Van Persie: Arsenal's Money in the Bank

Stan Kroenke attended a public meeting of Arsenal shareholders on Thursday, his first since taking a controlling share in the club five months ago. Unlike at previous assemblies, there was no open mic for fans to ask questions, though board members did answer some pre-selected written queries.

That was probably prudent, since Arsenal began the season with its worst start since 1953. Premier League fans arguably demand even more public accountability from their teams than the rabid fans in the North American realms of football, basketball and hockey that Kroenke has known as owner of the Rams, Nuggets and Avalanche.

The Gunners' early play followed a summer which saw arguably its two best players – midfielders Samir Nasri and Cesc Fabregas – depart the club, along with another starter, leftback Gael Clichy. Meanwhile, the players brought in to replenish the roster didn't set the fans' hearts afire, and the club decided to hike ticket prices by an average of 6.5%. Given that Arsenal has not won any kind of silverware since 2005 and suffered a shocking late-season collapse last year, many were looking for answers.

Arsenal manager Arsene Wenger took it on the chin, admitting that there was "skepticism" but that it was "too high." He added, "Do not judge too quickly the players I bought. They are of the top level."

Whatever Kroenke's concerns leaving the meeting, they may have been partly allayed less than 48 hours later, when he made the short trip across London for Arsenal's date at Chelsea. Against a heavily-favored home team, the Gunners came from behind twice to win 5-3, becoming the first visiting team to score five times at Stamford Bridge since 1989.

And if Kroenke scans the club's recent results, he may well ask himself what all the fuss is about. Arsenal has now won eight of its last nine games in all competitions. During that streak it has risen from 17th to seventh in the Premier League standings. So much for the doom-mongers and their Chicken Little schtick. Everything's fine. ... Or is it?

Much of it will depend on the man who scored a hat trick on Saturday, center forward Robin van Persie. The Dutch striker upped his seasonal total to 12 goals in 14 games, but that only tells part of the story. He has scored half of Arsenal's 20 Premier League goals this season and it's no stretch to say that, at times, he has carried the Gunners on his back.

As center forwards go, he's somewhat idiosyncratic. Which is what you might expect from a Dutch maverick whose parents – Bob van Persie and Jose Ras - are both artists. Bob makes sculptures out of trash, while Jose is a painter and jewelry designer, making Robin a rare world-class jock born to artsy parents. On the pitch, he has a rare blend of size, speed and technique; the fact that he began his careers as an oversized winger makes him a non-traditional center forward – a bit like his illustrious predecessor, Thierry Henry – but that suits Arsenal's style of play just fine.

The problem is Van Persie's contract: It expires in 2013. While that may seem like a long way off, Arsenal has a big decision to make and it needs to make it now. When a player enters the final 18 months of his contract his transfer value plummets. It's classic deflation: why pay a lot for something today when you can pay little or nothing for it in the very near future? That's what happened to Nasri, who was sold to Manchester City in the summer for a reported $38 million, perhaps half of what he might have fetched had he been locked up in a long-term deal. Instead, Nasri was 10 months away from becoming a free agent and, faced with the prospect of losing him for nothing, Arsenal was forced to take the cut-rate offer.

Negotiations with van Persie are ongoing, according to club sources. "He has 18 months to go and I'm confident he'll sign a new deal," Wenger said Thursday, before adding somewhat ominously, "I'm always confident."

The way things are going now, van Persie seems to hold all the cards. He can just let the days tick away and turn the screws on the club to get the best possible raise on his current $6.4 million annual deal. Arsenal has been known for fiscal discipline over the past decade (as has Kroenke back home), but losing van Persie under the same circumstances as Nasri would be a body blow to the club's image.

But if waiting as long as possible in order to get himself the best available deal is van Persie's plan, he does so at his peril. He's injury-prone. Extremely injury-prone. Since becoming a bona fide starter in 2006, he has started just 52.5 percent of Arsenal's league matches. And while he has appeared in every Premier League game so far this season, it's hard to shake the fear that another breakdown is around the corner. In that sense, it's in his interest to put pen to paper sooner rather than later.

All of which creates a rather bizarre situation. The more van Persie scores, the better Arsenal performs and the more money it makes. A top-four finish would mean qualification to the Champions League next year, and the riches that come with it. But of course, that also means the more it needs to pay to keep van Persie. At 28, this will likely be his last big payday. It's easy to picture him asking for something in the region of $50 million-plus over the next five years. That's a lot of money for a guy with his injury record.

Curiously, Kroenke's best-case scenario might go something like this: Van Persie's scoring spree continues through January, in time to get Arsenal squarely into the top four. At that point, he gets injured, misses the next few months and, fearing what might happen next, signs a reasonable (from Arsenal's perspective) contract. He returns to help the Gunners finish strong and everyone is happy again. It may sound a bit twisted, but given Arsenal's current realpolitik, it would make sense.

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OECD Forecasts Weak Growth Until 2013

Advanced economies are looking at two years of weak growth and high unemployment and the outlook is likely to worsen unless Europe fails to rein in its sovereign-debt crisis, the Organization for Economic Development and Cooperation said Monday, as it slashed next year's growth prediction for the U.S. and the euro zone.

In a brief outlook published three days ahead of a meeting of the Group of 20 industrial and developing nations in Cannes, the OECD urged the European Central Bank to cut rates to restore growth in the world's largest economic zone, and recommended other central banks to keep rates on hold and provide liquidity to the financial system to ease market tensions.

The OECD said the U.S. economy will grow 1.8% next year, less than the 3.1% expansion it had forecast in May, and will pick up speed only in 2013, with a 2.5% expansion. The OECD now expects the euro zone's gross domestic product will expand 0.3% next year, far below the 2% growth it forecast five months ago.

Debt-to-GDP ratios will keep rising, reaching in two year's time 108.7% in the U.S., 97.6% in the euro zone and 227.6% in Japan, the OECD figures showed.

The Paris-based think-tank hailed the EU agreement reached in Brussels last week, but warned the bloc against delaying the accord's implementation and urged it to give investors more details about the plan as soon as possible.

At their latest emergency summit, euro-zone leaders agreed last week to provide a further €100 billion ($141.50 billion) package to ailing Greece, and agreed to ask private holders of Greek debt write off 50% of their holdings. The euro zone also decided to ask lenders to increase their Tier 1 capital ratios by next June and increased by four or five times the available resources of its bailout fund, the European Financial Stability Facility.

"The measures identified by the EU leaders go in the right direction to resolve the euro area sovereign-debt crisis," the OECD said. "However, more detailed information is needed on the specific measures, including the options for EFSF enhancement."

The OECD urged European governments to stand ready to take decisive measures if and where banks were unable to raise equity from markets, and called for a greater use of the ECB balance sheet to fight the crisis.

Monetary authorities in developed economies should do their part, the OECD said, by continuing to provide ample liquidity to ease financial market tensions. "Further monetary relaxation, including through unconventional measures, would be warranted if downside risks intensify," the OECD said.

In the emerging-market economies, on the other hand, the stance of monetary policy should be guided by the outlook for growth and inflation, which remains comparatively high.

G-20 economies are expected to grow 3.8% next year and 4.6% in 2013, the OECD said, urging leaders in Cannes to adopt all necessary measures to sustain growth.

For their part, European leaders are trying to shift the focus away from Europe, arguing that the bloc has already done its part to stabilize markets.

Herman Van Rompuy, president of the European Council, and José Manuel Barroso, president of the European Commission, said in a letter addressed to their G-20 partners Saturday evening that the upcoming summit should match European efforts to ensure the stability of the world economy. The G-20 should decisively deal with a number of non-European issues, they said, including the question of exchange rates of surplus countries.

Growth in the G-20 will be essentially supported by emerging markets, although even growth in China, the world's second-largest economy, will soften to 8.6% next year, the OECD said. A more dynamic economic environment in Asia will also benefit the Japanese economy, which the OECD expects to grow 2.1% next year, only marginally less than the 2.2% it forecast in May.

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Corzine Races to Save Firm

MF Global, Imperiled by European Bond Bet, Nears Deal With Interactive Brokers.

Jon S. Corzine, the former New Jersey governor, raced over the weekend to find a buyer for MF Global Holdings Ltd. in an attempt to rescue the securities firm he now runs from a crisis partially of his own making.

MF Global was nearing a deal late Sunday night to file for Chapter 11 bankruptcy protection as soon as Monday and sell assets to Interactive Brokers Group, said a person familiar with the matter.

The tentative agreement, reached after a marathon weekend of negotiations, could end the short tenure for Mr. Corzine at MF Global.

