Credit Suisse Profit Falls 63% in Third Quarter

LONDON â€" Credit Suisse reported a 63 percent decline in net profit in the third quarter on Thursday after taking a charge related to the value of its debt.

The Zurich-based bank is bolstering its capital reserves after Switzerland's central bank raised concerns earlier this year that the bank may not have cash to weather future financial problems.

In response, Credit Suisse has announced a 15.3 billion Swiss franc, or $16.4 billion, capital-raising plan, which involves tapping existing shareholders for new investments and the sale of financial assets.

Credit Suisse said on Thursday that its net income totaled 254 million Swiss francs in the three months through Sept. 30, compared to 683 million francs in the same period last year.

An accounting charge related to the value of the bank's debt totaled 1.05 billion francs, according to a company statement.

“We have realigned our business to better meet the demands of a changed regulatory and m arket environment,” the bank's chief executive, Brady W. Dougan, said in a statement. “We have further strengthened our capital base and have improved our balance sheet structure to meet future regulatory requirements.”

As part of its plans to raise new capital, Credit Suisse said that it had increased its reserves by 12.8 billion francs by the end of the third quarter. The bank's core Tier 1 ratio, a measure of ability to weather financial shocks, stood at 14.7 percent under the regulatory rules known as Basel II.5. That compares to 10 percent in the similar quarter in 2011.

The Swiss bank also announced plans to reduce its balance sheet by around 13 percent, or 130 billion francs, by the end of next year. Credit Suisse said it would find additional cost savings of a combined 1 billion francs by 2015, as it continues to streamline its operations and focus on its lucrative wealth management business. The bank's total expected cost savings now have reached 4 billion francs, which includes previously announced job losses of 3,500.

Credit Suisse's private banking operations reported a 233 percent rise in pretax profit, to 689 million francs, while its investment banking unit also returned to profitability on strong fixed income sales and advisory services. Pretax profit in the investment banking division in the three months through Sept. 30 totaled 508 million francs compared to a 720 million loss in the similar period last year. The bank does not provide net profit figures for its individual operations.

Wall Street Leaders Peer Into Economic Gloom

Uncertainty seems to be the reigning theme on Wall Street these days. Just look at recent earnings reports, and it's clear that executives are contending with a world that's not easy to figure out.

Three senior financiers shared their thoughts on these broad risks during a conference in New York on Wednesday, opining on the crisis in Europe, the evolution of China's economy and the sluggish situation at home. Talk during the afternoon panel tended to veer into the technical and philosophical, as perhaps was fitting for the Buttonwood Gathering in New York, hosted by The Economist magazine.

But when it came to the economy at home, each panelist had strong views.

“I'm sorry, but we're in the first or second inning of a long process over many years, probably a decade,” said David McCormick, co-president and member of the management committee of the giant hedge fund Bridgewater Associates.

The outlook for economic growth is “fragile,” he said, w ith risks “largely to the downside.”

The rate of growth over the next few years will be “painful,” said another panelist, Roger Altman, founder and chairman of Evercore Partners. “We'll have, in most respects, subpar growth,” he said.

After that difficult period, though, the housing market and the broader economy are likely to improve, Mr. Altman predicted. One source of optimism can be found in Silicon Valley and other hubs of tech innovation, said the third panelist, Stephen Pagliuca, managing director of Bain Capital.

Political factors also present risks for doing business. For Mr. Pagliuca, who has watched his firm's name be dragged through the mud during this year's presidential race, those concerns are especially familiar.

“As we know painfully at Bain Capital, you have to separate the political hyperbole as to what you are versus what you really are,” he said at the conference.

Talk turned to the so-called fiscal cliff, th e spending cuts and tax increases that are set to go into effect at the end of the year if lawmakers cannot agree to a budget.

Mr. McCormick of Bridgewater argued that venturing over the cliff would not be as damaging as some have speculated. Mr. Altman and Mr. Pagliuca predicted that lawmakers would reach an agreement to avoid that situation.

The question of political leadership was a theme of the day and a focus of an earlier speech by Mohamed El-Erian, the chief executive of Pimco. Mr. El-Erian argued on Wednesday that politicians weren't doing enough to help the global economy.

With the presidential election coming up, politics isn't far from the minds of Wall Street executives. Last week, David A. Viniar, Goldman Sachs's chief financial officer, said that political speeches can cause market swings.

The panelists were asked about central bankers, which have pumped huge amounts of stimulus into economies around the world, making them popular with traders and others in global finance.

“History will look back on them as having responded in a way that was both necessary and heroic,” Mr. McCormick said. The years since the financial crisis “would have been radically different and much, much worse had they not done what they've done.”

