(BN) Hollande Vows Not to Ratify Euro Pact, Auguring Merkel Clash

The problem is that markets don't listen to politicians.

If Hollande thinks he can make money out of nothing,  then he will be another politician who to be whallopped by the markets (not that he really cares) Like the rest, he will play to his crowd and blame it in bankers.

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April 25 (Bloomberg) -- French Socialist Francois Hollande, the leading presidential candidate, said France won't ratify the European agreement pushed by Germany to tighten budget rules if he's elected.

"There will be a re-negotiation," Hollande told journalists today in Paris. "Either there will be a new treaty, or there will be a modification of the existing treaty. It's about negotiation."

The comments put Hollande on a collision course with German Chancellor Angela Merkel, who has championed debt reduction as the key to ending the region's fiscal crisis. Hollande, who has also pledged to eliminate France's budget deficit, is aiming to use popular support at home to strengthen his hand in talks to promote an alternative.

Merkel and her ruling party are standing firm on German-led remedies, including the commitment to cut debt that was signed last month by all 17 euro-area leaders, among them Hollande's opponent, President Nicolas Sarkozy.

"If Mr. Hollande were to say that he wants to increase government spending and save less, he'll lose the confidence of the financial markets," Peter Altmaier, the parliamentary whip of Merkel's Christian Democrats, said in an interview in Berlin yesterday. "We will stick to our fundamental principles because there's really no alternative."

Hollande finished first among 10 candidates in the first round of France's presidential election with 28.6 percent of the vote. Incumbent President Nicolas Sarkozy finished second with 27.2 percent. The two face off in a decisive electoral contest on May 6.

Resistance Growing

Germany, the largest country contributor to euro-area bailouts, is facing growing resistance from traditional allies to its anti-crisis prescriptions as a $1 trillion firewall and unlimited European Central Bank loans to the region's lenders fail to stop the turmoil from threatening Spain and Italy.

ECB President Mario Draghi said it's too early to talk about a plan for weaning the euro area off emergency measures. "Any exit strategy is premature given the current situation," Draghi told lawmakers in Brussels today.

Dutch Prime Minister Mark Rutte urged politicians yesterday to tackle the country's economic woes after his coalition collapsed over proposed budget cuts, raising investor concern about his country's ability to retain its AAA credit rating. A proposal on austerity measures will be sent to parliament today.

European 'Credibility'

Merkel, who faces two German state elections next month and a national election in the fall of 2013, joined with Sarkozy to craft the euro area's crisis response over the past year and backed him for re-election. She insisted on the need for austerity yesterday, saying Europe's "credibility" depends on reducing deficits and debt.

"We're not saying that saving solves all problems," she told a conference in Berlin. Still, "you can't spend more than you take in. You can't live your whole life this way. Everybody knows this."

The euro strengthened for a second day against the dollar and yen, rising 0.1 percent to $1.3207 at 6:25 p.m. in Paris. The risk premium for 10-year French bonds over German bunds of similar maturity declined for a second day after reaching the highest level since January on April 23.

Merkel may cede ground to austerity critics if the Social Democrats, the main German opposition party, increase their support in May's state elections as polls suggest, said Thomas Costerg, an economist at Standard Chartered Bank in London.

'Last Bastion'

If Hollande becomes French president and Merkel switches allies to govern with the Social Democrats after the German election in 2013, that "may further help to make views converge," he said in an e-mail. "The last bastion of austerity could remain the Bundesbank."

Hollande has said he'll seek to add growth and investment measures to the fiscal treaty signed by Merkel, Sarkozy and 23 other EU leaders on March 2.

If he's elected, his first visit will be to meet Merkel, so he can bring her "French people's vote for another Europe," Hollande said last night.

Merkel "is pretty resistant to pressure," Altmaier said. France's presidential vote and the Dutch government's collapse don't change the fact that "there's no money in Europe, only deficits everywhere you look. Knowing the chancellor, she will await the outcome in France and then we'll try to come to an understanding with the new government, whoever leads it."

