Bets on European Bonds Paying Off for Funds

When fear gripped the European markets in April, the money manager Robert Tipp decided to buy more Portuguese government bonds. He figured that European officials wouldn't let the country turn into another Greece.

“They wanted to have some success stories, and Portugal was one they wanted to keep in,” said Mr. Tipp, who runs the Prudential Global Total Return Fund.

Such contrarian bets are looking pretty smart right now. Last week, the European Central Bank pledged to buy huge amounts of the region's sovereign debt, potentially putting a floor under the prices of Italian, Portuguese, Spanish and Irish bonds.

But bond funds may have to brace for a bumpy ride. Despite the progress, uncertainty looms.

“You always have to be concerned with the exit strategy,” Mr. Tipp said.

With the extraordinary level of support from the central bank, mutual fund managers are reaping big returns on their purchases. Since April, Portuguese bonds are up mor e than 32 percent, making Mr. Tipp's fund one of the top performers this year. The gains are equally strong for Irish government bonds, and the debt of Italy and Spain has rallied in recent weeks as well.

“This is a new chapter in monetary policy and a new chapter in the debt crisis,” said Scott A. Mather, head of global portfolio management at the Pacific Investment Management Company, known as Pimco. “It doesn't mean all the problems are solved, but this is a more effective and powerful program.”

Pimco funds went on a buying spree of Italian government bonds this spring and summer. Italy was making progress with important reforms, Mr. Mather said, but the anticipation of central bank support was also decisive in the manager's decision to buy Italian bonds. “That was already being hinted at.”

In some ways, it's hard to see how the mutual funds can lose. The European Central Bank's recent move is intended to prevent the crisis from worsening. Wi thout it, Europe could slip back into a vicious cycle where plunging government bond prices damage the financial system and the wider economy.

Even so, the potential payoffs are far from guaranteed.

Mutual funds hold bonds that don't pay back investors for many years. If a large investor tries to dump its holdings in a small market, the sales could drive down the prices of the country's bonds.

The eventual returns will also depend on a country's willingness to stick to the reform plan. The central bank's bond-buying program will have strings attached to pressure countries to follow the measures. But some governments may balk at adopting them, or voters, tired of austerity, may remove pro-reform governments.

Consider the situation of Franklin Templeton, the big mutual fund manager. It owned about $7.8 billion of Irish government bonds at the end of June, according to an analysis of Bloomberg data, which amounted to roughly 7 percent of the country's to tal government bonds.

So far, the funds managed by Franklin Templeton have made nice gains on their Irish government bonds. In euros, the bonds have returned 21.2 percent this year, counting both price appreciation and interest payments.

But it might be hard to sell the bonds in a hurry without depressing prices. The debt could also suffer if Ireland struggled to meet economic and political goals.

Michael Hasenstab, who manages the Templeton Global Bond fund, which owns large amounts of the Irish bonds, has written publicly that he believes the country can tough it out. Lisa Gallegos, a spokeswoman for Franklin Templeton, said the fund had a “well-diversified and large asset base” that would help insulate “against the need to sell positions before their targets have been achieved.”

Then there are the outliers, the countries that may not benefit from the central bank's aid. For example, Hungary is in the European Union, but it does not use the euro currency. As a result, officials may have less incentive to bail out the country if its economic problems worsen, especially since Hungary's government has pursued policies that have unsettled the union and the International Monetary Fund.

Hungarian government bond prices are up 15 percent this year, measured in the country's currency. But the debt could plummet if it appears that the government is unable to reach an agreement with the I.M.F. for a big credit line.

“Up until recently I was kind of certain they'd get a program, but now I'm quite a bit less optimistic,” said Daniel Hewitt, an analyst with Barclays.

Other analysts believe the Hungarian government is drawing out negotiations so it can appear tough to the country's electorate. After a while, it will ultimately reach an agreement and Hungary will get its loan program. That could ignite a rally in Hungary's bonds and its currency, aiding the bondholders.

Along the way to a resolutio n, the tensions could create problems for bond fund managers. Legg Mason and Oppenheimer Funds both owned small amounts of Hungarian bonds at the end of June, according to Bloomberg. Franklin Templeton dominates the market. It alone held some $8.8 billion of Hungarian government bonds this summer, roughly 12 percent of the country's bonds.

If nothing else, bond fund managers need to be prepared for the unknown. The sovereign debt crisis has proved an unpredictable beast in the last two years. Just when officials think they have it under control, another problem emerges. The resulting volatility can be painful for the managers.

Mr. Tipp would know. While he has done well on recent purchases of Portuguese bonds, his earlier positions suffered. At the market nadir in January, he sold out of some Portuguese bonds that mature in 2037. Asked whether he took a loss on that investment, he said, “undoubtedly.”

Plot Twist in the A.I.G. Bailout: It Actually Worked

“Some people just don't like movies with happy endings.”

That's what the White House said about Neil Barofsky, then the special inspector general for the Troubled Asset Relief Program, when he complained two years ago that the Treasury Department was fudging its math about its investment in the American International Group.

At the time, the Treasury Department said that it was likely to lose only about $5 billion on the bailout. Mr. Barofsky declared that the number was “manipulated” as part of a “publicity campaign touting the positive aspects of TARP” ahead of the midterm elections.

Fast forward to this week. The Treasury Department announced it planned to sell as much as $20.7 billion of its A.I.G. stake, putting it on a path to actually turn a profit. It was a remarkable feat and one that nobody - including Treasury Secretary Timothy F. Geithner - anticipated four years ago at the peak of the crisis during the $180 billion bailout of the c ompany.

Critics of the A.I.G. bailout - it was the most loathed of the rescues and a centerpiece of the Occupy Wall Street movement - had insisted it was going to be a huge black hole.

Given the latest news, I called Mr. Barofsky to see if he had any regrets about his earlier pronouncements now that the rescue of A.I.G. appeared profitable.

“Whoa! Whoa! Whoa! They are not making money!” Mr. Barofsky, now a senior fellow at New York University School of Law, said when I reached him. “They are on the path to very significant losses!”

What?

Mr. Barofsky, who recently wrote a scathing book about the Treasury Department called “Bailout,” refused to admit defeat, saying, “I was right then and I am right now.”

He said that the government is “really engaged in half-truths and creative accounting.” After that assertion, he quickly followed up with, “Is the timing keyed to the election?”

Mr. Barofsky continues to claim the Treasury Department is playing fast and loose with how it calculates profitability. The Treasury says its break-even cost for A.I.G. shares is $28.73, so that any sale of shares at a higher price - the government is selling its A.I.G. shares for $32.50 - means it stands to make a profit.

Mr. Barofsky says that calculation is “absurd.” He says the real break-even price for TARP is $43.53 a share. But Mr. Barofsky - and other critics of the bailout that have sought to portray the rescue effort as a money-losing failure - may be engaged in half-truths and creative accounting of their own.

Mr. Barofsky is focusing on how much the government paid through the TARP program for A.I.G. shares, not how much the taxpayer will ultimately make - including through a separate investment made by the Federal Reserve.

Mr. Barofsky is technically correct that if you isolate the original cost to TARP for its investment in A.I.G., $43.53 a share is the break-even number .

But that conveniently excludes the huge stake that the Federal Reserve received in exchange for its original $85 billion rescue in September 2008. The Federal Reserve's stake was later rolled into the Treasury's stake through a series of complicated transactions.

If you include the TARP stake and the Federal Reserve stake, the break-even sale price for A.I.G. shares is the $28.73 that the Treasury has proclaimed.

And that's the number that taxpayers should care about.

Mr. Barofsky, however, told me that “it's just not accurate” for me or anyone else to accept Treasury's view of profitability because “they mixed the pot.”