Ocwen Wins ResCap Assets With $3 Billion Bid

A group led by Ocwen Financial won the race for Residential Capital's loan servicing platform on Wednesday, bidding $3 billion for the bankrupt mortgage lender's assets.

The Ocwen-led group, which also included Walter Investment, trumped Nationstar Mortgage Holdings, a loan servicing company that is controlled by the Fortress Investment Group. The two competed in an auction at the Sheraton New York hotel in Manhattan that began on Tuesday.

Nationstar had been designated the “stalking-horse bidder” for the assets, meaning that its bid had set the baseline for the auction. It is now eligible for a break-up fee if the bankrupt lender's board and a bankruptcy court judge approve the Ocwen bid.

If completed, the proposed sale would help raise money to pay off creditors of Residential Capital, known as ResCap. The lender, which is part of Ally Financial, filed for bankruptcy earlier this year in an effort to better separate itself from its parent.

The transaction must still be approved by the federal judge overseeing Residential Capital's Chapter 11 case; a hearing is set for Nov. 19.

“We will continue to work with all parties involved to ensure the best possible outcome for its creditors and other stakeholders,” Susan Fitzpatrick, a spokeswoman for ResCap, said in an e-mailed statement. “The board would like to thank the management and staff of ResCap for their incredibly hard and dedicated work in reaching this milestone in the Chapter 11 cases of ResCap.”

Rajat Gupta Gets 2 Years in Prison

Rajat K. Gupta, the former Goldman Sachs and Procter & Gamble director, was sentenced to two years in prison on Wednesday for leaking boardroom secrets to the former hedge fund manager Raj Rajaratnam.

Mr. Gupta, 63, who ran the consulting firm McKinsey & Company and served as a top adviser to the foundations of Bill Gates and Bill Clinton, is the most prominent figure to face prison in the government's sweeping crackdown on insider trading.

He was also ordered to pay a $5 million fine.

The Justice Department's campaign has reached onto the trading floors of some of Wall Street's largest hedge funds and inside the most revered boardrooms of corporate America. Over a three-year stretch, more than 70 traders, bankers, lawyers and corporate executives have been convicted of insider trading crimes.

Judge Jed S. Rakoff of Federal District Court in Manhattan handed down a more lenient prison sentence than the 8 to 10 years stipulated by nonbinding federal sentencing guidelines.

An Indian from Kolkata and a graduate of Harvard Business School, Mr. Gupta rose swiftly through the ranks of McKinsey and headed the firm for a decade. He was a trusted adviser to captains of industry, including Henry R. Kravis of the private equity firm Kohlberg Kravis Roberts & Company and Peter R. Dolan, the former chairman of Bristol-Myers Squibb. A noted humanitarian, he has also played a leading role in organizations fighting diseases in poverty-stricken nations.

Mr. Gupta is one of 23 people criminally charged in a seven-year insider trading conspiracy orchestrated by Mr. Rajaratnam, who was convicted in 2011.

In May, a jury found Mr. Gupta guilty of providing Mr. Rajaratnam with advanced word of secret, market-moving news that he learned as a Goldman director.

Mr. Gupta's sentence is far less than the 11 years being served by Mr. Rajaratnam in a federal prison in Ayer, Mass. But it is in line with prison terms handed down by Judge Rakoff in other recent insider trading cases.

The judge rejected the recommendation from Mr. Gupta's lawyers for a sentence of probation combined with a “rigorous and lengthy program of community service” that included a proposal to work in Rwanda on a health program to combat H.I.V.

Rajat Gupta Gets 2 Years in Prison

Rajat K. Gupta, the former Goldman Sachs and Procter & Gamble director, was sentenced to two years in prison on Wednesday for leaking boardroom secrets to the former hedge fund manager Raj Rajaratnam.

Mr. Gupta, 63, who ran the consulting firm McKinsey & Company and served as a top adviser to the foundations of Bill Gates and Bill Clinton, is the most prominent figure to face prison in the government's sweeping crackdown on insider trading.

He was also ordered to pay a $5 million fine.

The Justice Department's campaign has reached onto the trading floors of some of Wall Street's largest hedge funds and inside the most revered boardrooms of corporate America. Over a three-year stretch, more than 70 traders, bankers, lawyers and corporate executives have been convicted of insider trading crimes.

Judge Jed S. Rakoff of Federal District Court in Manhattan handed down a more lenient prison sentence than the 8 to 10 years stipulated by nonbinding federal sentencing guidelines.