Spain, Greece

Europe's front against austerity has expanded in recent weeks after Spain struggled to meet EU-imposed deficit targets, election campaigns in Greece faced anti-austerity rumblings and the revolt against extra spending cuts in the Netherlands, a traditional German ally, pushed Rutte's coalition toward an early breakup. The Netherlands is one of four remaining AAA states in the euro area.

For all the turbulence, "nothing has happened in recent weeks that would raise questions" about the need for area countries to overhaul their economies and cut debt, German Deputy Finance Minister Hartmut Koschyk said in an interview.

No financial backstop is big enough to arrest the debt crisis and hold down borrowing costs on its own, he said. "It doesn't matter," he said yesterday. "It is no substitute for structural reforms" because "the readiness of markets to tolerate out-of-control public debt has vanished."

Holland also said that he'd like the European Stability Mechanism to be backed by the ECB in order to increase its lending capacity.

"I'd like the ESM to have a link with the ECB so it can have the necessary firepower," he said.

To contact the reporters on this story: Helene Fouquet in Paris at hfouquet1@bloomberg.net ; Tony Czuczka in Berlin at aczuczka@bloomberg.net

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

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(BN) Sarkozy-Hollande Runoff Shaping Up in Fight on Finances

Maybe soon it is better to be a pauper than a millionaire in France

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April 20 (Bloomberg) -- French President Nicolas Sarkozy heads South and his Socialist challenger Francois Hollande goes East on the last day of campaigning before the first round of voting, courting supporters of other candidates whose backing they need in the runoff.

Hollande and Sarkozy are almost certain to top the 10- person field April 22, putting them into the May 6 decider. Hollande will be in the Ardennes region today, while Sarkozy holds a rally in Nice on the Mediterranean tonight. No campaigning is permitted tomorrow or on election day.

"It's a foregone conclusion who will be in the second round," said William Keylor, a professor of modern French history at Boston University, said in a telephone interview. "Now begins the not-always easy task of maintaining the base and appealing to the center."

With the highest joblessness in 12 years and an economy barely growing, Sarkozy has trailed Hollande in every poll in a head-to-head match over the past 11 months. Hollande promises more spending and higher taxes, saying Sarkozy's tax cuts worsened France's finances and failed to create jobs. Sarkozy claims credit for spending cuts and a retirement-age increase that he says warded off the worst of the euro debt-crisis turmoil.

The winner faces commitments to the European Union to reduce debt and deficits. Government debt will exceed 90 percent of gross domestic product next year, the International Monetary Fund estimates. The IMF sees a deficit of 3.9 percent of GDP next year -- while Sarkozy has promised to reach the EU limit of 3 percent -- and growth of 1 percent.

Debt, Deficit

"Post the election, Hollande probably moves toward the center," Stephane Deo, the chief European economist for UBS Securities in London, said in a note to investors April 17. "Whoever wins is going to have to start talking honestly about how to tackle the deficits and debt levels."

The final polls before the vote showed Hollande, 57, with a lead in a head-to-head match of between seven and 14 points over the incumbent, who is finishing his first five-year term.

A CSA survey completed yesterday showed Hollande will win 28 percent in the first round and Sarkozy 25 percent. That puts Sarkozy, 57, at risk of becoming the first incumbent not to win the first round. Ifop-Fiducial's last tracking poll had Sarkozy up 28-26. Neither published a margin of error.

Top Five

CSA had the National Front's Marine Le Pen at 16 percent, anti-capitalist Jean-Luc Melenchon at 14.5 percent, and self- styled centrist Francois Bayrou at 10.5 percent. Five others would split the rest.

The scores of Hollande and Sarkozy have varied only a few points in the past month. "There's been a remarkable stability throughout the campaign," said Jean-Daniel Levy, director of opinion research at Harris Interactive in France. "Sarkozy has made several efforts to shake things up, but we haven't seen it generate any momentum."

A CSA Institute survey also released April 18 showed that only 27 percent think that Sarkozy will triumph in the runoff.

