Intrigue, treachery charges fly in fight for U.N. post

By Louis Charbonneau

(Reuters) – Accusations of threats, Cold War-style treachery and backstage attempts by Russia to punish a former Soviet republic are turning a routine election for a high-profile but largely ceremonial U.N. post into a bitter diplomatic tussle.

Serbia and Lithuania are vying for the presidency of the 193-nation U.N. General Assembly. The 12-month post involves chairing the annual gathering of world leaders in New York in September and other U.N. events.

But the assembly has no real power. Unlike the 15-nation Security Council, which can issue legally binding resolutions and authorize sanctions or military interventions, the assembly’s decisions are recommendations with no legal force.

Still, Lithuanian U.N. Ambassador Dalius Cekuolis and Serbian Foreign Minister Vuk Jeremic both want the job, which is currently held by Qatar’s U.N. ambassador, Nassir Abdulaziz al-Nasser. If neither candidate withdraws, the two will face off in a rare secret-ballot General Assembly vote in June.

Traditionally, the presidency of the General Assembly, which diplomats usually refer to by the initials “PGA,” rotates between the five regional groups of U.N. member states. In 2012/2013, it is the Eastern European Group’s turn to hold it.

In a conversation with a small group of reporters in New York earlier this month, Cekuolis and Lithuanian Foreign Minister Audronius Azubalis described their annoyance with Serbia seeking the post, which they have been eyeing since 2004.

“The time has come for us as well to be represented,” said Azubalis, adding that Cekuolis’ 2007 stint as the chair of the Economic and Social Council, one of the six main U.N. bodies, had given Vilnius’ U.N. envoy vital experience for the job.

Serbia, a European Union candidate which is emerging from more than a decade of isolation after the 1990s Balkan wars, has never had a shot at a U.N. job. “This is the first time that Serbia put forward a candidacy for a post within the U.N. system,” Jeremic told Reuters in an interview.

“All other countries from our part of the world had their chance to run for and serve either on the Security Council or in the General Assembly,” the 36-year-old minister said.

Jeremic has become a familiar face at the United Nations in recent years, forcefully arguing Serbia’s case in the Security Council and General Assembly against Kosovo’s 2008 declaration of independence from Belgrade, which the Serbs say was illegal.


But Jeremic, who is among Europe’s longest-serving foreign ministers, may have other reasons for seeking a job in New York.

Serbian analysts and Western diplomats say Jeremic has lost support within the senior ranks of the co-ruling Democratic Party of President Boris Tadic, particularly because of a number of diplomatic setbacks in Serbia’s opposition to Kosovo’s independence. Serbia has elections in May.

Diplomats from the fractious 23-nation Eastern European Group made clear they would prefer to avoid turning to the General Assembly to help decide who from their group would take the post. The last time the assembly voted on a PGA was in 1991.

“This issue is bringing up some Cold War hostilities,” an Eastern European diplomat said on condition of anonymity.

Lithuania, a member of the European Union, suggested Russia might be encouraging Serbia to punish the Baltic state for past remarks about World War Two. Western envoys said Moscow was lobbying against Vilnius for Belgrade.

“What we have heard unofficially is that Russia is obsessed about how we see the history of the Second World War,” Azubalis said. Cekuolis said the Russians had warned Lithuania as early as November 2011 “there might be other candidates.”

Russia’s annoyance with the former Soviet republic that regained independence after the 1991 collapse of the Soviet Union may be due to remarks Cekuolis made in May 2010 at a General Assembly session commemorating the 65th anniversary of the end of World War Two.

“To our nation, the end of the war did not bring freedom,” Cekuolis said. “Instead, it resulted in the occupation and renewed annexation of Lithuania by the Soviet Union.”

“My country was subjected to the rule of another totalitarian regime, that of Soviet communism,” he said.

Russia’s U.N. mission made no attempt to hide its irritation with Cekuolis’ remarks, but vehemently denied any role in the candidacy of Serbia, a strong Russian ally, for the PGA post.

“From the very beginning we openly told Lithuanians that we could not support a candidate for General Assembly presidency who does not understand the importance of the victory over Nazism – the very victory that made the creation of the United Nations possible,” the mission said in a statement to Reuters.

Azubalis also accused Jeremic of threatening Lithuania with diplomatic retaliation if Cekuolis refuses to withdraw from the race – saying Serbia would attempt to block Lithuania’s bid for a two-year seat on the U.N. Security Council in 2014/2015.

