-financial-regulation-idUSTRE8161RX20120207

LONDON - The European Union (EU) sought to patch up differences with Britain over financial regulation, saying on Tuesday there was room for exemptions in a draft European banking law to accommodate stricter local supervision of lenders.

Jonathan Faull, head of the European Commission's financial services unit, said it was a matter of crafting exemptions in the draft EU bank law so Britain, Sweden and others can tailor their local supervision. "I am sure that this will end up in a perfectly reasonable set of rules which will respect the general principles, that we have wherever possible a single rule book in the EU," Faull told an industry conference. The UK worries its ability to continue imposing additional capital and liquidity requirements on domestic banks will be significantly curbed under a draft EU law now being approved. Government, Bank of England and the Financial Services Authority officials lined up to ram home the message. Jurisdictions must retain the right to apply higher levels of regulation, Britain's Financial Services Minister Mark Hoban told the conference. "This is particularly important for countries like the UK that are home to large global financial centers," Hoban said. Andrew Bailey, director of UK banks at the FSA, said there was a very clear need for EU bodies like the European Banking Authority (EBA) to set "sensible boundaries" where supervision remains national and where there should be proper pan-EU coordination. The European Commission, which drafted the bank capital law that is troubling Britain, wants a single set of rules for the EBA to apply across the 27-nation bloc. EU states and the European Parliament have the final say on the new law and Faull cautioned that the Commission would not allow the clock to be turned back on the "bad old days" of shortsighted, uncoordinated national supervision. "We have been there, tried it and failed," Faull said, adding that a single rulebook was not a straitjacket. Bankers urged the regulators to look at the bigger picture. There was a "real need for leadership" to say when no more rules should be added to the lengthy EU and global reform agenda and to see whether enough has been done to change behavior, HSBC Chairman Douglas Flint said. "If we are to make the most of this reform period, we really do need to focus more on what we want the financial system to do in aggregate and less on where there is a need for detailed reform," Flint told the conference. (Editing by David Holmes )

Analysis: Banks largely reserved for U.S. mortgage pact cost

Tue Feb 7, 2012 2:32pm EST

http://www.reuters.com/article/2012/02/07/us-settlement-bankcosts-idUSTRE8161YD20120207

- As the nation's five largest mortgage lenders edge close to a $25 billion settlement over foreclosure abuses, it's becoming clear that the deal will have little or no impact on their future bottom lines.

After more than a year of negotiations, the banks already have set aside money to cover legal costs and have built up their reserves to cover losses from reducing how much borrowers owe. Accounting for these costs in past earnings means future earnings won't be affected much. "If they're not fully reserved, I've got to believe the industry is pretty close," said Nancy Bush, a longtime banking analyst and contributing editor at SNL Financial. State attorneys general and federal officials have been working on a settlement since allegations that banks improperly handled foreclosure paperwork emerged in the fall of 2010. More than 40 states have signed onto the agreement as of a Monday deadline, but key states, including California and New York, are still holding out. The core banks involved in the talks are the largest mortgage servicers -- Bank of America Corp, JPMorgan Chase & Co, Wells Fargo & Co, Citigroup Inc and Ally Financial Inc. The U.S. Justice Department has also started to reach out to smaller regional banks about their inclusion in the agreement. Under the proposed pact, the banks would provide $17 billion in loan modifications for delinquent borrowers; $3 billion in refinancing for homeowners who are current but unable to refinance because they owe more than their homes are worth; and around $1.5 billion in direct payments of up to $2,000 each to borrowers who lost their homes to foreclosure, according to a letter supporting the agreement sent Monday by Delaware banking commissioner Robert Glen. In addition, participating states will receive a total of $2.5 billion for housing programs. The agreement also requires banks to reform their mortgage servicing practices under supervision of an outside monitor. The lion's share of the settlement costs to banks would not be cash payments, but accounting entries to reflect the lower values of loans to be modified for borrowers. Many of those markdowns in value likely have been counted already as expenses when the banks added to loan-loss reserves, said Paul Miller, analyst at FBR Capital Markets. "I don't see it as that big of a hit," Miller said. BANKS TOOK CHARGES IN FOURTH QUARTER A number of banks involved in the talks increased their legal reserves in the fourth quarter. These charges likely would cover the cost of payments to homeowners and for state foreclosure prevention programs. Bank of America last month set aside $1.5 billion for litigation, partly for a possible settlement, while Ally Financial last week took a $270 million charge for penalties that it expects to pay. JPMorgan's consumer segment booked $1.7 billion in costs in 2011 for mortgage litigation and foreclosure matters, partly for a settlement, the company reported on January 13. "We should pay for the mistakes we made," JPMorgan Chief Executive Officer Jamie Dimon said in an investor conference call on January 13. Citigroup said fourth-quarter expenses increased by 4 percent from the third quarter, or $476 million, due to higher legal and related costs driven partly by the mortgage business. Executives didn't comment specifically on the foreclosure settlement. Wells Fargo hasn't said how much it has booked for a possible agreement. Among smaller banks, PNC Financial Services Group Inc and US Bancorp, reported a total of $370 million in mortgage-related expenses, and SunTrust Banks Inc said it may take a charge. In addition to upping litigation reserves, banks also have been amassing reserves for losses on residential mortgages, even as they reduce reserves for other types of loans, such as credit cards. As of December, Bank of America, for example, had accrued $5.9 billion to cover residential mortgage losses, equal to 17.6 percent of its mortgage loans, up from $5.1 billion, or 12.1 percent, a year earlier. Setting the money aside hurt past earnings. But it will protect future earnings from bearing the cost of the proposed $25 billion settlement. Under the settlement, banks will be required to reduce principal owed on some loans owned by the banks themselves. In certain cases they may also modify loans owned by other investors. Loans owned by government-controlled mortgage entities Fannie Mae and Freddie Mac are not covered by the pact. The reserves set aside for the settlement are likely sequestered in multiple areas within the banks, said SNL's Bush. For example, banks will need to account for lost revenue from reduced interest and principal payments, she said. "It's not very straight-forward," she said. ACCOUNTING STANDARDS Accounting professors Ed Ketz, of Penn State University, and Anthony Catanach, of Villanova University, said that stock analysts are probably right to expect that the banks have already taken out many of the costs when reporting quarterly profits and losses. While the accounting rules leave a lot of room for judgment in recording expenses for contingencies, in this situation it is unlikely that the banks have dramatically understated the costs, the professors said. The likelihood that the banks would have to pay billions of dollars has been rising for a year in the sight of the public and regulators watching the financial press, the professors said. "This one is too open to the public -- and there are enough other areas that the public is not aware of -- for them to try to play games with it," said Ketz. "They should at least have booked whatever minimum losses that they expect." Accounting rules, the professors said, call for companies to apply two tests when deciding whether to go ahead and subtract costs for contingencies from earnings -- whether the expense is probable and, then, whether the amount can be reasonably estimated. The banks may face criticism that they are getting off lightly in the settlement because they won't be announcing big new hits to profits, said Guy Cecala, publisher of industry publication Inside Mortgage Finance. The settlement also does only so much to compensate borrowers who have already lost their homes, he said. "Clearly, the regulators caught them doing something wrong," he said, "and now they're trying to get some money out of them to do some proactive good and prevent foreclosures." Of course, most of the money the banks would use to pay is accounted for already. (Reporting By Rick Rothacker in Charlotte N.C.; Additional reporting by Aruna Viswanatha in Washington, D.C. Editing by Alwyn Scott and Gerald E. McCormick)

EU's Kroes: euro zone can live without Greece: media

Tue Feb 7, 2012 3:02am EST

http://www.reuters.com/article/2012/02/07/us-eurozone-greece-kroes-idUSTRE8160GE20120207

AMSTERDAM - The euro zone can survive even if Greece is forced out, European Commissioner Neelie Kroes said in an newspaper interview on Tuesday as Greek leaders struggled to secure a 130-billion-euro ($170 billion) bailout and avert further crisis.

Digital Agenda Commissioner Kroes, who oversees telecoms and the Internet across the 27-country EU, told Dutch newspaper Volkskrant that if Greece quit, the euro zone would not be in trouble. "When one member leaves it doesn't mean 'man overboard'," she said in the interview. "Maybe my choice of words is unfortunate. What is a man overboard? They always said if a country is let go or asks to get out, then the whole edifice will collapse. But that is simply not true." Greek leaders face crunch talks on Tuesday to agree on unpopular reforms to secure a 130-billion-euro bailout and avert a chaotic debt default which could threaten its future in the euro zone. Kroes said Greece's political leaders must realize that the Dutch and German governments can only sell the idea of emergency bailouts to their own taxpayers if there is proof of good will among Greece's leadership. (Reporting by Sara Webb ; editing by Patrick Graham )

Oil giant BP to sell LPG filling assets

Tue Feb 7, 2012 11:22am EST

http://www.reuters.com/article/2012/02/07/us-bpg-lpg-idUSTRE8160P720120207

LONDON - London-based oil giant BP said it planned to sell its liquefied petroleum gas bottles and tank filling business in Europe, China and South Africa, as it refocuses its business on oil and gas production.

BP said it expected to complete any deal by the end of 2013, and that it intends to retain its LPG autogas business (Reporting by Tom Bergin ; Editing by Hans-Juergen Peters)

Job openings rise to 3.4 million in December

Tue Feb 7, 2012 2:41pm EST

http://www.reuters.com/article/2012/02/07/us-usa-economy-jobs-jolts-idUSTRE8161I720120207

WASHINGTON - The number of jobs waiting to be filled rose in December as employers tried to ramp up hiring in factories, retail and business services, the government said on Tuesday.

There were 3.4 million available jobs at the end of December, up from 3.1 million in November, according to the Labor Department's Job Openings and Labor Turnover Survey. The number of jobs open in November was revised slightly downward from an initially reported 3.2 million. Monthly job openings - unfilled, posted vacancies that employers plan to fill within 30 days - help describe demand for labor. The number of job openings has increased about 30 percent since the end of the 2007-09 recession, although they remain well below the 4.4 million level registered in December 2007. In December, job openings in business and professional services increased by 149,000 from the prior month, while openings at manufacturers rose by 22,000 and openings at retailers climbed 31,000. Hiring declined marginally in December, with business and government hires slipping to 4.05 million from 4.13 million in November. The U.S. jobless rate was 8.5 percent in December, down from 8.7 percent in November, and it fell further, to 8.3 percent, in January, data from the Labor Department showed this month. The sharp fall in the unemployment rate could boost President Barack Obama's chances of winning re-election in November, although unemployment remains well above pre-recession levels. The rate at which workers were separated from jobs by lay-offs or quits, a measure of labor turnover, was 3.0 percent in December, unchanged from November. The proportion of separations due to people quitting their jobs, which can indicate workers' confidence in their ability to find new jobs, was unchanged at 49 percent in December. The percentage due to lay-offs or discharges was 42 percent, down from 43 percent in November. The Job Openings and Labor Turnover Survey encompasses employment data from about 16,000 establishments across the country. (Reporting by Jason Lange ; Editing by Dan Grebler)

Disney revenue short of expectations, shares slip

Tue Feb 7, 2012 5:07pm EST

http://www.reuters.com/article/2012/02/07/us-disney-idUSTRE8161TE20120207

- Walt Disney Co ( DIS.N ) reported a quarterly revenue increase that fell short of Wall Street expectations as media networks and theme parks gained but revenue at its movie studio declined.

Disney shares fell 1.8 percent to $40.28 in after-hours trading. The operator of television networks ESPN and ABC, a movie studio and theme parks, posted fiscal first-quarter revenue of $10.8 billion, a 1 percent gain from a year earlier. Analysts on average had expected revenue of $11.2 billion for the quarter. Disney's studio division had a surprise hit with modestly budgeted film "The Muppets", but suffered from tough comparisons with home video sales for "Cars 2" versus the smash "Toy Story 3" a year earlier. The studio's revenue fell 16 percent in the quarter to $1.6 billion. Revenue at media networks, the company's largest unit, gained 3 percent to $4.8 billion. Within that unit, broadcasting saw a 7 percent dip and margins fell, Gabelli & Co analyst Brett Harriss said. "That's the biggest negative that I saw," he said. The theme parks unit, which like media networks have held up through a struggling economy, rose 10 percent. "Disney continues to exhibit pricing power, which shows the strength and competitive advantage of that business," Morningstar analyst Michael Corty said. (Reporting By Lisa Richwine ; Editing by Bernard Orr )

Stock gains turn hedge fund losers into winners

Mon Feb 6, 2012 8:22pm EST

http://www.reuters.com/article/2012/02/07/us-hedgefunds-performance-idUSTRE81525N20120207

BOSTON - Last year's hedge fund losers may be turning into winners again.

Several of the largest hedge funds that ended last year deep in the red, jumped to good starts in January, giving their wealthy investors reason to believe savvy traders are getting back their magic touch. Lee Ainslie's Maverick Capital staged a dramatic rebound, leaping onto the list of top-20 performing funds in January thanks to a 5.89 percent gain in the first weeks of the year. In 2011, he lost 15 percent. Even John Paulson shared good news with investors when he announced that his Advantage Plus Fund rose 5 percent last month after having been touted as the industry's biggest loser in 2011 with a 52 percent loss. By comparison, the benchmark S&P 500 index rose 4.4 percent in January. But most prominently, the relatively small Henderson European Absolute Return fund, with about $116 million in assets, currently claims top honors as the year's most profitable fund with a 14 percent gain through late January, HSBC data show. Last year that fund, known for its manager's contrarian stock picks, ranked second highest on the list of the year's biggest losers with a 42 percent decline. Fortress Investment Group ( FIG.N ), one of a handful of publicly traded asset managers, also started 2012 with solid gains after several of its portfolios struggled in 2011. Its Fortress Macro Fund rose 3.82 percent through January, while the Fortress Asia Macro Fund gained 2.21 percent, according to an SEC regulatory filing Monday. The firm's commodities fund dipped slightly, down 0.43 percent. One month clearly does not make a year, but for last year's big losers, the January rebound could be a sign their fortunes are changing because the stock markets are doing better and they have made adjustments to their portfolios, investors said. In fact, much of the $2 trillion hedge fund industry is looking for a revival this year, after funds, on average, posted a 5 percent decline in 2011. "January can be characterized as having been generally strong across the board," said Paul Zummo, co-head and chief investment officer at JP Morgan Alternative Asset Management. Similarly, Dan Loeb's Third Point Ultra fund is on the list of winners with a 5.8 percent gain in January after having dipped 2.3 percent last year, and David Tepper who finished 2011 down in the low single digits, turned the corner with a gain in the low single digits in January, people familiar with their numbers said. While welcome, January's turnaround does not come as much of a surprise for the hedge fund industry considering the stock market's strong start to the year, investors and managers said. So-called long-short equity funds turned in some of the industry's best returns, with an increase of 2.62 percent in January, analysts at Bank of America Merrill Lynch found. Last year, these types of funds which invest more than a trillion dollars in the stock market, lost about 19 percent. Adjusting positions helped. After many hedge funds stumbled last year from too many managers chasing the same opportunities, crowding into big stocks like Bank of America, the appetite has shifted this year to small cap stocks, Merrill Lynch analysts said. But at the same time, Bank of America is up 35 percent amid slightly better economic numbers and hopes that Europe's financial crisis can be sorted out. "Hedge fund managers tend to do better in environments that are not as driven by macroeconomic and politically driven fundamentals," JP Morgan's Zummo said. Last year's winners are also benefitting from more favorable conditions. Steven A. Cohen's SAC Capital Advisors gained about 2 percent in January after rising 8 percent last year, and Kenneth Griffin's flagship funds at Citadel, climbed 3 percent in January after a 20 percent increase last year. Not everyone has called an all-clear on the troubles that wrecked last year's returns. "It is no time to put on our party hats," said one executive at a mid-sized hedge fund who can not be quoted publicly and worried that Greece's debt problems will still make investing tough because many fund managers are exposed to European banks who are in turn exposed to Greece. (Reporting By Svea Herbst-Bayliss; Additional reporting by Katya Wachtel ; Editing by Bernard Orr )

Portugal union leader wants debt renegotiation

Tue Feb 7, 2012 1:38pm EST

http://www.reuters.com/article/2012/02/07/us-portugal-union-idUSTRE8161W520120207

LISBON - Portugal must renegotiate its debts rather than impose harsh austerity measures to overcome its economic crisis, the head of the country's largest trade union said on Wednesday, threatening to step up strikes if the government pushed on with cuts.