"The real key of the first round is not who crosses the finish line first but the overall balance between votes for the right and the left," Gael Sliman, director of BVA, said in e- mailed comments. "From this point of view, the Socialist candidate should have important reserves for the second round."

The first-round leader has won five of France's eight direct presidential elections, dating back to 1965.

Second-Round Reserves

Hollande leads Sarkozy in what the French call "reserves," or likely support from among the also-rans.

While 85 percent of Melenchon voters will vote for Hollande in the second round, only 54 percent of Le Pen's supporters are sure to go for Sarkozy, according to a BVA poll April 17. Bayrou's support splits 39 percent for Hollande and 25 percent for Sarkozy. The rest were undecided.

Hollande, who was party leader from 1997 to 2008 and represents a rural district in the parliament, would be the first Socialist president since Francois Mitterrand in 1995. He has never held a minister's post.

He has proposed a 75 percent tax on the wealthiest, an increase in the minimum wage, renegotiating European treaties on deficit limits to promote growth, and banning leveraged buyouts.

Sarkozy has stressed personal responsibility, security, and national identity to chip away at support for the National Front. He has sought centrists by saying speculators will attack French bonds should Hollande be elected. While Standard & Poor's cut France from AAA this year, the country's debt has kept the top grade from other credit-rating firms.

'Political Rhetoric'

"It is particularly difficult to know from either Hollande or Sarkozy what are political rhetoric and electioneering and what are true commitments," said Marc Chandler, chief currency strategist at Brown Brothers Harriman & Co. in New York.

A Sarkozy ouster would follow those by leaders in Ireland, Portugal, Greece, Italy, Spain, Slovenia and Slovakia since the debt crisis began, and make him the second French president after Valery Giscard D'Estaing in 1981 to lose a re-election bid. Sarkozy's 36 percent approval rating in an April 15 Ifop poll is the lowest for any post-World War II French president.

In the final days of campaigning, both Hollande and Sarkozy have backed a more activist European Central Bank. That risks tensions with German Chancellor Angela Merkel. The comments by Sarkozy also broke a pledge by Sarkozy and Merkel last November not to publicly comment about the ECB.

Converging Views

"The candidates' views on European matters have converged over the past few weeks," Thomas Costerg, an economist at Standard Chartered Bank in London, wrote in an e-emailed comment. "We think fears of a Franco-German rift are overdone. The solid Franco-German relationship goes beyond party politics."

While about 70 of voters have told pollsters they are sure of their choice, that doesn't mean the campaign has thrilled them. As many as a quarter of registered voters may not vote, said a BVA poll April 6, which would be the second-highest abstention rate in a French presidential election.

"With high unemployment and France's loss of its triple-A rating, Sarkozy doesn't have much of a record to run on," Boston's Keylor said. "But Hollande has never even held a ministerial position. He doesn't have much charisma. For many voters, it's a question of the lesser of two evils."

To contact the reporter on this story: Gregory Viscusi in Paris at gviscusi@bloomberg.net

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

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(BN) French Credit Risk at Three-Month High

Wonderful Hollande, and where do you propose the money comes from? Your mouth?

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April 19 (Bloomberg) -- French credit risk is at the highest in three months on concern anti-business policies will be adopted after the presidential election as Europe's debt crisis deepens.

Credit-default swaps on Credit Agricole SA, the nation's third-largest lender, were the worst-performing among European financial companies yesterday while France Telecom SA led an increase in corporate default risk. The cost of insuring the nation's sovereign debt is at the highest in three months ahead of the first round of voting on April 22.

Socialist candidate Francois Hollande, who had a 16 point lead against rival President Nicolas Sarkozy in a CSA poll yesterday, has called finance his "biggest adversary". Hollande pledged to increase corporate and bank taxes, introduce a 75 percent levy on earnings of more than 1 million euros ($1.3 million) and cut the retirement age to 60 from 62.

"Some of Hollande's proposals are potentially significant head winds for French banks and companies," said Roger Francis, an analyst at Mizuho International Plc in London. "It's a recipe of tighter regulation and increased taxes which makes for a less business-friendly environment."

