TPG Drops Billabong Bid

HONG KONGâ€"The private equity group TPG Capital on Friday walked away from its 695 million Australian dollar ($714 million) takeover offer for Billabong International.

Shares in the surfwear company plunged to a record low, falling as much as 19 percent in Sydney trading on Friday, after it announced that TPG's offer had been withdrawn and acquisition talks had ended.

Billabong did not explain why TPG dropped the offer, but had said in a stock exchange announcement last week that: ‘‘As part of its due diligence investigations, TPG and its advisers have expressed concerns in relation to some issues.'' The company did not elaborate on what those issues were.

TPG's abandoned offer of 1.45 Australian dollars a share was submitted in July, and had marked the second time this year that the firm had tried to buy Billabong.

Founded in 1973 by Gordon Merchant, a surfer who started out by making board shorts in the kitchen of his home on the Australian G old Coast, the Australian company has fallen on difficult times in recent years.

The company employs about 6,000 people and has approximately 11,000 sales outlets worldwide, including its own branded stores and approved surf shop distributors.

It reported a net loss of 275.6 million Australian dollars for the 12 months through June 3, its first annual loss since listing in 2000. Revenue from continuing operations fell 7.3 percent to 1.44 billion Australian dollars.

‘‘The company expects the current challenging retail trading conditions to continue,'' Billabong said on Friday.

Mr. Merchant remains Billabong's largest shareholder, and was opposed to TPG's first takeover offer earlier this year - which the private equity group had raised to 3.30 dollars from an initial 3 dollars per share - saying at the time that even an offer of 4 dollars per share ‘‘would still represent a discount on the true value of Billabong.''

That earlier offer, ma de in February, was worth 851.4 million Australian dollars - or 23 percent more than the follow-up bid that TPG has now withdrawn. Based on Friday's record low closing share price, Billabong's market value now stands at 400 million Australian dollars.

Goldman Sachs and the law firm Allens Arthur Robinson advised Billabong on the defunct deal.

Bain Capital to Buy Call Center Business for $1.3 Billion

LONDON â€" The private equity firm Bain Capital agreed on Friday to buy the call center unit of the European telecommunications giant Telefónica for 1 billion euros ($1.3 billion).

The deal is the second announced by Bain Capital this week. The private equity firm co-founded by the U.S. presidential candidate Mitt Romney agreed on Wednesday to acquire the Apex Tool Group, a maker of hand and power tools, for $1.6 billion.

The deal for Atento, Telefónica's call center division, comes after the Madrid-based telecommunications company canceled a proposed listing for the unit last year. Telefónica is eager to raise cash as it seeks to reduce its debt burden of around $75 billion.

Telefónica also is looking to raise cash through the initial public offering of its German subsidiary and expects to list the unit by the end of the year.

Under the terms of the deal for Atento, Telefónica said it would provide 110 million euros of financing to help Bain a cquire the company.

The Spanish company also has signed a nine-year agreement to use Atento's services, according to a company statement.

“This transaction is part of the policy of proactive management of the portfolio of assets of the company and the initiatives to increase Telefónica's financial flexibility,” the company said.

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

Mortgage Lending Helps JPMorgan Profit Rise 34%

Finally moving beyond a trading debacle that has stained his once-stellar reputation, Jamie Dimon, JPMorgan Chase's chief executive, on Friday trumpeted a strong quarter of earnings stemming from a surge in mortgage lending.

Mr. Dimon has been fighting to shift attention from a multibillion-dollar trading loss in May that rattled investors, prompted the bank to claw back millions in compensation and attracted the scrutiny of federal law enforcement agents. The latest quarter's profit, up 34 percent, to $5.71 billion, helped do that.

Mr. Dimon, who months ago took a swaggering tone in dismissing the troubled bets and was later forced to be more contrite, struck his usual confident tone on Friday. He emphasized that JPMorgan had contained the fallout from the bungled trade, after closing out the position and limiting the losses to the investment bank on the remainder of the credit derivative trade. The losses on the bet were $449 million in the third quarter, bri nging the total loss to $6.25 billion for the year.

“Synthetic credit is a sideshow,” Mr. Dimon said.

Instead, he pointed to the bank's robust growth across its business units, especially in its mortgage banking unit, which reported a profit increase of 57 percent from a year earlier.

“We believe the housing market has turned the corner,” Mr. Dimon said.

Over all, the company's earnings, at $1.40 a share, surpassed Wall Street's estimates. Revenue in the third quarter was $25.9 billion, up 6 percent from the year-ago quarter.

As the nation's largest bank in assets, JPMorgan's performance, especially when rosy, is seized upon as a positive sign for the overall economy. The growth at JPMorgan, particularly in loans to consumers and businesses, could signal broader optimism among Americans and bode well for the housing markets, which have been lurching toward recovery.

“It's a distinctly positive sign,” said Glenn Schorr, an analy st with Nomura Securities.

The bank also reported that fewer consumers were behind on their credit card bills. Write-offs of soured card loans fell to 3.6 percent, from 4.7 percent the previous year. Those trends echo a pattern across the United States.

In August, delinquencies on credit cards stood at 2.32 percent, according to Moody's Investors Service. That's down from 3.04 a year earlier.

Still, investors in bank stocks remained wary after the earnings announcements of JPMorgan and Wells Fargo on Friday. Shares of JPMorgan declined 48 cents, or 1.14 percent, to $41.62. Investors were spooked, in part, by shrinking net interest margins, which is the profit margin achieved from lending and investing. JPMorgan's net interest margin, for example, dipped to 2.43 percent from 2.66 a year earlier.