Armenio Carlos, head of the CGTP union, told Reuters Portuguese workers would take a stand against attacks on labor rights, which he said were part of the government's sweeping economic reforms promised under a 78 billion euro ($103.29 billion) bailout. "What we defend is the renegotiation of debts, in terms of deadlines, in terms of interest and in terms of the amount," Carlos said in an interview, adding that the country's bailout had made it impossible to meet its obligations. Portugal's debt currently equals about 105 percent of gross domestic product. "We are being confronted with a neo-liberal attack on workers' rights," he added, saying the government's recent labor reform, making it easier to hire and fire, could spark a growing wave of protests. The union leader, a former electrician and an ex-Communist lawmaker who took over as head of the CGTP a week ago, warned that with the austerity policies demanded by the bailout, Portugal was heading down the same road to ruin as Greece. GREECE EXAMPLE TO OTHERS "If the results in Greece were disastrous, without a doubt they will be no different here," said Carlos, speaking at the CGTP's headquarters in the heart of Lisbon. "The Greeks have been a heroic example of resistance and sacrifice to successive austerity packages that are leading Greece to destruction." Portugal's debt crisis has so far failed to provoke the scale of labor protests seen in Greece. There have been two general strikes in the past two years and workers in transport and other sectors have staged regular stoppages. But analysts say there could be more unrest as some of the government's most stringent austerity measures come into effect this year. Tax hikes and cuts, including the elimination of two months' of civil servants' wages, have already sent the country into its deepest recession since the 1970s. "Stepping up levels of protest is inevitable," said Carlos. "We are at a crossroads. Either we surrender or we fight." "Our people already proved ... through our history that the various times we were occupied, we did not surrender. We always responded by defending our sovereignty," he said. "It is Mrs. Merkel, in this case Germany, that is deciding things." But Carlos faces challenges, not least that the country's second largest union - the UGT - broke ranks with his group and signed an agreement with the government and employers on labor market reform. The head of the UGT, which represents 520,000 workers, said at the time that signing the accord would significantly decrease the likelihood of social strife spiraling out of control in Portugal. Carlos, whose union represents 700,000 workers, said the agreement was an "attempt to subvert the constitution," by allowing companies to fire workers too easily. Portugal's 1974 constitution safeguards the right to work. "This package is an instrument for exploration of workers," he said. Carlos urged European unions to step up joint action. "What is happening in Europe is an offence against the same people, workers and their families," he said. "It is necessary for the European Trade Union Confederation to intensify not only its actions of solidarity but also joint actions in the fight." ($1 = 0.7552 euros) (Additional reporting by Patricia Rua; Editing by Andrew Heavens )

Glencore-Xstrata deal meets shareholder opposition

Tue Feb 7, 2012 1:17pm EST

http://www.reuters.com/article/2012/02/07/us-xstrata-glencore-idUSTRE8150QD20120207

LONDON - At least two top 10 shareholders in miner Xstrata plan to vote against a takeover by commodities trader Glencore, threatening the creation of a powerhouse spanning mining, agriculture and trading.

Standard Life Investments and Schroders said on Tuesday the deal, the mining sector's biggest, to buy the remaining 66 percent of Xstrata for $41 billion, undervalued their shares. The deal, designed to create a company to rival mining heavyweights such as BHP Billiton and Rio Tinto, needs to be approved by 75 percent of shareholders excluding Glencore, which is barred from voting. Standard Life, the fourth largest investor in Xstrata, and Schroders together own 3.6 percent of Xstrata, but 5.6 percent of the shares needed for approval, according to Thomson Reuters data. Their stand may persuade others to follow suit. "I'm in complete agreement with Standard Life and we intend to do exactly the same. This is a fabulous deal for Glencore, it's probably a great deal for the Xstrata management, but it's a poor deal for Xstrata's majority shareholders," Schroders' Richard Buxton told Reuters. Broker Liberum Capital said in a note: "Only 16 percent of Xstrata's register have to vote against the deal to block it, which means there is a significant risk Glencore's proposal isn't passed," Xstrata Chief Executive Mick Davis, who will be CEO of the enlarged company, admitted the two companies would have to work hard to bring some of his shareholders on board. "We clearly have to now go to our shareholders and speak to them and take them through the transaction ... we've got a long gestation period, we recognize that," he told analysts. Xstrata shareholders other than Glencore will hold 45 percent of the new company, to be named Glencore Xstrata International, even though Xstrata assets would comprise about 65 percent of the combined group's asset value. Terms of the deal look set to spark tensions within investment houses which hold both Xstrata and Glencore stock. Portfolio managers at a third top 10 investor are due to discuss the merits of the tie-up and the relative value for investors in each firm before deciding whether to reject or back the deal, a spokeswoman said, declining to be identified. MERGER CLOUT The new group, with mining assets from New Caledonia to the Democratic Republic of Congo, is expected to use its clout to look at other deals, including potentially a takeover of Anglo American. "M&A is a space that you'd expect the combined group to be in," Davis told Reuters. "We have a combined entity which has much greater flexibility to be opportunistic and capture the right opportunities when they are there." Anglo American CEO Cynthia Carroll declined to comment on the deal and when asked whether the deal signaled valuations had hit their lowest point said Anglo would be sticking to its plan of developing its pipeline of growth projects. "Is there more and more interest in acquisitions? No question about it," she told Reuters in a telephone interview on the sidelines of a mining industry gathering in Cape Town. Glencore will issue 2.8 new shares for each Xstrata share in a deal it said was a "merger of equals." The ratio gives a 15.2 percent premium to Xstrata shareholders compared with its share price last Wednesday, before word leaked out about the merger talks, a joint statement said. Xstrata chairman John Bond and Chief Financial Officer Trevor Reid will retain their posts, and Glencore CEO Ivan Glasenberg, a billionaire who owns 15.8 percent of Glencore, will be president and deputy CEO of the new company. Some are skeptical that Davis and Glasenberg, two brash, hard-driven dealmakers from South Africa, will be able to work together as CEO and president of the combined group. They have had a close and sometimes tense relationship as they both aggressively expanded their companies with strings of takeovers and marketing deals. SURGE IN DEMAND Bringing together Xstrata, the world's fourth-biggest diversified miner, and Glencore will create a group hoping to reap the reward of growing demand for commodities from China and other emerging economies. Competition authorities are expected to have a hard look at the combined company, which will hold a big sway over markets like thermal coal, copper, zinc and ferrochrome. "Many governments may take the opportunity to review Glenstrata's influence on their food and industrial and energy imports and exports so ... it might be forced to relinquish some of its other roles," said Neil Dwane, chief investment officer of RCM, a unit of Allianz Global Investors, an Xstrata shareholder. Xtrata's Mick Davis was confident of antitrust approval, saying authorities in the past have always treated the two companies as one unit due to their close ties. "There is no need for the case to be notified to the (European) Commission as it has already ruled that Glencore already controls Xstrata, said an antitrust lawyer who declined to be named because of the sensitivity of the matter. "But this is a tricky situation, there are some overlaps, so the regulator may decide to take a fresh look." The combined group expects synergies of at least $500 million and to boost earnings to Xstrata shareholders in its first full financial year. The new group will be the world's biggest exporter of coal for power plants, top integrated zinc producer and would have had revenues of $209 billion and adjusted core profit of $16.2 billion had they been together during 2011. The size of the deal surpasses Rio Tinto's $38 billion takeover of Alcan in 2007. Xstrata shares fell 3.8 percent while Glencore declined 2.8 percent on Tuesday afternoon compared to a 2.1 percent fall in the sector. ($1 = 0.6331 British pounds) (Additional reporting by Sinead Cruise , Chris Vellacott, Victoria Howley , Yun Chee Foo and Clara Ferreira-Marques ; Editing by Chris Wickham and Elizabeth Piper )

FSB official outlines shadow banking concerns

Tue Feb 7, 2012 9:16am EST

http://www.reuters.com/article/2012/02/07/us-bankofcanada-regulations-idUSTRE8161A320120207

TORONTO - The Financial Stability Board (FSB) will develop policy recommendations for the world's shadow banking sector by the end of 2012, according to a senior Bank of Canada official who also chairs a key FSB committee.

Tiff Macklem, senior deputy governor at the Bank of Canada, said the FSB's recommendations will cover five areas: * the interactions of regulated banks with shadow banking entities and activities * money market mutual funds * other shadow-banking entities * securitization * securities lending and repos. The FSB is a global body of central bankers, regulators and finance officials tasked with implementing the G20's financial reform agenda. Macklem's speech contained no reference to Canadian monetary policy. (Reporting By Jennifer Kwan ; Writing by Louise Egan ; Editing by Jeffrey Hodgson )

Merkel says won't force Greece out of euro

Tue Feb 7, 2012 2:26pm EST

http://www.reuters.com/article/2012/02/07/us-merkel-euro-idUSTRE8161Z620120207

BERLIN - German Chancellor Angela Merkel said on Tuesday she did not want to see Greece being forced out of the euro, warning that this would have "unforeseeable consequences."

"I will have no part in forcing Greece out of the euro," she said in response to a question from a Greek student at a meeting with young people in a Berlin museum. Talking shortly after feuding Greek political leaders postponed a meeting scheduled for Tuesday on the conditions for a 130 billion euro second bailout package, the chancellor said there was no alternative for Greece to painful reforms. "We don't do it to make things difficult for people, what would be our interest in doing that? But we want to reach a point where Greece can, with European help, live off its resources," said Merkel. "Nobody wants to force reforms on them from outside," she said. (Reporting by Stephen Brown and Andreas Rinke)

Top Stanford witness says he tried to conceal fraud

Tue Feb 7, 2012 4:45pm EST

http://www.reuters.com/article/2012/02/07/us-stanford-idUSTRE81628D20120207

HOUSTON - A former top aide to Texas financier Allen Stanford said on Tuesday he continued to hide financial misdeeds as Stanford's empire was crumbling in early 2009.

James Davis, Stanford's former chief financial officer, said he drew up a document in February of that year showing Stanford's bank had assets of $6.3 billion, far more than was the case. This was despite learning in January that U.S. regulators were about to swoop down on the bank, Davis said. Davis, who has pleaded guilty to fraud in a plea bargain, was on his fourth day of testifying against his former boss. Stanford is on trial in federal court in Houston accused of bilking investors in his Caribbean bank in a $7 billion Ponzi scheme. He has denied the charges. In a cross-examination that has gone on for two days, Stanford's lawyer, Robert Scardino, painted Davis as a habitual liar. "You just said to the jury that you are no longer a liar. You quit lying?" Scardino asked. "Yes, sir," Davis answered. Under Scardino's questions, Davis said he was the source of a pie chart that showed the bank's assets at $6.3 billion. The chart was shown to other Stanford executives at a meeting in Miami in February 2009. "Yes, sir I did put the $6.3 billion," Davis told the jury. In another incident the same month, Davis said he threw his desktop computer, laptop computer and a flash drive into a lake near his Mississippi mansion. Davis, who was Stanford's college roommate, pleaded guilty in August 2009 to three counts of conspiracy and fraud. He faces a maximum sentence of 30 years in prison, but the judge who sentences him can take into account his cooperation with prosecutors. (Reporting by Anna Driver; editing by Eddie Evans and Andre Grenon )

Toyota eyes at least 14 percent rise in China sales

Tue Feb 7, 2012 1:39am EST

http://www.reuters.com/article/2012/02/07/us-toyota-china-idUSTRE8160BQ20120207

TOKYO - Toyota Motor Corp aims to sell at least 1 million vehicles in China this year, up from 880,000 in calendar 2011, Senior Managing Officer Takahiko Ijichi told a news conference on Tuesday.

(Reporting by Chang-Ran Kim ; Editing by Joseph Radford )

Amazon, Viacom close to Web video deal

Tue Feb 7, 2012 5:51pm EST

http://www.reuters.com/article/2012/02/07/us-amazon-viacom-idUSTRE8162DG20120207

- Amazon.com Inc is about to announce a Web video deal with Viacom Inc in what sources said was one of the last steps in a plan to launch a standalone subscription service to compete with Netflix Inc.

The online retailer will unveil the deal as soon as this week, according to two people familiar with the discussions. Viacom, which owns TV shows and movies from MTV Networks, Nickelodeon and Paramount Studios, would be the latest of several partners Amazon has made deals with for its Prime Instant Video service. So far, major studios such as CBS Corp, Time Warner Inc's Warner Bros, News Corp's Fox, Sony Corp, Comcast Corp's NBC Universal and Walt Disney Co have licensed programming to the retailer. Viacom Chief Executive Philippe Dauman told Wall Street analysts last week the company would be announcing a new online video deal this week, but did not name the partner. A Viacom spokesman declined to comment further. To date, Amazon's Prime Instant Video has primarily been an add-on feature for Amazon Prime members, who pay $79 a year for free shipping in the United States for most of what they buy. But Amazon is keen to open up its licensed library of TV programs and movies as a standalone service for non-Prime members, and to use it to boost its Kindle Fire tablet, according to people who have spoken with Amazon executives. An Amazon spokeswoman did not respond to telephone calls seeking a comment. Analysts estimate that Amazon sold about 5 million Kindle Fire tablets in the fourth quarter and the company may sell more than double that in 2012. An essential part of Amazon's strategy is to have lots of content, including video, music and apps, for its tablet users. The Android-based Fire comes with one free month of the Prime service, but it is not clear how many owners paid beyond the first month. Amazon is negotiating with Hollywood studios to expand its existing rights beyond Prime, as well as bulking up its library, according to several sources. In addition to Prime Instant, it also has an Amazon Instant Video download and rental service similar Apple Inc's iTunes digital media store. The retailer said last month the number of videos purchased or rented from Amazon Instant Video, as well as the number of customers, more than doubled in the fourth quarter from the year before. It also said the number of Prime Instant Video streams rose nearly 300 percent during the quarter. The Web video market, currently dominated by Netflix, is set to become increasingly competitive over the next year as major players such as Amazon, Google Inc and Verizon Communications Inc launch so-called over-the-top services. This week, Verizon said it formed a joint venture with Coinstar Inc's Redbox video kiosk rental service that will offer video streaming and DVD rentals by the second half of the year. (Reporting By Yinka Adegoke in New York; additional reporting by Alistair Barr in San Francisco; editing by Andre Grenon )

Q+A - What is shadow banking and why does it matter?

Tue Feb 7, 2012 7:43am EST

http://www.reuters.com/article/2012/02/07/us-shadow-banking-idUSTRE81611820120207

LONDON, Feb & - The shadow banking system makes up 25 to 30 percent of the total financial system, according to the Financial Stability Board (FSB), a regulatory task force for the world's group of top 20 economies (G20).

