Criminal charges on Wednesday against two former traders for JPMorgan Chase intensified the scrutiny of the bank’s executives in New York, where, federal authorities say, lax controls and the pressure for profits made the problem worse, Ben Protess and Jessica Silver-Greenberg report in DealBook.
The employees â€" Javier Martin-Artajo, a manager who oversaw the trading strategy, and Julien Grout, a low-level trader in London â€" were accused of manipulating the books to disguise hundreds of millions of dollars in losses, operating for months with scant supervision and with the impression that higher-ups supported them.
When, for example, Mr. Martin-Artajo directed Mr. Grout to record losses only in extreme circumstances, he claimed the directive came from New York, meaning the senior management of the bank. People inside the bank, however, dispute that notion.
“This was not a tempest in a teapot but rather a perfect storm of individual misconduct and inadequate internal controls,†Preet Bharara, the United States attorney in Manhattan, said at a news conference to announce the charges. It was a reference to a comment made by Jamie Dimon, the bank’s chief executive, who originally dismissed concerns about the trades as a “tempest in a teapot†before later saying he was “dead wrong.â€
The criminal complaints offered a window into how Wall Street values huge derivatives trades, a process that involves a considerable amount of guesswork, DealBook’s Peter Eavis writes. “One way that traders value their holdings is to use pricing data from a range of banks,†Mr. Eavis writes. “The problem with using this approach is that it may not be fully based on prices that occurred in actual transactions.â€
BATISTA GIVES UP CONTROL OF A COMPANY Â |Â Eike Batista, the troubled Brazilian businessman, has taken further steps to dismantle his empire of energy, logistics and mining companies, Dan Horch writes in DealBook. Mr. Batista announced on Wednesday night that he would sell a controlling stake in one of his companies, the LLX logistics firm, for about $560 million to EIG Global Energy Partners, an energy investment firm based in Washington.
“People briefed on the matter confirmed on Wednesday that another of his companies, the petroleum firm OGX, has hired the Blackstone Group as a financial adviser,†Mr. Horch writes. “The move may indicate that OGX, which has over $3 billion in debt trading at under 20 cents on the dollar, is planning to either sell some assets or restructure its debt.â€
PAULSON’S BID FOR STEINWAY  |Â
John A. Paulson, the hedge fund billionaire, already owns three Steinway & Sons pianos: the medium Model M grand, the larger Model O and the nearly seven-foot-long Model B, together worth tens of thousands of dollars. But Mr. Paulson, in investing parlance, was looking to increase his exposure. On Wednesday, his firm, Paulson & Company, agreed to buy the company that makes the pianos, Steinway Musical Instruments, for $512 million.
The move raised eyebrows both in the world of music and on Wall Street. Mr. Paulson made billions in 2007, largely with a bet against the housing market. His firm specializes in mortgages, gold and other financial assets. And while Paulson & Company owns stakes in companies, it has never before bought one outright. But Mr. Paulson said that the calculation was rather simple â€" he loves the pianos.
“I’ve always been enamored with the product,†Mr. Paulson said in an interview on Wednesday. “You have Mercedes in cars, and top brands in every other area. But no one has such a high share of the high end.â€
ON THE AGENDA  | The Consumer Price Index for July is out at 8:30 a.m. Data on industrial production in July is out at 9:15 a.m. Wal-Mart Stores and Kohl’s report earnings before the market opens. Nordstrom and Applied Materials report earnings this evening.
THIRD POINT REINSURANCE ARM PRICES I.P.O.  | The reinsurance arm of Third Point, the hedge fund run by Daniel S. Loeb, is expected to begin trading on the New York Stock Exchange on Thursday, after pricing its initial public offering at $12.50 a share, at the bottom end of an estimated range. The size of the offering was trimmed slightly, to just under 22.1 million shares from 22.2 million shares, reducing the proceeds to about $276.3 million, DealBook’s Michael J. de la Merced reports.
