European Stocks Gain This Week, Pare First Annual Loss Since ’08

January 02, 2012, 2:39 AM EST By Adam Haigh

Dec. 31 (Bloomberg) -- European stocks climbed in the last week of 2011 as U.S. data showed the recovery in the world’s largest economy is gathering pace and optimism grew that euro- area policy makers will contain the debt crisis.

Banco Comercial Portugues SA and Banco Espirito Santo SA, Portugal’s largest lenders, jumped more than 15 percent after a report that the government may recapitalize the banks without becoming a shareholder. Britvic Plc led food and beverage producers higher, extending this year’s gains for the industry.

The benchmark Stoxx Europe 600 Index rose 1.1 percent to 244.54, the highest since Oct. 28. The second-straight week of gains helped trim this year’s losses to 11 percent. The gauge has rallied 14 percent from this year’s low on Sept. 22 as euro- area leaders planned to channel central-bank loans through International Monetary Fund to debt-ridden nations and the European Central Bank took steps to ease a cash squeeze.

“There is a risk of losing sight that gradually progress has been made,” said William De Vijlder, who oversees $778 billion as the global chief investment officer of Paris-based BNP Paribas Investment Partners. “The ECB has eased its policy. The firepower of the IMF is being increased.”

Reports this week showed business activity in the U.S. expanded more than forecast and confidence among American consumers rose in December to the highest level in eight months.

Dwindling Volumes

Post-Christmas trading was slow, with daily volume in the Stoxx 600 this week dipping to 32 percent of this year’s average, according to data compiled by Bloomberg.

The Stoxx 600 gained 5.6 percent from the start of the year to its peak on Feb. 17. From there, the index tumbled 26 percent to its low on Sept. 22, entering a bear market. The gauge had its worst third quarter since 2002, dropping 17 percent, as U.S. leaders wrangled over deficit cuts and European policy makers remained divided on their response to the debt crisis.

An Oct. 26 agreement to bolster the region’s bailout fund, the European Financial Stability Facility, stalled as Germany and France differed over how tackle the crisis. France called for using the ECB as a backstop, while Germany rejected it. Chancellor Angela Merkel listed using the ECB as the lender of last resort, issuing joint euro-area bonds and going in for a “snappy debt cut” as unworkable proposals.

Lenders Lead Losses

Banks had the biggest drop among 19 industry groups this year, sinking 32 percent, amid growing concern that the fiscal crisis will force at least one nation to default on its debt. Health-care and food stocks advanced as investors sought companies whose earnings are less tied to economic growth.

The decline in European equities compares with an 17 percent tumble in the MSCI Asia Pacific Index and a 0.4 percent gain in the S&P 500 at the close on Dec. 29.

Banco Comercial Portugues advanced 16 percent to a two- month high. Chinese banks may be interested in investing in the lender, news agency Lusa reported citing Cao Guangjing, chairman of China Three Gorges Corp.

Banco Espirito Santo rose 15 percent. Portugal may recapitalize the country’s banks without becoming a shareholder, Jornal de Negocios reported, without saying where it got the information. The state may subscribe contingent convertible bonds sold by the banks, the newspaper said. So-called CoCos are bonds that convert into equity if a bank’s capital drops below a set level.

Britvic rallied 4.7 percent. Unilever climbed 1.6 percent. Nestle SA added 1.5 percent.

Rio Tinto Group declined 1 percent, as copper slid on the London Metal Exchange this week.

--With assistance from Adria Cimino in Paris. Editors: Srinivasan Sivabalan, Andrew Rummer

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

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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Professional Women and a Secure Retirement

By Chris Farrell

For millions of aging Americans, it starts by examining the 401(k) statement. Their retirement savings plan has gone nowhere for more than a decade. Their mood darkens when they think about their debts (too many) and their savings (too little). The harsh recession has taken a toll on households headed by people aged 55 to 64, who have seen their wealth—net equity in homes and financial assets combined—fall 13.7 percent, to an average $222,300, since the recession hit. “We’re in a mess when it comes to retirement,” says Steven Sass, program director of the Financial Security Project at the Center for Retirement Research at Boston College.