Mr. Corzine, who took over as chief executive of MF Global last year, made big bets on sovereign bonds issued by European countries, according to people familiar with the situation. Those trades, which ballooned over $6 billion, helped knock MF Global's own debt ratings to junk and drained investors' confidence in the firm.

Under the tentative plan, MF Global's holding company would file for bankruptcy protection, the person familiar with the matter said. Interactive Brokers would then likely make an initial bid of about $1 billion during a court-supervised auction, the person said, though the deal was described as complicated and that number could change.

The sale would need to be approved by a bankruptcy judge. While the boards of both companies approved the tentative deal on Sunday, there are still other snags that could slow it down, according to participants in the deal.

None of MF Global's regulated entities would seek bankruptcy protection, the person said.

"There is a handshake, but it [isn't] done yet," the person said. The odds are high the plan gets executed, but it is "very far from a done deal," the person said.

MF Global's swoon is one of the most dramatic examples of the global ricochet effect caused by Europe's debt crisis. MF Global is the biggest potential U.S. casualty so far.

The crisis began with fiscal troubles in Greece, which just received approval from European leaders for a second bailout. Investors are fretting that a number of other countries won't be able to pay all their obligations, which has hurt the values of sovereign bonds that Mr. Corzine purchased.

The rapid decline of MF Global represents a stunning turn of events for Mr. Corzine. A former chairman of Goldman Sachs Group Inc., he took over at MF Global in March 2010, just four months after being voted out as New Jersey governor and two months after leaving office. He set out to change MF Global from a midsize derivatives broker to full-fledged investment bank that took risks with its own capital.

In late 2010, Mr. Corzine started making big bets on bonds issued by European countries. He sometimes placed orders himself based on a list of prices left with an assistant, according to people familiar with the situation. Mr. Corzine, who made his name and fortune as a Treasury bond trader at Goldman, was convinced that sovereign debt from countries like Italy and Spain with high yields was a steal, these people said.

"Europe wouldn't let these countries go down," Mr. Corzine, who is also chairman of MF Global, told another executive at the New York City company early this year. When the lower-ranking official suggested that the trade was too big, Mr. Corzine brushed the concerns aside, responding that his career on Wall Street and in politics made him confident about the bets.

Last week's broad agreement by European leaders gave troubled countries another chance to wriggle their way out of financial peril. But the 64-year-old Mr. Corzine is running out of time. MF Global posted a huge quarterly loss last week, though it blamed the shortfall on lower trading revenues and higher expenses, not the big bet on European sovereign debt.

Nervous customers are fleeing—and taking their money with them, according to people familiar with the situation. Executives have scrambled to raise cash, including selling some of the European positions, the people said. Analysts, investment bankers and MF Global employees say the company likely needs to finalize a deal by Monday. Still, MF Global isn't big enough to pose systemic risk to the U.S. financial system if a deal can't be reached, according to people on Wall Street.

Mr. Corzine, who led the negotiations Saturday as snow fell outside MF Global's midtown Manhattan headquarters, declined requests for an interview but hasn't backed down publicly from his European bet. "Our judgment is that our positions have relatively little underlying principal risk in the time frame of our exposure," he told analysts last week.

On Sunday, lawyers at Skadden, Arps, Slate, Meagher & Flom were putting together a trove of documents to ready the possible filing. Weil, Gotshal & Manges restructuring lawyers were preparing to represent MF Global's London affiliate, said a separate person familiar with the matter. Restructuring lawyers at Sullivan & Cromwell are also advising the company, another person said.

MF Global's roots go back nearly 230 years to a sugar brokerage on the banks of the Thames River in London. Spun off from a hedge-fund firm in 2007, it is one of the world's largest players in exchange-traded futures and options.

Mr. Corzine's no-holds-barred bet on European sovereign debt last year stood out for its heft: MF Global's exposure was far greater than that at Morgan Stanley, a much larger securities firm also whipsawed in the past few months by European trades.

It was the kind of gutsy trade that helped make Mr. Corzine a star at Goldman in the 1990s. "If it was a good trade for $100, he wanted to make it $1,000 or $1 million," a former colleague recalls.

Supporters say Mr. Corzine's crusade to expand Goldman's fixed-income businesses made it easier for successors Henry Paulson and Lloyd Blankfein, who became CEOs of the New York company, to create one of the mightiest profit machines in Wall Street history.

Mr. Corzine, the son of a grain farmer and teacher who grew up in Illinois, was blamed by some Goldman executives for poorly timed currency bets that suffered steep losses in 1994 when the British pound fell unexpectedly.

Mr. Corzine was eventually pushed out as chairman in 1999 after championing the move to take Goldman public, despite objections of other partners.

During his political career, Mr. Corzine went his own way as well. After taking office as New Jersey's governor in 2006, Mr. Corzine, a Democrat, pushed for a massive toll increase on toll roads to help the state's budget deficit. Critics denounced it as politically impossible, but Mr. Corzine "just wouldn't back down," says Stephen Sweeney, a New Jersey state senator who worked closely with Mr. Corzine on budget issues.

Mr. Corzine ran for a second term in 2009 and was beaten by Republican Chris Christie.

Mr. Corzine had been gone from Wall Street for more than a decade when an old colleague from Goldman, Christopher Flowers, suggested Mr. Corzine run MF Global. Mr. Flowers runs a private-equity firm, J.C. Flowers & Co., which took a big stake and a board seat in MF Global in 2008. Mr. Flowers's firm still owns a minority stake. He declined comment.

Mr. Corzine took the CEO job in March 2010 with a plan to turn MF Global into a mini-Goldman. Instead of just futures and commodities trading, which generate commissions from clients, MF Global would make bets with the firm's own money.

He set out on a five-year makeover, but it wasn't easy. Last year, stocks rose, but interest rates that MF Global relies on to profitably lend to clients stayed stubbornly low, hurting profits. "We have to take risks," he said in an interview.

Last year, Mr. Corzine immersed himself in the idea of making bets on European sovereign bonds. He asked colleagues what they thought of the financial situation in Europe, talked to MF Global's risk officers and board of directors, and then starting putting on the trades in September, according to people familiar with the situation.

Mr. Corzine oversaw the European sovereign-debt trades largely on his own even after hiring a new trading chief earlier this year, a person familiar with the matter says. In one quarter where the trade worked well, it represented 12% of the firm's revenues, according to Christopher Allen, an analyst with Evercore Partners Inc. Mr. Corzine regularly reviewed the positions with the company's directors, and he was allowed by the board several times to increase MF Global's exposure to Europe, these people said.

Investors in debt issued by MF Global were pleased, too. In August, they lent the company money at a lower interest rate if Mr. Corzine stayed at the company instead of leaving for a federal-government post, such as Treasury secretary.

One person who has worked with Mr. Corzine at MF Global says he was uncomfortable that so much of the firm's strategy essentially boiled down to a bet by Mr. Corzine on European bonds. "There was no one else at the firm who was helping him think about what to do on this trade," this person says.

On Tuesday, MF Global said the positions added up to $6.3 billion as of Sept. 30. About two-thirds of the total is related to sovereign debt of Italy and Spain. In comparison, Morgan Stanley had roughly $4 billion in net exposure to debt issued by the same countries and nearly 50 times as much cash and liquidity as MF Global.

MF Global's exposure started drawing more attention as Europe's financial crisis deepened. In August, MF Global was told by one of its regulators, the Financial Industry Regulatory Authority, to move more capital to its U.S. brokerage unit because the European trades looked riskier, according to people familiar with the situation.

Last Tuesday, MF Global reported a fiscal second-quarter loss of $186.6 million that caused its stock price to plunge 48%. The exact impact of the European bets isn't clear. "We look forward to coming back with better results," Mr. Corzine told analysts and investors.

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Japan intervenes to tame soaring yen ahead of G20

Japan sold the yen for the second time in less than three months after it hit another record high against the dollar Monday, saying it intervened to counter excessive speculation that was hurting the world's No. 3 economy.

The intervention vaulted the dollar more than 4 percent higher, which would mark its biggest one-day gain in three years, and Finance Minister Jun Azumi said Tokyo would continue to step into the market until it was satisfied with the results.

Indeed, his deputy later said the intervention was not over yet, when asked to assess its effects as the dollar began slipping from the day's high.

"I don't think intervention has ceased yet," Fumihiko Igarashi told reporters.

Many market players voiced doubts the impact would last given that previous intervention since September 2010 had failed to prevent the yen from resuming its rally and setting a series of all-time highs against the dollar.