He explained: “The Fed's cost basis is zero and they essentially gifted the shares to Treasury,” adding that the government should disclose its math. “It's a question of transparency.”

When Mr. Barofsky first raised this issue in 2010, the White House, in a rare rebuke of an inspector general, said he had “sought to generate a false controversy over A.I.G. to try and grab a few, cheap headlines.”

As we approach the four-year anniversary of the collapse of Lehman Brothers and the rescue of A.I.G. next week, sadly, much of the public - and people like Mr. Barofsky, as well-intentioned as he is - are still criticizing and debating the merits of the bailout. It's almost become a cottage industry.

In his book, Mr. Barofsky wrote, “Treasury's desperate attempt to bail out Wall Street was setting the country up for potentially catastrophic losses.”

As distasteful as the rescue effort was, it should be clear by now that without it, we faced an economic Armageddon. And the results thus far of bailing out the big banks, and A.I.G., indicate a profit.

The Government Accountability Office, which is not swayed by politics, estimated in May that taxpayers will receive a profit of about $15 billion from the A.I.G. bailout. That includes the profit the Fed ha d already made as part of the broader rescue. There may still be parts of the bailouts to debate: how they were executed, whether they were as effective as they could have been and, perhaps, whether taxpayers should have received an even bigger return for their investments given the risk.

But on the whole, the rescue of A.I.G. - often called a backdoor bailout of Wall Street - should be considered a success.

Toward the end of my phone call, Mr. Barofsky said it himself: “The government had no choice but to bail out A.I.G.” Then he added that Treasury's sale of A.I.G. stock “is unambiguously good news for the country.”

Treasury\'s A.I.G. Stock Sale Is Priced at $32.50

The Treasury Department priced its large offering of shares in the American International Group at $32.50 each on Monday, according to people briefed on the matter, as the government pared its stake in the bailed-out insurer below 50 percent.

At $32.50 a share, the offering is below A.I.G.'s Monday closing price of $33.30, since banks running stock sales normally include a discount to entice investors to buy. Even at that level, the price remain above the $28.73 that Treasury has identified as the break-even price for its investment in the insurer.

With the sale, the Treasury Department and A.I.G. realized a long-held goal of reducing the government to a minority ownership position, helping hasten an end to one of the most contentious bailouts of the financial crisis. The Obama administration announced on Sunday that it planned to sell at least $18 billion worth of shares, and potentially up to $20.7 billion.

Shares in A.I.G. fell 2 percent on Monday, as existing investors fretted over the enormous slug of stock that would hit the markets.

With Gensler in Hospital, Agency Scraps Vote

The Commodity Futures Trading Commission has scrapped plans for publicly enacting rules to protect customer cash after the agency's chairman was hospitalized over the weekend.

Gary Gensler, who is overhauling an array of financial rules as head of the Wall Street regulatory agency, cracked several ribs on Sunday when falling at his Maryland home. Mr. Gensler remains in the hospital, although his spokesman called the decision “a precaution.”

The spokesman, Steve Adamske, said that Mr. Gensler “otherwise feels fine and looks forward to returning to the office very soon.” A marathon runner and mountain climber known for being a taskmaster at the C.F.T.C., Mr. Gensler has “been calling and e-mailing staff asking for updates and making assignments,” Mr. Adamske said in a statement.

With its chairman laid up, the agency has canceled a public vote scheduled for Wednesday. Instead, the agency's five commissioners will vote in private, producing a fina l tally by next week.

The rules are aimed at bolstering the safety of customer money, an issue that gained prominence after two major debacles erupted over the last year. In October, as MF Global was collapsing, the brokerage firm tapped customer money to stay afloat. When bankruptcy ensued, more than $1 billion in customer cash vanished.

The problem arose again this summer, when another futures brokerage firm, PFG Best, toppled amid revelations that its chief executive was raiding customer accounts for 20 years. The breach came to light when the chief executive, Russell Wasendorf Sr., tried to commit suicide.

The new rules for customer protection will codify a set of reforms introduced recently by the National Futures Association, the industry's self-regulatory group. The changes will provide regulators with electronic access to customer account balances and eventually require daily reports tracking the sums.

Mr. Gensler's agency has spent more than two years carrying out a broader overhaul of derivatives trading. Under the Dodd-Frank act, the regulatory overhaul passed in response to the financial crisis, the agency is writing more than 50 new rules to rein in Wall Street risk taking.

Geithner Holds His Own on Triathlon Front

Paul D. Ryan may not have finished a marathon quite as fast as he initially recounted. But Timothy F. Geithner can point to a respectable time for his latest triathlon.

The Treasury secretary participated in the 7th annual Nation's Triathlon to Benefit the Leukemia & Lymphoma Society on Sunday, swimming, biking and running his way through the nation's capital. The race involved a 1.5-kilometer swim in the Potomac River, a 40-kilometer bike ride through the city and then a 10-kilometer run.

And Mr. Geithner, 51, can boast of a pretty good finish to his race, completing the course in 2:33:07. He placed ninth in his division, men aged 50 to 54, according to the race's Web site. Individually, he completed the swim in 29:10; the bike ride in 1:13:52; and the run in 45:51.

According to The Washington Post's The Reliable Source, Mr. Geithner didn't even notify race organizers that he was in the triathlon. He has competed in a few races before, including a triat hlon in Reston, Va., and a half-marathon in California, according to the blog.

A Treasury spokesman confirmed that Mr. Geithner competed in the race.

He isn't the only financial regulator with a passion for athletics. But the Treasury Secretary is well-known for being something of a fitness nut. DealBook's Andrew Ross Sorkin noted in “Too Big to Fail” that for years, Mr. Geithner and other colleagues would go to Nick Bollettieri's famous tennis camp in Florida. (For what it's worth, the secretary is also described as having “six-pack abs.”)

And he's demonstrated a relish for sports like basketball - despite standing five foot eight, he was praised as a “credible” player with good ball-handling skills - and snowboarding.

Why Facebook Is Paying the Tax Tab on Employee Compensation

Facebook announced last week that it plans to use cash to pay off a $1.9 billion tax bill related to Restricted Stock Units ( R.S.U.s) that Facebook had granted to employees over the years. It's odd timing for a tax bill. Why would Facebook, not the employees, owe tax on compensation income?

The short answer is that Facebook isn't really paying tax. It's just remitting the tax on behalf of the employees.

Restricted Stock Units are a form of equity compensation similar to restricted stock. Instead of giving the employees stock, Facebook made a contractually binding promise to give them shares later, after the I.P.O. Facebook is now “net settling” the R.S.U.s by withholding the amount of tax due at an estimated combined federal and state tax rate of 45 percent. Still, because the Internal Revenue Service doesn't accept payment in stock certificates, Facebook has to come up with almost $2 billion in cash. Paying the I.R.S. in cash, instead of selling new sha res, allows Facebook to reduce the number of fully diluted shares on its financial statements. In turn, this might buck up its sagging stock price, much like a stock buy-back would.

The colossal tax bill can be traced back to Mark Zuckerberg's desire to keep Facebook from becoming a public company. If Facebook had issued traditional restricted stock, the employees' tax bill would have been smaller, and it would have been paid a long time ago. But Facebook would have been forced to go public earlier.

Restricted stock became popular in Silicon Valley after an accounting change in 2004 required companies to treat stock options as a compensation expense. To keep accounting income looking healthy, some companies began issuing restricted stock, which minimizes share dilution and spreads the compensation expense over the vesting period of the stock. Restricted stock gives employees the economic incentives of a stockholder, but employees cannot sell the stock until the y meet years of service requirements or performance hurdles.