At JPMorgan, a glut of deposits is challenging because of persistently low interest rates, which make yields on the bank's investments anemic.

JPMorgan's earnings were buoyed, though, by an increase in mortgage lending, spurred, in part, by exceedingly low interest rates, driven even lower in recent weeks by the Federal Reserve's mortgage bond buying program. New home loans and refinancings at the bank hit $47 billion, up 29 percent from the period a year earlier.

Mr. Dimon tempered his expectations for the market and noted that a large swath of the new originations came from a burst of refinancing activity that would eventually slow down. Refinancings accounted for roughly 75 percent of the quarter's mortgage volume.

He warned, too, that defaults could continue, along with foreclosures, which would most likely leave the bank to shoulder higher costs.

Hitting a familiar tone, Mr. Dimon also remarked that the housing market could rebound more quickly if lawmakers in Washington did less meddling. “I would hope for America's sake we start to fix the things that make the mortgage underwriting too tight,” he said on a conference call with reporters.

Throughout its core lending businesses, JPMorgan showed signs of strength. The commercial banking group reported record revenue. The volume of credit card sales jumped 11 percent over the previous year, bolstering the broader unit. The card services and auto business posted profits of $954 million, up 12 percent.

With the improving credit environment, JPMorgan set aside less money to cover potential losses, increasing its profits. In the mortgage banking business, the bank cut the amount of reserves by $900 million. Across the bank, JPMorgan set aside $1.79 billion of such funds, compared with $2.41 billion a year earlier.

Revenue from fixed-income and equity markets remained largely stagnant.

Still, the bank is dogged by investigations that could increase its headaches going forward. In the latest challenge for the bank, federal authorities are building criminal cases related to the trading loss, examining c alls in which JPMorgan employees talked about how to value the bets. The Securities and Exchange Commission is also investigating the trading losses.

In addition, JPMorgan is facing a lawsuit against Bear Stearns, the troubled unit it now owns. Earlier this month in its first move against a big bank, the federal mortgage task force, co-headed by the New York attorney general, Eric T. Schneiderman, sued Bear Stearns and its lending unit, claiming it defrauded investors who bought mortgage securities during the housing boom.

In a bid to clean up the bungled trade ahead of its third-quarter earnings, JPMorgan has broadly reshuffled its top executive ranks. For example, Douglas L. Braunstein, the bank's chief financial officer since 2010, is expected to give up his position, but remain at the company. Earlier, Barry Zubrow, who currently heads the bank's regulatory affairs, announced he would resign by the end of the year.

In the second quarter, the bank transf erred the remaining credit bets in the chief investment office to its investment banking unit. On Friday, JPMorgan said it “effectively closed” out its derivative position, which was made by Bruno Iksil, the so-called London Whale.

A version of this article appeared in print on 10/13/2012, on page B1 of the NewYork edition with the headline: Mortgage Lending Helps JPMorgan Profit Rise 34%.

JPMorgan Beats Expectations

JPMORGAN PROFIT RISES 34%  |  Bank earnings kick off Friday morning with JPMorgan Chase and Wells Fargo. With the broad economy showing signs of recovery, we'll soon find out whether banks are feeling beneficial effects. Investors can expect the usual buzzwords - uncertainty, weak global economic conditions, the cost of new regulation - as banks explain their results.

Big consumer banks stand to benefit as the housing market gradually improves from the financial crisis. A surge in mortgage refinancing is helping the banks' bread-and-butter lending business, making up for weakness in other areas, writes DealBook's Peter Eavis. Government assistance for homeowners, combined with low interest rates, is producing a “windfall for banks,” Mr. Eavis says.

Indeed, JPMorgan Chase said on Friday it originated $47 billion worth of mort gages in the third quarter, an increase of 29 percent from last year. Over all, the bank - which surpassed expectations - earned $5.7 billion, compared with $4.3 billion a year earlier. “We believe the housing market has turned the corner,” said Jamie Dimon, the chief executive. JPMorgan on Friday also gave an update on its disastrous London whale trade, saying it amounted to a “modest loss” in the quarter. The bank is holding its conference call at 8:30 a.m.

Wells Fargo is up next, reporting its third-quarter results at 8 a.m. Analysts expect the bank to earn 87 cents a share, compared with 72 cents a share last year.

CLASH OF THE VULTURES  | 
Paul E. Singer, the head of Elliott Management, is used to butting heads with corporate boards and political leaders, but the hedge fund manager “may have met his match” in David Martinez, a secretive Mexican fina ncier who is opposing him in a struggle over Vitro, a troubled glass company, writes DealBook's Azam Ahmed. “Elliott and allied investors contend that Mr. Martinez helped the Mexican company muscle investors out of hundreds of millions of dollars through financial sleight of hand.” The case could have broader implications for international investing. Vitro's bankruptcy plan, which imposes losses on bondholders rather than shareholders, “has sent ripples through the Mexican debt market,” Mr. Ahmed says.

In another battle, Mr. Singer seems to have the edge. A court in Ghana ruled that his hedge fund can hold on to the Argentine navy ship that it recently seized as part of an effort to collect on Argentine government debt.

GEITHNER PHONES A FRIEND  |  When Timothy F. Geithner wants insight into Wall Street, the Treasury secretary often turns to Laurence D. Fink, the head of BlackRock. “The two men spoke on at least 49 separate occasions, an average of about once every 11 days” during an 18-month period, according to The Financial Times.

ON THE AGENDA  |  Workday is set to begin trading on the New York Stock Exchange, after pricing its I.P.O. above the expected range. A human resources software company, Workday sold shares at $28 apiece, for a valuation of nearly $4.5 billion. Stephen A. Wynn of Wynn Resorts is appearing on CNBC at 7:40 a.m. Timothy J. Sloan, Wells Fargo's chief financial officer, is on CNBC at 3:10 p.m.