Tokyo's latest foray followed repeated warnings that its patience with the yen's strength was wearing thin, and came just days before the Group of 20 leaders' summit in Cannes, France.

The summit will focus on Europe's efforts to contain its sovereign debt crisis and avoid a repeat of the financial shock that roiled markets after the Lehman Brothers collapse in 2008.

But Tokyo is keen to win G20 understanding that a strong yen is one challenge too many for an economy grappling with a nuclear crisis, a $250 billion rebuilding effort from a March earthquake and tsunami and ballooning public debt.

Japan also says investors buy the yen as a safe haven from the euro zone debt crisis and stuttering U.S. growth. It argues such demand has nothing to do with the fragile health of the Japanese economy.

"We started currency intervention this morning in order to take every measure against speculative and disorderly moves and to prevent risks to the Japanese economy from materializing," Prime Minister Yoshihiko Noda told parliament.

The intervention came after the dollar touched a record low of 75.31 yen and pushed the world's main reserve currency up past 79 yen. The dollar, however, slipped below 78 in European trade.

Japan's economy has been recovering from its post-quake recession with companies swiftly restoring production and supply chains and Tokyo has counted on reconstruction spending and robust emerging markets demand to sustain the momentum.

But the yen's climb has spurred policymakers to act.

MORE TO COME?

Noda, who took over as Japan's sixth premier in five years last month, served as finance minister in the previous cabinet and led three past interventions between September 2010 and August, including joint action with G7 partners in March 2011. The September 2010 intervention was Japan's first in six years.

Azumi said that while Japan acted solo Monday, he remained in close contact with his international counterparts.

Several G20 nations, including Japan's exports rival South Korea, have intervened frequently in markets. But Japan is under more scrutiny as an issuer of one of three global currencies and does not want to be labeled as a currency manipulator.

Azumi has indicated after his past meetings with Group of Seven and G20 partners that they appreciated Japan's special circumstances.

Still, many voiced doubts about how long the impact of the intervention would last, including Honda Motor Chief Financial Officer Fumihiko Ike.

"Frankly, my reaction was: 'finally, they intervened.' But I'm also aware that a solo intervention has a limited impact," he said. "Will we be able to keep these levels" I'm not at all hopeful."[ID:nT9E7LD01M]

Stock market investors showed a similar reaction, Koichi Ogawa, chief portfolio manager at Daiwa SB Investments, said.

The intervention initially boosted shares in exporters, helping push the Nikkei average to a three-month intraday high. However, the market closed down 0.7 percent. [ID:nL4E7LV1C3]

"The Nikkei was still unable to hold any gains, showing that investors are not confident that the yen will remain down," Ogawa said.

Takuji Okubo, chief economist at Societe Generale in Tokyo, was equally skeptical. "I do think this is one of many interventions to come," Okubo told Reuters Insider.

Some, however, said Monday's action that followed Bank Of Japan's monetary easing last week, could keep the yen away from its peaks for quite some time.

"It was very good timing. The BOJ has prepared the ground by easing last week. Speculators' yen-buying position has piled up, and intervention is most effective in such cases," said Yunosuke Ikeda, senior FX strategist at Nomura Securities.

BOJ Governor Masaaki Shirakawa was also hopeful the intervention -- conducted by the central bank on behalf of the finance ministry -- would have an impact.

"The BOJ strongly hopes that such moves will lead to currency market stability," he said in a speech.

Azumi would not comment on the size of the intervention, but one trader said the authorities were intervening "quite persistently."

The amount of intervention could match the 4.5 trillion yen ($59 billion) Tokyo sold on August 4 in its biggest single-day intervention so far, said Mitul Kotecha, head of global currency strategy at Credit Agricole.

Even though the yen's exchange rate measured against a trade-weighted currency basket and adjusted for inflation is not far from its 30-year average, its dollar rate is much stronger than that used by exporters in their earnings projections.

That has led to a flurry of warnings from car makers and electronic firms that they might be forced to move more production abroad to cope.

Chipmaker Elpida warned it might have to move production overseas and Honda's chief executive said earlier this month that the company would half exports from Japan over the next decade because of the strong yen.

Last Thursday, acting in part out of concern that such "hollowing out" of the industry could stunt Japan's recovery, the BOJ eased its monetary policy by boosting government bond purchases.

($1=75.76 yen)

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Europe Looks to IMF, China for Rescue-Fund Cash

European officials are studying the potential for an International Monetary Fund channel for money for their enlarged rescue fund, as China considers contributing to ending the area’s sovereign-debt crisis.

The European Financial Stability Facility may explore setting up a special purpose vehicle with the IMF, Klaus Regling, the EFSF’s chief executive officer, said at a briefing in Beijing today. Separately, Chinese Vice Finance Minister Zhu Guangyao said that while an investment by his nation is “under discussion,” China needs more detail of what is planned.

European leaders aim to tap China, holder of the world’s largest foreign-exchange reserves, for help after yesterday moving to contain the crisis by writing down Greek debt and targeting an expansion of the EFSF to about $1.4 trillion. China may aim to increase its influence at the IMF, a global lender of last resort, as a quid pro quo for contributing, said Tomo Kinoshita, an economist at Nomura Holdings Inc.

It may suit China “to contribute to European and global financial stability by injecting funds through an IMF channel,” said Hong Kong-based Kinoshita. The nation would “try its best politically” to benefit, he added.

Asian stocks climbed, extending the best weekly rally since 2009, on renewed confidence in the global economy after better- than-expected U.S. data added to signs of progress in Europe. The MSCI Asia Pacific Index rose 1.3 percent by 3:05 p.m. in Tokyo.

No Strings Attached

Regling said China hasn’t set any conditions for buying EFSF bonds after being a “good” and “loyal” purchaser of the securities so far.

French President Nicolas Sarkozy spoke with Chinese counterpart Hu Jintao by phone yesterday and the two agreed to “cooperate closely” to ensure global growth and stability, Sarkozy’s office said in a statement. Regling said that he didn’t expect a “precise outcome” from talks with Chinese officials during his trip.

Japan plans to support the increase in the fund and is awaiting details, a person familiar with the matter said yesterday. Japan anticipates waiting until November for specifics on how it may be able to help with the European rescue effort, a second person said, with both speaking on condition of anonymity because the discussions are private.

BRICS Statement

Officials from Brazil, Russia, India, China and South Africa -- the so-called BRICS -- said in a Sept. 22 statement they are “open” to contributing to global financial stability through the IMF or other international financial institutions. Asia has bought 40 percent of ESFS bonds this year, according to Regling.

The IMF said last month that its uncommitted reserves, now about $393 billion, may not be enough to meet all loan requests should the global economy worsen. The Group of 20 leaders meeting in Cannes, France, next week is scheduled to discuss whether the war chest is sufficient.

Creating a special purpose vehicle within the IMF would require approval by the organization’s executive board.

The IMF has channeled money from selected member countries for specific purposes before. In the 1970s, oil producers contributed to a pool that financed loans to economies hurt by the increase in the price of crude. Currently, some nations chip into a trust fund that helps lend to the poorest nations at lower rates. These pools have been used to lend to countries, not to intervene in financial markets.

Asia’s Cash

Nations such as China or India have enough currency reserves to participate in a fund focused on Europe, said Mohsin Khan, a former IMF department director who is now a senior fellow with the Peterson Institute for International Economics in Washington. Such support may come at a price, Khan said.

“I think there will be some quid pro quo on this,” he said. “They would like a bigger role in global financial governance and I think they will also see it as they are systemically important and they are doing something good for the world.”

China’s foreign-exchange holdings have topped $3 trillion this year, swelled by the nation’s trade surplus and inflows of speculative capital.

The IMF is involved in programs for Greece, Ireland and Portugal -- nations at the center of the debt crisis -- while China is “an important member” of the organization, Regling said. The possibility of a special vehicle “needs to be explored,” he said.

Regling was due to meet with People’s Bank of China and finance ministry officials today, he said.

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Move to Beef Up Fund Has Blank Spots (Video)

The 17 governments of the euro area have agreed to rely on Byzantine financial engineering and outside help to beef up the firepower of a rescue fund aimed at comforting investors that the group can fix Greece's debt woes and handle future crises.

Euro-zone leaders said the souped-up rescue fund, known as the European Financial Stability Facility, would have the capacity to provide guarantees for about €1 trillion, or about $1.4 trillion, of bonds, and expressed hope this would be enough to assist large euro-zone members such as Italy and Spain.

But the plan, crafted in the wee hours of Thursday by euro-zone leaders gathered in Brussels, contained many blanks. It didn't spell out how much money the fund would have at its disposal and mentioned the prospect of luring private and public investors from outside the euro zone, without firm commitments.