Restricted stock also gives employees a great tax advantage. When employees receive restricted stock, they may choose to take the current value of the stock into income by making a special “section 83(b)” tax election. Accelerating ordinary income with an 83(b) election can be risky, as there is no guarantee that the stock will appreciate in value, and it is generally preferable to defer paying taxes as long as possible. Indeed, public company executives often do not make the election. But for employees of start-ups, the election is routine for one simple reason: any appreciation in the stock is taxed at the lower long-term capital gains rate of 15 percent.

To illustrate, suppose Max, a hotshot software engineer, received 100,000 restricted shares of Facebook stock at $1 per share in 2007. Thinking ahead, he made an 83(b) election and recognized $100,000 of taxable income immediately. Accelerating taxable income is usually a bad idea, but this is the exception to the rule. When Max sells those shares at $20 a share in 2012, the appreciation would be taxed at the long-term capital gains rate of 15 percent. He would walk away with $1.67 million ($2 million minus $45,000 tax paid in 2008 and $285,000 tax paid in 2012).

The problem with restricted stock was that Facebook wanted to delay becoming a public company. Under the securities rules in force at the time, if Facebook had 500 or more shareholders, including all those software engineers, it would been forced to comply with the Securities and Exchange Commission's disclosure requirements for public companies even before it conducted an I.P.O.

Facebook instead issued R.S.U.s, which give employees the economics of an equity interest in the company without the actual shares. The R.S.U.s contained both a vesting restriction and a liquidity restriction, meaning that the actual shares would not be issued unti l a liquidity event occurred, like an I.P.O. or getting acquired by a public company. An S.E.C, No-Action letter allowed Facebook to issue R.S.U.s without counting the recipients as shareholders for purposes of the 500 shareholder rule.

The R.S.U. plan was a clever workaround of the securities laws, but it left the Facebook employees with a tax problem. Because the R.S.U.s are not “property” for tax purposes-merely a promise to pay shares later-the employees could not make an 83(b) election to get capital gains treatment on any appreciation. So Max, our hypothetical software engineer, will actually receive $1.1 million-$2 million less $900,000 in taxes-or about half a million less than if he had received restricted stock and made the 83(b) election.

This adverse tax treatment might create a sense of inequity among Facebook employees. Founders pay tax at capital gains rates, while employees, subject to the same market risk on their equity compensation, pay tax at ordinary income rates. On the other hand, it's possible that savvy software engineers negotiate pay on an after-tax basis; perhaps Facebook had to grant more R.S.U.s to reflect the greater tax hit to the employees.

Indeed, Facebook probably should have granted more R.S.U.s, as it gets the benefit of a much larger tax deduction than if it had issued restricted stock. Facebook will take a tax deduction equal to the amount that the employees take into income-in this case, almost $2 billion. At Facebook's 35 percent tax rate, that deduction is worth about $700 million.

R.S.U.s don't create a serious tax policy problem. Facebook gets a large deduction, but employees pay higher taxes. For the I.R.S., it's a wash, just as it would be with restricted stock.

The interesting question is whether R.S.U.s confuse investors. Because the R.S.U.s create an issuance of shares only after a liquidity event - in this case, six months after the I.P.O. - Facebook will suddenly recognize a huge share-based compensation expense on their income statement.

This strikes me as an odd result from an accounting perspective; it's as if Facebook were paying compensation for all their employees' work now, as opposed to spreading the expense over time. Facebook's best hope is that as a one-time expense, investors will shrug off the R.S.U.s and focus on how the actual business is doing. Facebook's chief financial officer has enough to worry about.

* * *

For further reading on the tax and accounting treatment of stock-based compensation, see David Walker and Victor Fleischer, “Book/Tax Conformity and Equity Compensation,” 62 Tax Law Review 399 (2009); Michael S. Knoll, “The Section 83(b) Election for Restricted Stock: A Joint Tax Perspective,” 59 SMU Law Review 721 (2006).

“For further reading on changes to the 500 shareholder limit, see Michael D. Guttentag, “Patching a Hole in the JOBS Act: How an d Why to Rewrite the Rules that Require Firms to Make Periodic Disclosures“, Indiana Law Journal (forthcoming); Donald C. Langevoort & Robert Thompson, ” ‘Publicness' in Contemporary Securities Regulation after the JOBS Act,” Georgetown Law Journal (forthcoming).

Victor Fleischer is a professor at the University of Colorado Law School, where he teaches partnership tax, tax policy and deals. His research focuses on how tax affects the structuring of venture capital, private equity, and corporate transactions.

Can the S.E.C. Win an Insider Case the Old-Fashioned Way?

The White Collar Watch columnist examines insider trading and John Houseman's 1979 advertisement for Smith Barney.

Over thirty years ago, the actor John Houseman intoned about brokerage firm Smith Barney: “They make money the old-fashioned way. They earn it.”

A recent decision of the United States Court of Appeals for the Second Circuit may result in a test of whether the Securities and Exchange Commission can prove an insider trading case the old-fashioned way â€" by putting on a circumstantial case built around a well-timed trade and contacts with an insider.

In 2006, the S.E.C. sued Nelson J. Obus, Peter F. Black and Thomas B. Strickland for insider trading related to the purchase of shares of SunSource shortly before the announcement of a takeover by Allied Capital in June 2001. The trade generated a profit of about $1.3 million. Mr. Strickland worked for GE Capital, which financed the takeover , and conducted the due diligence on the deal.

Unlike recent cases featuring wiretaps and recordings made by cooperating witnesses, the S.E.C.'s charges boil down to a classic situation of “did they or didn't they?”

The defendants deny they traded on confidential information. But the timing of the trade is certainly suspicious, and comments made by the defendants about a possible deal raise questions about whether they knew about the transaction ahead of time.

The district court threw out the S.E.C.'s case in 2010. But the appeals court reversed that decision, holding that the S.E.C. had gathered enough evidence to raise factual issues about the trade.

In any circumstantial case, the evidence is subject to interpretation, so sorting out what really happened will be difficult â€" especially when each side offers a diametrically opposed view.

The case centers on a conversation in May 2001, when Mr. Strickland spoke with Mr. Black, a college f riend, who worked for the hedge fund Wynnefield Capital. According to Mr. Strickland, he did not mention the likely takeover of the company, and only talked to Mr. Black as part of his due diligence by disclosing that GE Capital had an interest in a potential transaction with SunSource. The S.E.C., on the other hand, has claimed that Mr. Strickland tipped Mr. Black about the impending takeover by Allied Capital.

Mr. Black testified that he told Mr. Obus, the president of Wynnefield, that the conversation led him to infer that SunSource might be involved in a transaction. Mr. Obus, in turn, spoke with the chief executive of SunSource about a possible transaction involving the company.

The recollection of the parties differs markedly. Mr. Obus's call could be interpreted to mean that he knew something big was in the offing, but whether he was aware of the particulars or was only guessing is unclear. Without a recording of the conversations, the case hinges on the t estimony the jury decides to believe.

The timing of Wynnefield's trade is also subject to conflicting interpretations. The firm bought 287,200 shares of SunSource, or about 5 percent of its stock, on June 8, 2001. That was more than two weeks after the conversation between Mr. Strickland and Mr. Black, but just 11 days before the announcement of a deal that sent SunSource's stock price up more than 90 percent.

In most insider trading cases involving information about an impending takeover, securities in the target company are bought as soon as possible to avoid getting shut out if word about the deal leaks into the market. That did not happen here, and since Wynnefield was already a significant investor in SunSource it would have been reasonable for the firm to buy more shares. Yet buying 5 percent of a company's stock a little more than a week before a takeover announcement could be enough for the jury to have doubts about denials that the purchase was not based on inside information.

