Standard & Poor’s lowered Puerto Rico’s credit rating to junk status on Tuesday, but on Wednesday, the market responded with barely a flinch. While prices of some of the island’s bonds traded lower, there was nothing close to the kind of mass sell-off that might indicate a panic, Michael Corkery reports in DealBook.
Investors have been anticipating the downgrade of Puerto Rico’s debt for months, and many firms, like BlackRock, have reduced their Puerto Rico exposure to soften the blow of just such an event. Other investors including hedge funds and private equity firms see an opportunity in the steep drop in prices of the bonds, though the prices have not dropped far enough to justify a buying spree.
In any case, most investors continue to have confidence in the island’s ability to pay back its debts because of a longstanding bargain: Investors have lent Puerto Rico billions of dollars in the past, and, as a result, the island’s bonds have generated extremely high returns. And though the bargain has become precarious, with the downgrade causing a cash squeeze for the commonwealth, some large investors still say they have faith that the island’s government won’t let them down.
STILL NO VERDICT IN SAC INSIDER TRADING TRIAL  | After its second day of deliberating, the jury in the insider trading trial of Mathew Martoma, a former portfolio manager at SAC Capital Advisors, still has not reached a verdict. The day’s most notable development was that the jury of seven women and five men requested the transcript of testimony supporting the defense’s claim that Mr. Martoma was not guilty.
But even this move should be taken lightly, as lawyers cautioned that predicting how a jury will vote based on evidence requests is difficult and can lead to erroneous conclusions, Alexandra Stevenson and Rachel Abrams write in DealBook. The jury will continue deliberating on Thursday morning.
CURRENCY TRADING IN FLUX  | As the banking industry continues to grapple with a series of investigations of potential manipulation of the currency markets, foreign exchange desks are looking a bit thin. More than a dozen currency traders at some of the world’s largest banks, including Barclays, UBS and JPMorgan Chase, have been placed on leave over questions about whether they colluded to manipulate the $5-trillion-a-day currency market. Deutsche Bank fired the head of its emerging markets foreign exchange trading desk in New York and two traders just this week.
And some executives at prominent financial institutions like Citigroup and Goldman Sachs have simply had enough. Anil Prasad, the global head of Citigroup’s foreign exchange and local markets operations, is leaving the bank to “pursue other interests†while Steven Cho, the global head of Goldman’s Group of 10 nations spot and forward trading group, is retiring.
The moves come as many of the world’s largest banks are facing inquiries from regulators in Britain, the United States and other parts of the world regarding potential manipulation of foreign exchange rates. On that note, New York State’s financial regulator, Benjamin M. Lawsky, recently began an investigation into whether more than a dozen banks manipulated the price of foreign currencies, bringing the global inquiry to our doorsteps.
A.I.G. SEEKS TO DELAY BANK OF AMERICA MORTGAGE SETTLEMENT  | The American International Group seems determined to upend the $8.5 billion settlement between Bank of America and a group of 22 mortgage securities investors, most of which was approved last Friday. On Tuesday, A.I.G.’s lawyers filed papers in New York State Supreme Court seeking to delay final approval of the deal.
At the center of the lawsuit are more than 500 mortgage-backed securities involving troubled loans issued by Countrywide Financial. The investors, who held these bonds, agreed to settle their claims with Bank of America, which acquired Countrywide in 2008. But A.I.G., another investor in the bonds, refused to sign the settlement, arguing that the sum represented only a fraction of the overall losses and that the trustee for the bonds, Bank of New York Mellon, shirked its responsibility in pushing for more money in the settlement.
ON THE AGENDA  | The Challenger job-cut report for January is out at 7:30 a.m. Weekly jobless claims are out at 8:30 a.m. International trade data for December is released at 8:30 a.m. Daniel K. Tarullo, a Fed governor, is testifying at a Senate Banking Committee hearing on financial stability and data security at 10 a.m. Eric S. Rosengren, president of the Boston Fed, gives a speech on the economic outlook at 5:30 p.m. in Sarasota, Fla. General Motors reports fourth-quarter earnings before the bell, its first earnings report for the company’s new chief executive, Mary T. Barra. The European Central Bank’s governing council meets in Frankfurt to discuss monetary policy. Tim Armstrong, chief executive of AOL, is on CNBC at 7 a.m. and Bloomberg TV at 7:30 a.m. Charles K. Stevens III, chief financial officer of General Motors, is on CNBC at 7:50 a.m. Th 2014 Winter Olympics begin in Sochi, Russia, with events in team figure skating, skiing and slopestyle snowboarding.
WHO IS RICHARD CORDRAY?  | That would have been the question on “Jeopardy!†on Wednesday night to the answer: Which regulatory bigwig, who was also a five-time “Jeopardy!†champion in 1980s, has returned to the show to compete against other past champions.