The EFSF said its chief, Klaus Regling, would travel to Beijing on Friday to discuss how China might contribute to the fund. The EFSF is planning to approach other cash-rich nations such as Brazil and petrostates in the Middle East, people familiar with the matter said. Russia said it would consider the possibility of contributing to the euro-zone fund but added that it would prefer giving Europeans a helping hand through the International Monetary Fund.

"Instead of relying on our own strengths, we're left going on a world tour to beg for help," French Socialist lawmaker and former Finance Minister Michel Sapin said in an interview. "It leaves us in a weak spot vis-à-vis China and other countries."

The complex solutions used to create a mighty backstop fund highlight the limitations of the euro-area architecture, where member states cannot freely tap into the European Central Bank's deep pockets when they run into trouble. The ECB has been buying bonds from troubled euro-zone nations but has warned that the scope of such intervention would be limited in time and volume.

Thursday's intricate plan also underlines the weaknesses of one of the euro zone's main economies, France, which would have struggled to contribute more money to the EFSF without jeopardizing its prized triple-A credit rating. France's President Nicolas Sarkozy said Thursday that his government would unveiled austerity measures in the coming days, its second package in two months, to take into account a much weaker economic-growth outlook.

Germany might have had the capacity to plow more cash into the fund, but last month German lawmakers said they would veto any such move.

Euro-zone governments thought they had found a way to regain investor confidence in July when they announced the EFSF would be equipped with €440 billion. But the amount failed to provide a "shock-and-awe" remedy.

The fund has already earmarked up to €100 billion to help recapitalize European banks and about €100 billion to bail out Greece, Ireland and Portugal. With little over €200 billion left, it became clear the fund wouldn't have the capacity to douse yet another bond fire in a large country such as Italy.

Under the tentative arrangement, the EFSF will use part of its money to offer investors comfort that the initial losses in the event of any default on, say, Italian or Spanish bonds, will be met by the facility.

The mechanism is similar to the insurance policy that investors can subscribe to when they purchase credit default swaps, or CDS, to secure their bond investments.

The EFSF said it would be for investors to judge which solution they prefer but noted that the partial protection provided by the EFSF would be backed by triple-A assets—which is unlikely to be the case with those given by a CDS provider.

To further increase the EFSF's firepower, euro-zone governments have agreed to create one or several funds, possibly placed under IMF supervision. The funds would be seeded with EFSF money and contributions from outside investors.

Whether investors will bite remains a big question. Mohamed el-Erian, chief executive of the world's largest bond fund Pimco, said the agreements need to be translated into concrete decisions, which he said could be a significant challenge.

"The implementation challenge is as high, if not higher than the design challenge," Mr. Erian said in an interview. "There's the wallet, but not the will right now," he said, referring to emerging-market appetite for European assets.



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Next Act—The Plan Is Put to Test (Video)

The deal euro-zone leaders hammered out in the early hours of Thursday sparked a world-wide stock rally. But the market moves belied widespread caution about the accord among economists and analysts—and even some of the decision-makers in the debt crisis.

Many pointed out the summit announcements lacked critical details that must be hashed out in the weeks and months ahead, and then put into effect. "The implementation challenge is as high, if not higher, than the design challenge," Mohamed El-Erian, chief executive of Pimco, which runs the world's largest bond fund, warned in an interview.

Others were pessimistic on the fundamentals, arguing that neither the deal to cut Greece's debt by 50% nor the plan to boost the firepower of the euro zone's bailout fund, known as the European Financial Stability Facility, or EFSF, would be enough to quell Europe's torrid debt crisis.

Only the European Central Bank's continued support of the region's bond markets can prevent an eventual further downward lurch in confidence, many argued. Some analysts saw the deal's lack of measures to boost economic growth as an Achilles' heel.

Indeed, the markets most critical to the euro zone's financial health reacted coolly. Interest rates on sovereign bonds for Italy and Spain—the two big economies most at risk from being sucked deeper into the crisis—fell modestly but were still higher than is comfortable for cash-strapped governments: Yields on 10-year Italian bonds were around 5.7% and those on Spanish bonds about 5.3%.

That may signal investor skepticism about the leaders' plans to deploy financial engineering with bailout funds in an effort to lure back bond investors and thereby lower the borrowing costs of Spain and Italy.

Euro-zone governments hope to do this in two ways—each designed to attract a different class of investor.

In the first, Italy and Spain use EFSF finance in effect to insure a proportion—say 20%—of their new government bond issues in case of default. Such guarantees, tradable separately from the bonds, are aimed at providing comfort to traditional bond investors who have been fearful they may not be repaid.

But it's not clear the guarantees will do the trick. In the first place, sovereign bond markets generally either have no defaults or large defaults in which investors take sizable losses. Small defaults hardly ever happen—so investors may not be comforted by a modest insurance policy.

Success also depends on whether investors believe the guarantees will act as advertised. If they pay out in the event of a default, and then the bailout fund chases after the defaulting government for the money it has just lost to bondholders, the bondholders won't be better off. They'll just be fighting with the EFSF over the remaining limited funds available from the defaulting government.

The fact is, governments have no idea whether investors will bite on the insurance plan. They are now likely to embark on exercises to gauge what percentage of insurance on bonds would be both enticing to investors and cost-effective for the governments.

In the second model, special-purpose vehicles seeded with "first-loss capital" from the bailout fund are aimed at enticing sovereign-wealth funds and other investors to buy euro-zone government bonds.

Prospects for this model are highly uncertain: Some analysts argue the key to success here is for European governments to spend a lot of political capital persuading potential investors, such as China, to come on board.

The plan would stand a greater chance of success, they say, if the International Monetary Fund could be persuaded to give its imprimatur to the vehicles and monitor recipients' economies. The IMF played a similar role in the past when it helped create funds aimed at recycling surpluses from oil producers to hard-hit oil consumers after the oil-price hikes of the 1970s.

Some of the investors targeted in this plan may have big-picture strategic reasons to sign up: Perhaps, for example, they want to avoid a collapse of the euro-zone to preserve an alternative reserve currency to the dollar. If so, they might even be willing to invest at lower interest rates than commercial investors. Whether they will is, at the moment, guesswork.

Another major leg of the agreement is a proposal to halve the value of Greek government bonds in private hands—some €210 billion of Greece's €350 billion total government debt. European Union officials said they hoped the deal would slash €100 billion from the debt burden—which would lower Greece's debt to a still-lofty 120% of gross domestic product in 2020.

Jens Weidmann, head of Germany's Bundesbank and a member of the European Central Bank's governing council, Thursday warned that writing off some of Greece's debts may ease pressure on Athens to continue with tough fiscal austerity measures. "There can't be any impression that the haircut or public aid from partner countries is a comfortable way out of self-inflicted problems," he said.

From the perspective of reducing Greece's debt, it's a substantial improvement over the deal euro-zone leaders agreed for Greece in July, and later tore up, analysts said. That would have left Greece's debt in 2020 at 163% of GDP.

But some noted that Institute of International Finance, negotiating on behalf of the private sector, had committed only to "work...to develop a concrete voluntary agreement" on Greek debt. "An invitation to agree to a haircut is not the same as a haircut," said Sony Kapoor, managing director of economic and financial think tank Re-Define.

What percentage of bondholders participate is critical: If a high proportion refuse, the deal won't achieve the advertised debt reduction. IIF managing director Charles Dallara said in an interview Thursday he expected participation rates to be "very, very high."

The deal, he said, would likely be a "simple straight voluntary exchange," far less complex than the menu of options offered under the proposal agreed in July.

However, the latest deal has a wrinkle: The new bonds with lower face value that bondholders will receive in exchange for their old bonds will be issued under English law, says Mr. Dallara—not Greek law, which governs the old bonds. That will make the task of any future debt restructuring—which analysts say cannot be ruled out if Greece's economy continues to shrink—so much more difficult.



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Euro at 7-Week High After Roller-Coaster EU Summit

The euro jumped to a seven-week high against the dollar and gained strongly against the yen after European leaders ended a marathon meeting with an apparent deal on Greek debt and a roadmap for the expansion of Europe's emergency bailout fund.

French President Nicolas Sarkozy declared that talks with private-sector lenders had produced a "durable solution" to the Greek crisis, with an agreement by private investors to accept a 50% write-off on their holdings of Greek debt. The private-sector involvement had been a critical issue in the dispute.

As part of the agreed package, the European Financial Stability Facility is expected to be leveraged four to five times, to around 1 trillion euros ($1.39 trillion), although further talks are necessary, officials said.

