Business News: It's a Great Time to Be Rich

Business News: It's a Great Time to Be Rich

It's a Great Time to Be Rich

Posted: 15 Dec 2010 08:50 PM PST

Secret Financial Weapons of the Super-Rich

Posted: 14 Dec 2010 02:24 PM PST

Tax-Cut Vote in House Hinges on Estate Tax

Posted: 15 Dec 2010 09:15 PM PST

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By Ryan J. Donmoyer and Peter Cohn

Dec. 16 (Bloomberg) -- The U.S. House is poised to vote today on a compromise between President Barack Obama and Republicans to extend Bush-era tax cuts, with a dispute over the federal estate tax looming as the final hurdle.

The House will vote on a proposal to amend the compromise plan with a higher estate tax sought by Democrats -- and which Senate Republicans say they will refuse to accept. If that amendment fails, the House will vote on final approval of the bill passed by the Senate yesterday, 81-19.

Income taxes will increase across-the-board on Jan. 1 if Congress fails to pass a bill for Obama to sign.

“We’re perfectly aware” that passage of the estate-tax amendment would send the measure back to the Senate, said House Rules Committee Chairwoman Louise Slaughter, a New York Democrat. Asked whether the higher estate tax would pass, Democratic Representative Chris Van Hollen of Maryland, an assistant to House Speaker Nancy Pelosi, said, “I know that there’s strong support for it.”

The $858 billion tax-cut plan extends through 2012 all Bush-era tax reductions on income, capital gains and dividends. It continues expanded unemployment insurance benefits through 2011, cuts payroll taxes by 2 percentage points during 2011 and lets businesses write off 100 percent of capital investments between Sept. 9, 2010, and Dec. 31, 2011. Obama agreed on the plan with Republicans on Dec. 6.

The Senate-passed measure sets the top estate tax rate at 35 percent and gives families a $5 million tax-free allowance per individual, or $10 million per couple.

Democrats’ Threat

House Democrats threatened last week to refuse to bring the tax plan to the floor if it remained unchanged, and they focused much of their ire on the estate tax provision. Many House Democrats also wanted to limit the income tax cut extension to the first $250,000 of family income.

House Democratic leaders have sought to find a way to allow members to demonstrate their opposition without actually amending the bill.

The House will vote today on whether to set the top estate tax rate at 45 percent with a $3.5 million per person tax-free allowance. The House passed such a rate in December; that proposal died in the Senate.

The House vote on the estate tax last year was 225-200, with 26 Democrats opposed. The 54 members of the fiscally conservative Blue Dogs have pressed this week for approval of the Obama-Republican compromise. Democrats control the House 255-179, with one seat vacant. Republicans will take over the majority in January.

Top Rate

Barring congressional action, the estate tax in January will have a top rate of 55 percent that applies after a $1 million tax-free allowance.

The tax-cut measure has to clear a procedural hurdle in order to bring up the estate-tax change. If the House rejects a proposed rule for floor debate, House leaders would have to pull the bill from the floor.

The legislation extends dozens of expired and expiring tax breaks, including the research and development tax credit and a college tuition tax credit that was created in last year’s economic stimulus law.

The Senate passed the tax-cut plan with broad support from Democrats and Republicans, and some rank-and-file House Democrats say it is unlikely to be changed.

“Let me put it this way: I think the most likely outcome is the next stop for the bill is the president’s desk,” said Representative Brad Sherman of California.

‘Significant Number’

“Probably there will be a significant number of Democrats who vote no” on the overall plan, said Democrat Jim McDermott of Washington. “How many of the Republicans will vote for it to make up the difference?”

Republicans said any significant changes made by the House would be rejected in the Senate and would risk scuttling the entire agreement.

Senate Minority Leader Mitch McConnell, a Kentucky Republican, urged Democrats in a statement to “resist playing political games and making partisan changes so that American taxpayers won’t be hit with a huge, job-killing tax hike on Jan. 1.”

If the tax cuts expire, payroll withholding would increase in January, taking more money out of workers’ paychecks and causing administrative challenges for the Internal Revenue Service. The new Congress would take up the tax issue, and the outcome would be controlled by a Republican-led House and a Senate with 47 Republicans, up from 42 now.

Senate Democrats who voted Dec. 13 to shut off debate said they agreed to move forward even though the bill extended tax cuts for high-income taxpayers.

“The fact is this bill will be a help to the middle class,” said California Democrat Barbara Boxer.

Senate Republicans, who prefer a permanent extension of all existing tax rates, said they were willing to negotiate with Obama even though they didn’t get what they wanted.

--With assistance from Richard Rubin in Washington. Editors: Laurie Asseo, Don Frederick

To contact the reporters on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net; Peter Cohn in Washington at pcohn@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

Why the Left Really Hates Tax Cuts for the Rich: Caroline Baum

Posted: 14 Dec 2010 06:15 PM PST

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By Caroline Baum

Dec. 15 (Bloomberg) -- “Odious” is how senior adviser David Axelrod described President Barack Obama’s acquiescence to extending tax cuts for the rich as part of a deal struck with congressional Republicans.

Just think about that for a moment. In order to secure the GOP’s support for an extension of unemployment benefits and a one-year reduction in the employee-paid portion of the payroll tax, the administration had to hold its nose, swallow its pride and exhibit other metaphorical manifestations to demonstrate its disgust at the thought of letting the rich keep more of their own money.

“I respect people who are unhappy,” Axelrod said in an interview with Christiane Amanpour on ABC’s “This Week” on Sunday. “We share their view on the upper-income tax cuts, on the estate tax. That was a part of the deal, odious though it may be, in order to accept, in order to get, all the good things that come along with. That’s the nature of compromise.”