Jeremic, who diplomats say is tipped to defeat Cekuolis in a vote, denied threatening the Lithuanians but confirmed he told them Belgrade would lobby on their behalf to win a seat on the Security Council if Cekuolis withdrew his PGA candidacy.

(Additional reporting by Matt Robinson in Belgrade; editing by Todd Eastham and Mohammad Zargham)

Analysis: Brazil commodity exporters under friendly fire in “currency war”

By Reese Ewing

SAO PAULO | Fri Mar 30, 2012 9:00am EDT

(Reuters) – In its latest bid to slow dollar inflows in a “global currency war,” Brazil has dealt an unexpected blow to its own commodity exporters, choking off medium-term trade financing at a vulnerable time for the sector.

Brazil – a source of much of the world’s sugar, coffee, soy, beef and iron ore – has imposed a series of taxes on foreign capital over the past year to slow what President Dilma Rousseff called a “tsunami” of cheap money flowing from the rich world.

But exporters say the central bank went a step too far on March 1, when it quietly implemented a 6 percent financial transactions tax on medium-term loans offered to exporters by banks, a critical tool used by major commodity producers across the globe to finance their operations.

That 6 percent tax has shifted demand to one-year credit lines in dollars, known as ACCs, driving up the costs as trading houses and raw materials exporters rush to shift financing needs.

“Of the two types of export credit in Brazil, the government just killed one by taxing it to death and the cost of the other is going up,” said a local executive at a multinational trader who asked not to be named.

Brazil’s largest commodities exporters are now lobbying the government to roll back the so-called IOF tax, which is applied to foreign credit and exchange operations. They say the loss of such dollar-linked loans beyond one year has crimped their access to cash and will eventually limit investments.

“We are going to have to find some solution,” said Luiz Carlos Carvalho, president of Brazil’s Agribusiness Association, which is pressing the government to remove or alter the tax.

Prior to this month, big producers like Bunge (BG.N), Louis Dreyfus, ADM (ADM.N) were free to bring in the dollars when they needed to pay for seed, fertilizer, equipment, fuel or labor. Importers eventually paid off the foreign bank loans through intermediary collection agents after the goods were delivered.

The so-called IOF tax ended this for terms beyond one year.

“Even exporters in minerals and technology had been putting up future foreign delivery contracts to secure financing in dollars with three to five years to pay back,” said Renato Buranello, an attorney in trade finance at Brazilian law firm Demarest & Almeida.


The squeeze comes at a delicate time for both exporters and major trade-finance banks like France’s BNP Paribas (BNPP.PA), Credit Lyonnais (CRLPp.PA) and Societe Generale.

In late 2011, European banks, a leading source of financing for raw materials trade across the globe, were paring back loans to assure they would meet capital requirements in the face of increasing writedowns in asset values.

Meanwhile the Brazilian sugar industry, which accounts for half of global trade in the sweetener, is still recovering after the 2008 financial crisis tipped many mills into bankruptcy.

“We used to use this financing — but no more,” said Luiz de Mendonça, chief executive of ETH – one of Brazil’s biggest cane ethanol producers. He said the value of this type of export financing meant $200 million-$300 million for his company alone.

“The loss of it will weaken an already fragile sector and could unleash more consolidation.”

Brazil’s soybean and corn producers are in the worst drought in half of decade. Some will not meet delivery contracts.

Exports in general have been declining here due to weak demand in China, Europe and the United States – and Brazil is struggling with a dwindling trade surplus.

The incoming dollars have strengthened the Brazilian real, punishing local manufacturers by making imports cheaper and Brazilian exports more expensive.


Brazil’s central bank declined to comment on the extension of the IOF tax to export finance. A government source, however, said some companies were not using the credit lines to finance production and exports. Rather, they were using them to make bets in Brazil’s currency and debt markets without paying taxes aimed at slowing speculative dollar inflows.

In recent years foreign investors have flooded Brazil with capital hoping to take advantage of zero-bound interest rates in the U.S., Europe and Japan to bet on Brazilian bonds that paid near low double-digit returns and get the added boost of a strengthening currency. In 2011, the real firmed to its strongest in 11 years, due in part by exports of raw materials.

The strong currency undermined Brazilian manufacturers, though, who had to fight a flood of cheap imports. To help them the central bank laid a tax on speculative dollar inflows.