New rules for certain derivatives go into effect today, a change that one columnist said was “as important as when the 1930s securities laws went into force.” The Reuters/University of Michigan consumer sentiment index for October is released at 9:55 a.m.

TPG ABANDONS BILLABONG BID  | 
The second time isn't sweeter for TPG. The buyout firm walked away from a $714 million offer for Billabong International, marking its second failed attempt this year to take over the Australian surf wear company. Billabong's shares fell as much as 19 percent in Sydney trading on Friday, reaching a record low.

Mergers & Acquisitions '

Sprint Says It Is in Negotiations With SoftBank of Japan  |  The deal would give Sprint, the struggling American cellphone service provider, a backer able to help finance its latest turnaround.
DealBook '

Larry Ellison Is Said to Consider Anschutz Entertainment  |  Reuters reports that the billionaire is “interested in a potential bid” for the sports and entertainment company, which could fetch around $10 billion.
REUTERS

Icahn Bids to Take Control of Oshkosh Truck  |  Carl C. Icahn escalated his proxy fight with the vehicle maker Oshkosh Corporation on Thursday by offering to take over the company for $32.50 a share, or about $3 billion.
DealBook '

The Fallout From the Failed Aerospace Deal  |  After talks between EADS and BAE collapsed, the chief executive of EADS now “risks further strainin g relations” with the German government, Bloomberg News writes.
BLOOMBERG NEWS

Debt Investors Consider Options for AMR  |  As the parent company of American Airlines works through bankruptcy, a group of bondholders is said to be “open to a merger with US Airways Group,” The Wall Street Journal reports.
WALL STREET JOURNAL

Owners of Champion Technologies Said to Pursue a Sale  |  The family that controls the chemical maker is said to be seeking $2 billion in a sale, Bloomberg News reports.

BLOOMBERG NEWS

INVESTMENT BANKING '

Morgan Stanley E-Mails Reveal Doubts Abou t a Deal  |  Executives at Morgan Stanley warned about the stability of a structured investment vehicle that later went bad, “according to e-mails cited by investors who were sold $100 million of the fund's notes just days after the warning,” Bloomberg News reports.
BLOOMBERG NEWS

Blankfein Adds to Warnings About ‘Fiscal Cliff'  |  Lloyd C. Blankfein, the chief of Goldman Sachs, warned in an interview on Thursday on CNBC that the fiscal cliff threatens to derail the economic recovery.
DealBook '

More Support to Limit Bank Size  |  James Bullard, president of the Federal Reserve Bank of St. Louis, supported an argument made by the Fed governor Daniel K. Tarullo.
BLOOMBERG NEWS

Which Banks Would Be Affected?  |  After a Fed official said Congress should consider limiting the size of big banks, The Wall Street Journal shows which firms might be affected by such a plan. The results are not surprising.
WALL STREET JOURNAL

Chinese Banks Said to Resist Lowering Borrowing Rates  | 
BLOOMBERG NEWS

PRIVATE EQUITY '

Bain Capital to Buy Call Center Business for $1.3 Billion  |  The private equity firm co-founded by the United States presidential candidate Mitt Romney has agreed to buy the call center unit of the Europe an telecoms giant Telefónica for $1.3 billion.
DealBook '

Carlyle Granted More Time for Chemring Deal  | 
REUTERS

HEDGE FUNDS '

Third Point Gets Approval to Buy Stake in Murphy Oil  | 
REUTERS

Prince Dines With Hedge Fund Women  |  Prince William of Britain visited a gala for the charity 100 Women in Hedge Funds Philanthropic Initiatives, according to USA Today.
USA TODAY

Asia-Focused Fund Isolates Certain Assets  |  Senrigan Capital, which is backed by the Blackstone Group, has created a separate vehicle for certain assets that sustained losses, Reuters reports.
REUTERS

I.P.O./OFFERINGS '

Pondering Zynga's Fate  |  With Zynga's stock trading at low values, there's an argument to be made that Facebook should consider buying the company, The Wall Street Journal writes.
WALL STREET JOURNAL

Realogy Surges in Trading Debut  |  Realogy Holdings and Shutterstock rose in their first hours on the public market, defying a broader sense of uncertainty surrounding new listings.
DealBook '

VENTURE CAPITAL '

How the Presidential Candidates Would Help Start-Ups  |  President Obama and Mitt Romney responded to questions from NYCTechMeetUp, a group representing technology industry people in New York.
NEW YORK TIMES BITS

Twitter's Urban Edge?  |  According to Dick Costolo, Twitter's chief executive, the company is “gritty like the city.”
ALLTHINGSD

Solar Panel Industry Looks to Limit Imports  |  The New York Times writes: “The solar panel manufacturing industry in the United States and Europe has begun a volley of trade cases against imports, following the same track as the steel industry before it - and for many of the same reasons.”
NEW YORK TIMES

LEGAL/REGULATORY '

Former Guggenheim Trader Accused of Hiding a Loss  |  A former managing director at Guggenheim Securities, Alexander Rekeda, who was accused of concealing a trading loss on a collateralized loan obligation, was fined and suspended on Thursday by regulators.
WALL STREET JOURNAL

Taking Stock of Dodd-Frank  |  Bloomberg Businessweek writes that Dodd-Frank has “worked, but it's also left holes some argue have made the system more vulnerable.”
BLOOMBERG BUSINESSWEEK