This largely unregulated sector was worth about $60 trillion in 2010, having grown from an estimated $27 trillion in 2002, according to the FSB. While the sector's assets declined during the global financial crisis, they have since returned to their pre-crisis peak. There are concerns that more business may move into the shadow banking system as regulators seek to bolster the financial system by making bank rules stricter. Below are some questions and answers about shadow banking. WHAT IS SHADOW BANKING? The shadow banking system is made up of financial entities which have the same functions as traditional banks but which are subject to little, if any, regulation. Like traditional banks, shadow banks provide credit and liquidity but, unlike their traditional counterparts, they do not have access to central bank funding or safety nets like deposit insurance. Shadow banking includes money market funds, private equity funds, hedge funds, securitization, securities lenders, and structured investment vehicles. Broad definitions also include investment banks and mortgage brokers. HOW DO SHADOW BANKS WORK? Unlike traditional banks, shadow banks do not take deposits. Instead, they rely on short-term funding provided either by asset-backed commercial paper or by the repo market, in which borrowers offer collateral as security against a cash loan and then sell the security to a lender and agree to repurchase it at an agreed time in the future for an agreed price. Shadow banks, which are often based in tax havens, invest in long-term loans like mortgages, providing credit across the financial system by matching investors and borrowers individually or by becoming part of a chain involving numerous entities, some of which may be mainstream banks. WHAT ARE THE PROS OF SHADOW BANKING? The shadow banking system offers credit and also provides liquidity and funding in addition to that provided by the mainstream banking system. Given the specialized nature of some shadow banks, they can often provide credit more cost-efficiently than traditional banks. The shadow banking system is very important for the economy because it provides funding to traditional banks and without this funding, traditional banks would not lend money, which would then slow growth in the wider economy. Shadow banking institutions like hedge funds often take on risks that mainstream banks are either unwilling or not allowed to take. This means shadow banks can provide credit to people or entities who might not otherwise have such access. WHAT ARE THE RISKS ASSOCIATED WITH SHADOW BANKING? As shadow banks do not take deposits, they are subject to less regulation than traditional banks. They can therefore increase the rewards they get from investments by leveraging up much more than their mainstream counterparts and this can lead to risks mounting in the financial system. Unregulated shadow institutions can be used to circumvent the strictly regulated mainstream banking system and therefore avoid rules designed to prevent financial crises. Shadow banks can also cause a buildup of systemic risk indirectly because they are interrelated with the traditional banking system via credit intermediation chains, meaning that problems in this unregulated system can easily spread to the traditional banking system. As shadow banks use a lot of short-term deposit-like funding but do not have deposit insurance like mainstream banks, a loss of confidence can lead to "runs" on these unregulated institutions. Economist Paul Krugman said a run on shadow banks was "the core of what happened" to bring about the global financial crisis of the late 2000s. Shadow banks' collateralized funding is also considered a risk because it can lead to high levels of financial leverage. By transforming the maturity of credit -- such as from long-term to short term -- shadow banks fuelled real estate bubbles in the mid 2000s that helped cause the global financial crisis when they burst. IS THE SHADOW BANKING SYSTEM REGULATED AT ALL? In the United States the Dodd-Frank Act, passed in 2010, made provisions which go some way towards regulating the shadow banking system by stipulating that the Federal Reserve would have the power to regulate all institutions of systemic importance, for example. Other provisions include registration requirements for hedge funds which have assets totaling more than $150 million and a requirement for the bulk of over-the-counter derivatives trades to go through exchanges and clearing houses. When Mark Carney was appointed chairman of the FSB in November, he said the global watchdog might introduce direct regulation of the shadow banking system to tackle the risks moving into this unregulated sector from the heavily supervised mainstream banking sector. He said regulating the shadow banking industry would be a top priority for the board in the coming months and signaled that the FSB was likely to implement hard rules for activities like securitization and money market funds, and use registration requirements to ensure more transparency in others. The recommendations for G20 leaders on regulating shadow banks are due to be finalized by the end of 2012. The United States and the European Union are already approving rules to increase regulation of areas like securitization and money market funds. (Reporting by Michelle Martin; Editing by Giles Elgood )

"Prove critics wrong" under-fire RBS boss tells staff

Tue Feb 7, 2012 12:09pm EST

http://www.reuters.com/article/2012/02/07/us-rbs-ceo-idUSTRE8161PO20120207

LONDON - The boss of majority state-owned Royal Bank of Scotland ( RBS.L ) urged his staff to "prove the critics wrong" and continue a clean-up that has cost 38 billion pounds ($60 billion) in the past three years.

"RBS is still in its loss making phase, which inevitably gives us communication challenges," RBS Chief Executive Stephen Hester said on Tuesday in a note to staff, seen by Reuters. "There is no doubt that our position in the spotlight makes the job harder ... but the best way to deal with it is to prove the critics wrong." Hester last week waived a near 1-million-pound bonus after the potential handout sparked a wave of political and public anger. Two days later former RBS CEO Fred Goodwin was stripped of his knighthood. RBS is 83 percent owned by taxpayers after needing a 45 billion pounds bailout in 2008. "I am acutely conscious that the way our company has been in the media and political spotlight this last 10 days is discomforting to say the least," Hester said in the note. He said RBS is still suffering "the costs of 'clean up' from our risky inheritance," estimating loan losses, disposal costs and restructuring charges of 38 billion pounds so far. "We are ahead of schedule in that clean-up; in fact we have been able to spend money and accelerate it as the outside environment got worse," he said. RBS is due to report its 2011 results and update on its recovery plan on February 24. ($1 = 0.6300 British pounds) (Reporting by Steve Slater ; Editing by Helen Massy-Beresford)

Mortgage deal faces setbacks, again

Mon Feb 6, 2012 7:11pm EST

http://www.reuters.com/article/2012/02/07/us-mortgage-settlement-idUSTRE81600F20120207

- A multi-state mortgage settlement in the works for more than a year will likely be pushed back again as dissident U.S. states continue to press specific concerns and ignore a Monday deadline to decide whether they will sign it.

States had been given two weeks to assess a proposed settlement, under which top U.S. banks would pay up to $25 billion in exchange for resolving civil government lawsuits about misconduct in servicing home loans and pursuing faulty foreclosures. But on Monday, as a close-of-business deadline loomed, many states had not yet reached a decision. Officials had hoped to announce a final settlement as early as this week. It is unclear if the Obama administration and a group of states will move ahead with a smaller settlement if holdouts continue to drag their feet. Some states and activist groups have been concerned the proposed deal would release banks from too many claims and does not provide enough relief to homeowners. California Attorney General Kamala Harris, whose participation would grow the size of the settlement by some $6 billion to $8 billion, was not expected to issue any statement on Monday, a person familiar with the matter said. On Friday, Harris told Reuters she was "less concerned with the timeline than the details" of the settlement. A New York lawsuit filed on Friday against JPMorgan Chase ( JPM.N ), Bank of America ( BAC.N ) and Wells Fargo ( WFC.N ) has also become a stumbling block, according to a person briefed on the negotiations. This person said on Monday that the banks are balking at a lawsuit from New York Attorney General Eric Schneiderman that accuses them of fraud in their use of the electronic mortgage registry MERS. [ID:nL2E8D3CCR] The lawsuit is based on claims that were expected to be resolved through the settlement. The multi-state settlement talks are focusing on the three banks named in Schneiderman's suit, as well as Citigroup ( C.N ) and Ally Financial. Schneiderman has been a key opponent of the proposed settlement. However, Schneiderman said January 27 that the liability releases in the draft settlement had become narrow enough so that a full investigation by a new mortgage crisis unit that he will help lead could move forward. Jennifer Givner, press secretary for Schneiderman, declined to comment on Monday. HOLD OUTS Other states continued to weigh the details until the last minute. In a statement, Nevada Attorney General Catherine Masto said her office is continuing to review the settlement and is advocating for improvements to address Nevada-specific needs. Masto sued Bank of America last year and accused it of violating an earlier agreement meant to resolve mortgage-related claims from its Countrywide unit, and lawyers for the office are in discussions about what impact the settlement will have on the lawsuit, people familiar with the matter said. A spokeswoman for Attorney General Tom Horne of Arizona said on Monday afternoon that Horne was still evaluating the settlement and "may decide by the end of the day." Even Florida Attorney General Pam Bondi who has been on the committee negotiating the deal has not publicly committed to the settlement. A spokeswoman said in a statement that Bondi "remains involved in the settlement discussions in order to reach the best resolution for Floridians and all Americans." And a spokesman for the attorney general in Massachusetts, Martha Coakley, who has been a critic of the proposed settlement, said her office would not have a comment on Monday. Coakley separately sued the same banks in December and accused them of deceptive foreclosure practices, but she has not ruled out joining the multi-state settlement. Her office has been in discussions to carve out certain foreclosure issues specific to her state, people familiar with the matter have said. In particular, Coakley does not want the settlement to allow banks to avoid a look back at past foreclosures after Massachusetts' highest court voided two home seizures saying the banks failed to show they held the mortgages at the time they foreclosed. California's Harris, too, has expressed state-specific concerns that the relief provided in the settlement go to those "most distressed" in her state, and has pressed for some certainty that the relief is regionally proportionate, according to people familiar with California's concerns. The state has faced some of the worst foreclosure rates in the country. One in every 31 housing units in California received at least one foreclosure filing last year, according to RealtyTrac. Meanwhile, U.S. Housing and Urban Development Secretary Shaun Donovan has been pushing hard in recent weeks to close and sell the deal. He spoke to left-leaning bloggers in a conference call over the weekend to convince them of the merits of the settlement. Representatives of several other state attorneys general either declined to comment or did not respond to requests for comment. (Reporting By Aruna Viswanatha in Washington and Karen Freifeld in New York; Additional reporting from Rick Rothacker in Charlotte and Ben Berkowitz in Boston; Editing by Tim Dobbyn )

Swiss risk deflation if euro crisis worsens: Jordan

Tue Feb 7, 2012 8:20am EST

http://www.reuters.com/article/2012/02/07/us-swiss-snb-idUSTRE81614P20120207

GENEVA/ZURICH - The Swiss National Bank fears that an escalation of the euro zone's debt crisis could prompt deflation, Thomas Jordan said in his first speech since becoming interim chairman of the central bank, stressing his determination to keep a lid on the franc.

The SNB capped the franc at 1.20 per euro on September 6 to prevent Switzerland from tipping into recession and suffering deflation. Safe-haven buyers worried about the euro zone's debts had pushed the franc up by 20 percent in just a few months. "If the risk scenario of a further escalation of the debt crisis were to materialize, economic activity in Switzerland would suffer a much more pronounced slowdown than just described," he said in a speech at a business event. "Such a development would lead to a severe risk of deflation." Jordan took over on an interim basis after Chairman Philipp Hildebrand resigned on January 9 following a currency trading scandal and looks set to be confirmed in the post permanently, with the government seen making the appointment this month. The euro zone is Switzerland's biggest trading partner and Jordan warned the Swiss economy was likely to post only very weak growth in coming quarters. Jordan also said the SNB would use unlimited currency interventions to defend the cap, if it became necessary. He made similar comments made in newspaper interviews in recent weeks. Since Hildebrand stepped down, the franc has gradually strengthened, flirting with the 1.20 level in the last week as the markets test the central bank's resolve. To ensure the cap sticks, the SNB had a close watch on markets 24 hours a day, Jordan said. "This commitment applies at any time, from the moment the market opens in Sydney on Monday to when it closes in New York on Friday," Jordan said. "The SNB will not tolerate any trading below the minimum rate in the relevant interbank market." "We stand ready to take further measures if the economic outlook and the risk of deflation so require," he said. The Swiss franc eased a touch against the euro following Jordan's remarks, but then clawed back those losses. It was trading at 1.2073 at 1201 GMT. The SNB expects prices to fall and economic growth to slow to just 0.5 percent this year, weighed down by subdued global demand and the unfavorable exchange rate. While some economists have warned of the risk of inflation due to Switzerland's ultra-loose monetary policy, Jordan said there was no reason to fear spiraling prices: "There is currently absolutely no risk of inflation in Switzerland." (Reporting by Tom Miles and Catherine Bosley; editing by Patrick Graham )

Bernanke repeats vow to shield U.S. from Europe fallout

Tue Feb 7, 2012 2:42pm EST

http://www.reuters.com/article/2012/02/07/us-usa-fed-testimony-idUSTRE8161DT20120207

WASHINGTON - Federal Reserve Chairman Ben Bernanke on Tuesday renewed a pledge to prevent Europe's financial crisis from damaging the U.S. economy in testimony before Congress that mirrored remarks he made last week.

"We are in frequent contact with European authorities, and we will continue to monitor the situation closely and take every available step to protect the U.S. financial system and the economy," Bernanke said in remarks prepared for delivery to the Senate Budget Committee. The Fed chairman maintained a cautious tone on the U.S. outlook and did not refer to surprisingly strong U.S. jobs data released on Friday. "We still have a long way to go before the labor market can be said to be operating normally," he said, employing language identical to remarks delivered on Thursday before the House budget panel. (Reporting by Mark Felsenthal ; Editing by Neil Stempleman )

Greek government finalizing agreement on bailout: official

Tue Feb 7, 2012 8:44am EST

http://www.reuters.com/article/2012/02/07/us-greece-bailout-idUSTRE81617K20120207

ATHENS - Greece's government is preparing the text of an agreement on a 130 billion euro bailout that must be put to political leaders for approval, a Greek government official said, suggesting Athens had largely wrapped up talks with lenders on the rescue.

The political leaders are due to discuss that agreement late on Tuesday. "The Greek government is working on the final document that will be discussed at the political leaders' meeting later in the day," a government official, who declined to be named, told reporters. (Reporting by Lefteris Papadimas)

Greek rescue inches closer, still riddled with uncertainty

Tue Feb 7, 2012 10:13am EST

http://www.reuters.com/article/2012/02/07/us-eu-greece-negotiations-idUSTRE8161EY20120207

BRUSSELS - For two years, European officials have wrestled with Greece to try to save the country from financial ruin. Yet the closer talks get to a definitive deal, the greater the risk seems to get that negotiations might collapse once and for all.

