Business News: Bernanke and Geithner Fight Back

Business News: Bernanke and Geithner Fight Back

Bernanke and Geithner Fight Back

Posted: 01 Dec 2010 06:42 PM PST

Comcast, AT&T Face New Web Rules

Posted: 01 Dec 2010 02:21 PM PST

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By Todd Shields

(Updates with analyst comment in sixth paragraph.)

Dec. 1 (Bloomberg) -- A U.S. regulator said he’d press to pass Internet-service rules for companies led by AT&T Inc. and Comcast Corp., setting up a clash with Republican lawmakers who told him Americans recently voted against expansive government.

Federal Communications Commission Chairman Julius Genachowski today asked the agency to vote Dec. 21 to bar Internet-service companies from blocking or slowing Web users’ access to lawful content and applications. The net-neutrality rules “ensure that the Internet remains a powerful platform for innovation and job creation,” Genachowski said in a speech in Washington.

Genachowski, a Democrat appointed by President Barack Obama, proposed net-neutrality rules in September 2009, and debate has expanded to involve Congress, courts and companies. Proponents including technology companies said regulations are needed to keep the Internet free of restrictions, while opponents such as telephone and cable companies said rules aren’t needed and may stifle investment.

“If last month’s election told us anything, it’s that Americans are exasperated by the explosive growth of government,” Representative Eric Cantor of Virginia, the House’s No. 2 Republican, said in an e-mailed statement. “Imposing net-neutrality requirements would significantly harm a key industry by shackling it with unnecessary and anti- competitive regulations.”

‘Clearest Winners’

Senator Kay Bailey Hutchison of Texas, the top Republican on the Commerce Committee, which oversees telecommunications policy, said she would “explore all options” to keep the FCC from instituting the regulations. Republican Representative Marsha Blackburn of Tennessee in an interview on Bloomberg Television said the FCC had a “hysterical approach” and aims to put a “chokehold” on the Internet.

Time Warner Cable Inc., Cablevision Systems Corp. and telephone companies are among the “clearest winners” under Genachowski’s proposal because it averts the prospect of harsher regulation and clears a path for flexible pricing for high-speed Internet service, Paul Gallant, a Washington-based analyst with MF Global, said in an interview.

“Those are very welcome developments for Comcast, Time Warner Cable and Cablevision,” he said.

The FCC recognizes “the importance of business innovation” including usage-based pricing, Genachowski said in his speech.

Good for Stocks

Share prices “will respond well” if cable operators adopt usage-based pricing, charging more to customers who gulp data, for instance by downloading videos, and less to attract lighter Web users, Craig Moffett, a New York-based analyst with Sanford C. Bernstein & Co. Inc., said in a note to investors today.

The regulations would give Internet-service providers flexibility to deal with congestion or harmful traffic, Genachowski said. Wireless networks would be subject to different regulations that include a no-blocking rule, and the FCC would “be prepared to step in” to deal with anti- competitive behavior, he said.

AT&T, the largest U.S. telephone company, and Verizon Communications Inc. said the issue should be left to Congress.

The FCC should make “any rules it adopts interim, rather than permanent,” Verizon Executive Vice President Tom Tauke said in an e-mailed statement.

“We are pleased that the FCC appears to be embracing a compromise solution,” Jim Cicconi, AT&T senior executive vice president, said in an e-mailed statement.

‘Careful, Balanced Approach’

Comcast Executive Vice President David Cohen said in an e- mailed statement, “The careful and balanced approach laid out by the chairman today has our support.”

Charlie Ergen, chief executive officer of Dish Network Corp., which provides on-demand movies to subscribers using Internet lines, in a statement called Genachowski’s proposal “a solid framework for protecting the open Internet.”

Verizon rose 34 cents to $32.35 at 4:01 p.m. in New York Stock Exchange composite trading. AT&T advanced 49 cents to $28.28. Comcast rose 80 cents, or 4 percent, to $20.83 in Nasdaq Stock Market trading.

Genachowski said his rules build upon a proposal made in September by Representative Henry Waxman, a California Democrat, who suggested less-stringent rules for the mobile Web than for service delivered over wires.

Net neutrality encompasses the idea that Internet-service providers can’t interfere with content they deliver to subscribers, or favor their offerings. Technology companies backing regulations include search company Google Inc., Internet-retailer Amazon.com and Dish.

Managing Traffic Growth

Cable and phone companies that provide Web service say rules may make it difficult to manage the growing traffic on their networks and would limit investment in Internet capacity. AT&T and Verizon, the majority owner of the largest U.S. mobile provider, Verizon Wireless, have told the FCC that rules aren’t needed for wireless networks.

Google and Verizon, the second-largest U.S. phone company, struck a compromise in August that didn’t call for rules on wireless Internet service. The proposal wasn’t adopted by officials.

Obama, as a candidate, made net neutrality a campaign issue and has called himself a “big believer” in the approach.

Democratic lawmakers released a letter yesterday urging Genachowski to act on Web regulations this year to ensure “that the Internet remains an open network.” The letter was signed by Senators John Kerry of Massachusetts, Byron Dorgan of North Dakota and Ron Wyden of Oregon.

Three Votes Needed

The regulations need three votes to pass at the FCC, where two Democrats join Genachowski to form the agency’s majority.

“I strongly oppose this ill-advised maneuver,” Robert McDowell, one of two Republican commissioners, said in an e- mailed statement. “Such rules would upend three decades of bipartisan and international consensus that the Internet is best able to thrive in the absence of regulation.”

Commissioner Meredith Attwell Baker, a Republican, said the agency doesn’t have authority to act and called Genachowski’s proposal “a mistake.”

Genachowski said he had abandoned his proposal to put Internet service under the regulatory regime used for telephone service -- a prospect opposed by companies that said such a move might lead to rate regulation.