Mr. Strickland's conversation with Mr. Black also presents ambiguities that make it hard to determine what really happened. The defendants assert that the call was part of the ordinary due diligence process for a deal. But a key to any extraordinary transaction is maintaining confidentiality to avoid driving up the stock price â€" and perhaps triggering a bidding war. Due diligence is usually performed in a manner that avoids disclosure to investors, who might take advantage of the information, but the events in this instance may cut in favor of a finding that something may have been leaked.

Whether Mr. Strickland tipped Mr. Black is a different question. An internal investigation by GE Capital determined that Mr. Strickland had violated the company's confidentiality restrictions, issuing a reprimand and denying him a bonus and salary increase. But the firm did not fire him, or conclude that he had divulged inside information.

To pro ve insider trading, the S.E.C. has to show that Mr. Strickland breached a fiduciary duty by disclosing the information, knowing that it would be used for trading by the recipient â€" or at least acting recklessly in sharing the information. If he did disclose the takeover to an old friend as a gift, then that could be enough in itself to show the breach of duty.

But it is not clear that Mr. Strickland's conduct rose to that level, particularly in light of the fact that GE Capital concluded the evidence did not support a finding that he had breached his duty to the company.

The appeals court reinstated the case because the evidence is equivocal, and since neither side appears willing to back down there is a good chance the case will go to trial. DealBook has reported that Mr. Obus estimated he had spent over $6 million defending the case, far more than his potential liability.

As Mr. Houseman might have said, the S.E.C. will have to earn a verdict the old-f ashioned way â€" by putting on a circumstantial case that a jury finds persuasive.

Peter J. Henning, who writes White Collar Watch for DealBook, is a professor at Wayne State University Law School.

After A.I.G., What\'s Left for the Government to Sell?

The Treasury Department announced on Sunday the biggest sale of its holdings in the American International Group yet, taking its stake below 50 percent for the first time since 2008.

It's a big step in unwinding one of the most controversial bailouts of the financial crisis. But there are still plenty of other rescue programs to dismantle.

The Treasury Department is planning to sell about $18 billion worth of its shares, an amount that could grow to $20.7 billion if there's strong enough demand for the shares. That means that the government would see its stake fall anywhere from 23 percent all the way down to 15 percent.

Of course, that's dependent on the stock market holding up and investors becoming enthusiastic about buying up an enormous amount of stock, though A.I.G. itself is buying about $5 billion. Neither Treasury nor the company gave a proposed price for the shares, though by the government's own reckoning, they must be sold at above $28.73 to break even on the bailout.

Still, there's plenty more of selling that the government must do apart from the A.I.G. stock. The Obama administration still owns about 32 percent of General Motors, down from an initial 60.8 percent. And thus far, the Treasury Department has recovered about 50 percent of its initial investment in the auto maker.

But it's not clear whether that will go down in the short term, given G.M.'s tepid profit reports of late. People close to the car maker said this summer that they do not expect the administration to sell off significant portions of its holdings this year.

On the other hand, the government has completely divested its stake in Chrysler, leaving control of the smaller car manufacturer with Fiat of Italy.

And the Treasury Department still owns 74 percent of Ally Financial, the bank formerly known as GMAC, as well as $5.9 billion worth of mandatory convertible preferred stock. To date, the department has earned back ab out one-third of its initial $17 billion investment.

Again, however, it isn't clear when the government will be able to sell down its stake in the lender. Ally's mortgage unit, Residential Capital, filed for bankruptcy in May, removing one of the biggest thorns in its parent's side. The lender can now contemplate either going public or selling itself to private equity firms, but a timeline for such a move hasn't been set.

The Treasury Department also owns stakes in many small banks as part of the Troubled Asset Relief Program, and specifically the Capital Purchase Program in which it essentially bought equity in many lenders. So far, the government has made a $19 billion return on its initial investments. But as of early May, about 343 institutions remained in the program, though many continue moves to repay their rescues.

And, lest we forget, the administration is still heavily involved in Fannie Mae and Freddie Mac, having put the mortgage giants into con servatorship four years ago. That rescue plan so far remains deeply in the red, though both institutions posted profits in their most recent quarter.

For a Goldman Executive, More Real Estate Dealings

In Wall Street parlance, J. Michael Evans is long Manhattan real estate and looking to reduce his exposure.

Earlier this summer, Mr. Evans, a Goldman Sachs vice chairman, paid $27 million for a Fifth Avenue apartment. Yet he still owned his current home, a 5,000-square-foot penthouse duplex just off Central Park West.

But this week, according to people familiar with his plans, Mr. Evans will list his Upper West Side condominium for $26 million. He has also put up for sale another apartment that he owns in the building - the Park Laurel at 15 West 63rd Street - for $2.75 million.

Douglas Elliman has the listing. Sabrina Saltiel, the broker at Elliman handling the sale, declined to comment.

Mr. Evans has owned the apartment since 2003, buying it for $10.3 million from Bradford Weston, who at the time also worked at Goldman.

The Park Laurel, which was completed in 2000, is just around the corner from 15 Central Park West, the ultraluxury buildin g that Mr. Evans's boss, Lloyd C. Blankfein, calls home. Mr. Evans is on the short list of candidates who may replace Mr. Blankfein as Goldman's next chief executive.

Mr. Evans's Upper West Side apartment has served, for the most part, as a pied a terre while Mr. Evans was based in Hong Kong from 2004 to 2010 as the head of Goldman's Asian operations. He returned to New York to take on additional responsibilities, including co-chairing a newly formed Business Standards Committee.

The renowned architectural firm Gwathmey Siegel designed the apartment, which is featured on the firm's Web site. The head of the firm, Charles Gwathmey, who died in 2009, designed homes and apartments for David Geffen, Steven Spielberg and Jerry Seinfeld.

Gwathmey Siegel's Web site notes that Mr. Evans's apartment is “One of the primary design strategies is the relationship between the dining and library spaces around the double height living room, compositionally integrating t he staircase, cantilevered piano off of the balcony, the art wall wine display, the glass and gunmetal wall and railings. In addition, the moving bookcase between the library and study, allows natural light to the powder room while providing desired privacy to the study.”

Oh, and then there's this: “From the master steam shower one can see through the electromagnetic glass, across the apartment to Central Park.”

The sleek, modernist, monochromatic pad seems more well-suited for a bachelor than it does for a family of 10. Mr. Evans and his wife, Lise Evans, have eight children (each has three from a previous marriage, and they have a pair together).

DealBook hears that his new 8,360-square-foot apartment at 995 Fifth Avenue is more family friendly. Located in the old Stanhope Hotel, which was recently converted into residences, the spread has seven bedrooms, nine-and-a-half baths, and a 42 foot-by-19 foot “great room” overlooking Central Park, acco rding to the floor plan posted on the Web site Curbed. Mr. Evans and his brood plan to move there sometime this fall.

Business Day Live: Debt Collectors Cashing In on Student Loans

Student loans provide a payday for debt collectors. | How candidates confront the nation's $1 trillion in tax breaks. | The government's exit plan from A.I.G.

Seeking a Speed Limit in High-Frequency Trading

TICKER tape: it's an enduring image of Wall Street. The paper is gone but the digital tape runs on, across computer and television screens. Those stock quotations scurrying by on CNBC are, for many, the pulse of American capitalism.

But Sal L. Arnuk doesn't really believe in the tape anymore - at least not in the one most of us see. That tape, he says, doesn't tell the whole truth.

That might come as a surprise, given that Mr. Arnuk is a professional stockbroker. But suddenly, and improbably, he has emerged as a leading critic of the very market in which he works. He and his business partner, Joseph C. Saluzzi, have become the voice of those plucky souls who try to swim with Wall Street's sharks without getting devoured.