Certain household chores -- cleaning the toilet, for example -- are odious. Filling out health insurance forms is another repugnant task. Spending hours on the phone with HP tech support in India ranks high on the odious list.

But being allowed to keep money you earned? What is it about tax cuts for the wealthy that so galls the Left?

I can’t answer definitely because I don’t share the antipathy. My hunch is that folks who abhor tax cuts for the rich see the economic pie as a fixed quantity. Your gain is my loss. A tax cut, exemption, credit or deduction for you means nothing for me. It’s a zero sum game, except it isn’t.

Zero Sum Game

Over the last 60 years, federal government receipts have averaged 18 percent of gross domestic product. Whether the top marginal income tax rate was 92 percent, as it was during the 1950s, or 28 percent, as it was for a short spell in the late 1980s, the government can’t manage to snag a bigger share of the pie.

Far better to find a recipe to bake a bigger pie so that government’s 18 percent translates to more dollars.

Amanpour didn’t ask Axelrod what he would say if the pie doubled but the share of income that goes to the rich, poor and middle class stayed the same.

I’m not sure what he’d say on TV, but I bet I know what he thinks: not fair. Redistributing income -- reapportioning the pie slices so the thin slivers are thicker -- is the real goal.

Genteel Theft

That’s easier said than done. Sure, the government could confiscate wealth outright, the way Russia seized Yukos Oil Co., charged former CEO Mikhail Khodorkovsky with tax evasion and fraud and threw him in jail. Doing it through the tax code is so much more genteel.

Try as it might, the U.S. government hasn’t been able to increase its 18 percent share of GDP despite wide variations in the top tax rate. The rich have tax lawyers to help them shield their income and avoid taxes.

Besides, the focus on increased income inequality, with its potential to create social unrest, ignores mobility up and down the income ladder. Almost 60 percent of taxpayers were in a different quintile in 2007 than they were in 1999, according to a June 2010 report by Robert Carroll, a senior fellow at Washington’s Tax Foundation. Forty percent of households in the top quintile moved down, while 60 percent of those in the bottom quintile moved up.

While the share of income earned by the top 1 percent more than doubled between 1980 and 2007, that kind distributional analysis -- comparing snapshots of the population at different points in time -- fails to capture mobility among groups, Carroll says. His study tracked 62,412 tax returns that were filed in all nine years.

Mobile Population

Millionaires, as it turns out, are here today, gone tomorrow, largely the result of the variability of capital gains realizations, Carroll finds. Politicians should keep this in mind the next time they contemplate a surtax on the wealthy, the only group against which it’s politically correct to discriminate.

Maybe my fixed-pie theory is incorrect and it’s old- fashioned jealousy that keeps the Left allied against the wealthy.

Unlikely. Class warfare has never been a big seller in the U.S. for the simple reason that most Americans aspire to being rich or achieving some degree of financial security.

The door is always open. And many Americans capitalize on the opportunity and walk through it.

On the other hand, millionaires may fall through a trap door and find themselves on a lower income scale. Nothing odious about that, as far as Axelrod’s concerned.

(Caroline Baum, author of “Just What I Said,” is a Bloomberg News columnist. The opinions expressed are her own.)

--Editors: Steve Dickson, Laurence Arnold.

Click on “Send Comment” in sidebar display to send a letter to the editor.

To contact the writer of this column: Caroline Baum in New York at cabaum@bloomberg.net

To contact the editor responsible for this column: James Greiff at jgreiff@bloomberg.net

Wall Street Blame Rift May Blunt Impact of U.S. Crisis Panel

Posted: 15 Dec 2010 09:03 PM PST

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By Phil Mattingly and Robert Schmidt

Dec. 16 (Bloomberg) -- The partisan split on the federal panel exploring the origins of the financial crisis may undermine the impact of its findings on the banks, bond-rating firms and regulators it investigated, legal scholars and former national commission members said.

Democrats and Republicans on the Financial Crisis Inquiry Commission, struggling for months to find consensus behind the scenes, haven’t even been able to agree on whether to include the phrases “Wall Street” and “shadow banking” in the final report. The report is now scheduled to be published in January and is likely to include dissents, FCIC members said yesterday.

The four Republicans on the 10-member panel made their views public in a nine-page document yesterday, saying they place much of the blame for the 2008 crisis on the government and mortgage firms Fannie Mae and Freddie Mac rather than banks.

“To be successful, one of these commissions has to be 100 percent, or close to 100 percent, accurate in their findings,” said Lance Cole, a Pennsylvania State University law professor who served as a consultant to the Sept. 11 commission. “If there is any split or any controversy about the underlying facts, then it totally undermines their credibility.”

When it was created by Congress in 2009, the FCIC was heralded by House Speaker Nancy Pelosi, a California Democrat, as an effort to get a “detailed and clear-eyed examination” of the worst economic collapse since the Great Depression and “bring accountability” to the financial system.

Buffett and Blankfein

Former California treasurer Phil Angelides, 57, a Democrat, was named to head the group. The panel held hearings on the role of bond-rating firms including Moody’s Corp., on the failure of New York-based investment bank Bear Stearns Cos. and on the bailout of American International Group Inc., the New York-based insurer. Chief executives including Warren Buffett and Lloyd Blankfein of Goldman Sachs Group Inc. testified for the panel.

The commission focused on Goldman Sachs for its role in AIG’s troubles. Angelides and former Representative Bill Thomas, the panel’s Republican vice chairman, also accused the firm, the most profitable in Wall Street’s history, of engaging in a document “dump” designed to hamper investigators. The commission responded by issuing a subpoena for more records.

