Gold steadies near record

Gold held steady on Thursday after hitting another record near $1,250 an ounce the previous day on continued worries about euro zone debt, while the world's largest gold-backed ETF reached a new all-time high.

FUNDAMENTALS

Spot gold was at $1,236.85 an ounce by 0033 GMT, up 50 cents from New York's notional close on Wednesday, when it roared to record $1,248.15 on worries that a $1 trillion European rescue package will not solve the euro zone debt crisis.

* The world's largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings stood at a record high of 1,209.499 tonnes as of May 12, up 17.3490 tonnes from 1,192.150 tonnes in the previous business day.

U.S. gold futures for June delivery fell $6.2 an ounce to $1,236.9 an ounce.

MARKET NEWS

* U.S. stocks capped their best three-day run in 10 months on Wednesday boosted by technology and industrial shares, after Spain unveiled an austerity plan that reassured investors Europe was addressing its fiscal ills. (.N)

* Japan's Nikkei average rose 1.4 percent on Thursday led by exporters such as Advantest (6857.T), after Spain outlined measures to cut its deficit, easing fears that the Greek debt crisis could spread in Europe and sending European and U.S. stocks higher. (.T)

* The euro fell against the U.S. dollar on Wednesday as worries about euro zone economic growth blunted optimism about Spain's spending cuts and a successful bond sale in Portugal.

Japan’s Nikkei Falls, Led by Banks; Sony Drops on Stronger Yen

By Akiko Ikeda and Satoshi Kawano Businessweek

Japan’s Nikkei 225 Stock Average fell, led by banks on concern they will need to raise more capital, and as a stronger yen dragged down electric-appliance makers.


Mizuho Financial Group Inc., the nation’s No. 3 bank by market value, slid 1.2 percent. Mitsubishi UFJ Financial Group Inc., which holds about 20 percent of Morgan Stanley, dropped 2.4 percent, after the Wall Street Journal said U.S. prosecutors are investigating the New York-based bank. Sony Corp., the maker of Bravia televisions and that gets more than 70 percent of its sales abroad, lost 1.6 percent. Toyota Motor Corp. jumped 2.7 percent as the world’s largest carmaker forecast a higher profit.

Japanese banks need to reinforce their financial structures, which pale compared with those in other countries,” said Gentoku Kiyokawa, a fund manager in Tokyo at Fortis Investments. “A further weakening of the euro seems unavoidable as sovereign risks will likely increase in Europe.”

The Nikkei 225 sank 0.2 percent to 10,394.03 at the 3 p.m. close in Tokyo, after gaining as much as 0.9 percent. The Topix rose 0.1 percent to 932.83, with eight stocks falling for every seven that rose.

The Topix has gained 2.8 percent in 2010, compared with a 3.6 percent increase by the Standard & Poor’s 500 Index and a 0.4 percent slide by the Stoxx Europe 600 Index. Stocks in the Japanese benchmark are valued at 18.5 times estimated earnings, compared with 14.3 times for the S&P and 11.9 times for the Stoxx.

Banks were the biggest drag on the Topix on speculation Mizuho will sell 1 trillion yen ($11 billion) in shares. They extended declines after the Wall Street Journal reported Morgan Stanley is being probed by U.S. federal prosecutors over allegations it misled investors about mortgage derivatives.

Mizuho, Mitsubishi UFJ

Mizuho Financial Group fell 1.2 percent to 161 yen, a level not seen since Dec. 15. Mitsubishi UFJ, Japan’s largest publicly traded bank, dropped 2.4 percent to 449 yen. Sumitomo Mitsui Financial Group Inc., the nation’s No. 2, lost 0.6 percent to 2,798 yen.

“Banks have poor growth potential, so they cannot be mid- and long-term targets for investment,” Fortis Investments’ Kiyokawa said.

Sony slumped 1.6 percent to 3,040 yen, the lowest in three months. Fanuc Ltd., a maker of industrial robots that derives 80 percent of its revenue outside Japan, dropped 1.5 percent to 9,950. Daikin Industries Ltd., the world’s second-biggest air conditioner maker, fell 0.8 percent to 3,235 yen.

Yen Appreciates

I’m worried about the yen’s trend against the euro because the current level of the yen is higher than the levels projected by exporters,” said Hiroichi Nishi, an equities manager in Tokyo at Nikko Cordial Securities Inc.