Some companies seeking to skirt these taxes began using export credit to chase high returns on the financial markets, rather than pay for land, shipping or grow more foodstuffs, said Ademiro Vian, assistant director of financing at the Brazilian Federation of Banks, or Febraban.

“There’s speculation going on. You don’t need five years’ worth of export financing in all ag-export sectors,” Vian said.


But the big trading houses, particularly in the sugar and ethanol industry, are scrambling to shore up new financing.

“I have big exporters as clients that are at a loss over what to do,” said Lucio Feijo Lopes, a local attorney in trade finance. “This marks a big change in how trade finance is structured. There will be an impact on exports.”

Grain producers and exporters say they will manage more easily with the lack of longer-term export financing, as the annual nature of their business allows them to rely more on the 360-day ACC export-exchange contracts for financing.

But this short-term debt is not well suited to longer-term investment needs. Large sugar groups, of which Brazil has plenty, make investments that only pay off in exports over several years.

Long forgotten medium-term export financing contracts that were created in the 1970s under the military dictatorship are being dusted off by the local banks to try to fill the void, but the so-called Export Credit Notes, or NCEs, are based on the real, which exposes the exporter to swings in the currency.

Raw material producers, who are dependent on exports, hold longer-term debt in dollars as a natural hedge against currency risks. If the dollar, which is the currency in which the exports are paid, weakens against the real, so does the firm’s debt.

The government recently exempted exporters from a separate tax on currency futures that hampered hedging against exchange rate risks inherent in the export business.

Exporters said it is a step in the right direction but will not offset the loss of medium-term dollar financing.

“If I hold real-linked debt and the dollar falls to 1-to-1 with the real, then my debt balloons against my revenue stream,” the local executive at a multinational trader said. “Companies don’t last long if they have debts in one currency and revenue in another. As a Brazilian exporter, I have to be in dollars.”

($1=1.83 reais)

A Social Network Built for Two



You probably have a lot of friends on Facebook, but chances are there are only a few people—and one in particular—that you interact with most in real life.

A new, free app called Pair wants to make it easier to connect with your special someone, whether it’s a significant other, family member, or friend. And while the app—which allows you to share messages, videos, and “kisses” with one other person—may sound a bit silly, it shows there’s still plenty of room for innovating in the increasingly crowded field for social mobile apps.

Stats indicate Pair may be on to something, too: In the first four days since it was released last Friday, it snagged more than 50,000 registered users, who sent over a million messages to each other. And while Pair was eligible for $150,000 in guaranteed funding since it participated in startup incubator Y Combinator’s just-completed winter session, it has also received funding from Dave Morin, CEO of another social mobile app, Path.

Pair began as something else entirely. Aswin Rajendiran, 27, says he and his four cofounders were initially working on software called Maide that could control 3-D CAD tools via the iPad. The founders, all of whom have graduated from or still attend Canada’s University of Waterloo, moved to Mountain View, California, several months ago to develop Maide at Y Combinator. But while they received good feedback for their project, “it wasn’t an everyday-use kind of thing,” Rajendiran says.

While brainstorming new ideas, they started thinking about the difficulty of keeping up communication in long-distance relationships—a problem three of them encountered as they worked to sustain relationships in the wake of the recent move to the United States.

Recognizing that we tend to communicate mostly with just one or two people, and that many of us use a number of methods to communicate with these folks, Rajendiran and his collaborators came up with Pair to simplify and amplify one-on-one connections.

Once you download Pair onto your iPhone (Rajendiran says an Android app will be available in about a week), you invite one other person to use the app with you. After they accept, Pair allows you to send each other messages, videos, photos, simple sketches, and more. There are several interactive features, too, including one called Thumbkiss, which shows a fingerprint when you press on the screen and makes both phones vibrate when you and your partner touch the same part of the display. To keep Pair communication private, the app can be locked with a four-digit code.

For Craig Elimeliah, the digital director at advertising agency RAPP in New York, Pair is like having a private version of Facebook or Twitter. He says he initially tried it because staying on top of new tech is part of his job, but quickly realized the app works well for sharing messages and links with his wife that their children won’t see when playing around with their parents’ phones.

“It’s kind of romantic,” he says. “There’s something about it where it’s just paired between her and I and there is nothing else on the screen. It keeps conversations focused.”