The unity in the efforts to pull information from Goldman Sachs has broken down, commissioners said yesterday.

Early Optimism

One model for the FCIC was the panel that explored the 2001 terror attacks on New York and Washington, which had members of both parties and reached a unanimous conclusion.

Bob Graham, 74, a Florida Democrat and former U.S. senator who is an FCIC member, said he and his colleagues at first expected to put partisan concerns aside. He said he thought unanimity would be possible because the FCIC’s mandate was to outline the causes of the crisis rather than debate recommendations to Congress.

By this fall, he said, hopes of comity were over.

Commissioners have had “an increasingly strained relationship and it appeared less likely that we were going to get a unanimous assessment of what the historical facts were,” said Graham, who also serves as co-chairman of the national commission investigating the BP oil spill in the Gulf of Mexico.

Graham said the political process for selecting commission members contributed to the problem. “You start off with people whose loyalty is to the person who appointed them and generally they were appointed because of their loyalty to that person or party,” he said.

Word Ban

The divide intensified when Thomas proposed in the last few weeks deleting a series of words Republicans thought were pejorative or not precise enough to refer to a financial system that included mortgage lending or insurance firms, for example. Included in the proposal, according to Brooksley Born, a Democrat on the panel, were the words “Wall Street,” “deregulation” and “shadow banking.”

The proposal was defeated by a majority of the commissioners, Born, 70, said in an interview.

“I felt the deletions would detract from our providing a full, fair and understandable report,” said Born, a former chairman of the Commodity Futures Trading Commission.

Republicans said their decision to release initial findings before the final report came after the commission, in a 6-4 vote, decided to limit to nine the number of pages each commissioner could supply to the print edition of the final book to express their views. Thus, Republican dissent would total a maximum of 36 pages in a 500-page book.

Timing Dispute

The law setting up the commission called for it to release its final report yesterday. Amid the disputes, Democratic commissioners decided to delay the report for about a month.

In the preview of their findings, the Republican members said yesterday that a “social policy” decision by the U.S. to push affordable housing and fund it via Fannie Mae and Freddie Mac was a recipe for disaster.

“The risk of a housing collapse was simply not appreciated,” the four wrote. “Not by homeowners, not by investors, not by banks, not by rating agencies and not by regulators.”

Keith Hennessey, a Republican commissioner and the former director of President George W. Bush’s National Economic Council, said in a blog post yesterday that the Republican outline was “not a report or a response” but a “primer on the issues we think will be important to cover in the final report of the commission.”

‘Comply With the Law’

The document was drafted to “comply with the law,” according to Hennessey.

Representative John Larson, a Connecticut Democrat who led the push to create the panel called the breakdown “truly disappointing and disheartening.”

“If Americans from both political parties can come together on anything, I would hope it would be this issue,” Larson said in a statement yesterday.

To be sure, the commission has obtained thousands of documents it hasn’t yet released, and those could eventually contribute to public understanding of the financial meltdown.

Tucker Warren, the FCIC’s spokesman, said the final report “will be the result of an investigation that includes over 700 interviews with witnesses in public and private, the review of hundreds of thousands of documents and over 19 days of public hearings.”

At the least, the report may be important for scholars, said Robert Litan, vice president for research and policy at the Kauffman Foundation in Kansas City, Missouri.

‘Statement for History’

“This is more or less a statement for history and maybe a marker for what happens when we have the next crisis,” Litan, a former Clinton administration budget official, said in a phone interview.

The report also may play a role in shaping the overhaul of Washington-based Fannie Mae and McLean, Va.-based Freddie Mac, the government-owned mortgage companies that own or guarantee more than half of U.S. home loans. It may affect the actual implementation of the financial overhaul law by providing “ammunition in filing comments and for potential litigation,” Litan said.

Still, in the aftermath of a crisis that has resulted in few arrests, the panel has done little to stoke public interest by unveiling information in its hearings, said William Black, an associate professor of economics and law at the University of Missouri-Kansas City and a former U.S. bank regulator. In the 1930s, it was public theater and hard questioning by Ferdinand Pecora that pushed transformational reforms, Black said.

Clearing the Path

Pecora, who served as the chief counsel to the U.S. Senate Committee on Banking and Currency, helped clear the political path for legislative overhauls including the Glass-Steagall Act and the Securities Act of 1933.

“They haven’t delivered any bombshells,” Cole, the Penn State professor, said of the current commission. “There is a necessity to provide some political theater if you want to get results.”

In the end, the biggest obstacle faced by the commission in its quest for impact may have been beyond its control. In July, Congress enacted the Dodd-Frank regulatory overhaul, designed to prevent another financial collapse.

“This commission’s timing is very bad,” said former Senator Bob Kerrey, a Nebraska Democrat who served on the Sept. 11 Commission. “It’s not just that they are late, but the moment is gone.”

--Editors: Lawrence Roberts, Gregory Mott

To contact the reporters on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net; Phil Mattingly in Washington at pmattingly@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net

Facebook’s Sales Reach $2 Billion

Posted: 15 Dec 2010 09:03 PM PST

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By Brian Womack

Dec. 16 (Bloomberg) -- Facebook Inc., the world’s most popular social-networking service, is likely to generate 2010 revenue of about $2 billion, a larger sum than projected earlier, according to three people familiar with the matter.

Sales will more than double from 2009, said the people, who declined to be identified because the privately held company doesn’t disclose revenue. Facebook had $700 million to $800 million in sales last year, and the 2010 figure was previously expected to be closer to $1.5 billion, according to two other people familiar with the matter earlier this year.

