WASHINGTON (Kyodo) The United States said Thursday it can't support the idea of transferring U.S. Marine Corps Air Station Futenma in Okinawa to nearby U.S. Kadena Air Base due to operational difficulties.
"Operationally, it is unworkable," Pentagon spokesman Geoff Morrell said. "And so you cannot consolidate the air force operations, the marine corps operations onto that facility and do all the things that we need to do to provide for the defense of Japan.
"So that is not a suitable replacement for Futenma," he said.
Noting the United States has weighed the Futenma-Kadena merger option before, Morrell said the conclusion was that "it simply does not work."
"The only replacement that works is the one that's been agreed to by both of our governments, that's been built over the last 15 years, and that's Camp Schwab," he said. "And that's where we are focusing our efforts, and we hope the Japanese government will as well."
Foreign Minister Katsuya Okada floated the Kadena option idea as a possible solution to breaking the deadlock over the existing plan to relocate the Futenma airfield from Ginowan to a coastal area in Nago, also on Okinawa Island.
The United States is urging Japan to decide on the facility's relocation in time for President Barack Obama's visit to Tokyo in November.
But Prime Minister Yukio Hatoyama has reiterated Tokyo's stance of taking time on the issue, saying he does not believe Japan has to draw a conclusion by Obama's Nov. 12-13 visit.
As part of a 2006 bilateral accord on the realignment of U.S. forces in Japan, which took years to reach, the Futenma base is to be transferred from downtown Ginowan to Nago by 2014.
Hatoyama's ruling Democratic Party of Japan has promoted the idea of moving the Futenma airfield out of Okinawa or even out of Japan.
Obama's first visit to Japan since assuming in January is part of his tour around Asia, which will also take him to Singapore, China and South Korea.
~The Japan Times
Sunday, November 1, 2009
Dr M against Proton sale
KUALA LUMPUR: Former prime minister Tun Dr Mahathir Mohamad has put his foot down on the possible sale of Proton Holdings Bhd to two local companies, saying the priority was for Proton to secure a foreign strategic partner and to ensure the company recovers.
“I have told the chairman and the chief executive officer that Proton is not for sale, but I think I should assure the senior staff and the workers that there is no plan to sell Proton in the foreseeable future,” he said in his blog yesterday.
“The need is to restructure the company and reach agreement with the potential partner, after that work has to be done to ensure Proton fully recovers.”
Proton has been the subject of a takeover bid after two companies, DRB-HICOM Bhd and privately-held Yasmin Holdings Sdn Bhd, with the backing of the Naza Group, launched bids to take over the national auto company.
The company’s chairman had said that a management buyout should be considered if the price was right.
Mahathir said he was disturbed by reports that Proton would be sold to certain parties and that such talk had agitated the staff of Proton.
“Their worry over this matter affects their performance. This is bad at a time when they are trying to contribute to Proton’s recovery,” he said.
Mahathir said he had found it easier to perform his role of adviser to the company since Datuk Nadzmi Salleh was appointed chairman.
“The Prime Minister has also indicated that Proton affairs should be referred to me. Accordingly, I have been busy on a plan to resuscitate the company. I have been talking to potential technology partners for Proton,” he said.
Mahathir said that if Proton were left alone and did not get taken over, the company’s staff would be able to “put Proton firmly on its feet.”
~TheStar
“I have told the chairman and the chief executive officer that Proton is not for sale, but I think I should assure the senior staff and the workers that there is no plan to sell Proton in the foreseeable future,” he said in his blog yesterday.
“The need is to restructure the company and reach agreement with the potential partner, after that work has to be done to ensure Proton fully recovers.”
Proton has been the subject of a takeover bid after two companies, DRB-HICOM Bhd and privately-held Yasmin Holdings Sdn Bhd, with the backing of the Naza Group, launched bids to take over the national auto company.
The company’s chairman had said that a management buyout should be considered if the price was right.
Mahathir said he was disturbed by reports that Proton would be sold to certain parties and that such talk had agitated the staff of Proton.
“Their worry over this matter affects their performance. This is bad at a time when they are trying to contribute to Proton’s recovery,” he said.
Mahathir said he had found it easier to perform his role of adviser to the company since Datuk Nadzmi Salleh was appointed chairman.
“The Prime Minister has also indicated that Proton affairs should be referred to me. Accordingly, I have been busy on a plan to resuscitate the company. I have been talking to potential technology partners for Proton,” he said.
Mahathir said that if Proton were left alone and did not get taken over, the company’s staff would be able to “put Proton firmly on its feet.”
~TheStar
‘Bill Gates of Belgium’ Fights SAP With Free Software
Oct. 30 (Bloomberg) -- To find the latest threat to business-software makers like SAP AG and Oracle Corp., go to an unlikely location: a 150-year-old farmhouse in Belgium.
That’s where closely held Tiny Sprl, run by 30-year- old Fabien Pinckaers, develops free business applications that are picking up customers during the recession.
The economic “crisis has been very good for me,” Pinckaers said in an interview at the farm in Grand- Rosiere. “Restructuring is very good for enterprise resource planning.”
Free programs such as Linux first challenged Microsoft Corp. in software that runs personal computers. Linux has gradually gained enough acceptance that government agencies and even some corporations are willing to try such programs for some of their most important tasks: applications that run billing, payroll and purchasing.
That’s been the province of SAP and Oracle, whose products can carry list prices of thousands of dollars per user. Tiny, Openbravo SL and other open-source software providers write programs that are often given away and can be modified by users, not just their authors. The providers make money by charging for maintenance and services.
Open-source applications and related services will drive $19 billion of revenue away from traditional, proprietary suppliers in 2012, rising from $7 billion now, according to researcher Gartner Inc.
“It ain’t hippie idealism anymore,” said Brent Williams, an analyst at Benchmark Co. in New York.
Tiny’s Business
Pinckaers, who business magazine Trends said may be “the Bill Gates of Belgium,” predicts revenue will rise to 10.5 million euros ($15.6 million) in 2011 from 600,000 euros in the first half of this year. Tiny’s client list includes France’s postal service and L’Ecole Nationale d’Administration, an elite French university.
Tiny’s Open ERP software manages purchasing, human resources and other administrative tasks. Requests for the software have increased by about 20 percent every two months since January, Pinckaers said.
Like the Linux open-source operating system, created in Helsinki, Pinckaers’ seven-year-old Tiny may build influence from a headquarters far from Silicon Valley. Pinckaers chose the company’s farmhouse in rural Belgium for its proximity to the Universite Catholique de Louvain, which has a large computer- science department. Tiny has about 75 employees.
Pinckaers said he is open to a takeover of Tiny “not today, because I still have a lot of things to do, but in four or five years.” Meanwhile, Tiny will arrange 4 million euros of venture-capital investment by the end of the year, he said.
‘Feeling the Pinch’
Certainly, open-source is a small part of the software market, and these programs sometimes don’t have all the features that can be found in proprietary applications made by traditional suppliers.
Still, some analysts said SAP, the world’s biggest maker of business management software, is starting to feel the pinch. Walldorf, Germany-based SAP this week cut its sales forecast as clients in emerging markets and Japan spent less than it anticipated. Software and related service revenue will fall between 6 percent and 8 percent in 2009 before some items. In July, it had predicted the drop would be 4 percent to 6 percent.
“When there is an alternative to paying for a license, people will look at it very seriously,” said Jonathan Crozier, an analyst at WestLB Equity Markets in London. “That’s catching up a bit with SAP.”
RedHat Revenue
The phenomenon started in operating systems, where RedHat Inc., the biggest seller of software based on the open-source Linux program, has picked up corporate customers including Whole Foods Market Inc., Banco Pastor SA in Spain and Union Bank in the U.S. RedHat’s second- quarter revenue rose 12 percent as it attracted clients away from Microsoft and Sun Microsystems Inc.
“Prior to the fourth quarter of last year we were seeing some sporadic, slow but solid growth in certain areas of open source,” said Laurie Wurster, a Gartner analyst in Milford, New Hampshire. “Now, open-source producers are getting more interest from companies that wouldn’t even have considered them in the past.”
Oracle didn’t respond to a call from Bloomberg News seeking comment. SAP isn’t being hurt by open-source applications, Chief Executive Officer Leo Apotheker said on a conference call this week after giving the forecast.
“There is no negative effect from open-source software on our business,” he said.
Market Openings
SAP supports open-source software in “certain domains,” so “you’ll find many customers running our software on open- source and we certainly welcome that,” Apotheker said. “For example, we do it for our midsize offering All-In-One. So I think open software is one of the supply chain elements of any software that the customer can run.”
Big clients who tend to stick with the products they have may make proprietary-software vendors slow to move to open- source software, said Dave Stepherson, who helps manage about $650 million at Hardesty Capital Management in Baltimore.
“What holds it back is, a lot of it, just inertia and simplicity,” said Stepherson. “When you have a system in place that doesn’t work as well as you’d like, but it works, uprooting that is not too easy to do. It’s also not widely done.”
It may also be difficult for established software companies to adapt, said Ken Allen, a portfolio manager at Baltimore-based T. Rowe Price Group Inc., the seventh-biggest institutional holder of Microsoft shares.
“Like many types of disruptions, it’s hard for the incumbent companies to harvest them as they’d like,” leaving openings for new market entrants, he said.
-- With assistance from Simon Thiel in London. Editors: Robert Valpuesta, Cesca Antonelli.
To contact the reporters on this story: Matthew Campbell in London at mcampbell39@bloomberg.net; Stephanie Bodoni in Luxembourg at sbodoni@bloomberg.net
~Bloomberg (By Matthew Campbell and Stephanie Bodoni)
That’s where closely held Tiny Sprl, run by 30-year- old Fabien Pinckaers, develops free business applications that are picking up customers during the recession.
The economic “crisis has been very good for me,” Pinckaers said in an interview at the farm in Grand- Rosiere. “Restructuring is very good for enterprise resource planning.”
Free programs such as Linux first challenged Microsoft Corp. in software that runs personal computers. Linux has gradually gained enough acceptance that government agencies and even some corporations are willing to try such programs for some of their most important tasks: applications that run billing, payroll and purchasing.
That’s been the province of SAP and Oracle, whose products can carry list prices of thousands of dollars per user. Tiny, Openbravo SL and other open-source software providers write programs that are often given away and can be modified by users, not just their authors. The providers make money by charging for maintenance and services.
Open-source applications and related services will drive $19 billion of revenue away from traditional, proprietary suppliers in 2012, rising from $7 billion now, according to researcher Gartner Inc.
“It ain’t hippie idealism anymore,” said Brent Williams, an analyst at Benchmark Co. in New York.
Tiny’s Business
Pinckaers, who business magazine Trends said may be “the Bill Gates of Belgium,” predicts revenue will rise to 10.5 million euros ($15.6 million) in 2011 from 600,000 euros in the first half of this year. Tiny’s client list includes France’s postal service and L’Ecole Nationale d’Administration, an elite French university.
Tiny’s Open ERP software manages purchasing, human resources and other administrative tasks. Requests for the software have increased by about 20 percent every two months since January, Pinckaers said.
Like the Linux open-source operating system, created in Helsinki, Pinckaers’ seven-year-old Tiny may build influence from a headquarters far from Silicon Valley. Pinckaers chose the company’s farmhouse in rural Belgium for its proximity to the Universite Catholique de Louvain, which has a large computer- science department. Tiny has about 75 employees.
Pinckaers said he is open to a takeover of Tiny “not today, because I still have a lot of things to do, but in four or five years.” Meanwhile, Tiny will arrange 4 million euros of venture-capital investment by the end of the year, he said.
‘Feeling the Pinch’
Certainly, open-source is a small part of the software market, and these programs sometimes don’t have all the features that can be found in proprietary applications made by traditional suppliers.
Still, some analysts said SAP, the world’s biggest maker of business management software, is starting to feel the pinch. Walldorf, Germany-based SAP this week cut its sales forecast as clients in emerging markets and Japan spent less than it anticipated. Software and related service revenue will fall between 6 percent and 8 percent in 2009 before some items. In July, it had predicted the drop would be 4 percent to 6 percent.
“When there is an alternative to paying for a license, people will look at it very seriously,” said Jonathan Crozier, an analyst at WestLB Equity Markets in London. “That’s catching up a bit with SAP.”
RedHat Revenue
The phenomenon started in operating systems, where RedHat Inc., the biggest seller of software based on the open-source Linux program, has picked up corporate customers including Whole Foods Market Inc., Banco Pastor SA in Spain and Union Bank in the U.S. RedHat’s second- quarter revenue rose 12 percent as it attracted clients away from Microsoft and Sun Microsystems Inc.
“Prior to the fourth quarter of last year we were seeing some sporadic, slow but solid growth in certain areas of open source,” said Laurie Wurster, a Gartner analyst in Milford, New Hampshire. “Now, open-source producers are getting more interest from companies that wouldn’t even have considered them in the past.”
Oracle didn’t respond to a call from Bloomberg News seeking comment. SAP isn’t being hurt by open-source applications, Chief Executive Officer Leo Apotheker said on a conference call this week after giving the forecast.
“There is no negative effect from open-source software on our business,” he said.
Market Openings
SAP supports open-source software in “certain domains,” so “you’ll find many customers running our software on open- source and we certainly welcome that,” Apotheker said. “For example, we do it for our midsize offering All-In-One. So I think open software is one of the supply chain elements of any software that the customer can run.”
Big clients who tend to stick with the products they have may make proprietary-software vendors slow to move to open- source software, said Dave Stepherson, who helps manage about $650 million at Hardesty Capital Management in Baltimore.
“What holds it back is, a lot of it, just inertia and simplicity,” said Stepherson. “When you have a system in place that doesn’t work as well as you’d like, but it works, uprooting that is not too easy to do. It’s also not widely done.”
It may also be difficult for established software companies to adapt, said Ken Allen, a portfolio manager at Baltimore-based T. Rowe Price Group Inc., the seventh-biggest institutional holder of Microsoft shares.
“Like many types of disruptions, it’s hard for the incumbent companies to harvest them as they’d like,” leaving openings for new market entrants, he said.
-- With assistance from Simon Thiel in London. Editors: Robert Valpuesta, Cesca Antonelli.
To contact the reporters on this story: Matthew Campbell in London at mcampbell39@bloomberg.net; Stephanie Bodoni in Luxembourg at sbodoni@bloomberg.net
~Bloomberg (By Matthew Campbell and Stephanie Bodoni)
Related's Ross, Partners May Seek $1 Billion for Bank
Oct. 30 (Bloomberg) -- Related Cos. founder Stephen Ross and partners Jeff Blau and Bruce Beal Jr. are trying to raise about $1 billion for their new bank that may acquire a seized U.S. lender, people familiar with the plan said.
SJB National Bank, owned by the executives, is working with advisers including Deutsche Bank AG to raise capital in a private placement, according to the people, who declined to be identified because the plans are private. SJB won approval to bid on failing institutions from the FDIC, according to an Oct. 26 letter from the regulator obtained by Bloomberg News.
The FDIC had 416 companies on its list of “problem” lenders as of June 30, and 106 U.S. banks have failed so far this year, the most since 1992. The executives at New York-based Related received preliminary approval as individuals to establish SJB earlier this year, according to a notice on the U.S. Office of the Comptroller of the Currency’s Web site. Related, the closely held developer of New York’s Time Warner Center, won’t have any stake.
“That would be a nice war chest for them to have,” said Chip MacDonald, a partner with Jones Day in Atlanta who specializes in deals among lenders. “With the approval from the FDIC they could make some really meaningful acquisitions.”
Representatives of Deutsche Bank, SJB and Related declined to comment.
IndyMac, BankUnited
In March, California-based IndyMac Federal Bank, which failed in July 2008, was sold to investors led by Steven Mnuchin, an ex-Goldman Sachs Group Inc. investment banker, and including buyout firm J.C. Flowers & Co. Florida’s BankUnited Financial Corp. was sold in May to firms including Blackstone Group LP and WL Ross & Co.
Related has more than $15 billion of assets including 11 million square feet of commercial property and 17,500 apartment units, according to its Web site.
Ross, 69, completed a purchase of the Miami Dolphins from Wayne Huizenga in January, paying about $1 billion for the National Football League team, its stadium and other properties. He sold stakes to singers Marc Anthony and Gloria Estefan, and her husband, producer Emilio Estefan. The University of Michigan’s business school was named after Ross, following a gift in 2004.
To contact the reporters on this story: Jonathan Keehner in New York at jkeehner@bloomberg.net; Jason Kelly in New York at jkelly14@bloomberg.net
~Bloomberg (By Jonathan Keehner and Jason Kelly)
SJB National Bank, owned by the executives, is working with advisers including Deutsche Bank AG to raise capital in a private placement, according to the people, who declined to be identified because the plans are private. SJB won approval to bid on failing institutions from the FDIC, according to an Oct. 26 letter from the regulator obtained by Bloomberg News.
The FDIC had 416 companies on its list of “problem” lenders as of June 30, and 106 U.S. banks have failed so far this year, the most since 1992. The executives at New York-based Related received preliminary approval as individuals to establish SJB earlier this year, according to a notice on the U.S. Office of the Comptroller of the Currency’s Web site. Related, the closely held developer of New York’s Time Warner Center, won’t have any stake.
“That would be a nice war chest for them to have,” said Chip MacDonald, a partner with Jones Day in Atlanta who specializes in deals among lenders. “With the approval from the FDIC they could make some really meaningful acquisitions.”
Representatives of Deutsche Bank, SJB and Related declined to comment.
IndyMac, BankUnited
In March, California-based IndyMac Federal Bank, which failed in July 2008, was sold to investors led by Steven Mnuchin, an ex-Goldman Sachs Group Inc. investment banker, and including buyout firm J.C. Flowers & Co. Florida’s BankUnited Financial Corp. was sold in May to firms including Blackstone Group LP and WL Ross & Co.
Related has more than $15 billion of assets including 11 million square feet of commercial property and 17,500 apartment units, according to its Web site.
Ross, 69, completed a purchase of the Miami Dolphins from Wayne Huizenga in January, paying about $1 billion for the National Football League team, its stadium and other properties. He sold stakes to singers Marc Anthony and Gloria Estefan, and her husband, producer Emilio Estefan. The University of Michigan’s business school was named after Ross, following a gift in 2004.
To contact the reporters on this story: Jonathan Keehner in New York at jkeehner@bloomberg.net; Jason Kelly in New York at jkelly14@bloomberg.net
~Bloomberg (By Jonathan Keehner and Jason Kelly)
Duff’s $100 Million Hedge Fund Spree Fails to Lure Investors
Oct. 30 (Bloomberg) -- Phil Duff had a three-decade hot streak.
He earned degrees from Harvard University and MIT and then skipped through the ranks at investment bank Morgan Stanley, becoming chief financial officer in 1994, when he was 36. Hedge fund phenom Julian Robertson hired him four years later as chief operating officer at Tiger Management LLC.
Duff struck out on his own in 2000, founding hedge fund firm FrontPoint Partners LLC -- which Duff, a lifelong outdoorsman, named for a mountain-climbing technique used to scale steep ice faces with crampons. Six years later, he sold the company to Morgan Stanley for $400 million.
He could have stopped there. He didn’t, and his legacy today is 43,400 square feet (4,030 square meters) of silent, unoccupied office space in Greenwich, Connecticut, with a custom food court, two jumbo flat-screen televisions and about $6 million of other amenities. The offices were to be the home of Duff Capital Advisors LP, a firm that the super-confident Duff, 52, once predicted would be bigger than Tiger, which at its peak managed $22 billion.