Deadlines have come and gone, as have rescue packages, but now there is a firm one. Greece will be unable to meet massive bond payments on March 20 without more aid. A first, 110-billion-euro plan was put together in May 2010, only to prove insufficient as Greece's situation worsened. A second, 130-billion-euro deal was agreed last October, but is yet to be finalized despite drawn-out, high-pressure negotiations that have left nerves and tempers frayed. So many moving parts now need to come together at a single moment to clinch the deal that the danger of one piece being out of place and scuppering the whole enterprise has never been greater. "They are dancing on a razor's edge," said Janis Emmanouilidis, a senior analyst at the European Policy Centre in Brussels who has written extensively on the debt crisis. "Time is now really, really short. The further the crisis develops, the more intense these moments become. If something goes wrong, and that's becoming increasingly possible, at some point it could all not work out, with whatever consequences." Emmanouilidis, a German-speaking Greek who in that respect straddles the poles of Europe's debt debacle, thinks it will work out in the near-term, with Greece's political leaders reaching a last-minute accord with the EU and IMF. The lenders have demanded all parties sign up to the austerity measures demanded as part of the second bailout but with elections approaching in April, that could be akin to writing a political suicide note. Even if they do sign up, there are several other elements that could go wrong in a multifaceted conundrum that has been likened to playing three-dimensional chess but which sometimes now borders on quantum physics for its complexity. "The trend is that the situation is becoming more and more dangerous as the variables increase. The puzzle is becoming more complicated and the danger is bigger than ever before. But I still think things will fall into place," Emmanouilidis said. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> Euro zone in graphics r.reuters.com/hyb65p Interactive crisis timeline link.reuters.com/xuw36s ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> DELICATE MACHINERY For that to happen, at least six things have to come together between now and an EU leaders' summit on March 1 - the next putative deadline, although that could also be pushed back. First, Greece's political parties need to agree that they are committed to a deal, which is no simple task given elections are due in April and every party leader is bidding for power. Next the Greek government needs to submit a written commitment on the agreement to the European Commission, the European Central Bank and the International Monetary Fund, the 'troika' of overseers monitoring Greece's economic progress. Then a deal that Athens has struck with private holders of Greek debt, which would see those creditors exchange around 200 billion euros of bonds for longer-dated securities with a lower coupon and half as much nominal value, has to hold - a sensitive process called a bond exchange that can take weeks. At the same time, the troika must agree that the relief delivered by the bond exchange is sufficient to cut Greece's debts to 120 percent of GDP by 2020, from about 160 percent now - a stipulation the IMF is particularly firm on. If that is not the case, then there may have to be a further negotiation over the official sector - the ECB and national euro zone central banks - possibly taking a write-down on some of their Greek bond holdings to bring the debt burden down further. Euro zone finance ministers must sign off on all of that and launch the process of raising the funds Greece needs via the European Financial Stability Facility, their bailout fund. And all of that must happen without parliamentary committees in Germany and Finland - which have to grant approval for their governments to commit - raising last-minute objections. In all of those steps, analysts and officials see the greatest risk at the start of the process, with Greece's political parties, which were again in negotiations on Tuesday but have so far shown little inclination to bite the bullet. "The last mile has to be covered by the Greek political parties, the last mile to reach the second program and to ensure a sustainable plan," said Amadeu Altafaj, the European Commission's spokesman on economic and monetary affairs. "We still hope for an agreement this afternoon at the meeting that Mr. Papademos will hold with the party leaders," he said, referring to the prime minister's last-ditch bid. "But we are running out of time. For Christoph Weil, a euro zone economist at Commerzbank, it is also Greece's politicians who have the ability to cut the Gordian knot, or else scuttle the EU's efforts, depending on how they respond to the troika's demands. "My base scenario is that there will be an agreement and we will see a second rescue package, so the problem will be under control for the moment," he said on Tuesday. "But in the longer run I am pessimistic, I think it is only a question of time before the Greeks leave the euro. Because they are unable to reform, the government is unable to reform its institutions at all." Those feelings are reflected by others. It may be that Greek party leaders and the government deliver at the very last second and a debt default - failure to meet a 14.5 billion euro bond redemption on March 20 - is averted. That, combined with the expectation that EU leaders will agree in March to increase the ceiling on their rescue fund to 750 billion euros, and that the ECB will deliver another shot in the arm to debt markets with more cheap three-year loans on February 29, could shift the debt crisis onto a positive footing. But still Greece's problems will linger. Already analysts expect Athens won't meet its commitments even if it signs up to them. That failure could be exposed at the first review, in theory due three months after the next program is agreed. "The lack of confidence in Greece's ruling class has never been so high," said Emmanouilidis. "There's this feeling that they can't deliver and also this sense that if they can't deliver, then the euro zone will have to do without them. "My feeling is that it will work out now, but if you look further ahead, beyond March... I don't know." (Additional reporting by Jan Strupczewski , editing by Mike Peacock)

Bernanke's testimony on economy to Senate panel

Tue Feb 7, 2012 12:36pm EST

http://www.reuters.com/article/2012/02/07/us-usa-fed-bernanke-idUSTRE8161HS20120207

WASHINGTON - Below are highlights from Federal Reserve Chairman Ben Bernanke's testimony on Tuesday on the state of the U.S. economy to the Senate Budget Committee. Bernanke's prepared testimony was virtually identical to testimony on Thursday to the House Budget Committee.

BERNANKE ON MONEY MARKET FUNDS: "There has been progress made both by banks and by money market mutual funds in reducing exposures and improving hedging but again I don't want this to be interpreted as a complacent statement. I think that if there is a major problem in Europe, the risk aversion, the volatility, the uncertainty - all of those things would have a powerful impact on our financial system." BERNANKE ON THE IMPORTANCE OF LONG TERM FISCAL PLAN: "Its very clear ... the U.S. federal deficit will become unsustainable within 15 or 20 years at the most. Possibly some of those effects will even be brought forward by markets, for example. So, we clearly need some major changes in our fiscal planning and our fiscal path going forward. ... These are concerns which are not just about our children 20 years from now but they could have effects much sooner if markets begin to loose confidence in our nation's ability to stabilize our debt burden." BERNANKE ON NEED TO MORE URGENTLY ADDRESS STRUCTURAL FISCAL ISSUES: "Certainly you do. In fairness to the hardworking people here, I would say that there is a lack of clarity to some extent among the general public. I think people have conflicting views about what they want. Everyone wants a lower deficit but nobody wants to lose their own program or their own tax cut. So it is difficult. I understand. But absolutely, I think we would all benefit from action to credibly and strongly articulate a plan that would bring our fiscal situation into sustainability over the next couple of decades." BERNANKE ON U.S. BANKS EXPOSURE TO EURO ZONE BANKS: "Banks have made progress in protecting themselves against problems in European sovereign or bank debt. But I would agree that if there is a very substantial crisis or similar problem in Europe that, because there are so many channels in which that would flow to the financial system, our banks, our whole financial system would still be significantly affected." BERNANKE ON IMPACT OF LOW RATES ON SAVERS: "There are single-mandate central banks like the Bank of England and the ECB that have policies very similar to the Fed. Given that inflation is close to target I don't think that we'd be doing a radically different thing if we had a single mandate at this particular point in time. We're quite aware of these costs and risks. ... With respect to savers, for example, it's true that low interest rates reduce the returns that savers get on their savings but I would make the general point that savers don't hold just, say, Treasury bonds. They also hold corporate debt and stocks and a variety of other securities and returns on those securities depend very importantly on the strength of the economy. So in trying to strengthen the economy we're helping to improve the returns to savers." BERNANKE ON EFFECT OF FED POLICY ON TREASURY RATES: "I think that the effects of Fed policy, independent of the all the other factors, on Treasury rates is modest. And in any case, rates will rise, eventually. And if investors were to lose confidence in U.S. federal fiscal policy, there's nothing the Fed could do to prevent those rates from rising." BERNANKE ON NEED FOR LONG-TERM PLAN TO REDUCE BUDGET DEFICIT: "This is a very long-term problem. It doesn't have to be done all today. On the other hand, gesturing towards the future without taking any concrete steps or credible steps is not going to be effective either. So, I think the more you can demonstrate a will and commitment to sustainability over the longer term - by which I mean at least 10 years but beyond that if possible - the more flexibility there will be to address near-term concerns relating to the recovery and so on over the next two to three years. But you need both." "Just simply promising future action risks at least an adverse market reaction, an adverse reaction in terms of confidence and so on." "We're looking still at a couple more years of recovery, but there's nothing that stops us from very soon also laying out in some detail and with some commitment what the longer-term plan is to address the fiscal problem." BERNANKE ON DUAL MANDATE: "We are not going to seek higher inflation in order to advance unemployment. ... You could have shocks that would drive both objectives away from their target, in which case in a very symmetrical way we would be returning both parts of the mandate towards the target. But we have to take into account the other part of the mandate. It could affect the speed at which we return inflation to target, but by the same token if inflation is high it could affect the speed at which we return employment to target. There has to be some interaction of those two things. BERNANKE ON EMPLOYMENT TREND: "Our forecasts are for unemployment to continue to decline moderately. We see growth at something close to potential, which under normal circumstances would mean that we are creating enough jobs to employ new entrants to the labor force but not making sharp improvements on the unemployment rate." BERNANKE ON EFFECT OF DROP IN U.S. EXPORTS TO EU: "We've already seen some decline in exports to Europe, although exports to Europe are about 2 percent of our GDP so it's not totally make-or-break. But it is an influence." BERNANKE ON CONSUMER CONFIDENCE: "If you look at the consumer confidence surveys, people are saying that they don't expect to see their real incomes grow. They expect that their financial situations are going to be flat to down in the next few years. And that's not a situation that encourages people to buy a house or start a business or anything like that." BERNANKE ON POTENTIAL IMPACT OF OIL SUPPLY DISRUPTION: "As we saw in a modest way early last year, a significant increase in oil prices can be very disruptive, both because it creates inflation and also because it acts like a tax on consumers. ... A major disruption that sent oil prices up very substantially could stop the recovery." "That being said, I think one of the more encouraging things of the last several years is the fact that with new processes and approaches, the U.S. is becoming a much more prolific producer of fossil fuels and is also making progress on non-fossil forms of energy. For the first time in some time I think there's a chance we can move in the right direction in reducing our exposure to foreign supply disruptions." BERNANKE ON TIMING, CREDIBILITY OF GETTING FISCAL SITUATION UNDER CONTROL: "The cumulative effect of all these different things - (the) expiration of the payroll tax, the sequestration, expiration of the Bush tax cuts and other things - collectively would be a fairly sharp change in the near term fiscal position. I'm not saying don't pay for it. I'm just saying do it over a longer period of time, and do it seriously. I agree with Senator Sessions' concern that it's just push it off (to) manana. You don't want to do that. You want to make a credible strong plan, but one that phases in over a period so the economy will not hit a huge pothole." BERNANKE ON ENTITLEMENT SPENDING: "Under the current plans if there's no change to our entitlement programs, then the demand for spending, the amount of spending the government is committed to, is going to rise. ... So at some point Congress is going to have to make a tradeoff between what its spending programs are and what taxes it's willing to raise. I've often said I'm in favor of the law of arithmetic: if you want a low-tax economy which has benefits from (an) efficiency perspective, then you've got to make the tough decisions on the spending side. And vice versa if you want to spend more you've got to figure out how to raise the revenue. I'd mainly try to urge Congress to make sure they're looking at both sides so there's a balance between the two." BERNANKE ON NEED TO LOOK BEYOND 10 YEARS IN CUTTING BUDGET DEFICIT: "We need a long-term plan to put our debt to GDP ratio, our overall fiscal burden on a sustainable path." BERNANKE ON UNEMPLOYMENT: "We are concerned that over the past few years that there has been some modest increase in the sustainable rate of unemployment. One of the factors contributing to that is the fact that about 40 percent of the unemployed have been unemployed for six months or more and those folks lose skills, they lose attachment to the labor force. It makes it difficult for them to find steady employment in the longer-term. Monetary policy really cannot do much to bring unemployment in a sustainable way below those levels. Other policies affecting skills, the structure of the labor market, fiscal policy and trade, all kinds of other policy could affect and bring down that sustainable rate of unemployment and I hope Congress will consider ways to address that problem." BERNANKE ON IMPACT OF LOOMING TAX INCREASE IN 2013: "I don't know exactly when uncertainty would become a factor, but surely when we get closer to January 1st and Congress has not given a clear roadmap for how it plans to proceed, that would certainly effect planning - business decisions, household decisions - as they look ahead to next year." BERNANKE ON THE INFLATION OUTLOOK: "The energy price increases of early last year have not recurred. Our projections are that inflation is going to remain very subdued, probably below our 2 percent target going into 2012 and 2013. So, because monetary policy works with a lag we have to think about where inflation is going to be, not where it has been in the past. Inflation has averaged about 2 percent a year over my tenure as chairman and we expect it to be at 2 percent or below in the next couple of years. So we think that is entirely consistent with an accommodative policy." BERNANKE ON FED'S ADOPTION A 2 PCT INFLATION TARGET: "I want to disabuse any notion that there is a priority for maximum employment. We say very explicitly, we take a balanced approach. Congress gave us a dual mandate. We work to bring both sides of the mandate back towards the target. The main goal of that statement was not to announce any change in policy. The main goal was to give greater clarity about how we define these long-run objectives. But we are certainly going to be working to bring both parts of mandate towards desired levels." (Washington newsroom)

UBS says unit head Kengeter will forgo 2011 bonus

Tue Feb 7, 2012 9:42am EST

http://www.reuters.com/article/2012/02/07/us-ubs-bonus-idUSTRE8160P220120207

ZURICH - UBS said investment banking head Carsten Kengeter will voluntarily forgo a bonus for 2011, after a trader in his unit allegedly racked up $2 billion in losses.

The Swiss bank's Chief Executive Sergio Ermotti said Kengeter approached him after the trades and said he would not accept a bonus, regardless of what the board decided. UBS is accepting his decision. (Reporting By Katharina Bart)

Combined Xstrata-Glencore able to do bigger deals: Xstrata CEO

Tue Feb 7, 2012 5:09am EST

http://www.reuters.com/article/2012/02/07/us-xstrata-glencore-ceo-idUSTRE8160JM20120207

LONDON - A combined Glencore and Xstrata would be able to undertake larger deals, Xstrata's chief executive Mick Davis said on Tuesday.

"There's no doubt that the combined entity has much greater financial capacity and a cleaner shareholder structure to facilitate us looking at deals which otherwise would have been challenging for us to do and therefore (it) does allow you to do larger transactions," Davis said in a conference call with analysts and investors. Xstrata agreed earlier on Tuesday to a takeover by commodities trading giant Glencore, in a $90 billion recommended all-share deal, the mining sector's biggest to date. "The advantages of scale give you the opportunity of taking perhaps more risk and therefore more opportunity in those geographies where you might have said we will be there but we will be there only within a particular size," he added. He also said the oil and gas sector would be attractive to the combined entity: "That's an area which deserves and merits attention." (Reporting by Sarah Young ; Editing by Matt Scuffham)

Hungary blues hit business climate in Eastern Europe

Tue Feb 7, 2012 8:20am EST

http://www.reuters.com/article/2012/02/07/us-economy-east-climate-idUSTRE81614O20120207

VIENNA - The business climate in Hungary plunged in the quarter to January, dragging down the average for the European Union's developing eastern economies, a Thomson Reuters survey showed on Tuesday.

The Thomson Reuters & OeKB Central and Eastern European Business Climate index of foreign direct investors slipped for a third consecutive quarter, to 14 points in January from 17 in October. Hungary's 27-point decline to -31 was the worst by far showing investors expected an already weak economic outlook to worsen on the back of policies that have driven its financial markets lower and threatened to derail talks on EU and IMF support. "Business expectations deteriorated sharply as well, not least due to the Hungarian government's controversial measures such as the foreign currency law or the launch of special taxes for certain sectors including banks, energy and trade," it said. Austrian banks have taken a hit from Hungary's move to let its domestic borrowers repay foreign-currency loans at below market rates. The reading for Hungary's current business situation was at -17 the worst in the region, and business expectations also remained negative. Morale was mixed overall in the 11 countries surveyed. Russia, the biggest economy in the region by far, led the group in overall business climate, scoring 45, up from 41 in October. Poland, the biggest eastern European Union member, eased three points to 35. Ukraine gained five points to 34. "Russia and Ukraine appear to be less affected by the euro zone debt crisis or the economic developments in the EU," said Austrian export financing bank OeKB, which compiles the survey. The economic outlook indicator for the entire region deteriorated to -10 from -6 in October, when it fell into negative territory for the first time in more than two years. The negative figure means that more investors had a pessimistic outlook than a positive outlook for economic growth prospects over the next 12 months. The current business situation index fell six points to 23. NOTE - Distributed exclusively on the Reuters system, the Thomson Reuters & OeKB Central European Business Climate Index is based on quarterly surveys of 400 international companies with regional headquarters in Austria, which manage 1,400 affiliate companies in 19 countries in central and eastern Europe. (Reporting by Michael Shields )

BP approves Mad Dog Phase 2 in Gulf of Mexico

Tue Feb 7, 2012 11:47am EST

http://www.reuters.com/article/2012/02/07/us-bp-gulfofmexico-idUSTRE81613Q20120207

LONDON - BP said it had approved a plan to develop a "major new gas field" in the Gulf of Mexico, the latest sign the British oil group is getting back to business in the area after its disastrous 2010 oil spill.