Rajendiran says that, for now, the focus is on improving the quality of interactions between users, rather than on making money. But the startup might eventually sell premium features, he says.

Catalina Toma, an assistant professor at the University of Wisconsin-Madison who studies the impact of technology on relationships, says Pair helps people let their partners know they’re important, which is key to keeping a close, happy connection.

“I think close couples do this kind of behavior anyway—they do texting, send photos—and this app just brings them together in one platform and recognizes the importance of this behavior,” she says.

And Pair isn’t just bringing together significant others. James Tamplin, a Y Combinator alum and CEO of online chat software provider Envolve, has been playing around with the app with his cofounder and says he could see it becoming a tool even for those in nonromantic relationships.

“It’s got the hook, which is the relationship part, but ultimately it’s a rich messaging application,” he says. “I think they can use that technology to expand it beyond couples and have it be useful and productive.”

European shares slide to 3-wk low as cyclicals hit

By Simon Jessop

LONDON, March 29 (Reuters) – European shares extended their recent slide to hit a three-week closing low, with several indexes breaching chart support levels as traders took further profits at the end of a stellar first quarter.

Cyclical stocks led the charge lower on Thursday, with autos and financials the main fallers followed by retailers after below-forecastearnings from Hennes & Mauritz .

Adding fresh weight to moves out of stocks more exposed to the economic cycle was an OECD report that highlighted the fragile state of the economic recovery, although quarter-end profit-taking also contributed, traders said. Weak U.S. jobless claims added to the gloom

By the close, the FTSEurofirst 300 index was down 1.2 percent at 1,059.21 points, but still on course for its best first quarter since 2006. World stocks, meanwhile, are eyeing the best first quarter since 1998.

A Reuters poll of analysts and fund managers pointed to further gains to year-end, although the pace is set to slow in the second quarter.

The cheap central bank money that had fueled the first-quarter rally was now petering out, in a similar fashion to market moves after the last batch of U.S. quantitative easing (QE), and the market now faced several weeks of sideways trade, Nicolas Just, head of core equities at Natixis-AM said.

“The pullback dates back two weeks or so… but it’s difficult for us to buy in the hope the market will increase. Investors have been buying on a short-term basis for the last three months and are now wondering what will happen next.”

Political uncertainty around the elections in France, the merging of Europe’s bailout funds, as well as the prospect of more U.S. QE were all being watched by markets as potential trigger points for the next leg of the rally or a deeper fall.

“Investors are not in risk-off mode yet,” he added, citing still-low levels of implied volatility, which had only seen a “modest spike” as a result of the recent pullback.

By the Thursday close, implied volatility as measured by the Euro STOXX Volatility index was up 9.9 percent at 25.36. It is still down 16 percent since the ECB launched its first long-term funding operation in December, however.

“When you look at the term structure of volatility, out to one year, it’s going up. Nobody believes the low-volatility environment will continue. Something has to happen.”



Recent breaches of the 50-day moving averages in both the FTSEurofirst 300 and Euro-STOXX 50 extended a break of the uptrend begun in late November.

A similar move through their 23.6 percent Fibonacci retracements of the recent three-month rally, two key support levels, sent a bearish technical signal to the market. The next strong support levels are on the 38.2 percent Fibonacci retracement of the rally, at 1,048.37 and 2,447.67 for the FTSEurofirst 300 and Euro STOXX 50, respectively.

In spite of the technical pressure and signs in the options market of increased pessimism, with a rise in demand for put protection to protect against further short-term falls, the case for equities over other asset classes remained strong for some.

“Last year we said there is too much uncertainty, there is too much risk … (But now) there is no reason not to own equities at the moment,” Andrew Parry, chief executive at Hermes Sourcecap, said.

“When you have bond yields at 2 percent, you cannot make very much money. The central banks around the world are sponsoring low bond yields and high inflation.”

The Reuters poll of stock market participants expected emerging markets to pick up the baton and lead index gainers later in 2012.

Just said he had become more defensive in his sector positioning, cutting financials to neutral and targeting emerging markets-exposed firms, such as LVMH.



After a quarter marked by low volumes, Thursday was an above average day, at 115 percent of the 90-day daily average, helped by heavy trade in UK power producer International Power.

The firm rose 5.6 percent in trade more than 15 times its average to be the top gainer on the FTSEurofirst 300 after French firm GDF Suez bid 6 billion pounds ($9.51 billion) for the 30 percent of the firm it does not already own.