Then the global financial system seized up, and no pension fund had a spare $1 billion to invest with Duff’s moneymen. Duff never moved into his new digs. As of late September, his $39,000 desk -- a single slab of caramel-colored walnut with bronze legs -- still sat in a corner office with views across Long Island Sound. The landlord got the desk, $1.5 million of other furniture and an $11 million penalty when Duff Capital negotiated an end to its 15-year lease, according to a person familiar with the matter.
Hedge Funds Die
Duff, who lives in Greenwich and vacations in Sun Valley, Idaho, didn’t return phone calls or e-mails.
The past two years have been lethal for hedge funds. A record 1,471 failed in 2008, and another 668 died in the first half of 2009, according to Hedge Fund Research Inc. in Chicago. At first glance, Duff Capital shouldn’t have been among them. Phil Duff had survived other crises, and he had more backing than most: $100 million in cash to rent offices and hire managers, courtesy of Lindsay Goldberg LLC, a $10 billion buyout firm in New York. Most of the $100 million is gone, according to a person familiar with the matter.
“It should have been a perfect opportunity,” says Josh Green, an independent money manager who joined Duff Capital in October 2008, six weeks before Duff dismissed all of his fund managers.
Industry Town
Duff’s drama played out in Greenwich, a town of 62,000 on a tiny panhandle of Connecticut that reaches southwest toward New York City. With its rambling manors and horse farms, Greenwich has become to hedge funds what Detroit was to cars.
In 2008, 80 percent of the commercial property in Greenwich was occupied by hedge fund firms, according to real estate broker CB Richard Ellis Group Inc. Thanks to collapses like Duff’s, 460,000 square feet of downtown office space, out of the 2.1 million square feet available, is empty.
Duff Capital failed, former employees say, because its founder kept spending money as if the credit crunch weren’t happening. Duff agreed to pay $5.5 million a year in rent, according to a person familiar with the matter, and outfitted his top-floor offices with a food court, showers, a boardroom table for 20 and a skylight with panes that filtered bright light to keep traders from squinting at their computer screens.
Pension Pain
Duff Capital’s demise sent 104 employees into a job market swollen with thousands of refugees from firms such as Merrill Lynch & Co. and bankrupt Lehman Brothers Holdings Inc. Some of Duff’s hires, many of whom had left stable jobs months before the crisis, were still unemployed in mid-October.
The Duff debacle may have also hurt tens of thousands of retired workers. Among Lindsay Goldberg’s clients are pension funds run by the governments of Florida, Indiana, New Jersey, Pennsylvania, Canada and Denmark.
Whether any retirement funds lost money, or how much, is unknown. Lindsay Goldberg founders Robert Lindsay and Alan Goldberg, who know Duff from the days when they all worked at Morgan Stanley, didn’t return calls or e-mails. Spokesmen for the pension funds also declined to comment on the Duff investment.
Duff started his firm with the aim of helping cash-strapped pension funds. “Organizations with long-term liabilities are finding it increasingly difficult to close their asset/liability gaps,” Duff wrote in a statement announcing the launch of his firm in March 2008. “Next-generation solutions are needed.”
Gap in Assets
As of May, U.S. public pensions had liabilities of $3.6 trillion and assets of just $2.8 trillion, according to the Center for Retirement Research at Boston College. Pension fund managers invest a portion of their assets in hedge funds to try to close the gap.
Lindsay Goldberg’s investment was working capital for Duff Capital itself; it wasn’t intended as seed money for any funds Duff created. The $100 million was the buyout firm’s only direct investment in a finance company, according to the portfolio on its Web site. Lindsay Goldberg usually invests in closely held companies such as Keystone Foods Holdings LLC, the largest supplier of chicken and beef to McDonald’s Corp. in the U.S., and Crane & Co., a maker of stationery and greeting cards.
Former employees say Duff had a great idea: a hedge fund that was a one-stop shop for pension managers looking to boost returns. Duff would offer a carefully vetted, diverse group of investment strategies under one roof, rather than bet on one type of investment, as many hedge funds do. Pension managers could choose.
Lost Opportunity
The funds would be uncorrelated -- meaning when one lost value, another might gain -- and Duff Capital would do all of the risk management in-house, making the operation palatable to the most staid pension manager.
Had Duff been able to weather the panic that hit markets in September 2008 and attract investors, his money managers could have bought securities at clearance prices. As of Oct. 29, the Standard & Poor’s 500 Index was up 18 percent from January -- the month when, according to former employees, Lindsay Goldberg forced Duff out of his own firm.
Former employees would speak only on the condition that they not be named. One reason is that Lindsay Goldberg made departing staff sign confidentiality agreements in exchange for severance, they say.
“I’m going to talk about nothing,” says Robin Roger, former general counsel at Duff, citing the agreement she signed with Lindsay Goldberg. “It’s behind me.” Roger now works at New York- based hedge fund firm Harbinger Capital Partners.
$35 Billion
Duff offered to sell Class A shares -- the same class of shares owned by Lindsay Goldberg -- to everyone in the firm. He projected that in five years he could raise $35 billion for his handpicked managers to invest, according to a document describing how another class of stock granted to employees as an incentive would grow in value as Duff Capital added assets. The $35 billion is about seven times what FrontPoint had raised in the same period.
The goal was pure Duff, people who know him say. Like many successful hedge fund operators, Duff is doggedly competitive, they say. A longtime skier, Duff still races in a New England masters league.
Duff has always been ready with ideas for running a financial firm, says Paul Ghaffari, who, like Duff, was one of the three co-founders of FrontPoint. “He thinks out on the horizon constantly,” says Ghaffari, founder of Capitoline LLC, an investment company in New York.
Minting Fortunes
Founding and then selling a money management firm was a good way to make a fortune before the Great Recession of 2008. Duff’s 2006 sale of FrontPoint was an example. An earlier case was Highbridge Capital Management LLC, whose founders in 2004 sold 55 percent of their then-12-year-old New York-based company to JPMorgan Chase & Co. for $1.3 billion.
Vikram Pandit sold his hedge fund, Old Lane Partners LP, to Citigroup Inc. for $800 million in 2007. He later became chief executive officer of the acquirer.
Lindsay Goldberg committed to investing as much as $500 million in Duff Capital, according to a March 2008 Duff press release. The $100 million it put in to start bought the firm 100,000 Class A shares, according to a March 2008 document describing the shares. That gave them an 80 percent stake in the firm, before employees also invested.
Duff had his own skin in the game. He paid $10 million for 10,000 A shares. Duff Capital fronted him another 10,000 shares in exchange for a note from him promising to pay $10 million for them at a later date.
Cash or Credit
The A shares divided the management team at Duff, according to people who worked there. Twenty-one employees were required to pay cash for them. Six were given A shares in return for promissory notes, the people say, even though another March 2008 document describing the shares said, “A Units are owned by investors who contributed capital.”
The biggest individual cash investor after Duff was FrontPoint veteran John Zimmermann, head of the new firm’s client acquisition group. Zimmermann, 51, put up $4.2 million, according to a complaint he filed, together with head trader Michael McCarty, in New York State Supreme Court -- a trial- level court -- on July 29. McCarty, 40, invested $2.1 million.
The recipient of the biggest loan was Eileen Murray, the firm’s president and a colleague of Duff’s at Morgan Stanley. She was fronted shares worth $5 million, according to people who worked at the firm. Murray, now at hedge fund firm Bridgewater Associates Inc., didn’t reply to calls and a faxed message seeking comment.
Minnesota Roots
Phil Duff was born in Red Wing, Minnesota, a town of 16,000 people about 60 miles (97 kilometers) southeast of Minneapolis on the Mississippi River. His father owned the local newspaper, the Red Wing Republican Eagle. He graduated from Harvard in 1979 and worked as a grain trader at commodity merchant Louis Dreyfus Corp.
In 1982, he enrolled at Massachusetts Institute of Technology’s Sloan School of Management, where he wrote a master’s thesis on how anti-takeover tactics affect shareholder wealth. One of his conclusions: A target company shouldn’t go to court because that stops the bid dead, hurting its stock.
Duff worked at Morgan Stanley during the summer he attended Sloan and took a full-time job in the firm’s mergers and acquisitions division after graduation. He eventually became head of the group advising banks and brokerages. In 1994, he was named CFO under President John Mack.
Sidetracked
While at Morgan Stanley, he got to know fellow Harvard grad Lindsay and also Goldberg, a Yeshiva University-trained lawyer. Both helped start Morgan Stanley’s private equity division. Dean Witter, Discover & Co. bought Morgan Stanley for $11 billion in June 1997. In the ensuing management shuffle, Duff was named CEO of the conglomerate’s fund company, then called Van Kampen American Capital Inc., based in Oakbrook Terrace, Illinois.
Duff had once been on track to succeed Mack, and he protested that he’d been shunted aside, according to a person who was at Morgan Stanley at the time.
In 1998, Duff was hired by Robertson as COO of Tiger Management, which ran one of the best-performing hedge funds of all time, with an average annual return of 25 percent in the two decades ended in 2000. Duff’s timing couldn’t have been worse. During his second week on the job, Tiger lost $2 billion in one day on a wrong-way bet that the yen would fall against the dollar.
In 2000, Robertson stopped managing any money except his own. “This is a performance business, and we don’t deserve to have anyone’s money if we don’t perform,’’ Duff said in an interview with Bloomberg News just before Tiger closed its doors.
New Model
Duff rebounded. He and Tiger’s head trader, Gil Caffray, partnered with Ghaffari, a money manager for billionaire George Soros, to start FrontPoint in November 2000. FrontPoint developed an investment system that would become a model for Duff Capital. The firm recruited a group of fund managers with different areas of experience and then raised money and parsed it out to them.
Investors could choose from a list of investment strategies, while FrontPoint’s auditing, compliance and risk management personnel kept watch, aiming to attract conservative pension fund investors.
The plan worked. FrontPoint had pulled in $4.3 billion by the end of 2004 and $5.5 billion by the end of 2006. The cash pile got the attention of Mack, who had just returned to Morgan Stanley as CEO in 2005 after being co-CEO of Credit Suisse Group and chairman of hedge fund firm Pequot Capital Management Inc. In October 2006, Morgan Stanley announced a deal to buy FrontPoint. The price, not disclosed at the time, was $400 million.
Passed Over
Morgan Stanley named Caffray vice chairman of its investment management division. Duff was passed over in part because he had angered his portfolio managers by scuttling an earlier offer by Morgan Stanley at a higher price, according to a person familiar with the matter. He worked as a consultant to Mack. Then, in March 2008, he launched Duff Capital, with offices on Park Avenue in New York and in Greenwich.
The woods north of downtown Greenwich, where property records show Duff lives, are littered with estates owned by hedge fund managers. Steven Cohen, founder of SAC Capital Advisors LLC, bought a place there for $14.8 million in 1998 and expanded it to include an ice rink that he maintains with his own Zamboni.
Some Greenwich offices are as plush as the residences. Amaranth Advisors LLC, a hedge fund firm that lost $6.6 billion trading natural gas in 2006, had a soundproofed music room with a drum kit and a mixing board. There were also a gym and a billiards room with a machine that sucked away cigar smoke, according to a person who visited the office.
Bear Bought
U.S. stocks had been falling for four months when Duff Capital debuted. Eleven days after Duff announced the formation of his company, the Federal Reserve agreed to guarantee $30 billion of securities owned by Bear Stearns Cos. as part of a deal in which JPMorgan Chase took over the investment bank for just $240 million. The crisis had come.
Eight days after that, Antares Investment Partners, a Greenwich-based landlord, announced it had leased every square inch of its newly renovated building at 100 W. Putnam Ave. Duff Capital helped Antares do it. The firm signed a 15-year lease with annual rent of $5.5 million for the first five years, with an option to buy, according to a person familiar with the contract.
Hiring Spree
Even after the Bear Stearns scare, Duff was hiring like it was 2007. He announced new fund managers and executives by the batch in press releases. They came from American International Group Inc., Tribeca Global Management LLC, UBS AG, JPMorgan, Lehman Brothers and Pequot. People joined the startup because it was headed by Phil Duff, the man behind FrontPoint.
The one thing Duff didn’t do was find a big investor. In his initial press release, he said that he was in discussions with “several” institutions to raise as much as $1.5 billion. Months passed, and he never inked a deal.
Payroll and improvements to the Greenwich office were costing money in the meantime. By July, Duff Capital was burning through $5 million of Lindsay Goldberg’s cash per month, according to a person familiar with the matter.
That month, Duff merged with North Sound Capital LLC, a Greenwich-based hedge fund with $900 million of assets. The deal was contingent on Duff raising $500 million more for North Sound’s managers, which Duff never did, and North Sound left Duff Capital in December, according to people familiar with the matter.
Spending Questioned
Lindsay and Goldberg tolerated the costs until mid- September, when they paid a visit to the firm’s offices on Park Avenue and demanded to know why Duff was spending so much money -- and not earning any, according to people familiar with the meeting.
On Sept. 15, Lehman went bankrupt.
As the world of finance unraveled, Goldberg, who took the lead on the Duff investment, pushed Duff to fire people. In October, two months after announcing a batch of hires, Duff dismissed 60 of his 104 employees, according to people who worked at Duff Capital.
The next month, Goldberg pushed Duff to give him control of the firm, which had been a limited partnership controlled by Duff. The incorporation was changed to a limited liability company overseen by an eight-member board. Four of the directors were employed by Lindsay Goldberg.
To save money, Goldberg asked employees to take new A shares in lieu of cash bonuses, according to people familiar with the situation. That diluted the value of shares owned by cash investors like McCarty and Zimmermann, the people say.
Pushed Out
The ax fell on Duff in mid-January, people familiar with the matter say, when Lindsay Goldberg pushed him out. Duff Capital was rechristened Investment Risk Management Holdings LLC, which would develop risk analysis tools, Lindsay Goldberg said on its Web site.
Goldberg kept the company going through May 21, the day the private equity firm finished raising money for its newest fund: Lindsay Goldberg III LP. If investors knew about the Duff Capital collapse, it didn’t stop Lindsay Goldberg from raising $4.7 billion.
At the end of May, Lindsay Goldberg fired all but a skeleton crew of four people whose job was to settle claims and sell assets. Among those cut were McCarty and Zimmermann. As usual, Goldberg asked the pair to waive legal rights accompanying their shares. McCarty and Zimmermann balked, according to the complaint the pair filed in August. They claimed that their equity investment had nothing to do with their 2009 employment contracts, under which Zimmermann was owed $791,666.67 and McCarty $645,833.33.
Pay Held ‘Hostage’
“Duff Capital’s conduct in holding hostage plaintiffs’ guaranteed compensation, or wage, is in bad faith, arbitrary, unreasonable, malicious and willful,” they charged in the suit.
Lindsay Goldberg settled with McCarty and Zimmermann in September. None of the people involved would discuss the terms.
Duff’s Greenwich office will have a new tenant soon. Hedge fund firm Shumway Capital Partners LLC leased the space in October, according to a person familiar with the matter.
Like Duff, founder Chris Shumway worked at Tiger with Julian Robertson. What Shumway is paying is not known, though Antares had been asking $115 a square foot, an 18 percent discount from Duff’s rent. The price includes the $39,000 desk.
To contact the reporter on this story: Anthony Effinger in Portland, Oregon aeffinger@bloomberg.net
~Bloomberg (By Anthony Effinger)
He earned degrees from Harvard University and MIT and then skipped through the ranks at investment bank Morgan Stanley, becoming chief financial officer in 1994, when he was 36. Hedge fund phenom Julian Robertson hired him four years later as chief operating officer at Tiger Management LLC.
Duff struck out on his own in 2000, founding hedge fund firm FrontPoint Partners LLC -- which Duff, a lifelong outdoorsman, named for a mountain-climbing technique used to scale steep ice faces with crampons. Six years later, he sold the company to Morgan Stanley for $400 million.
He could have stopped there. He didn’t, and his legacy today is 43,400 square feet (4,030 square meters) of silent, unoccupied office space in Greenwich, Connecticut, with a custom food court, two jumbo flat-screen televisions and about $6 million of other amenities. The offices were to be the home of Duff Capital Advisors LP, a firm that the super-confident Duff, 52, once predicted would be bigger than Tiger, which at its peak managed $22 billion.
Then the global financial system seized up, and no pension fund had a spare $1 billion to invest with Duff’s moneymen. Duff never moved into his new digs. As of late September, his $39,000 desk -- a single slab of caramel-colored walnut with bronze legs -- still sat in a corner office with views across Long Island Sound. The landlord got the desk, $1.5 million of other furniture and an $11 million penalty when Duff Capital negotiated an end to its 15-year lease, according to a person familiar with the matter.
Hedge Funds Die
Duff, who lives in Greenwich and vacations in Sun Valley, Idaho, didn’t return phone calls or e-mails.
The past two years have been lethal for hedge funds. A record 1,471 failed in 2008, and another 668 died in the first half of 2009, according to Hedge Fund Research Inc. in Chicago. At first glance, Duff Capital shouldn’t have been among them. Phil Duff had survived other crises, and he had more backing than most: $100 million in cash to rent offices and hire managers, courtesy of Lindsay Goldberg LLC, a $10 billion buyout firm in New York. Most of the $100 million is gone, according to a person familiar with the matter.
“It should have been a perfect opportunity,” says Josh Green, an independent money manager who joined Duff Capital in October 2008, six weeks before Duff dismissed all of his fund managers.
Industry Town
Duff’s drama played out in Greenwich, a town of 62,000 on a tiny panhandle of Connecticut that reaches southwest toward New York City. With its rambling manors and horse farms, Greenwich has become to hedge funds what Detroit was to cars.
In 2008, 80 percent of the commercial property in Greenwich was occupied by hedge fund firms, according to real estate broker CB Richard Ellis Group Inc. Thanks to collapses like Duff’s, 460,000 square feet of downtown office space, out of the 2.1 million square feet available, is empty.
Duff Capital failed, former employees say, because its founder kept spending money as if the credit crunch weren’t happening. Duff agreed to pay $5.5 million a year in rent, according to a person familiar with the matter, and outfitted his top-floor offices with a food court, showers, a boardroom table for 20 and a skylight with panes that filtered bright light to keep traders from squinting at their computer screens.
Pension Pain
Duff Capital’s demise sent 104 employees into a job market swollen with thousands of refugees from firms such as Merrill Lynch & Co. and bankrupt Lehman Brothers Holdings Inc. Some of Duff’s hires, many of whom had left stable jobs months before the crisis, were still unemployed in mid-October.
The Duff debacle may have also hurt tens of thousands of retired workers. Among Lindsay Goldberg’s clients are pension funds run by the governments of Florida, Indiana, New Jersey, Pennsylvania, Canada and Denmark.
Whether any retirement funds lost money, or how much, is unknown. Lindsay Goldberg founders Robert Lindsay and Alan Goldberg, who know Duff from the days when they all worked at Morgan Stanley, didn’t return calls or e-mails. Spokesmen for the pension funds also declined to comment on the Duff investment.
Duff started his firm with the aim of helping cash-strapped pension funds. “Organizations with long-term liabilities are finding it increasingly difficult to close their asset/liability gaps,” Duff wrote in a statement announcing the launch of his firm in March 2008. “Next-generation solutions are needed.”
Gap in Assets
As of May, U.S. public pensions had liabilities of $3.6 trillion and assets of just $2.8 trillion, according to the Center for Retirement Research at Boston College. Pension fund managers invest a portion of their assets in hedge funds to try to close the gap.
Lindsay Goldberg’s investment was working capital for Duff Capital itself; it wasn’t intended as seed money for any funds Duff created. The $100 million was the buyout firm’s only direct investment in a finance company, according to the portfolio on its Web site. Lindsay Goldberg usually invests in closely held companies such as Keystone Foods Holdings LLC, the largest supplier of chicken and beef to McDonald’s Corp. in the U.S., and Crane & Co., a maker of stationery and greeting cards.