From workaday suburban offices here, across from a Gymboree, these two men are taking on one of the most powerful forces in finance today: . H.F.T., as it's known, is the biggest thing to hit Wall Street in years. On any given day, this lightning-quick, computer-driven form of trading accounts for upward of half of all of the business transacted on the nation's stock markets.

It's a staggering development - and one that Mr. Arnuk, 46, and Mr. Saluzzi, 45, say has contributed to the hair-raising flash crashes and computer hiccups that seem to roil the markets with alarming frequency. Many ordinary Americans have grown wary of the stock market, which they see as the playground of Google-esque algorithms, powerful banks and secretive, fast-money trading firms.

To which Mr. Arnuk and Mr. Saluzzi say: enough. At their Lilliputian brokerage firm, they are tilting at the giants of high-frequency trading and warning - loudly - of the dangers they pose. Mr. Saluzzi was the only vocal critic of H.F.T. appointed to a 24-member federal panel that is studying the topic. Posts from the blog that the two men write have been packaged into a book, “Broken Markets: How High Frequency Trading and Predatory Practices on Wall Street are Destroying Investor Confidence and Your Portfolio,” (FT Press, 2012) which was published in June. They are even getting fan mail.

But they are also making enemies.

Proponents of high-frequency trading call them embittered relics - quixotic, old-school stockbrokers without the skills to compete in sophisticated, modern markets. And, in a sense, those critics are right: they are throwbacks. Both men say they wish Wall Street could go back to a calmer, simpler time, all the way back to, say, 2004 - before the old exchange system splintered and murky private markets sprang up and computers could send the Dow into 1,000-point spasms. (The bottle of Tums Ultra 1000 and the back-pain medication on Mr. Arnuk's desk here are a testament to their frustrations.)

They have proposed solutions that might seem simple to the uninitiated but look radical to H.F.T. insiders. For instance, the two want to require H.F.T. firms to honor the prices they offer for a stock for at least 50 milliseconds - less than a wink of an eye, but eons in high-frequency time.

On the Friday before weekend, Mr. Arnuk was sitting in the office of Themis Trading, the brokerage firm he founded with Mr. Saluzzi a decade ago. It is little more than a fluorescent-lit single room; the most notable decoration is a poster signed in gold ink by the cast of “The Sopranos.” Above Mr. Arnuk, the tape scrolled by on the Bloomberg Television channel. But other numbers danced on four computer screens on his desk. Mr. Arnuk kept moving his cursor across those screens, punching in figures, trying to find the best price for a customer who wanted to buy a particular stock.

His eyes scanned the stock's going price on 13 stock exchanges across the nation. The investing public is now using so many exchanges because new regulation and technology have rewritten the old rules and let in new players. It's not just the Big Board or the Nasdaq anymore. It's also the likes of BATS and Direct Edge.

Mr. Arnuk then eyed the stock's price on dozens of other trading platforms - private ones most people can't see. Known as the dark pools, they help hedge funds and other big-money players trade in relative secrecy.

Everywhere, different prices kept flickering on the screens. Computers at high-speed trading firms, Mr. Arnuk said, were issuing buy and sell orders and then canceling them almost as fast, testing the market. It can be hell on human brokers. On the tape, the stock's price was unchanged, but beneath the tape, things were changing all the time.

“They will flicker to see who is not flickering,” Mr. Arnuk said of H.F.T. computers. “The guy who is not flickering is the idiot - the real investor.”

From his desk a few feet away, Mr. Saluzzi chimed in: “That's how the game is played now.”

ON the afternoon of May 6, 2010, shortly before 3 o'clock, the stock market plummeted. In just 15 minutes, the Dow tumbled 600 points - bringing its loss for the day to nearly 1,000. Then, just as fast, and just as inexplicably, it sprang back nearly 600 points, like a bungee jumper.

It was one of the most harrowing moments in Wall Street history. And for many people outside financial circles, it was the first clue as to just how much new technology was changing the nation's financial markets. The flash crash, a federal report later concluded, “portrayed a market so fragmented and fragile that a single large trade could send stocks into a sudden spiral.” It turned out that a big firm had sold an unusually large number of futures contracts, setting off a feedback loop among computers at H.F.T. firms that sent the market into a free fall.

Despite computers' many benefits - faster, cheaper trades, and mind-boggling analytics - they have been causing problems on Wall Street for years. Technology has fostered so-called hot money - money that quickly shifts from one stock to another, or one market to another, always seeking higher returns. Computer-driven program trading was developed in the 1980s and was a contributing factor in the 1987 market crash, though it wasn't the main culprit, as many initially thought.

Since the 2010 flash crash, mini flash crashes have occurred with surprising regularity in a wide range of individual stocks. Last spring, a computer glitch scuttled the initial public offering of one of the nation's largest electronic exchanges, BATS, and computer problems at the Nasdaq stock market dogged the I.P.O. of Facebook.

And last month, Knight Capital, a brokerage firm at the center of the nation's stock market for almost a decade, nearly collapsed after it ran up more than $400 million of losses in minutes, because of errant technology. It was just the latest high-profile case of Wall Street computers gone wild.

High-frequency traders didn't cause all of these problems. But these traders and their computers embody the escalating technological arms race raging across financial industry.

The stock market establishment says the recent mishaps distract from the enormous benefits that technology has brought. The new trading outlets have democratized the system and made it possible to trade any time, anywhere. Competition has forced exchanges and trading firms to reduce the commissions they charge. George U. Sauter, chief investment officer at the mutual fund giant Vanguard, has said the shift saved hundreds of millions of dollars for Vanguard investors.

James Angel, a professor at Georgetown University and a member of the board of Direct Edge, said Mr. Arnuk and Mr. Saluzzi were stoking irrational fears of a market that is providing good returns to investors. Mr. Angel compared them to people “who gripe that their cellphone is too complicated, ignoring the fact that 20 years ago they didn't even have a cellphone.”

But Mr. Arnuk and Mr. Saluzzi say such assessments ignore the hidden costs of high-frequency trading, particularly the market instability it can create.

They say firms that dominate the market often stop trading during times of crisis, when they are needed the most. They also contend that ordinary investors are paying more for their stocks, not less, because computerized traders pick up information about stock orders and push up prices before orders can be filled. Traders of all sorts have split orders into smaller and smaller blocks, making it harder for everyone to complete some types of basic trades.

“They took one of the most simple processes in the world, matching up supply and demand, and made it such a complicated labyrinth,” Mr. Arnuk said.

He and Mr. Saluzzi trace the roots of the market's current travails to a number of regulatory changes over the last two decades. But they give the starring role to a set of rules adopted in 2007 by the Securities and Exchange Commission. The rules are known as the Regulation National Market System, or Reg N.M.S.

Before those rules, computerized trading had been steadily growing, but the market was still dominated by the human traders on the floor of the New York Stock Exchange. Reg N.M.S. broke the Big Board's domination by requiring that orders be sent to the trading platform with the best price. This seemingly small change led to a proliferation of new platforms, like dark pools. It also put a premium on speed, giving an advantage to firms that could place orders first and take advantage of minuscule price differences among exchanges.

At Themis, Mr. Arnuk and Mr. Saluzzi soon noticed they were having trouble completing what previously were easy orders. When they tried to buy stock at the price listed on an exchange, the price would disappear almost as soon as they entered their order. Then it would reappear - at a penny or more higher.

The two began by voicing complaints in morning notes to clients. Soon they moved on to industry publications like Traders Magazine, then to the mainstream news media.

In July 2009, or 10 months before the flash crash, Mr. Saluzzi squared off on CNBC against Irene Aldridge, a prominent advocate of high-frequency trading. Mr. Saluzzi declared that high-frequency traders could get an early peek at buy and sell orders, giving them an edge over everyone else. The H.F.T. crowd could simply jump in front of ordinary investors, he said.