Chief Executive Bob Dudley said on Tuesday that BP and its partners Chevron Corp and BHP Billiton had agreed to build phase two of their Mad Dog development. This will involve installing a new 'spar' platform on the southern extension of the field, capable of producing 120,000-140,000 barrels of oil equivalent per day (boed). "We have just sanctioned with our partners Chevron and BHP ... one of the largest new free-standing developments in the Gulf of Mexico," Dudley told reporters at a press conference. BP has a 60.5 percent working interest in Mad Dog. BHP Billiton has a 23.9 percent stake, and Chevron has 15.6 percent. (Reporting by Tom Bergin; Editing by Will Waterman)

Walmart names ex-Woolworths veteran as new China CEO

Tue Feb 7, 2012 6:40am EST

http://www.reuters.com/article/2012/02/07/us-walmart-china-idUSTRE8160WQ20120207

SHANGHAI/HONG KONG - Wal-Mart Stores Inc ( WMT.N ) has named an industry veteran, but a relative newcomer to China, to run what is a strategically crucial business for the world's biggest retailer as it faces tougher competition in the fastest growing major economy.

The appointment of Greg Foran as president and chief executive of Walmart China caps a series of leadership changes at the unit, which has been tainted by food scandals, including a pork mislabeling issue last year that forced the company to temporarily shut a dozen stores in central China. Foran, who joined Walmart in October after a long career with Australian retailer Woolworths Ltd ( WOW.AX ), replaces Ed Chan, who stepped down in October. Some analysts questioned the wisdom of putting a relative newcomer at the helm of the China operations as Walmart takes on fierce competition from both local and other global rivals. "The new appointee seems to have comparatively less China on-the-ground experience," said James Roy, senior analyst at China Market Research Group based in Shanghai. "I think for a lot of American companies and a lot of foreign companies, they need people from inside who know the company culture well, and it is important to have a balance between that and the operating environment in China," he said. "Whether it's local Chinese or not, it should be somebody who understands the market." Foran is currently senior vice president, Walmart International, and starts his new role on March 1, the company said in a statement on Tuesday. FROM PART-TIMER TO DIVISION HEAD Before joining Walmart, Foran, a 30-year retail veteran, moved up the ranks in New Zealand and Australia at Woolworths, from a part-time job stocking shelves to head of Woolworths' Supermarket Division. He held several senior roles at Woolworths, including General Manager of Big W, the company's discount department store division, and Dick Smith, which specializes in consumer electronics. His experience includes operations, merchandising, marketing and replenishment. Foran quit Woolworths after missing out on the top job, the Sydney Morning Herald said in a report in July. Walmart has not always had an easy time during the past 15 years as it has expanded across China, where it now has more than 350 stores. In October, the Chinese city of Chongqing penalized Walmart after the firm was found to have mislabeled some pork as organic at a couple of its stores. Authorities said the pork scandal was the latest in a string of 21 violations dating back to 2006. Walmart had also suffered a series of high-level personnel losses last year, after its China chief financial officer and chief operating officer left in May, leaving a leadership vacuum. Walmart's troubles in China reflect the retail giant's struggles in a complex market where rapid expansion and a cumbersome takeover have marred profit and growth. Walmart China has faced intense competition on the mainland, where it competes against China's Sun Art ( 6808.HK ) and China Resources Enterprise ( 0291.HK ), with local brands such as Yonghui and Shinshiji, among others. It is also up against French hypermarket chain Carrefour ( CARR.PA ), Britain's Tesco ( TSCO.L ) and Germany's Metro AG ( MEOG.DE ) - all of which are gradually expanding to inland China as interior cities become more affluent. Foran could boost Walmart's position in China if he taps those who have local expertise, some analysts said. "The appointment itself is good in strengthening the management in purchasing and operation, but I still have a question on how effective it is if he didn't know much about the (local) market," said Jason Yuan, analyst at UOB Kay Hian Research in Shanghai. (Writing by Ken Wills ; Editing by Kazunori Takada, Muralikumar Anantharaman and Ian Geoghegan )

Facebook governance a concern for California pension fund

Tue Feb 7, 2012 2:52pm EST

http://www.reuters.com/article/2012/02/07/us-facebook-calstrs-idUSTRE81601Q20120207

NEW YORK - Facebook's corporate governance rules, which give shareholders little say in how the social networking website would be run as a public company, are raising the hackles of one of the largest U.S. investors, the California State Teachers' Retirement System.

The pension fund, which has a portfolio valued at around $145 billion, is planning to send a letter to Facebook, hoping to engage the social networking website on corporate governance, two CalSTRS executives told Reuters in an interview on Monday. "We are in the beginning stages of talking to Facebook," said Janice Hester-Amey, a portfolio manager in CalSTRS Corporate Governance unit. Facebook, which is run by Chief Executive and founder Mark Zuckerberg, declined to comment. CalSTRS decided on Friday -- just two days after Facebook filed for a $5 billion initial public offering -- to try to talk to the website about improving its corporate governance. CalSTRS invested in Facebook from its funds on the private equity side and is likely to invest in the company's publicly traded shares, Hester-Amey said. "No matter how brilliant you are, when you come to the public market -- not that we want to ever tell Zuckerberg or anyone like him how to run his company -- there should be some protection especially for long-term, patient money like CalSTRS," Hester-Amey said. "So I think there should be some more respect for capital," she said. Facebook has put up a series of defenses against proxy battles and unwanted takeover attempts, according to its filing with the U.S. Securities and Exchange Commission. Under the governance provisions, Zuckerberg would remain in complete control of the company for the foreseeable future, so much so that the 27-year-old Harvard University drop-out would even have the right to appoint his own successor before he dies. "With a person that owns as much of the stock and the way he has set up the governance ... it will be very hard to influence him except if he's got some kind of a conscience," Hester-Amey said. Facebook's corporate governance measures go against a decade-long trend of a move toward more shareholder-friendly corporate governance in the United States, prompted by institutional shareholders such as CalSTRS. S&P 500 companies have been taking down classified boards, poison pills and other defenses over the years under pressure from institutional investors to have more shareholder-friendly governance rules. For example, only about 24 percent of S&P 500 companies now have classified boards -- where only some of the directors come up for election every year -- down from 61 percent in 2002, according to FactSet SharkRepellent. Facebook has two different classes of common stock, with Class B shares entitled to 10 votes per share against one vote per share for Class A. Class A stock is being sold to the public. Zuckerberg has also struck voting agreements with investors including DST Global Ltd and Accel Partners. Overall he will have majority control after the IPO, giving him the power to determine the outcome of matters submitted to shareholders for approval, including the election of directors and any merger. Given Zuckerberg's holdings, Facebook is also deemed a "controlled company," which gives the company the right to not have an independent nominating committee of the board to choose directors. Moreover, Facebook's governance rules say that when Class B shareholders have less than the majority of the combined voting power, the board will become staggered, only the board will be able to fill director vacancies and it will take a supermajority to change the company's by-laws. Corporate governance expert Charles Elson said provisions such as the dual-class stock structure, different voting powers and Zuckerberg's ability to designate his successor were all reasons for concern. "I find it very troubling," said Elson, who is the director of John L. Weinberg Center for Corporate Governance at the University of Delaware. "The whole tone to me was contrary to where governance has been moving, and the lessons that we have learned." (Reporting By Paritosh Bansal)

Instant view: Toyota Q3 profit jumps, raises forecasts

Tue Feb 7, 2012 2:36am EST

http://www.reuters.com/article/2012/02/07/us-toyota-view-idUSTRE8160BL20120207

TOKYO - Toyota Motor Corp reported a stronger-than-expected quarterly operating profit, shrugging off a firm yen and the damaging impact of flooding in Thailand, and raised its annual forecast, helped by cost cuts and Japanese government subsidies.

COMMENTARY: TOMOICHIRO KUBOTA, MARKET ANALYST, MATSUI SECURITIES CO "They lifted their pretax profit forecast for the year to March 2012 to 270 billion yen from 170 billion yen, and this can probably be taken as a straightforward positive (for its shares). "It gives a positive impression, with electronics and other sectors issuing downward revisions. "As for a rebound for the stock to 3,000 yen from tomorrow onwards, these results could get the job done. "In terms of their currency rate forecasts, their euro/yen outlook looks a bit rosy, so this leaves some cause for worry." FUMIYUKI NAKANISHI, GENERAL MANAGER OF INVESTMENT AND RESEARCH, SMBC FRIEND SECURITIES, TOKYO "It is a surprising, good number. I think most in the market were expecting much worse. The operating profit forecast for the year to March is nearly halved from the previous year but that doesn't mean it's going to fall into a loss, and that sets them apart from other Japanese corporations. "But just looking at the fourth quarter, it doesn't look like the recovery is going to be as robust as expected and there are a lot of downside risks, especially considering Europe. But there is a sense of positive surprise at their results. I think we are going to see cost-cutting benefits from Toyota's negotiations for lower material prices with Nippon Steel and probably other firms." KOJI ENDO, MANAGING DIRECTOR AT ADVANCED RESEARCH JAPAN "It (the impression of the results) is really weak. They have revised the operating profit upwards by 70 billion yen, but that still remains very low... They will sell 2.4 million cars in the fourth quarter and only be able to make 50 billion yen in operating profit. This means their automobile business is in a really tough situation. "Compared with Honda and Nissan, Toyota's pace of profits returning is very slow. The profit performance of their automobile business is abnormally low. The issue of high fundamental costs appears not to have improved at all. "In terms of costs, they can work on cutting fixed costs... Their production capacity, number of employees, number of parts makers, number of dealers, vehicle lines, they have too much of everything... Compared to the pace of the sales drop, their cost-cutting is not progressing at all. The cost cut effects have yet to show up in the figures. "The other issue is the top line, which is struggling to grow... Even if the number of cars they can sell increases, profits won't grow so much. "The share price has been rising ahead of the next business year when profits are likely to grow quite a bit and the PER has returned to 1. But the PER is unlikely to go up from here... Honda and Nissan are better off at this stage." MAKOTO KIKUCHI, CEO OF MYOJO ASSET MANAGEMENT, TOKYO "Analysts' consensus on operating profit was 300 billion yen so it (Toyota's new forecast) was slightly weaker, but this is not so important. More important is if Toyota can recover in the next fiscal year. "The outlook is not so positive as I fear the economic recovery will not be as strong as analysts expect, which will drag on Toyota's performance, but this is not specific to Toyota. "Today's result will not have a major impact on Toyota's share price." TOSHIYUKI KANAYAMA, SENIOR MARKET ANALYST, MONEX SECURITIES, TOKYO "The operating profit forecast was below consensus so it is a bit of a disappointment. But that was partly due to the floods in Thailand and the market is looking at the next financial year, rather than this year. "According to my back-of-the-envelope calculations, its fourth-quarter operating profit is around 150 billion yen. The key for Toyota shares will be whether profit will rise to around 200 billion yen per quarter or around 800 billion yen in the year. "I don't think they can easily drop their target of domestic production of 3 million units. "The important point for now is whether they can generate profits that match market expectations in the next financial year." (Reporting by Chang-Ran Kim ; Additional reporting by Hideyuki Sano , Miki Kayaoka, Yoko Kubota , Mari Saito )

Wall St edges up in quiet day; Disney down late

Tue Feb 7, 2012 5:33pm EST

http://www.reuters.com/article/2012/02/07/us-markets-stocks-idUSTRE80T0J120120207

NEW YORK - Stock index futures pointed to a slightly higher open for equities on Wall Street on Wednesday, with futures for the S&P 500, the Dow Jones and the Nasdaq 100 rising 0.2 to 0.3 percent.

Walt Disney Co's quarterly revenue fell short of Wall Street's expectations after the movie studio put in a poor showing, but profit grew at a faster-than-expected 12 percent clip as media networks and theme parks held up in an uncertain economy. Western Union, the world's largest payment transfer company, posted a higher fourth-quarter profit, but forecast full-year earnings below market expectations on macro-economic challenges. Groupon reports its first results as a public company and the market will be keen to see if the largest daily deal website makes its first quarterly profit. Groupon is expected to report earnings of 3 cents per share on revenue of $475 million, according to Thomson Reuters I/B/E/S. Visa is expected to post a profit of $1.45 per share, up from $1.23 per share in the quarter, helped by a rise in consumer spending in the holiday season. Other companies announcing results include Sprint Nextel, Cisco Systems, News Corp, Moody's Corp and Time Warner. The Mortgage Bankers Association releases at 1200 GMT Weekly Mortgage Market Index for the week ended February 3, versus the prior week. The mortgage market index read 753.3 and the refinancing index was 4,113.8 in the previous week. Yahoo Inc Chairman Roy Bostock and three other directors will step down as the struggling company ploughs ahead with an internal overhaul, including discussions on dealing with its stakes in China's Alibaba Group and Yahoo Japan. Real estate services company CBRE Group Inc's quarterly earnings, excluding charges, beat Wall Street's forecast, as stronger revenue from sales and its outsourcing business offset lower leasing revenue from the Americas. Lower chicken wing costs and price increases helped bar and grill chain Buffalo Wild Wings Inc top Wall Street estimates and forecast strong growth in fourth-quarter same-store sales. Oil field services company Halliburton plans to stop issuing BlackBerry smartphones to employees and switch over to Apple's iPhone, which it said was better suited to its needs, marking another setback for Research In Motion. Illumina rejected as inadequate on Tuesday a $5.7 billion hostile takeover bid from Roche, saying it undervalues the gene sequencing company. Life Technologies Corp, a maker of tools and genetic testing equipment used in biotechnology research, on Tuesday reported slightly higher than expected fourth-quarter profit and said it sees modest revenue growth in 2012. European stocks rose 0.6 percent on Wednesday, breaking a two-day losing streak, thanks to a string of upbeat corporate outlooks and as investors bet that Greece will finally secure the bailout it needs to avoid a chaotic default. Greek parties will try yet again on Wednesday to strike a reform deal in return for a new international rescue package to avoid a chaotic default, after a string of delays which have prompted some EU leaders to warn that the euro zone can live without Athens. U.S. stocks rose slightly on Tuesday, but with the outcome of discussions on a bailout package for Greece uncertain, investors are unlikely to make big bets in coming days. The Dow Jones industrial average was up 33.07 points, or 0.26 percent, at 12,878.20. The Standard & Poor's 500 Index was up 2.72 points, or 0.20 percent, at 1,347.05. The Nasdaq Composite Index was up 2.09 points, or 0.07 percent, at 2,904.08. (Reporting by Blaise Robinson. Editing by Jane Merriman)

Standard Life to vote against Xstrata-Glencore merger

Tue Feb 7, 2012 4:18am EST

http://www.reuters.com/article/2012/02/07/us-standard-life-glencore-idUSTRE8160MJ20120207

LONDON - Standard Life Investments, the fourth largest investor in miner Xstrata, intends to vote against the recommended merger of equals with suitor Glencore International, which it says "clearly undervalues" Xstrata's assets and future earnings potential.