The yen appreciated to as much as 116.57 against the euro from 117.66 in intraday trading. Against the dollar, the Japanese currency strengthened to as much as 92.44 from 92.94. The stronger yen reduces income when overseas revenue is converted into local currency.

Olympus Corp. tumbled 7.7 percent to 2,418 yen. The stock was the largest decliner in the Nikkei. The endoscope maker forecast net income will fall 56 percent to 21 billion yen this fiscal year. JPMorgan Chase & Co. analyst Hisashi Moriyama lowered his rating on the company to “underweight” from “neutral” and reduced a 12-month share price estimate 15 percent to 2,300 yen.

Stocks advanced in early trading, led by companies from Toyota to NTT Data Corp. which forecast profit increases.

Toyota Earnings Outlook

Toyota, which rallied 2.7 percent to 3,590 yen, was the biggest contributor to gains in the Topix. The automaker forecast profit to rise 48 percent to 310 billion yen ($3.35 billion) this fiscal year as it recovers from record North American recalls and expands sales in China and other Asian markets.

NTT Data, a network services provider, soared 11 percent to 357,000 yen, the biggest climb in the Nikkei. The company said full-year net income will rise 32 percent to 47 billion yen in the year started April 1. The company’s rating was increased to “buy” from “neutral” at UBS AG.

“The upward momentum for corporate earnings will continue and that’s where investors will focus,” said Kiyoshi Ishigane, a strategist in Tokyo at Mitsubishi UFJ Asset Management Co., which oversees about $64 billion.

Morgan Stanley’s Gorman Says No Substance to CDO Allegations

By Takahiko Hyuga and Finbarr Flynn Businessweek

Morgan Stanley Chief Executive Officer James Gorman said there is “no substance” to any allegations that the U.S. bank misled investors about mortgage derivatives it sold them.

Gorman, speaking at a press conference in Tokyo today, made the comment when asked about a Wall Street Journal report that U.S. federal prosecutors are investigating Morgan Stanley transactions in so-called collateralized debt obligations. He added that the firm hasn’t been contacted by the U.S. Justice Department.

“We have no reason to believe there is any substance behind any investigation that appeared in the Wall Street Journal article,” Gorman said.

Morgan Stanley arranged and sold CDOs backed by home loans, even as its trading desk would sometimes bet that their value would fall, the Journal said, citing traders. The investigation is reviewing whether Morgan Stanley clearly represented its roles, according to the report.

The probe, which is at a preliminary stage, marks deepening scrutiny of Wall Street firms by U.S. regulators following the global financial crisis, the Journal said. Rival Goldman Sachs Group Inc. is contesting a fraud lawsuit from the U.S. Securities and Exchange Commission, which alleges the firm misled investors about a mortgage-linked security in 2007.

Spokespeople for the Manhattan U.S. Attorney’s office and the SEC declined to comment, the Journal said.

Dead Presidents’

The probe stemmed from an ongoing civil-fraud investigation of more than a dozen Wall Street firms’ mortgage bond businesses by the SEC that began in 2009, the newspaper said. The Manhattan U.S. Attorney’s office is now conducting a criminal probe into some of those firms’ activities, it said.

The government frequently begins criminal investigations without filing charges, the Journal said. In bringing criminal charges, the government would need to prove beyond a reasonable doubt that the firm or its employees misled investors, it said.

Two of the transactions being probed were named after U.S. Presidents James Buchanan and Andrew Jackson, and were called the “Dead Presidents” deals by traders, the WSJ said, citing a person familiar with the matter. Morgan Stanley arranged and bet against the deals, and didn’t market them to clients, it said.

The firm made money on the two transactions, though it lost $9 billion on mortgage-related investments in 2007, the newspaper said. Morgan Stanley wasn’t among the biggest firms in the CDO market, it said.

Stock Picks: Apple, Green Mountain, Priceline, Primerica

Apple Inc. Kaufman Bros. equity analyst Shaw Wu reiterated a buy rating on shares of Apple Inc. (AAPL) on May 11. He raised a price target on the shares to $320 from $315.

In a note, Wu said that his sources indicate that sales momentum for the company's line of personal computers is "strong", helped by a recent updating of the MacBook Pro to the new Intel Arrandale processor. Wu said he believes the company's Mac business is tracking to its third consecutive quarter of year-over-year unit growth of greater than 20%, indicating further market share gains.