Credit-default swaps on BNP Paribas SA, the nation's largest lender, jumped 20 basis points this week to 257.5 and Societe Generale SA, the second biggest, climbed 19 to 333.5, both the highest in three months. Credit Agricole rose 30 this week to a four-month high of 321 while France Telecom increased 9 basis points to 134. Swaps on French government debt cost 200 basis points.

Democracy 'Betrayal'

Hollande is campaigning for a more activist European Central Bank and a revision of the European Union's fiscal compact which he has called a "betrayal of French sovereignty and democracy." That puts him at odds with German Chancellor Angela Merkel who has campaigned for Sarkozy, struggling against public dissatisfaction with unemployment at a 12-year high.

Hollande says he will eliminate the nation's budget deficit by 2017, a year later than Sarkozy's plan. The gap was 5.2 percent of gross domestic product in 2011 and will narrow to 4.4 percent in 2012, Finance Minister Francois Baroin said April 17.

"A Socialist administration is likely to be less corporate-friendly than the current one," Andrew Garthwaite, a global equity strategist at Credit Suisse Group AG in London, said in a note to investors. "We are concerned by Hollande's talk about wanting to renegotiate the fiscal compact, his suggestions that he might try to change the mandate of the ECB as well as his lack of personal chemistry with Angela Merkel."

Corporate Tax

The Socialist has pledged to introduce a variable corporate tax rate, which would rise to 35 percent from 33 percent for large companies, and an additional 15 percent tax on bank profits, Garthwaite said in the note.

The cost of insuring debt of Electricite de France SA climbed 10 basis points this week to 134, while Cie de St. Gobain, Europe's biggest supplier of building materials, is 15 higher at 155.

A basis point on a credit-default swap protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

"The main risk is that he will not try to reduce the deficit," Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam, said of Hollande. "He is more likely to introduce measures to promote growth. You can expect credit risk will continue to rise."

To contact the reporters on this story: Katie Linsell in London at klinsell@bloomberg.net ; Abigail Moses in London at Amoses5@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net

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(BN) North Korea Rocket Fails in Setback for New Leader Kim

looks like his western education didn't do him much good.

April 13 (Bloomberg) -- North Korea's long-range rocket failed minutes after liftoff in the biggest setback to Kim Jong Un since he succeeded his father as head of the totalitarian state four months ago.

Scientists are investigating what went wrong, North Korea's state media said. The missile reached an altitude of 151 kilometers (93 miles) before disintegrating into 20 pieces and falling into the ocean 100 to 150 kilometers off the western coast, South Korean Major General Shin Won Sik said at a press conference in Seoul. Asian stocks and the won rose.

The botched firing may put pressure on the new leader to demonstrate his military power by conducting a nuclear test, and General Shin said South Korea is on alert for the possibility. The launch also complicates U.S.-led efforts to engage North Korea after Kim took over control of the reclusive state following Kim Jong Il's death in December.

"Kim Jong Un has lost an enormous amount of face," said Brian Myers, a professor of international studies at Dongseo University in Busan, South Korea. "This makes an underground nuclear test virtually a certainty."

Chances are "very high" that Kim's regime will fire more long-range missiles, conduct a nuclear test, or carry out some other provocation to garner domestic support, South Korean Deputy Defense Minister Lim Kwan Bin said in parliament today.

The rocket "failed to enter its preset orbit" after liftoff from the Sohae Satellite Launching Station, state-run Korean Central News Agency said. "Scientists, technicians and experts are now looking into the cause of the failure."

Long-Range Missiles

It was the fourth time the country has fired a long-range rocket. The last time was in April 2009, when a Taepondong-2 missile flew 3,800 to 4,000 kilometers before disintegrating, according to Baek Seung Joo, a North Korea specialist at the Korea Institute for Defense Analyses in Seoul.

The MSCI Asia Pacific Index climbed 0.9 percent, while the won rose 0.5 percent to 1,135 per dollar.