By 11:50am local time in Tokyo, the euro had climbed to a seven-week high at $1.3995, from a morning low of $1.3865 and a late New York quote of $1.3906, according to data from EBS.

Against the yen, the common currency climbed to ¥106.44 from the New York quote of ¥105.98.

Markets remained somewhat skeptical, however.

"They are so good at presenting things like this, but they've just bought some time and the debt issues are still far from over," said Masanobu Ishikawa, a senior dealer at Tokyo Forex and Ueda Harlow.

He said the deal largely was within expectations and that the euro would remain under downward pressure in the medium-term.

Markets had gyrated through the European and North American sessions on Wednesday as the meetings went on, culminating in announcements around 11am Tokyo time on Thursday.

To the likely frustration of Japanese authorities, the euro's gains did little to dent the yen's rise against the dollar, with the yen hovering near record highs touched overnight. The dollar was at ¥76.04 from ¥76.16 in New York.

Japanese officials insist Japan's economic fundamentals do not warrant a yen at the current strong levels. Finance Minister Jun Azumi said early on Thursday that speculators are using Europe's debt crisis as an excuse to push the yen higher.

"It's clear that speculators are rushing into the yen while watching the European situation, rather than the (yen's) moves reflecting economic fundamentals," Mr. Azumi said.

Attention is also focused on the Bank of Japan, which is holding a one-day policy board meeting on Thursday, where it's expected to discuss further monetary easing.

The central bank hopes that putting more money into the economy would help push down the value of the yen. The most likely option is to add more funds to the BOJ's ¥50 trillion asset purchase program.

Among other currency pairs, the dollar was at 0.8792 Swiss francs from 0.8807 Swiss francs while the British pound was at $1.6005 from $1.5981. The ICE Dollar Index was at 75.944 from 76.209.


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European Stocks Rally

European stock markets soared Thursday, led by the heavily weighted banking sector, as investors reacted with relief to the euro zone's agreement on measures to stem the region's deepening debt crisis.

The Stoxx Europe 600 index for the banking sector jumped 7.1%. French banks led the rally, as they have been weighed down by worries over the extent of their Greek debt exposure. Shares in Crédit Agricole climbed 15%, BNP Paribas added 16%, and Société Générale was 11% higher.

The benchmark Stoxx Europe 600 index was up 3.0% at 247.99. London's FTSE 100 index was 2.5% higher at 5692.59, Frankfurt's DAX had gained 4.4% to 6280.23, and Paris's CAC-40 had added 4.8% to 3322.86.

Goldman Sachs raised its three-month forecast for the Stoxx Europe 600 index to 255, saying that while the proposals remain vague, should they be developed into a plan that offers a credible roadmap to contain and resolve the crisis, significant upside exists to European equities from current levels.

According to the agreement, Greek bondholders will voluntarily write down 50% of their holdings, though the details still have to be worked out with banks. Euro-zone governments will also mobilize €30 billion to finance guarantees for the private sector as part of the debt-reduction deal, and agreed to expand the firepower of the European Financial Stability Facility, the euro zone's bailout vehicle, by as much as four or five times to about $1.4 billion.

Banks are also expected to raise core tier 1 capital ratios to 9%, and about 70 banks across the euro zone will need to raise about €106.4 billion in new capital.

"We view such an injection of capital into the banking sector positively, although until sovereign markets stabilize, the threat to the euro area banking system will persist," Goldman Sachs said.

Italian and Spanish bond yields fell sharply. The yield on the benchmark 10-year Italian bond yield fell by 0.12 percentage points to 5.79% and the 10-year Spanish bond yield fell by 0.19 basis points to 5.28%.

Corporate news Thursday also gave a lift to markets. Shares in Sweden's Telefon AB L.M. Ericsson rose 4.9%, after the group ended a 10-year tie-up with Sony, by selling its 50% share in the Sony Ericsson joint venture to Sony.

Shares in Bayer gained 4.2%, after it confirmed its full-year earnings forecast, while BASF added 5.0%, as it backed its outlook for higher year-on-year sales and earnings in 2011. Royal Dutch Shell shares rose up 1.0% after its adjusted profit for the third quarter rose by a better-than-expected 42%.

Turning to the foreign-exchange markets, the euro jumped to a seven-week high against the dollar as investors expressed relief that the region's leaders had finally come to an agreement to attempt to resolve the sovereign debt crisis.

The euro traded at $1.4027 against the U.S. dollar, from $1.3906 late Wednesday in New York, after having reached a new high of $1.4038. The U.S. dollar was at ¥75.82 from ¥76.16.

The price of spot gold was at $1,715.49 a troy ounce, down $5.70 from its New York settlement on Wednesday. December Nymex crude-oil futures were up $2.37 at $92.57 per barrel, while the Brent futures contract for the same month was at $110.88, up $1.97.

On the data front, the main source of interest will be the release of the U.S. third-quarter gross-domestic-product figures at 8:30 a.m. EDT.

"We expect the U.S. to announce preliminary GDP growth of 2.5% in 3Q," said Barclays Capital. "This is consistent with market expectations, but should nevertheless set a reasonably supportive backdrop for the more substantive European policy announcements likely to emerge in the days to come."

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EU Forges Greek Bond Deal (Video)

European leaders said they secured a deal to reduce Greece's debt after they labored overnight and into Thursday morning to find agreement on what they had billed as a blockbuster package to stem the Continent's debt crisis.

French President Nicolas Sarkozy said after the marathon negotiating session that the leaders had reached agreement with private banks on a "voluntary" 50% reduction of Greece's debt in the hands of private investors.

He also said they had agreed to expand the firepower of the euro zone's bailout vehicle, known as the European Financial Stability Facility, by four- or five-fold—suggesting it could provide guarantees for around €1 trillion, or about $1.4 trillion, of bonds issued by countries such as Spain and Italy.

Mr. Sarkozy expressed satisfaction that the Greek debt agreement wouldn't be forced on holders of Greek bonds. "France wanted to avoid the drama of a Greek default, when you remember the consequences of the failure of Lehman Brothers, and it's done," he said.

German Chancellor Angela Merkel said she was "very satisfied" with the outcome.

The leaders also agreed on a plan that would boost the capital buffers of the stragglers among the Continent's 70 biggest banks by €106 billion—though they didn't say where the money would come from.

After the summit ended, at around 4 a.m. in Brussels, the euro rose strongly against the dollar in morning trading in Asia. Other assets correlated to risk-taking, such as the Australian dollar, copper and oil also rallied. Stocks rose modestly across Asia.

European markets also rallied strongly Thursday, with banking shares leading the gains as investors welcomed the leaders' agreement.

A statement issued after the summit said leaders had agreed on "a comprehensive set of additional measures reflecting our strong determination to do whatever is required to overcome the present difficulties and take the necessary steps for the completion of our economic and monetary union."

As the leaders went into the meeting, deep divisions remained between euro-zone governments and private banks over how much to cut the government debt of Greece, the country at the heart of the crisis.

Such summits rarely end without ostensible agreement among the leaders on the way forward. But many officials had warned beforehand that it would take weeks to negotiate the details of any agreement.

After a day marked by a brawl among Italian lawmakers debating cutbacks in the country's pension system, Italian Prime Minister Silvio Berlusconi took time out from the Brussels summit to call into a popular Italian television show shortly after midnight, criticizing the European Central Bank and dismissing reports he plans to call for early elections.

Governments, led by Germany, had begun the day seeking a real cut in the value of Greek government bonds held by private investors of as much as 60%. The banks, led in negotiations by Charles Dallara of the Institute of International Finance, a Washington-based international bank lobby group, offered a new proposal Tuesday night that officials said had fallen far short of that.

Officials said Ms. Merkel, Mr. Sarkozy and International Monetary Fund Managing Director Christine Lagarde met with Mr. Dallara in the middle of their summit. According to a person familiar with the matter, Mr. Sarkozy warned him that in the absence of an arrangement, private creditors would face a Greek default and 100% losses on their investments.

Mr. Dallara had warned that too radical a deal couldn't be styled as voluntary and would damage Greece and trigger contagion effects around the rest of the euro zone. After the accord was announced, Mr. Dallara issued a statement saying, "The IIF agrees to work with Greece, euro-area authorities and the IMF to develop a concrete voluntary agreement on the firm basis of a nominal discount of 50% on notional Greek debt held by private investors." The deal would be supported by €30 billion of "official funding," he said.

This suggests Greece would borrow an extra €30 billion—on top of the €100 billion in bailout funds it is already getting—from the EFSF to provide guarantees for bondholders who accept the deal.