Former employees say Duff had a great idea: a hedge fund that was a one-stop shop for pension managers looking to boost returns. Duff would offer a carefully vetted, diverse group of investment strategies under one roof, rather than bet on one type of investment, as many hedge funds do. Pension managers could choose.
Lost Opportunity
The funds would be uncorrelated -- meaning when one lost value, another might gain -- and Duff Capital would do all of the risk management in-house, making the operation palatable to the most staid pension manager.
Had Duff been able to weather the panic that hit markets in September 2008 and attract investors, his money managers could have bought securities at clearance prices. As of Oct. 29, the Standard & Poor’s 500 Index was up 18 percent from January -- the month when, according to former employees, Lindsay Goldberg forced Duff out of his own firm.
Former employees would speak only on the condition that they not be named. One reason is that Lindsay Goldberg made departing staff sign confidentiality agreements in exchange for severance, they say.
“I’m going to talk about nothing,” says Robin Roger, former general counsel at Duff, citing the agreement she signed with Lindsay Goldberg. “It’s behind me.” Roger now works at New York- based hedge fund firm Harbinger Capital Partners.
$35 Billion
Duff offered to sell Class A shares -- the same class of shares owned by Lindsay Goldberg -- to everyone in the firm. He projected that in five years he could raise $35 billion for his handpicked managers to invest, according to a document describing how another class of stock granted to employees as an incentive would grow in value as Duff Capital added assets. The $35 billion is about seven times what FrontPoint had raised in the same period.
The goal was pure Duff, people who know him say. Like many successful hedge fund operators, Duff is doggedly competitive, they say. A longtime skier, Duff still races in a New England masters league.
Duff has always been ready with ideas for running a financial firm, says Paul Ghaffari, who, like Duff, was one of the three co-founders of FrontPoint. “He thinks out on the horizon constantly,” says Ghaffari, founder of Capitoline LLC, an investment company in New York.
Minting Fortunes
Founding and then selling a money management firm was a good way to make a fortune before the Great Recession of 2008. Duff’s 2006 sale of FrontPoint was an example. An earlier case was Highbridge Capital Management LLC, whose founders in 2004 sold 55 percent of their then-12-year-old New York-based company to JPMorgan Chase & Co. for $1.3 billion.
Vikram Pandit sold his hedge fund, Old Lane Partners LP, to Citigroup Inc. for $800 million in 2007. He later became chief executive officer of the acquirer.
Lindsay Goldberg committed to investing as much as $500 million in Duff Capital, according to a March 2008 Duff press release. The $100 million it put in to start bought the firm 100,000 Class A shares, according to a March 2008 document describing the shares. That gave them an 80 percent stake in the firm, before employees also invested.
Duff had his own skin in the game. He paid $10 million for 10,000 A shares. Duff Capital fronted him another 10,000 shares in exchange for a note from him promising to pay $10 million for them at a later date.
Cash or Credit
The A shares divided the management team at Duff, according to people who worked there. Twenty-one employees were required to pay cash for them. Six were given A shares in return for promissory notes, the people say, even though another March 2008 document describing the shares said, “A Units are owned by investors who contributed capital.”
The biggest individual cash investor after Duff was FrontPoint veteran John Zimmermann, head of the new firm’s client acquisition group. Zimmermann, 51, put up $4.2 million, according to a complaint he filed, together with head trader Michael McCarty, in New York State Supreme Court -- a trial- level court -- on July 29. McCarty, 40, invested $2.1 million.
The recipient of the biggest loan was Eileen Murray, the firm’s president and a colleague of Duff’s at Morgan Stanley. She was fronted shares worth $5 million, according to people who worked at the firm. Murray, now at hedge fund firm Bridgewater Associates Inc., didn’t reply to calls and a faxed message seeking comment.
Minnesota Roots
Phil Duff was born in Red Wing, Minnesota, a town of 16,000 people about 60 miles (97 kilometers) southeast of Minneapolis on the Mississippi River. His father owned the local newspaper, the Red Wing Republican Eagle. He graduated from Harvard in 1979 and worked as a grain trader at commodity merchant Louis Dreyfus Corp.
In 1982, he enrolled at Massachusetts Institute of Technology’s Sloan School of Management, where he wrote a master’s thesis on how anti-takeover tactics affect shareholder wealth. One of his conclusions: A target company shouldn’t go to court because that stops the bid dead, hurting its stock.
Duff worked at Morgan Stanley during the summer he attended Sloan and took a full-time job in the firm’s mergers and acquisitions division after graduation. He eventually became head of the group advising banks and brokerages. In 1994, he was named CFO under President John Mack.
Sidetracked
While at Morgan Stanley, he got to know fellow Harvard grad Lindsay and also Goldberg, a Yeshiva University-trained lawyer. Both helped start Morgan Stanley’s private equity division. Dean Witter, Discover & Co. bought Morgan Stanley for $11 billion in June 1997. In the ensuing management shuffle, Duff was named CEO of the conglomerate’s fund company, then called Van Kampen American Capital Inc., based in Oakbrook Terrace, Illinois.
Duff had once been on track to succeed Mack, and he protested that he’d been shunted aside, according to a person who was at Morgan Stanley at the time.
In 1998, Duff was hired by Robertson as COO of Tiger Management, which ran one of the best-performing hedge funds of all time, with an average annual return of 25 percent in the two decades ended in 2000. Duff’s timing couldn’t have been worse. During his second week on the job, Tiger lost $2 billion in one day on a wrong-way bet that the yen would fall against the dollar.
In 2000, Robertson stopped managing any money except his own. “This is a performance business, and we don’t deserve to have anyone’s money if we don’t perform,’’ Duff said in an interview with Bloomberg News just before Tiger closed its doors.
New Model
Duff rebounded. He and Tiger’s head trader, Gil Caffray, partnered with Ghaffari, a money manager for billionaire George Soros, to start FrontPoint in November 2000. FrontPoint developed an investment system that would become a model for Duff Capital. The firm recruited a group of fund managers with different areas of experience and then raised money and parsed it out to them.
Investors could choose from a list of investment strategies, while FrontPoint’s auditing, compliance and risk management personnel kept watch, aiming to attract conservative pension fund investors.
The plan worked. FrontPoint had pulled in $4.3 billion by the end of 2004 and $5.5 billion by the end of 2006. The cash pile got the attention of Mack, who had just returned to Morgan Stanley as CEO in 2005 after being co-CEO of Credit Suisse Group and chairman of hedge fund firm Pequot Capital Management Inc. In October 2006, Morgan Stanley announced a deal to buy FrontPoint. The price, not disclosed at the time, was $400 million.
Passed Over
Morgan Stanley named Caffray vice chairman of its investment management division. Duff was passed over in part because he had angered his portfolio managers by scuttling an earlier offer by Morgan Stanley at a higher price, according to a person familiar with the matter. He worked as a consultant to Mack. Then, in March 2008, he launched Duff Capital, with offices on Park Avenue in New York and in Greenwich.
The woods north of downtown Greenwich, where property records show Duff lives, are littered with estates owned by hedge fund managers. Steven Cohen, founder of SAC Capital Advisors LLC, bought a place there for $14.8 million in 1998 and expanded it to include an ice rink that he maintains with his own Zamboni.
Some Greenwich offices are as plush as the residences. Amaranth Advisors LLC, a hedge fund firm that lost $6.6 billion trading natural gas in 2006, had a soundproofed music room with a drum kit and a mixing board. There were also a gym and a billiards room with a machine that sucked away cigar smoke, according to a person who visited the office.
Bear Bought
U.S. stocks had been falling for four months when Duff Capital debuted. Eleven days after Duff announced the formation of his company, the Federal Reserve agreed to guarantee $30 billion of securities owned by Bear Stearns Cos. as part of a deal in which JPMorgan Chase took over the investment bank for just $240 million. The crisis had come.
Eight days after that, Antares Investment Partners, a Greenwich-based landlord, announced it had leased every square inch of its newly renovated building at 100 W. Putnam Ave. Duff Capital helped Antares do it. The firm signed a 15-year lease with annual rent of $5.5 million for the first five years, with an option to buy, according to a person familiar with the contract.
Hiring Spree
Even after the Bear Stearns scare, Duff was hiring like it was 2007. He announced new fund managers and executives by the batch in press releases. They came from American International Group Inc., Tribeca Global Management LLC, UBS AG, JPMorgan, Lehman Brothers and Pequot. People joined the startup because it was headed by Phil Duff, the man behind FrontPoint.
The one thing Duff didn’t do was find a big investor. In his initial press release, he said that he was in discussions with “several” institutions to raise as much as $1.5 billion. Months passed, and he never inked a deal.
Payroll and improvements to the Greenwich office were costing money in the meantime. By July, Duff Capital was burning through $5 million of Lindsay Goldberg’s cash per month, according to a person familiar with the matter.
That month, Duff merged with North Sound Capital LLC, a Greenwich-based hedge fund with $900 million of assets. The deal was contingent on Duff raising $500 million more for North Sound’s managers, which Duff never did, and North Sound left Duff Capital in December, according to people familiar with the matter.
Spending Questioned
Lindsay and Goldberg tolerated the costs until mid- September, when they paid a visit to the firm’s offices on Park Avenue and demanded to know why Duff was spending so much money -- and not earning any, according to people familiar with the meeting.
On Sept. 15, Lehman went bankrupt.
As the world of finance unraveled, Goldberg, who took the lead on the Duff investment, pushed Duff to fire people. In October, two months after announcing a batch of hires, Duff dismissed 60 of his 104 employees, according to people who worked at Duff Capital.
The next month, Goldberg pushed Duff to give him control of the firm, which had been a limited partnership controlled by Duff. The incorporation was changed to a limited liability company overseen by an eight-member board. Four of the directors were employed by Lindsay Goldberg.
To save money, Goldberg asked employees to take new A shares in lieu of cash bonuses, according to people familiar with the situation. That diluted the value of shares owned by cash investors like McCarty and Zimmermann, the people say.
Pushed Out
The ax fell on Duff in mid-January, people familiar with the matter say, when Lindsay Goldberg pushed him out. Duff Capital was rechristened Investment Risk Management Holdings LLC, which would develop risk analysis tools, Lindsay Goldberg said on its Web site.
Goldberg kept the company going through May 21, the day the private equity firm finished raising money for its newest fund: Lindsay Goldberg III LP. If investors knew about the Duff Capital collapse, it didn’t stop Lindsay Goldberg from raising $4.7 billion.
At the end of May, Lindsay Goldberg fired all but a skeleton crew of four people whose job was to settle claims and sell assets. Among those cut were McCarty and Zimmermann. As usual, Goldberg asked the pair to waive legal rights accompanying their shares. McCarty and Zimmermann balked, according to the complaint the pair filed in August. They claimed that their equity investment had nothing to do with their 2009 employment contracts, under which Zimmermann was owed $791,666.67 and McCarty $645,833.33.
Pay Held ‘Hostage’
“Duff Capital’s conduct in holding hostage plaintiffs’ guaranteed compensation, or wage, is in bad faith, arbitrary, unreasonable, malicious and willful,” they charged in the suit.
Lindsay Goldberg settled with McCarty and Zimmermann in September. None of the people involved would discuss the terms.
Duff’s Greenwich office will have a new tenant soon. Hedge fund firm Shumway Capital Partners LLC leased the space in October, according to a person familiar with the matter.
Like Duff, founder Chris Shumway worked at Tiger with Julian Robertson. What Shumway is paying is not known, though Antares had been asking $115 a square foot, an 18 percent discount from Duff’s rent. The price includes the $39,000 desk.
To contact the reporter on this story: Anthony Effinger in Portland, Oregon aeffinger@bloomberg.net
~Bloomberg (By Anthony Effinger)
Wilbur Ross Sees ‘Huge’ Commercial Real Estate Crash
Oct. 30 (Bloomberg) -- Billionaire investor Wilbur L. Ross Jr., said today the U.S. is in the beginning of a “huge crash in commercial real estate.”
“All of the components of real estate value are going in the wrong direction simultaneously,” said Ross, one of nine money managers participating in a government program to remove toxic assets from bank balance sheets. “Occupancy rates are going down. Rent rates are going down and the capitalization rate -- the return that investors are demanding to buy a property -- are going up.”
U.S. commercial property sales are forecast to fall to the lowest in almost two decades as the industry endures its worst slump since the savings and loan crisis of the early 1990s, according to property research firm Real Capital Analytics Inc. The Moody’s/REAL Commercial Property Price Indices already have fallen almost 41 percent since October 2007, Moody’s Investors Service said Oct. 19.
Billionaire George Soros, speaking today at a lecture organized by the Central European University in Budapest, said a “bloodletting” may be coming for leveraged buyouts and commercial real estate.
“The American consumer will no longer be able to serve as the motor for the world economy,” said Soros, 79.
His comments came in the same week that Capmark Financial Group Inc. filed for Chapter 11 bankruptcy protection after originating $60 billion in commercial property loans in 2006 and 2007.
‘Extreme Caution’
Ross, the 71-year-old chairman and chief executive officer of WL Ross & Co. LLC, said in an interview on Bloomberg Radio that he would use “extreme caution” before putting money into commercial real estate, especially office space, because properties are losing tenants.
U.S. office vacancies hit a five-year high of almost 17 percent in the third quarter, while shopping center vacancies climbed to their highest since 1992, according to the property research firm Reis Inc.
“I think it’s going to take quite a while to work itself out,” Ross said.
As of Oct. 15, Ross said he had spent less than $100 million of at least $1.5 billion available to him under the Public-Private Investment Program, an investment pool of private and government money for purchasing distressed assets from financial institutions.
Ross used the funds he spent so far to purchase residential mortgage-backed securities, he said in a Bloomberg Television interview.
Corus Investment
WL Ross was among a group of firms that agreed Oct. 6 to buy $4.5 billion of Corus Bankshares Inc.’s real estate. Starwood Capital Group LLC and TPG led the group to buy the assets of the Chicago-based lender, which was seized by federal regulators Sept. 11 after its investments in construction loans for condominiums went bad.
In 2007, Ross ventured into the declining residential property market, winning an auction for the home-loan servicing unit of Melville, New York-based American Home Mortgage Investment Corp. He agreed to pay between $435 million and $500 million for the right to collect payments and maintain escrow on about $45.3 billion of home mortgages.
Making Lists
Dubbed the King of Bankruptcy by clients during his quarter century at the Rothschild investment bank, Ross entered the U.S. home mortgage business as an increasing number of borrowers quit making payments and profits sank in loan servicing.
“Our methodology is to make a great big list: What’s every thing we can think of that’s either wrong with the industry or that we just plain don’t like about it,” Ross said today.
“Then we start work on another list. If we had control of this industry, what would we do to fix each one of those problems?” he said. “Once we feel that there is a reasonable likelihood that the second chart kind of equals the first chart, that’s when we get ready to do something.”
To contact the reporters on this story: John Gittelsohn in New York at johngitt@bloomberg.net; Thomas R. Keene in New York at tkeene@bloomberg.net.
~Bloomberg (By John Gittelsohn and Thomas R. Keene)
“All of the components of real estate value are going in the wrong direction simultaneously,” said Ross, one of nine money managers participating in a government program to remove toxic assets from bank balance sheets. “Occupancy rates are going down. Rent rates are going down and the capitalization rate -- the return that investors are demanding to buy a property -- are going up.”
U.S. commercial property sales are forecast to fall to the lowest in almost two decades as the industry endures its worst slump since the savings and loan crisis of the early 1990s, according to property research firm Real Capital Analytics Inc. The Moody’s/REAL Commercial Property Price Indices already have fallen almost 41 percent since October 2007, Moody’s Investors Service said Oct. 19.
Billionaire George Soros, speaking today at a lecture organized by the Central European University in Budapest, said a “bloodletting” may be coming for leveraged buyouts and commercial real estate.
“The American consumer will no longer be able to serve as the motor for the world economy,” said Soros, 79.
His comments came in the same week that Capmark Financial Group Inc. filed for Chapter 11 bankruptcy protection after originating $60 billion in commercial property loans in 2006 and 2007.
‘Extreme Caution’
Ross, the 71-year-old chairman and chief executive officer of WL Ross & Co. LLC, said in an interview on Bloomberg Radio that he would use “extreme caution” before putting money into commercial real estate, especially office space, because properties are losing tenants.
U.S. office vacancies hit a five-year high of almost 17 percent in the third quarter, while shopping center vacancies climbed to their highest since 1992, according to the property research firm Reis Inc.
“I think it’s going to take quite a while to work itself out,” Ross said.
As of Oct. 15, Ross said he had spent less than $100 million of at least $1.5 billion available to him under the Public-Private Investment Program, an investment pool of private and government money for purchasing distressed assets from financial institutions.
Ross used the funds he spent so far to purchase residential mortgage-backed securities, he said in a Bloomberg Television interview.
Corus Investment
WL Ross was among a group of firms that agreed Oct. 6 to buy $4.5 billion of Corus Bankshares Inc.’s real estate. Starwood Capital Group LLC and TPG led the group to buy the assets of the Chicago-based lender, which was seized by federal regulators Sept. 11 after its investments in construction loans for condominiums went bad.
In 2007, Ross ventured into the declining residential property market, winning an auction for the home-loan servicing unit of Melville, New York-based American Home Mortgage Investment Corp. He agreed to pay between $435 million and $500 million for the right to collect payments and maintain escrow on about $45.3 billion of home mortgages.
Making Lists
Dubbed the King of Bankruptcy by clients during his quarter century at the Rothschild investment bank, Ross entered the U.S. home mortgage business as an increasing number of borrowers quit making payments and profits sank in loan servicing.
“Our methodology is to make a great big list: What’s every thing we can think of that’s either wrong with the industry or that we just plain don’t like about it,” Ross said today.
“Then we start work on another list. If we had control of this industry, what would we do to fix each one of those problems?” he said. “Once we feel that there is a reasonable likelihood that the second chart kind of equals the first chart, that’s when we get ready to do something.”
To contact the reporters on this story: John Gittelsohn in New York at johngitt@bloomberg.net; Thomas R. Keene in New York at tkeene@bloomberg.net.
~Bloomberg (By John Gittelsohn and Thomas R. Keene)
Du to Spend $680 Million on Network Expansion as Profit Surges
Nov. 1 (Bloomberg) -- Emirates Integrated Telecommunications Co. aims to spend as much as 2.5 billion dirhams ($680 million) this year expanding its network as the United Arab Emirates second-biggest telephone company doubled its quarterly profit after gaining new customers.
The Dubai-based company’s investment will total between 2 billion dirhams and 2.5 billion dirhams by the end of this year as infrastructure spending started “paying off,” Chief Executive Officer Osman Sultan said in a conference call today.
Third-quarter profit surged to 78.55 million dirhams ($21.4 million), or 2 fils a share, from 31.5 million dirhams, or 1 fil, in the year-earlier period, the company, also known as Du, said in a statement to the Dubai bourse today. Du made a “royalty payment” of 78.55 million dirhams in the quarter.
Du, which competes with Emirates Telecommunications Corp. in offering fixed-line, mobile and Internet services, is seeking to boost profit by gaining clients who spend more on services such as downloads or high-speed Web connections. Emirates Telecommunications, known as Etisalat, is expanding in Africa and Asia, targeting clients in markets with young and growing populations.
Du is in the “mindset” of forming partnerships and seeks to start expansion beyond its home base in the first half of next year, Sultan said. “That is a major priority moving forward,” he said. “Doing this means agreements need to be reached and discussions are really in an intense phase.”
Revenue rose 26 percent to 1.33 billion dirhams in the third quarter and earnings before interest, tax, depreciation and amortization almost tripled to 297.3 million dirhams. Active mobile subscribers jumped 51 percent from the third-quarter of last year to 3.14 million at the end of September, according to the statement.