The United Nations Security Council will hold an emergency session later today, according to a diplomat who spoke on condition of anonymity. White House Press Secretary Jay Carney said the launch "threatens regional security, violates international law and contravenes its own recent commitments," and an Obama administration official said the U.S. will halt planned shipments of thousands of tons in food aid in response.

Japan joined the U.S. and South Korea in denouncing today's act. Kim's regime has said the projectile would carry a satellite into orbit to mark the April 15 centennial of state founder Kim Il Sung.

'Pyongyang's Seriousness'

While the government in Pyongyang insisted it was not a long-range missile test in violation of a February agreement to end nuclear and long-range missile tests in exchange for 240,000 tons of U.S. food, Obama administration officials had warned otherwise.

"We urge the North Korean leadership to honor its agreements and refrain from a pursuing a cycle of provocation," Secretary of State Hillary Clinton said yesterday in Washington after a Group of Eight foreign ministers' meeting. "It can pursue peace and reap the benefits of closer ties with the international community, including the United States, or it can continue to face pressure and isolation."

Kim Jong Un was named head of North Korea's sole political party April 11 in a display of his hereditary grip on power. His late father was named "eternal secretary general" of the Workers' Party, the Korean Central News Agency said.

'Blackmail Diplomacy'

"They want to show the world that they are capable of developing a long-range ballistic missile," said Andrei Lankov, an associate professor at Kookmin University in Seoul. "It has not happened. So this will decrease the efficiency of their blackmail diplomacy."

A South Korean intelligence report warned that North Korea may follow the rocket launch with the detonation of an atomic device. Recent activity at the Punggye-ri nuclear testing site is consistent with preparations for previous detonations in 2006 and 2009, according to the intelligence report obtained April 9 by Bloomberg News.

"I'm not surprised the North Koreans launched and I'm not surprised it failed," said James Acton, a senior associate in the nuclear policy program at the Carnegie Endowment for International Peace in Washington. "I will also not be surprised if, in the next few months, they test a nuclear weapon."

North's Economy

The North's economy contracted 0.5 percent to 30 trillion won ($26.3 billion) in 2010, compared with South Korea's 1,173 trillion won, according to the South's central bank. North Korea had a food shortfall of as much as 700,000 metric tons of food last year, according to the UN, and is dependent on aid from China, its only ally.

China today called on all parties to not do anything that harms the peace and stability of the Korean peninsula, Foreign Ministry spokesman Liu Weimin said in statement on the ministry's website.

The test involved a Kwangmyongsong-3 satellite mounted on an Unha-3 carrier rocket, according to North Korea. The firing took place on the second day of the window between April 12 and 16 that the North had specified in its filing with international agencies.

Kwangmyongsong means "bright star," a word North Koreans have used to describe late leader Kim Jong Il. "Unha" means galaxy.

The UN Security Council banned North Korea from using any missile technology in 2009 shortly after the North fired a long- range missile carrying what it said was a communications satellite that failed to enter orbit.

To contact the reporter on this story: Sangwon Yoon in Seoul at syoon32@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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(BN) JPMorgan Said to Transform Treasury to Prop Trading

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April 13 (Bloomberg) -- JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon has transformed the bank's chief investment office in the past five years, increasing the size and risk of its speculative bets, according to five former executives with direct knowledge of the changes.

Achilles Macris, hired in 2006 as the CIO's top executive in London, led an expansion into corporate and mortgage-debt investments with a mandate to generate profits for the New York- based bank, three of the former employees said. Dimon, 56, closely supervised the shift from the CIO's previous focus on protecting JPMorgan from risks inherent in its banking business, such as interest-rate and currency movements, they said.

Some of Macris's bets are now so large that JPMorgan probably can't unwind them without losing money or roiling financial markets, the former executives said, based on knowledge gleaned from people inside the bank and dealers at other firms. Bruno Iksil, a London-based trader in Macris's group, gained attention last week after moving markets with his trades, drawing a comparison to Federal Reserve Chairman Ben S. Bernanke's power in the government-bond market.