“There is nothing illegal about what you are doing,” Mr. Saluzzi told Ms. Aldridge. “But, you know, it is not ethical.”

Ms. Aldridge was incensed.

“How dare you accuse us of being unethical - you're unethical,” she shot back. “We are cutting your margins - of like yours - because you cannot compete, because you do not have the proper skills.”

As the host, Sue Herera, tried to cut to a commercial, the two shouted backed and forth.

“Yeah, hope your computer doesn't blow up tomorrow, O.K.?” Mr. Saluzzi snarled at Ms. Aldridge. “Make sure the fuses are O.K.”

The line proved prophetic.

SAL ARNUK and Joe Saluzzi are unlikely Wall Street gadflies. Mr. Arnuk grew up in modest surroundings in the Bay Ridge section of Brooklyn, Mr. Saluzzi in Sheepshead Bay. They met after college in back-office jobs at Morgan Stanley and bonded over weekend softball games and commutes. Both soon realized they didn't have the connections to move up at a white-shoe Wall Street firm.

Talking to them now, it's clear that both have a certain anti-establishment bent, at least as far as Wall Street is concerned. Mr. Arnuk says he filled the wall of his dorm room at what is now Binghamton University with rejection letters from financial firms. After business school, their scrappy attitudes led them to computerized trading, the upstart part of the industry in the 1990s. They spent nearly a decade at Instinet, one of the original off exchange trading platforms.

When they struck out on their own and founded Themis in 2002, they intended to use their technological expertise to help clients navigate the markets. But soon enough, they say, the computers took over, with formulas pushing share prices up and down regardless of anything happening at the underlying company.

Mr. Saluzzi acknowledges that computerized trading has hurt firms like Themis, which executes trades on behalf of clients. Many former Themis clients now trade via algorithms, or algos, with no human involvement. But both men say human brokers can often navigate complex markets better than computers. Last year, Themis's revenue was up 10 percent, despite an overall decline in trading volume, they say. This year, revenue is holding steady.

One Themis client, Derek Laub, director of trading at Jetstream Capital, a small investment firm just outside Nashville, says he turns to Themis because Mr. Arnuk and Mr. Saluzzi provide a human touch, and help him avoid falling prey to more sophisticated H.F.T. firms. Trading through Themis costs Mr. Laub a bit more - about 1 cent a share, total - but that's still cheaper than the 3 cents or 4 cents charged by many big banks. More important, Mr. Laub says he likes Themis because it speaks for small investment firms that don't have the time or wherewithal to examine every problem in the market structure or to take on the big trading firms.

“You feel like there is at least someone out there who is going to give the other side of the argument,” Mr. Laub said.

The views of Mr. Arnuk and Mr. Saluzzi are gaining more traction with industry insiders. The head of the New York Stock Exchange said this summer that the pursuit of speed had gone too far. In debates with Mr. Saluzzi, some H.F.T. executives have agreed that the fragmentation of the markets is now doing more harm than good for investors. And after the breakdown at Knight Capital, the S.E.C. called for a round table on market technology; it will be held on Oct. 2.

BUT Mr. Arnuk and Mr. Saluzzi do not think that big change is on the way. For their part, they don't want to do away with computerized trading altogether - just the frantic developments of the last few years. “I don't want to go back to 1987, but 2004 wouldn't be so bad,” Mr. Arnuk says.

Their message has won them a following among many ordinary Americans who, rightly or wrongly, have concluded that the Wall Street game is rigged. Before heading out for Labor Day weekend, Mr. Arnuk opened one more example of fan mail - a letter from an Idaho man that also went to Senator Michael D. Crapo, an Idaho Republican.

The man wrote that the financial markets had become “treacherous waters” and suggested that the senator read “Broken Markets,” which, he wrote, “exposes our disgusting and corrupt market system today.”

Mr. Arnuk smiled. “That's going up on the wall,” he said. “I consider it a badge of honor.”

Morning Take-Out

TOP STORIES

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With the sale of at least $18 billion worth of shares in A.I.G., a number that could grow to $20.7 billion if investors prove enthusiastic, the Treasury Department could reduce its holdings to as little as 15 percent from 53 percent.

Taking the government's stake in A.I.G. below 50 percent is the realization of a long-held goal by both the Obama administration and the company, helping to cut ties to one of the most controversial bailouts of the 2008 financial crisis. The Treasury Department expects to ear n a profit on its investment in A.I.G., though it is unclear how large.
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BP to Sell Oil Assets in Gulf of Mexico for $5.6 Billion  |  BP agreed on Monday to sell stakes in a group of Gulf of Mexico oil fields to the Plains Exploration and Production Company for $5.55 billion.

The announcement comes as Robert W. Dudley, chief executive of BP, is raising money to pay cleanup costs and potential fines resulting from a huge oil spill in the Gulf of Mexico in 2010.

He is also trying to use the divestitures to slim down the company and focus more on what he thinks it does best: high-risk, high-return frontier exploration and production, including deepwater fields. The British company has said it is in talks to sell its 50 percent stake in its Russian affiliate TNK-BP. A sale of older, smaller assets in the Gulf of Mexico would be in keeping with this effort to sell mature fields.
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DEAL NOTES

European Plan Could Be Undone in Germany  |  The European Central Bank stoked a market rally last week when it announced a plan to buy government bonds in unlimited amounts. But this Wednesday, the plan could face a serious setback if a constitutional court in Germany blocks the country's contribution to the rescue fund, The New York Times reports.
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A ‘Compassionate' Approach to Cutting the Deficit  |  Christina D. Romer, an economics professor who formerly was the chairwoman of President Obama's Council of Economic Advisers, writes in an op-ed piece in The New York Times that, in light of historically low interest rates, the government's efforts to reduce the deficit should happen gradually.
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A Visit to Lloyd Blankfein's Childhood Home  |  New York magazine has a long feature on New York City's housing projects, including the development in East New York where Lloyd C. Blankfein, the head of Goldman Sachs, grew up. Mr. Blankfein “apparently retained affection for his childhood home” in the Linden Projects, the magazine writes.
NEW YORK

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Glencore Says Higher Bid for Xstrata Is Final Offer  |  Glencore International confirmed its increased all-share offer for Xstrata, but said on Monday that it would not raise its bid again.
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Xstrata to Cut About 600 Jobs  |  The mining company outlined a plan to restructure its Australian operations amid a slowdown in the country's coal industry.
WALL STREET JOURNAL

Garda Security Gets $1.1 Billion Buyout Offer  |  The foun der of Garda World Security, an armored car and security company based in Montreal, has joined with the private equity firm Apax Partners to make a $1.1 billion offer to take the company private.
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Haier Considers Buying a New Zealand Rival  |  The Chinese appliance giant Haier, which owns 20 percent of Fisher & Paykel, said on Monday it had approached three other shareholders about buying their stakes, as it considers taking over the New Zealand company, Reuters reports.
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Infosys to Buy Consulting Firm for $349 Million  |  The Indian software company Infosys said it agreed to buy Lodestone Holding, a Swiss consulting firm, as it looks to diversify and derive more revenue from consulting, Bloomberg News re ports.
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CLSA on the Hunt for Acquisitions  |  The chief executive of CLSA Asia-Pacific Markets, the brokerage firm that is being bought by Citic Securities, said on Bloomberg Television that the company was on the lookout for possible acquisitions.
BLOOMBERG NEWS

INVESTMENT BANKING '

Banks Said to Consider Overhauling Executive Pay  |  Directors at JPMorgan Chase are considering lowering 2012 bonuses for the chief executive, Jamie Dimon, and other executives, according to The Wall Street Journal, which cites unidentified people close to the discussions. The board of Citigroup, meanwhile, is expected to decide how to “fine-tune” executive compen sation, the newspaper reports.
WALL STREET JOURNAL