His comment seems especially true for women. They earned less than men throughout their work lives, and they were more likely to take a break to raise children. The wage penalty shows up in an average retirement income for women 65 and older in 2009 that was 57 percent less than for men of the same age group—$21,519 vs. $37,509, according to the MetLife Study of Women, Retirement, & the Extra-Long Life. Women face the prospect of paying bills much longer than men, since those reaching age 60 have an average remaining life expectancy of 23.8 years vs. 20.6 years for men. Millions of women have labored in low-wage service jobs without pensions. In 2010, three out of five women expressed “a lot” or “a fair amount” of worry about not having enough to live on in retirement, according to a survey by the Institute for Women’s Policy Research.

Nevertheless, it’s underappreciated how much better one large cohort of aging boomers should do financially during the traditional retirement years: The college-educated stalwarts of the feminist movement. A generation of well-educated career women is nearing retirement for the first time. It’s the group that marked the revolutionary shift from earning money because they and their families needed it to embracing working because it defined “one’s fundamental identity and societal worth,” said Claudia Goldin, economic historian at Harvard University, in her 2006 Richard T. Ely lecture at the American Economics Assn. annual meeting. “It involved a change from ‘jobs’ to ‘careers.’” They’re poised to flourish in their elder years, at least compared with most everyone else.

It’s an accomplished generation with plenty of financial and human capital. Although the earnings gap between college-educated men and their female counterparts remains, it has narrowed. Since 1979, earnings for women with college degrees rose 33 percent, while those of their male peers increased 22 percent. Women make up 51.5 percent of all management, professional, and related positions, somewhat higher than women’s share of total employment, which is 47 percent. Among full-time, full-year workers, a higher percentage of women than men have participated in employer-sponsored retirement plans since 2001, according to the Employee Benefits Research Institute. In 2010, it was 55.5 percent for women and 53.8 percent for men. For women earning $75,000 or more, 72.5 percent were in a retirement plan (69.8 percent for men), and for those with a paycheck between $50,000 and $75,000, it was 70 percent (64.1 percent for men).

Financial stereotypes about women and money are remarkably durable. All one needs to do is peruse the personal finance section of a bookstore, and you’ll see a number of patronizing titles, such as Shoo, Jimmy Choo!: The Modern Girl’s Guide to Spending Less and Saving More and Does This Make My Assets Look Fat?: A Woman’s Guide to Finding Financial Empowerment and Success. The research suggests otherwise, however. For example, a University of Michigan Retirement Research Center study found that men trade 56 percent more than their female counterparts in 401(k) plans, and the more men traded, the worse they did.

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Asian Stocks Decline as Euro Weakens on Growth, Europe Concern

January 02, 2012, 2:42 AM EST By Shiyin Chen and Saeromi Shin

Jan. 2 (Bloomberg) -- Asian stocks declined on the first trading day of 2012, while the South Korean won and the euro weakened on concern that the global economic recovery will be hampered as Europe’s debt crisis enters a new year.

The MSCI Asia Pacific excluding Japan Index slipped 0.4 percent as of 3:08 p.m. in Singapore. Euro Stoxx 50 Index futures retreated 0.4 percent. Financial markets from Japan to the U.K. and the U.S. are closed for a holiday. The won fell 0.3 percent to 1,155.86 per dollar and the euro decreased 0.1 percent to $1.2941. Silver advanced as much as 0.2 percent to $27.8875 per ounce, set for a third day of gains.

Indexes of stocks and commodities had the worst yearly returns since the financial crisis in 2008. South Korea said yesterday export growth will slow this year and Singapore’s government said its economy grew less than previously forecast in 2011. Data today may confirm European manufacturing shrank for a fifth straight month, as regional leaders return to work from the Christmas holidays seeking to buy time to rescue the single currency from fragmentation.

“With many markets closed, it’s hard to make one-way bets especially in the absence of strong leads,” said Lim Chang Gue, a fund manager in Seoul at Samsung Asset Management Co., which oversees about $28 billion. “There’s the ongoing crisis in Europe, and global demand will continue to be generally weak this year. The thing is how much China could provide buffers, but it’s still unclear.”

More than three shares retreated for every one that rose on MSCI’s Asia Pacific ex-Japan Index. Taiwan’s Taiex Index sank 1.7 percent, Indonesia’s Jakarta Composite index dipped 0.3 percent and the BSE India Sensitive Index slid 0.5 percent, a fifth day of losses.

Korea, Singapore

South Korea’s export growth will probably slow to 6.7 percent this year from 19.6 percent in 2011, the Ministry of Knowledge Economy said yesterday. Finance Minister Bahk Jae Wan said the economic outlook will be more uncertain and difficult in 2012 and called for a strengthening of contingency plans to prevent contagion from Europe’s debt crisis.