"Although we see some merit in the merger of Xstrata and Glencore the proposed exchange ratio clearly undervalues Xstrata's assets and future earnings contribution," David Cumming, Head of Equities, Standard Life Investments said. "Consequently it is our intention to vote against the deal unless the merger terms for Xstrata shareholders are materially improved." Standard Life holds 63.6 million shares in Xstrata. The boards of commodities trader Glencore and Xstrata have agreed an all-share takeover of the mining group worth $90 billion on Tuesday in the industry's largest ever deal, creating a powerhouse spanning mining, agriculture and trading. Glencore will issue 2.8 new shares for each Xstrata share in a deal they said was a "merger of equals". The ratio represents a 15.2 percent premium to Xstrata shareholders compared with its share price last Wednesday before word leaked out about the merger talks, a joint statement said. (Reporting by Sinead Cruise.; Additional reporting by Chris Vellacott; Editing by Hans-Juergen Peters)

Factbox: Fed officials' comments on the economy, policy

Tue Feb 7, 2012 12:24pm EST

http://www.reuters.com/article/2012/02/07/us-usa-fed-comments-idUSTRE8161QK20120207

- At its January policy meeting, the Federal Reserve gave a gloomy read on the economy, said it would likely need to keep interest rates "exceptionally low" until late 2014, and signaled more easing could be on the way.

Fed Chairman Ben Bernanke also said the U.S. central bank "should be looking to do more" to help the economy if inflation continues to stay low and unemployment stays high. The decision to ease policy came amid internal dissent, with at least one centrist -- St. Louis Fed President James Bullard -- and three inflation hawks -- Richmond Fed President Jeffrey Lacker, Dallas Fed President Richard Fisher and Philadelphia Fed President Charles Plosser -- expressing their disagreement with the decision. The following are recent comments from policymakers: FED CHAIRMAN BEN BERNANKE*, February 7 "We are not going to seek higher inflation in order to advance unemployment. ... You could have shocks that would drive both objectives away from their target, in which case in a very symmetrical way we would be returning both parts of the mandate towards the target. But we have to take into account the other part of the mandate. It could affect the speed at which we return inflation to target, but by the same token if inflation is high it could affect the speed at which we return employment to target." ST. LOUIS FED PRESIDENT JAMES BULLARD, February 6 "It's important to start to remove accommodation - even when you go up to 1 percent or 1-1/2 percent, that's still very easy monetary policy. It's a matter of getting to a normal level of interest rates at the right time." BULLARD, February 3 "I need to see significant deterioration in the economy and some threat of deflation or inflation moving significantly below our inflation target before I would consider more" quantitative easing. DALLAS FED PRESIDENT RICHARD FISHER, February 2 "Personally I don't see how you can justify it given the state of the current economy," he said, referring to a third round of quantitative easing. CHICAGO FED PRESIDENT CHARLES EVANS, February 2 "I would be very aggressive," he said. "Over a six-month period I would set out a number that would be achievable, and if it couldn't be all done in mortgage-backed securities, then I would throw in some Treasuries." BERNANKE*, February 1 "We are not seeking higher inflation, we do not want higher inflation and we're not tolerating higher inflation." PHILADELPHIA FED PRESIDENT CHARLES PLOSSER, February 1 "Monetary policy should be contingent on the economic environment and not on the calendar...(T)here continues to be confusion and the confusion stems from our statement." PLOSSER, January 30 "I worry about this accelerationist view that we have to go ever faster on the pedal of monetary policy." NEW YORK FED PRESIDENT WILLIAM DUDLEY*, January 27 "Clearly, much work remains to achieve the Fed's dual mandate of maximum sustainable employment in the context of price stability." RICHMOND FED PRESIDENT JEFFREY LACKER*, January 27 "I expect that as economic expansion continues, even if only at a moderate pace, the federal funds rate will need to rise in order to prevent the emergence of inflationary pressures. This increase in interest rates is likely to be necessary before late 2014." BERNANKE*, January 25 "I don't think we're ready to declare that we've entered a new, stronger phase at this point...If the situation continues with inflation below target and unemployment declining at a rate which is very, very slow, then ... the logic of our framework says we should be looking for ways to do more." (*denotes 2012 voting members of the policy-setting Federal Open Market Committee) (Reporting by Pedro Nicolaci da Costa , Mark Felsenthal , Ann Saphir , Jonathan Spicer )

BP squares up for oil spill lawsuits

Tue Feb 7, 2012 11:22am EST

http://www.reuters.com/article/2012/02/07/us-bp-idUSTRE8160F920120207

LONDON - BP ratcheted up the rhetoric around multi-billion dollar claims from the Gulf oil spill by warning it would "vigorously" contest lawsuits over one of the world's worst environmental disasters.

While reiterating BP's "bias for settling" at hearings scheduled later this month, CEO Bob Dudley said he would only do so "on fair and reasonable terms." As he unveiled higher fourth quarter profit on Tuesday and a rise in the dividend, which he said showed BP was putting the spill behind it, Dudley acknowledged the lawsuits were the biggest uncertainty facing the British oil major. "We have many people who do say, we are interested in investing in BP but not until all this is behind you," he told a press conference. BP faces 600 civil lawsuits from people in states as far away as South Carolina and Kentucky, as well as litigation from the U.S. government. "We always have had this bias toward settling and moving on, and reducing uncertainty," Dudley said. But he added; "We are preparing vigorously for trial. We have confidence in our case." Analysts at Morgan Stanley have predicted BP will agree to pay the U.S. government $20-$25 billion in the coming weeks to settle fines and natural resources damages but Alastair Syme, oil analyst at Citigroup, said he expected the case to go to trial as planned on February 27. BP, Europe's second-largest oil company by market value, also lifted its estimate of the total cost of the United States' worst-ever offshore oil spill by $1.8 billion to $43 billion due to higher costs for shoreline clean up, which BP said was now largely complete, and a new $500 million charge for legal fees. By contrast, BP's statement showed the company has valued the doomed Macondo prospect at just $400 million. The disaster forced a major restructuring at London-based BP but Dudley said the group was returning to growth and that 2012 would be a "year of milestones," after a "year of consolidation" in 2011. Underscoring its confidence, BP increased its quarterly dividend to 8 cents a share from 7 cents, backed by strong cashflows due to higher oil price. "It is a good sign of confidence in the improving operational performance," said Tony Shepard, oil analyst at Charles Stanley. BP's 14 cents a share quarterly payout was cut at the height of the spill, and reintroduced at half that level in 2011. OUTPUT FLAT, MORE CAPEX BP said its replacement cost (RC) net profit rose 65 percent compared with the same period last year, to $7.61 billion in the quarter, boosted by a $4 billion contribution from Anadarko Petroleum, which had a stake in Macondo, towards clean up costs. Stripping out one-offs, the result rose 14 percent to $4.99 billion, in line with an I/B/E/S consensus forecast of $4.89 billion. Rival Royal Dutch Shell Plc reported an 18 percent rise in underlying profit in the quarter while industry leader Exxon Mobil only managed a 2 percent rise. Replacement cost profit excludes gains or losses related to changes in the value of fuel inventories and so is comparable with net income under U.S. accounting rules. BP's muted increase was despite an unusually low tax rate, higher gas prices and a 26 percent rise in the Brent crude price in the quarter compared to the same period of 2010. Lower production weighed on the fourth quarter result, with assets sales, in part to help pay for the oil spill, pushing output down 5.1 percent to 3.49 million barrels of oil equivalent per day in the quarter. Dudley said he expected output to fall further in 2012, despite investor hopes that BP's smaller asset base would facilitate higher growth. Echoing a trend across the sector, BP said it was lifting its capital expenditure budget for 2012, as it invests more in exploration and production. Some analysts have questioned whether the additional spending will generate the same returns oil giants like BP, Shell and Exxon have enjoyed in the past. Dudley said that, over time, upstream oil and gas assets offered returns of around 15 percent, and that the expected this to continue going forward. In the latest sign the British oil group is getting back to business in the Gulf of Mexico, BP said it had sanctioned a major new project in the area [ID:nL5E8D735D]. BP shares traded down 1.3 percent at 483 pence at 1040 GMT, lagging a 0.6 percent drop in the STOXX Europe 600 Oil and Gas index. BP said over $5 billion of contributions from its partners in the blown-out well, Anadarko and Japan's Mitsui, meant it would be able to end its own payments into a $20 billion compensation fund in 2012, a year earlier than expected. (Editing by David Cowell)

Bernanke urges Congress to address Bush tax cuts

Tue Feb 7, 2012 5:35pm EST

http://www.reuters.com/article/2012/02/07/us-usa-fed-idUSTRE8111E720120207

WASHINGTON - Federal Reserve Chairman Ben Bernanke on Tuesday warned Congress that putting off a decision on the fate of expiring Bush administration tax cuts could unsettle businesses and households, undercutting the U.S. economic recovery.

With presidential and congressional elections looming in November, many analysts think Congress is unlikely to act until the final months of the year. The tax cuts expire on January 1. Bernanke told the Senate Budget Committee that lawmakers might not have the luxury of waiting. "I don't know exactly when the uncertainty would become a factor, but surely as we get closer to January 1 and Congress has not given a clear road map for how it plans to proceed, that would certainly affect planning, business decisions, household decisions, as they look ahead to the next year," he said. Bernanke did not go beyond comments he made on the outlook for the economy and monetary policy he made last week in an appearance before a House of Representatives panel and did not comment on a surprising upswing in hiring in January. Bernanke repeated that the jobs situation had improved modestly over the past year, but there was a long way to go before jobs markets return to normal. Government data released on Friday showed employers added a surprisingly hefty 243,000 jobs in January, with the jobless rate dropping to 8.3 percent. It bumped up market expectations of a January 2014 Fed interest rate hike to a 38 percent chance from a 28 possibility beforehand. The second month of solid job growth prompted some Wall Street firms, including BNP Paribas and Deutsche Bank, to raise their forecasts for first-quarter U.S. economic growth to an annual rate of 2.5 percent and 2.8 percent from 2.0 percent. The Fed cut rates to near zero more than three years ago and has bought $2.3 trillion in bonds to spur growth. The Fed in late January said the sluggish recovery likely warranted keeping rates near zero until the end of 2014, and Bernanke left open the possibility of another round of asset buying if growth shows signs of flagging. However, Bernanke gave no indication of whether the sunnier jobs picture had changed his views about further asset purchases, and lawmakers' questions were focused largely on fiscal topics on Tuesday. Democrats and Republicans are expected to mostly tread water on major tax and decisions, leaving voters to decide in November whether the main focus in 2013 should be continuing to downsize government spending - as lawmakers tied to the conservative Tea Party movement have insisted - or to also revamp the tax code in a way that raises rates and closes loopholes for the rich. The Congressional Budget Office has said that if all the Bush tax cuts were allowed to expire, U.S. economic growth would slow to 1.1 percent in 2013, more than a full percentage point below where Fed officials expect it to land this year. Forecasts released by the Fed last month showed most policymakers at the U.S. central bank expect growth next year to come in a 2.8 percent to 3.2 percent range, suggesting they foresee at least some of the tax cuts being extended. "I want to be very clear that I'm in no way stepping back from my strong advocacy of maintaining fiscal stability in the longer term," Bernanke said. "But I think there is a concern there that this very sharp change in the fiscal position in a very short time might slow the recovery." President Barack Obama wants to continue the Bush tax cuts for the middle class while ending them for upper-tier earners. Republicans oppose any tax hikes, while saying they want to reform the entire tax code and lower top rates. The more radical Republicans want steep spending cuts immediately. In his testimony, Bernanke coupled his plea that Congress come up with a credible long-term plan to cut U.S. budget deficits, with a caution against any steps that could undercut the still-fragile recovery. "The more you can demonstrate a will and commitment to sustainability over the longer term ... the more flexibility there will be to address near-term concerns relating to the recovery," he said. Congress must not push the issue off to "manana," Bernanke added. "Just simply promising future action risks at least an adverse market reaction, an adverse reaction in terms of confidence and so on," he said. (Additional reporting by Pedro Nicolaci da Costa ; Editing by Tim Ahmann and James Dalgleish )

German industrial output sees biggest fall since 2009

Tue Feb 7, 2012 6:33am EST

http://www.reuters.com/article/2012/02/07/us-germany-output-idUSTRE8160VT20120207

BERLIN - German industrial output posted its biggest fall in December since the depth of the financial crisis at the start of 2009, the Economy Ministry said on Tuesday, underperforming forecasts by a wide margin.

However, the ministry said improving industry orders, which rose more than forecast in December, and brighter sentiment indicators signaled that a phase of weakness in Europe's largest economy was coming to an end. Output dropped 2.9 percent in December after remaining flat in November, missing even the lowest forecast in a Reuters poll of 37 economists that ranged from -2.5 to +1.0 percent and pointed to a median 0.3 percent fall. It was the biggest drop in production since a 7.1 percent contraction in January 2009. The November reading was revised upwards from an originally reported 0.6 percent fall. Due to the weak December figure, output in the fourth quarter as a whole tumbled by 1.9 percent from the third quarter, one of the reasons why Germany's economy contracted for the first time since early 2009. Preliminary estimates from the statistics office show the economy contracted by 0.25 percent in the final three months of 2011. Fourth-quarter growth data are due on February 15. Germany has been more resilient to the euro zone debt crisis than most of its peers but its economy slowed drastically at the end of last year. Economists expect it may return to healthy growth from the second quarter of the year. (Reporting by Annika Breidthardt , editing by Gareth Jones)

UBS says rogue trader not material for inflows

Tue Feb 7, 2012 9:42am EST

http://www.reuters.com/article/2012/02/07/us-ubs-cfo-idUSTRE8160E020120207

ZURICH - UBS said a $2 billion rogue trading scandal is not affecting inflows at its flagship private bank.

"The trading incident is not something clients are talking to us about today," UBS financial head Tom Naratil told journalists after fourth-quarter earnings. Instead, activity by wealthy clients is affected by issues such as uncertainty affecting the euro zone, Naratil said. UBS's private bank posted 3.1 billion Swiss francs ($3.36 billion) in net new money in the quarter. ($1 = 0.9227 Swiss francs) (Reporting By Katharina Bart)

Walmart names ex-Woolworths veteran as new China CEO

Tue Feb 7, 2012 2:23am EST

http://www.reuters.com/article/2012/02/07/us-walmart-china-idUSTRE8160DS20120207

SHANGHAI/HONG KONG - Wal-Mart Stores Inc ( WMT.N ) named company executive Greg Foran as the president and chief executive of Walmart China, capping a series of leadership changes at the China unit that has been tainted by food scandals.

Foran, who joined Walmart in October after a long career with Australian retailing group Woolworths ( WOW.AX ), was chosen to replace Ed Chan, who stepped down last year after a pork mislabeling scandal that forced the company to temporarily shut a dozen stores in central China. [ID:nL3E7LH09P] Some analysts questioned the wisdom of putting a relative newcomer at the helm of the China operations for the world's largest retailer as it faces fierce competition from both local and other global companies. "The new appointee seems to have comparatively less China on-the-ground experience," said James Roy, senior analyst at China Market Research Group based in Shanghai. "I think for a lot of American companies and a lot of foreign companies, they need people from inside who know the company culture well, and it is important to have a balance between that and the operating environment in China," he said. "Whether it is local Chinese or not, it should be somebody who understands the market." Foran is currently serving as senior vice president, Walmart International, and will start his new role on March 1, the company said in a statement on Tuesday. FROM PART-TIMER TO DIVISION HEAD Before joining Walmart last year, Foran, a 30-year retail veteran, had moved up the ranks in New Zealand and Australia at Woolworths, from a part-time job stocking shelves to head of Woolworths' Supermarket Division. Foran held several senior roles within Woolworths, including General Manager of Big W, the company's discount department store division, and Dick Smith, which specializes in consumer electronics. His experience includes operations, merchandising, marketing and replenishment. Foran quit after missing out on the top job at Woolworths, the Sydney Morning Herald said in a report in July. Walmart has not always had an easy time during the past 15 years as it has expanded across China, where it now has more than 350 stores. Last October, the Chinese city of Chongqing penalized Walmart after the firm was found to have mislabeled some pork as organic at a couple of its stores. Authorities said the pork scandal was the latest in a string of 21 violations dating back to 2006. Walmart had also suffered a series of high level personnel losses last year, after its China chief financial officer and chief operating officer left in May, leaving a leadership vacuum. Walmart's troubles in China reflect the retail giant's struggles in a complex market where rapid expansion and a cumbersome takeover have marred profit and growth. Walmart China has faced intense competition on the mainland in recent years. It competes with China's Sun Art ( 6808.HK ) and China Resources Enterprise ( 0291.HK ), with local brands such as Yonghui, Shinshiji among others. It also competes against French hypermarket chain Carrefour ( CARR.PA ), Britain's Tesco ( TSCO.L ), Germany's Metro AG ( MEOG.DE ). All of these are gradually expanding to inland China as interior cities become more affluent. Foran could benefit Walmart's position in China if he taps those who have local expertise, some analysts said. "The appointment itself is good in strengthening the management in purchasing and operation, but I still have a question on how effective it is if he did not know much about the (local) market," said Jason Yuan, analyst at UOB Kay Hian Research in Shanghai. (Writing by Ken Wills ; Editing by Kazunori Takada and Muralikumar Anantharaman)

Lockheed's F-35 fighter jet under renewed pressure

Mon Feb 6, 2012 9:40pm EST

http://www.reuters.com/article/2012/02/07/us-lockheed-fighter-congress-idUSTRE81601120120207

WASHINGTON - Key U.S. senators raised fresh questions about Lockheed Martin Corp's $382 billion F-35 fighter program on Monday as the Pentagon's top weapons buyer underscored deep flaws in the way the multinational arms program was set up from the start.