"We are also picking up that the iPad continues to do better than expected," the analyst said, with "surprisingly strong" momentum of the iPad 3G, which sells at a $129 premium to the Wi-Fi only version.

Wu raised his forecasts for the fourth quarter to $14 billion in revenue and $2.90 in earnings per share (EPS) from $13.3 billion and $2.65, respectively; for fiscal 2010, to $58.7 billion in revenue and $13.20 in EPS from $57.5 billion and $12.75; and for fiscal 2011, to $67.5 billion in revenue and $15.00 in EPS from $65.8 billion and $14.45.

"We continue to believe that AAPL is positioned to outperform in this tough macroeconomic environment," the analyst wrote.

Green Mountain Coffee Roasters Inc.: Janney Montgomery Scott equity analyst Mitchell Pinheiro reiterated a buy rating and $115 fair value estimate on shares of Green Mountain Coffee Roasters Inc. on May 11.

Green Mountain, based in Waterbury, Vermont, announced on May 10 that the FTC has closed its investigation concerning the company's tender offer for Diedrich Coffee Inc. (DDRX). The company said that it had obtained Hart-Scott-Rodino antitrust requirements, and its $35 per share tender offer for Diedrich expired May 10. Green Mountain will acquire Diedrich for approximately $295 million.

Diedrich makes prepackaged coffee cups, known as K-cups, used in the Keurig brewing equipment produced by Green Mountain.

"We expect the transaction to close in a matter of days," Pinheiro wrote in a note. He said the acquisition is expected to be neutral to Green Mountain's EPS in fiscal 2010, which he estimates at $2.05. He expects the deal to add 20 cents per share to its fiscal 2010 EPS; he raised his forecast to $3.40 from $3.20.

"We believe the completion of the acquisition removes some of the uncertainty clouding the stock, and with the meaningful earnings accretion from DDRX, should reverse some of the negative momentum in the shares following the strong, but largely misunderstood, second quarter," the analyst wrote.

Pinheiro noted that a three-for-one stock spilt on the company's common shares will be distributed on May 17.

Priceline.com Inc.: Standard & Poor's equity analyst Scott Kessler reiterated a hold rating and $250 price target on shares of Priceline.com Inc. (PCLN) on May 11.

On May 10, Priceline, the second- biggest online travel agency, forecast sales and profit that fell short of analysts' estimates, after the euro weakened and a political crisis in Greece threatened consumers' travel plans. Excluding some costs, second-quarter profit will be $2.50 to $2.70 a share, the company said in a statement. Sales will be no more than $742.6 million. Analysts surveyed by Bloomberg had estimated, on average, profit of $2.82 a share and sales of $755.9 million.

First-quarter profit excluding some costs rose 70 percent to $87.2 million a year earlier, the company said. Sales increased 26 percent to $584.4 million.

In a posting on the S&P MarketScope service, Kessler said that the company's first-quarter EPS of $1.06 was 6 cents above his forecast. He noted that revenue growth came on continuing strength in the international hotel business. He said that growth decelerated from the fourth quarter, reflecting the impact of the Icelandic volcano and civil unrest in Thailand, factors which will likely affect second-quarter results. Rental car days declined and airline tickets sold rose only 3%, the analyst said.

"While we believe PCLN executed well, we think macroeconomic uncertainty in Europe and a weakened euro will make notable outperformance more challenging," Kessler wrote

Telefonica Makes $7.3 Billion Unsolicited Vivo Bid (Update2)

By Crayton Harrison and Paul Tobin Bloomberg

Telefonica SA, Europe’s second-largest phone company, made an unsolicited bid to buy out its Portuguese partner in a venture that controls Brazil’s biggest wireless carrier for 5.7 billion euros ($7.3 billion). The offer, rebuffed by Portugal Telecom SGPS SA, values the carrier, Vivo Participacoes SA, at about 140 percent higher than its market capitalization. Lisbon-based Portugal Telecom’s board unanimously rejected the bid, saying on its website that the Brazilian carrier is core to its strategy.

“It’s the only shot Portugal Telecom has at long-term growth,” said Peter Lyons, an analyst at Oscar Gruss & Son Inc. in New York. “If Telefonica does come back with another offer, it’s going to have to be something with shock value to create a rift between the shareholders and the management.” The bid fueled speculation the two companies will battle for control of the leading carrier in South America’s biggest mobile-phone market, where the number of subscribers is projected to grow 11 percent this year. The offer builds on Telefonica’s strategy of countering slowing growth in Europe through acquisitions in Latin America, where the company has spent more than $50 billion since the 1990s.