Facebook’s more than half a billion users have made it an attractive target for advertisers, including Coca-Cola Co., JPMorgan Chase & Co. and Adidas AG. In October, Facebook surpassed Yahoo! Inc. when ranked by the number of global users, making it No. 3 behind Google Inc. and Microsoft Corp., according to ComScore Inc., a research firm in Reston, Virginia.

“The love affair of consumers with social networks is an abiding one,” said Karsten Weide, an analyst at IDC in San Mateo, California. “All the big brands are there.”

Jonathan Thaw, a spokesman for Palo Alto, California-based Facebook, declined to comment.

Facebook, founded in 2004, would reach $2 billion faster than Yahoo and at almost the same pace as Google. Yahoo, founded in 1994, posted revenue of $1.6 billion in 2003 and $3.6 billion in 2004. Google, founded in 1998, reached $1.5 billion in 2003 and then $3.2 billion in 2004.

‘Person of Year’

Mark Zuckerberg, Facebook’s founder and chief executive officer, was named Time magazine’s “Person of the Year” yesterday. The publication noted his role in “creating a new system of exchanging information” and “changing how we all live our lives.”

Zuckerberg, 26, created Facebook for college students when he was a sophomore at Harvard University. After opening the site to people outside of higher education, the company surpassed News Corp.’s MySpace as the No. 1 social network two years ago. Facebook users now post a billion pieces of content, such as photos and messages, every day, Time said.

Facebook has maintained ad prices, even as its user growth creates a surge of space for commercial messages, the company said in August. Facebook also makes money from a credits program, which lets people buy virtual items in online games.

Figuring It Out

“People are learning and they’re figuring out how they can work with Facebook,” said Christian Juhl, a president at digital ad agency Razorfish, part of Paris-based Publicis Groupe SA. “You can prove success without a massive expenditure.”

Facebook is making gains in so-called display ads -- the banners, videos and other graphical promotions that appear on websites. It may grab about 9.4 percent of that market in the U.S. this year, up from 6.6 percent in 2009, according to EMarketer Inc. in New York.

Yahoo, which leads the market, will have about 16.2 percent, down from 16.5 percent, the firm estimates. Google, which is stronger in Internet-search ads, may take 6.7 percent, up from 4.7 percent.

Facebook’s growth is also attracting investor interest. The company has a valuation of $43.1 billion, according to SharesPost Inc., an exchange for privately held stocks. That’s up more than 60 percent from three months ago and almost quadruple the level in March.

At the same time, Facebook’s expansion has increased concerns about privacy. After lawmakers and advocacy groups complained that it shares too much personal data, the company introduced simpler privacy controls in May and said it was reducing the amount of user information that’s publicly available.

“They’ve done a better job recently around privacy, which alleviates a lot of the concern,” Juhl said. “That’s something we’ll always have to keep watching. But that’s nothing new -- whether it’s Google, Microsoft, Yahoo or Facebook.”

--With assistance from Douglas MacMillan in San Francisco. Editors: Nick Turner, Tom Giles

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

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

America's Best, Affordable Places to Raise Kids

Posted: 14 Dec 2010 05:45 PM PST

The Best Places to Raise Your Kids 2011

Posted: 14 Dec 2010 08:16 AM PST

Treasuries, Euro Gain Before European Debt Talks; Copper Falls

Posted: 16 Dec 2010 05:13 AM PST

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By Claudia Carpenter

Dec. 16 (Bloomberg) -- Treasuries snapped a two-day drop and the euro strengthened as European Union leaders gathered to discuss the debt crisis. Spanish bonds fell after an auction, while European stocks and U.S. index futures fluctuated after FedEx Corp.’s earnings trailed analysts’ estimates.

The 10-year Treasury yield declined 3 basis points to 3.49 percent, while the Dollar Index slipped 0.3 percent at 8:07 a.m. in New York. The Stoxx Europe 600 Index gained 0.1 percent while futures on the Standard & Poor’s 500 Index drifted between gains and losses. Spanish 10-year bonds declined after the government sold 2.4 billion euros ($3.2 billion) of 2020 and 2025 securities. Copper dropped 1.5 percent and cotton futures in New York jumped the maximum allowed.

EU leaders are meeting in Brussels amid widening divisions on how to contain the debt contagion. Data today may show U.S. housing starts rose in November while more workers filed for jobless benefits last week, supporting the Federal Reserve’s decision to maintain record stimulus to boost an economy that isn’t growing fast enough to spur employment. Gains in U.S. equity futures faded after the report from FedEx, the nation’s second-largest shipping company.

“The markets are somewhat getting used to the idea of fiscal sustainability and the challenges in Europe,” Lawrence Hatheway, an economist and asset-allocation strategist at UBS AG in London, said on Bloomberg Television’s ‘Countdown’ with Maryam Nemazee. “They are otherwise being greeted by a lot of good news, particularly out of the U.S. The underlying data flow is going to continue to improve and that is going to underpin risk asset performance.”

Treasuries Outperform

U.S. Treasury 10-year yields fell from the highest level since May. German bund yields were little changed at 3.03 percent, within 4 basis points of a seven-month high. The yield gap between 10-year Treasuries and bunds narrowed 5 basis points to 45 as U.S. debt outpaced German securities.

Spain sold 2.4 billion euros of 10-year and 15-year bonds at an auction today, below a maximum target of 3 billion euros, the Bank of Spain said. The 10-year bonds sold at an average yield of 5.446 percent, up from 4.615 percent last time the bond was sold on Nov. 18. It sold 15-year bonds at an average yield of 5.953 percent, compared with 4.541 percent at the October auction.