However, Swiss lender UBS flagged still-cautious first-quarter behaviour from clients at its flagship private bank, with many still preferring to hold cash in the face of Europe’s economic woes and the long-running debt crisis.

“Clients are looking for sustainable improvements in what they see primarily in Europe,” UBS’s financial head Tom Naratil told investors at a brokerage conference on Thursday.

That sign of improvement was markedly absent from peripheral bond markets on Thursday, however, as both Spanish and Italian yields rose in spite of a broadly successful auction of Italian debt.

In response Milan’s FTSE MIB ended down 3.3 percent, weighed by a chunky fall in UniCredit and other big holders of government debt.

Management Tip of the Day: Find mentors who help you learn

Choosing the right type of mentor is important as a way to speed up your learning and help compete for jobs that were previously held by those with decades of experience, says Harvard Business Review.

The Management Tip of the Day offers quick, practical management tips and ideas from Harvard Business Review and (http:\\ Any opinions expressed are not endorsed by Reuters.

“Many of the jobs that Baby Boomers will vacate over the next two decades will go to young upstarts. But how do you compete for jobs formerly held by people with decades more experience?

The right mentors can help speed up your learning. Consider contacting the following types of people:

1. A senior executive with experience in a country where your company is expanding—perhaps in an emerging market, such as Brazil or Russia. Develop a more global mind-set.

2. A high-performing peer in an adjacent industry. Gain a new, broader perspective on the field in which your company operates.

3. A mid-level manager in a sector your business serves. Get into your customer’s shoes and see how the industry looks from another standpoint.”

Today’s management tip was adapted from the book, “Guide to Getting the Mentoring You Need.”

Thu Mar 29, 2012

RIM CEO cleans house as BlackBerry maker posts loss

Research In Motion on Thursday reported a quarterly loss as BlackBerry shipments slumped again and said former co-CEO Jim Balsillie stepped down as director, part of a shake-up of the company’s senior ranks by its new chief executive.

RIM’s shares dropped as much as 9 percent after the company said it would no longer issue financial forecasts and is reviewing “strategic opportunities” such as partnerships and joint ventures licensing, and other ways to leverage its assets.

Chief Executive Thorsten Heins, who took from Balsillie and co-CEO Mike Lazaridis in January, would not rule out a sale of the company, though he said the company was still focusing on a turnaround.

“I did my own reality check on where the entire company really is. Having had the benefit of going through this process from the vantage point of CEO, it is now very clear to me that substantial change is what RIM needs,” he said in a conference call with analysts.

The Waterloo, Ontario-based company shipped 11.1 million BlackBerry smartphones in the fourth quarter ended March 3, down 21 percent from the third quarter, but slightly ahead of analysts’ expectations.

Even so it was the first quarterly decline in the period covering Christmas since 2006 and only the second time RIM has reported the metric dropping for that crucial period.

RIM sold more than 500,000 PlayBooks in the fourth quarter, a number inflated by deep discounts offered to boost sales of the product.

The decline in BlackBerry shipments suggests that RIM, at best, is treading water until it releases its next-generation of BlackBerry smartphones late this year. Most analysts consider that a do-or-die launch for the company as it falls further behind Apple Inc’s iPhone and iPad and devices powered by Google’s Android.


The company is now paying the price for failing to heed calls to move quickly to license its operating system and consider other strategies to compete with industry titan Apple, said Peter Misek, managing director of Jefferies & Co.

“It’s going to be absolute gong show for the next few quarters,” he said. “They’re going to scramble around now for the next three to six months, and every poor shareholder that had faith in them is going to be potentially impoverished. I’m so angry as a Canadian – every Canadian investor should be angry.”

After Heins took over in January, he immediately raised investor doubts about his turnaround chops by declaring RIM didn’t need drastic change, a stance he later clarified as meaning RIM was not going to be split up or sold.

But the results issued Thursday showed a major shakeup in the works at the Waterloo, Ontario-based company.

RIM said Balsillie – long one of the company’s public faces – had resigned from the board. David Yach, a chief technology officer, and Jim Rowan, a chief operating officer, also stepped down.

“Ultimately, RIM is taking half measures, baby-stepping their way to a reorganization and they’re not moving fast enough,” said Ed Snyder, an analyst with Charter Equity Research. “They need a wholesale change in the culture and the management of the company.”

