In his State of the Union address before Congress on Tuesday night, President Obama promised to do something about economic disparity in a “year of action,†vowing to act alone if necessary. While Mr. Obama covered a broad swath of issues, his message centered on income inequality. “Those at the top have never done better,†he said. “But average wages have barely budged. Inequality has deepened. Upward mobility has stalled.â€
His moderate ambitions stood in contrast with his sweeping legislation of years past, when he proposed stiff regulations on Wall Street. This year, Mr. Obama proposed closing the economic gap by raising the minimum wage, expanding the earned-income tax credit for low-wage workers without children and creating a new retirement savings plan.
While Mr. Obama did not directly focus on Wall Street’s problems, he did vow to address the tax code. He said he would work with the Treasury to create a new way for Americans to start their own retirement savings called MyRA, which “encourages folks to build a nest egg.â€
“MyRA guarantees a decent return with no risk of losing what you put in. And if this Congress wants to help, work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little or nothing for middle-class Americans, offer every American access to an automatic I.R.A. on the job, so they can save at work just like everybody in this chamber can.
“And since the most important investment many families make is their home, send me legislation that protects taxpayers from footing the bill for a housing crisis ever again, and keeps the dream of homeownership alive for future generations.â€
HEDGE FUNDS BET ON BANKS’ LEGAL SETTLEMENTS  | Despite the hefty penalties banks have incurred for their role in shoddy mortgage practices before the financial crisis, some hedge funds are betting that these legal settlements were not large enough. Following this logic, these hedge funds have purchased subprime mortgage-backed securities that they believe will rise in value if Wall Street banks pay out a lot more money to settle even harsher penalties, Peter Eavis writes in DealBook. Now, these hedge funds have put the onus on themselves to go after the banks for larger settlements.
Mr. Eavis writes: “If the more exacting lawsuits succeed, and the banks have to plow money into the bonds, the hedge funds stand to make a windfall. And the bond prices could rise merely if investors anticipate legal success, well before any settlement is ever reached.â€
ALIBABA SCRUTINY INTENSIFIES  | As the Chinese Internet giant Alibaba moves toward an initial public offering, any one of its decisions could send investors into a tizzy. Consider, for example, Alibaba’s announcement last week that it was acquiring a 54.3 percent stake in Citic 21CN.
Not much is known about Citic 21CN â€" it does not even have an active website â€" except that it has been listed in Hong Kong since 1972, with its principal business in “system integration and software development.†So why, Steven M. Davidoff asks in the Deal Professor column, did Alibaba acquire this company?
There are a number of possible answers, including that Alibaba’s investment in the company was a “backdoor listing,†because Alibaba sees the Hong Kong Stock Exchange as having restrictive rules on voting rights for shares. But whatever the reason, Alibaba’s investment is fueling speculation that shows no sign of abating.
Mr. Davidoff writes: “The scrutiny is only going to get worse for Alibaba as it heads toward a public listing. Once Alibaba does go public, it no longer has the luxury of being coy about its actions, no matter how small. That’s the price you pay for being in the limelight, up among the technology giants of the world.â€
Alibaba continued to be the focus of attention on Tuesday after Yahoo, which owns a significant stake in the company, released its fourth-quarter earnings.
ON THE AGENDA Â |Â The Federal Open Market Committee makes its January announcement at 2 p.m. Boeing releases earnings before the bell. Facebook releases earnings after the market closes. The Senate Subcommittee on Economic Policy holds a hearing on the annual report and oversight of the Office of Financial Research at 3:30 p.m. Benjamin M. Lawsky, the New York State superintendent of financial services, is on Bloomberg TV at 8 a.m. William H. Gross, the founder and co-chief investment officer of Pimco, is on CNBC at 2 p.m.
A LESSON ON J.C. PENNEY’S POISON PILL  | Though the retailer J.C. Penney has attracted considerable hedge fund attention as of late â€" William A. Ackman’s Pershing Square Capital Management, David Tepper’s Appaloosa Management, among others â€" many of these activist investors seem to have lost interest in the struggling company. So J.C. Penney’s announcement on Tuesday that it had set a new, lower threshold for its poison pill has left people scratching their heads, Steven M. Davidoff writes in a Deal Professor column.
The immediate conclusion was that J.C. Penney’s move was intended to prevent more activist investors from accumulating a large stake in the company. But the retailer’s decision may have been driven more by tax rules, which set limits on net operating losses if there is a transfer of ownership. Of course, the way this change is defined is broad, but suffice it to say that the new poison pill threshold may have been set to prevent such an ownership change, which ultimately could put the company at risk of losing its net operating losses. But J.C. Penney’s reasoning remains unclear, because hedge funds have, for the most part, come and gone.