“Spain is the linchpin for 2011,” Russ Koesterich, head of investment strategy for scientific active equities at BlackRock Inc. in San Francisco, told Bloomberg Television. “Spain is much larger than Greece, Ireland or Portugal, and if Spain starts to run into real fiscal challenges, the existing mechanisms in Europe aren’t big enough to deal with that.”

Euro Strengthens

The euro gained 0.2 percent to $1.3241 and was little changed at 111.34 yen. The dollar fell 0.2 percent to 84.08 yen. The Swiss franc weakened 0.4 percent to 1.2848 per euro, snapping a six-day advance, after the nation’s central bank kept its key interest rate close to zero.

The Stoxx 600 fluctuated after yesterday’s 0.4 percent decline which saw the benchmark gauge retreat from a two-year high. Ericsson AB led a rally in technology shares, surging 4 percent as Svenska Handelsbanken AB upgraded the stock. Danisco A/S, the largest producer of food ingredients, climbed 5.2 percent to after second-quarter net income beat analysts’ estimates. Zodiac Aerospace rose 2.6 percent as Europe’s biggest maker of aircraft seats said first-quarter revenue climbed.

BP Plc lost 1.4 percent as U.S. President Barack Obama’s administration sued units of the energy company, saying they violated environmental laws in the Gulf of Mexico oil spill. The cost of insuring against a default by BP rose, with credit- default swaps tied to the company’s bonds climbing 20 basis points to 103, according to data provider CMA. The contracts closed at a record-high 594.5 basis points on June 29.

U.S. Housing

U.S. futures were little changed after the S&P 500 yesterday ended a six-day rally. A report from the Commerce Department, due at 8:30 a.m. in Washington, may show builders began work on more homes in November for the first time in three months. Housing starts climbed 6 percent to a 550,000 annual rate, while building permits, a proxy of future construction, may have also increased, according to economists.

A separate report from the Labor Department, also set for 8:30 a.m., may show the number of workers filing first-time claims for unemployment insurance payments was 425,000 last week, from 421,000 in the week before, a survey showed.

FedEx Earnings

FedEx lost 3.3 percent after earnings were affected by slower growth in international express deliveries. Profit excluding certain items was $1.16 a share, lagging behind the $1.32 average estimate of 20 analysts surveyed by Bloomberg. Revenue of $9.63 billion also trailed estimates.

The MSCI Asia Pacific Index slipped 0.2 percent and the MSCI Emerging Markets Index dropped 0.5 percent to a two-week low. The Hang Seng China Enterprises Index sank 1.2 percent after the Oriental Morning Post said regulators in Shanghai ordered halts on lending to companies for purchases of fixed assets. China’s debt rating was raised by S&P to AA-, the fourth-highest ranking, from A+, according to a statement released as Chinese exchanges closed.

India’s Bombay Stock Exchange Sensitive Index rallied 1.1 percent after the country’s central bank kept benchmark interest rates unchanged, in line with economists’ estimates in a Bloomberg News survey.

Copper declined 1.5 percent to $8,961.25 a metric ton after inventories monitored by the London Metal Exchange increased for a fourth day, signaling slowing demand. Cotton futures jumped 4 cents, the daily maximum allowed by the ICE Futures U.S. in New York, to $1.4614 a pound.

--With assistance from Adam Haigh, David Merritt, Matthew Brown and Michael Patterson in London. Editor: Michael P. Regan

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net

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

Europe Prepares for Return of Arctic Blast With Snow, Icy Roads

Posted: 16 Dec 2010 05:09 AM PST

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By Chris Spillane and Tim Farrand

Dec. 16 (Bloomberg) -- Europe is bracing itself for more snow and freezing temperatures that are likely to disrupt transport and hamper shoppers in the run up to Christmas.

Heavy drifting snow and widespread icy roads are expected to descend across Europe today starting in parts of Scotland and Germany, European weather agencies reported.

Worst affected areas in the U.K. could see up to eight inches (20 centimeters) of snow tomorrow, the U.K.-based Met Office, a state-funded agency, said in a severe weather warning today. Germany will likely record its coldest December in 40 years, German-based N24 television meteorologist Alexander Hildebrand reported today.

“Given the fact that we’re going to see quite a rapid change and a fall in temperature there is the potential for some disruption to travel networks,” said Met Office spokesman John Hammond by phone. “We could see ice forming on untreated roads and pavements, coinciding with the drive home for many people this evening.”

In general, accumulations of up to four inches in the U.K. are forecast, by the Met Office. All schools are closed in Shetland and some in Orkney and Aberdeenshire, according to local U.K. government websites. Some rail services are suspended in the Highlands.

The German Weather Service issued snow and freezing rain warnings for northern Germany with snow forecast for much of the rest of the country.

‘Stormy winds’

A storm system from the North Sea “will bring heavy snowfall” and “stormy winds” that will lead to drifting, the Weather Service said on its website. Snowfall will begin in southern Germany late today or early tomorrow, the report said.

Temperatures are predicted to plunge to as low as minus 13 Celsius (8.6 Fahrenheit) in parts of Scotland tomorrow, the Met Office said. In London temperatures will fall to minus 5 Celsius and in Berlin they are forecast to drop as low as minus 10 Celsius tomorrow, according to the Global Weather Platform.

The Met Office issues weather warnings when there is at least 80 percent confidence that severe or extreme weather is expected, the state-funded agency said.