Telefonica fell as much as 3.9 percent. The shares slid 3.6 percent to 16.18 euros as of 10:39 a.m. in Madrid. Portugal Telecom soared 9.8 percent to 7.81 euros in Lisbon

Disappointed’

“We are disappointed with the initial response of Portugal Telecom,” said Telefonica spokeswoman Marisa Navas. “This is a very positive offer for the shareholders of Vivo, Portugal Telecom and Telefonica.”

An offer of 8 billion euros might be enough to persuade Portugal Telecom’s investors to push for a sale, said Lyons, who advises holding on to Vivo shares. Telefonica could also seek other acquisitions in Brazil’s mobile market such as TIM Participacoes SA, the third-largest wireless carrier behind Vivo and Carlos Slim-controled America Movil SAB, Lyons said.

A spokesman for Vivo in Sao Paulo, who asked not to be named because of internal policy, declined to comment.

The offer, expiring on June 6, values Vivo at almost 32 times projected earnings for 2010, according to Credit Suisse Group AG analyst Andrew Campbell. That’s in line with multiples at which shares of Latin American telecommunications companies trade, according to data compiled by Bloomberg.

GVT Failure

Spain’s Telefonica offered to buy half of Brasilcel NV, the unlisted joint venture with Portugal Telecom that owns about 60 percent of Vivo. The Brazilian carrier had 30 percent of the nation’s 179 million wireless subscriptions at the end of March, according to Anatel, the country’s phone regulator.

Failure to seal the deal would mark the second disappointment for Telefonica in Brazil in the past year. Telefonica lost out to France’s Vivendi SA in a takeover battle last year for land-line phone company GVT (Holding) SA. The Madrid-based company controls Telecomunicacoes de Sao Paulo SA, which offers home-phone and Internet service in the state of Sao Paulo.

Combining the operations of that company with Vivo could save 3 billion euros a year in costs, Credit Suisse’s Campbell said last month in a note to clients.

Telefonica said if Portugal Telecom accepted its bid, it would buy outstanding common shares of Vivo for 600 million euros. That would value those shares at about 86 reais ($49) a share, according to Credit Suisse estimates, or double their closing price of 43.50 reais in Sao Paulo trading yesterday.

Carlos Slim

Vivo’s preferred shares, which are not included in Telefonica’s offer for outstanding shares and have limited voting rights, rose 5.6 percent to 45.50 reais yesterday.

Telefonica’s offer follows America Movil’s $24.5 billion plan, announced in January, to take over Telmex Internacional SAB to combine its wireless and land-line operations in Brazil. America Movil and Telmex Internacional are both controlled by billionaire Carlos Slim.

Portugal Telecom has counted on Brazil to spur revenue as growth in Europe has slowed and competition increased at home. The company’s Brazilian sales increased 4.1 percent to 3.23 billion euros last year, while revenue from Portugal declined 1.9 percent.

Brazil’s wireless market will expand 11 percent to 193 million subscribers this year, down from 15 percent growth in 2009, according to a Banco Santander SA research note last month

Barclays Settles Lawsuit Over Merrill Hire Fee, Headhunter Says

By Andrea Tan Bloomberg

May 11 (Bloomberg) -- Barclays Plc agreed to settle a lawsuit in Singapore with Pagoda Partners Pte. for failing to pay a S$365,000 ($264,000) fee for a banker it hired from Merrill Lynch & Co., according to the recruiter.

Pagoda partner Nick Burnham said today that he was “happy” with the out-of-court settlement, declining to reveal terms because of a confidentiality agreement. Pagoda filed a notice of discontinuance on May 7, court papers show. Timothy Cuffe, a Hong Kong-based spokesman for the London-based bank, declined to comment.

Pagoda had sued Barclays after the executive search firm sent the bank Timothy Last’s resume in January 2009 and wasn’t paid. Last, Barclays Capital’s head of equity derivatives flow sales for Asia, excluding Japan, was hired as a direct referral after Singapore-based Pagoda failed to set up a meeting, Barclays had said in its court filing, adding that there wasn’t an agreement with the recruitment firm.

“It’s always better to settle than pursue the legal route with big clients,” said John Koh, managing director at WMRC Pte. in Singapore, a finance industry recruitment firm. “Relationships matter a lot in this industry and it’s wiser to try and preserve them.”