The unusually blunt talk about the most expensive U.S. arms program came a week before the release of a fiscal 2013 budget plan that is expected to postpone funding for 179 warplanes until after 2017, a move that has Australia and other international partners questioning their own procurement plans. Cuts to the F-35 program are part of the Pentagon's plan to start implementing $487 billion in defense spending reductions over the next decade. The leaders of the Senate Armed Services Committee blasted Defense Secretary Leon Panetta's decision to lift a "probation" imposed on the Marine Corps variant of the F-35 a year ahead of schedule, saying the move appeared premature and was not vetted with Congress. Senator Carl Levin, the committee's chairman, and Senator John McCain, its top Republican, cited continuing cost overruns on the F-35 program and said Panetta had wasted a chance to "focus Lockheed Martin's attention and disrupt 'business as usual' in this multibillion-dollar effort."[ID:nL2E8D6IKK] They said Lockheed's fourth production contract for 32 F-35 jets was expected to overrun its target cost of $3.46 billion by $245 million, and that the cost of retrofitting planes already built would add $237 million more to the program's budget. Panetta last month threw his support behind the F-35B model, which takes off from shorter runways and lands like a helicopter, during a carefully orchestrated visit to a Maryland military base where the warplanes are being tested. But a week later, he told reporters the Pentagon would further slow procurement of new F-35s to allow more time for development and testing -- news that could prompt the eight international partners to cut or delay their orders as well. Australia has already said it is rethinking its plans to buy 12 jets, Turkey has put off buying two jets, and Italy may follow suit, according to FlightGlobal. The other partners are Britain, Denmark, Norway, the Netherland, and Canada. "ACQUISITION MALPRACTICE" Frank Kendall, the Pentagon's acting acquisition chief, said the U.S. military was committed to the program, but he told industry executives at a Washington think tank that the United States was clearly "paying the price" for starting production of the new jets years before their first flight test. "Putting the F-35 into production years before the first test flight was acquisition malpractice. It should not have been done," Kendall said in remarks after a speech at the Center for Strategic and International Studies. Initial development work on the fighter began in 1996 under the Clinton administration. Lockheed then beat out Boeing Co to win the program in 2001, early in the administration of former President George W. Bush. Kendall said the plane's problems so far were typical of those seen with other fighter jets and there was nothing that would prevent continued production at the current low rates. The F-35 has completed about 20 percent of its required testing and should accomplish an additional 15 to 20 percent of testing in each of the coming years, Kendall said. Lockheed, which says the F-35 will account for 20 percent of its revenues once it reaches full production, insisted that the program was continuing to make good progress, citing Panetta's decision to lifted probation for the Marine Corp variant and better than expected flight test results for 2011. Lockheed spokesman Michael Rein said the U.S. government's plan for concurrent production and development would have affected any winning bidder. He noted that most fighter plane programs had some degree of this concurrency. "Lockheed Martin has worked hard during the past decade to cost effectively meet government procurement requirements," he said, noting that each successive batch of F-35 jets had less "concurrency" costs -- the cost of retrofitting already built planes to deal with problems found during testing. Kendall said the Pentagon had counted on improved design and simulation tools to catch possible problems before jets went into low-rate production, but those design tools failed. He said he hoped no more serious issues came up in coming years, which would allow Lockheed to increase output and cut costs. "The key to getting the cost down on the F-35 is getting the production rate up and we need to do that as soon as we're ready to do it, but we're not ready to do it yet," he said. TAKING AIM AT COSTS President Barack Obama last month nominated Kendall, who has held a series of jobs at the Pentagon since 1982, to permanently take over as chief arms buyer. The Senate must approve the nomination, but no hearing date has been set. Kendall, who had been the deputy chief arms buyer for the past two years, said he was already working on various initiatives to rein in chronic cost overruns and schedule delays on other major weapons programs, as well as service contracts that comprise about half of Pentagon procurement spending. He discussed measures to train acquisition officials, review and analyze requirements to understand the full cost of programs before they are launched, and underscored the Pentagon's commitment to maintaining the defense industrial base. Kendall also warned that there were no simple, single-point solutions, including the fixed-price contracts favored by lawmakers and Pentagon officials on the F-35 program and others. He said the United States was not facing another "procurement holiday" and cuts to weapons programs would not be as steep as after the end of the Cold War. But he said the cuts would approach those post-Cold War levels if lawmakers did not reverse another $500 billion in spending cuts that are due to take effect in January 2013. (Reporting By Andrea Shalal-Esa; Editing by Tim Dobbyn and Richard Chang )

Mitsubishi UFJ suspends third London banker over Libor probe

Wed Aug 8, 2012 11:17pm EDT

http://www.reuters.com/article/2012/08/09/us-libor-btmu-idUSBRE87804K20120809

TOKYO - Bank of Tokyo-Mitsubishi UFJ (BTMU) has suspended a third London-based banker in connection with a probe by UK authorities into the rigging of interbank lending rates.

"One banker has been ordered to stay home," said a BTMU spokesman, citing an ongoing investigation by authorities. He declined to comment further. The banker, who works at BTMU's London office and was in charge of submitting Libor rates, is being questioned by the Financial Services Authority after allegedly being contacted by others to participate in the rate manipulation after 2008, a source familiar with the matter said. In July, the bank, a core unit of Mitsubishi UFJ Financial Group ( 8306.T ), suspended two London-based traders due to the probe into the manipulation of interbank lending rates, including the London Interbank Offered Rate (Libor). The bank said at the time that their suspension was not connected with their conduct at the Japanese bank. The traders worked together for years at Dutch lender Rabobank RABN.UL before joining BTMU, according to the Financial Services Authority register. (Reporting by Taiga Uranaka ; Editing by Richard Pullin )

Chesapeake Energy in U.S. antitrust probe

Thu Aug 9, 2012 6:37pm EDT

http://www.reuters.com/article/2012/08/09/us-chesapeake-michigan-idUSBRE8781EO20120809

ATLANTA - Chesapeake Energy said it is the subject of a U.S. government investigation over possible criminal antitrust violations related to the purchase and lease of oil and gas properties in Michigan.

Chesapeake has received a subpoena from the antitrust division of the Justice Department's Midwest field office, requiring the company to produce documents before a grand jury in the Western District of Michigan, according to a filing with U.S. regulators on Thursday. In June, Reuters reported that Chesapeake plotted with its top competitor, Canada's Encana Corp, to suppress land prices in the Collingwood shale in Northern Michigan. Emails between Chesapeake and Encana showed the two companies repeatedly discussed how to avoid bidding against each other in a public land auction in Michigan two years ago and in at least nine prospective deals with private land owners. The Justice Department is "moving criminally," said Darren Bush, a former antitrust attorney for the Department of Justice and a professor of antitrust law at the University of Houston. "They are working their way through the grand jury process to potentially serve up indictments." Chesapeake's disclosure indicates the Justice Department has moved swiftly on the matter. Reuters published its story on June 25. Just four days later, on June 29, the subpoena was served on Chesapeake, according to the company's quarterly report filed with the Securities and Exchange Commission. A spokesman for Encana said he could not immediately comment. A spokesman for Chesapeake declined to comment. Chesapeake said in the filing with the U.S. Securities and Exchange Commission that it has also received demands for documents and information from state governmental agencies in connection with other probes relating to oil and gas rights transactions. The company said it plans to provide information in response to the investigations. It also said its board of directors is conducting an internal review on the matter. Chesapeake has been operating under a cloud of legal and governance issues following Reuters investigations showing potential conflicts of interest on the part of McClendon as well as the collusion allegations. Shares of Chesapeake fell to $20.10 from a New York Stock Exchange close of $20.31 in post market trading. (Reporting By Michael Erman in New York, Scott Haggett in Calgary and Anna Driver in Houston; Editing by David Gregorio )

Asia Pacific talks not aimed at containing China: U.S. official

Thu Aug 9, 2012 2:27am EDT

http://www.reuters.com/article/2012/08/09/us-usa-asiapacific-trade-idUSBRE8771N520120809

WASHINGTON - U.S.-led talks on a free trade pact in the Asia Pacific region are not an attempt to economically contain China, a top U.S. trade official said on Wednesday.

"This is absolutely not a negotiation that's directed at China," Deputy U.S. Trade Representative Demetrios Marantis said in remarks at the Woodrow Wilson Center for International Scholars. The United States is hosting the 14th round of talks on the Trans-Pacific Partnership (TPP) in early September. A final agreement is unlikely before the end of 2013. The Obama administration has billed the proposed pact as part of a U.S. "pivot" toward the fast-growing economies of the Asia-Pacific region. Marantis said negotiators had made significant progress in the talks, but are beginning to confront the most difficult issues and still have a lot of work to do. The current talks include the United States, Australia, New Zealand, Peru, Chile, Singapore, Malaysia, Vietnam and Brunei, with Canada and Mexico set to join in coming months. Some in China see the TPP as a U.S. attempt to rewrite the rules of trade for the region to economically contain China, whose rapid growth continues to rattle many lawmakers and companies in the United States. Marantis rejected that charge, noting the TPP is open to any of the 21 members of the Asia Pacific Economic Cooperation (APEC) willing to meet high standards envisioned for areas like intellectual property, services, environment and labor. The integration of Vietnam, Malaysia, Canada and Mexico into the talks since 2009 shows that, he said. "Our goal is to incorporate as many Asia Pacific members into this that are willing to meet the high standards," Marantis said. "Each country has to make that judgment for itself on whether TPP makes sense for it," Marantis said. Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics, said the idea the proposed pact could contain China was "laughable" because no trade agreement is capable of that. Schott also said he thought China could decide in the "medium term" if it wants to join the pact. China made significant market-opening commitments in 2001 to join the World Trade Organization and has moved toward deeper commitments in bilateral free trade pacts, he said. TAIWAN BEEF Meanwhile, Marantis said the United States welcomes recent steps Taiwan has taken to reopen its market to U.S. beef, but is waiting to see how that is implemented before resuming talks to deepen trade ties. U.S. frustration with Taiwan over beef trade prompted Washington a few years ago to suspend bilateral talks under a Trade and Investment Framework Agreement (TIFA). Washington will be evaluating over the next several months whether to restart the TIFA talks, Marantis said. He acknowledged Taiwan's long-term interest in joining the TPP, but said it was not an issue that current members had to confront yet. Schott said it was unlikely Taiwan would become a member of the TPP talks because of the political problems that would create with China, which regards Taiwan as part of its territory. Japan has also been considering joining talks on the TPP. Edward Lincoln, a professor and expert on Japan at George Washington University, said it was doubtful Tokyo would join the negotiations because of strong domestic opposition. (Editing by Eric Walsh )

Stimulus hopes keep global stocks afloat, corn hits high

Thu Aug 9, 2012 4:48pm EDT

http://www.reuters.com/article/2012/08/09/us-markets-global-idUSBRE86F00620120809

NEW YORK - World shares held in positive territory in quiet trade on Thursday with U.S. stocks staying near four-year highs after Chinese economic data kept hope alive that central banks would do more to bolster growth.

Encouraging U.S. economic data also lent support to markets as the number of Americans filing new claims for jobless benefits declined last week, while the trade deficit in June was the smallest in 1-1/2 years. Data from China showed annual consumer inflation hit a 30-month low last month and industrial output grew at its slowest pace in about three years. Markets saw that as a sign that officials would do more to stimulate the world's second-largest economy, which has been losing momentum since the start of last year. Those hopes butted up against worries that the European Central Bank, which outlined a plan last week to help rein in escalating borrowing costs in Spain and Italy, was taking too long to follow through. The lack of details kept traders' optimism in check, and the S&P 500 ended little changed. ECB governing council member Christian Noyer said on Thursday the central bank is determined to bring down those borrowing costs and should be ready to intervene decisively in bond markets very soon. "The markets have run up quite a bit for quite a while ... and the story is always the same - the hope for stimulus from the ECB, from the Federal Reserve, from the Chinese - from everywhere," said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets. "From now until the end of August, I'm not saying every day should be up, but normally I think we're going to have a firmer tone for the market." The euro fell as investors consolidated recent gains, although the decline was expected to be short-lived. "As long as investors continue to take the ECB at face value that it will not allow the euro to unravel, we think the euro's downside may be limited," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington. The euro fell 0.5 percent to $1.2299, well below a one-month high of $1.2443 set on Monday. "EERIE" MARKET Corn prices rallied to an all-time high ahead of a U.S. government report that is expected to show the disastrous impact on crops from the worst domestic drought in over half a century. CBOT December corn hit a peak of $8.29-3/4 a bushel before easing to $8.23-3/4. The previous peak of $8.28-3/4 was set on July 20 by the spot September contract. Brighter U.S. economic data and worries about tighter supply pushed oil prices higher. Brent rose for a fifth session, gaining $1.08 to $113.22 a barrel, though U.S. crude oil cut most of its gains to settle up 1 cent at $93.36 per barrel. "The general mood is bullish - any dip is still being used as a buying opportunity," said Carsten Fritsch, an energy analyst at Commerzbank in Frankfurt. The FTSE Eurofirst 300 index of top European shares .FTEU3 ended up 0.5 percent, nudging closer to a fresh 2012 high, while the MSCI world equity index .MIWD00000PUS gained 0.2 percent. Action on Wall Street was muted, with investors wary of taking aggressive bets. While the S&P 500 has chalked up three-month highs every day this week, the index has climbed only 0.6 percent over the past three sessions. "It's almost eerie how flat the market has been. But while there's a risk of our becoming overbought, I don't see why we'd see a decline of any magnitude until we hear what central banks will do," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia. The Dow Jones industrial average .DJI dipped 10.45 points, or 0.08 percent, to 13,165.19. The Standard & Poor's 500 Index .SPX added 0.58 point, or 0.04 percent, to 1,402.80. The Nasdaq Composite Index .IXIC gained 7.39 points, or 0.25 percent, to 3,018.64. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic - China industrial output: link.reuters.com/fuh79s Graphic - China inflation: link.reuters.com/cen57s Graphic - Euro zone crisis timeline: link.reuters.com/wub88s ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> U.S. Treasury prices slipped but ended the day off session lows after an auction of 30-year bonds capped debt sales for the week. Benchmark 10-year Treasury notes were trading with a yield of 1.693 percent Evidence that the euro zone's debt and growth problems have caused a slowdown in economic activity in the United States and Asia has added to expectations that other major central banks will soon announce their own plans to ease policies. Over the last five years, the world's major central banks have cut interest rates to record lows and pumped trillions into the financial system through unconventional policies, an attempt to prop up global growth as households, companies and governments try to reduce high levels of debt. Exactly five years ago - on August 9, 2007 - the ECB got the ball rolling when it injected an unprecedented amount of funds into a stalled financial system after French bank BNP Paribas said losses on U.S. subprime mortgages had forced it to halt redemptions at three of its funds. Other leading central banks followed suit on a day widely regarded as marking the start of the financial crisis. (Additional reporting by Richard Hubbard and Tricia Wright in London, Steven C. Johnson , Gene Ramos , Ryan Vlastelica and Gertrude Chavez-Dreyfuss in New York; Editing by Dan Grebler)

Uproar over Greek politician's move to hire daughter

Thu Aug 9, 2012 10:39am EDT

http://www.reuters.com/article/2012/08/09/us-greece-politician-idUSBRE8780TH20120809

ATHENS - A Greek politician who stirred anger by hiring his daughter in parliament on the one day he was house speaker faced public calls for his resignation on Thursday amid widespread disenchantment with the ruling class.