Mr. Davidoff writes: “Perhaps now that things have settled down â€" Mr. Ackman has left and J.C. Penney’s former chief executive has rejoined the company â€" the board felt that it was safe to just deal with this issue. Or maybe the board felt that it wanted to protect management for a while to make sure it had time to turn around the company’s fortunes.â€
Â
With Eye on Spain, Liberty Is Said to Join Hunt for ONO  | The Spanish cable operator ONO, an enticing prospect for any large telecommunications company looking to expand in Europe, has reportedly drawn interest from John C. Malone’s Liberty Global media company as well as the British cellphone giant Vodafone. DealBook »
Vodafone and Verizon Shareholders Approve Wireless Deal  | The deal to sell Vodafone’s 45 percent stake in Verizon Wireless will return about $84 billion to Vodafone shareholders in what the company said was the single largest return of value in history, according to a presentation on Vodafone’s website. DealBook »
Martin Marietta Materials Seals Deal for Texas Industries  | The acquisition of the construction supplies company Texas Industries will allow Martin Marietta Materials, a big producer of sand and gravel, to expand its range of offerings and deepen its presence in the fast growing Texas market. DealBook »
Shell Selling a Stake in Brazilian Oil Project  | Shell is selling 23 percent of the Brazilian project to Qatar for about $1 billion. The offshore project is the type of asset Shell and other large oil companies are looking to dispose of as investors demand better returns. DealBook »
Google’s Purchase of Nest Could Inspire More Deals  | Google’s $3.2 billion acquisition of Nest Labs this month may set off a race to purchase companies that make Internet-connected home devices like thermostats and smoke detectors, Bloomberg News reports. BLOOMBERG NEWS
Google Buys DeepMind to Improve Search, Not Robots  | Google’s purchase of the British artificial intelligence company DeepMind on Monday is less about making robots smarter and more about making its search function more human, Nick Bilton writes in the Bits blog. NEW YORK TIMES BITS
Time Warner Cable Can Take Heart in History of Failed Hostile Bids  | A review of many of the most prominent failed hostile bids suggests that targets that avoided being pressured into an unwanted deal often came out ahead. DealBook »
Lloyds Banking Group to Cut More Than 1,000 Jobs  | The Lloyds Banking Group will eliminate an additional 1,080 jobs and outsource 310 jobs as part of a restructuring it began in 2011. DealBook »
Bowles to Lead Morgan Stanley Board  | Erskine Bowles, who has served on the Morgan Stanley board since 2005, has been named as lead director, succeeding C. Robert Kidder. DealBook »
Barclays Said to Plan Job Cuts  | Barclays is said to be planning to cut hundreds of jobs at its investment bank, Bloomberg News reports, citing an unidentified person familiar with the situation. Cuts will include directors and managing directors. BLOOMBERG NEWS
Deutsche Bank Cuts Compensation for Bankers  | Deutsche Bank reduced compensation for its investment bankers by 23 percent in the fourth quarter, Bloomberg News reports. BLOOMBERG NEWS
Employee Falls to His Death at JPMorgan Building in London  | A JPMorgan Chase employee died after a fall from the office tower headquarters of the investment bank in London on Tuesday morning. DealBook »
Diamond’s New Firm Hires Executive From J. C. Flowers  | Atlas Merchant Capital, the firm Robert E. Diamond Jr. founded last year, said late on Monday that it had hired David Schamis from J.C. Flowers & Company as a founding partner. DealBook »
Former Charterhouse Executive in Court Over Pay Cut  | Geoffrey Arbuthnott, a former executive at the London-based private equity firm Charterhouse Capital Partners, is suing the chairman and the 16 other owners of the firm over a $66 million pay cut proposal, Bloomberg News writes. BLOOMBERG NEWS
Private Equity Targets Marijuana Investments  | Brendan Kennedy, chief executive of the private equity firm Privateer Holdings, discusses private equity investments in legalized marijuana as banks reject the industry in a Bloomberg Television video. “Legalization is inevitable,†Mr. Kennedy says. BLOOMBERG TELEVISION
SAC’s Counsel Testifies at Insider Trading Trial in Unexpected Move by the Defense  | Testimony by the chief counsel at SAC Capital Advisors could allow prosecutors to scrutinize compliance at the multibillion-dollar hedge fund founded by Steven A. Cohen. DealBook »