"What Bernanke is to the Treasury market, Iksil is to the derivatives market," Bonnie Baha, head of the global developed credit group at DoubleLine Capital LP in Los Angeles, where she helps oversee $32 billion, said in a telephone interview.

Macris's team amassed a portfolio of as much as $200 billion, booking a profit of $5 billion in 2010 alone -- equal to more than a quarter of JPMorgan's net income that year, one former senior executive said.

Lines Blurred

The shifting role of the CIO group at JPMorgan, which reported record firmwide profit for 2011, underscores how blurry the line can be between "proprietary trading" and hedging, and it highlights the challenge U.S. regulators face in curbing speculative bets by federally backed lenders under the so-called Volcker rule. JPMorgan, whose $2.27 trillion of assets at year- end made it the biggest U.S. bank, says the CIO manages the firm's risks, with trades like Iksil's forming a part of that effort.

The CIO is "focused on managing the long-term structural assets and liabilities of the firm and is not focused on short- term profits," Joe Evangelisti, a spokesman for the bank in New York, said on April 5. He didn't elaborate when asked to comment on the changes described by former employees.

The CIO's growing size and market power have made it an increasingly important customer to Wall Street's trading desks and a market influence watched by hedge funds and other investors, the former employees said. Iksil's positions in credit-derivatives have become so large that some market participants dubbed him "Voldemort," after the villain of the Harry Potter series who's so powerful he can't be called by name.

May Keep Bets

Yet it's Macris, not Iksil, who was behind the strategy that led to an unprecedented build-up of credit risk in JPMorgan's chief investment office, three former employees of the bank said. While they expressed doubt Iksil can unwind his positions without causing a dislocation in the markets he trades, they also said JPMorgan probably can afford to hold the assets until they mature and so won't be forced to sell them.

London-based Macris, 50, didn't reply to a call seeking comment. He, Iksil and JPMorgan haven't been accused of any wrongdoing.

JPMorgan, which reports first-quarter earnings today, doesn't break out revenue or profit for its chief investment office. The bank lumps the office into a "corporate" line item that also includes treasury and the firm's centrally managed divisions such as audit, finance and human resources.

Surge in Holdings

In 2011, corporate revenue of $3.3 billion included $1.6 billion of securities gains and produced $411 million of net income, the bank said in an annual filing on Feb. 29. By comparison, JPMorgan's investment bank reported $26.3 billion in revenue and $6.8 billion of net income in 2011.

Since 2007, the value of securities held in JPMorgan's chief investment office and treasury has more than tripled to surpass $350 billion from $76.5 billion, according to company filings. The biggest jump was in 2009, when the company disclosed that the CIO made "significant purchases" of government-backed mortgage securities, asset-backed securities, corporate securities, as well as U.S. Treasury and government- agency securities, according to the filings.

"These investments were generally associated with the chief investment office's management of interest-rate risk and investment of cash resulting from the excess funding the firm continued to experience during 2009," according to the company's 10-K report for 2009, filed in February of 2010.

Management Changes

Profit, not risk management, guided the purchases, according to the former employees. One of the employees, who previously held a senior executive position at the bank, said Dimon even ordered some of the trades himself.

The transformation of the CIO has its origins in Dimon's arrival at JPMorgan with the purchase in July 2004 of Bank One Corp., where he was CEO. Less than three months later, Dimon's long-time lieutenant Michael Cavanagh became chief financial officer. He replaced Dina Dublon, a 23-year veteran of JPMorgan and its predecessors.

At the time, JPMorgan also said Ina Drew, who ran global treasury at JPMorgan prior to the acquisition, would report directly to Dimon. Drew's title changed in February 2005 to "chief investment officer," according to the 2005 year-end filing.

Missile in Flight

Dimon pushed the unit to seek bigger profits by buying higher-yielding assets, including structured credit, equities and derivatives, and ramping up speculation, according to two former employees. While Drew's unit previously had small teams of traders who took speculative "macro" positions in currencies and interest-rate products, people who worked there at the time say the focus shifted and traders were given permission to put more capital at risk.