To contact the reporter on this story: Vivian Salama in Dubai vsalama@bloomberg.net
~Bloomberg (By Vivian Salama)
The Dubai-based company’s investment will total between 2 billion dirhams and 2.5 billion dirhams by the end of this year as infrastructure spending started “paying off,” Chief Executive Officer Osman Sultan said in a conference call today.
Third-quarter profit surged to 78.55 million dirhams ($21.4 million), or 2 fils a share, from 31.5 million dirhams, or 1 fil, in the year-earlier period, the company, also known as Du, said in a statement to the Dubai bourse today. Du made a “royalty payment” of 78.55 million dirhams in the quarter.
Du, which competes with Emirates Telecommunications Corp. in offering fixed-line, mobile and Internet services, is seeking to boost profit by gaining clients who spend more on services such as downloads or high-speed Web connections. Emirates Telecommunications, known as Etisalat, is expanding in Africa and Asia, targeting clients in markets with young and growing populations.
Du is in the “mindset” of forming partnerships and seeks to start expansion beyond its home base in the first half of next year, Sultan said. “That is a major priority moving forward,” he said. “Doing this means agreements need to be reached and discussions are really in an intense phase.”
Revenue rose 26 percent to 1.33 billion dirhams in the third quarter and earnings before interest, tax, depreciation and amortization almost tripled to 297.3 million dirhams. Active mobile subscribers jumped 51 percent from the third-quarter of last year to 3.14 million at the end of September, according to the statement.
To contact the reporter on this story: Vivian Salama in Dubai vsalama@bloomberg.net
~Bloomberg (By Vivian Salama)
RBS May Be Able to Leave U.K. Asset Plan Early, Person Says
Oct. 31 (Bloomberg) -- Royal Bank of Scotland Group Plc may reach an agreement enabling it to exit a U.K. government program that would insure its risky assets earlier than predicted, a person familiar with the situation said.
The bank may no longer have to make an upfront 17.5 billion-pound ($29 billion) outlay to join the government’s Asset Protection Scheme, instead being allowed to pay for participation annually and agreeing to absord a bigger first loss than earlier decided, said the person, who declined to be identified because the talks are continuing. Edinburgh- based Royal Bank will insure as much as 280 billion pounds of risky assets through the program.
RBS, 70 percent of which is owned by the government, is trying to get back on its feet after posting the biggest loss in British corporate history during the credit crunch. The company may be forced by the European Union to sell its insurance unit, 300 branches and some investment-banking assets to win approval for its plans.
“Participation in the APS is necessary in order to provide a stable framework within which a long and uncertain disposal or run-off program can be efficiently managed,” Ian Gordon, an analyst at Exane BNP Paribas in London, wrote in a note to investors yesterday. Gordon has an “underperform” rating on the stock.
A final decision on the terms of the asset-insurance plan hasn’t been reached, the person said, adding that RBS may agree to absorb a higher first loss under the program than the almost 43 billion pounds, including 23 billion pounds of writedowns since the credit crunch, that was originally made part of the deal. Even with the new agreement, the bank will probably take more than a year to exit the plan, the person said.
‘Poor’ Performance
RBS, which had a 20 billion-pound capital injection last year, posted a loss of 24 billion pounds in 2008. Its financial performance will be “poor” for another two years, Chief Executive Officer Stephen Hester said in August.
Hester previously abandoned plans to sell the insurance unit, which includes the Direct Line, Churchill and Green Flag brands, after failing to agree on a price with potential buyers in January.
The Financial Times reported the new terms earlier today. Officials at RBS declined to comment.
To contact the reporter on this story: Jon Menon
~Bloomberg (By Jon Menon)
The bank may no longer have to make an upfront 17.5 billion-pound ($29 billion) outlay to join the government’s Asset Protection Scheme, instead being allowed to pay for participation annually and agreeing to absord a bigger first loss than earlier decided, said the person, who declined to be identified because the talks are continuing. Edinburgh- based Royal Bank will insure as much as 280 billion pounds of risky assets through the program.
RBS, 70 percent of which is owned by the government, is trying to get back on its feet after posting the biggest loss in British corporate history during the credit crunch. The company may be forced by the European Union to sell its insurance unit, 300 branches and some investment-banking assets to win approval for its plans.
“Participation in the APS is necessary in order to provide a stable framework within which a long and uncertain disposal or run-off program can be efficiently managed,” Ian Gordon, an analyst at Exane BNP Paribas in London, wrote in a note to investors yesterday. Gordon has an “underperform” rating on the stock.
A final decision on the terms of the asset-insurance plan hasn’t been reached, the person said, adding that RBS may agree to absorb a higher first loss under the program than the almost 43 billion pounds, including 23 billion pounds of writedowns since the credit crunch, that was originally made part of the deal. Even with the new agreement, the bank will probably take more than a year to exit the plan, the person said.
‘Poor’ Performance
RBS, which had a 20 billion-pound capital injection last year, posted a loss of 24 billion pounds in 2008. Its financial performance will be “poor” for another two years, Chief Executive Officer Stephen Hester said in August.
Hester previously abandoned plans to sell the insurance unit, which includes the Direct Line, Churchill and Green Flag brands, after failing to agree on a price with potential buyers in January.
The Financial Times reported the new terms earlier today. Officials at RBS declined to comment.
To contact the reporter on this story: Jon Menon
~Bloomberg (By Jon Menon)
Stiglitz Says U.S. Is Paying for Failure to Nationalize Banks
Nov. 1 (Bloomberg) -- Nobel Prize-winning economist Joseph Stiglitz said the world’s biggest economy is suffering because of the U.S. government’s failure to nationalize banks during the financial crisis.
“It we had done the right thing, we would be able to have more influence over the banks,” Stiglitz told reporters at an economic conference in Shanghai yesterday. “They would be lending and the economy would be stronger.”
Stiglitz has stuck with his view even after the U.S. economy returned to growth in the third quarter and as banks’ share prices climbed this year. President Barack Obama said on Oct. 24 that the nation’s lenders, supported by taxpayers in the crisis, need to “fulfill their responsibility” by lending to small businesses still struggling to get credit.
Companies such as Citigroup Inc. and Bank of America Corp. benefited from a $700 billion taxpayer-funded bailout package last year. In contrast, Obama said that too many small businesses are still short of money, adding that his administration will “take every appropriate step” to encourage banks to lend.
“We have this very strange situation today in America where we have given banks hundreds of billions of dollars and the president has to beg the banks to lend and they refuse,” Stiglitz said yesterday. “What we did was the wrong thing. It has weakened the economy and has increased our deficit, making it more difficult for the future.”
While the U.S. economy grew at a 3.5 percent annual rate in the third quarter, the first expansion in more than a year, the economist said the recession is “nowhere near” its end, citing rising unemployment and weak demand.
The U.S. government plans to alter the way that a similar rescue would be handled in the future. Draft legislation proposes that banks, hedge funds and other financial firms holding more than $10 billion in assets would pay to rescue companies whose collapse would shake the financial system.
Citigroup and Bank of America shares have quadrupled from this year’s lows in March.
To contact the reporter on this story: Judy Chen in Shanghai at xchen45@bloomberg.net
~Bloomberg (By Bloomberg News)
“It we had done the right thing, we would be able to have more influence over the banks,” Stiglitz told reporters at an economic conference in Shanghai yesterday. “They would be lending and the economy would be stronger.”
Stiglitz has stuck with his view even after the U.S. economy returned to growth in the third quarter and as banks’ share prices climbed this year. President Barack Obama said on Oct. 24 that the nation’s lenders, supported by taxpayers in the crisis, need to “fulfill their responsibility” by lending to small businesses still struggling to get credit.
Companies such as Citigroup Inc. and Bank of America Corp. benefited from a $700 billion taxpayer-funded bailout package last year. In contrast, Obama said that too many small businesses are still short of money, adding that his administration will “take every appropriate step” to encourage banks to lend.
“We have this very strange situation today in America where we have given banks hundreds of billions of dollars and the president has to beg the banks to lend and they refuse,” Stiglitz said yesterday. “What we did was the wrong thing. It has weakened the economy and has increased our deficit, making it more difficult for the future.”
While the U.S. economy grew at a 3.5 percent annual rate in the third quarter, the first expansion in more than a year, the economist said the recession is “nowhere near” its end, citing rising unemployment and weak demand.
The U.S. government plans to alter the way that a similar rescue would be handled in the future. Draft legislation proposes that banks, hedge funds and other financial firms holding more than $10 billion in assets would pay to rescue companies whose collapse would shake the financial system.
Citigroup and Bank of America shares have quadrupled from this year’s lows in March.
To contact the reporter on this story: Judy Chen in Shanghai at xchen45@bloomberg.net
~Bloomberg (By Bloomberg News)
Dubai Shares Tumble Most Since August, Leading Arab Market Drop
Nov. 1 (Bloomberg) -- Dubai shares slumped the most since mid-August, leading a drop in the region, as Shuaa Capital PSC reported a loss and Emaar Properties PJSC closed at its lowest in almost a month.
Shuaa, the United Arab Emirates’ biggest investment bank, lost the most in more than four months after posting a third- quarter loss. Emaar, the country’s biggest developer, fell to the lowest since Oct. 4 after the chairman of Dubai Properties LLC, a company which Emaar plans to merge with, was arrested on suspicion of embezzlement. Dubai’s index dropped 5.5 percent, the most since Aug. 17, to 2,076.56 and Abu Dhabi’s measure declined 3.4 percent, the biggest loss since Jan. 21. Egypt’s EGX 30 Index retreated 2.6 percent.
The Standard & Poor’s 500 Index lost 2.8 percent on Oct. 30 after a U.S. consumer-spending report sparked concern a global recovery may be protracted. Crude at the end of last week fell the most in a month.
“Obviously we’re seeing some weakness imported from U.S. and emerging markets, but in our markets there’s a slight shift in investor psychology,” said Rabih Sultani, a fund manager at Duet Mena Ltd. “By the end of this year, people will go back to the old tedious job of looking closely at earnings, consumer spending, sales growth. We should see some continued volatility until then.”
Arab markets are struggling to recoup last year’s losses as the global financial crisis prompted investors to pull out of the region following the delay and cancellation of real-estate projects. Dubai’s index is up 27 percent this year after falling 72 percent in 2008. Abu Dhabi’s index, which slid 47 percent last year, has gained 22 percent.
Shuaa, Emaar
Shuaa dropped 9.7 percent, the biggest decline since June 21, to 1.77 dirhams. The company reported a loss of 269.3 million dirhams ($73 million) after making impairment charges of 259 million dirhams.
Emaar lost 7.7 percent to 4.05 dirhams. Hashim Al Dabal was arrested last month on suspicion of embezzlement, the emirate’s attorney general said. Emaar said last month talks on a merger with Dubai Properties, state-controlled Sama Dubai LLC and Tatweer LLC are progressing.
“Now we’re seeing issues of fraud and negligence from management. It might prompt people to rethink the merger,” Duet Mena’s Sultani said.
Qatar’s DSM 20 Index sank 3.5 percent, the most since July 12. Oman’s MSM30 Index slipped 1.3 percent, the Kuwait Stock Exchange Index lost 1.7 and Bahrain’s measure declined 0.6 percent. Saudi Arabia’s Tadawul All Share Index added 0.7 percent.
To contact the reporter on this story: Vivian Salama in Dubai vsalama@bloomberg.netZainab Fattah in Dubai on zfattah@bloomberg.net.
~Bloomberg (By Vivian Salama and Zainab Fattah)
Shuaa, the United Arab Emirates’ biggest investment bank, lost the most in more than four months after posting a third- quarter loss. Emaar, the country’s biggest developer, fell to the lowest since Oct. 4 after the chairman of Dubai Properties LLC, a company which Emaar plans to merge with, was arrested on suspicion of embezzlement. Dubai’s index dropped 5.5 percent, the most since Aug. 17, to 2,076.56 and Abu Dhabi’s measure declined 3.4 percent, the biggest loss since Jan. 21. Egypt’s EGX 30 Index retreated 2.6 percent.
The Standard & Poor’s 500 Index lost 2.8 percent on Oct. 30 after a U.S. consumer-spending report sparked concern a global recovery may be protracted. Crude at the end of last week fell the most in a month.
“Obviously we’re seeing some weakness imported from U.S. and emerging markets, but in our markets there’s a slight shift in investor psychology,” said Rabih Sultani, a fund manager at Duet Mena Ltd. “By the end of this year, people will go back to the old tedious job of looking closely at earnings, consumer spending, sales growth. We should see some continued volatility until then.”
Arab markets are struggling to recoup last year’s losses as the global financial crisis prompted investors to pull out of the region following the delay and cancellation of real-estate projects. Dubai’s index is up 27 percent this year after falling 72 percent in 2008. Abu Dhabi’s index, which slid 47 percent last year, has gained 22 percent.
Shuaa, Emaar
Shuaa dropped 9.7 percent, the biggest decline since June 21, to 1.77 dirhams. The company reported a loss of 269.3 million dirhams ($73 million) after making impairment charges of 259 million dirhams.
Emaar lost 7.7 percent to 4.05 dirhams. Hashim Al Dabal was arrested last month on suspicion of embezzlement, the emirate’s attorney general said. Emaar said last month talks on a merger with Dubai Properties, state-controlled Sama Dubai LLC and Tatweer LLC are progressing.
“Now we’re seeing issues of fraud and negligence from management. It might prompt people to rethink the merger,” Duet Mena’s Sultani said.
Qatar’s DSM 20 Index sank 3.5 percent, the most since July 12. Oman’s MSM30 Index slipped 1.3 percent, the Kuwait Stock Exchange Index lost 1.7 and Bahrain’s measure declined 0.6 percent. Saudi Arabia’s Tadawul All Share Index added 0.7 percent.
To contact the reporter on this story: Vivian Salama in Dubai vsalama@bloomberg.netZainab Fattah in Dubai on zfattah@bloomberg.net.
~Bloomberg (By Vivian Salama and Zainab Fattah)
Payrolls Probably Fell, Factories Sped Up: U.S. Economy Preview
Nov. 1 (Bloomberg) -- Employers in the U.S. kept cutting jobs in October and manufacturing picked up, pointing to an uneven economic recovery that will take time to encourage hiring, economists said before reports this week.
Payrolls fell by 175,000 workers last month, deepening the worst employment slump since the 1930s, according to the median of 63 estimates in a Bloomberg News survey ahead of a Nov. 6 Labor Department report. A purchasing managers’ report may show factories expanded at the fastest pace since 2006.
Rising joblessness and waning government assistance raise the risk that consumer spending will slip again, holding back the expansion. Federal Reserve policy makers, meeting this week, will probably debate whether the lack of jobs merits maintaining interest rates low for a long time, or if excess stimulus risks kindling inflation.
“No one’s going to hire anybody until they have to, so it’s a very tough environment for households,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a New York forecasting firm. “Manufacturing is clearly the strongest part of the economy right now because it’s benefiting from the need to restock.”
The jobless rate last month probably climbed to 9.9 percent, the highest level since 1983, from 9.8 percent in September, according to the survey median. Unemployment will exceed 10 percent early next year, according to the median forecast in a Bloomberg poll last month.
Smaller Declines
The projected drop in employment would be the smallest since August 2008, indicating the labor market is deteriorating at a slower pace. Job losses peaked at 741,000 in January, the biggest one-month plunge since 1949.
Fed policy makers, led by Chairman Ben S. Bernanke, meet Nov. 3-4 in Washington and may repeat their pledge to keep interest rates low for an “extended period.”
The world’s largest economy grew at a 3.5 percent annual pace from July through September, the first quarterly expansion in more than a year, according to Commerce Department figures released last week. A separate government report showed consumer spending, which comprises about 70 percent of the economy, fell in September for the first time in five months.
Manufacturing, which has helped drive the recovery, probably accelerated last month, economists said.
The Tempe, Arizona-based Institute for Supply Management may report tomorrow that its manufacturing index climbed to 53 in October, the highest level since August 2006, the survey median showed. Readings greater than 50 signal expansion.
More Orders
A report from the Commerce Department on Nov. 3 is expected to show that orders placed with U.S. factories rose 0.8 percent in September from the previous month, according to the survey median. A gain would be the fifth in the past six months.
The jobs report on Nov. 6 may also show factory employment dropped by 46,000 workers last month compared with a 51,000 decrease in September. The U.S. has lost a total of 7.2 million jobs since the recession began in December 2007.
Some manufacturers are starting to rehire previously dismissed employees. Cummins Inc., the largest maker of heavy- duty diesel truck engines in North America, cut about 7,500 workers from late 2008 through June and has since recalled about 900.
“Despite the improvements we have seen in some of our markets, we still face considerable challenges over the next year,” Chief Operating Officer Tom Linebarger said Oct. 30 on a conference call. “In particular, we expect the first half of 2010 to be extremely difficult, especially in North America.”
Stockpiles Fall
Inventories at wholesalers in September probably dropped at a slower pace, a Commerce Department report on Nov. 6 is expected to show. The 1 percent decrease, the smallest since January, suggests companies anticipate a pickup in sales and don’t want to deplete stockpiles much more.
The Standard & Poor’s 500 Index fell last week, marking the first monthly drop since February, after reports prompted concern that consumers will restrain the economic recovery.
In other reports this week, the number of contracts to buy previously owned homes were little changed in September, the first time in eight months they didn’t increase, according to the survey median. The National Association of Realtors’ report on pending home sales is due Nov. 2.
Home sales have climbed in recent months, propelled in part by an $8,000 tax credit for first-time buyers that’s set to expire at the end of this month.
Senate Democrats want to extend the credit through April and expand it to allow higher-income Americans and some who already own homes to qualify for the incentive. The White House endorses the extension, and lawmakers are expected to vote on the measure this week, according to Senate Majority Leader Harry Reid.
Spending on construction projects probably fell 0.2 percent in September after a 0.8 percent gain the previous month, according to the survey median ahead of a Commerce Department report on Nov. 2.
Bloomberg Survey
===============================================================
Release Period Prior Median
Indicator Date Value Forecast
===============================================================
ISM Manu Index 11/2 Oct. 52.6 53.0
ISM Prices Index 11/2 Oct. 63.5 64.0
Construct Spending MOM% 11/2 Sept. 0.8% -0.2%
Pending Homes MOM% 11/2 Sept. 6.4% 0.0%
Vehicle Sales Mlns 11/3 Oct. 9.2 9.8
Domestic Vehicles Mlns 11/3 Oct. 6.8 7.3
Factory Orders MOM% 11/3 Sept. -0.8% 0.8%
ADP Payroll ,000’s 11/4 Oct. -254 -200
ISM NonManu Index 11/4 Oct. 50.9 51.6
Productivity QOQ% 11/5 2Q 6.6% 6.5%
Labor Costs QOQ% 11/5 2Q P -5.9% -4.0%
Initial Claims ,000’s 11/5 24-Oct 530 522
Cont. Claims ,000’s 11/5 17-Oct 5797 5750
ICSC Chain Store Sales 11/5 Oct. 0.1% 2.2%
Nonfarm Payrolls ,000’s 11/6 Oct. -263 -175
Unemploy Rate % 11/6 Oct. 9.8% 9.9%
Manu Payrolls ,000’s 11/6 Oct. -51 -46
Hourly Earnings MOM% 11/6 Oct. 0.1% 0.1%
Hourly Earnings YOY% 11/6 Oct. 2.5% 2.2%
Avg Weekly Hours 11/6 Oct. 33.0 33.1
Whlsale Inv. MOM% 11/6 Sept. -1.3% -1.0%
Cons. Credit $ Blns 11/6 Sept. -12.0 -10.3
===============================================================
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
~Bloomberg (By Timothy R. Homan)
Payrolls fell by 175,000 workers last month, deepening the worst employment slump since the 1930s, according to the median of 63 estimates in a Bloomberg News survey ahead of a Nov. 6 Labor Department report. A purchasing managers’ report may show factories expanded at the fastest pace since 2006.