RIM has also decided to end the practice of providing specific financial guidance for the current and future quarters, saying only it “expects continued pressure on revenue and earningsthroughout fiscal 2013.”

That expectation reflects weakness in the company’s U.S. business and competitive pressure in global markets as it sells more low-end devices.

RIM historically has provided a forecast for BlackBerry shipments, earnings per share and revenue, but has faced scathing criticism in the past year for missing these targets.


In its fourth-quarter, the company announced a net loss of $125 million, or 24 cents a share, after booking write-downs on its legacy BlackBerry 7 phones and goodwill.

On an adjusted basis, profit dropped to $418 million, or 80 cents a share, from $934 million, or $1.78, a year earlier. Revenue slumped to $4.19 billion from $5.56 billion.

Analysts, on average, had expected RIM to earn 81 cents a share on revenue of $4.54 million, according to Thomson Reuters I/B/E/S.

“They clearly have no fix on when this process will bottom, and until it really does, it’s going to be very difficult for a lot of investors to come back in,” said Eric Jackson, a hedge fund manager at Ironfire Capital in New York.

Shares of RIM were trading down 2.4 percent at $13.40 after the bell. Soon after the company released its results, the stock fell as much as 9 percent. The shares have fallen as much as 80 percent since February 2011.

By Alastair Sharp

TORONTO | Thu Mar 29, 2012 6:55pm EDT

Wells Fargo Breaks From Pack in Swaps

Wells Fargo & Co.’s perceived creditworthiness is rising relative to peers at the fastest rate in almost three months as investors reward the bank for limited risk from mortgage litigation and the European debt crisis.

Credit-default swaps tied to the bonds of the San Francisco-based lender have held steady in February as contracts on JPMorgan Chase & Co. (JPM) and other banks climb, according to data provider CMA. The difference, 112 basis points, has more than doubled since August.


Concern is growing that Europe’s credit crisis, costs tied to faulty mortgages and pending regulation of proprietary trading will damage bank balance sheets. Wells Fargo has had fewer costs in the mortgage crisis than JPMorgan on an absolute basis and as a percentage of assets, according to data compiled by Bloomberg.


“Wells Fargo looks like a much more stable business, almost like an industrial company,” George Strickland, who helps oversee about $12 billion in fixed-income assets at Santa Fe, New Mexico-based Thornburg Investment Management Inc. said in a telephone interview. “They’re much more of a commercial bank. They didn’t get caught up in the mortgage fiasco as much as the other banks and they also aren’t nearly as involved in the capital markets as the others.”


Ancel Martinez, a Wells Fargo spokesman, declined to comment. Joe Evangelisti, a JPMorgan spokesman in New York, didn’t immediately respond to a voice message seeking comment.


Swaps Gap

While credit-default swaps on Wells Fargo, which investors use to hedge against losses on the company’s debt or to speculate on creditworthiness, have climbed to 110 basis points since this year’s low of 95.5 basis points, contracts tied to its peers have risen faster, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.


The gap between Wells Fargo swaps and the average of those linked to the six biggest U.S. banks, including Bank of America Corp., JPMorgan, Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley (MS), widened to 112 basis points yesterday, compared with 42 basis points at the beginning of August and 23 basis points this time last year.


That difference, which grew to as much as 180.8 basis points in October as Greece’s debt woes roiled markets, grew 22.3 basis points for the two weeks ended Feb. 15, the fastest since Nov. 25, the data show. A basis point equals $1,000 annually on a contract protecting $10 million of debt.



Bond investors are accepting the lowest interest rates from Wells Fargo, among the six biggest U.S. banks. Its debt yields to 2.85 percent, Bank of America Merrill Lynch index data show. JPMorgan debt yielded 3.53 percent and Goldman Sachs 4.73 percent as yesterday, the data show.

“The view that they are very domestic-focused is helping, so the improving U.S. economy benefits them and they have less exposure to the rest of the world,” said Peter Tchir, founder of TF Market Advisors in New York. “Markets are getting concerned about bank trading desk ability to generate revenue as Dodd-Frank is on the horizon,” which doesn’t impact Wells Fargo in the way it does Morgan Stanley, Goldman Sachs, Citigroup, or Bank of America.