Retailers Challenge Settlement With Card Companies  |  After reaching a $6 billion settlement with Visa and MasterCard, more than half of the retailers and trade groups that filed the underlying lawsuit say they have problems with the deal, The Wall Street Journal reports.
WALL STREET JOURNAL

Ex-Goldman Programmer Seeks Dismissal of Charges  |  A lawyer for Sergey Aleynikov argued that his client could not be tried a second time under similar charges, The Wall Street Journal reports.
WALL STREET JOURNAL

First Black Member of Fed Board Dies  |  Andrew F. Brimmer, who “led efforts to to reverse the country's balance-of-payments deficit,” died at 86, The New York Times writes.
NEW YORK TIMES

$2.2 Billion Deal for Energy Services Company

ST. PAUL, Minn.--(BUSINESS WIRE)--Ecolab Inc. announced that it has agreed to acquire privately held Champion Technologies and its related company Corsicana Technologies (hereafter collectively referred to as Champion) in a transaction valued at approximately $2.2 billion, to be paid through a mix of approximately 75% cash and 25% stock. Champion is a Houston, Texas-based global energy specialty products and services company with approximately 3,300 employees in more than 30 countries delivering product and service-based offerings to the oil and gas industry. 2011 sales were $1.2 billion. Closing is expected to occur by year-end 2012, subject to regulatory clearance and other customary closing conditions.

Douglas M. Baker, Jr., Ecolab's Chairman and Chief Executive Officer commented on the announcement, saying, “This transaction represents a rare opportunity to build on our position in a fast growing market by improving our geographic coverage and technology offerings. As a premier company and proven innovator committed to delivering outstanding technology and service, Champion represents a very attractive business that opportunistically became available, enabling us to acquire an outstanding operator. Champion's technology and product strengths in the U.S. and Canada are very complementary to our innovative technology and services in the offshore and international energy markets. We are excited by the additional solutions we will be able to bring to our customers and the strong growth potential this opportunity offers for our combined operations as we continue to target the “new energy” opportunities which require significantly more of the products and services that both we and Champion provide.”

Baker continued, saying, “The deal is terrific financially as well. Like our current Nalco Global Energy Services business, Champion offers very attractive growth and an annuity-like revenue model generating steady and predictable earnings patterns similar to our legacy Ecolab businesses. It is also highly synergistic, driving a run-rate of $150 million in cost synergies by the end of 2015. As a result, we expect it to be accretive to sales growth, accretive to EBITDA margins and accretive to adjusted EPS.”

Steve Lindley, Champion Technologies' Chairman said, “This is a compelling strategic deal that provides us the possibility to fully capitalize on significant energy market opportunities around the world. We have always regarded Ecolab's Nalco Global Energy Services as a leader in this marketplace with a similar culture and like-minded focus on serving the customer. We look forward to working together with Ecolab to realize the benefits for all of our stakeholders, including our customers and employees.”

Ecolab will pay approximately $1.7 billion in cash and issue approximately 8 million shares of Ecolab common stock, subject to certain adjustments at and after closing.

The transaction is expected to close by year-end and be cash and earnings accretive in 2013, the first full year of the combined entity. Ecolab expects to realize attractive synergies from the Champion transaction totaling a run-rate of approximately $150 million by the end of 2015 through integration activities wholly within the Global Energy Services sector and that it will not impact the Nalco integration work.

Ecolab expects to maintain its strong investment grade credit rating post-acquisition and is planning to return to ‘A range' metrics within the next three years. Returns on invested capital are also expected to show sustained improvement going forward.

Ecolab expects to complete the remaining $280 million of its previously announced $1 billion share repurchase program in 2013.

Baker concluded by saying, “This transaction enables us to make an important strategic investment in one of our key growth businesses, and we will continue to further develop our core strengths in food safety, healthcare, water and energy as we further build our business. We are excited by the improved position and opportunities Champion brings us to better serve our customers, grow our business, and to deliver continued strong shareholder returns.”

Third Quarter Forecast Update

Ecolab will announce results for its third quarter ended September 30, 2012 on October 30. Ecolab said that it expects adjusted earnings per share for its third quarter to be $0.87, which is at the high end of its previous range and represents 16% growth versus last year; Ecolab also continues to expect that free cash flow for the second half period will be strong, approximating or exceeding net income. Ecolab had previously forecast third quarter adjusted earnings per share to be $0.83 â€" $0.87. Ecolab expects reported earnings per share for the third quarter ended September 30, 2012 to be $0.80 per share, reflecting approximately a net $0.07 per share of special charges in the quarter.

About Ecolab

With 2011 pro forma sales of $11 billion and more than 40,000 employees, Ecolab Inc. (NYSE: ECL) is the global leader in water, hygiene and energy technologies and services that provide and protect clean water, safe food, abundant energy and healthy environments. Ecolab delivers comprehensive programs and services to the food, energy, healthcare, industrial and hospitality markets in more than 160 countries. More Ecolab news and information is available at www.ecolab.com.

About Champion Technologies

Champion Technologies is a global specialty chemical company with 3,300 employees in more than 30 countries delivering innovative and engineered programs for upstream, midstream, and downstream oil and gas markets. CorsiTech is a global specialty chemical organization dedicated to meeting and exceeding customers' technical needs in the drilling, stimulation and completion markets.

Webcast Details

Ecolab will host a live webcast to review this announcement today at 8:30 a.m. Eastern Time. To participate in the call via telephone, dial 1-888-469-1764 from the U.S./Canada, using the password: Ecolab. The webcast, along with related presentation slides, will be available to the public on Ecolab's website at www.ecolab.com/investor. A replay of the webcast and related materials will be available at that site through October 26, 2012.

Listening to the webcast requires Internet access, the Windows Media Player or other compatible streaming media player.