Pagoda said in a February court filing that it was entitled to its fee, equivalent to 25 percent of Last’s total annual gross remuneration of S$1.46 million. Last was paid HK$2.7 million ($347,000) in his first year, including a salary of HK$1.65 million and HK$1.05 million in allowance, Barclays said.

Last, based in Hong Kong, was hired to help accelerate the expansion of Barclays Capital’s equity business in Asia, one of its key priorities, David Campbell, head of North Asia distribution at the securities unit, said in a May 18 statement.

The case is Pagoda Partners Pte. Ltd. vs Barclays Bank Plc, S977/2009 in the Singapore High Court.

Toyota quarterly profit $1.2 bln as sales recover

By YURI KAGEYAMA, AP Business

TOKYO – Toyota cruised back to profit in the latest quarter as the world's top carmaker cut costs and hitched a ride on the global auto sales recovery while fighting to salvage its reputation for quality.

Toyota Motor Corp. said Tuesday that January-March profit totaled 112 billion yen ($1.2 billion) compared with a 766 billion yen loss the year before.

Quarterly revenue jumped to 5.28 trillion yen ($57 billion) from 3.54 trillion yen a year earlier, when purchases of cars and other vehicles were slumping amid the global financial crisis.

Toyota is forecasting even better results for the fiscal year through March 2011, projecting annual profit to rise 48 percent to 310 billion yen ($3.3 billion).

Whether the world's biggest automaker can continue its recovery rests in part on salvaging its reputation after recalling more than 8 million cars worldwide for faulty gas pedals, a braking software glitch, faulty floor mats and other defects.

On Monday, the U.S. National Highway Traffic Safety Administration said it is carrying out a new investigation into Toyota to see whether it had stalled on a recall for a steering defect in 2005 in the U.S. It had carried out recalls for similar problems in Japan in 2004.

Toyota has already paid a maximum fine of $16.4 million for dallying on a recall for acceleration problems, and NHTSA could slap it with a fine of up to that amount again over the steering issue.

U.S. Transportation Secretary Ray LaHood, who is in Japan to visit Toyota and inspect high-speed trains, said Monday that additional fines may be levied against Toyota.

President Akio Toyoda, who is the grandson of the automaker's founder, said Tuesday the company was cooperating with the investigation, but did not elaborate.

Toyoda, appointed president in June last year, acknowledged that his job was similar to steering a ship in the middle of a storm. He said the ship was sailing toward what appeared to be sunny skies because employees were working together 'in one spirit."

"I feel that I am now at last standing at the starting point with the latest earnings," he told reporters at Toyota's Tokyo office. "This year will mark a new beginning for Toyota."

Toyota managers have given up their bonuses since the global fallout from the collapse of investment bank Lehman Brothers sent the automaker into the red.

Toyoda said that will continue and they will also return a portion of their monthly salaries to take responsibility for the recall mess, although he did not give figures.

The latest results appear to show Toyota has managed to contain the damage from the spate of recalls — at least, so far.

Toyota officials said the company spent 100 billion yen on recall-related measures, and lost between 70 billion yen and 80 billion yen in sales during the year ended March 31.

They were vague about such damage for the current year, except to say Toyota estimates spending 80 billion yen for incentives to boost sales.

Although sales have held up in recent months, much of that came from unprecedented incentives to lure customers in North America as well as growth from fast-growing Asian nations like China.

For the fiscal year through March 31, Toyota posted a 209 billion yen ($2.3 billion) profit, a dramatic reversal from a 437 billion loss in the previous fiscal year, which was the automaker's worst annual red ink since being founded in 1937.

The annual results were much better than analysts' forecasts and Toyota's cautious, internal forecast for an 80 billion yen profit.

Global sales for the year ended March 31 totaled 7.24 million vehicles, down 4 percent from the previous year. Toyota is expecting that to improve to 7.29 million for the current fiscal year.

Toyota is forecasting revenue to improve 1.3 percent to 19.2 trillion yen for the year through March 2011, from 18.95 trillion yen for the year ended March 31. That had marked a 7.7 percent decline from the previous year.

Toyota said it has figured in costs for recall-related expenses in its forecasts for the current fiscal year.

"To achieve further profit recovery, what we need to do is offer high quality, reasonably priced vehicles," said Toyoda, while stressing that tough times were likely to continue.

Toyota's stock price slipped 0.7 percent to 3,495 yen in Tokyo.