In London, Macris expanded his team, adding expertise in credit and fixed-income trading. A Greek citizen, Macris previously was co-head of capital markets at Dresdner Kleinwort Wasserstein before joining JPMorgan in 2006. In that role he helped oversee a unit that made proprietary trades, or bets with Dresdner's own money, according to two people who worked with him at the time.

One former colleague at Dresdner said he remembers visiting Macris's London apartment in 2004 for a gathering of fellow colleagues from the firm. He said he was struck by a picture on the wall in a room that contained more than six trading screens. The picture, which he estimated was more than six-feet high and six-feet wide, was of a missile in flight.

'Off-the-Wall Ideas'

Before joining Dresdner, Macris oversaw currency trading at Bankers Trust, now part of Deutsche Bank AG. Macris was an idea- generating machine who was blunt and didn't suffer fools, said Duncan Hennes, who worked with him at Bankers Trust.

"He always had off-the-wall ideas, but in hindsight sort of smart ideas," Hennes said in a telephone interview. "He was always thinking out of the box."

David Sandelovsky, who reported to Macris at Bankers Trust in the 1990s, remembers being impressed with his "great knowledge" of art, wine, politics and history. He was an active trader -- "a big hitter" -- as well as a manager, Sandelovsky said.

"It wasn't just a simple 'Let's go long the dollar against the yen,'" Sandelovsky said. "He had serious ideas, and they were macro, involving interest rates, foreign exchange. He didn't think in simplistic terms."

'London Whale'

At JPMorgan, Macris hired Evan Kalimtgis, a former head of credit portfolio strategy at Dresdner, to help with risk management, according to one former employee.

In 2007 Javier Martin-Artajo, who had been Dresdner's head of credit-derivatives trading, joined JPMorgan in London. George Polychronopoulos, who worked at hedge fund Endeavour Capital LLP, also joined the London office in 2009.

Martin-Artajo, Polychronopoulos and Kalimtgis didn't return calls and e-mails seeking comment.

Iksil, whose credit-derivatives trades have earned him the moniker "London Whale," joined JPMorgan in 2005 and has held his current role since 2007, according to his career-history record with the U.K. Financial Services Authority. He worked at the French investment bank Natixis from 1999 to 2003, according to data compiled by Bloomberg.

While Macris had a mandate to make money from the beginning, he didn't start putting on big bets until after the credit crisis in 2008. Two of the former executives said the following year he bought AAA-rated pieces of collateralized debt obligations. As competitors dumped securities and prices slumped, Macris's group at JPMorgan emerged as the biggest buyer in some markets, said one former executive at the bank who was familiar with the trades at the times.

Trading Risk

In one example, a New York-based CIO trader named Jonathan Horowitz bought about $1.1 billion of AAA-rated portions of collateralized loan obligations for about 80 cents on the dollar in November and December 2008, people familiar with the matter said at the time. Horowitz declined to comment.

One public sign that the chief investment office does more than hedge: Its trading risk is on par with that of JPMorgan's investment bank.

JPMorgan's annual report for 2011 shows that the CIO stood to lose as much as $57 million on most days of the year. That compares with $58 million for the investment bank, which includes Wall Street's biggest stock- and bond-trading units.

'Extraordinary Platform'

Another sign: The relationship between the CIO and the investment bank's sales and trading desks is strained, two former employees said. Employees in the CIO get a smaller share of their trading profits than those in the investment bank, giving Dimon a cost-management incentive to direct more trading through the CIO, one former executive said.

Last year Drew, 55, hired Irene Tse, a former Goldman Sachs Group Inc. partner, to oversee the CIO in North America. Tse more recently was a portfolio manager for Stanley Druckenmiller's hedge fund Duquesne Capital Management.

JPMorgan "offers an extraordinary platform for me and the entire CIO group to invest and manage risk," Tse said in the January 2011, press release announcing her appointment.

Drew and Tse didn't reply to e-mails and phone calls seeking comment.