Not applying rules for telephone companies would benefit AT&T, Comcast, Verizon, Time Warner Cable and Cablevision, Gallant said in a Nov. 19 note to clients.

Telephone regulation offered a way to reclaim authority undermined by a U.S. court, Genachowski said in May. Judges ruled in April the FCC lacked authority to punish Comcast for interfering with subscribers’ Web traffic.

“I am satisfied that we have a sound legal basis” for proceeding without using telephone rules, Genachowski said today.

--Editors: Allan Holmes, Steve Geimann

To contact the reporter on this story: Todd Shields in Washington at tshields3@bloomberg.net

To contact the editor responsible for this story: Allan Holmes at aholmes25@bloomberg.net

Privacy Concerns Send Facebook to Washington

Posted: 01 Dec 2010 09:24 PM PST

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By Sara Forden

Dec. 2 (Bloomberg) -- Facebook Inc. is expanding its Washington office and consulting with privacy advocates as lawmakers question how well the world’s largest social- networking site protects the personal information of users.

The company is looking for a public-policy expert and a deputy press spokesman, following the June hiring of Marne Levine to head its Washington office. Levine is a former top aide to Larry Summers, director of President Barack Obama’s National Economic Council. The new hires would bring Facebook’s Washington team to eight, up from zero three years ago.

Tighter privacy rules being discussed in Washington might limit the ability of companies such as Facebook and Google Inc. to tailor ads to users of their sites and curb sales growth. Google reported a 23 percent increase in sales to $20.9 billion, almost all from advertising, for the first three quarters of this year. Facebook revenue may double to $1.4 billion this year, two people familiar with the matter told Bloomberg News in August.

“A lot of people think Facebook could become bigger than Google, but privacy could be the real Achilles heel for this company,” said Sunil Gupta, a professor at Harvard Business School whose research areas include new media. “Privacy will be a huge issue, both in Washington and overseas.”

Congress, the Federal Trade Commission, and the Commerce Department are considering how to impose additional privacy safeguards on Internet companies that amass user data, and the White House in October established a task force of more than a dozen federal offices to address privacy concerns.

Do Not Track

The FTC yesterday called for a “do-not-track” option for Internet users to allow them to block monitoring of their online movements, used to compile profiles for marketers.

“Some consumers are troubled” by the tracking, the agency’s staff said in a report. “Others have no idea that any of this information collection and sharing is taking place.”

Privately owned Facebook, based in Palo Alto, California, says it has more than 500 million users worldwide, including more than 150 million in the United States. It channels communication among subscribers who approve access by people considered “friends,” and helps advertisers target consumers based on user demographics and interests.

The company says it gives users the ability to determine how much information they share, and that Facebook policies prohibit revealing details that identify individuals to third parties.

“When we talk with policy makers about Facebook, it’s about how users have control over information,” Levine said in an interview.

‘Privacy Time Bomb’

Facebook triggered an outcry in April after it added a feature that automatically connected users to three outside websites unless they specifically opted out of the service. The sites -- Yelp.com, Pandora and Docs.com -- tailor visits from Facebook members based on their user information. After complaints from privacy groups and lawmakers, Facebook in May introduced simpler privacy settings and said it was reducing the amount of publicly available user information.

In October, Facebook said some third-party software applications on its platform had transferred user ID numbers in violation of company policy. The company said it suspended some application developers for six months, and that it was taking steps to prevent user information from being passed to outside companies.

“Facebook is a ticking privacy time bomb, no matter how much they spend in lobbying,” said Jeffrey Chester, executive director of the Center for Digital Democracy in Washington, which has urged the FTC to address privacy issues at Facebook and other online marketers.

Facebook Everywhere

Even as lawmakers consider clamping down on Facebook, many of them are users. The company started to woo members of Congress in 2007, when its first Washington employee, Adam Conner, then a 23-year-old congressional staffer, was hired to teach elected officials and their staffs how to use the site.

This year, almost every candidate for the House and Senate used Facebook to reach voters, according to Washington-based spokesman Andrew Noyes.

“Facebook is everywhere on Capitol Hill, in the personal and professional lives of members and staff,” said Seamus Kraft, director of new media and press secretary for the House Committee on Oversight and Government Reform. That familiarity hasn’t translated into a consensus on how to protect privacy rights, he said.

The co-chairmen of the House Privacy Caucus, Texas Republican Joe Barton and Massachusetts Democrat Edward Markey, sent a letter to Facebook Chief Executive Officer Mark Zuckerberg on Oct. 18 questioning the company’s privacy safeguards. Facebook’s response, a 13-page letter dated Oct. 29, explained that the sharing of user IDs is part of the way Internet browsers work and that it is developing technical solutions to further protect its users.

Data Breaches

The response didn’t satisfy Barton, who is seeking to become chairman of the Energy and Commerce Committee in the new Republican-controlled House.

“It seems like not a month goes by without the discovery of a data breach of one kind or another,” Barton said in an e- mail. “My committee and its subcommittees are going to take a hard look at the reliability of Internet privacy policies.”

Senate Commerce Committee Chairman Jay Rockefeller, a Democrat from West Virginia, has said he intends to draft Internet privacy legislation and in October fired off questions to Facebook and News Corp.’s MySpace. He pressed Facebook to explain how it enforces its privacy policy and what penalties it levies on violators.

So far, privacy concerns haven’t stopped Facebook’s growth. Founded by Zuckerberg in 2004 when he was a sophomore at Harvard University, Facebook surpassed MySpace as the world’s biggest social network two years ago and last year pushed aside AOL Inc. as the fourth most-visited site in the U.S., according to researcher ComScore Inc.

Lessons Learned

Facebook executives say they have learned from the experiences of companies like Google, Microsoft Corp. and Apple Inc., which have been caught up in regulatory and legislative issues.

“We were in Washington comparatively earlier in our growth cycle,” said Tim Sparapani, a former privacy expert for the American Civil Liberties Union who became Facebook’s Washington lobbyist in March 2009. “We have the benefit of having seen those companies and their experiences in Washington and learning from them.”