Cautionary Statements Regarding Forward-Looking Information

This communication contains certain statements relating to future events and our intentions, beliefs, expectations and predictions for the future which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Words or phrases such as “will likely result,” “are expected to,” “will continue,” “is anticipated,” “we believe,” “we expect,” “estimate,” “project,” “may,” “will,” “intend,” “plan,” “believe,” “target,” “forecast” (including the negative or variations thereof) or similar terminology used in connection with any discussion of future plans, actions or events generally identify forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding benefits of the Champion acquisition, integration plans and expected synergies, the expected timing of completion of the acquisition, credit ratings impact from the acquisition, future cash flow and debt repayment, anticipated future financial and operating performance and results, including estimated third quarter earnings per share, second half 2012 free cash flow and net income, synergy estimates and timing and benefits of the acquisition, future earnings per share and cash flow accretion, returns of invested capital, debt repayment, stock repurchases, investments and future acquisitions and estimates for growth. These statements are based on the current expectations of management of the company. There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements included in this communication. These risks and uncertainties include (i) the risk that the regulatory approvals or clearances required for the acquisition may not be obtained, or that required regulatory approvals may delay the acquisition or result in the imposition of conditions that could have a material adverse effect on the company or cause the company to abandon the acquisition, (ii) the risk that the conditions to the closing of the acquisition may not be satisfied, (iii) the risk that a material adverse change, event or occurrence may affect the company or Champion prior to the closing of the acquisition and may delay the acquisition or cause the company to abandon the acquisition, (iv) problems that may arise in successfully integrating the businesses of the company and Champion, which may result in the combined business not operating as effectively and efficiently as expected, (v) the possibility that the acquisition may involve unexpected costs, unexpected liabilities or unexpected delays, (vi) the risk that the credit ratings of the company may be different from what the company currently expects, (vii) the risk that the businesses of the company or Champion may suffer as a result of uncertainty surrounding the acquisition and (viii) the risk that disruptions from the transaction will harm relationships with customers, employees and suppliers.

Other unknown or unpredictable factors could also have material adverse effects on future results, performance or achievements of the company, Champion and the combined business. For a further discussion of these and other risks and uncertainties applicable to the company, see the company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 and the company's other public filings with the Securities and Exchange Commission (the “SEC”). In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed in this communication may not occur. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this communication. The company does not undertake, and expressly disclaims, any duty to update any forward-looking statement whether as a result of new information, future events or changes in expectations, except as required by law.

Non-Solicitation

This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

Non-GAAP Financial Information

This news release includes financial measures that have not been calculated in accordance with accounting principles generally accepted in the U.S. (GAAP), including adjusted diluted earnings per share, adjusted EBITDA and free cash flow. We provide these measures as additional information regarding our operating results. We use these non-GAAP measures internally to evaluate our performance and in making financial and operational decisions, including with respect to incentive compensation. We believe that our presentation of these measures provides investors with greater transparency with respect to our results of operations and that these measures are useful for period-to-period comparison of results.

We include in special gains and charges items that are unusual in nature, significant in amount and important to an understanding of underlying business performance. In order to better allow investors to compare underlying business performance period-to-period, we provide adjusted diluted earnings per share, which excludes special gains and charges and discrete tax items.

Adjusted EBITDA is defined as operating income, before depreciation and amortization, and excludes special gains and charges. We provide adjusted EBITDA as we believe that it is an important measure of operating performance because it allows management, investors and others to evaluate and compare our core operating results from period to period by removing the impact of our capital structure (interest expense from our outstanding debt), asset base (depreciation and amortization), and changes in tax rates. Furthermore, we use adjusted EBITDA for business planning purposes and to evaluate and price potential acquisitions.

Free cash flow is defined as cash from operations less capital expenditures; it is a useful measure of funds that can be used for business investments, strategic acquisitions and to reduce debt.

The non-GAAP financial measures are not in accordance with, or an alternative to, GAAP, and may be different from non-GAAP measures used by other companies. Investors should not rely on any single financial measure when evaluating our business. We recommend that investors view these measures in conjunction with the applicable GAAP measures.

(ECL-A)

Earnings at Wells Fargo Jump 22%

5:42 p.m. | Updated

At the height of the financial crisis, the mortgage business was a millstone for the banking industry. Today, it is a profit center.

Wells Fargo on Friday reported $4.9 billion in profit for the third quarter, a 22 percent jump largely led by a booming mortgage business.

The bank, based in San Francisco, continues to churn out record profit, having reported 11 straight quarters of gains in net income. The results of 88 cents a share narrowly beat the estimates of analysts polled by Thomson Reuters, who forecast earnings of 87 cents a share.

The bank's revenue increased as well, sidestepping a common sore spot that has plagued most all of the nation's biggest banks. Wells Fargo recorded $21.2 billion in revenue, which surpassed the $19.6 billion figure from a year earlier but was slightly below expectations.

The bank's lending division led the growth, as consumers refinanced their mo rtgages to take advantage of record low interest rates. Wells Fargo, the nation's largest mortgage lender, snared $188 billion in home mortgage applications, an 11 percent jump from the third quarter of 2011.

The bank's chief financial officer, Timothy J. Sloan, underscored that “it's more than just the mortgage business.” The strong results, he noted, were spread across the bank. The wealth management unit improved. So did the sales and trading business.

“We just have the great benefit of this diversified model,” Mr. Sloan said in an interview.

But investors were not fully impressed. On Friday, the bank's shares closed down 2.6 percent to $34.25, reflecting concern about net interest margin, an important measure of the income the bank makes on its assets. The measure declined in part because the bank's own investments suffered from an environment of low-interest rates.