Little Sovereign Risk

Wells Fargo had $3.2 billion of exposure to Europe, of which “very little” is sovereign risk, Chief Financial Officer Timothy J. Sloan said in a July 19 teleconference to discuss earnings with analysts and investors. The six biggest U.S. banks had $50 billion in risk tied to five troubled nations of Europe on Sept. 30, according to Fitch Ratings.


Against JPMorgan, the Wells Fargo swap contracts have diverged by the most since November 2008 this week, reaching 19.7 basis points on Feb. 13, CMA data show. Credit swaps, which typically decline as investor confidence improves, pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt.


Moody’s Investors Service said yesterday it was reviewing 17 banks and securities firms with global capital markets operations for downgrades, including Morgan Stanley, Goldman Sachs (GS), JPMorgan, Citigroup, and Bank of America. Wells Fargo is not under review. The ratings company cited “more fragile funding conditions, wider credit spreads, increased regulatory burdens and more difficult operating conditions.”


Volcker Rule

Banks may suffer as financial reform crimps profits and funding costs become increasingly sensitive to investor confidence, Moody’s said. U.S. regulators are planning to implement a ban on proprietary trading in five months called the Volcker rule, part of the Dodd-Frank financial regulation overhaul.


The potential downgrades may raise borrowing costs and force banks to increase collateral, and bank funding costs have already climbed worldwide. Moody’s downgraded Bank of America and Wells Fargo in September, when it said the possibility of emergency government support had decreased.

With European financial leaders struggling to bail out Greece, the mortgage overhang unresolved and capital markets volatile, “there is still a healthy degree of skepticism across the group,” Andrew Marquardt, an analyst at New York-based Evercore Partners Inc., said in a telephone interview. “Of the big banks, Wells is the one that gives investors the greatest amount of comfort in this very uncertain time.”


Costs from faulty mortgages and shoddy foreclosures have topped $72 billion at the biggest U.S. banks through the end of last year. JPMorgan accounts for about $18.5 billion, or 0.8 percent of its assets at the end of last year, while Wells Fargo is about $6 billion, or 0.5 percent, Bloomberg data show.


“Wells Fargo has managed through the housing situation very well, they have less global capital markets exposure, and therefore European risks and concerns, than JPMorgan,” said David Brown, a money manager who helps oversee $88 billion of fixed-income assets at Neuberger Berman LLC in Chicago. “JPMorgan has more capital markets exposure. Some of that’s out of their control, and they’re just being a little bit subject to the volatility there.”


To contact the reporters on this story: Dakin Campbell in San Francisco at; Mary Childs in New York at


To contact the editors responsible for this story: Alan

Goldstein at; David Scheer at

Will Apple have to pay to sell iPads in China?

Apple must offer proper compensation to computer display maker Proview if it wants to use the iPad trademark in China, Yang Rongshan, Proview chairman said Friday.

“If we are not compensated properly, then Apple doesn’t use the iPad trademark in mainland China,” Yang said, who is also the main shareholder of Proview International Holdings, a Hong Kong-listed company that has been suspended from trading.


Yang added that authorities in more than 30 Chinese cities have taken action in connection to the dispute with Proview, which recently filed for bankruptcy.

Proview claims it holds the exclusive rights to sell the iPad in China and has sought injunctions against the import and export of Apple’s now iconic tablet device. A ban on the iPad’s export from China could have wide-ranging implications for Apple, which relies on manufacturers in the country to make many of the devices it sells around the globe.


Proview earlier this month attempted to bar the sale of iPads within China through a complaint filed with a Shanghai court, alleging that an earlier deal with Apple for the iPad trademark did not include the China market.

In December, a local Chinese court, in a different lawsuit, dismissed Apple’s claims that it owns the iPad trademark in mainland China. In its decision, the court said Apple lacked legal proof.

Yang did not give a figure for acceptable compensation but a Proview creditor at the news briefing said that U.S. lawyers for the company suggested a figure of $2 billion.

Yang also said that Proview turned out 10,000-20,000 iPad products since 1998 but recently stopped production due to the trademark battle with Apple.


U.S. Stocks Advance Amid Optimism Greece to Get Second Bailout

(Bloomberg) — U.S. stocks advanced, sending the Standard & Poor’s 500 Index near the highest level in about three years, as the cost of insuring European debt declined the most in two weeks on optimism Greece will get a bailout.