On Wednesday, Richard Cordray, the director of the Consumer Financial Protection Bureau, tried his hand again at the quiz show in a “Battle of the Decades.†Mr. Cordray gave it a good fight, but came in second after a few costly errors (Mr. Cordray did answer the Final Jeopardy question correctly, but lost nevertheless.) Flashback: Mr. Cordray on the show in 1987.
THE RICH STICK TOGETHER  | Tom Perkins may have apologized for comparing attacks on the wealthy in the United States to Kristallnacht, but his core argument about class warfare received a nod on Wednesday from the billionaire real estate tycoon Samuel Zell. “I guess my feeling is that he’s right. The quote ‘1 percent’ are being pummeled because it’s politically convenient to do so,†Mr. Zell said in an interview on Bloomberg Television. “The problem is that the world and this country should not talk about envy of the 1 percent. It should talk about emulating the 1 percent. The 1 percent work harder. The 1 percent are much bigger factors in all forms of our society.†Watch the full interview here.
F.T.C. GRANTS GOOGLE EARLY APPROVAL FOR NEST PURCHASE  | Here is the premerger notification document showing the Federal Trade Commission’s preliminary approval for Google to acquire Nest Labs, a company that makes Internet-connected home devices like thermostats.
Â
Sony to Sell Personal Computer Unit Amid Dwindling Sales  | Faced with mounting losses, the troubled Japanese consumer electronics and entertainment giant said on Thursday that it had agreed to sell its unprofitable personal computer unit to Japan Industrial Partners, an investment fund, The New York Times writes. Sony said it also plans to eliminate 5,000 jobs across the company and overhaul its television business. NEW YORK TIMES
Coca-Cola to Buy 10% Stake in Green Mountain Coffee  | Coca-Cola will buy about 16.7 million shares in Green Mountain Coffee Roasters for about $1.25 billion. In return, Green Mountain will be the official maker of the soda giant’s single-serve cold beverages, built on its popular Keurig pod-based system. DealBook »
Finnish Group Offers to Buy Pohjola Bank for $4.6 Billion  | The OP-Pohjola Group is seeking to acquire the shares it does not already own in Pohjola Bank for about 3.4 billion euros, or about $4.6 billion. DealBook »
Anheuser-Busch InBev Buys Blue Point Brewing Company  | The move could help Anheuser-Busch InBev capitalize on the popularity of craft beer, bringing a Long Island beer company with a devoted following into a family of brands that includes Budweiser, Stella Artois and Beck’s. DealBook »
Smith & Nephew’s Bid for ArthroCare Opens Door to Rival Offer  | Smith & Nephew’s offer on Monday to buy the medical device maker ArthroCare Corporation for $1.7 billion in cash has paved the way for other companies to come up with rival offers at a higher premium, Bloomberg News reports. BLOOMBERG NEWS
Beam Fourth-Quarter Profit Falls  | Profit at Beam Inc., which was purchased in January by the Japanese beverage giant Suntory for $13.6 billion, fell 19 percent from the period a year earlier, The Wall Street Journal reports. Beam said it would not disclose public targets for 2014 earnings while the deal was pending. WALL STREET JOURNAL
Legal Costs Weigh on Credit Suisse Earnings  | The Swiss bank’s net income increased nearly 2 percent, after setting aside funds to cover costs for mortgage litigation and a tax dispute. DealBook »
Deutsche Bank Names Co-Chief of Fixed Income  | Richard Herman will become co-chief of the fixed-income and currency trading business alongside Zar Amrolia, according to an internal memorandum reviewed by DealBook. DealBook »
Lazard’s Profit Rises 35%, Aided by Asset Management  | Lazard said it benefited from improvements in its advisory and asset management businesses in the fourth quarter, adding that it expected deal activity to improve this year. DealBook »
Lazard Swims With the Big Fish  | Lazard looks more like Goldman Sachs, Morgan Stanley and JPMorgan Chase than smaller rivals like Greenhill, contends Antony Currie of Reuters Breakingviews. DealBook »
JPMorgan in Talks to Sell Physical Commodities Unit  | The Mercuria Energy Group, a trading house led by two former Goldman Sachs executives, is said to be in talks with JPMorgan Chase to buy the bank’s multibillion-dollar physical commodities unit, Reuters reports. REUTERS
European Bankers Have Worst January in a Decade  | European investment bankers had a rough start to the year, as revenue from deal-making and trading waned in January, Bloomberg News writes. BLOOMBERG NEWS
Private Equity’s Shift to High-Yield Debt  | Leveraged buyout firms like Apollo Global Management are scooping up high-yield debt that is being eschewed by banks, Bloomberg News reports. Apollo’s credit unit has increased to $103 billion in assets from about $4 billion in just seven years, even as the number of buyout deals has been decreasing. BLOOMBERG NEWS
Schwarzman Honored at Chinese New Year Gala  | Stephen A. Schwarzman, chief executive of the Blackstone Group, discussed his Schwarzman Scholars program and the relationship between the United States and China in an interview with Fortune at an event hosted by the China Arts Foundation. FORTUNE