JPMorgan, like rivals, has shut groups in the investment bank that specialized in speculative bets with the company's own money, anticipating implementation of the Volcker rule. The ban, part of the Dodd-Frank financial-reform law, will prohibit banks backed by the federal government from engaging in so-called proprietary trading. One former JPMorgan employee said the number of risk-taking traders in the chief risk office has been reduced in recent months.

To contact the reporters on this story: Erik Schatzker in New York at eschatzker@bloomberg.net ; Mary Childs in New York at mchilds5@bloomberg.net ; Christine Harper in New York at charper@bloomberg.net .

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net ; Alan Goldstein at agoldstein5@bloomberg.net .

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(BN) World’s Richest Lose $9 Billion as Global Markets Decline

to the billionaires, they are laughing their guts out at these people in forbes and bloomberg trying to assess their net worth on a weekly basis.

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April 6 (Bloomberg) -- The 20 wealthiest people on Earth lost a combined $9.1 billion this week as renewed concerns that Europe's debt crisis might worsen drove the Standard & Poor's 500 Index to its largest decline of 2012.

Mexican Carlos Slim's fortune fell by $1.5 billion during the week as shares of his telecom operator, America Movil SAB, dropped 2.2 percent through April 4. Mexican markets were closed yesterday for the Holy Thursday holiday. The 72-year-old remains the richest person in the world, with a net worth of $69.2 billion, according to the Bloomberg Billionaires Index.

"This is a little bit of a reality check," Leo Grohowski, chief investment officer for New York-based BNY Mellon Wealth Management, said in a telephone interview. "The super wealthy are among the most cautious investors in the world. Skepticism is still high, and they are feeling very, very nervous."

Global markets retreated this week as demand fell at a Spanish bond auction and minutes from the U.S. Federal Reserve's latest policy meeting indicated that it isn't ready to provide more monetary stimulus. The Standard & Poor's 500 Index fell 0.7 percent, to 1398.08, its third weekly decline of 2012. The STOXX Europe 600 lost 1.6 percent to close at 259.07.

Li Ka-Shing, Asia's second-richest person, lost $144 million during the week. Shares of his port operator, Hutchison Whampoa Ltd., dropped 1.1 percent in yesterday's Hong Kong trading, leading the Hang Seng Index to its fifth decline in six days. Li, 83, ranks 15th on the index with a $23.8 billion fortune.

Batista, Ortega

Brazilian Eike Batista's net worth fell $574.4 million this week as shares of OGX Petroleo & Gas Participacoes SA dropped 3 percent during the week. On April 4, International Business Machines Corp., the world's largest computer-services provider, bought a 20 percent stake in Batista's technology unit, SIX Automacao. The two companies will set up a technology center to serve customers in Brazil, Chile, Colombia and Peru.

Batista, whose fortune rose $7.2 billion last week after the 55-year-old sold a 5.6 percent stake in his commodities empire, ranks 10th on the index. His net worth of $33.5 billion is up 49 percent year to date.

Spanish retail tycoon Amancio Ortega, 76, saw his fortune fall $1.2 billion to $39.4 billion as shares of his Industria de Diseno Textil SA, owner of the Zara fashion chain, lost 0.3 percent in Madrid trading during the week. Spain's Ibex stock index slid to a seven-month low in intraday trading yesterday amid concerns that the country may require international aid to meet deficit targets.

World's Three Richest

Stefan Persson, 64, chairman of Swedish clothing giant Hennes & Mauritz AB, fell four spots to rank 17th on the Bloomberg index as his fortune fell $1.4 billion to $23.2 billion. H&M shares declined by 3.8 percent during the four-day week shortened by the Good Friday holiday.

Microsoft Corp. co-founder Bill Gates, 56, is second on the index with a net worth of $63.2 billion, down $558.1 million for the week. Warren Buffett, 81, is third with $45.2 billion. The world's three richest people have gained a combined $17.2 billion year to date.

To contact the reporter on this story: Devon Pendleton in New York at dpendleton@bloomberg.net

To contact the editor responsible for this story: Matthew G. Miller at mmiller144@bloomberg.net

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