Markets have had a muted response to the government shutdown that began on Tuesday. But President Obama, in an interview with CNBC, warned that the economic effects of political gridlock could grow far worse if Congress fails to raise the debt ceiling by Oct. 17, leaving the country at risk of defaulting on its borrowing. “This time is different,†he said, adding that Wall Street “should be concerned.â€
Mr. Obama and Vice President Joseph R. Biden Jr. met on Wednesday with Wall Street chieftains, including Lloyd C. Blankfein, the chief executive of Goldman Sachs. “I told them that it is not unusual for Democrats and Republicans to disagree,†Mr. Obama recalled in the CNBC interview. “But when you have a situation in which a faction is willing potentially to default on U.S. government obligations, then we are in trouble. If they’re willing to do it now, they’ll be willing to do it later.â€
Economists and investors are quietly exploring the options the White House might have in the event Congress fails to act, The New York Times writes. “The most widely discussed strategy would be for President Obama to invoke authority under the 14th Amendment and essentially order the federal government to keep borrowing, an option that was endorsed by former President Bill Clinton during an earlier debt standoff in 2011.â€
ACKMAN SAID TO MODIFY HERBALIFE BET  | William A. Ackman, with hundreds of millions of dollars in paper losses on his short-selling bet against Herbalife, has moved to reduce his firm’s risk by converting 40 percent of that position to long-term derivatives, he told investors in a letter, according to The New York Post. “The restructuring of the position preserves our opportunity for profit,†Mr. Ackman said, according to the report.
Mr. Ackman continued, according to Bloomberg News: “Since our presentation on Herbalife at the end of last year, we have not learned any facts that are inconsistent with our belief that the company is a pyramid scheme that engages in unlawful and deceptive marketing practices.†The company has denied Mr. Ackman’s accusations.
UBS’S PUERTO RICO HEADACHE  |Â
Municipal bond funds in Puerto Rico have been hit hard recently amid the island’s economic struggles. “For the Swiss banking giant UBS, which boasts that it manages money for half of the island’s millionaires â€" roughly $10 billion â€" the downturn has created a particularly nasty headache,†DealBook’s Susanne Craig reports.
“The bank’s clients had piled into highly leveraged bond funds run by UBS and were encouraged by its brokers to borrow even more money to invest in those funds. In some cases, money was lent improperly, exacerbating current losses, according to UBS employees in the region close to the situation, who spoke on the condition that they not be named because of a company policy against speaking to the news media. Now, a number of UBS clients have been forced to liquidate hundreds of millions of dollars in holdings in these funds to meet margin calls. And the bank says it has begun an internal investigation into the lending practices of some of its top-producing brokers in the commonwealth.â€
ON THE AGENDA Â |Â Warren E. Buffett and Henry M. Paulson Jr., a former Treasury secretary, are on CNBC at 7:30 a.m. Jacob J. Lew, the current Treasury secretary, is on Fox Business Network at 4 p.m. Constellation Brands reports earnings before the market opens. Activist investors are gathering in New York for a conference sponsored by Schulte Roth & Zabel.
BLACKBERRY SAID TO DRAW INTEREST OF CERBERUS  | Cerberus Capital Management is seeking a confidentiality agreement that would allow it to examine BlackBerry’s books, Ian Austen and Michael J. de la Merced report in DealBook. It was not clear whether the move would lead to a bid for BlackBerry, which reported a $1 billion quarterly loss last week. “The company has already agreed to a preliminary and conditional offer from its largest shareholder, Fairfax Financial Holdings of Toronto. While it remains free to look for a better offer, BlackBerry would have to pay Fairfax $157 million if it accepts another bid before Nov. 4. Fairfax can walk away without penalty,†DealBook writes.