In addition to Sparapani, Conner and Levine, Washington staffers include Noyes, a former technology reporter for the National Journal, and Cory Owens, formerly of the Constitution Project, a Washington-based privacy group. The company also has former FTC commissioner Mozelle Thompson as an adviser on a range of issues including privacy, Noyes said.

Moving Quickly

“Relative to the history of some other tech companies, Facebook is now moving fairly quickly,” said Ed Black, president and chief executive officer of the Computer and Communications Industry Association, which lists Facebook as a member.

Aside from privacy, the Washington team is seeking to spend time on issues such as net-neutrality rules, which it favors for landline and wireless networks, as part of the Open Internet Coalition.

Facebook’s Washington contingent is still dwarfed by Google, which has about 40 people in its Washington office, including 10 registered lobbyists.

Facebook spent $221,390 on lobbying activities in the first nine months of this year compared with $169,700 in the same period last year, according to federal disclosure reports. Google reported spending $3.92 million in the first nine months of this year. Facebook hasn’t registered a political action committee, while Google’s PAC gave $208,000 to federal candidates in the past two years.

Justin Brookman, senior resident fellow of the Center for Democracy and Technology, who has met with Facebook officials on privacy matters, says the company is learning from its missteps. After previewing a new ‘Places’ feature, which allows users to reveal their locations, with groups including CDT, the company received “as good a review as Facebook has gotten from the privacy community,” Brookman said.

Talking to privacy groups helps companies like Facebook identify concerns ahead of time, said Berin Szoka, a privacy advocate who is setting up a Washington organization focused on the issue. “Google has really pioneered this kind of engagement, but Facebook has caught up fast.”

--With assistance from Brian Womack in San Francisco and Kristin Jensen in Washington. Editors: Terry Atlas, Joe Winski

To contact the reporter on this story: Sara Forden in Washington at sforden@bloomberg.net.

To contact the editor responsible for this story: Larry Liebert in Washington at lliebert@bloomberg.net.

Charlie Rose talks to Wal-Mart's Mike Duke

Posted: 01 Dec 2010 05:53 PM PST

Best Buy, Amazon Reach Shoppers on the Phone

Posted: 01 Dec 2010 09:11 PM PST

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By Joseph Galante

Dec. 2 (Bloomberg) -- Best Buy Co., the world’s largest consumer-electronics retailer, doesn’t just want you to buy mobile phones this holiday season. It wants you to use the devices to shop for the rest of your gifts.

Best Buy, Home Depot Inc. and Amazon.com Inc. are among the retailers ramping up efforts to let shoppers scan bar codes, get discounts and find product information on their phones.

The idea is to boost sales by making it easier for consumers to compare prices, read product reviews and make impulse purchases wherever they are -- even in a rival’s store. Buying via mobile phones is set to triple to $3 billion in the U.S. this year and reach $6 billion next year, according to market research firm Aite Group LLC in Boston.

“Mobile represents an enormous opportunity for retailers,” said Dave Sikora, chief executive officer at Digby, an Austin, Texas-based company that helps retailers with their mobile strategies. “In 2008 and 2009, mobile started out as a science project. It’s accelerated so fast that it’s becoming more mission-critical for retailers to deliver a mobile experience in a professional way.”

Shoppers using smartphones will account for at least $127 billion, or 28 percent, of the $447 billion the National Retail Federation predicts consumers will spend this holiday season, according to IDC Retail Insights.

M-Commerce

Mobile commerce, known as m-commerce, may gain market share faster than traditional online retailing, said Mary Meeker, a partner at Menlo Park, California-based venture capital firm Kleiner Perkins Caufield & Byers. Meeker is best known for predicting the rise of e-commerce while an analyst at Morgan Stanley.

Promotions on mobile phones encourage impulse purchases, and knowing the specific location of shoppers lets merchants deliver coupons and offers to users when they’re most likely to spend. That may be a boon for retailers, she said.

“Mobile is going to be transformative in terms of how consumers interact and have access to almost everything,” said John Thompson, general manager of BestBuy.com, the Richfield, Minnesota-based company’s online division. “We anticipate this continuing to grow, just as we expect our smartphone business to continue to grow.”

Mobile-application companies, such as Barcode Hero and Fashism, also stand to benefit. They focus on helping shoppers make purchase decisions through reviews and social networking. Product search engine TheFind.com released a shopping app last month that generates an ad for Best Buy when a consumer scans electronics products in rival stores.

Video Demonstrations

Golfsmith International Holdings Inc. introduced a mobile app this year that shows video demonstrations of golf clubs and advertises sales on tennis and golf gear. Home Depot’s app lets shoppers calculate how much paint is needed to freshen a room.

Even with the uptake in mobile apps, the U.S. is playing catch-up to Asia and Europe, where paying for items with phones is more widespread. About 8 percent of consumers in the U.S. have bought something with a phone. That compares with 32 percent in Taiwan, which tops the list of major industrialized countries, according to IE Market Research Corp. Finland was No. 1 in Europe, at 13 percent.

Mobile shopping isn’t always as smooth an experience as with a regular Web browser. The top 15 retailers’ mobile sites, which include Amazon, Best Buy and Dell Inc., run slower, crash more often and are less consistent than their regular sites, according to Gomez, a research firm that measures the performance of websites.

Blast From the Past

“Mobile websites are reminiscent of where the overall Web was 10 years ago, performance-wise,” said Matt Poepsel, a vice president at Gomez, part of Detroit-based Compuware Corp.

U.S. companies have made strides in creating ways for consumers to pay by mobile phone, particularly since Apple Inc. introduced the iPhone in 2007, said Paul Jacobs, CEO of Qualcomm Inc., the biggest producer of chips for wireless handsets.