Wells Fargo, along with JPMorgan Chase, began the bank earnings season on Friday. The nation's other big banks, including Goldman Sachs and Bank of America, will report their results next week.

The Wells Fargo story line - that a deep lending effort breeds success - is rooted in broad federal stimulus efforts that have propped up the mortgage industry. An initiative by the Treasury Department is spurring refinancings. And the Federal Reserve has introduced a long-term plan to buy large batches of mortgage-backed bonds, which should help keep rates low.

Wells Fargo, more than five years after the mortgage crisis, has seized the opportunity. The bank now creates roughly a third of all mortgages in the country. Total outstanding loans jumped slightly in the third quarter to $783 billion while the bank's home mortgage originations soared 56 percent to $139 billion.

The demand for credit came largely from refinancing, which accounted for 72 percent of all home loan applications. The Treasury program produced 14 percent of the mortgage volume.

Like other big banks, Wells Fargo makes home loans before selling most of them to investors after attaching a government guarantee. Those gains totaled $2.61 billion in the third quarter, up 225 percent from $803 million in the third quarter of last year.

The refinancing boom is fueling profits. Wells Fargo's profit in the community banking division, which includes Wells Fargo's retail branches and mortgage business, climbed 18 percent to $2.7 billion.

Despite the gains, the mortgage crisis continues to haunt Wells Fargo. The bank this summer agreed to pay $175 million to settle Justice Department accusations that it discriminated against certain minority homeowners from 2004 to 2009. Wells Fargo, which denied the charges, was also sued this week by federal prosecutors in New York, who claim the bank defrauded the government and lied about the quality of the mortgages it handled under a federal housing program.

Still, the legal troubles will barely nick the bank's bottom line.

Like JPMorgan, Wells is having growth beyond mortgages. Wholesale banking, which includes the sales and trading business along with the corporate lending division, increased its profit by 11 percent, to $1.9 billion. While the unit operates in the shadow of the Wall Street investment banks, Wells Fargo has gradually extended its reach in that area.

“There are a lot of underlying positives that will continue to drive the earnings of this company,” said Edward R. Najarian, a senior bank analyst at ISI, a New York research firm.

Peter Eavis contributed reporting.

A version of this article appeared in print on 10/13/2012, on page B2 of the NewYork edition with the headline: Wells Fargo Reports A 22% Jump in Profit.

Week in Review: What Criminal Case? Inside JPMorgan\'s Rising Profit

WEEK IN VERSE The vice presidential debate was nice, but DealBook still prefers the May-December pairing of Neil Young and Pearl Jam.

He may no longer be America's least-hated banker, but Jamie Dimon still has the hearts of JPMorgan‘s investors.

While federal authorities are building criminal cases related to JPMorgan's $6 billion trading loss, the bank's chief issued a release on Friday praising the “continued momentum in all our businesses.” The nation's largest bank reported a third-quarter profit of $5.7 billion, up 34 percent from a year ago.

Investigators are scrutinizing phone calls of employees discussing the best way to value trouble bets. Although the bank has rearranged the roles of several executives, DealBook's Ben Protess and Azam Ahmed report that the inquiry does not appear to include the bank's upper ranks. “The scope of the inquiry suggests that the problems were isolated to a handfu l of executives and traders in an overseas division, and did not reflect a fundamental weakness with the bank's culture and leadership,” The New York Times reported this week.

Not many executives could survive a multibillion-dollar loss. Even fewer companies could respond with multibillion-dollar earnings. And as long as the investigation steers clear of Mr. Dimon he should be free to continue needling his old friends in Washington for fewer regulations.

A look back on our reporting of the past week's highs and lows in finance.

Sprint Attracts a Japanese Suitor | SoftBank is said to be considering an investment of $12.5 billion for about a 70 percent stake in Sprint, Micahel J. de la Merced and Brain X. Chen reported. DealBook '

Aerospace Merger Falls Apart | The merger of the European military giants EADS and BAE died after France, Germany and Britain were unable to overcome cross-border problems, Mark Scott and Nicola Clark reported. DealBook '

Allied World Assurance Buys Hedge Fund Stake | In addition to buying a stake in the firm, Allied World will invest $500 million in MatlinPatterson's funds, a pattern seen in recent acquisitions by other institutional investors, Peter Lattman reported. DealBook '

JPMorgan Quarterly Profit Rises 34% | The bank reported a third-quarter profit of $5.7 billion as it showed signs of strength in consumer and corporate lending, Jessica Silver-Greenberg reported. DealBook '

Earnings at Wells Fargo Jump 22% | The San Francisco-based bank reported $4.9 billion of profit in the third quarter on the back of a booming mortgage business, Ben Protess reported. DealBook '

Banks See Home Loans as Gateway to Big Gains | As the government expands its support of the housing market, Peter Eavis reports that analysts expect mortgage profits at banks will rise in third-quarter earnings reports and will continue into next year. DealBook '

A Bigger Paycheck on Wall St. | The average pay package for a securities industry employee in New York State was $362,950 in 2011, Susanne Craig and Mr. Protess reported. DealBook '

Deal Professor: The Private Equity Wizardry Behind Realogy's Comeback | Steven M. Davidoff says that soon after it was purchased by Leon Black's Apollo Global Management, Realogy was considered virtually insolvent. But then Apollo went to work. DealBook '

Of course, Apollo had no one to blame but itself for Realogy's precarious situation, having loaded it up with debt in the first place. Nevertheless, the story of Realogy shows how private equity firms can use financial wizardry to save a company, not pillage it. Private equity firms can also lend their excess cash and expertise.