Mr. Dallara said Thursday that private-sector participation in the deal on a write-down of Greek debt is likely to be "very high." But he said the IIF had made no commitment about the likely level of participation.

Cutting Greece's debt has been complicated by the fact that private creditors hold only about €210 billion of Greece's €350 billion government debt. This makes it harder to reduce Greece's debt substantially, given that official creditors such as the IMF refuse to accept losses. The deal envisages Greece's debt falling to 120% of gross domestic product by 2020.

The leaders, in their plan to boost the firepower of the EFSF to stop further contagion, agreed on two ways of doing this, which would run side-by-side.

Under one method, the EFSF would indirectly finance guarantees covering the initial losses that buyers of Spanish and Italian bonds would suffer in the event of default.

The other is to set up a fund seeded with EFSF money as well as with contributions from cash-rich nations such as China. The head of the EFSF, Klaus Regling, is due in China Friday to discuss how Beijing might contribute to the fund's finance. In a parallel effort, Mr. Sarkozy plans to call China's President Hu Jintao Thursday to discuss the matter, a French government official said Wednesday.

The euro got a boost earlier Wednesday when lawmakers in Germany, Europe's largest economy, backed a resolution approving the proposals for boosting the fund. Germany's Bundestag, or lower house of parliament, passed the resolution without the chancellor's ruling coalition needing to borrow votes from opposition parties. Ms. Merkel told the parliament that Europe must correct mistakes made at the euro's creation.

"We have to seize this opportunity now or never to correct the architectural flaws made when economic and monetary union was created," she said.

Details also emerged over policymakers' plans for strengthening the continent's banks.

The most important new element was a call by European leaders for a plan to provide guarantees on banks' medium- and long-term debt funding. While details aren't clear, the provision is aimed at helping alleviate a drought in the market for bank bonds threatening to leave some banks short on funding next year.

Experts said such a program could prove more important than the higher-profile efforts to coax banks to beef up capital cushions.

The other component of Europe's bank-strengthening plan calls for large banks to maintain so-called core Tier 1 capital ratios of 9%, after adjusting the values of their government bond portfolios to reflect market prices.

Banks will have until June 30, 2012, to come up with any additional necessary capital.

Late Wednesday, the European Banking Authority said leading banks in 13 countries will need to come up with an additional €106.4 billion in so-called core Tier 1 capital by that date. The EBA said it based its evaluation on a sample of 70 banks across the continent.

Banks in Greece, Spain and Italy face the biggest capital holes, and together account for about two-thirds of the overall amount that needs to be raised. The French, Portuguese and German banking sectors each face capital deficits of €5 billion to €9 billion. The EBA deemed banks in the U.K. and Ireland, among others, as having enough capital.

Italy's economy continues to be a concern. In a letter sent to European Union leaders Wednesday, Mr. Berlusconi promised partial reform of the Italian pension system, state-asset sales targeting revenue of €5 billion a year and a loosening of labor laws to make layoffs easier.

In the letter Mr. Berlusconi reiterated a key pledge to balance the country's budget in 2013, and acknowledged that, despite having approved a €60-billion austerity package this summer, the government still has to face a heavy debt burden as well as stagnant growth.



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IBM Names Ginni Rometty as First Female CEO

International Business Machines Corp.’s Virginia “Ginni” Rometty has grown throughout her career by taking on challenges she’s never faced before. Now she’ll tackle something no one has ever done.

Rometty, 54, will become the first female chief executive officer in IBM’s 100-year history. The Armonk, New York-based company said yesterday she will succeed Sam Palmisano in the role effective Jan. 1. Palmisano, who has been CEO since 2002, will remain chairman.

In an interview, Rometty said she has grown the most in her career through “experiential” learning.

“I learned to always take on things I’d never done before,” she said.

She takes the reins as steady profit growth pushes IBM shares this year to the highest level since the company went public in 1915. Her experience in sales, services and acquisitions fits with the strategic direction set by Palmisano, who said last year the company will add $20 billion to revenue between 2010 and 2015 by expanding in markets such as cloud computing and analytics.

Rometty made it clear she would follow the road map the company has laid out because she helped construct it.

“I’ve been head of strategy at IBM and together with my colleagues built our five-year plan,” she said. “My priorities are going to be to continue to execute on that.”

Budget Fights

The 30-year IBM veteran caught Palmisano’s attention in 2002 when she helped integrate the $3.9 billion acquisition of PwC Consulting, IBM’s largest deal ever at the time. Rometty, then a general manager of the consulting unit, said she knew from the start the acquisition would be challenging.

“It was the first and only time a professional services firm of that size has been integrated into another large company,” she said.

Rometty is credited with helping retain PwC’s principal consultants, who didn’t always mesh with IBM’s cost-cutting culture. When Palmisano wanted to cut travel budgets, making consultants stay at Holiday Inns, she helped them fight -- and win, said Ric Andersen, a former PwC consultant who joined IBM in the deal.

Palmisano promoted her to senior vice president of the group in 2005, and she boosted profit at the unit 42 percent in her first two years on the job. During her three decades at IBM, she became known as a polished executive who can close a sale, expanding relationships with companies from State Farm Insurance Co. to Prudential Financial Inc.

“She’s an engaging woman -- great with customers,” said Fred Amoroso, who was her boss in the financial-services consulting division during the 1990s. “Customers just love Ginni.”

Sales Promotion

Amid the recession, Palmisano put her in charge of running the company’s almost $100 billion in sales. Last year, she added marketing and strategy to her responsibilities.

“She is more than a superb operational executive,” Palmisano said in the statement. “With every leadership role, she has strengthened our ability to integrate IBM’s capabilities for our clients.”

The succession at IBM has been the result of careful, long- term planning by the company’s board, said Rosabeth Kanter, a Harvard Business School professor who knows Rometty and other IBM executives. Rometty not only held many key positions at IBM during her career, she also has received mentoring and exposure to global leaders important to IBM’s future, she said.

“In contrast to other companies that have abruptly named new CEOs recently, such as Hewlett-Packard, IBM handled this very smoothly over several years,” Kanter said in an interview.

Vastly Different

Palmisano turned 60 in July, the age at which three of the past four IBM chiefs have stepped down. He’s IBM’s longest- serving CEO who doesn’t share the surname of the company’s founder, Thomas J. Watson.

He will leave a business vastly different than the one he took over. In his first year at the helm, he bought PwC Consulting, and two years later, he sold off the PC business. Those moves coupled with more than $25 billion in software acquisitions helped Palmisano realign what was once the largest computer company into a services and software powerhouse.

The maneuvers made the company predictably profitable, boosting per-share profit for more than 30 straight quarters. Since 2001, Palmisano’s boosted sales by 20 percent, while keeping costs of the 426,000-employee behemoth little changed.

Buybacks and Profits

He also used IBM’s cash flow to buy back stock, helping to boost earnings per share and the share price. The company yesterday added $7 billion to its repurchase authorization, raising the buyback program to $12.2 billion.

The appointment of Rometty, with a background beyond technology, underscores the company’s focus on business services, said Bobby Cameron, an analyst for Forrester Research.

“A lot of the company’s strategies now are business- focused, not tech-based,” Cameron said in an interview. “I look at Rometty being put in this spot as evidence of that shift.”

Analysts took the news as a sign of stability.

“I don’t think much changes, and that’s a good thing,” said Brad Zelnick, an analyst at Macquarie Capital USA in New York, who has an “outperform” rating on the stock. “The leadership team has acted in a very cohesive fashion over the years. Especially with Palmisano remaining as chairman, I would expect that the strategy keep consistent.”

Growth Versus Comfort

Rometty grew up in a Chicago suburb, the oldest of four children. In 1979, she got a degree in computer science and electrical engineering from Northwestern University and headed to an internship with General Motors in Detroit, where she met her husband, Mark. After her internship, she joined IBM. She now splits her time between homes in White Plains, New York, and Bonita Springs, Florida, where she and Mark are avid scuba divers.

This month at Fortune magazine’s Power Women Summit, Rometty said she learned shortly after beginning to work that she needed to take risks to advance.

“Really early, early in my career, I can remember being offered a big job,” she said. “Right away I said, ‘You know what? I’m not ready for this job.’”

That night “as I’m telling my husband about this, he just looked at me and he said, ‘Do you think a man would have ever answered that question that way?’” she said. “What that taught me was you have to be very confident even though you’re so self- critical inside. Growth and comfort do not coexist.”

Commencement Speech

In a commencement speech at her alma mater last year, she explained why she has stayed at IBM as she encouraged the graduating students to seek the largest challenges.