Separately, Singapore’s Prime Minister Lee Hsien Loong said the island’s gross domestic product rose 4.8 percent in 2011, compared with the government’s earlier forecast of a 5 percent increase, and said the economy will expand 1 percent to 3 percent in 2012. Indonesia said exports grew 8.3 percent in November from a year earlier, slowing from an increase of 16.7 percent the previous month.

Data yesterday showed China’s purchasing managers’ index climbed to 50.3 in December from 49 in November, beating all forecasts in a Bloomberg News survey of 15 economists. A gauge of euro-region manufacturing was 46.9 in December from 46.4 the previous month, according to economists surveyed by Bloomberg News before Markit Economics releases the data today. A reading below 50 indicates contraction.

Europe’s Debt

The euro weakened against 11 of its 16 most actively traded peers. The currency weakened for a second year in 2011 and fell on Dec. 30 below 100 yen for the first time since June 2001. Some 157 billion euros ($203 billion) in debt will mature in the 17-member euro area in the first three months of 2012, according to UBS AG. By the end of that period, leaders have pledged to draft a stricter rulebook for controlling government spending. German Chancellor Angela Merkel and French President Nicolas Sarkozy will meet in Berlin Jan. 9 to work out details.

The Dollar Index, which tracks the U.S. currency against those of six major trading partners, rose 0.1 percent, the first increase in three days. It climbed 1.5 percent in 2011. Treasuries gained 9.78 percent last year, the most since 2008, as investors sought the relative safety of U.S. debt.

‘Wary’ Investors

“Investors are demanding dollars as they are wary of the ongoing European debt crisis,” said Ha Jun Woo, a Seoul-based currency dealer at Daegu Bank in Seoul.

The Institute for Supply Management’s factory index climbed to a six-month high of 53.4 in December, while spending on construction projects advanced 0.4 percent in November, the fourth straight monthly gain, economists surveyed by Bloomberg projected ahead of U.S. reports tomorrow. Payrolls climbed by 150,000 workers after rising 120,000 in November, according to the median forecast of 62 economists in a Bloomberg News survey before Labor Department data on Jan. 6.

--With assistance from Jiyeun Lee in Seoul. Editors: Richard Dobson, Ovais Subhani

To contact the reporters on this story: Shiyin Chen in Singapore at schen37@bloomberg.net; Saeromi Shin in Seoul at sshin15@bloomberg.net

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net

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Germany, France Send Political Players to ECB Executive Board

January 02, 2012, 2:43 AM EST By Gabi Thesing

Jan. 2 (Bloomberg) -- Germany and France send two key government officials to fill positions at the European Central Bank today, setting off a struggle for the job of chief economist.

Joerg Asmussen and Benoit Coeure join the ECB’s six-member Executive Board as the sovereign debt crisis enters its third year, replacing Germany’s Juergen Stark and Italy’s Lorenzo Bini Smaghi, who both departed prematurely. Asmussen, 44, was Germany’s deputy finance minister, while Coeure, 42, served as the French Treasury’s No. 2 official.

“It’s fresh blood at the table and they may bring a different approach,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London. “Because they come from the heart of government there may be a risk that it’s seen as becoming too political, but I doubt that the ECB will entertain anything that will be seen as endangering its independence.”

The new arrivals transform the ECB’s core policy-making panel just as the debt crisis threatens to tip the 17-nation economy into recession and raises questions about the future of the euro. Four board positions have now changed hands in the past seven months and a fifth is up for grabs in May when Jose Manuel Gonzalez-Paramo of Spain ends his term.

Germany ‘Outvoted’

“I’m not sure that the personalities matter that much at this stage,” said Marchel Alexandrovich, senior European economist at Jefferies International in London. “The ECB has a clear roadmap. It will need to do what is necessary to fight deflation, and that will mean further rate cuts and quantitative easing. Germany was outvoted on bond purchases and going forward there will be a majority for other measures.”

The ECB has reduced its benchmark rate to 1 percent, matching a record low, and flooded banks with cheap loans in an effort to keep credit flowing to the economy. It has resisted pressure to step up its bond purchases, putting the emphasis on governments to solve the debt crisis with fiscal reforms.

Asmussen and Coeure will both vie for the ECB chief economist role vacated by Stark, who threw in the towel two and a half years early after the bank started buying Italian and Spanish government bonds to contain the debt crisis, a policy he opposed.