Applied Materials Inc., the largest producer of chipmaking equipment, rose 2 percent after predicting higher profit than estimated. H.J. Heinz Co., the world’s biggest ketchup maker, and Campbell Soup Co., the largest soup maker, added at least 3.7 percent as earnings beat projections. Gilead Sciences Inc., which bought Pharmasset Inc. for $10.8 billion last year to gain an experimental hepatitis C drug, plunged 14 percent as some patients on that medicine relapsed after stopping therapy.


The S&P 500 rose 0.2 percent to 1,360.27 at 10:07 a.m. New York time. It’s near its peak nine months ago of 1,363.61, which was the highest level since June 2008. The Dow Jones Industrial Average added 24.90 points, or 0.2 percent, to 12,928.98. The Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments slid 11 basis points to 337.


“Greece is the word,” Philip Orlando, the New York-based chief equity strategist at Federated Investors Inc., which oversees about $370 billion, said in a phone interview. “We’re just reacting to what the euro zone is telling us in terms of the state of negotiations. Do I believe that the euro zone will give Greece more money? Yes. Otherwise, Greece defaults.”


U.S. stocks joined a global rally. German Chancellor Angela Merkel, Italian Prime Minister Mario Monti and Greek Prime Minister Lucas Papademos discussed efforts to secure a second bailout for Greece and are confident that euro-area finance ministers will “find a solution for open questions” on Feb. 20, Steffen Seibert, Merkel’s chief spokesman, said in a statement.


Biggest Gains


Seven out of 10 groups in the S&P 500 advanced as consumer discretionary, industrial and telephone shares had the biggest gains. The Morgan Stanley Cyclical Index of companies most-tied to the economy added 0.6 percent. The KBW Bank Index of 24 stocks added 0.4 percent as JPMorgan Chase & Co. climbed 1.4 percent to $38.53.


Applied Materials rallied 2 percent to $13.48. Customers are stepping up equipment spending to ensure they can meet demand for chips used in smartphones, tablets and other mobile devices. Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co. are helping fuel the rebound, according to Patrick Ho, an analyst at Stifel Nicolaus & Co.


H.J. Heinz gained 3.9 percent to $54.13. The company reported third-quarter earnings excluding some items of 95 cents a share, beating the average analyst estimate of 85 cents.


Campbell Soup


Campbell Soup added 3.7 percent to $33.25. The company reported second-quarter earnings excluding some items of 64 cents a share. On average, the analysts surveyed by Bloomberg estimated profit of 62 cents.


First Solar Inc. rose 12 percent to $44.62. The biggest maker of thin-film solar panels resolved a permitting issue with Los Angeles County for a $1.36 billion power project under construction, paving the way for financing to resume.


Gilead tumbled 14 percent to $47.30. Among eight patients with hepatitis C genotype 1 in a clinical trial, six had a viral relapse within four weeks after stopping a 12-week treatment with the medicine, GS-7977, plus ribavirin, Gilead said today in a statement. The two other patients are two weeks out from stopping treatment, and haven’t relapsed, the company said.


General Mills Inc. dropped 3.3 percent to $38.45. The maker of Cheerios cereal and Yoplait yogurt reduced its earnings forecast for this year, citing “weak” demand in the U.S.


Most Hated


The companies investors hated the most in 2011 have returned twice as much as the S&P 500 this year, burning speculators who bet stocks from Sears Holdings Corp. to Netflix Inc. would keep falling.


The 26 companies in the S&P 500 with the highest so-called short interest relative to shares available for trading rallied 18 percent this year, compared with 8 percent for the full index, data compiled by Bloomberg show. Speculators who borrowed Sears shares and sold them to profit from a drop got hammered as the stock surged 73 percent. Netflix, with short interest of 17 percent at the end of 2011, rose 76 percent.


Banks, commodity and industrial companies, the only groups to post losses last year, are leading stocks higher on signs the U.S. economy is gaining momentum. That’s forcing speculators to cut bearish wagers after pushing them to the highest levels since the market bottomed in 2009, according to a survey by International Strategy & Investment Group.


“It’s been a rotation back into fundamentally sound, economically sensitive companies that had been unduly punished in the second half of last year,” David Spika, who helps oversee $13 billion as an investment strategist at Westwood Holdings Group Inc. in Dallas, said in a telephone interview. “When the market turns, those shorts have to be covered and that creates momentum.”


–With assistance from, Lu Wang in New York. Editor: Jeff Sutherland