N24 footage showed falling snow with traffic flowing on the A1 highway that runs north-southwest from the Baltic Sea to the western city of Saarbrueken.

The travel plans of millions of people across Europe were affected earlier this month when heavy snow and sub-zero temperatures grounded airplanes, halted trains and turned highways into parking lots. The snowfall was the earliest to blanket the U.K. since 1993 and the worst hit areas were South London, Sussex, Kent and Hampshire, which received as much as 8 inches of snow.

--With assistance from Leon Mangasarian in Berlin. Editors: Chris Peterson, Alan Purkiss

To contact the reporters on this story: Chris Spillane in London at cspillane3@bloomberg.net; Leon Mangasarian in Berlin at lmangasarian@bloomberg.net

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

Rusal Rejects Norilsk Offer, Says ‘No Intention’ to Sell Stake

Posted: 16 Dec 2010 05:04 AM PST

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By Brad Cook

Dec. 16 (Bloomberg) -- United Co. Rusal said it has “no intention” of selling its stake in OAO GMK Norilsk Nickel, in an e-mailed statement today.

Rusal commented after Norilsk offered to buy the 25 percent of its shares held by Rusal for $12 billion.

To contact the editor responsible for this story: Brad Cook at bcook7@bloomberg.net

Putin Sees Russian Economic Rebound, World Cup Boost

Posted: 16 Dec 2010 05:01 AM PST

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By Lyubov Pronina and Henry Meyer

(Updates with World Cup starting in first paragraph.)

Dec. 16 (Bloomberg) -- Russia’s economy will rebound to its pre-crisis level by the middle of 2012 and receive a "powerful" boost from hosting the 2018 soccer World Cup, Prime Minister Vladimir Putin said on a live TV call-in show today.

Putin, who flew to Zurich on Dec. 3 to claim victory in the World Cup bidding, said the event would help upgrade roads, airports and railway stations in Russia’s European economic heartland.

"It’ll be an entirely positive influence on the future of the country," Putin, 58, said during the program, which received more than 2 million questions in the first 150 minutes, with social issues, housing and labor receiving the most attention. Half a million inquiries were sent in before the call-in, broadcast live on state television, radio and the Internet.

Putin, who has maintained his annual tradition of the hours-long nationwide broadcasts since handing over the presidency in 2008 to his protege, Dmitry Medvedev, continues to occupy much of the limelight as the May 2012 elections approach.

The premier, who backed Medvedev as his successor because of a constitutional ban on three consecutive presidential terms, hasn’t ruled out returning to the presidency.

‘Very Satisfactory’

Russia’s recovery from last year’s 7.9 percent contraction was hindered by a record heat wave and wildfires, which killed more than 50 people, devastated agricultural output, forced some manufacturers to halt production and hurt consumer demand. Gross domestic product may grow 3.8 percent this year, compared with an average growth rate of almost seven percent from 1999-2008, Putin said.

"On the whole, we are ending this year in a very satisfactory condition," Putin said, highlighting the creation of 1.2 million new jobs in 2010 and a decline in the number of those living under the poverty line. "We’ll get back to the pre- crisis level in the first half of 2012."

Medvedev, 45, in his annual state-of-the-nation address on Nov. 30, devoted almost half the time to family issues in what commentators described as a lackluster speech. A day later, Putin gave an interview to CNN’s Larry King, touching on foreign and domestic policies.

His appearance in Zurich hours after Russia won the right to host the World Cup late on Dec. 3 competed with broadcasts of Medvedev talking to children and doing chin-ups at a school in southern Russia the previous day.

Four More Years

Medvedev, who has made fighting corruption and reducing Russia’s dependency on oil and gas the hallmark of his presidency, would like to run for a second term, his economic aide, Arkady Dvorkovich, told the British Broadcasting Corporation in an interview shown Dec. 10.

“I believe he does” want to gain four more years in the Kremlin, he said. “Otherwise, he would not work seriously on the initiatives he announced.”

Medvedev and Putin will consult with each other on who should run, Dvorkovich told the BBC, according to the broadcaster’s website.

In his first year in office, Medvedev pushed through a constitutional change extending the presidential term to six years from four, fueling speculation Putin was planning to return for another 12 years in 2012.

--With assistance from Maria Levitov in Moscow. Editors: Balazs Penz, Alan Crawford.

To contact the reporters on this story: Lyubov Pronina in Moscow at lpronina@bloomberg.net; Henry Meyer in Moscow at hmeyer4@bloomberg.net

To contact the editor responsible for this story: Willy Morris at wmorris@bloomberg.net

Afghan Study Notes Progress, Questions Transition

Posted: 16 Dec 2010 05:00 AM PST

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By Indira A.R. Lakshmanan and Nicholas Johnston

(Updates with Clinton plans for Afghan, Pakistan talks in ninth paragraph.)

Dec. 16 (Bloomberg) -- The Obama administration’s classified Afghanistan war review concludes that while sending more troops and civilian resources has yielded gains, it’s too soon to say when a full transition to Afghan control will be feasible, according to a U.S. official who worked on the report.

An unclassified summary of the review released today by the White House notes operational gains against al-Qaeda and success in arresting the Taliban’s momentum. The assessment found substantial improvement in the international training of police and Afghan Army forces and increased cooperation by Pakistan’s military in targeting insurgents on its side of a porous border, the summary says.

“Specific components of our strategy for Afghanistan and Pakistan are working well and there are notable operational gains,” the White House summary said, while noting that “these gains remain fragile and reversible.”

President Barack Obama plans to make a statement about the review today at 11:45 a.m. Washington time.