Rising joblessness and waning government assistance raise the risk that consumer spending will slip again, holding back the expansion. Federal Reserve policy makers, meeting this week, will probably debate whether the lack of jobs merits maintaining interest rates low for a long time, or if excess stimulus risks kindling inflation.
“No one’s going to hire anybody until they have to, so it’s a very tough environment for households,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a New York forecasting firm. “Manufacturing is clearly the strongest part of the economy right now because it’s benefiting from the need to restock.”
The jobless rate last month probably climbed to 9.9 percent, the highest level since 1983, from 9.8 percent in September, according to the survey median. Unemployment will exceed 10 percent early next year, according to the median forecast in a Bloomberg poll last month.
Smaller Declines
The projected drop in employment would be the smallest since August 2008, indicating the labor market is deteriorating at a slower pace. Job losses peaked at 741,000 in January, the biggest one-month plunge since 1949.
Fed policy makers, led by Chairman Ben S. Bernanke, meet Nov. 3-4 in Washington and may repeat their pledge to keep interest rates low for an “extended period.”
The world’s largest economy grew at a 3.5 percent annual pace from July through September, the first quarterly expansion in more than a year, according to Commerce Department figures released last week. A separate government report showed consumer spending, which comprises about 70 percent of the economy, fell in September for the first time in five months.
Manufacturing, which has helped drive the recovery, probably accelerated last month, economists said.
The Tempe, Arizona-based Institute for Supply Management may report tomorrow that its manufacturing index climbed to 53 in October, the highest level since August 2006, the survey median showed. Readings greater than 50 signal expansion.
More Orders
A report from the Commerce Department on Nov. 3 is expected to show that orders placed with U.S. factories rose 0.8 percent in September from the previous month, according to the survey median. A gain would be the fifth in the past six months.
The jobs report on Nov. 6 may also show factory employment dropped by 46,000 workers last month compared with a 51,000 decrease in September. The U.S. has lost a total of 7.2 million jobs since the recession began in December 2007.
Some manufacturers are starting to rehire previously dismissed employees. Cummins Inc., the largest maker of heavy- duty diesel truck engines in North America, cut about 7,500 workers from late 2008 through June and has since recalled about 900.
“Despite the improvements we have seen in some of our markets, we still face considerable challenges over the next year,” Chief Operating Officer Tom Linebarger said Oct. 30 on a conference call. “In particular, we expect the first half of 2010 to be extremely difficult, especially in North America.”
Stockpiles Fall
Inventories at wholesalers in September probably dropped at a slower pace, a Commerce Department report on Nov. 6 is expected to show. The 1 percent decrease, the smallest since January, suggests companies anticipate a pickup in sales and don’t want to deplete stockpiles much more.
The Standard & Poor’s 500 Index fell last week, marking the first monthly drop since February, after reports prompted concern that consumers will restrain the economic recovery.
In other reports this week, the number of contracts to buy previously owned homes were little changed in September, the first time in eight months they didn’t increase, according to the survey median. The National Association of Realtors’ report on pending home sales is due Nov. 2.
Home sales have climbed in recent months, propelled in part by an $8,000 tax credit for first-time buyers that’s set to expire at the end of this month.
Senate Democrats want to extend the credit through April and expand it to allow higher-income Americans and some who already own homes to qualify for the incentive. The White House endorses the extension, and lawmakers are expected to vote on the measure this week, according to Senate Majority Leader Harry Reid.
Spending on construction projects probably fell 0.2 percent in September after a 0.8 percent gain the previous month, according to the survey median ahead of a Commerce Department report on Nov. 2.
Bloomberg Survey
===============================================================
Release Period Prior Median
Indicator Date Value Forecast
===============================================================
ISM Manu Index 11/2 Oct. 52.6 53.0
ISM Prices Index 11/2 Oct. 63.5 64.0
Construct Spending MOM% 11/2 Sept. 0.8% -0.2%
Pending Homes MOM% 11/2 Sept. 6.4% 0.0%
Vehicle Sales Mlns 11/3 Oct. 9.2 9.8
Domestic Vehicles Mlns 11/3 Oct. 6.8 7.3
Factory Orders MOM% 11/3 Sept. -0.8% 0.8%
ADP Payroll ,000’s 11/4 Oct. -254 -200
ISM NonManu Index 11/4 Oct. 50.9 51.6
Productivity QOQ% 11/5 2Q 6.6% 6.5%
Labor Costs QOQ% 11/5 2Q P -5.9% -4.0%
Initial Claims ,000’s 11/5 24-Oct 530 522
Cont. Claims ,000’s 11/5 17-Oct 5797 5750
ICSC Chain Store Sales 11/5 Oct. 0.1% 2.2%
Nonfarm Payrolls ,000’s 11/6 Oct. -263 -175
Unemploy Rate % 11/6 Oct. 9.8% 9.9%
Manu Payrolls ,000’s 11/6 Oct. -51 -46
Hourly Earnings MOM% 11/6 Oct. 0.1% 0.1%
Hourly Earnings YOY% 11/6 Oct. 2.5% 2.2%
Avg Weekly Hours 11/6 Oct. 33.0 33.1
Whlsale Inv. MOM% 11/6 Sept. -1.3% -1.0%
Cons. Credit $ Blns 11/6 Sept. -12.0 -10.3
===============================================================
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
~Bloomberg (By Timothy R. Homan)
China Manufacturing Expands at Faster Pace, PMI Shows
Nov. 1 (Bloomberg) -- China’s manufacturing expanded at the fastest pace in 18 months and a government researcher said economic growth will accelerate this quarter.
The Purchasing Managers’ Index rose to a seasonally adjusted 55.2 in October from 54.3 in September, the Federation of Logistics and Purchasing said today in an e-mailed statement in Beijing. An index of export orders climbed to 54.5 from 53.3.
Premier Wen Jiabao’s $586 billion stimulus plan and unprecedented growth in new loans are sustaining China’s rebound amid signs that exports may start to recover as the global slump eases. The world’s third-biggest economy may expand at a 9.5 percent annual pace this quarter, Zhang Liqun, of the State Council Development and Research Center, said in the statement.
“China’s recovery has been impressive, but has been heavily reliant on government-directed investment,” said Brian Jackson, Hong Kong-based strategist for emerging markets at Royal Bank of Canada. “External demand will provide an additional source of support for growth in the months ahead,” he said, adding that the government may “start tightening policy from early 2010.”
The latest PMI number was higher than the median estimate of 54.7 in a Bloomberg News survey of 10 economists. A reading above 50 indicates an expansion. Today’s figure compares with a record-low 38.8 in November last year, when recessions in the U.S., Europe and Japan sent export orders plunging.
Global Risks
China’s cabinet pledged Oct. 21 to continue monetary and fiscal stimulus even after growth exceeded officials’ expectations for the first nine months of the year. Commerce Minister Chen Deming warned yesterday that the global economy may “plunge” if nations withdraw support measures too quickly.
A jump in the import index to 52.8 from 50.7 “shows an acceleration of domestic demand,” Zhang said.
An output index rose to 59.3 in October from 58 in September and a measure of new orders climbed to 58.5 from 56.8. An index of employment dropped to 52.4 from 53.2.
Surging auto sales, driven by tax cuts and subsidies, are boosting manufacturing. Passenger-car purchases exceeded 1 million for the first time in September as General Motors Co., the largest overseas automaker in China, reported that sales doubled.
China will sustain its economic rebound this quarter and growth is likely to top the government’s 8 percent target for 2009, the central bank said Oct. 30.
Biggest Winner
Policy makers need to “manage inflation expectations,” curb excess capacity and encourage sustainable lending growth, the central bank said in its report on the third-quarter economy.
Billionaire investor George Soros said Oct. 30 in Budapest that China will be the “greatest winner” from the global financial crisis, with the U.S. losing the most, leading to a shift in their positions that exceeds expectations. Nobel Prize- winning economist Joseph Stiglitz said yesterday that emerging economies including China need to guard against “bubbles” caused by the surge in liquidity as governments around the world try to stimulate growth.
The manufacturing index, released by the logistics federation and the Beijing-based National Bureau of Statistics, is based on replies to questionnaires sent to purchasing executives at more than 730 companies in 20 industries. It was instituted in January 2005.
~Bloomberg (By Bloomberg News)
The Purchasing Managers’ Index rose to a seasonally adjusted 55.2 in October from 54.3 in September, the Federation of Logistics and Purchasing said today in an e-mailed statement in Beijing. An index of export orders climbed to 54.5 from 53.3.
Premier Wen Jiabao’s $586 billion stimulus plan and unprecedented growth in new loans are sustaining China’s rebound amid signs that exports may start to recover as the global slump eases. The world’s third-biggest economy may expand at a 9.5 percent annual pace this quarter, Zhang Liqun, of the State Council Development and Research Center, said in the statement.
“China’s recovery has been impressive, but has been heavily reliant on government-directed investment,” said Brian Jackson, Hong Kong-based strategist for emerging markets at Royal Bank of Canada. “External demand will provide an additional source of support for growth in the months ahead,” he said, adding that the government may “start tightening policy from early 2010.”
The latest PMI number was higher than the median estimate of 54.7 in a Bloomberg News survey of 10 economists. A reading above 50 indicates an expansion. Today’s figure compares with a record-low 38.8 in November last year, when recessions in the U.S., Europe and Japan sent export orders plunging.
Global Risks
China’s cabinet pledged Oct. 21 to continue monetary and fiscal stimulus even after growth exceeded officials’ expectations for the first nine months of the year. Commerce Minister Chen Deming warned yesterday that the global economy may “plunge” if nations withdraw support measures too quickly.
A jump in the import index to 52.8 from 50.7 “shows an acceleration of domestic demand,” Zhang said.
An output index rose to 59.3 in October from 58 in September and a measure of new orders climbed to 58.5 from 56.8. An index of employment dropped to 52.4 from 53.2.
Surging auto sales, driven by tax cuts and subsidies, are boosting manufacturing. Passenger-car purchases exceeded 1 million for the first time in September as General Motors Co., the largest overseas automaker in China, reported that sales doubled.
China will sustain its economic rebound this quarter and growth is likely to top the government’s 8 percent target for 2009, the central bank said Oct. 30.
Biggest Winner
Policy makers need to “manage inflation expectations,” curb excess capacity and encourage sustainable lending growth, the central bank said in its report on the third-quarter economy.
Billionaire investor George Soros said Oct. 30 in Budapest that China will be the “greatest winner” from the global financial crisis, with the U.S. losing the most, leading to a shift in their positions that exceeds expectations. Nobel Prize- winning economist Joseph Stiglitz said yesterday that emerging economies including China need to guard against “bubbles” caused by the surge in liquidity as governments around the world try to stimulate growth.
The manufacturing index, released by the logistics federation and the Beijing-based National Bureau of Statistics, is based on replies to questionnaires sent to purchasing executives at more than 730 companies in 20 industries. It was instituted in January 2005.
~Bloomberg (By Bloomberg News)
Inventory Cycle Points to V-Shaped Rebound: Chart of the Day
Oct. 30 (Bloomberg) -- Companies in the U.S. are slowing the pace of inventory reductions after a “dramatic” drawdown, setting the stage for a surge in stockpiles that will strengthen economic growth this quarter, say economists at Oscar Gruss & Son Inc.
“We’ve just started to form a V, and we expect it to extend up sharply,” said Michael Shaoul, chief executive officer at New York-based Oscar Gruss. “Businesses had been just very traumatized and nervous about a decline in demand, and they’re starting to get over that. We have every reason to believe that economic growth is going to get stronger from this point on.”
The CHART OF THE DAY shows the turning point in business inventories. While stockpiles continued to drop from July to September, the reduction of $130.8 billion at an annual pace was smaller than the record decrease of $160.2 billion in the second quarter. The smaller decline contributed 0.94 percentage point to growth last quarter.
With inventories running lean, manufacturers will boost production as demand stabilizes. That makes it likelier they will start hiring again.
“We have a turn in the process, and it’s going to drive improvement in other economic metrics,” Shaoul said. “As businesses start to rebuild inventories, they’re going to have to go out and hire more people,” he said.
The economy expanded at a 3.5 percent annual pace in July through September, the Commerce Department said yesterday, snapping four straight quarters of contraction.
(To save a copy of the chart, CLICK HERE)
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
~Bloomberg (By Shobhana Chandra)
“We’ve just started to form a V, and we expect it to extend up sharply,” said Michael Shaoul, chief executive officer at New York-based Oscar Gruss. “Businesses had been just very traumatized and nervous about a decline in demand, and they’re starting to get over that. We have every reason to believe that economic growth is going to get stronger from this point on.”
The CHART OF THE DAY shows the turning point in business inventories. While stockpiles continued to drop from July to September, the reduction of $130.8 billion at an annual pace was smaller than the record decrease of $160.2 billion in the second quarter. The smaller decline contributed 0.94 percentage point to growth last quarter.
With inventories running lean, manufacturers will boost production as demand stabilizes. That makes it likelier they will start hiring again.
“We have a turn in the process, and it’s going to drive improvement in other economic metrics,” Shaoul said. “As businesses start to rebuild inventories, they’re going to have to go out and hire more people,” he said.
The economy expanded at a 3.5 percent annual pace in July through September, the Commerce Department said yesterday, snapping four straight quarters of contraction.
(To save a copy of the chart, CLICK HERE)
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
~Bloomberg (By Shobhana Chandra)
New York Eclipses London as Financial Center in Bloomberg Poll
Oct. 30 (Bloomberg) -- New York has withstood the worst economic crisis in seven decades and remains the leading global financial center, followed by Singapore, which topped London as investors’ preferred place for doing business, according to Bloomberg Global Poll.
Twenty-nine percent of respondents in the quarterly poll of investors, traders and analysts who subscribe to the Bloomberg terminal say New York will be the best place for financial services two years from now. Singapore is chosen by 17 percent of respondents and London is the pick of 16 percent. Shanghai has 11 percent, while Tokyo, once considered a global hub, gets the nod from only 1 percent.
“Despite the carnage of 2008, I still expect the ‘new new’ thing in financial services to be developed and nurtured here, and ultimately exported to the world,” says poll respondent Peter Rup , who manages more than $300 million at Artemis Wealth Advisors LLC and Orion Capital Management LLC in New York.
On a separate question, China, Brazil and India offer investors the best opportunities for making money, those surveyed say. The U.S., Europe and Japan are seen to have less potential.
The results about the best financial-services environment contrast with the anxiety just three years ago that New York was losing its competitive edge over London as a global financial capital. U.S. Treasury Secretary Henry Paulson and New York Mayor Michael Bloomberg warned at the time that excessive U.S. regulation was driving investment firms to the U.K.
U.S. Regulation
Both U.S. and U.K. lawmakers are working to rebuild a web of financial regulations and raise taxes after a credit crisis and recession destroyed trillions of dollars in household wealth and more than 10 million jobs. Investors say they expect the U.S. administration under President Barack Obama to be more restrained in reining in risk-taking than that of U.K. Prime Minister Gordon Brown .
“Americans will fight harder against politicians than those in Europe and stand a better chance of a compromise on regulation, taxes and populism,” says poll respondent Richard Nolan , a strategist at the London brokerage firm Newedge Group. “So New York and London will suffer but I believe that London will suffer more.”
Poll respondent Bennett Gross , managing director of wealth management at Pacific Income Advisors Inc. in Santa Monica, California, says the regulatory crackdown may even be a plus. Investors, he says, may be willing to accept more constraints in exchange for stability and liquidity, particularly in the aftermath of the financial crisis.
‘Disastrous Downside’
“Most wealthy clients would accept higher regulation because it means the peaks and valleys will be a little less severe,” Gross says. “I doubt I have a single client who would not give up some of the upside to have less of the disastrous downside of 2008.”
The quarterly Bloomberg Global Poll of investors and analysts in six continents was conducted Oct. 23-27. It is based on interviews with a random sample of 1,452 Bloomberg subscribers, representing decision makers in markets, finance and economics. The poll has a margin of error of plus or minus 2.6 percentage points.
The Bloomberg Global Poll is conducted by Selzer & Co. , a Des Moines, Iowa-based public-opinion research company.
The ascent of Singapore and the decline of London reflect the rise of specialized financial centers that cater to specific segments of the industry.
Hedge Funds
Many hedge funds have left the British capital because of a new top income-tax rate of 50 percent for higher earnings and regulations planned by the European Union that restrict the amount they can borrow.
One fund, Amplitude Capital LLP, recently moved its head office from London to Switzerland. Another, Brevan Howard Asset Management LLP, recently said its offshore unit was considering opening an office in Geneva.
Consulting firm Kinetic Partners LLP says it had helped 23 hedge-fund firms move to Switzerland from London in the past 18 months and is looking to relocate another 15 since the U.K. announced a higher tax rate in April.
“About 20 percent of the hedge-fund community could leave the U.K. in the next two or three years,” says London-based David Butler , a founder of Kinetic. “The feeling among the hedge-fund community is there is a better place to be.”
Singapore, Shanghai
Singapore and Shanghai are growing in popularity as firms look for ways to tap the wealth that has accumulated in China and the rest of Asia. Private wealth management in particular is growing in Singapore , which has no capital-gains tax.
“Everything in Singapore is so well organized. Everything is so efficient. Everything works,” says Gary Addison , a partner at the private-equity firm Actis Capital LLP , which has $2.9 billion under management. Addison worked in London then Tokyo before moving to Singapore two years ago.
The investment climate attracts firms seeking high returns. “I perceive Singapore to be a little more of the tawdry wild west, or I guess tawdry wild ‘east,’” says Gross, of Pacific Income.
Shanghai isn’t as well established as Singapore; 11 percent of those polled by Bloomberg see the city as the top financial center because of the huge growth potential in China. As credit remains tight in the U.S., China will try to unleash the excess savings of its citizens, says poll respondent Anthony Comorat , wealth-management director at Lydian Trust Co. in Palm Beach, Florida.
‘Optimal Environment’
China is “a country with no financial crisis and a budget surplus in a position to acquire and operate global businesses on an unprecedented scale,” Comorat says. “This creates an optimal environment for financial services that will not exist in the West in two years.”
Dubai, like China and Singapore, remains a popular regional financial center for investors who want to take advantage of the oil wealth in the Middle East. The sheikdom is the preferred locale of 5 percent of those polled.
“No one can compete with Dubai in terms of a place to live and work,” says Paul Reynolds , managing director and head of debt and equity advisory for the Middle East at NM Rothschild & Sons Ltd., in Dubai. “The Gulf generally is well-positioned in terms of its geography and liquidity, in terms of the provision of the services for business to flourish.”
The survey shows investors want to work in cities with established financial-services infrastructure, such as New York, Singapore and London. However, they see the best prospects for their investments in emerging markets such as China, India and Brazil.
Brazil, India
Sixty-eight percent of those surveyed say they are optimistic about the investment climate in Brazil; 67 percent say the same about India and 66 percent of China. The latter presents the best opportunities for investors over the next two years, according to 44 percent of those polled.
Only 41 percent are positive about the investment climate in the U.S. and 36 percent say the same about the European Union.
Investors are downbeat about Japan, with only 25 percent saying they are optimistic about its investment climate and 5 percent saying it offers the best opportunities.
“Tokyo’s tighter regulation in terms of financial rules and regulations are not providing as much flexibility as in Singapore or Shanghai,” said poll respondent Leonardy Maleke , market risk manager at PT Rabobank International in Jakarta.