Justice Dept. Takes a New View on Airline Mergers  | “A day after the Justice Department filed a lawsuit to block the merger of American Airlines and US Airways, regulators and industry officials continued to wrestle with a central question,†The New York Times writes, “What is the best way to protect consumers?†NEW YORK TIMES
German Cable Merger, Already Completed, Is Thrown in Doubt  | Liberty Global’s 3.2 billion euro ($4.2 billion) acquisition of KabelBW has been cast in doubt after a regional court in Germany reversed the antitrust regulator’s approval for the deal, Reuters reports. REUTERS
Muzak Maker May Be Sold for $850 Million  | Mood Media, which provides Muzak to restaurants, hotels, retailers and other businesses, is nearing the end of an auction process, The Wall Street Journal reports. WALL STREET JOURNAL
Icahn’s Plans for Apple Could Benefit Shareholders  | The message from Carl C. Icahn to Apple was clear: it should buy back more stock and fast. It would be a smart, relatively effortless move, Robert Cyran of Reuters Breakingviews writes. REUTERS BREAKINGVIEWS
Emerging Markets’ Growth Falters, as Old Economies Rise  | “The balance of world economic growth is tipping in another direction,†The New York Times writes. NEW YORK TIMES
Barclays Bankers Said to Defect to Rothschild  | Barclays has “lost three senior mergers and acquisitions bankers to Rothschild in recent weeks, according to people with knowledge of the matter,†Bloomberg News reports. BLOOMBERG NEWS
Morgan Stanley Reduces Risk in Credit Correlation Portfolio  | Morgan Stanley and other banks are seeking to reduce the capital associated with the derivatives business dating to before the financial crisis, Bloomberg News writes. BLOOMBERG NEWS
A New Billionaire Minted at Blackstone  | Jonathan Gray, the head of the real estate business of the Blackstone Group, has recently become a billionaire thanks to the value of his stock holdings in the investment firm, Bloomberg News reports. BLOOMBERG NEWS
BTG Pactual of Brazil Said to Seek $1.5 Billion for Private Equity Fund  |Â
BLOOMBERG NEWS
Third Point Acquires Stake in Disney  | Third Point, the hedge fund run by Daniel S. Loeb, disclosed that it owned a $113.7 million stake in the Walt Disney Company, Bloomberg News reports. The stake is not the only investment in Hollywood for Mr. Loeb, who had also been pressuring Sony to sell part of its entertainment business. BLOOMBERG NEWS
Peltz Buys $1.3 Billion Stake in DuPont  | The activist investor Nelson Peltz has amassed a stake in DuPont with plans to push the chemical maker to improve its long-term prospects for growth, The Wall Street Journal reports. WALL STREET JOURNAL
Einhorn’s Firm Discloses Stake in Rite Aid  | Greenlight Capital, the hedge fund run by David Einhorn, disclosed on Wednesday that it owned 20.2 million shares of Rite Aid, The Wall Street Journal reports. WALL STREET JOURNAL
Our Daily Facebook Fix  | “Checking Facebook has become almost as embedded in the lives of Americans as getting a cup of coffee,†Vindu Goel writes on the Bits blog. NEW YORK TIMES BITS
Chegg, a Textbook Rental Start-Up, Seeks to Go Public  | Chegg, a start-up focused on the business of renting textbooks, filed for an initial public offering on Wednesday, intending to use the proceeds to raise additional capital and reduce debt. DealBook »
Euro Zone’s Recession Ends, for Now  | “The weak upturn, high unemployment and other problems on the Continent left open the question of whether the nascent recovery can last,†The New York Times writes. NEW YORK TIMES
European Banks Move to Bolster Capital  | Five years after the financial crisis, European regulators are pressuring banks to reduce assets and increase capital, Bloomberg News writes. BLOOMBERG NEWS
U.S. Puts a Helpful Face on Its Fraud Case  | The Justice Department has learned an important lesson about putting on cases involving complex Wall Street financial machinations, and has lined up a witness who can explain the case fully, Peter J. Henning writes in the White Collar Watch column. DealBook »