Drawing Back a Curtain on a Mexican Tycoon | A legal battle between the billionaire hedge fund manager Paul E. Singer has focused a light on David Martinez, a Mexican financier who lives a rarefied but myster ious life in Manhattan, Azam Ahmed reported. DealBook '

The outcome of this case, experts say, could have implications for other companies in fast-growing economies. A country that appears to be undermining protections that are typically granted to creditors in a bankruptcy might scare investors away. “This is a precedent-setting case, no matter how it turns out,” said Arturo Porzecanski, economist in residence at American University's School of International Service. “It has highlighted apparent loopholes in the bankruptcy law of Mexico, through which Vitro ran an 18-wheel truck.”

• A Legal Brawl as Bond Buyers Look On | The outcome of a bankruptcy reorganization in Mexico could put a crimp in Mexican companies' ability to sell corporate debt. DealBook '

For JPMorgan, a Case Is Built on Taped Calls | Federal authorities are building criminal cases related to the $6 billion trading loss, focusing on calls in which employees openly discussed how to value the troubled bets in a favorable way, Mr. Protess and Mr. Ahmed reported. DealBook '

E-Mails Hint at Collusion Among the Largest Equity Firms | An antitrust lawsuit against 11 of the world's largest private equity firms accuses them of teaming up to drive down prices in the takeovers of publicly traded companies, Mr. Lattman and Eric Lichtblau reported. DealBook '

JPMorgan Told to Pay $18 Million to a Trust | An Oklahoma judge found that the bank had been “grossly negligent and reckless” in its administration of the trust of Carolyn S. Burford, an oil heiress who died in 1996, Ms. Craig reported. DealBook '

U.S. Accuses Wells Fargo of Lying About Mortgages | Prosecutors said the bank recklessly issued thousands of mortgages for more than a decade and then made false certifications about their condition to a federal housing program, Mr. Lattman reported. DealBook '

Ireland Plans Bold Measures to Lift Housing | The initiative, which would lower a borrower's monthly payment, could prevent a tide of foreclosures. Mr. Eavis reports that if it works, the plan could provide a road map for other troubled countries. DealBook '

DealBook Column: Welcoming Higher Taxes, But Not That High | Andrew Ross Sorkin says that a proposed 75 percent tax in France is being protested by many of the nation's wealthiest executives, including some who had called for higher taxes. DealBook '

Last week, Pierre Chappaz, a French entrepreneur, wrote online, “I do not know a single start-up founder who accept the idea that creating a company, in which it will invest all his savings and years of effort often without a salary, must then give to the State 60.5 percent of gain when he sells his company if he succeeds.” The statement went viral. An online group calling itself Les Pigeons - slang for sucker - has more than 63,000 “likes” on its Facebook page.

Inves tors' Billion-Dollar Fraud Fighter | With last month's Bank of America settlement, Mr. Lattman reports that Max Berger has been responsible for six securities class-action settlements of more than $1 billion. DealBook '

Workday Soars 74% in Debut

4:14 p.m. | Updated
Some newly public stocks are experiencing that one-day pop.

Workday, the software company, opened 72 percent above its offering price of $28 in its debut on Friday, on heavy trading volume. The stock closed the day at $48.69, up nearly 74 percent on its first day.

Workday's debut capped a streak of investor enthusiasm for initial public offerings this week. On Thursday, the real estate company Realogy and the stock photography company Shutterstock both jumped 27 percent in their debuts.

Investor appetite for Workday, which makes cloud-based applications for human resources, has been rising. This week, the company increased the expected range for its I.P.O., eventually pricing shares above that revised estimate.

Workday operates in a hot space. Enterprise companies, which provide technology services to companies, have sparked a flurry of deal-making activity, as well as offerings. Fo r example, Splunk, which aggregates and analyzes data, went public at $17. Despite some volatility, the company currently trades at more than $31.

Revenue at Workday - which was founded by David Duffield and Aneel Bhusri, two veterans of the software industry - has more than doubled every year in since 2007, reaching $134 million in the year that ended Jan. 31, according to its most recent prospectus. Still like many start-ups, its struggling to turn a profit. The company has reported a loss every year since 2007.

Despite the recent spate of strong showings, the I.P.O. market is being picky, following the botched debut of Facebook. Last week, Dave & Buster's Entertainment withdrew its offering, citing the current conditions.

A version of this article appeared in print on 10/13/2012, on page B2 of the NewYork edition with the headline: Workday Posts a Big Gain at Its I.P.O..

Business Day Live: At New York Comic Con, Female Fans Find New Products Tailored for Them

At New York Comic Con, geek culture is stronger than ever. | Defense officials lay the groundwork for a cybersecurity bill. | Columnist James B. Stewart on how college endowment funds were led astray.

Blaming Regulation, Again, for Restricting Mortgage Lending

4:03 p.m. | Updated

It's the government's fault - or so the bankers say.

Despite the multiyear federal stimulus that is still being thrown at the mortgage market, some banking executives are saying that Washington is acting in ways that are holding back a housing recovery.

The latest person to pile on was Jamie Dimon, chief executive of JPMorgan Chase, who said Friday: “I would hope for America's sake we start to fix the things that make the mortgage underwriting too tight.” The inference was that new regulation is getting in the way, especially the lack of clarity on proposed rules that aim to make mortgages fair and affordable for borrowers.

Regulatory uncertainty does of course weigh on banks' ability and desire to make loans. But here are some counterweights to such complaints.