Taking on the Lightning-Fast Traders  |  Two stockbrokers at a small firm called Themis Trading have emerged as leading critics of high-frequency trading, arguing that these computerized stock transactions have helped make the market less safe for ordinary investors, The New York Times writes.
NEW YORK TIMES

Deutsche Bank to Announce Turnaround Plan  |  The new co-chief executives of Deutsche Bank are expected this week to elaborate on a strategy to increase profit at the German lender, The Wall Street Journal reports.
WALL STREET JOURNAL

Sizing Up Morgan Stanley's Brokerage Firm  |  Morgan Stanley Smith Barney is set to be valued on Monday by Perella Weinberg Partners, after a dispute between its two owners, Morgan Stanley and Citigroup. The New York Post, citing unidentified people, reports that the value is likely to be “about $15 billion.”
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Goldman Reorganizes Junior Staff in Europe  |  Goldman Sachs is changing the structure of its groups of analysts and associates in Europe, creating two larger teams focused on northern and southern Europe, Financial News reports.
FINANCIAL NEWS

PRIVATE EQUITY '

Putting Bain Capital in Context  |  The presidential race has cast Bain Capital in a less-than-flattering light, but New York magazine writes that in actuality, many of the private equity firm's employees “are Dockers-wearing number-crunchers, geeks rather than Gekkos. Several top executives are Obama megadonors.”
NEW YORK

Portrait of a Changing Buyout Market  |  The latest quarterly letter from the placement agent Triago discusses a “new normal” in the private equity industry. “Returns can no longer be driven just by leverage, and investment opportunities are cropping up in new geographies, specializations and structures,” writes Antoine Drean, Triago's founder and chairman.
TRIAGO

Traders Cast Doubt on a Chinese Buyout  |  Judging by the options market, traders are skeptical that the Ca rlyle Group and other private equity firms will complete a $3.5 billion buyout of Focus Media Holding, a Chinese company that became a target of the short-seller Muddy Waters, Bloomberg News reports.
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Proposal Would Put Australian TV Network Under Lenders' Control  |  Goldman Sachs and CVC Capital Partners have proposed a deal for Nine, the struggling Australian TV company, that would wipe out its equity put it in the hands of Apollo Global Management, the Oaktree Capital Group and its other lenders, Reuters reports.
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Blackstone Names Adviser for Australia  |  James Carnegie, a former partner at the Australian buyout firm Archer Capital, has been appointed a senior adviser for the Blackstone Group i n Australia, Reuters reports.
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Icahn Pushes for Changes to Navistar's Board  |  Carl C. Icahn expressed frustration at Navistar International's decision to appoint a chairman and interim chief executive without consulting him or other large shareholders, and he said the company should immediately offer four board seats to shareholders, Reuters reports.
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Paulson Said to Trim Losses in August  |  After double-digit losses last year, John A. Paulson appears to have overseen a rebound in August, when most of his funds reported increases, Bloomberg News reports, citing two unidentified people briefed on the returns. His gold fund was said to rise 11 percent in the month.
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Paulson Bets on a Real Estate Recovery  |  Investment firms are beginning to sell land that they bought cheaply after the housing crash, Reuters reports. One such firm, Paulson & Company, is playing a longer game. “We are coming out of the mother of all housing cycles, and residential land is the best way to play the ultimate recovery,” Michael Barr, a Paulson portfolio manager, said, according to Reuters.
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Hedge Funds Logged Slight Gains in August  |  Hedge funds were up 0.7 percent in August, trailing the broader stock market, according to the industry tracking firm eVestment|HFN, Reuters reports.
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I.P.O./OFFERINGS '

JAL Aims to Raise $8.5 Billion in I.P.O.  |  Japan Airlines has set the price of its initial public offering at a level that would make the listing the world's second-largest I.P.O this year after that of Facebook.
DealBook '

Dubai Conglomerate Looks to Raise $1.6 Billion  |  Al Habtoor Group, a family-owned company that spans a range of industries, said it was looking to raise as much as $1.6 billion in an I.P.O. in Dubai next year, Reuters reports.
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Indian Phone Company Looks to Take Unit Public  |  Bharti Airtel is aiming to raise $1 billion from an initial publ ic offering of its mobile tower unit, Bharti Infratel, in what could be one the of the year's biggest Indian I.P.O.'s, The Wall Street Journal reports, citing two unidentified people familiar with the matter.
WALL STREET JOURNAL

VENTURE CAPITAL '

Nexus Venture Partners Raises $270 Million Fund  |  The venture capital firm Nexus, which has offices in Mumbai and Silicon Valley, said it raised its third fund in a “couple of months,” bringing its total assets under management to nearly $600 million, Reuters reports.
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Tech's Cutting Edge Focuses on Data  |  The latest thing in computing is data-driven discovery, in which start-ups like VoltDB and Paradigm4 , which were co-founded by a pioneer in database research, find insights in vast amounts of data, The New York Times reports.
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Warby Parker Attracts $37 Million  |  The eyeglasses maker Warby Parker raised $36.8 million in a financing round that appears to have been led by General Catalyst Partners, Fortune reports. “It's a large score by most any VC standard, and massive for a maker of consumer goods,” Fortune says.
FORTUNE

How an Entrepreneur Approaches Hiring  |  Ben Lerer, co-founder and C.E.O. of the Thrillist Media Group, told The New York Times about building a team to work on a start-up: “I'm making very gut-driven decisions right now. It's actually the way that I invest at Lerer Ventures, th e fund I run with my father, as well. The point is, you're investing in a person.”
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LEGAL/REGULATORY '

Lawmakers Push to Increase White House Oversight of Financial Regulators  |  Under a bill that could curb the influence of the Securities and Exchange Commission, the White House would receive explicit authority to influence the rule-making process at independent agencies.
DealBook '

A Key Witness in Rajaratnam Trial Is Set to Be Sentenced  |  Prosecutors say that Rajiv Goel, a former Intel executive whose testimony helped convict the hedge fund billionaire Raj Rajaratnam of insider trading crimes, deserves a lenient sentence.
DealBook '

Banks May Be Forced to Separate Trading Units in Europe  |  A committee reviewing bank regulation in Europe is said to be supporting rules that would have banks “ring fence” trading divisions, putting those assets in separately capitalized entities, The Financial Times reports, citing unidentified people close to the project.
FINANCIAL TIMES

Sorting Out the Collapse of Reforms for Money Market Funds  |  James B. Stewart of The New York Times examines why the Securities and Exchange Commission abandoned efforts to impose new regulations on money market funds intended to prevent another panic. “It's the mutual fund industry and its allies versus the American taxpayer,” a person involved in formulating the proposals tells Mr. Stewart.
DealBook '

Slowing Job Growth Adds Pressure on the Fed  |  Amid news that the economy added 96,000 jobs in August, at a slower pace than expected, it seemed more likely the Federal Reserve would announce new action to stimulate the economy after meeting this week, The New York Times reports.
NEW YORK TIMES

Finding Clues in a Housing Market Puzzle  |  A database stemming from an investment vehicle known as Triaxx “could help its managers and other investors identify bad mortgages and, perhaps, learn who snookered whom when questionable home loans were bundled into investments that later went bad,” Gretchen Morgenson writes in her column in The New York Times.
NEW YORK TIMES

Transocean to Sell 38 Oil Rigs for About $1 Billion

Transocean, the world's largest offshore drilling contractor, agreed on Monday to sell 38 rigs in so-called shallow water to a private equity consortium for $1.05 billion.