Apax Wins and Loses in rue21 Conundrum of Its Own Design  | The buyout of the fashion retailer rue21 pits old investors in Apax Partners against new ones, with the firm forced to choose the best path through the conflicts of interest, Steven M. Davidoff writes in the Deal Professor column. DealBook »
Tesla Shares Fall After Video Shows Car on Fire  | A negative analyst report also put downward pressure on the stock on Wednesday. WALL STREET JOURNAL
Goldman to Buy Stake in Danish Utility  | Goldman is buying a 19 percent stake worth $1.46 billion in Dong Energy, the largest utility in Denmark, Bloomberg News reports. BLOOMBERG NEWS
Portugal Telecom and Oi of Brazil Agree to Merge  | The companies said they would have 100 million telecommunications subscribers combined. DealBook »
A Charm Offensive to Lure Banking Customers in Britain  | By focusing on service, Vernon W. Hill II is drawing consumers to his British start-up, Metro Bank, but the hurdles have been high. DealBook »
A.I.G.’s Former Chief Comes to JPMorgan’s Defense  | “I experienced regulatory overreach first hand at A.I.G.,†Maurice R. Greenberg, who led the American International Group in the years before the financial crisis, writes in an essay in The Wall Street Journal. “History seems to be repeating itself with the case of J.P. Morgan.†WALL STREET JOURNAL
Striking Stagehands Irk Guests at Carnegie Hall  | “I think it’s very selfish on the part of this union to ruin the experience of all these supporters,†the hedge fund manager John A. Paulson said in response to the stagehands’ strike at Carnegie Hall that forced the cancellation of a concert, according to Bloomberg News. BLOOMBERG NEWS
Greenhill Expands Into Brazil Despite Nation’s Woes  | The boutique investment bank Greenhill & Company has opened an office in Brazil and hired the former Goldman Sachs executive Daniel Wainstein to run it. DealBook »
At Barclays, Ultracasual Fridays  | Barclays has recently adopted a policy of allowing employees to wear jeans, T-shirts and sneakers on Fridays, CNBC reports. The change has irked some employees, the report says. CNBC
Wharton Admissions Director Steps Down  | The admissions director at the University of Pennsylvania’s Wharton School resigned after a decline in applications. BLOOMBERG NEWS
Blackstone Buys Dutch Mall Developer  | The Blackstone Group completed its acquisition of the Multi Corporation, a Dutch owner of shopping centers, in a deal that may increase the private equity firm’s presence in Turkey, Reuters reports. REUTERS
Loeb Raises Stake in Sotheby’s and Seeks Board Seat  | The activist investor Daniel S. Loeb has disclosed that he is now the auction house’s biggest shareholder with a 9.3 percent stake in the company. DealBook »
Departures at SAC Capital Unit in London  | Three portfolio managers with a SAC Capital Advisors unit in London have left the firm, according to documents filed with a British agency that tracks corporate registrations. DealBook »
Re/Max Rises in Debut, While Empire State Trust Is Subdued  | Outside the real estate sector, investors also lined up on Wednesday for shares of Burlington Stores, which operates the Burlington Coat Factory retail chain. DealBook »
Marc Jacobs Leaving Louis Vuitton  | Marc Jacobs is leaving Louis Vuitton after 16 years to focus on his own fashion line, which reportedly will move toward an initial public offering. DealBook »
How the Founder of Lavabit Waged a Privacy Fight  | Ladar Levison decided to close his secure e-mail service, Lavabit, rather than allow more access to government investigators who were pursuing Edward J. Snowden. NEW YORK TIMES
S.E.C. Raises Concerns With New Derivatives System  | After the Commodity Futures Trading Commission pushed to implement a new system for trading derivatives on electronic platforms, officials from the Securities and Exchange Commission warned on Wednesday that certain products should not be traded there because they might fall under the S.E.C.’s jurisdiction, The Financial Times reports. FINANCIAL TIMES
European Central Bank Holds Rates Steady  | The European Central Bank left its benchmark interest rate unchanged at a record low on Wednesday, but indicated it was ready to take steps if needed to protect the euro zone from political turmoil in the United States, The New York Times writes. NEW YORK TIMES
Tracking the Fed’s Plans to Taper  | A timeline of quotes from Federal Reserve officials. NEW YORK TIMES
Beanie Baby Creator Pleads Guilty to Tax Evasion  | H. Ty Warner pleaded guilty to hiding money from United States tax authorities in a Swiss bank account, Bloomberg News reports. BLOOMBERG NEWS
Doctoroffs to Give University of Chicago Law School $5 Million  | The law school is expected to announce a $5 million gift from Daniel and Alisa Doctoroff to create a business leadership program that combines law and business classes. DealBook »