As Apple Shares Fall, Icahn Plucks More  | Carl C. Icahn took to his favorite broadcasting tool, Twitter, on Tuesday to disclose that he had purchased an additional $500 million in shares of the iPhone maker. DEALBOOK
Founder of Elliott Management Surprised by Bitcoin Success  | Paul E. Singer, the founder of the hedge fund Elliott Management, told investors he was “shocked†by Bitcoin’s popularity, The Wall Street Journal writes. “There is no reason to believe that Bitcoin will stand the test of time than that governments will protect the value of government-created money,†Mr. Singer wrote in a quarterly letter this week. WALL STREET JOURNAL
J.C. Penney Amends Poison Pill Plan  | The retailer lowered the threshold for its poison pill plan to 4.9 percent from 10 percent as it sought to defend itself against potential activist investors and preserve a tax benefit. DealBook »
Casablanca Capital Urges Changes at Cliffs Natural Resources  | Casablanca Capital, an activist hedge fund, disclosed on Tuesday that it had taken a 5.2 percent stake in Cliffs Natural Resources, while urging the mining company to spin off its international assets and make other changes. DealBook »
Fantex Moves Forward With Football Player I.P.O.  | Fantex, a start-up looking to sell stocks tied to athletes’ earnings, said on Tuesday that it was moving forward with a planned initial public offering of stock linked to Vernon Davis, the star tight end of the San Francisco 49ers who experienced a concussion last fall. DealBook »
A Familiar Trip for a Precrisis Buyout  | Seven years after taking the airline reservations operator Sabre private, TPG and Silver Lake are returning to the public markets. It’s one of many big buyouts that should land safely, says Jeffrey Goldfarb of Reuters Breakingviews. DealBook »
Skylark Selects Banks for I.P.O. Â |Â Skylark, a Japanese restaurant operator controlled by the private equity firm Bain Capital, is said to have chosen Nomura Holdings and Bank of America to prepare its initial public offering, Bloomberg News writes, citing unidentified people familiar with the situation. BLOOMBERG NEWS
HubSpot Considers I.P.O. Â |Â HubSpot, an online marketing company, is exploring an initial public offering after revenue increased 50 percent last year, to $77 million, The Wall Street Journal reports. WALL STREET JOURNAL
Indiegogo Raises $40 Million  | The San Francisco-based start-up Indiegogo, a crowdfunding site, announced that it had raised $40 million in a new round of funding led by Institutional Venture Partners and Kleiner Perkins Caufield & Byers, The Bits blog writes. The total is the largest venture capital investment in a crowdfunding business to date. NEW YORK TIMES BITS
Medium Raises $25 Million in New Financing Round  | Medium, the blogging-as-longform-publishing platform started by a Twitter co-founder, Evan Williams, has raised $25 million in a new round of financing, ReCode reported on Tuesday. DealBook »
Income Inequality Debate Shifts Coasts  | The income inequality debate has moved from Wall Street to San Francisco, where agitators are taking to the streets to protest the technology industry, Bloomberg News reports. BLOOMBERG NEWS
A Swipe at Traditional Banking at a Forum Illuminating Bitcoin  | A hearing on the regulatory future of Bitcoin gave advocates the chance to enumerate what they view as the advantages Bitcoin could provide over current monetary systems. DealBook »
R.B.S. to Reduce Foreign Exchange Benchmark Offerings  | The Royal Bank of Scotland will reduce the range of foreign exchange benchmarks it offers to clients amid investigations into whether some traders colluded to manipulate the $5-trillion-a-day currency markets. DealBook »
Challenges for the Yellen Fed  | As Federal Reserve chief, Janet L. Yellen faces the task of tightening monetary policy without choking off domestic recovery or causing upheaval overseas that could rebound on the United States, the economist Phillip Swagel writes in the Exonomix blog. NEW YORK TIMES ECONOMIX
Adding Up the Costs of Data Breaches  | Companies victimized by cyberattacks face a big need to disclose information, both to the victims and to shareholders, writes Peter J. Henning in the White Collar Watch column. DealBook »
Silicon Valley Group Reaches Out to Republicans  | A Silicon Valley lobbying group, whose members include Google, Facebook and Amazon, held an event earlier this month in New York for more than 50 Republican campaign consultants, The Wall Street Journal writes. The event was meant to foster a relationship with Republicans, said one of the company’s members. WALL STREET JOURNAL