Under the terms of the agreement, Transocean will receive $855 million in cash and $195 million worth of preferred shares of an affiliate of Shelf Drilling, according to a company statement.

Shelf Drilling is a newly created company owned by the private equity firms Castle Harlan, Champ Private Equity and Lime Rock Partners, which will operate in Southeast Asia, India, West Africa, the Middle East and the Mediterranean.

“This is an exciting opportunity with great potential,” Shelf Drilling's chief executive, David Mullen, said in a statement. “Our strategy will be to maintain an exclusive focus on shallow water drilling.”

Transocean, which is based near Geneva, was at the center of the Deepwater Horizon oil spill in the Gulf of Mexico in 2010. The company owned the rig tha t exploded, killing 11 people.

The company said it would now focus its operations on more specialized equipment.

The deal is expected to close by the end of the year.

JAL to Raise $8.5 Billion in I.P.O.

TOKYO - Japan Airlines set the price of its initial public offering on Monday at a level that could value the bailed-out carrier at ¥663 billion ($8.5 billion), setting the stage for the world's second-largest I.P.O this year after Facebook.

After robust investor demand, particularly from retail investors, JAL will seek a price of ¥3,790 a share, the airline said in a news release on Monday.

The figure is at the top of a book-building range that the carrier tentatively set last week. JAL's shares will start trading on the First Section of the Tokyo Stock Exchange, reserved for large companies, on Sept. 19, the airline added.

The offering would nearly double the ¥350 billion investment that a state-backed fund invested in the carrier after it went bankrupt in 2010. The fund, the Enterprise Turnaround Initiative Corporation of Japan, plans to sell its 96.5 percent stake in JAL in the I.P.O., netting a $4 billion profit.

JAL has emerged from its 201 0 bankruptcy as a smaller, leaner airline.

It slashed a third of its workforce, pared back pensions, dropped unprofitable routes and downsized its fleet from jumbo jets to mid-sized planes.

JAL's finances have since become the envy of the global airline industry. For the fiscal year that ended in March, JAL booked a net profit of ¥187 billion, more than six times that of its domestic nemesis All Nippon Airlines.

Despite enthusiasm for JAL's return to the stock market, prospects for the former flagship carrier are not necessarily bright in the fast-changing, cut-throat global aviation industry. JAL has sharply downsized its operations and its fleet of smaller jets. The changes have made the carrier more efficient, though also have left it hardly able to compete with larger rivals like Emirates or Singapore Airlines.

JAL has also mostly missed out on the surge in low-cost carrier traffic in Asia. The Tokyo-based airline made its foray into that fast-gr owing market just two months ago with JetStar Japan, a joint venture with Qantas Airways.

Meanwhile, the airline's turnaround benefited from a write-down of its fleet, government-arranged debt waivers and a $4.5 billion tax credit that will allow JAL to offset corporate tax for nine more years.

Those measures sparked intense criticism from its rival, ANA, which has lobbied the government to level the playing field by prioritizing ANA over JAL in future landing slot allocations. If ANA is successful, JAL could lose out further in air traffic.

In a reflection of the uncertainties ahead, JAL, now led by the former pilot Yoshiharu Ueki, forecasts an almost 30 percent drop in profit for the current year to March. The shaky outlook could eventually put pressure on the airline's share price, especially if investors look to book short-term profits.

According to JAL's statement on Mondany, the airline is issuing 175 million shares, of which 131.25 million have been allocated to Japanese investors and the remaining 43.74 million to investors overseas.

BP Said to be in Talks to Sell Gulf of Mexico Assets for $6 Billion

LONDON - BP is in advanced talks to sell stakes in a group of Gulf of Mexico oil fields to the Houston-based company Plains Exploration and Production, according to a person with direct knowledge of the matter.

The sale price might be $5 billion to $6 billion, and an announcement could come as early as Monday, said the person, who spoke on the condition of anonymity because he was not authorized to speak publicly.

Robert W. Dudley, chief executive of BP, is raising money to pay cleanup costs and potential fines resulting from the Gulf of Mexico oil spill in 2010.

He also is trying to use the divestitures to slim the company down and focus more on what he thinks it does best: high-risk, high-return frontier exploration and production, including so-called deepwater fields. The British company has said it is in talks to sell its 50 percent stake in its Russian affiliate TNK-BP.

A sale of older, smaller Gulf of Mexico assets would be in keeping with t his effort to sell mature fields.

In May, BP said it was marketing its interests in a group of Gulf of Mexico fields including Horn Mountain, Holstein, Diana Hoover, Ram Powell and Marlin. These fields have production of about 62,500 barrels per day, according to estimates by Stuart Joyner, an analyst at Investec in London. The figure is a little over one-quarter of BP's gulf production of 240,000 barrels per day in the three months ended June 30.

The sale of the fields does not mean that BP is pulling out of the Gulf of Mexico, as the company expects output there to return to growth by 2014.

Mr. Dudley wants to focus on a group of key fields, including Thunder Horse, Atlantis, Mad Dog and Na Kika. BP is now appraising two new fields called Kaskida and Tiber that it thinks could also become major producers.

Gulf of Mexico oil is among the most profitable in BP's portfolio because of relatively low taxes and exploration and development costs, BP exe cutives and analysts say.

BP had production of just over 400,000 barrels per day in the Gulf of Mexico before the April 2010 explosion at its Macondo well, which killed 11 people on the Deepwater Horizon rig, halted drilling, causing output to fall rapidly.

If the sale of the new assets goes through, BP would be closer to its goal of selling $38 billion in assets by the end of this year, not including the TNK-BP stake.

The company has already sold about $26.5 billion in oil and gas assets since the beginning of 2010, Mr. Joyner of Investec said. Last month, BP announced an agreement to sell its Carson oil refinery in California and 800 gasoline stations to Tesoro for $2.5 billion.

Glencore\'s Bid for Xstrata Represents Final Offer

LONDON - Glencore, the world's largest commodities trader, confirmed its increased all-share offer for the mining giant Xstrata on Monday, but warned that it would not further sweeten the deal, which would value the combined company at about $90 billion.

Under the terms of the revised offer, Glencore is now offering 3.05 of its shares for every Xstrata share after shareholders in the mining company had balked at Glencore's initial 2.8 share bid.

The commodities trader was forced to raise its offer on Friday after several Xstrata sharholders, including Qatar Holding, the Middle Eastern sovereign wealth fund, said they would vote against the deal if the initial share exchange was not increased.

In response to the unrest, Glencore increased its offer, though said it would not make any additional changes.

Glencore ‘‘will not increase the merger ratio further,'' the company said in a news release on Monday.

As part of the new offer, Mick Davis, the chief executive of Xstrata, will become head of the combined company after the deal is completed, but will step down after six months. Mr. Davis will be replaced by Glencore's chief executive, Ivan Glasenberg.

It is unclear whether the proposed terms will appease Xstrata shareholders. Qatar has not publicly voiced an opinion on the deal, and the board of Xstrata has said the new price might still be too low.

In a move that could placate wary investors, Glencore also confirmed on Monday that the deal would remain a merger.

The commodities trader said last week that it wanted the option to restructure the deal as a takeover. The change would have required only 50 percent of Xstrata investors to agree to the deal.

Several hurdles may still scupper the plan. On Friday, Xstrata warned shareholders about potential problems, highlighting the “significant risk” created if Mr. Davis and his lieutenants did not lead the merged Glencore-Xstrata.

T he mining company also said the new ratio offered a premium “significantly lower than would be expected in a takeover.”

On Monday, Xstrata said its board would consider Glencore's revised bid, and would decide by Sept. 24 whether to put the offer to its shareholders.

In early morning trading in London, shares in Xstrata rose three percent, while stock in Glencore fell around one percent.