“The aging population there, the large debt relative to economic output, a stock market that peaked in 1989, and stubborn bouts of deflation make it hard to characterize Tokyo as a better place for financial services,” Comorat says.
Click here for additional information on methodology and a full list of survey questions.
To contact the reporters on this story: Alison Fitzgerald in Washington afitzgerald2@bloomberg.net
~Bloomberg (By Alison Fitzgerald)
Twenty-nine percent of respondents in the quarterly poll of investors, traders and analysts who subscribe to the Bloomberg terminal say New York will be the best place for financial services two years from now. Singapore is chosen by 17 percent of respondents and London is the pick of 16 percent. Shanghai has 11 percent, while Tokyo, once considered a global hub, gets the nod from only 1 percent.
“Despite the carnage of 2008, I still expect the ‘new new’ thing in financial services to be developed and nurtured here, and ultimately exported to the world,” says poll respondent Peter Rup , who manages more than $300 million at Artemis Wealth Advisors LLC and Orion Capital Management LLC in New York.
On a separate question, China, Brazil and India offer investors the best opportunities for making money, those surveyed say. The U.S., Europe and Japan are seen to have less potential.
The results about the best financial-services environment contrast with the anxiety just three years ago that New York was losing its competitive edge over London as a global financial capital. U.S. Treasury Secretary Henry Paulson and New York Mayor Michael Bloomberg warned at the time that excessive U.S. regulation was driving investment firms to the U.K.
U.S. Regulation
Both U.S. and U.K. lawmakers are working to rebuild a web of financial regulations and raise taxes after a credit crisis and recession destroyed trillions of dollars in household wealth and more than 10 million jobs. Investors say they expect the U.S. administration under President Barack Obama to be more restrained in reining in risk-taking than that of U.K. Prime Minister Gordon Brown .
“Americans will fight harder against politicians than those in Europe and stand a better chance of a compromise on regulation, taxes and populism,” says poll respondent Richard Nolan , a strategist at the London brokerage firm Newedge Group. “So New York and London will suffer but I believe that London will suffer more.”
Poll respondent Bennett Gross , managing director of wealth management at Pacific Income Advisors Inc. in Santa Monica, California, says the regulatory crackdown may even be a plus. Investors, he says, may be willing to accept more constraints in exchange for stability and liquidity, particularly in the aftermath of the financial crisis.
‘Disastrous Downside’
“Most wealthy clients would accept higher regulation because it means the peaks and valleys will be a little less severe,” Gross says. “I doubt I have a single client who would not give up some of the upside to have less of the disastrous downside of 2008.”
The quarterly Bloomberg Global Poll of investors and analysts in six continents was conducted Oct. 23-27. It is based on interviews with a random sample of 1,452 Bloomberg subscribers, representing decision makers in markets, finance and economics. The poll has a margin of error of plus or minus 2.6 percentage points.
The Bloomberg Global Poll is conducted by Selzer & Co. , a Des Moines, Iowa-based public-opinion research company.
The ascent of Singapore and the decline of London reflect the rise of specialized financial centers that cater to specific segments of the industry.
Hedge Funds
Many hedge funds have left the British capital because of a new top income-tax rate of 50 percent for higher earnings and regulations planned by the European Union that restrict the amount they can borrow.
One fund, Amplitude Capital LLP, recently moved its head office from London to Switzerland. Another, Brevan Howard Asset Management LLP, recently said its offshore unit was considering opening an office in Geneva.
Consulting firm Kinetic Partners LLP says it had helped 23 hedge-fund firms move to Switzerland from London in the past 18 months and is looking to relocate another 15 since the U.K. announced a higher tax rate in April.
“About 20 percent of the hedge-fund community could leave the U.K. in the next two or three years,” says London-based David Butler , a founder of Kinetic. “The feeling among the hedge-fund community is there is a better place to be.”
Singapore, Shanghai
Singapore and Shanghai are growing in popularity as firms look for ways to tap the wealth that has accumulated in China and the rest of Asia. Private wealth management in particular is growing in Singapore , which has no capital-gains tax.
“Everything in Singapore is so well organized. Everything is so efficient. Everything works,” says Gary Addison , a partner at the private-equity firm Actis Capital LLP , which has $2.9 billion under management. Addison worked in London then Tokyo before moving to Singapore two years ago.
The investment climate attracts firms seeking high returns. “I perceive Singapore to be a little more of the tawdry wild west, or I guess tawdry wild ‘east,’” says Gross, of Pacific Income.
Shanghai isn’t as well established as Singapore; 11 percent of those polled by Bloomberg see the city as the top financial center because of the huge growth potential in China. As credit remains tight in the U.S., China will try to unleash the excess savings of its citizens, says poll respondent Anthony Comorat , wealth-management director at Lydian Trust Co. in Palm Beach, Florida.
‘Optimal Environment’
China is “a country with no financial crisis and a budget surplus in a position to acquire and operate global businesses on an unprecedented scale,” Comorat says. “This creates an optimal environment for financial services that will not exist in the West in two years.”
Dubai, like China and Singapore, remains a popular regional financial center for investors who want to take advantage of the oil wealth in the Middle East. The sheikdom is the preferred locale of 5 percent of those polled.
“No one can compete with Dubai in terms of a place to live and work,” says Paul Reynolds , managing director and head of debt and equity advisory for the Middle East at NM Rothschild & Sons Ltd., in Dubai. “The Gulf generally is well-positioned in terms of its geography and liquidity, in terms of the provision of the services for business to flourish.”
The survey shows investors want to work in cities with established financial-services infrastructure, such as New York, Singapore and London. However, they see the best prospects for their investments in emerging markets such as China, India and Brazil.
Brazil, India
Sixty-eight percent of those surveyed say they are optimistic about the investment climate in Brazil; 67 percent say the same about India and 66 percent of China. The latter presents the best opportunities for investors over the next two years, according to 44 percent of those polled.
Only 41 percent are positive about the investment climate in the U.S. and 36 percent say the same about the European Union.
Investors are downbeat about Japan, with only 25 percent saying they are optimistic about its investment climate and 5 percent saying it offers the best opportunities.
“Tokyo’s tighter regulation in terms of financial rules and regulations are not providing as much flexibility as in Singapore or Shanghai,” said poll respondent Leonardy Maleke , market risk manager at PT Rabobank International in Jakarta.
“The aging population there, the large debt relative to economic output, a stock market that peaked in 1989, and stubborn bouts of deflation make it hard to characterize Tokyo as a better place for financial services,” Comorat says.
Click here for additional information on methodology and a full list of survey questions.
To contact the reporters on this story: Alison Fitzgerald in Washington afitzgerald2@bloomberg.net
~Bloomberg (By Alison Fitzgerald)
Barclays, BNP May Have $300 Million Loss on K1 Funds
Oct. 30 (Bloomberg) -- Helmut Kiener , the K1 Group hedge- fund firm founder arrested earlier this week, may have duped Barclays Plc out of as much as $240 million and BNP Paribas SA out of $60 million, according to the warrant for his arrest.
Kiener may have channeled almost $220 million from Barclays to funds he controlled and contrary to investment agreements, according to the arrest warrant issued by a court in Wurzburg, Germany and obtained by Bloomberg News. The money is “for the most part” gone, according to the document. A separate deal with Barclays generated about $20 million of management fees for Kiener, the document shows.
K1 Group is at the center of an international criminal investigation after saddling banks, which include JPMorgan Chase & Co. and Societe Generale SA, with about $400 million of losses, people with knowledge of the probe said. European and U.S. authorities are investigating whether K1, which manages funds of hedge funds, deceived the banks while seeking money to ratchet up its investments, according to the people, who declined to be identified because the investigation isn’t public.
The warrant shows prosecutors suspect Kiener diverted bank money through an international network of firms that he controlled, allowing him to divert money into Florida real estate while feeding funds back into his firm.
BNP’s Investment
A court in Wurzburg, Germany, yesterday ordered Kiener to be held in custody following his Oct. 28 arrest as part of an investigation into allegations of fraud and breach of trust.
A spokeswoman for Munich-based law firm Lutz Libbertz, which represents Kiener, said his lawyers will file a request for release. She said the firm will comment in detail on the allegations later.
BNP exposure stems from a $60 million investment starting in April 2007, according to the warrant. Kiener may have also deceived BNP when receiving management fees, the warrant said, without specifying an amount.
BNP Paribas’s spokeswoman Carine Lauru declined to comment on the amount. The Paris-based company has said it’s cooperating with authorities.
Barclays spokesman Daniel Hunter declined to comment.
Calls to the court and to prosecutors in Wurzburg seeking comment weren’t answered today.
Spread Broadly
Kiener contacted Barclays in 2005, arranging for the bank to put money in a trust set up a year later, according to the document. The trust would be managed by X1 Fund Allocation GmbH, which was run by Kiener.
Barclays and Kiener agreed that the investment had to be spread broadly and that no money could be put in funds also managed by X1 or related companies, the warrant shows. Kiener didn’t intend to adhere to the rules and instead channeled the money to his two British Virgin Island-based funs, K1 Invest Ltd. and K1 Global Ltd., the warrant says.
For that, he allegedly put the money from Barclays in three funds called Nauticus I, Nauticus J and Silverback, making it look as if they were outside funds. Though these funds claimed to be run by someone else, they were in fact controlled by Kiener, the document shows. These funds fed the money almost completely back to K1 by buying stakes in K1 Invest and K1 Global, according to the court document.
Planes, Helicopter
Other Barclays funds were diverted through a network of Cayman Island-based companies, the warrant shows. The money was used to acquire two planes and a helicopter. Kiener planned to rent one aircraft to business people, while also posting it as collateral for a $26 million loan from Credit Suisse, of which $13 million went to K1 Invest, the document shows.
The second plane and the helicopter didn’t have a commercial flight charter, making them unfit as an investment, the warrant said. Kiener wanted to use them for himself, the documents claimed.
Some money was allegedly also channeled to acquire two properties in Miami, helping Kiener to support his “luxury lifestyle,” the warrant said.
Part of BNP’s investment was used to pay back money to Barclays and thus “calm” Barclays managers, the warrant says. A share was also used for property in Aschaffenburg, Germany, Kiener’s home town.
To contact the reporter on this story: Karin Matussek in Berlin at kmatussek@bloomberg.net ; Jann Friedrich Bettinga at jbettinga@bloomberg.net .
~Bloomberg (By Karin Matussek and Jann Bettinga)
Kiener may have channeled almost $220 million from Barclays to funds he controlled and contrary to investment agreements, according to the arrest warrant issued by a court in Wurzburg, Germany and obtained by Bloomberg News. The money is “for the most part” gone, according to the document. A separate deal with Barclays generated about $20 million of management fees for Kiener, the document shows.
K1 Group is at the center of an international criminal investigation after saddling banks, which include JPMorgan Chase & Co. and Societe Generale SA, with about $400 million of losses, people with knowledge of the probe said. European and U.S. authorities are investigating whether K1, which manages funds of hedge funds, deceived the banks while seeking money to ratchet up its investments, according to the people, who declined to be identified because the investigation isn’t public.
The warrant shows prosecutors suspect Kiener diverted bank money through an international network of firms that he controlled, allowing him to divert money into Florida real estate while feeding funds back into his firm.
BNP’s Investment
A court in Wurzburg, Germany, yesterday ordered Kiener to be held in custody following his Oct. 28 arrest as part of an investigation into allegations of fraud and breach of trust.
A spokeswoman for Munich-based law firm Lutz Libbertz, which represents Kiener, said his lawyers will file a request for release. She said the firm will comment in detail on the allegations later.
BNP exposure stems from a $60 million investment starting in April 2007, according to the warrant. Kiener may have also deceived BNP when receiving management fees, the warrant said, without specifying an amount.
BNP Paribas’s spokeswoman Carine Lauru declined to comment on the amount. The Paris-based company has said it’s cooperating with authorities.
Barclays spokesman Daniel Hunter declined to comment.
Calls to the court and to prosecutors in Wurzburg seeking comment weren’t answered today.
Spread Broadly
Kiener contacted Barclays in 2005, arranging for the bank to put money in a trust set up a year later, according to the document. The trust would be managed by X1 Fund Allocation GmbH, which was run by Kiener.
Barclays and Kiener agreed that the investment had to be spread broadly and that no money could be put in funds also managed by X1 or related companies, the warrant shows. Kiener didn’t intend to adhere to the rules and instead channeled the money to his two British Virgin Island-based funs, K1 Invest Ltd. and K1 Global Ltd., the warrant says.
For that, he allegedly put the money from Barclays in three funds called Nauticus I, Nauticus J and Silverback, making it look as if they were outside funds. Though these funds claimed to be run by someone else, they were in fact controlled by Kiener, the document shows. These funds fed the money almost completely back to K1 by buying stakes in K1 Invest and K1 Global, according to the court document.
Planes, Helicopter
Other Barclays funds were diverted through a network of Cayman Island-based companies, the warrant shows. The money was used to acquire two planes and a helicopter. Kiener planned to rent one aircraft to business people, while also posting it as collateral for a $26 million loan from Credit Suisse, of which $13 million went to K1 Invest, the document shows.
The second plane and the helicopter didn’t have a commercial flight charter, making them unfit as an investment, the warrant said. Kiener wanted to use them for himself, the documents claimed.
Some money was allegedly also channeled to acquire two properties in Miami, helping Kiener to support his “luxury lifestyle,” the warrant said.
Part of BNP’s investment was used to pay back money to Barclays and thus “calm” Barclays managers, the warrant says. A share was also used for property in Aschaffenburg, Germany, Kiener’s home town.
To contact the reporter on this story: Karin Matussek in Berlin at kmatussek@bloomberg.net ; Jann Friedrich Bettinga at jbettinga@bloomberg.net .
~Bloomberg (By Karin Matussek and Jann Bettinga)
European Bonds Advance as Stock, Job Losses Spur Safety Demand
Oct. 31 (Bloomberg) -- European 10-year bonds posted the first weekly gain in four as stock losses, a decline in German retail sales and a rise in unemployment cast doubt on the strength of the recovery, stoking demand for the safest assets.
Gains by the German 10-year bund trimmed the security’s monthly decline. Retail sales in the nation fell 0.5 percent from August, against a median economist forecast in a Bloomberg survey for an advance of 1 percent, the Federal Statistics Office in Wiesbaden said yesterday. Unemployment in the euro area increased to 9.7 percent in September, the highest since January 1999, the European Union said. Inflation expectations , as measured by the difference in yield between 10-year regular and index-linked bonds, fell.
“The market is starting to get used to data that surprise on the upside, and then we’ve got these disappointing German retail sales,” said David Schnautz , a fixed-income strategist in Frankfurt at Commerzbank AG, Germany’s second-largest lender. “That will provide some support for bonds.”
The bund yield dropped 9 basis points to 3.23 percent as of 4:40 p.m. yesterday in London, bringing the decline in the week to 12 basis points. The 3.5 percent security due July 2019 increased 0.96 in the five days, or 9.6 euros per 1,000-euro ($1,472) face amount, to 102.18. The two-year note yield slid 9 basis points from Oct. 23 to 1.29 percent.
German bonds lost 0.4 percent this month through Oct. 29, compared with declines of 0.6 percent for U.K. gilts and U.S. Treasuries, according to Merrill Lynch & Co. indexes.
Stocks declined, with the MSCI World Index of shares dropping more than 4 percent in the week, underpinning demand for bonds. The Dow Jones Stoxx 600 Index retreated 3.3 percent.
Prices, Unemployment
European bonds stayed higher yesterday after a report showed consumer prices fell for a fifth month in October. Prices in the 16-nation euro region declined 0.1 percent from a year earlier, after dropping 0.3 percent in September, the EU statistics office in Luxembourg said.
European Central Bank Executive Board member Juergen Stark said growth in the euro region will be subdued for several years as a result of the financial crisis, according to an editorial published yesterday in Germany’s Frankfurter Allgemeine Zeitung.
Two-year European notes will outperform Treasuries on speculation that the region’s central bank will lag behind the Federal Reserve in tightening monetary policy, according to Mark Schofield , global head of interest-rate strategy in London at Citigroup Inc.
Rates ‘Convergence’
The Fed may start raising borrowing costs at the end of the second quarter of next year, lifting the target rate for overnight bank loans by 100 basis points for the remainder of 2010, Schofield said. The ECB probably won’t increase its main refinancing rate until the end of next year, he said.
“We are looking for convergence in policy rates of up to 100 basis points next year,” Schofield said in an interview. “There’s no inflation pressure in Europe at all. You’ve got tremendous headwinds because of the euro’s strength. Banks still have a lot of provisioning to do as the economy picks up.”
The Fed’s main rate will be 0.5 percent by the end of June, according to the average of 67 forecasts compiled by Bloomberg, with the most recent estimates given the highest weightings. The ECB’s key rate will be 1 percent, a weighted average of 33 analyst predictions showed.
To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net
~Bloomberg (By Anchalee Worrachate)
Gains by the German 10-year bund trimmed the security’s monthly decline. Retail sales in the nation fell 0.5 percent from August, against a median economist forecast in a Bloomberg survey for an advance of 1 percent, the Federal Statistics Office in Wiesbaden said yesterday. Unemployment in the euro area increased to 9.7 percent in September, the highest since January 1999, the European Union said. Inflation expectations , as measured by the difference in yield between 10-year regular and index-linked bonds, fell.
“The market is starting to get used to data that surprise on the upside, and then we’ve got these disappointing German retail sales,” said David Schnautz , a fixed-income strategist in Frankfurt at Commerzbank AG, Germany’s second-largest lender. “That will provide some support for bonds.”
The bund yield dropped 9 basis points to 3.23 percent as of 4:40 p.m. yesterday in London, bringing the decline in the week to 12 basis points. The 3.5 percent security due July 2019 increased 0.96 in the five days, or 9.6 euros per 1,000-euro ($1,472) face amount, to 102.18. The two-year note yield slid 9 basis points from Oct. 23 to 1.29 percent.
German bonds lost 0.4 percent this month through Oct. 29, compared with declines of 0.6 percent for U.K. gilts and U.S. Treasuries, according to Merrill Lynch & Co. indexes.
Stocks declined, with the MSCI World Index of shares dropping more than 4 percent in the week, underpinning demand for bonds. The Dow Jones Stoxx 600 Index retreated 3.3 percent.
Prices, Unemployment
European bonds stayed higher yesterday after a report showed consumer prices fell for a fifth month in October. Prices in the 16-nation euro region declined 0.1 percent from a year earlier, after dropping 0.3 percent in September, the EU statistics office in Luxembourg said.
European Central Bank Executive Board member Juergen Stark said growth in the euro region will be subdued for several years as a result of the financial crisis, according to an editorial published yesterday in Germany’s Frankfurter Allgemeine Zeitung.
Two-year European notes will outperform Treasuries on speculation that the region’s central bank will lag behind the Federal Reserve in tightening monetary policy, according to Mark Schofield , global head of interest-rate strategy in London at Citigroup Inc.
Rates ‘Convergence’
The Fed may start raising borrowing costs at the end of the second quarter of next year, lifting the target rate for overnight bank loans by 100 basis points for the remainder of 2010, Schofield said. The ECB probably won’t increase its main refinancing rate until the end of next year, he said.
“We are looking for convergence in policy rates of up to 100 basis points next year,” Schofield said in an interview. “There’s no inflation pressure in Europe at all. You’ve got tremendous headwinds because of the euro’s strength. Banks still have a lot of provisioning to do as the economy picks up.”
The Fed’s main rate will be 0.5 percent by the end of June, according to the average of 67 forecasts compiled by Bloomberg, with the most recent estimates given the highest weightings. The ECB’s key rate will be 1 percent, a weighted average of 33 analyst predictions showed.