While the purchases aim to restore transmission of the ECB’s monetary policy on financial markets, “we are also reducing interest rates for the sovereign,” Stark told Bloomberg News in August. “That’s where the problem is.”

‘Closer to Government’

By contrast, Coeure signaled in testimony to the European Parliament on Dec. 13 he may support further bond purchases. “If we feel there is a deterioration in terms of the transmission of monetary policy, then we should do more,” he said.

“It’s a good thing that the new people are closer to government,” said Stephane Deo, chief European economist at UBS AG in London. “The last two years were quite fraught on that front. The crisis has dragged the ECB into new territory, but I don’t really think anyone can argue that it’s not independent.”

Still, Bini Smaghi was pressured by Italy and France to make way for a French policy maker on the board after Mario Draghi succeeded Jean-Claude Trichet as ECB President on Nov. 1. Italy won France’s backing for Draghi on condition Bini Smaghi vacate his seat.

While ECB statutes prohibit political interference, the euro area’s four largest economies unofficially demand representation on the board. As pressure grew on Bini Smaghi to depart in June, the ECB insisted its board members are “appointed for eight years” and take decisions in “full independence.”

‘Should I Kill Him?’

Bini Smaghi, whose term was due to end in 2013, held firm, prompting France to call on then Italian Prime Minister Silvio Berlusconi to honor his commitment. “What should I do, should I kill him?” Berlusconi said in October. Bini Smaghi announced his resignation on Nov. 11 and will join Harvard University’s Center for International Affairs.

Coeure joined the French Treasury in 1995 after working for Insee, France’s national statistics office. In 1999 he became head of the ministry’s foreign-exchange market and economic- policies unit, before moving on to Agence France Tresor, where he gained market experience handling sovereign debt sales. He became deputy chief executive of the AFT in 2002 and was appointed chief executive in 2006.

Asmussen has been a key negotiator at the heart of Chancellor Angela Merkel’s government since she came to power in 2006 and helped to draw up plans for the Greek debt writedown. He and new Bundesbank President Jens Weidmann studied together under the previous Bundesbank chief, Axel Weber, when he was a university economics professor. Weber, a frontrunner to succeed Trichet, resigned his post at the Bundesbank in February over the ECB’s bond purchases.

--Editors: Matthew Brockett, Jim Hertling

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

To contact the editor responsible for this story: Matthew Brockett at mbrockett1@bloomberg.net

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Cameron Pledges Action on ‘Excess’ in U.K. Finance-Industry Pay

January 02, 2012, 3:13 AM EST By Robert Hutton

Jan. 2 (Bloomberg) -- U.K. Prime Minister David Cameron pledged more action to deal with “excess” in pay in the finance industry as he said the country “will get through” a difficult year.

In his New Year message, Cameron said the eyes of the world will be on Britain in 2012, with the Olympic Games in London and the celebrations for Queen Elizabeth II’s 60 years on the throne. “It gives us an extraordinary incentive to look outward, look onwards and to look our best: to feel pride in who we are and what -- even in these trying times -- we can achieve,” he said.

Assuring families struggling with inflation and young people unable to find work amid weak economic growth that he understands their concerns, Cameron pledged to be “bold about working to cure the problems of our society.”

“While a few at the top get rewards that seem to have nothing to do with the risks they take or the effort they put in, many others are stuck on benefits, without hope or responsibility,” the premier said. “So we will tackle excess in the City just as we’re reforming welfare to make work pay and support families,” he said, in a reference to London’s financial district.

This year will see Cameron hit the halfway stage of his five-year term. The premier said he’ll take action on shortcomings in the public sector.

“Too often our schools aren’t up to scratch, our hospitals aren’t always clean enough and our police don’t catch criminals,” he said. “Brilliant and committed people work in public services -- but somehow the system stops them doing their job. So we’ll change it.”

--Editor: Eddie Buckle.

To contact the reporter on this story: Robert Hutton in London at rhutton1@bloomberg.net.

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net.

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BofA Posts Worst Dow Average Showing for 2011

January 02, 2012, 12:48 AM EST By Hugh Son

(Updates shares starting in the second paragraph.)

Dec. 30 (Bloomberg) -- Bank of America Corp. is this year’s worst performer in the Dow Jones Industrial Average as concern about mounting mortgage losses and a global economic slowdown weighed on the second-biggest U.S. lender.