First, government support to the housing market far outweighs any negative impact for banks. The mortgage market is ben efiting from three huge sources of stimulus and subsidy. The Federal Reserve has purchased hundreds of billions of dollars of mortgage-backed bonds since the crisis, an initiative that lowers interest rates and ignites demand for new loans among borrowers. Government-owned entities like Fannie Mae currently guarantee repayment on nearly all mortgages. And the Treasury Department's homeowner relief programs have generated refinancing income for banks.

All this aid has made it possible for banks like JPMorgan to carry out one of the most profitable, low-risk “trades” that has ever existed in modern capital markets. They simply make mortgages and flip them to bond investors, after attaching the federal guarantee. In the third quarter, JPMorgan booked $1.78 billion in revenue from that type of transaction, a 36 percent increase from the year-earlier period.

Second, bankers may be overstating the amount of regulatory uncertainty that hangs over the mortgage market .

Mr. Dimon said that mortgage underwriting was “too tight.” It is true that nearly all mortgages made these days have to be underwritten very safely â€" lots of money down, and much verifying information, for example â€" to qualify for the federal guarantee.

Still, banks are absolutely free to make mortgages with looser standards and then hold them on their balance sheet instead of selling them in the bond market. Banks, however, say they are reluctant to do that, in part because of regulatory uncertainty. For one, they say new capital rules could make it more expensive to hold certain types of mortgages, though the details here are getting much clearer.

Then there is the crucial question of what will constitute a “qualified residential mortgage,” a classification created by the Dodd-Frank financial overhaul. Under Dodd-Frank, banks have to retain a set amount of exposure to mortgages if they're in the business of selling them to bond investors. Bu t that rule won't apply to the “qualified residential mortgages,” giving banks the freedom to hold as many as they want.

The argument goes: Until the banks know what a qualified residential mortgage is, they will stick to making loans that can be affixed with a government guarantee. The problem with this criticism is that the majority of mortgage loans written since the financial crisis likely fulfilled the proposed requirements. For instance, a Government Accountability Office study last year showed that the majority of mortgages made in 2010 would have fulfilled the proposed requirements. However, a study by a federal housing regulator showed that just under a third of 2009 mortgages would have passed all criteria.

But debating the effect of all these various mortgage rules misses an important point: Banks like JPMorgan are currently willing to hold all sorts of assets that face regulatory uncertainty, some of them arguably riskier and harder to quickly sel l than residential mortgages. One such asset is credit-default swaps, which led to large trading losses earlier this year at JPMorgan. The bank is still a huge player in that market, despite a range of new rules that are still being drawn up.

So perhaps the protests over regulation mask other concerns. For banks, one obvious deterrent to holding mortgages is low interest rates - rates that are so low that banks cannot make enough money on the interest to make up for the risks of holding them.

It's sensible for banks to think twice before holding onto long-term assets with low, fixed interest rates - like the mortgages people are getting these days. But if that's the major reason they're not holding on to mortgages, banks should just come out and say that.

This post has been revised to reflect the following correction:

Correction: October 12, 2012

An earlier version of this article misstated a term used in a rule that governs whether a bank must retain a certain amount of mortgages it originates. The term is qualified residential mortgages, not qualified mortgages. The General Accountability Office study did look at the financial overhaul's impact on both qualified mortgages and qualified residential mortgages, finding that the majority of qualified residential mortgages made in 2010 would have fulfilled the proposed requirements.

The Limits to Liquidation Authority

A few weeks ago, three states â€" Oklahoma, Michigan, and South Carolina â€" joined a challenge to Title II of Dodd-Frank, the new “orderly liquidation authority.”

The question is, why?

The arguments in the complaint are extraordinarily weak. The states seem to assert some sort of property interest in having their investments dealt with under the bankruptcy code in the event of default. Of course, Congress is free to change the bankruptcy code whenever it wants, so how does that work?

Moreover, nothing in the text of the bankruptcy clause to the Constitution would seem to require Congress to provide a judicial forum for the resolution of financial distress. Indeed, entire categories of debtors â€" like banks and railroads â€" have at times been taken out of the general bankruptcy system and subjected to specialized proceedings, with limited judicial oversight.

None of which is to say that the orderly liquidation authority is prefect policy. B ut economic policy is probably best left outside the Constitutional realm.

As noted earlier this week by Harvey R. Miller and Maurice Horwitz in a Another View column on DealBook, the authority continues to suffer from its limited geographic scope and its unrealistic goals of ending all bailouts and liquidating failed financial firms, while also protecting the financial system from systemic panic.

It is probably not possible to do all of these things at once: in particular, sometimes we need the political courage to say that we need to do a bailout, as distasteful as that is, because we simply can't let Citigroup, Goldman Sachs or any other systemically important financial institution fail. By the time we get to the point of failure, the real alternatives are gone.

The main goal then must be to do the bailout right.

The Federal Deposit Insurance Corporation's new approach to orderly liquidation authority â€" involving a single proceeding for the ho lding company alone â€" is a good step toward acknowledging that the process as drafted is not likely to work. But is it politically naïve?

In particular, its hard to see how an orderly liquidation authority proceeding of the parent company does not become a bailout of the subsidiaries, if those subsidiaries are to be kept out of any sort of insolvency proceeding. And knowing that this will happen, the smart money will come in at the subsidy level, leaving the parent company creditors those whom it is least politically palatable to stiff. Think small, individual investors.

Many of these issues could be at least ameliorated by aggressive enforcement of the rules regarding living wills. The problem is that most people are understandably dubious about aggressive enforcement by regulators â€" it didn't happen before, and why should we expect it to happen now, especially in the face of strong pushback from the banks and their champions in Congress?

Stephen J. Lubben is the Harvey Washington Wiley Chair in corporate governance and business ethics at Seton Hall Law School and an expert on bankruptcy.