Dividend Recap Deals Remain Attractive  | Dividend recapitalization deals, in which companies take on additional debt to finance payouts to their private equity owners, are benefiting from favorable debt markets, The Wall Street Journal writes. WALL STREET JOURNAL
African Private Equity Deals Reach 5-Year High  | Sub-Saharan Africa received $1.6 billion in private equity investments in 2013, a five-year high, Reuters reports. REUTERS
Citadel Defied a Market Slump in January  | Citadel, the hedge fund led by Kenneth C. Griffin, told its investors on Wednesday that its two flagship funds rose 3.4 percent in January, according to a person briefed on the matter. DealBook »
Shadow Banks Step Up Lending to Middle Market Companies  | Nonbank lenders like hedge funds extended more than a quarter of the loans to middle market companies in the United States last year, as traditional banks slowed their lending activity because of new regulations, The Financial Times reports. FINANCIAL TIMES
User Growth for Twitter Starts to Slow  | Twitter said revenue for the fourth quarter was $243 million, up from $112 million in the period a year earlier, The New York Times writes. The microblogging company reported a net loss of $511 million. NEW YORK TIMES
Dutch Biotechnology Company Raises $82 Million in I.P.O. Â |Â UniQure, a Dutch gene therapy company, priced its shares above the expected range in a United States initial public offering on Wednesday, raising $81.9 million, Reuters reports. REUTERS
Rubicon Files $100 Million I.P.O. Â |Â Though Rubicon, a digital advertising network, toyed with the idea of selling itself to a big player like Yahoo or Adobe, the company is now hoping to raise $100 million through an initial public offering under the ticker RUBI, ReCode reports. RECODE
Health Care Company Announces Confidential I.P.O. in News Release  | Imprivata, a health care information technology company, filed a confidential initial public offering, but then sent out a news release disclosing the move, Fortune reports. FORTUNE
Two of Venture Capital’s Most Senior Women Start New Firm  | Theresia Gouw of Accel and Jennifer Fonstad of Draper Fisher Jurvetson are opening Aspect Ventures, a technology investment firm through which they said they planned to invest in mobile start-ups and illustrate the value of diversity, The New York Times writes. NEW YORK TIMES BITS
Fundera Gets $3.4 Million to Improve Small Business Lending  | Fundera, a marketplace for small business loans started by the founders of GroupMe, has raised $3.4 million in venture funding, Fortune reports. FORTUNE
Apple Takes Down a Bitcoin App  | The app, named BlockChain, was one of the last remaining iPhone mobile applications that allowed users to buy and sell Bitcoin. DealBook »
College Food App Announces $10.5 Million Funding Round  | Tapingo, a mobile app that allows college students to order food on campus, announced on Wednesday that it had received a $10.5 million round of funding led by Khosla Ventures, TechCrunch reports. TECHCRUNCH
Domo Doubles Investor Capital  | The enterprise software start-up Domo says it has raised $125 million in new capital, doubling the amount of money investors have put into the company, Reuters writes. REUTERS
Regulators Unite to Enforce Volcker Rule  | A group of regulatory agencies, including the Federal Reserve and the Federal Deposit Insurance Corporation, have formed a group to coordinate the carrying out of the Volcker Rule, Bloomberg News reports. Officials from the agencies announced plans for the group on Wednesday at a hearing held by the House Financial Services Committee. BLOOMBERG NEWS
A Top Bankruptcy Lawyer Will Move to Hilco  | John W. Butler Jr., a partner at the law firm Skadden, Arps, Slate, Meagher & Flom, will move to Hilco Global, a financial firm whose services include liquidating bankrupt companies. DealBook »
Maintaining Ethics in the Move From Regulator to Regulated  | Life is fraught for financial watchdogs who switch to the private sector, especially if they try to have standards, writes Jesse Eisinger. The Trade »
Bitcoin Supporter Maintains Passion Despite Arrest  | Charles Shrem, a prominent Bitcoin supporter and founder of the Bitcoin exchange BitInstant who was arrested on Jan. 26 for conspiring to launder money, said on Wednesday that he believed “2014 will be like the Industrial Revolution for Bitcoin,†The Wall Street Journal writes. WALL STREET JOURNAL
Should Puerto Rico Default on Its Debt?  | “Puerto Rico has $70 billion in debt outstanding, all of it needing to be repaid with interest â€" and the simple fact is that there’s no way it’s going to be able to do that,†Felix Salmon writes in an opinion piece for Reuters. REUTERS
Hawkish Official Urges Faster Taper  | Charles I. Plosser, president of the Philadelphia Federal Reserve, said on Wednesday that the United States central bank should wind down its bond-buying program faster than planned and end it before the middle of the year, Reuters reports. REUTERS