The unclassified version of the assessment is being released just over a year after Obama laid out the surge strategy in a speech at the U.S. Military Academy at West Point, N.Y. The report’s findings will help determine the pace of a drawdown of U.S. troops scheduled to begin in July 2011.

‘Responsible Reduction’

“Our strategy in Afghanistan is setting the conditions to begin the responsible reduction of U.S. forces in July 2011,” the summary said.

While the full report cites gains from Obama’s decision last December to send 30,000 additional troops to Afghanistan and to triple the number of civilian officials working on issues such as economic development and justice reform, it also suggests that a transition to effective Afghan control will take time, the official, who asked not to be identified because the full report is classified, said yesterday.

The U.S. and a NATO-led international force have almost 150,000 troops on the ground trying to turn back Taliban advances and train Afghan soldiers and police to take over.

The summary released by the White House today affirms the president’s timetable to begin withdrawing some U.S. forces in July. Secretary of State Hillary Clinton plans to host talks with foreign ministers of Afghanistan and Pakistan in Washington in early 2011 on strengthening security, governance and their economies, the summary said.

Some Progress

While the full assessment found progress in both reducing insurgent violence and improving government services, the question remains how long it will take to complete a full transition that puts Afghan officials in the lead and the U.S. and international community in the background, said the official who contributed to the review.

A central challenge raised by the military assessment is determining when the transition to Afghan-led security will be adequate to face down Taliban intimidation, the official said. Similarly, on the civilian side, the Afghan government hasn’t managed in many remote areas to build up adequate capacity to deliver basic services, such as promoting alternatives to opium- poppy farming and providing police protection that would aid villagers’ efforts to break free from Taliban influence.

“As we shift to transition, a major challenge will be demonstrating that the Afghan government has the capacity to consolidate gains,” the summary said.

Transition Plan

The transition from U.S.-led to Afghan-directed governance and security won’t look the same or happen at the same time everywhere, the official said. Big cities will see stronger Afghan leadership before rural areas do.

Corruption in the Afghan government and society, though a serious concern, wasn’t seen as crippling the war effort, the official said. While the report found room for improvement in coordination with Pakistan, the official described significant investment by Pakistan’s military in fighting insurgents in tribal areas, including a tripling of Pakistani forces in North West Frontier Province and the so-called Federally Administered Tribal Areas.

The summary said better cooperation is needed with Pakistan along that nation’s border with Afghanistan to prevent the creation of havens for terrorists.

Military means alone can’t be relied upon along the border, the summary said, and strategies for economic development should be pursued.

“We are headed in the right direction, both in terms of U.S. focus and Pakistani cooperation,” the summary said. “However, better balance and integration of the various components of our strategy will be required.”

Dozens of Questions

The report, the official said, summarizes submissions made by the Pentagon and the State Department starting in October, including answers to dozens of questions posed by the White House and numerous discussions among senior military and diplomatic officers with their counterparts at the National Security Council.

Obama met Dec. 14 with Clinton, Defense Secretary Robert Gates and other top military and national security advisers to go over the classified review.

The death on Dec. 13 of Richard Holbrooke, Obama’s special envoy to Afghanistan and Pakistan, may complicate the administration’s effort to carry out the president’s policies. Holbrooke, 69, fell ill Dec. 10 during a meeting with Clinton at the State Department and underwent emergency surgery to repair a torn aorta. The State Department has named a career foreign service officer, Frank Ruggiero, as acting special representative.

U.S. Contingent

The review doesn’t call for any changes in U.S. force levels for the war, now in its 10th year, Gibbs said at a White House briefing Dec. 14. The pace and size of any drawdown in Afghanistan next year still will be dictated by the security situation, he said.

The havens across the border in Pakistan pose severe problems for forces in Kandahar, said Army Colonel Jeffrey Martindale, commander of Task Force Raider and the 3,500-strong 1st Brigade Combat Team, 4th Infantry Division, which has responsibility for the Kandahar and Arghandab districts in the province.

“We do know that the leadership for the Taliban that are operating within my area are directed from leadership that are in Pakistan,” Martindale told reporters at the Pentagon yesterday via video conference from Camp Nathan Smith in Kandahar City. “We know that some of the leaders now have gone back, and they have sanctuary there.”

Marine Corps Major General Richard P. Mills said last week that a 10-month fight to turn back the Taliban is “over” in Marjah, an area that formed the crux of a February offensive. The administration is drawing on examples such as Marjah to show that its strategy is working.

--With assistance from Viola Gienger, Roger Runningen, Julianna Goldman in Washington and Peter Green in New York. Editors: Terry Atlas, Leslie Hoffecker.

To contact the reporter on this story: Indira Lakshmanan in Washington at ilakshmanan@bloomberg.net

To contact the editor responsible for this story: Mark Silva at Msilva34@bloomberg.net.

Basel Capital Rules Would Have Cost Banks $797 Billion

Posted: 16 Dec 2010 04:56 AM PST

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By Jim Brunsden

(Updates with analyst comment in fourth paragraph.)

Dec. 16 (Bloomberg) -- Basel bank regulators said rules on capital requirements would have cost financial institutions 602 billion euros ($797 billion) had they been in place at the end of last year.

Banks also would have had shortfalls including a 2.89 trillion-euro gap in stable funding, necessary to meet separate liquidity requirements, the Basel Committee on Banking Supervision said. The committee agreed in July to phase in the capital and liquidity rules by 2019 in a bid to mitigate their effect on lenders emerging from the credit crisis.

Regulators are overhauling bank capital and liquidity requirements because existing rules, known as Basel II, failed to protect lenders from insolvency during the financial crisis. The main elements of the overhaul were approved by leaders of the Group of 20 countries last month.