The 58 percent decline erased almost $80 billion of shareholder value at Charlotte, North Carolina-based Bank of America. It’s the firm’s largest drop since a 66 percent plunge in 2008, when a U.S. bailout staved off a collapse. The bank also ended 2011 last in the Standard & Poor’s 500 Financials Index and the KBW Bank Index.

“What you have is like a three-ring circus, and in all the rings for Bank of America, the show isn’t any good,” said Greg Donaldson, chairman of Evansville, Indiana-based Donaldson Capital Management LLC, which oversees $500 million including Bank of America shares. He cited new regulations, mounting costs of bad loans and a lack of confidence in management. “You just got one surprise after another this year,” Donaldson said.

Chief Executive Officer Brian T. Moynihan, 52, told his staff in a year-end progress report last week that his effort to boost the company’s value “is not yet translating into returns for our shareholders.” Moynihan said he has prepared for turmoil ahead by selling assets, reducing mortgage and credit- card loans and pledging to lower annual costs by $5 billion, including about 30,000 job cuts.

The Dow Jones Industrial Average gained 5.5 percent this year, led by McDonald’s Corp.’s 31 percent advance, while the 80-company S&P Financials slid 18 percent and the 24-member KBW Bank Index lost 25 percent. Larry DiRita, a Bank of America spokesman, declined to comment.

List of Laggards

Some of Bank of America’s biggest peers also made the list of laggards, with Citigroup Inc., the third-biggest U.S. bank by assets, dropping 44 percent. JPMorgan Chase & Co., the largest lender, slid 22 percent. American International Group Inc., the insurer owned mostly by the U.S. after its near-collapse in 2008, fell 52 percent for the second-worst showing in the S&P Financials, and Goldman Sachs Group Inc. lost 46 percent.

Moynihan is trying to reverse a stock decline that began soon after he replaced Kenneth D. Lewis at the end of 2009, when the bank also repaid $45 billion of U.S. bailout funds. The company’s shares, which reached $19.48 in April 2010, closed at $5.56 at 4:15 p.m., as settlements with mortgage-bond investors and insurers failed to stanch losses tied to the 2008 takeover of subprime lender Countrywide Financial Corp.

Subprime Mortgages

The status of an $8.5 billion accord resolving some claims from mortgage-bond buyers including BlackRock Inc. and Pacific Investment Management Co. is being contested by outside investors and may be tied up in courts through 2012. Meanwhile, U.S.-owned mortgage firm Fannie Mae has stepped up demands that Bank of America repurchase defective loans.

“They have this big exposure to subprime mortgages, to potentially settling with buyers of securitized subprime and buying back loans that were improperly” bundled into bonds, said Steven Persky, who oversees $1.4 billion in equities and distressed debt as CEO of Los Angeles-based Dalton Investments LLC. “Bank of America is too big to fail, but I’m not sure I’d want to be an equity holder.”

Banks are grappling with more stringent requirements for capital and new limits on fees at the same time the European sovereign debt crisis threatens to derail the global economic recovery. A $5 billion investment by Warren Buffett’s Berkshire Hathaway Inc. announced in August only temporarily arrested a slide triggered that month after markets were roiled by Standard & Poor’s downgrade of the U.S. government’s debt.

Five Dollars

The stock’s drop has stung investors including Bruce Berkowitz, whose Fairholme Capital Management LLC owned 105 million shares as of Sept. 30, and John Paulson, whose hedge fund held 64.3 million shares, according to Bloomberg data.

This month, Bank of America shares sold below $5 for the first time since March 2009 as concern over Europe’s debt crisis intensified. A sustained decline below $5 in 2012 could reduce the bank’s appeal to investors, said Eric Teal, chief investment officer at First Citizens Bancshares Inc., which manages $4 billion in Raleigh, North Carolina.

Moynihan has said that while he is confident the bank can withstand fallout from Europe, growth in the U.S. may be slowed if a European nation defaults on its debts.

Bank of America had about $363 billion of cash as of Sept. 30, enough to fund operations for two years without going to the markets. The company also has been reducing risk related to the weakest European nations, Chief Financial Officer Bruce Thompson said in October.

“The market has given up on Moynihan, given up on their story,” Donaldson said. “I may start buying Bank of America shares soon. It’s priced as if it’s going out of business, and it’s not going out of business.”

--With assistance from Jeff Kearns in San Francisco. Editors: Rick Green, William Ahearn, David Scheer

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net;

To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net; Nick Baker at nbaker7@bloomberg.net.

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