“The phone is going to be the payment mechanism of the future,” Jacobs said in an interview last month. “You’ll probably just scan whatever thing it was that you’re buying. It will cause the checkout to happen. It will cause the security to happen, so that when you walk out of the door it won’t ring the bell.”

Almost 60 percent of mobile consumers expect to use their phones to help with shopping plans and holiday celebrations this season, according to the Mobile Marketing Association, a New York-based trade organization.

“You’re going to see folks completing a lot more transactions on their device, wherever they are,” said Digby’s Sikora. “It’s incumbent on the retailer to develop a great experience once the consumer gets in the door.”

--With assistance from Ian King in San Francisco, Chris Burritt in Greensboro, North Carolina, and Olga Kharif in Portland, Oregon. Editors: Nick Turner, Elizabeth Wollman

To contact the reporter on this story: Joseph Galante in San Francisco at jgalante3@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

Distressed Homes Sell at Biggest Discount in 5 Years

Posted: 01 Dec 2010 09:16 PM PST

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By John Gittelsohn

Dec. 2 (Bloomberg) -- U.S. homes in the foreclosure process sold for about 32 percent less than non-distressed properties in the third quarter, the biggest discount in five years, as buyer demand slumped, according to RealtyTrac Inc.

The average discount for bank-owned real estate, residences in default or those scheduled for auction rose from 29 percent a year earlier, RealtyTrac said in a report today. A quarter of all U.S. transactions involved those types of homes, according to the Irvine, California-based data seller.

Sales of foreclosure properties plunged 31 percent as the end of a buyer tax credit reduced purchases overall, RealtyTrac said. The decline came before loan servicers including Bank of America Corp. and JPMorgan Chase & Co. halted some home seizures amid claims that employees processed thousands of documents without verifying them, a practice known as robo-signing.

“The foreclosure-processing controversy, which was brought to light at the very end of the third quarter, could chill demand even further,” James J. Saccacio, chief executive officer of RealtyTrac, said in the report.

Home seizures dropped 9 percent in October from the previous month, RealtyTrac reported Nov. 11. The company’s data are from information recorded in government registers. Another company, Lender Processing Services Inc., reported a 36 percent plunge, basing its figures on data collected from servicers at the time of foreclosure.

Negotiating Price Cuts

Carl Chmielewski, a broker with Providence Realty LLC in Hudson, Ohio, who specializes in selling foreclosed properties, said 14 of his sales were put on hold in October while loan servicers or owners, including Bank of America, JPMorgan, Fannie Mae and Ally Financial Inc.’s GMAC unit, made sure the papers were properly processed.

Lenders are now more willing to negotiate lower prices for foreclosures, said Chmielewski, who said he sells 25 to 30 homes during a typical month.

“We’re finding there’s more flexibility by banks,” he said in a telephone interview. “Offers that wouldn’t have been accepted a couple of years ago are now.”

Fannie Mae began offering incentives on its seized homes in September, including giving as much as 3.5 percent of the sales price for closing fees. Brokers representing buyers of Fannie Mae’s foreclosed homes also stood to receive a $1,500 bonus for closing a sale, according to a Sept. 23 announcement.

41% Discount

Bank-owned real estate sold at an average 41 percent discount in the third quarter, up from 35 percent a year earlier, RealtyTrac said. Discounts for homes in default or scheduled for auction averaged 19 percent, compared with 18 percent a year earlier. Most of those properties were short sales, in which a lender accepts less than the balance on a mortgage, said Daren Blomquist, a RealtyTrac spokesman.

The overall discount was the biggest since the fourth quarter of 2005, when the average was 34 percent. Only 0.5 percent of U.S. sales were foreclosures at that time, according to RealtyTrac.

Sales of existing homes, which make up more than 90 percent of the market, declined more than forecast in October amid the foreclosure moratoriums and the absence of the tax credit of as much as $8,000, the National Association of Realtors reported Nov. 23. Purchases fell in July to the slowest pace in a decade’s worth of record-keeping by the Chicago-based group.

--Editors: Kara Wetzel, Josh Friedman

To contact the reporter on this story: John Gittelsohn in New York at johngitt@bloomberg.net.

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net.

Stocks, Euro Gain as ECB Meets; Spanish Bonds, U.K. Gas Rise

Posted: 02 Dec 2010 04:32 AM PST

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By Stephen Kirkland

Dec. 2 (Bloomberg) -- Stocks extended the biggest rally in a month, U.S. index futures rose and the euro strengthened on speculation the European Central Bank will act to stem the region’s debt turmoil. Spanish bonds and U.K. gas gained.

The MSCI World Index added 0.7 percent at 7:45 a.m. in New York, following yesterday’s 1.9 percent gain. Standard & Poor’s 500 Index futures advanced 0.5 percent. Spain’s IBEX 35 climbed 1.7 percent, while the yield on the country’s 10-year bond fell 12 basis points to 5.22 percent as demand rose at a three-year note sale. The U.S. 10-year Treasury yield increased above 3 percent for the first time since July. The euro appreciated 0.3 percent to $1.3177. U.K. natural gas extended the longest rally since October 2009.

Investors are anticipating that ECB President Jean-Claude Trichet will delay the withdrawal of unlimited cash to banks and step up bond purchases after signaling this week measures may be needed to halt the region’s debt crisis. Japanese companies boosted spending for the first time in three years, the Finance Ministry in Tokyo said today. The U.S. Labor Department may say tomorrow payrolls expanded for a second month.

“The options for the ECB have narrowed,” said Greg Venizelos, a credit strategist at BNP Paribas SA in London. “Either they announce the right measures today and the market continues to trade tighter or they fluff their lines and the market weakens substantially again.”

Policy makers meeting in Frankfurt today kept the benchmark interest rate at a record low of 1 percent, matching the expectation of all 52 economists in a Bloomberg survey. Trichet’s press conference is scheduled to begin at 2:30 p.m. local time.