Weathering its fifth year of recession and battling to remain inside the euro, many people in Greece blame the mainstream political parties that have ruled the country for almost four decades for cronyism in the bloated public sector. Against such a backdrop, the case of Conservative New Democracy MP Byron Polydoras has struck a nerve. He was appointed parliament speaker for just one day after an inconclusive general election on May 6, in a temporary cabinet whose only purpose was to call a repeat vote for June 17. Polydoras used his brief spell as speaker to make his daughter a permanent employee in his office, according to published official documents. Like other civil servants, that meant she could not be fired under the constitution. Local media slammed the move as "immoral" and a Facebook page titled "Polydoras's resignation now" had more than 2,200 fans on Thursday. "That's what he needs to do (resign) after the ridiculous appointment of his daughter when thousands of kids are without work and without a future," one visitor posted on the site. The public backlash came as new data on Thursday showed Greece's jobless rate climbed to a new record in May, with nearly 55 percent of those aged 15-24 out of work. Polydoras, a flamboyant politician who likes to quote ancient Greek philosophers, rushed to defend himself on Thursday, saying he had every right to give his daughter the job. "I filled the position of just one employee - instead of six - by appointing my daughter who is a close, valuable colleague," Polydoras was quoted as saying by the Eleftheros Typos newspaper. "She has three Master's degrees, speaks four languages and I ask myself why this issue was made public now," he added. Private sector workers have long complained that public offices are filled with idle civil servants who are put there in return for votes and are then protected by the constitution from being sacked. "Byron Polydoras was house speaker for just one day," Greek commentator Ilias Kanellis wrote in Ta Nea. "Had he stayed one more day, would he hire his other daughter as well?" (Reporting by Karolina Tagaris; Editing by Andrew Osborn)

Irish consumer sentiment hits two-year high in July

Thu Aug 9, 2012 9:25am EDT

http://www.reuters.com/article/2012/08/09/us-ireland-economy-sentiment-idUSBRE8780HF20120809

DUBLIN - Irish consumer sentiment hit a two-year high in July on more positive economic news in Ireland and as fears of a major escalation of the euro zone debt crisis receded.

The KBC Ireland/ESRI Consumer Sentiment Index rose to 67.7 in July from 62.3 in June, the strongest reading since June 2010, building on an improving trend in recent months. A relatively benign start to 2012 helped push the index higher in each month of the first quarter after a nosedive of 11 points in December to 49.2, the largest monthly drop in over a decade, on fears of a Europe-wide economic meltdown. The improvement in consumer sentiment in Ireland contrasts with recent falls in UK, euro zone and U.S. consumer confidence. That suggest domestic economic events triggered the jump in sentiment, such as the statement by European leaders that they will look at cutting the cost of Ireland's bank bailout and the government hitting its budget targets. "The survey suggests that the all-enveloping gloom of recent years is beginning to slowly lift," said Austin Hughes, economist at KBC Bank Ireland. With an improvement in four of the five main components of the survey in July, and the strongest improvement in relation to the outlook for the Irish economy over the next 12 months, the data suggests domestic spending may be stabilizing, Hughes said. Despite having the euro zone's fourth highest unemployment rate, and with domestic demand stagnant, Ireland is set to be the only country in the euro zone periphery to post growth this year and next, according to a recent survey by Morgan Stanley. The July survey showed consumers remain cautious, however, the reading remains far short of a 17-year average of 86.8. "Increase in the sentiment index reflects an easing in negative responses rather than a surge in positives. So fears are fading but 'feel good' is still in short supply," said Hughes. (Reporting by Lorraine Turner ; Editing by Catherine Evans )

Analysis: As pilots stand firm, AMR's restructuring vision takes hit

Thu Aug 9, 2012 7:55pm EDT

http://www.reuters.com/article/2012/08/09/us-amr-vote-idUSBRE8781MI20120809

NEW YORK - The overwhelming rejection by AMR Corp pilots of the airline's latest contract offer, which several labor sources attributed to their lack of confidence in company management, raises doubts about whether the carrier can garner support to exit bankruptcy as a stand-alone company.

Members of the Allied Pilots Association, the airline's most powerful employee group, on Wednesday voted 61 percent to 39 percent to reject a contract offer that would have imposed about $315 million in cost cuts. The deal would still have been preferable to the potential alternative: AMR exercising its right in bankruptcy to impose even stricter terms unilaterally. People close to AMR's restructuring say many pilots understood that risk but treated the vote as a referendum on AMR Chief Executive Tom Horton. The pilots, along with AMR's two other key labor groups, have already declared their support for a proposal by US Airways Group to merge with AMR and its management team. AMR's unions are members of its unsecured creditors' committee, with three of the committee's nine seats, and have a big say in how the airline restructures, either as a stand-alone entity or through a merger. "There was great concern" that a 'yes' vote on AMR's latest contract offer "would be seen as an affirmation of management, which wasn't reflective of where some of these pilots stood," said one of the people close to the matter. Union leadership, led by outgoing president David Bates, lobbied members to support AMR's offer, visiting the airline's major hubs, sometimes more than once. But the most common problem they ran into was pilots' hesitance to embrace a deal seen as supportive of management, said a person familiar with the voting process. Bates, who had supported signing the labor deal, resigned on Thursday at the request of the union's board of directors after membership shot the deal down. He was replaced by Keith Wilson, who ran against Bates for the union's presidency in 2010 and lost. The rejection of AMR's offer by such a wide margin - which can be seen as a "vote of no confidence in AMR management by AMR pilots," according to UBS analysts - comes against the backdrop of an aggressive merger push from US Airways. The airline has already reached a tentative labor agreement with AMR pilots in the event of a takeover, featuring work terms similar to those of AMR's last offer. US Airways has received a non-disclosure agreement from AMR, which has agreed to explore the possibility of a merger. AMR has said it would prefer to emerge from bankruptcy as an independent company and consider consolidation later. But no large airline has exited bankruptcy without a labor deal in place, and creditors may prefer a US Airways merger if they see it as providing more stable labor relations. "The argument for doing a merger later is a lot weaker today because AMR lost labor and you don't have a clear path ... to getting labor done," said a person involved in the restructuring. A lawyer for AMR did not return calls seeking comment. The company declined to comment. US Airways declined to comment. A spokesman for the pilots' union said the "no" vote does not change the union's support for the US Airways merger. "We are eager to see all strategic alternatives reviewed," spokesman Dennis Tajer said. But the pilots' vote could have the effect of slowing down the process. Judge Sean Lane, overseeing AMR's bankruptcy, on Wednesday of next week is slated to rule on whether AMR can abandon its current labor deals and unilaterally impose temporary work terms as the sides continue to negotiate a long-term deal. Such a scenario could further sour an already-damaged relationship between AMR and its pilots, and in an attempt to avoid it, the sides may shift focus back to negotiating a labor deal and away from merger discussions. Hunter Keay, an analyst at Wolfe Trahan, said AMR will have to resume negotiations with a pilot community that has "little else to lose" once unilateral terms are imposed. "We can easily see those negotiations going nowhere, pushing AMR close to the end" of its window to exclusively file a restructuring plan, and "open the door for US Airways to file its own plan of reorganization," Keay said. He added that he does "not envision AMR successfully pitching an exit strategy" without labor certainty. AMR's bankruptcy is In re AMR Corp et al, U.S. Bankruptcy Court, Southern District of New York, No. 11-15463. (Editing by Steve Orlofsky)

June trade deficit smallest in 1-1/2 years on oil prices

Thu Aug 9, 2012 9:10am EDT

http://www.reuters.com/article/2012/08/09/us-june-trade-idUSBRE8780N520120809

WASHINGTON - The U.S. trade deficit in June was the smallest in 1-1/2 years as lower oil prices curbed imports, according to government data on Thursday that suggested an upward revision to second-quarter growth.

The shortfall on the trade balance narrowed 10.7 percent to $42.9 billion, the smallest since December 2010, the Commerce Department said. Economists polled by Reuters had expected the trade gap to narrow to $47.5 billion. The petroleum import bill fell as the average price per barrel of crude oil dropped by the most since January 2009. Overall imports of goods and services declined 1.5 percent to $227.9 billion. Exports increased 0.9 percent to a record $185.0 billion. Trade subtracted almost a third of a percentage point from gross domestic product in the second quarter. The economy grew at a 1.5 percent annual rate, slowing from the first quarter's 2.0 percent pace. While exports showed strength in June, anecdotal evidence suggests a slowdown because of weak global demand. The Institute for Supply Management's export index declined in July for a third straight month. There also are concerns the worst drought since 1956, which has ravaged half of the country, could hit agricultural exports. U.S. exports to the 27-nation European Union, in the grip of a continuing debt crisis that has slowed growth on the continent, increased 1.7 percent in June to $23.3 billion. The EU collectively was the United States' second largest export market last year, and exports in the first half of 2012 were 2.9 percent above the same period in 2011. U.S. exports to China, which is also growing more slowly than in recent years, fell 4.3 percent in June. China has been one of the fastest growing markets for U.S. goods, and exports to that country were up 6.7 percent for the first six months of 2012. (Reporting By Lucia Mutikani ; Editing by Andrea Ricci )

U.S. judge in Libor cases puts new lawsuits on hold

Wed Aug 8, 2012 11:17pm EDT

http://www.reuters.com/article/2012/08/09/us-libor-litigation-idUSBRE8771NF20120809

NEW YORK - A federal judge on Wednesday suspended several new lawsuits that allege banks rigged key interest rates, saying she first needed to sort through the issues in an earlier round of related lawsuits.

U.S. District Judge Naomi Reice Buchwald said from the bench in Manhattan federal court that she first needed to see the course of earlier litigation over the same issue before she would allow the new lawsuits to go forward. "While parties are free to file new complaints - and, indeed, are encouraged by the court to do so if they do so promptly... I am imposing a stay on any action that is not the subject of a pending motion to dismiss," Buchwald said. "This stay will last until the current motions to dismiss are resolved." Buchwald is overseeing several proposed class actions, some filed as early as April 2011, by plaintiffs that include some big investors and local governments, such as the city of Baltimore. The plaintiffs say they were harmed in different ways by the banks' suspected manipulation of the benchmark London interbank offered rate, commonly known as Libor. Citigroup Inc ( C.N ), Bank of America Corp ( BAC.N ), HSBC ( HSBA.L ) and UBS ( UBSN.VX ) are among the banks being sued over Libor, which is determined in London and sets interest on more than $350 trillion of securities from mortgages to complex derivatives. The banks have said in court papers that the plaintiffs have failed to show how they acted to restrict competition, even if rates were misstated. Buchwald's decision puts on hold a lawsuit filed in May by the Community Bank & Trust of Sheboygan, two other proposed class-action complaints filed since then, as well as any new complaint that might be filed in the future. In the meantime, Buchwald said, she would sort out ongoing motions filed by the defendants to dismiss the older lawsuits. "I am assuming that this will work itself out in the next few weeks," Buchwald said. Charles Tompkins, a lawyer for Community Bank, did not immediately return a call seeking comment on Buchwald's ruling. The 11-branch bank, which has assets of about $554 million, had filed suit in late May seeking class-action status so other community banks can join the litigation. The judge also said at the hearing that she had received a letter from the banks on Tuesday conceding that the plaintiffs be allowed in future filings to reference a settlement that Barclays reached with regulators over the Libor probe. Barclays PLC ( BARC.L ) agreed on June 27 to pay $453 million to U.S. and British authorities to resolve the rate manipulation allegations, becoming the first bank to settle the investigation. The scandal led to resignation of Barclay's chairman, chief executive officer and chief operating officer. The cases are consolidated under In Re: Libor-Based Financial Instruments Antitrust Litigation, U.S. District Court for the Southern District of New York, No. 11-md-2262. (Editing by Leslie Gevirtz , Bernard Orr )

Greek jobless rate hits new record, more pain ahead

Thu Aug 9, 2012 11:24am EDT

http://www.reuters.com/article/2012/08/09/us-greece-layoffs-idUSBRE8780KX20120809

ATHENS - Greece's jobless rate climbed to a new record in May, underlining how austerity prescribed to slash deficits and keep bailout funds flowing is hitting the economy on which recovery depends.

Latest data on Thursday showed the jobless rate climbed to 23.1 percent, with nearly 55 percent of those aged 15-24 out of work, a desperate situation that fed into the popularity of anti-bailout parties in Greek elections this year. The gloomy data coincided with news that the government plans to revive a labor reserve measure targeting 40,000 public servants for eventual dismissal, in a drive to achieve 11.5 billion euros in savings promised to international lenders. Government officials citing this scheme said Athens also intends to shed tens of thousands of temporary contract workers by streamlining its needs across ministries and state entities. Unemployment in Greece is already more than twice the average rate in the 17 countries sharing the euro and nearly as bad as in Spain where the jobless rate registered 24.6 percent in the second quarter. Greece's statistics service reported that unemployment climbed to 23.1 percent in May from 22.6 percent in April. "My unemployment benefit runs out in a few months, I hope the government keeps its promise to extend it by another 12 months," said Eva Grigoriou, 42, who lost her job in retail trade as the recession led to cutbacks. "I don't see light at the end of the tunnel with more austerity ahead. Recovery is being pushed back every year," she said. ANGER AT MAINSTREAM PARTIES The sharp labor market deterioration, coupled with cuts in pay and pensions and a bleak economic outlook, have fuelled anger against the pro-bailout mainstream parties which suffered major losses in two election rounds in May and June. The data showed 1.147 million people were officially jobless, 37.2 percent more than in the same month a year earlier. The bulk of job losses have hit the private sector as most public sector employees enjoy jobs-for-life status. Other data on Thursday showed Greece's construction sector, once a key growth driver, slumped again in May, as austerity sapped demand for new homes. The statistics service ELSTAT said 31 percent fewer building permits were issued than in May 2011. Think tank IOBE expects the economy will continue to contract for a fifth consecutive year in 2012, forecasting that gross domestic product (GDP) will shrink 6.9 percent. "The unemployment rate could go higher and register 24 percent from September. Our forecast is that for the year as a whole it will likely average 23.6 percent," said Angelos Tsakanikas, an economist at the IOBE think tank. The conservative-led coalition government is keen to convince international lenders it is committed to bring the economic reforms program back on track before asking for more time to slash deficits to spread the pain of spending cuts. (Reporting by George Georgiopoulos; editing by Stephen Nisbet)