“You have the skills that can be applied to some of the world’s most significant challenges,” she said. “I know that is what has always drawn me to, and kept me at IBM. IBM’s long- standing mantra is ‘Think.’ What has always made IBM a fascinating and compelling place for me, is the passion of the company, and its people, to apply technology and scientific thinking to major societal issues.”

“Every day I get to ‘Think’ and work on everything from digitizing electric grids so they can accommodate renewable energy and enable mass adoption of electric cars, helping major cities reduce congestion and pollution, to developing new micro- finance programs that help tiny businesses get started in markets such as Brazil, India, Africa,” she said. “After 30 years, I’m genuinely excited to get up and apply those problem- solving skills in ways I would never have imagined when I was sitting where you are.”

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Sterling hits 7-wk high vs dlr, tracks euro before summit

Sterling rose to a seven-week high against the dollar on Tuesday, tracking gains in the euro ahead of a keenly-awaited summit of European leaders.

Sterling was last up 0.1 percent at $1.6008, close to an earlier peak of $1.6042, its strongest since Sept. 8. However, it faced technical resistance above this high, with the 21-week average around $1.6044 and the 55-week average at $1.6047.

"Sterling is back above $1.60, which reflects a pick-up in general risk sentiment on hopes for a comprehensive solution to the euro zone's debt problems and some better U.S. data," said Geraldine Concagh, economist at AIB Group Treasury in Dublin.

"The market is waiting to see what comes out of the EU summit, with the potential for disappointment".

Further technical resistance was seen at the Sept. 8 peak of $1.6084 and at $1.6103, the 61.8 percent retracement of the August high above $1.66 to the October low of $1.5270. Traders also said trading in sterling may be influenced by a reported options expiry at $1.60 later in the day.

Optimism about the prospect of a comprehensive deal to resolve euro zone debt problems has waned, with disagreement remaining on critical aspects, including how to give the region's bailout fund greater firepower.

Analysts said this left plenty of room for disappointment, particularly given the current strength of the euro and other riskier currencies, including sterling.

Analysts said the pound may see some reaction to a Confederation of British Industry survey on industrial trends at 1000 GMT, though this was likely to be limited as focus quickly switches back to events in the euro zone.

The euro was up 0.15 percent at 87.04 pence , though it was not far from a two-week low of 86.70 pence.

Technical analysts highlighted the 55-day moving average crossing below the 200-day moving average for euro/sterling, often seen as a bearish signal. The 55-day has traded above the 200-day since November 2010.

"The outlook remains negative (for euro/sterling) - it has recently failed at the 87.94 pence late September high and directly above the market lies tough resistance, which extends to the 88.86 August high and we favour failure here," technical analysts at Commerzbank analysts said in a note.

Further falls could see the euro move towards the 200-week moving average -- currently around 85.37 pence --, they said.

However, the fundamental outlook for sterling remained bleak, with economic growth fragile and the Bank of England implementing a further round of quantitative easing.

BoE Governor Mervyn King said on Tuesday that policymakers had come very close to restarting QE in September but held off to see if volatility in financial markets would subside, before taking the decision to resume in October.

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Europe at Odds Over Crisis Package

Prospects for a long-awaited breakthrough deal to stem the worsening euro-zone debt crisis were up in the air on Tuesday, as governments and banks remained at loggerheads over how much pain to inflict on holders of government bonds issued by Greece, the country at the heart of the Continent's financial mess.

National governments and banks have been talking for more than a week in an effort to reach an accord on reducing Greece's debt burden, so that the agreement can be included in a planned "comprehensive package" that euro-zone leaders hope to announce at a summit Wednesday in Brussels.

Banks on Tuesday were rebuffing pressure from governments for "voluntary" write-downs of 50% to 60% on their Greek bonds, according to people familiar with the matter, although some said there had been movement that suggested a compromise in time for the summit couldn't be ruled out.

An EU finance ministers' meeting set for Wednesday ahead of the summit was canceled Tuesday, adding to doubts over the package.

Without an agreement on how Greece's debt will be restructured, it will be tough for European leaders to determine the future size of their beefed-up bailout fund, the European Financial Stability Facility.

The leaders are set to boost the fund to offer investors comfort that the initial losses in the event of any default on, say, Italian and Spanish bonds will be met by the facility. They hope this will bring down the two countries' borrowing costs. But how many such bonds will be covered depends in part on how much money is left in the fund after Greece's needs have been addressed, and on how much money the fund will need to pump into the region's shakier banks. A decision on how much European banks will need to add to their capital buffers—the third element of the interlocking package—won't be credible either until their write-downs on Greek bonds are known.

In a further threat to a credible deal, Germany's main political parties are seeking to put pressure on the European Central Bank to stop the ECB's purchases of Italian and Spanish bonds. The German government has agreed to submit the latest proposal for strengthening the euro zone's bailout fund to the Bundestag, the lower house of parliament.

It is due to vote on the proposal Wednesday before German Chancellor Angela Merkel flies to Brussels for the summit.

A draft of the Bundestag resolution, negotiated between the ruling coalition and main opposition parties, says the ECB should stop buying government bonds once the EFSF is able to do so.

"Once the EFSF comes into force, the need for continuing the European Central Bank's secondary-market program falls away," the document says.

Many economists say the ECB's emergency purchases of Italian and Spanish bonds since August are the only thing that has prevented panicked investors from fleeing two of Europe's biggest government-bond markets. Without ECB support, both countries would face unaffordably high borrowing costs.

However, many analysts say they doubt the proposed strengthening of the EFSF would be effective enough for the fund to replace the ECB as the lender of last resort to Italy and Spain.

A Bundestag resolution wouldn't bind the politically independent ECB. But it would highlight the unease about the ECB's bond-buying in Germany, Europe's most important economy, where politicians and voters widely believe that central banks shouldn't finance government debt.

In contrast, other European governments—led by France—want to press the ECB to continue buying bonds.

Ms. Merkel said on Tuesday that she wants to delete such a call from the draft European summit statement, on the grounds that governments shouldn't tell the independent ECB what to do.

Greece appears to be the near-term key for avoiding further financial turmoil.

Without substantial debt forgiveness by banks, Greece will need further massive infusions of European taxpayers' money to avoid a messy insolvency in the short to medium term.

Euro-zone governments agreed in July to lend Greece €109 billion ($152 billion), in the second bailout deal for the country in a year. Germany is insisting that those new loans for Greece total "not much more than" €109 billion, according to a senior Berlin official.

But euro-zone officials worry that their negotiating position vis-à-vis major international banks is weak because the banks know Europe doesn't want to let Greece go bust. That is allowing banks to haggle for smaller losses on their Greek bonds than governments are seeking, in the confidence that governments are likely to keep Greece afloat with additional bailout loans.

The euro zone has already disappointed markets by failing to reach a hoped-for deal at a summit this past weekend, when Ms. Merkel and French President Nicolas Sarkozy said a second summit on Wednesday would be needed.

Failure to agree on specifics on Wednesday would strengthen doubts about Europe's capacity to solve the crisis at all.

"The idea is to have a global package tomorrow [Wednesday]. Obviously if we don't have one, we will have to have another meeting," said a euro-zone official.

The final deadline for unveiling a fully fleshed-out deal, if euro-zone leaders are to salvage credibility, would be the summit of the Group of 20 industrial and developing economies in Cannes, France, on Nov. 3-4.

Italy, meanwhile, is seeking to appease European pressure to accelerate the pace of its economic reforms and to announce a plan Wednesday. Prime Minister Silvio Berlusconi held talks Tuesday with members of his ruling center-right coalition after a cabinet meeting late Monday failed to come up with concrete measures.

The coalition discussed new steps to cut public debt and increase economic growth, including gradually raising Italy's retirement age while reducing some pension entitlements, greater efforts to fight tax evasion, and limited deregulation of parts of the economy. A spokeswoman for Umberto Bossi, leader of the Northern League, one of Mr. Berlusconi's coalition partners, confirmed that the government has reached a compromise on the key pension reform. She didn't elaborate.



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Oil giant BP reaches 'turning point'

Oil giant BP has announced a big rise in third-quarter profits and says it has reached a "turning point" for its oil and gas operations and production.

BP reported third-quarter profits of $5.14bn (£3.2bn), a near tripling of the $1.85bn replacement cost profit it made in the same period a year ago.

Chief executive Bob Dudley said operations were "regaining momentum" and the firm had "greater confidence".

BP's profits and reputation were hit by last year's Gulf of Mexico oil spill.

The firm is also increasing its asset selling programme from $30bn to $45bn.