Petroplus, Desire

The Stoxx Europe 600 Index gained 0.7 percent after rising as much as 1 percent. Spanish banks advanced, with Banco Santander SA rallying 2.9 percent and Banco Bilbao Vizcaya Argentaria SA, the nation’s second-biggest lender, gaining 2.1 percent. The cost of insuring the banks’ debt fell, with credit- default swaps on Santander dropping 23 basis points to 205, according to CMA. Contracts on BBVA were 25 lower at 212. Credit swaps on European bank debt tumbled the most since July, with the Markit iTraxx Financial Index falling 11.5 basis points to 153, according to JPMorgan Chase & Co.

Asia, Emerging Markets

The MSCI Asia Pacific Index rallied 1.5 percent, the most in a month. Canon Inc., a Japanese camera maker, rose 2.5 percent. The MSCI Emerging Markets Index climbed 1.2 percent, heading for the biggest two-day gain since June 21. Benchmark equity indexes in Turkey, Indonesia and the Philippines advanced at least 1.5 percent. South Africa’s rand led developing-nation currencies, strengthening 0.6 percent against the dollar.

Russia’s Wimm-Bill-Dann Dairy & Juice Co. soared 40 percent after PepsiCo Inc. said it will acquire 66 percent of the dairy company for $3.8 billion.

The gain in U.S. futures indicated the S&P 500 may extend yesterday’s 2.2 percent jump, the biggest rally since Sept. 1. The National Association of Realtors’ index of pending home resales probably dropped 1 percent after a 1.8 percent decline the prior month, according to the median forecast of 40 economists surveyed before a report due at 10 a.m. in Washington. Separate data from the Labor Department, set for 8:30 a.m., may show initial claims for jobless benefits rose last week from a two-year low.

The Spanish three-year note yield slid 17 basis points to 3.89 percent. The extra yield investors demand to hold the nation’s 10-year bonds instead of benchmark German bunds dropped 11 basis points to 238 basis points. Yields on similar-maturity Greek securities rose one basis point to 11.96 percent.

Spanish Auction

Spain sold 2.5 billion euros ($3.3 billion) of notes due in October 2013. Demand was 2.27 times the amount sold, compared with a bid-to-cover of 2.16 at the October sale.

The euro strengthened 0.2 percent versus the yen to 110.21. The Australian dollar weakened against all but one of its most active counterparts after a report showed the nation’s retail sales unexpectedly declined in October.

Store sales fell 1.1 percent, the steepest drop since July 2009, the Bureau of Statistics said in Sydney today. The median forecast in a Bloomberg News survey of 23 economists was for a 0.4 percent rise.

Copper rose as much as 1.6 percent to the highest level in almost three weeks as inventories shrank the most since September. Gold for immediate delivery added 0.2 percent to $1,390.35 an ounce. The Standard & Poor’s GSCI Index of commodities gained 0.4 percent.

U.K. gas for delivery today climbed 0.8 percent as the earliest widespread snowfall in Britain since 1993 boosted heating demand. It earlier rose to its highest level since February 2009.

--With assistance from David Merritt, Michael Patterson, Michael Shanahan, Dan Tilles and Dan Weeks in London. Editors: Stephen Kirkland, Justin Carrigan

To contact the reporter on this story: Stephen Kirkland in London at skirkland@bloomberg.net

To contact the editor responsible for this story: Paul Sillitoe in London at psillitoe@bloomberg.net

PepsiCo to Buy 66% of Wimm-Bill-Dann for $3.8 Billion

Posted: 02 Dec 2010 04:27 AM PST

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By Paul Jarvis

(Updates with per-share price in second paragraph.)

Dec. 2 (Bloomberg) -- PepsiCo Inc., the world’s largest snack-food maker, agreed to acquire a controlling stake in Wimm- Bill-Dann Dairy & Juice Co. for $3.8 billion to become the biggest food-and-beverage company in Russia.

PepsiCo, based in Purchase, New York, will buy 66 percent of Wimm-Bill-Dann and plans to make an offer for the rest, subject to government approvals, the companies said today. The price of $33 per American depositary receipt is 32 percent more than the average in the last 30 days. Wimm-Bill-Dann rose as much as 40 percent in Moscow trading today.

PepsiCo is stepping up expansion in a market where growth is forecast to outpace the U.S. The acquisition values all of Wimm-Bill-Dann at $5.4 billion and is part of PepsiCo’s plan to build a $30 billion nutrition business by 2020. Wimm-Bill-Dann, Russia’s largest dairy company, had sales of about $2.4 billion in the 12 months ended in June and has almost doubled revenue since 2005.

“PepsiCo has acquired one of Russia’s best national food and beverage distribution networks,” said Andy Smith, an analyst at MF Global in London.

The Russian economy is forecast to grow 3.8 percent this year, its government estimates. The U.S. will expand 2.7 percent in 2010, according to Nov. 18 estimates from the OECD. Russia’s dairy market will expand at a “low-double-digit” rate for at least the next three years, the companies forecast.

‘Very Good Shape’

PepsiCo is paying 18.7 times earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg. PepsiCo bought PepsiAmericas Inc. bottlers for 5.11 times earnings before interest, taxes, depreciation and amortization, according to the data.

PepsiCo generates about 52 percent of its sales from the U.S. Coca Cola Co. gets about 25 percent of sales in North America.

Danone in October completed the sale of an 18.4 percent stake in the Russian company for $470 million. The French yogurt maker divested the holding to meet antitrust requirements on its merger with Unimilk, another Russian dairy company. That sale price valued all of Wimm-Bill-Dann at about $2.6 billion, according to Bloomberg calculations.

“PepsiCo is interested because Wimm-Bill-Dann is in very good shape and has demonstrated very strong bottom line,” said Victoria Sokolova, an analyst at Troika Dialog. “PepsiCo will get the company’s solid juice segment, and will also be able to expand its own dairy and baby food segments.”