To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net
~Bloomberg (By Anchalee Worrachate)
Iceland Removes Controls on Capital Inflows, Central Bank Says
Oct. 31 (Bloomberg) -- Iceland will begin lifting capital controls from tomorrow, freeing new investors from restrictions imposed after the collapse of the island’s banking system and the plunge in value of its currency, the central bank said.
The decision means foreign-currency inflows linked to new investments will be exempt from the controls, the bank said in a statement in Reykjavik today.
“Investors are authorized, without restrictions, to convert into foreign currency the sales proceeds from assets in which they invest after Nov.1,” the bank said in the statement. “Previously, non-residents were fully authorized to transfer foreign currency deriving from interest and dividends on investments in Iceland.”
The central bank imposed the restrictions at the end of last year after the failure of its largest banks prompted a sell-off of the krona and plunged the island’s economy into a recession, forcing the government to seek a $4.6 billion International Monetary Fund -led bailout. Even after controls were introduced, the central bank raised the key rate to a record 18 percent, before lowering it to 12 percent in June.
“The capital controls imposed on Nov. 28, 2008, were considered necessary in order to stabilize the economy in the wake of the financial crisis that struck Iceland in October 2008,” the bank’s statement said. “The conditions necessary for the initial stage in removing the controls, in accordance with the capital account liberalization strategy presented by the Bank on August 5, 2009, have now developed.”
The second stage of the lifting of controls will target foreign-exchange outflows.
Next Phase
“The next phase of capital account liberalization - the removal of restrictions on capital outflows - will be determined by the success of this phase and the progress made under the macroeconomic program,” according to the statement.
Today’s decision comes two days after Iceland completed a review of its economic program with the IMF. Upon completing the review the IMF disbursed $167.5 million to Iceland, and an additional $625 million were made available to the north Atlantic island from Denmark, Finland, Norway, Sweden and Poland. The funds will be used to strengthen Iceland’s reserves as the capital restrictions are scaled back, Economic Affairs Minister Gylfi Magnusson said on Oct. 29.
“It was clear we needed it to strengthen our reserves, prior to abolishing the capital controls,” said Magnusson. “Without the funds, abolishing the restrictions would have taken longer.”
Opportunities
The central bank’s main challenge is to “find opportunities to bring down interest rates with domestic economic circumstances in mind without putting pressure on the exchange rate of the krona and at the same time start the process of removing capital controls,” said central bank Governor Mar Gudmundsson on Aug. 25.
All restrictions on capital flows will be dropped in two to three years, the then interim Governor Svein Harald Oygard told reporters in August.
Iceland’s economy will contract 9.1 percent in 2009 as household spending falls 19.7 percent and investment slumps 48.4 percent, the central bank said on Aug. 13.
To contact the reporter on this story: Omar R. Valdimarsson in Reykjavik valdimarsson@bloomberg.net .
~Bloomberg (By Omar R. Valdimarsson)
The decision means foreign-currency inflows linked to new investments will be exempt from the controls, the bank said in a statement in Reykjavik today.
“Investors are authorized, without restrictions, to convert into foreign currency the sales proceeds from assets in which they invest after Nov.1,” the bank said in the statement. “Previously, non-residents were fully authorized to transfer foreign currency deriving from interest and dividends on investments in Iceland.”
The central bank imposed the restrictions at the end of last year after the failure of its largest banks prompted a sell-off of the krona and plunged the island’s economy into a recession, forcing the government to seek a $4.6 billion International Monetary Fund -led bailout. Even after controls were introduced, the central bank raised the key rate to a record 18 percent, before lowering it to 12 percent in June.
“The capital controls imposed on Nov. 28, 2008, were considered necessary in order to stabilize the economy in the wake of the financial crisis that struck Iceland in October 2008,” the bank’s statement said. “The conditions necessary for the initial stage in removing the controls, in accordance with the capital account liberalization strategy presented by the Bank on August 5, 2009, have now developed.”
The second stage of the lifting of controls will target foreign-exchange outflows.
Next Phase
“The next phase of capital account liberalization - the removal of restrictions on capital outflows - will be determined by the success of this phase and the progress made under the macroeconomic program,” according to the statement.
Today’s decision comes two days after Iceland completed a review of its economic program with the IMF. Upon completing the review the IMF disbursed $167.5 million to Iceland, and an additional $625 million were made available to the north Atlantic island from Denmark, Finland, Norway, Sweden and Poland. The funds will be used to strengthen Iceland’s reserves as the capital restrictions are scaled back, Economic Affairs Minister Gylfi Magnusson said on Oct. 29.
“It was clear we needed it to strengthen our reserves, prior to abolishing the capital controls,” said Magnusson. “Without the funds, abolishing the restrictions would have taken longer.”
Opportunities
The central bank’s main challenge is to “find opportunities to bring down interest rates with domestic economic circumstances in mind without putting pressure on the exchange rate of the krona and at the same time start the process of removing capital controls,” said central bank Governor Mar Gudmundsson on Aug. 25.
All restrictions on capital flows will be dropped in two to three years, the then interim Governor Svein Harald Oygard told reporters in August.
Iceland’s economy will contract 9.1 percent in 2009 as household spending falls 19.7 percent and investment slumps 48.4 percent, the central bank said on Aug. 13.
To contact the reporter on this story: Omar R. Valdimarsson in Reykjavik valdimarsson@bloomberg.net .
~Bloomberg (By Omar R. Valdimarsson)
Barclays Starts Europe Stock Trading in Investment Banking Push
Oct. 30 (Bloomberg) -- Several hundred Barclays Plc bankers and traders will gather on the third floor of the lender’s Canary Wharf headquarters in London on Monday morning. The occasion: marking the firm’s return to European share trading.
Dixit Joshi , Barclays Capital’s European and Asian equities head and the ceremony’s host, will over the next three months start taking buy and sell orders from clients, said two people familiar with the plans, who declined to be identified.
The bank is returning to a business it abandoned 12 years ago when it sold Barclays de Zoete Wedd’s money-losing European equities and corporate finance unit to focus on bonds, loans and foreign exchange. In doing so, Barclays will compete against UBS AG and Bank of America Corp. , the top equity traders in Europe by the volume of shares traded, according to a 2008 ranking by Greenwich Associates. Broking may generate $3.8 billion of fees this year, according to estimates from research firm Tabb Group.
Trading shares “will be fiercely competitive but it is a natural extension of what they’ve been doing for years,” said George Godber , whose Matterley Undervalued Returns Fund owns Barclays shares and has risen 41 percent this year. “Barcap has been a very successful investment bank, it has very good relationships with clients across the world.”
About 90 investment banks led by JPMorgan Chase & Co. and Credit Suisse Group AG arranged share sales in Europe this year, more than one-and-a-half times the number of banks that compete in the U.S., data compiled by Bloomberg show. Fees may total $4.8 billion based on the total so far, Bloomberg data show.
Lehman Purchase
Dixit didn’t return a phone call and an e-mail. Spokesmen at Barclays and UBS in London declined to comment. Officials at Bank of America weren’t immediately available.
The push into European equities broking is the latest step in Barclays’s attempt to build Barclays Capital into a global investment bank after the takeover of Lehman Brothers Holding Inc. ’s U.S. divisions a year ago. Barclays seized on the biggest financial crisis since the Great Depression to buy assets and lure bankers from rivals to create a global firm, adding merger advisory and equities to its debt and foreign exchange teams.
Barclays Capital is hiring more than 750 people this year for equities in Europe, Middle East and Africa, and Asia, the bank has said. The bank in May hired Sam Dean from Deutsche Bank to be co-head of global equity markets in London. In April, it hired Jim Renwick , formerly at UBS AG, to run U.K. stock underwriting and corporate broking.
The company is also expanding in equity research, headed by Tim Whittaker in Europe. Barclays initiated coverage of European telecommunications companies and retailers this week. It plans to cover about 500 European companies by the end of next year, up from about 150 now, according to one of the people.
When Barclays sold BZW to Credit Suisse First Boston, the London-based bank said expanding BZW’s mostly U.K.-focused units globally would require more capital than it could justify. Barclays had retained the equity derivatives business, which was overseen by Joshi, when it sold BZW.
To contact the reporters on this story: Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.net ; Alexis Xydias in London at axydias@bloomberg.net
~Bloomberg (By Elisa Martinuzzi and Alexis Xydias)
Dixit Joshi , Barclays Capital’s European and Asian equities head and the ceremony’s host, will over the next three months start taking buy and sell orders from clients, said two people familiar with the plans, who declined to be identified.
The bank is returning to a business it abandoned 12 years ago when it sold Barclays de Zoete Wedd’s money-losing European equities and corporate finance unit to focus on bonds, loans and foreign exchange. In doing so, Barclays will compete against UBS AG and Bank of America Corp. , the top equity traders in Europe by the volume of shares traded, according to a 2008 ranking by Greenwich Associates. Broking may generate $3.8 billion of fees this year, according to estimates from research firm Tabb Group.
Trading shares “will be fiercely competitive but it is a natural extension of what they’ve been doing for years,” said George Godber , whose Matterley Undervalued Returns Fund owns Barclays shares and has risen 41 percent this year. “Barcap has been a very successful investment bank, it has very good relationships with clients across the world.”
About 90 investment banks led by JPMorgan Chase & Co. and Credit Suisse Group AG arranged share sales in Europe this year, more than one-and-a-half times the number of banks that compete in the U.S., data compiled by Bloomberg show. Fees may total $4.8 billion based on the total so far, Bloomberg data show.
Lehman Purchase
Dixit didn’t return a phone call and an e-mail. Spokesmen at Barclays and UBS in London declined to comment. Officials at Bank of America weren’t immediately available.
The push into European equities broking is the latest step in Barclays’s attempt to build Barclays Capital into a global investment bank after the takeover of Lehman Brothers Holding Inc. ’s U.S. divisions a year ago. Barclays seized on the biggest financial crisis since the Great Depression to buy assets and lure bankers from rivals to create a global firm, adding merger advisory and equities to its debt and foreign exchange teams.
Barclays Capital is hiring more than 750 people this year for equities in Europe, Middle East and Africa, and Asia, the bank has said. The bank in May hired Sam Dean from Deutsche Bank to be co-head of global equity markets in London. In April, it hired Jim Renwick , formerly at UBS AG, to run U.K. stock underwriting and corporate broking.
The company is also expanding in equity research, headed by Tim Whittaker in Europe. Barclays initiated coverage of European telecommunications companies and retailers this week. It plans to cover about 500 European companies by the end of next year, up from about 150 now, according to one of the people.
When Barclays sold BZW to Credit Suisse First Boston, the London-based bank said expanding BZW’s mostly U.K.-focused units globally would require more capital than it could justify. Barclays had retained the equity derivatives business, which was overseen by Joshi, when it sold BZW.
To contact the reporters on this story: Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.net ; Alexis Xydias in London at axydias@bloomberg.net
~Bloomberg (By Elisa Martinuzzi and Alexis Xydias)
European Stocks Post Biggest Weekly Drop Since July; ING Slumps
Oct. 31 (Bloomberg) -- European stocks fell the most since July amid concern the European Union may impose restrictions on financial companies in return for state aid and speculation a near eight-month rally has outpaced economic-growth prospects.
ING Groep NV sank 23 percent after agreeing to demands from the EU that it sell its insurance units and announcing plans to raise more than $11 billion in a rights offer to help repay government assistance. Bank of Ireland Plc and Allied Irish Banks Plc, which have received 7 billion euros ($10.3 billion) from the Irish government, tumbled more than 20 percent.
The Dow Jones Stoxx 600 Index retreated 3.3 percent this past week, led by industries most reliant on economic growth. The regional gauge, which this month lost 2.3 percent, has surged 50 percent since March 9, pushing its valuation to 52 times reported earnings, the highest level since 2003.
“We have seen enormous sector rotation,” said Kevin Lilley , who helps oversee about $2 billion at Royal London Asset Management. “ING’s news shocked the market and led to people taking profits in quite a lot of areas that have done very well.”
A Bloomberg poll this week showed the rally in stocks, which has sent the MSCI World Index up more than 60 percent from its March low, had failed to convince investors and analysts that it’s time to take on more risk, or to dispel their concerns about U.S. economic policies and its banking system.
Hunkering Down
Thirty-one percent of respondents in the survey see investment opportunities, down from 35 percent in the previous survey in July. Almost 40 percent in the latest quarterly survey said they are still hunkering down.
National benchmark indexes fell in 16 of the 18 western European markets. France’s CAC 40 retreated 5.3 percent and the U.K.’s FTSE 100 slid 3.8 percent. Germany’s DAX Index slumped 5.7 percent, the steepest weekly decline since February.
The U.S. economy returned to growth in the third quarter following the worst contraction in seven decades, according to a Commerce Department report on Oct. 29.
As the economy stabilizes, governments and central banks are preparing to remove stimulus measures after spending a total of $12 trillion, by International Monetary Fund estimates, to haul economies out of the recession. The Federal Reserve this week completed its $300 billion Treasury-purchase program amid signs the seven-month buying spree helped support the housing market and limited increases in borrowing costs.
Stimulus Measures
European Central Bank council member Axel Weber signaled the bank may start to withdraw its emergency stimulus measures next year, while Norway’s Norges Bank became the first European central bank to raise its key interest rate since the credit crisis started to abate.
“October certainly brought a mix of good and bad news for the markets,” Howard Wheeldon , a senior strategist at BGC Partners in London, wrote in an e-mail. “We are bound to see a more formal correction to the stock market euphoria we have witnessed in global markets at some point soon.”
The global stock market rally, which resembles the bull run between 2003 and 2007, will end as government spending slows after so-called easy money boosted asset prices, according to Morgan Stanley.
‘Credit Bubble’
“Such echo rallies are never as big as the original one and we will see it fading away,” Ruchir Sharma , who overseas $25 billion in emerging-market stocks at Morgan Stanley, said in an interview in Mumbai. “The rally will end as the effects of the stimulus begin to fade and the credit bubble caused by easy money disappears.”
ING has its steepest weekly decline since March after the largest Dutch financial-services company announced a rights offering and plans to sell its insurance businesses as it starts to repay a 10 billion-euro government lifeline sooner than originally planned.
The European Commission is reviewing bailouts to ensure banks that get government money don’t have an unfair advantage and has indicated that Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc may be forced to sell assets and branches after they received 37 billion pounds ($61 billion) in bailouts.
Bank of Ireland , the nation’s largest lender, and Allied Irish slid 33 percent and 25 percent respectively.
Allied Irish Chairman Dan O’Connor said the bank could face “serious consequences” from negotiations with the EU over the government’s capital injection.
‘Draconian Measures’
“We have seen what’s happened this week” with ING, O’Connor said at a conference in Dublin, referring to EU demands on the Dutch financial-services company. “Draconian measures have been taken.”
Lloyds, the U.K.’s biggest mortgage lender, lost 9.6 percent and RBS, Britain’s biggest government-owned bank, sank 11 percent. KBC Groep NV, the recipient of a 7 billion-euro rescue by the Belgian government, retreated 14 percent.
SAP AG sank 11 percent after the world’s biggest maker of business-management software cut its sales forecast and reported third-quarter earnings that trailed analysts’ projections.
ArcelorMittal led steelmakers lower, dropping 9.8 percent, after saying it may report a full-year loss. The world’s largest steelmaker also posted earnings that missed estimates.
ThyssenKrupp AG, Germany’s largest steelmaker, slumped 10 percent and Salzgitter AG, the nation’s second biggest, lost 8.8 percent.
To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net .
~Bloomberg (By Sarah Jones)
ING Groep NV sank 23 percent after agreeing to demands from the EU that it sell its insurance units and announcing plans to raise more than $11 billion in a rights offer to help repay government assistance. Bank of Ireland Plc and Allied Irish Banks Plc, which have received 7 billion euros ($10.3 billion) from the Irish government, tumbled more than 20 percent.
The Dow Jones Stoxx 600 Index retreated 3.3 percent this past week, led by industries most reliant on economic growth. The regional gauge, which this month lost 2.3 percent, has surged 50 percent since March 9, pushing its valuation to 52 times reported earnings, the highest level since 2003.
“We have seen enormous sector rotation,” said Kevin Lilley , who helps oversee about $2 billion at Royal London Asset Management. “ING’s news shocked the market and led to people taking profits in quite a lot of areas that have done very well.”
A Bloomberg poll this week showed the rally in stocks, which has sent the MSCI World Index up more than 60 percent from its March low, had failed to convince investors and analysts that it’s time to take on more risk, or to dispel their concerns about U.S. economic policies and its banking system.
Hunkering Down
Thirty-one percent of respondents in the survey see investment opportunities, down from 35 percent in the previous survey in July. Almost 40 percent in the latest quarterly survey said they are still hunkering down.
National benchmark indexes fell in 16 of the 18 western European markets. France’s CAC 40 retreated 5.3 percent and the U.K.’s FTSE 100 slid 3.8 percent. Germany’s DAX Index slumped 5.7 percent, the steepest weekly decline since February.
The U.S. economy returned to growth in the third quarter following the worst contraction in seven decades, according to a Commerce Department report on Oct. 29.
As the economy stabilizes, governments and central banks are preparing to remove stimulus measures after spending a total of $12 trillion, by International Monetary Fund estimates, to haul economies out of the recession. The Federal Reserve this week completed its $300 billion Treasury-purchase program amid signs the seven-month buying spree helped support the housing market and limited increases in borrowing costs.
Stimulus Measures
European Central Bank council member Axel Weber signaled the bank may start to withdraw its emergency stimulus measures next year, while Norway’s Norges Bank became the first European central bank to raise its key interest rate since the credit crisis started to abate.
“October certainly brought a mix of good and bad news for the markets,” Howard Wheeldon , a senior strategist at BGC Partners in London, wrote in an e-mail. “We are bound to see a more formal correction to the stock market euphoria we have witnessed in global markets at some point soon.”
The global stock market rally, which resembles the bull run between 2003 and 2007, will end as government spending slows after so-called easy money boosted asset prices, according to Morgan Stanley.
‘Credit Bubble’
“Such echo rallies are never as big as the original one and we will see it fading away,” Ruchir Sharma , who overseas $25 billion in emerging-market stocks at Morgan Stanley, said in an interview in Mumbai. “The rally will end as the effects of the stimulus begin to fade and the credit bubble caused by easy money disappears.”
ING has its steepest weekly decline since March after the largest Dutch financial-services company announced a rights offering and plans to sell its insurance businesses as it starts to repay a 10 billion-euro government lifeline sooner than originally planned.
The European Commission is reviewing bailouts to ensure banks that get government money don’t have an unfair advantage and has indicated that Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc may be forced to sell assets and branches after they received 37 billion pounds ($61 billion) in bailouts.
Bank of Ireland , the nation’s largest lender, and Allied Irish slid 33 percent and 25 percent respectively.
Allied Irish Chairman Dan O’Connor said the bank could face “serious consequences” from negotiations with the EU over the government’s capital injection.
‘Draconian Measures’
“We have seen what’s happened this week” with ING, O’Connor said at a conference in Dublin, referring to EU demands on the Dutch financial-services company. “Draconian measures have been taken.”
Lloyds, the U.K.’s biggest mortgage lender, lost 9.6 percent and RBS, Britain’s biggest government-owned bank, sank 11 percent. KBC Groep NV, the recipient of a 7 billion-euro rescue by the Belgian government, retreated 14 percent.
SAP AG sank 11 percent after the world’s biggest maker of business-management software cut its sales forecast and reported third-quarter earnings that trailed analysts’ projections.
ArcelorMittal led steelmakers lower, dropping 9.8 percent, after saying it may report a full-year loss. The world’s largest steelmaker also posted earnings that missed estimates.
ThyssenKrupp AG, Germany’s largest steelmaker, slumped 10 percent and Salzgitter AG, the nation’s second biggest, lost 8.8 percent.