It had decided to sell non-core assets in order to pay for the clean-up operation in the Gulf of Mexico and to compensate victims.

'Firm foundations'
BP's profits were helped by higher oil prices, with Brent crude currently trading at $110 a barrel, compared with $84 a barrel in October 2010.

This helped to offset lower production levels.

Oil production in the July to September period fell by 12% on the same quarter last year to 3.3m barrels per day, due to the suspension of production in the Gulf.

It was only last week that BP won approval to resume drilling in the Gulf of Mexico, 18 months after the Deepwater Horizon disaster.

Even allowing for the businesses BP is selling, production fell by 8%, but the company said it expected output to pick up in the fourth quarter.

"The past year has been unprecedented in its challenges, and BP has responded well," said Mr Dudley.

We have laid firm foundations for the future - in safety, in our organisation and in developing new growth opportunities.

"As our extended turnaround programme moves towards completion we are seeing production return, particularly from Angola, the UK North Sea and the US Gulf of Mexico, where we produce our higher-value barrels."

Shares in BP rose 4.5% in morning trading.

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Ford Seen Resuming Dividend After Labor Deal

Ford Motor Co. (F), which last week won ratification of a new contract with 40,600 U.S. union workers, may restart its dividend for investors with a 5-cent payout as early as January, according to an analysis by Bloomberg.

A dividend would be Ford’s first since September 2006, the month that Chief Executive Officer Alan Mulally joined the Dearborn, Michigan-based automaker. The decision is no longer predicated on a return to an investment-grade credit rating, Chief Financial Officer Lewis Booth said Oct. 20.

The new U.S. labor contract increases hourly costs by less than 1 percent annually, Ford said last week. Standard & Poor’s raised Ford’s credit rating two levels and Fitch Ratings bumped it up one level. The automaker, which reports third-quarter earnings tomorrow, may pay a quarterly dividend of 8 cents a share early next year, said Brian Johnson, an analyst at Barclay’s Capital.

“Getting the contract behind them opens the door to restoring the dividend and returning to investment grade,” said Johnson, who is based in Chicago and rates Ford “overweight.” “That is putting Ford back on the radar screen of portfolio managers who had pushed it aside when it lost its momentum after last year’s fourth quarter” earnings miss.

Ford’s U.S. auto sales rose 11 percent through September this year, outpacing the industry’s 10 percent gain, according to Autodata Corp., as fuel-efficient models like the Fiesta subcompact attracted buyers.
Profit Outlook

Profit excluding some items may have slipped to 44 cents a share, according to the average of 17 analysts’ estimates, from 48 cents a share a year earlier, when the Dearborn, Michigan- based automaker reported the biggest third-quarter profit in its 108-year history. While Ford has warned of higher commodity prices and development costs, Johnson predicts third-quarter profit of 49 cents.

“Ford is doing all the right things and they sure haven’t gotten any credit for it from the Street,” said Gary Bradshaw, a fund manager at Hodges Capital Management in Dallas, who recently purchased 50,000 shares below $10 to increase his Ford holding to 250,000 shares. “That’s ridiculously cheap for a company whose outlook is improving.”

Concerns about a double-dip recession and slowing economy have weighed on the automaker’s shares, which have fallen 25 percent this year through yesterday to $12.51. Ford gained 68 percent in 2010.

Mulally has focused on quality and fuel economy to boost sales. The three-month period through September may be Ford’s 10th straight profitable quarter. From 2006 through 2008, Ford’s losses totaled $30.1 billion as a collapse in sport-utility vehicle sales was followed by the most severe recession since the Great Depression.

Borrowed Big

The automaker borrowed $23.4 billion in late 2006 after Mulally arrived from Boeing Co. Ford put up all major assets including its blue oval logo as collateral, helping it avoid the bankruptcies and bailouts that befell the predecessors of General Motors Co. (GM) and Chrysler Group LLC, which is now majority owned by Fiat SpA. (F)

Ford shares gained 4.1 percent last week after the UAW said Oct. 19 that Ford’s U.S. hourly workers voted 63 percent in favor of a new contract. Increased labor costs under the deal, which doesn’t give raises to senior workers and promises 12,000 new jobs by 2015, will eventually be offset by greater manufacturing efficiencies, Mark Fields, Ford’s president of the Americas, told analysts Oct. 20.

Ratings Upgrades

Standard & Poor’s raised Ford’s credit rating two levels to BB+, the highest non-investment grade, on Oct. 21, saying the new contract will not impede profitability or cash generation. Fitch Ratings upgraded Ford to BB+ from BB on Oct. 20, and assigned a positive outlook. Moody’s Investors Service also has said it is reviewing ratings on the automaker, which fell to so- called junk status six years ago.

Ford had said it wouldn’t pay a dividend until it returned to investment-grade ratings. That position changed last month.

“Our shareholders have been very patient,” Booth, the finance chief, said last week on a conference call about the contract.

Share-price growth is more important that restoring the dividend, Bradshaw said.

“I want the stock to double over the next two or three years,” Bradshaw said. “That’s how we’ll make our money on Ford. The dividend is secondary.”

Rising sales of Ford’s sport utility-vehicles, up 19 percent this year, may push third-quarter profit higher than most estimates, said Efriam Levy, equity analyst with Standard & Poor’s Capital IQ in New York. SUVs carry higher profit margins.

Upside Potential

“They’re doing very well in North America,” Levy, who rates Ford a “buy” and predicts 50 cents per share in third- quarter earnings, said in an interview. “I’m looking for automotive sales to rise about 10.5 percent. Their sales mix is weighted toward utilities, which I consider a plus.”

Ford sales in the third quarter may have expanded to $30.5 billion, from $29.9 billion a year ago, the average of 11 analysts. The cost of commodities such as steel and the cost of developing new models may not increase by the full $4 billion Ford had warned earlier this year, Levy said.

“There has been some easing of some commodity costs,” Levy said. “I’m looking for higher profits.”

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Novartis to Cut 2,000 Jobs, Close Europe Plants

Novartis AG (NOVN), Europe’s second-biggest pharmaceutical company, plans to eliminate 2,000 jobs in Switzerland and the U.S. and add employees in China and India to offset the effect of drug price reductions.

The cuts, equivalent to about 1 percent of Novartis’s workforce, will be implemented over three to five years, and will generate annual savings of more than $200 million a year, the Basel, Switzerland-based company said in a statement today. Novartis plans to close a plant in Nyon, Switzerland, that makes over-the-counter drugs, and chemical sites in Basel and Torre, Italy. The company will take a fourth-quarter restructuring charge of about $300 million.

Austerity measures in Europe have forced Novartis to lower prices by about 5 percent this year, Chief Executive Officer Joe Jimenez said on a call with reporters today. He declined to forecast price cuts beyond this year.

“We really don’t know what’s going to happen, but I wouldn’t anticipate the pricing environment, particularly in Europe, getting better any time soon,” Jimenez said.

The company will cut 1,100 jobs in Switzerland, with the balance in the U.S., Jimenez said. Some research will be moved to the U.S. from Switzerland, and reductions will be made in technical research and development, data management, clinical trial monitoring, drug safety and regulatory affairs. Novartis will add 700 positions in China and India in data management and trial monitoring, he said.

Drug Approval Delays

Applications for U.S. approval of two experimental drugs for smoker’s cough, NVA237 and QVA149, will be delayed because additional data is needed, Novartis said. Vectura Group Plc (VEC), which licensed NVA237 to Novartis in 2005, fell as much as 26 percent in London trading.

Novartis fell 2.2 percent to 50.65 Swiss francs as of 10:30 a.m. in Zurich trading. The stock declined as much as 3 percent, the biggest intraday drop in a month. Before today, Novartis had declined 1.7 percent this year including reinvested dividends, compared with a 6 percent return for the Bloomberg Europe Pharmaceutical Index of 17 drugmakers.

Third-quarter earnings excluding some costs climbed 12 percent to $3.54 billion, or $1.45 a share, from $3.15 billion, or $1.36 a share, a year earlier, Novartis said in the statement. That was in line with the average estimate of $1.44 a share from 19 analysts compiled by Bloomberg.

Novartis said it expects full-year sales growth in the low double-digits excluding currency shifts. The company doesn’t forecast profit.

Sales rose 18 percent to $14.8 billion, meeting the average prediction of $14.8 billion among 21 analyst estimates.

Alcon, which includes eye medicines and Ciba Vision contact lenses, generated revenue of $2.5 billion. That would have been an increase of 12 percent had Alcon been part of the company for all of last year’s third quarter.

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