Wimm-Bill-Dann was up 920.2 rubles, or 40 percent, at 3,220.71 rubles in Moscow trading, the day’s highest price. PepsiCo shares added 1.6 percent in U.S. trading yesterday.

Wimm-Bill-Dann’s foreign-sounding name was chosen by its founders 18 years ago because consumers didn’t trust local products at the time, according to its website.

--With reporting by Torrey Clark, Anastasia Ustinova and Brad Cook in Moscow, Tom Mulier in Geneva Editors: Celeste Perri, Jerrold Colten

To contact the reporters on this story: Paul Jarvis in London at pjarvis@bloomberg.net; Tom Mulier in Geneva at tmulier@bloomberg.net.

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

Snow, Cold Weather Disrupt Travel Across Europe for Fourth Day

Posted: 02 Dec 2010 04:26 AM PST

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By Jack Jordan and Cornelius Rahn

Dec. 2 (Bloomberg) -- Heavy snowfall and freezing temperatures continued to disrupt travel across Europe as airports at cities including London and Edinburgh remained shut and Eurostar Group Ltd. canceled almost half its services.

London’s Gatwick airport, the U.K.’s second busiest, will remain closed until at least 6 a.m. local time tomorrow, according to its website. Edinburgh airport pushed back opening until at least 4 p.m., and London City was closed until 2 p.m. Airports in Dublin and Geneva opened this morning.

In the U.K., the earliest widespread snowfall since 1993 has frozen over roads, disrupting traffic, with freezing weather likely to last until at least Dec. 8, according to private forecaster British Weather Services. The worst-hit areas overnight were south London, Sussex, Kent and Hampshire with as much as 8 inches (20 centimeters), said Robin Thwaytes, a spokesman for the state-funded Met Office.

In northern England, Yorkshire and the surrounding regions have had “snow shower after snow shower for days,” he said in a phone interview, though blizzards are likely to dwindle across the country in the next 24 hours. “By this time tomorrow it will be fairly dry but frosty.”

Eurostar Services

Eurostar canceled seven services from Paris to London and six in the other direction, plus five each way between the U.K. capital and Brussels, to avoid a repeat of last winter’s breakdowns in the Channel Tunnel. Speed restrictions in both the U.K. and northern France will create delays of as much as 90 minutes for other services, Eurostar said on its website.

Go-Ahead Group Plc’s Southern Railways, which operates commuter services from southeast England into London, said it canceled all trains because of adverse weather.

Temperatures were expected to drop as low as minus-14 degrees Celsius (7 degrees Fahrenheit) in northwest Scotland this morning, while London and southeast England will see temperatures of about minus-3 degrees Celsius, the Met Office said on its website.

The area affected most in the U.K. today was the south, from Kent through Dorset, said Paul Watters, a spokesman for the Automobile Association. The rescue service responded to 18,000 calls yesterday, and had 100,000 in the past six days, he said.

Germany, France

Fresh snowfall also blanketed Germany last night, exceeding 15 centimeters in some parts of the southeast. Temperatures will drop as low as minus-20 degrees Celsius in central Germany and very cold weather will persist until at least Dec. 4, according to the German Weather Service.

“We’re selling masses of scarves, woolly hats and gloves at the moment, said Hartmut Scheller, a store owner in Berlin’s southwestern suburb of Steglitz. “If temperatures persist at these lows, we’ll soon be out of stock.”

Frankfurt airport, Germany’s busiest, canceled 40 flights as of 7:30 a.m. local time, largely because of closures at other airports, Fraport AG spokesman Thomas Uber said by telephone, adding that the main runway opened again after the wind died down overnight. Flight traffic in Munich was largely back to normal, said Florian Steuer, an airport spokesman.

France’s DGAC civil aviation authority ordered the cancellation of one in four flights from Paris Charles de Gaulle today and one in ten from Orly, the city’s other major airport, according to an e-mailed statement.

Hundreds of vehicles were stranded early this morning in northern and western France after renewed snowfalls. The main RN12 highway along the northern coast of Brittany was closed and hundreds of heavy trucks taken off the roads in Normandy, AFP reported, citing the French meteorological agency.

Power Demand

U.K. same-day natural gas rose for a fifth day, the longest upward trend since October last year, with gas for today rising as much as 3.6 percent to 64 pence a therm, according to broker data on Bloomberg. About 80 percent of the country’s homes and businesses use natural gas for heating. It’s also used to generate about half of Britain’s electricity supply.

U.K. baseload power for the next working day lost 10.50 pounds, or 15 percent, to 60.50 pounds ($94.50) a megawatt-hour, broker data show. The contract closed at 71 pounds yesterday, its highest level in almost two years. Baseload is delivered around the clock.

--With assistance from Chris Peterson, Benjamin Purvis, David Altaner and Catherine Airlie in London, Warren Giles and Dylan Griffiths in Geneva, Laurence Frost in Paris, Mike Gavin in Frankfurt, Andreas Cremer in Berlin, Elena Logutenkova in Zurich, and Stuart Biggs in Tokyo. Editors: Peter Branton, Chris Jasper.

To contact the reporters on this story: Jack Jordan in London at jjordan22@bloomberg.net; Stuart Biggs in Tokyo at Sbiggs3@bloomberg.net.

To contact the editor responsible for this story: Colin Keatinge at ckeatinge@bloomberg.net.

‘Wave of Defaults’ Expected in 2012 as Rates Rise, S&P Says

Posted: 02 Dec 2010 04:24 AM PST

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By Bryan Keogh

Dec. 2 (Bloomberg) -- Higher interest rates and refinancing risks will likely prompt a “second wave of defaults” in Europe in 2012 and 2013, particularly among leveraged buyouts, according to Standard & Poor’s.