Meeting the Basel rules “will cost banks a lot of money, but there’s no alternative,” Konrad Becker, a banking analyst at Merck Finck & Co. in Munich, said by telephone today. “The question is how to do: with retained earnings, selling assets, capital increases or lower dividends.”

The Basel committee said the 602 billion euros would have been needed for banks to cope with a requirement to hold core capital equivalent to 7 percent of their assets, with these assets weighted according to their riskiness. The figure was calculated by regulators based on data collected from 263 banks.

“The transition period provides banks with ample time to move to the new standards in a manner consistent with a sound economic recovery,” Nout Wellink, the chairman of the Basel committee, said in a statement on the group’s website.

Banks that don’t meet the requirement when they enter into force will face restrictions on paying dividends, regulators have said.

So-called internationally active banks, with more than 3 billion euros in Tier 1 capital, a broader measure of banks’ reserves, would have needed an additional 577 billion euros of core capital to satisfy the rules, while other banks surveyed would have needed 25 billion euros, the Basel committee said.

The 2.89 trillion-euro gap is the group’s calculation of banks’ liquidity shortfall against a so-called net stable funding ratio. That ratio, scheduled to be put in place in 2018, aims to limit the mismatch between the duration of loans and deposits, to ensure that banks don’t face cash flow shortages.

Liquidity Coverage

Lenders at the end of 2009 would also have had a shortfall of 1.73 trillion euros in the assets necessary to meet a separate liquidity coverage ratio, which will measure banks’ ability to survive a 30-day credit crunch. That ratio is scheduled to be effective from 2015.

Banks that fail the minimum liquidity requirements could meet them by “lengthening the term of their funding or restructuring business models,” the Basel committee said.

“The actual impact” of the new Basel requirements “by the time they are implemented will likely be lower as the banking sector adjusts to a changing economic and regulatory environment,” the committee said in its impact report.

The results “do not consider banks’ profitability or make any assumptions about banks’ behavioral responses,” the report said. “The estimates presented assume full implementation of the Basel III package, based on data as of year-end 2009.”

No ‘Extreme Danger’

“I don’t see an extreme danger for economic growth and the long transition period to 2019 should reduce such risks,” Becker said. “The new standards are doable and sensible. Making the banking system more stable and safe doesn’t come without costs. You can’t do the one without the other.”

Nomura Holdings Inc. analysts led by Jon Peace wrote in a report to clients today before the Basel report was published that they expect banks will meet the demands of the new rules by retaining earnings rather than selling shares.

“We do not predict a flood of equity issuance to comply with Basel III,” they said.

Banks based in the 27-nation European Union would have needed 263 billion euros of additional core capital to meet the seven percent threshold agreed by Basel regulators, the Committee of European Banking Supervisors, which collected data from its lenders for the Basel impact study, said. The CEBS figures are based on data from 246 banks based in the EU.

Italian banks would have needed 47 billion euros of additional capital to meet the Basel requirements at the end of 2009, and 40 billion euros as of June, the Bank of Italy said in a statement today.

The Basel committee today published a so-called rules text clarifying the details of the regulatory overhaul. As well as revised rules on capital and liquidity, the plans also include a limit on banks’ borrowings.

“There are few surprises here, but some important details,” analysts at Credit Suisse Group AG said about the Basel rules text.

Nordic Banks

Changes to one of the two liquidity ratios planned by Basel regulators would “benefit Nordic and other retail banks” by accepting that covered bonds are more liquid than previously thought, the Credit Suisse analysts wrote in an e-mailed statement.

The Basel group also published proposals for national authorities on countercyclical capital buffers, aimed at bolstering capital during credit booms.

Under the plan, banks would hold extra capital during credit booms with the aim both of mitigating them and of ensuring than banks are well capitalized for any ensuing market crash.

The Basel committee brings together regulators from 27 countries including Brazil, China, India, Germany the U.K. and the U.S.

--With assistance from Aaron Kirchfeld in Frankfurt, Elisa Martinuzzi in Milan, and Lorenzo Totaro in Rome. Editors: Peter Chapman, Edward Evans

To contact the reporters on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net.

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

Norilsk Offers $12 Billion to Buy 25% of Own Stock From Rusal

Posted: 16 Dec 2010 04:50 AM PST

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By Maria Kolesnikova

(Updates with banks in third paragraph.)

Dec. 16 (Bloomberg) -- United Co. Rusal, holder of a 25 percent stake in OAO GMK Norilsk Nickel, snubbed a $12 billion offer from the nickel producer to buy back the shares, rejecting a second proposal in two months to sell out.

“Norilsk Nickel is a strategic investment for Rusal, and we have no intention to sell our stake,” Moscow-based Rusal said today in an e-mail.

Norilsk, the world’s biggest nickel producer, said earlier today it bid $12 billion for Rusal’s stake and international banks including JPMorgan Chase & Co., Morgan Stanley and Goldman Sachs Group Inc. were ready to provide financing.

In October, Rusal rebuffed a $9 billion offer for its stake from billionaire Vladimir Potanin, who also owns 25 percent of Norilsk, as the shareholders bickered over company strategy. The feud between Potanin and Rusal, which dates back to 2008, reignited after a June election of Norilsk’s board gave Rusal three seats and Potanin four.

--Editors: Amanda Jordan, Tony Barrett

To contact the reporter on this story: Maria Kolesnikova in Moscow at mkolesnikova@bloomberg.net

To contact the editor responsible for this story: Amanda Jordan at ajordan11@bloomberg.net