To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net .
~Bloomberg (By Sarah Jones)
CIT Approaches Bankruptcy After Striking Icahn, Goldman Accords
Oct. 31 (Bloomberg) -- CIT Group Inc. , the 101-year-old commercial lender seeking to avoid collapse, may file for a prepackaged bankruptcy as soon as this weekend after striking deals with billionaire Carl Icahn and Goldman Sachs Group Inc.
A prepackaged bankruptcy “is probably going to go through,” Icahn said yesterday. He will supply a $1 billion loan for “supplemental liquidity” that can be used as bankruptcy financing, the New York-based company said. CIT also said it reached an agreement with Goldman Sachs to keep a credit line open should the lender file for court protection.
The accords were disclosed the day after a deadline passed for CIT to solicit votes in support of either a $30 billion out- of-court debt exchange or a prepackaged bankruptcy . CIT is seeking to reduce debt by at least $5.7 billion after being locked out of credit markets it relies on for funding and posting nine quarters of losses totaling more than $5 billion.
“CIT has gotten its ducks in a row for filing,” Adam Steer , an analyst with CreditSights Inc. in New York, said in a telephone interview. “They can hopefully get out of the bankruptcy court faster, which may be better for debt recoveries.”
Under the prepackaged plan, CIT bondholders will get 70 cents on the dollar in the form of new notes and equity in the reorganized company. If CIT is forced into a “free-fall” bankruptcy, unsecured claims may fetch as little as 6 cents on the dollar, according to Jeffrey Peek , the company’s chief executive officer.
$4.5 Billion Loan
CIT arranged a $4.5 billion term loan that can be used in bankruptcy, the company said Oct. 28. The lender said “through the substantial deleveraging featured in CIT’s restructuring plan, whether completed in or out of court, the company is confident that CIT will emerge as a strong bank-holding company with improved capital, liquidity and earnings potential.”
CIT spokesman Curt Ritter declined to comment yesterday.
While CIT said it’s still counting the more than 150,000 ballots, bond and credit-default swap prices show that investors are betting the lender will file for court protection.
Since Peek started the debt swap Oct. 1, the company’s notes due Nov. 3 dropped 12 cents to 68 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Holders of the $500 million in notes were offered 90 cents on the dollar in new debt and equity in an out-of-court exchange that expired at 11:59 p.m. in New York on Oct. 29.
Bondholder Protection
The cost to protect CIT debt against default for five years has risen 4.5 percentage points to 38.5 percent upfront since Sept. 30, according to CMA DataVision. That means it would cost $3.85 million initially and $500,000 annually to protect $10 million of CIT bonds from default for five years.
The cost of the credit-default swaps implies that traders have priced in an 85.5 percent chance that the company will default within five years, a standard pricing model used by Bloomberg shows. The model assumes investors could recover 40 cents on the dollar in a bankruptcy proceeding.
CIT dropped 23 cents, or 24 percent, to 72 cents in New York Stock Exchange composite trading yesterday. The shares, which traded at more than $61 each in February 2007, have declined 84 percent this year.
If the prepackaged plan is approved, the company plans to file for bankruptcy before $800 million of bonds mature next week, according to people familiar with the situation who declined to be identified because the talks are private.
Noteholder Control
Icahn, 73, who says he’s CIT largest bondholder with $2 billion of its debt, initially opposed CIT’s plan, contending the investments were worth more in a traditional bankruptcy. The New York-based investor proposed this week to buy CIT holders’ bonds for 60 cents on the dollar in a tender offer lasting 30 days if they rejected the plan.
CIT’s agreement to “give control to the noteholders” and an accelerated process for appointing directors “significantly improve corporate governance and cash flow protections, and are positive for the company and all noteholders,” Icahn said in a statement yesterday, explaining why he changed his vote in favor of the prepackaged bankruptcy.
“The board in general acted responsibly by saying, ‘We’re willing to do this.” Icahn said in a telephone interview.
Icahn also said he’s changing the terms of the tender offer for bondholders who voted against the prepackaged bankruptcy. “Whether or not the Exchange Offer/Prepackaged Plan fails, they will still be protected at $600 per note for 30 days,” the statement said.
Icahn’s Goals
“Icahn had two goals in mind: Influence over the board and participation in the expansion loan facility,” said Kevin Starke , an analyst at CRT Capital Group LLC in Stamford, Connecticut, said in a telephone interview. “He’s won on both counts.”
CIT finances about 1 million businesses from Dunkin’ Brands Inc. in Canton, Massachusetts, to Eddie Bauer Holdings Inc., the clothing chain in Bellevue, Washington, that’s operating under bankruptcy protection. The company says it’s the third-largest U.S. railcar-leasing firm and the world’s third-biggest aircraft financier.
Icahn Associates Corp. is the largest shareholder of American Railcar Industries Inc. , which depended on CIT for 31 percent of its business as of June 30, according to data compiled by Bloomberg. Icahn is chairman of the St. Charles, Missouri-based railcar maker.
CIT’s agreement with New York-based Goldman Sachs will reduce a $3 billion credit facility to $2.13 billion and keep the line open should CIT file for bankruptcy.
Goldman Sachs Agreement
In exchange, Goldman Sachs received $285 million in termination fees, CIT said yesterday in a filing with the U.S. Securities and Exchange Commission. Under the terms of the two companies’ original agreement, Goldman Sachs would have been due a $1 billion termination payment to close the credit line after a CIT bankruptcy.
The agreements should make the bankruptcy process easier by removing opposition to the bondholder plan, Michael Taiano , an analyst at Sandler O’Neill & Partners LP said in a telephone interview.
“They’re effectively in control and there’s not really a bankruptcy judge that has to approve everything,” he said. “It creates less disruption to the business because you’re in bankruptcy a shorter period of time.”
To contact the reporters on this story: Pierre Paulden in New York at ppaulden@bloomberg.net ; Linda Shen in New York at lshen21@bloomberg.net
~Bloomberg (By Pierre Paulden and Linda Shen)
A prepackaged bankruptcy “is probably going to go through,” Icahn said yesterday. He will supply a $1 billion loan for “supplemental liquidity” that can be used as bankruptcy financing, the New York-based company said. CIT also said it reached an agreement with Goldman Sachs to keep a credit line open should the lender file for court protection.
The accords were disclosed the day after a deadline passed for CIT to solicit votes in support of either a $30 billion out- of-court debt exchange or a prepackaged bankruptcy . CIT is seeking to reduce debt by at least $5.7 billion after being locked out of credit markets it relies on for funding and posting nine quarters of losses totaling more than $5 billion.
“CIT has gotten its ducks in a row for filing,” Adam Steer , an analyst with CreditSights Inc. in New York, said in a telephone interview. “They can hopefully get out of the bankruptcy court faster, which may be better for debt recoveries.”
Under the prepackaged plan, CIT bondholders will get 70 cents on the dollar in the form of new notes and equity in the reorganized company. If CIT is forced into a “free-fall” bankruptcy, unsecured claims may fetch as little as 6 cents on the dollar, according to Jeffrey Peek , the company’s chief executive officer.
$4.5 Billion Loan
CIT arranged a $4.5 billion term loan that can be used in bankruptcy, the company said Oct. 28. The lender said “through the substantial deleveraging featured in CIT’s restructuring plan, whether completed in or out of court, the company is confident that CIT will emerge as a strong bank-holding company with improved capital, liquidity and earnings potential.”
CIT spokesman Curt Ritter declined to comment yesterday.
While CIT said it’s still counting the more than 150,000 ballots, bond and credit-default swap prices show that investors are betting the lender will file for court protection.
Since Peek started the debt swap Oct. 1, the company’s notes due Nov. 3 dropped 12 cents to 68 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Holders of the $500 million in notes were offered 90 cents on the dollar in new debt and equity in an out-of-court exchange that expired at 11:59 p.m. in New York on Oct. 29.
Bondholder Protection
The cost to protect CIT debt against default for five years has risen 4.5 percentage points to 38.5 percent upfront since Sept. 30, according to CMA DataVision. That means it would cost $3.85 million initially and $500,000 annually to protect $10 million of CIT bonds from default for five years.
The cost of the credit-default swaps implies that traders have priced in an 85.5 percent chance that the company will default within five years, a standard pricing model used by Bloomberg shows. The model assumes investors could recover 40 cents on the dollar in a bankruptcy proceeding.
CIT dropped 23 cents, or 24 percent, to 72 cents in New York Stock Exchange composite trading yesterday. The shares, which traded at more than $61 each in February 2007, have declined 84 percent this year.
If the prepackaged plan is approved, the company plans to file for bankruptcy before $800 million of bonds mature next week, according to people familiar with the situation who declined to be identified because the talks are private.
Noteholder Control
Icahn, 73, who says he’s CIT largest bondholder with $2 billion of its debt, initially opposed CIT’s plan, contending the investments were worth more in a traditional bankruptcy. The New York-based investor proposed this week to buy CIT holders’ bonds for 60 cents on the dollar in a tender offer lasting 30 days if they rejected the plan.
CIT’s agreement to “give control to the noteholders” and an accelerated process for appointing directors “significantly improve corporate governance and cash flow protections, and are positive for the company and all noteholders,” Icahn said in a statement yesterday, explaining why he changed his vote in favor of the prepackaged bankruptcy.
“The board in general acted responsibly by saying, ‘We’re willing to do this.” Icahn said in a telephone interview.
Icahn also said he’s changing the terms of the tender offer for bondholders who voted against the prepackaged bankruptcy. “Whether or not the Exchange Offer/Prepackaged Plan fails, they will still be protected at $600 per note for 30 days,” the statement said.
Icahn’s Goals
“Icahn had two goals in mind: Influence over the board and participation in the expansion loan facility,” said Kevin Starke , an analyst at CRT Capital Group LLC in Stamford, Connecticut, said in a telephone interview. “He’s won on both counts.”
CIT finances about 1 million businesses from Dunkin’ Brands Inc. in Canton, Massachusetts, to Eddie Bauer Holdings Inc., the clothing chain in Bellevue, Washington, that’s operating under bankruptcy protection. The company says it’s the third-largest U.S. railcar-leasing firm and the world’s third-biggest aircraft financier.
Icahn Associates Corp. is the largest shareholder of American Railcar Industries Inc. , which depended on CIT for 31 percent of its business as of June 30, according to data compiled by Bloomberg. Icahn is chairman of the St. Charles, Missouri-based railcar maker.
CIT’s agreement with New York-based Goldman Sachs will reduce a $3 billion credit facility to $2.13 billion and keep the line open should CIT file for bankruptcy.
Goldman Sachs Agreement
In exchange, Goldman Sachs received $285 million in termination fees, CIT said yesterday in a filing with the U.S. Securities and Exchange Commission. Under the terms of the two companies’ original agreement, Goldman Sachs would have been due a $1 billion termination payment to close the credit line after a CIT bankruptcy.
The agreements should make the bankruptcy process easier by removing opposition to the bondholder plan, Michael Taiano , an analyst at Sandler O’Neill & Partners LP said in a telephone interview.
“They’re effectively in control and there’s not really a bankruptcy judge that has to approve everything,” he said. “It creates less disruption to the business because you’re in bankruptcy a shorter period of time.”
To contact the reporters on this story: Pierre Paulden in New York at ppaulden@bloomberg.net ; Linda Shen in New York at lshen21@bloomberg.net
~Bloomberg (By Pierre Paulden and Linda Shen)
U.S. Bancorp Takes Over 9 Banks Seized by Regulators
Oct. 31 (Bloomberg) -- U.S. Bancorp , the Minneapolis-based lender expanding amid the financial crisis, agreed to acquire nine failed banks owned by closely held FBOP Corp. and seized by regulators yesterday.
The nine banks will cost the Federal Deposit Insurance Corp. a combined $2.5 billion, the agency said. So far this year, 115 banks have failed, sending the insurance fund into a deficit in September and prompting the agency to propose that banks prepay three years of premiums to raise $45 billion.
U.S. Bancorp agreed to assume all the deposits and essentially all the assets of the banks, in California, Texas, Arizona and Illinois, that were seized yesterday by regulators, the FDIC said. The lender is adding branches, acquiring deposits and seeking to gain share in the mortgage market.
“This transaction is consistent with the growth strategy that we have outlined many times in the past,” Rick Hartnack , vice chairman of consumer banking for U.S. Bancorp, said yesterday in a statement. “We also view this type of acquisition as an efficient means of leveraging” the company’s capital base.
The company, which in June repaid $6.6 billion from the Treasury’s Troubled Asset Relief Program, said earlier this month that third-quarter profit rose 4.7 percent on higher net interest margins and fees from mortgage banking and transactions at automated teller machines.
U.S. Bancorp fell 99 cents, or 4 percent, to $23.22 yesterday in New York Stock Exchange composite trading , and has dropped 19 percent in the past 12 months.
Earlier this month, the lender purchased Nevada bank branches and $800 million in deposits from BB&T Corp.
One of the ‘Winners’
“U.S. Bancorp has clearly distinguished itself as one of the “winners” to emerge from the cycle -- managing to stay profitable in each quarter, repay TARP and add to its normalized earnings per-share power through small fill-in bank and non-bank acquisitions,” John McDonald , an analyst at Sanford C. Bernstein & Co., said in a note to investors this month.
In yesterday’s transactions, U.S. Bancorp picked up 153 branches with combined assets of $19.4 billion and deposits of $15.4 billion as of Sept. 30, according to the FDIC.
Almost three-quarters of Oak Park, Illinois-based FBOP’s total loans were for construction and land development or commercial real estate, FDIC data show. Since 2000, FBOP had tripled its assets, according to the agency. FBOP wasn’t closed, the FDIC said.
Closed Banks
The banks seized were: Bank USA, National Association of Phoenix; California National Bank of Los Angeles; San Diego National Bank; Pacific National Bank of San Francisco; Park National Bank of Chicago; Community Bank of Lemont, Illinois; North Houston Bank; Madisonville State Bank of Madisonville, Texas; and Citizens National Bank, of Teague, Texas.
The FDIC included 416 banks on its confidential list of problem institutions as of the second quarter.
The FDIC, the Federal Reserve and other bank regulators have released guidelines to banks on arranging modifications of commercial real estate loans with borrowers who show a willingness to repay the debt.
To contact the reporters on this story: Vivek Shankar at vshankar3@bloomberg.net ; Dakin Campbell in San Francisco at dcampbell27@bloomberg.net .
~Bloomberg (By Vivek Shankar and Dakin Campbell)
The nine banks will cost the Federal Deposit Insurance Corp. a combined $2.5 billion, the agency said. So far this year, 115 banks have failed, sending the insurance fund into a deficit in September and prompting the agency to propose that banks prepay three years of premiums to raise $45 billion.
U.S. Bancorp agreed to assume all the deposits and essentially all the assets of the banks, in California, Texas, Arizona and Illinois, that were seized yesterday by regulators, the FDIC said. The lender is adding branches, acquiring deposits and seeking to gain share in the mortgage market.
“This transaction is consistent with the growth strategy that we have outlined many times in the past,” Rick Hartnack , vice chairman of consumer banking for U.S. Bancorp, said yesterday in a statement. “We also view this type of acquisition as an efficient means of leveraging” the company’s capital base.
The company, which in June repaid $6.6 billion from the Treasury’s Troubled Asset Relief Program, said earlier this month that third-quarter profit rose 4.7 percent on higher net interest margins and fees from mortgage banking and transactions at automated teller machines.
U.S. Bancorp fell 99 cents, or 4 percent, to $23.22 yesterday in New York Stock Exchange composite trading , and has dropped 19 percent in the past 12 months.
Earlier this month, the lender purchased Nevada bank branches and $800 million in deposits from BB&T Corp.
One of the ‘Winners’
“U.S. Bancorp has clearly distinguished itself as one of the “winners” to emerge from the cycle -- managing to stay profitable in each quarter, repay TARP and add to its normalized earnings per-share power through small fill-in bank and non-bank acquisitions,” John McDonald , an analyst at Sanford C. Bernstein & Co., said in a note to investors this month.
In yesterday’s transactions, U.S. Bancorp picked up 153 branches with combined assets of $19.4 billion and deposits of $15.4 billion as of Sept. 30, according to the FDIC.
Almost three-quarters of Oak Park, Illinois-based FBOP’s total loans were for construction and land development or commercial real estate, FDIC data show. Since 2000, FBOP had tripled its assets, according to the agency. FBOP wasn’t closed, the FDIC said.
Closed Banks
The banks seized were: Bank USA, National Association of Phoenix; California National Bank of Los Angeles; San Diego National Bank; Pacific National Bank of San Francisco; Park National Bank of Chicago; Community Bank of Lemont, Illinois; North Houston Bank; Madisonville State Bank of Madisonville, Texas; and Citizens National Bank, of Teague, Texas.
The FDIC included 416 banks on its confidential list of problem institutions as of the second quarter.
The FDIC, the Federal Reserve and other bank regulators have released guidelines to banks on arranging modifications of commercial real estate loans with borrowers who show a willingness to repay the debt.
To contact the reporters on this story: Vivek Shankar at vshankar3@bloomberg.net ; Dakin Campbell in San Francisco at dcampbell27@bloomberg.net .
~Bloomberg (By Vivek Shankar and Dakin Campbell)
Buffett’s Berkshire Cuts Moody’s Stake Third Time in 3 Months
Oct. 31 (Bloomberg) -- Warren Buffett’s Berkshire Hathaway Inc., the biggest shareholder in Coca-Cola Co. and Wells Fargo & Co., reduced its stake in credit-rating company Moody’s Corp. by 2.9 percent, the third cut in just over three months.
Berkshire sold 1.15 million shares and remains Moody’s biggest stockholder with 38.07 million, according to a regulatory filing yesterday. The stake sold for about $28.7 million, Berkshire said. The Omaha, Nebraska-based firm cut its Moody’s holding by 17 percent in July and 2 percent last month.
Moody’s, whose founder John Moody created credit ratings in 1909, is suffering from reduced demand for debt analysis after the economic decline curbed fixed-income issuance. The firm and rival Standard & Poor’s have been criticized by regulators and lawmakers for not foreseeing the wave in homeowner defaults that brought down the value of securities once awarded gold-standard AAA credit grades.
Moody’s fell 59 cents, or 2.4 percent, to $23.68 yesterday in New York Stock Exchange composite trading. It has slipped 20 percent in the past six months, trailing the 19 percent gain in the S&P 500 Index. Berkshire declined $1,180 to $99,000 and has gained 5.3 percent in six months.
Buffett didn’t respond to a request for comment e-mailed to his assistant, Carrie Kizer , after normal business hours.
To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net .
~Bloomberg (By Andrew Frye)
Berkshire sold 1.15 million shares and remains Moody’s biggest stockholder with 38.07 million, according to a regulatory filing yesterday. The stake sold for about $28.7 million, Berkshire said. The Omaha, Nebraska-based firm cut its Moody’s holding by 17 percent in July and 2 percent last month.
Moody’s, whose founder John Moody created credit ratings in 1909, is suffering from reduced demand for debt analysis after the economic decline curbed fixed-income issuance. The firm and rival Standard & Poor’s have been criticized by regulators and lawmakers for not foreseeing the wave in homeowner defaults that brought down the value of securities once awarded gold-standard AAA credit grades.
Moody’s fell 59 cents, or 2.4 percent, to $23.68 yesterday in New York Stock Exchange composite trading. It has slipped 20 percent in the past six months, trailing the 19 percent gain in the S&P 500 Index. Berkshire declined $1,180 to $99,000 and has gained 5.3 percent in six months.
Buffett didn’t respond to a request for comment e-mailed to his assistant, Carrie Kizer , after normal business hours.
To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net .
~Bloomberg (By Andrew Frye)
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