The 12-month European default rate may rise to as high as 7.5 percent in 2012 from an expected 4 percent by the end of this year, S&P analysts led by Paul Watters in London said in a report. The rate reached a peak of 14.8 percent at the end of the third quarter of 2009.

The default rate could rise “materially” as a high proportion of loans in the high-yield B- and CCC categories remain vulnerable due to excessive leverage, the analysts wrote. A substantial number of weaker junk companies with 229 billion euros ($302 billion) of leveraged loans due by December 2015 could face difficulties refinancing, according to the report.

“A combination of overleveraged balance sheets and higher spread margins against a rising interest-rate environment will likely result in more restructurings as shareholders’ attention moves to creating value on new transactions,” the analysts wrote. “We therefore see a high likelihood of a second wave of defaults, mainly among leveraged buyouts.”

The default rate, which fell to 5.9 percent at the end of September may return to a range of 5.5 percent to 7.5 percent in 2012 after declining “modestly” through 2011 to 3.8 percent, according to the report.

High-yield, or junk, debt is rated below BBB- by S&P and an equivalent Baa3 by Moody’s Investors Service.

--Editors: Michael Shanahan, Paul Armstrong

To contact the reporter on this story: Bryan Keogh in London at bkeogh4@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net

RBS Cleared by U.K. FSA in Probe of Taxpayer Bailout

Posted: 02 Dec 2010 04:15 AM PST

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By Lindsay Fortado

(Updates with union’s comment in sixth paragraph.)

Dec. 2 (Bloomberg) -- The Royal Bank of Scotland Group Plc and former executives, including ex-Chief Executive Officer Fred Goodwin, were cleared by U.K. regulators in a report that faulted the bank for “a series of bad decisions” before the financial crisis.

The U.K. Financial Services Authority said it won’t take any enforcement action and has closed the probe into conduct by RBS executives, the acquisition of ABN Amro Holding NV in 2007 and a 2008 rights offering, the regulator said in a statement today. The FSA didn’t publish the contents of the review.

“The review confirmed that RBS made a series of bad decisions in the years immediately before the financial crisis,” the FSA said. “The review concluded that these bad decisions were not the result of a lack of integrity by any individual and we did not identify any instances of fraud or dishonest activity.”

RBS posted the biggest loss in corporate history in 2008 and required a bailout of 45.5 billion pounds ($71 billion) following the bank’s 73.3 billion-euro acquisition of ABN Amro. The FSA said in March 2009 that it would examine senior managers of banks that collapsed or had accepted government money.

The regulator’s investigations into other banks that required taxpayer-funded bailouts are ongoing, it said.

Unite, Britain’s largest trade union, said the FSA “has demonstrated its weakness and inability to hold the sector to account” and called the conclusion “an outrage.”

‘Millionaire Lifestyles’

“It is unacceptable to suggest that the behavior of the management in this iconic U.K. bank did not ‘lack integrity’ when they brought RBS to its knees,” Rob MacGregor, a national officer at Unite, said in an e-mailed statement. “By failing to bring any formal charges against the RBS executives they have allowed some of the biggest villains of the financial crisis to go on enjoying their millionaire lifestyles.”

Michael Strachan, a spokesman for the bank, said it welcomed the conclusion of the review.

“RBS is wholly focused on our work to restructure the bank and rebuild value for shareholders,” Strachan said in an e- mailed statement.

Johnny Cameron, the former chairman of RBS’s investment bank, agreed in May to never again take a senior-management role at a financial company to resolve an FSA investigation into his actions. Cameron made the agreement without admitting guilt or the regulator finding him at fault. Goodwin was questioned by the regulator in June.

Goodwin led the acquisition of ABN Amro and spent $100 billion expanding the bank’s operations into more than 54 countries before being ousted in 2008. The bank is 83 percent- owned by the U.K.

--With assistance from Jon Menon in London. Editors: Anthony Aarons, Christopher Scinta

To contact the reporters on this story: Lindsay Fortado in London at lfortado@bloomberg.net.

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.

Sweden High Court Won’t Review Assange Arrest Appeal

Posted: 02 Dec 2010 03:53 AM PST

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By Janina Pfalzer

(Updates with quote from court in second paragraph.)

Dec. 2 (Bloomberg) -- Sweden’s Supreme Court won’t consider WikiLeaks founder Julian Assange’s appeal of his arrest on rape charges.

“The Supreme court has reviewed the material and hasn’t found any reasons for granting leave to appeal,” the Stockholm- based court said today in an e-mailed statement. The court only considers cases that may set a precedent or where there are “special circumstances,” such as new evidence, according to its website.

Interpol put Assange on its wanted list after a Stockholm district court issued a warrant for his arrest on Nov. 18 at the request of prosecutor Marianne Ny, who said she had been unable to question him. The Svea Court of Appeal on Nov. 24 ruled against Assange’s appeal, while saying the rape charge should be reduced to a “less serious” degree. The 39-year-old Australian is also suspected of sexual molestation and unlawful coercion.

The alleged crimes, which involve two women, took place in Stockholm and Enkoeping, while Assange was in Sweden lecturing about the publication of classified U.S. military documents about the war in Afghanistan. Assange denies the charges. His lawyer Bjoern Hurtig wasn’t immediately available for comment.

WikiLeaks drew condemnation from the U.S. this week for posting on its website thousands of classified State Department documents. WikiLeaks.org, created in 2006, receives confidential material and posts the information on the Internet “so readers and historians alike can see evidence of the truth,” the organization says on its website.

Sex Crime Decisions

Ny started her preliminary investigation in September after a lawyer representing the two women appealed another prosecutor’s decision to drop the rape charge and reduce molestation charges. Ny heads the Prosecution Authority Development Center in Gothenburg, which handles appeals against prosecutor decisions on sex crimes.

Less than 1 percent of all Swedish prosecutor decisions, or about 2,000, were appealed in 2008, according to the prosecution authority’s website. The original decision was changed in 220 cases.

Assange, born in Townsville, Australia, began as a computer hacker in his native country and pleaded guilty in 1996 to 24 counts of violating the Crimes Act by accessing and inserting information into computers, including those of Nortel Networks Corp. He received a fine and three years probation.

--Editors: Christopher Scinta, Kim McLaughlin

To contact the reporter on this story: Janina Pfalzer in Stockholm at jpfalzer@bloomberg.net.

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net.

European Stocks Rise as Investors Await ECB Decision; BHP Gains

Posted: 02 Dec 2010 03:37 AM PST

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By Adam Haigh

Dec. 2 (Bloomberg) -- European stocks rose, with the Stoxx Europe 600 Index extending its biggest rally in three months, amid speculation the European Central Bank will act to stem the region’s debt crisis. Asian equities and U.S. futures advanced.

BHP Billiton Ltd., the world’s largest mining company, led commodity companies higher. Bayerische Motoren Werke AG led gains among carmakers after U.S. sales last month surged 30 percent from a year earlier. Britvic Plc, the maker of Robinson’s fruit drinks, led falling shares on the Stoxx 600 after reporting its first full-year loss in at least 7 years.

The Stoxx 600 gained 0.3 percent to 267.82 as of 11:23 a.m. in London. The gauge jumped 2 percent yesterday, the most since Sept. 1, amid speculation ECB policy makers may step up measures to contain the government-debt crisis and after a report showed China’s manufacturing activity grew at the fastest pace in seven months in November.

“Amidst the bullishness, euro-zone debt worries still linger,” said Jonathan Sudaria, a trader at London Capital Group. “Traders got a hint yesterday from Jean-Claude Trichet that some form of aggressive policy to soothe debt worries was in the wings. Traders will be keenly watching the ECB press conference today for any further clarification, but if he fails to deliver, things could turn quite sharply.”

Futures contracts on the Standard & Poor’s 500 Index expiring this month rallied 0.3 percent, while the MSCI Asia- Pacific Index climbed 1.5 percent.

ECB

The ECB is forecast to keep interest rates unchanged today, delaying its exit from emergency liquidity measures as the debt crisis threatens to engulf Spain, its fourth-largest economy, and Portugal. ECB policy makers will announce their decision at 1:45 p.m. in Frankfurt and Trichet holds a press conference 45 minutes later.

Japanese companies boosted spending for the first time in three years and the U.S. Labor Department may say tomorrow U.S. payrolls expanded for a second month, after reports yesterday indicated job growth and manufacturing expanded in the world’s largest economy.

Trends in European stocks during 2010 are likely to repeat themselves next year, and investors should favor shares in countries like Germany and bet against nations in the “periphery,” Goldman Sachs Group Inc. strategists led by Peter Oppenheimer wrote in a report. Investors should also pick stocks with sales in the largest emerging economies, which will outpace growth in the euro zone, and businesses with “high operating leverage” amid “strong global economic growth,” the report said.

U.S. Data

In the U.S., fewer Americans signed contracts to buy previously owned homes in October for a second month, adding to evidence a recovery in housing will take time to develop, economists said before a report today at 10:00 a.m. in Washington. At 8:30 a.m. the Labor Department may report applications for unemployment benefits rose to 424,000 last week, according to the Bloomberg survey median. Claims fell to 407,000 in the prior week, the lowest level since July 2008.

The Fed’s report on regional activity, known as the Beige Book, said yesterday that the economy gained strength across much of the U.S. as hiring improved, manufacturing expanded and retailers anticipated a stronger holiday shopping season. The anecdotal information will help policy makers frame the discussion of the economy when they next meet on Dec. 14.

BHP Billiton, Rio Tinto

BHP Billiton advanced 1.4 percent to 2,395.5 pence in London. Rio Tinto Group, the world’s third-biggest mining company, climbed 2.3 percent to 4,304.5 pence.

BMW gained 1.3 percent to 61.68 euros. Its namesake brand was the top-selling luxury auto marque in the U.S. in November, overtaking Daimler AG’s Mercedes-Benz in year-to-date deliveries. U.S. deliveries of Wolfsburg, Germany-based Volkswagen AG’s Audi brand climbed 38 percent to 9,365 vehicles. Volkswagen preferred shares advanced 2.4 percent to 130.90 euros.

Britvic slumped 7.1 percent to 456 pence. The company posted a net loss of 48.2 million pounds ($75.3 million) in the 53 weeks ended Oct. 3, compared with a profit of 46.8 million pounds for the 52 weeks ended Sept. 27, 2009.

TNT NV rallied 5.2 percent to 19.82 euros as Europe’s second-biggest express-delivery company said it will spin off its express-delivery business to focus on regular mail delivery.

Rexel SA, the Paris-listed electrical equipment distributor, rose 3.8 percent to 15.72 euros after saying it expects 2010 sales to be close to 11.9 billion euros ($15.63 billion) and the acquisition of Grossauer will add to earnings from the first year.

Petrofac, Desire

Petrofac Ltd. gained 2.3 percent to 1,483 pence after the the oilfield services and engineering provider was upgraded to “buy” from “neutral” at Goldman Sachs.

Desire Petroleum Plc soared 24 percent to 131 pence as the U.K. explorer focused on the Falkland Islands said its Rachel North well discovered oil.

Georg Fischer AG rallied 6.8 percent to 534 Swiss francs as UBS AG raised its price estimate on the shares 25 percent to 710 francs, citing a successful restructuring plan and growing demand in Asia.

Wendel SA advanced 4.8 percent to 65.14 euros as the publicly traded private equity company said its net asset value stood at 85.7 euros on Nov. 23, up 64.2 percent from a year ago and up 35.6 percent since Aug. 25.

--Editors: Jason Carey, David Merritt, Andrew Rummer.

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

To contact the editor responsible for this story: David Merritt at dmerritt1@bloomberg.net.