An Indian from Kolkata and a graduate of Harvard Business School, Mr. Gupta rose swiftly through the ranks of McKinsey and headed the firm for a decade. He was a trusted adviser to captains of industry, including Henry R. Kravis of the private equity firm Kohlberg Kravis Roberts & Company and Peter R. Dolan, the former chairman of Bristol-Myers Squibb. A noted humanitarian, he has also played a leading role in organizations fighting diseases in poverty-stricken nations.

Mr. Gupta is one of 23 people criminally charged in a seven-year insider trading conspiracy orchestrated by Mr. Rajaratnam, who was convicted in 2011.

In May, a jury found Mr. Gupta guilty of providing Mr. Rajaratnam with advanced word of secret, market-moving news that he learned as a Goldman director.

Mr. Gupta's sentence is far less than the 11 years being served by Mr. Rajaratnam in a federal prison in Ayer, Mass. But it is in line with prison terms handed down by Judge Rakoff in other recent insider trading cases.

The judge rejected the recommendation from Mr. Gupta's lawyers for a sentence of probation combined with a “rigorous and lengthy program of community service” that included a proposal to work in Rwanda on a health program to combat H.I.V.

Oops! Can I Take Back That Earnings Release?

3:49 p.m. | Updated

Google was not the only company suffering from premature release of its earnings.

Just a few days after Google's earnings were inadvertently released hours ahead of schedule, Dow Chemical and Daimler both found themselves in similarly awkward positions.

But unlike the error at Google, which the company blamed on an outside filing agent, R.R. Donnelley & Sons, the situations at Dow and Daimler appear to be a result of internal mistakes.

On Tuesday evening around 9:55 p.m., someone at Dow inadvertently e-mailed a draft copy to Bloomberg News about the company's announcement to cut 2,400 jobs. Attached to that were details of the company's earnings release, which were not scheduled to be public until Thursday morning.

The mistake forced the company to rush out its earnings news release on Tuesday night and hastily reschedule its conference call with analysts for Wednesday morning.

“We had an inadvertent premature release and we moved quickly to take care of it,” said Rebecca Bentley, a spokeswoman for Dow. She said she could not say if Dow had ever released its earnings that late in the day before.

Daimler, too, hit the “Send” button too soon. Shortly before 1 p.m., a person on Daimler's corporate communications staff sent out an e-mail to about 50 reporters with the subject line “Daimler's earnings once again at a high level.” That e-mail was quickly followed by another message asking readers to ignore the previous message.

“It was just a mistake. I realized it instantaneously,” said Andrea Berg, a spokeswoman based in New York. “I prepared an e-mail and instead of saving as a draft, I pushed the send button.”

But as the cliché goes, once the cat was out of the bag, Daimler had no choice but to officially release its earnings about 12 hours before they were due to release them on Thursday.

While Googl e's premature filing was the most prominent example, other companies have also inadvertently made their earnings public over the years. Two years ago, Microsoft, the Walt Disney Company and NetApp used Web addresses similar to previous releases to upload current earnings information before they were publicly available. That gave anyone looking for the earnings an instant edge.

Jeffrey Schoenborn, a principal at Casteel Schoenborn Investor Relations in Waynesville, N.Y., said that while the three early releases were clearly mistakes, they should serve as a cautionary tale to companies, outside firms and others involved in corporate earnings.

“These incidents should serve as a reminder for everyone in the business to provide enough time to process the work properly so that the information can get out in the right place and the right time,” he said.

Michelle Leder is the editor of footnoted.com, a Web site that takes a closer look at companies' regulatory filings.

Federal Prosecutors Sue Bank of America Over Mortgage Program

Federal prosecutors sued Bank of America on Wednesday, accusing the bank of carrying out a mortgage scheme that defrauded the government during the depths of the financial crisis.

In a civil complaint filed in New York, the Justice Department cited the bank's home loan program known as the “hustle.” Prosecutors say the program, which Bank of America inherited with its purchase of Countrywide Financial during the crisis, was designed to churn out mortgages at a rapid pace without proper checks on wrongdoing. The bank then sold the “defective” loans to Fannie Mae and Freddie Mac, the government-controlled housing giants, which were stuck with more than $1 billion in losses and many foreclosures.

“The fraudulent conduct alleged in today's complaint was spectacularly brazen in scope,” Preet Bharara, the United States attorney in Manhattan, said in a statement. Mr. Bharara brought the case with the inspector general of the Federal Housing Finance Agency , which oversees Fannie Mae and Freddie Mac, and the government watchdog for the bank bailout program.

The case is the latest legal headache for Bank of America over its acquisition spree during the crisis. The bank in September paid $2.4 billion to settle a securities class-action lawsuit that it misled investors about the takeover of Merrill Lynch.

The Countrywide case is also the first time the Justice Department has taken action over the mortgage loans sold to Fannie Mae or Freddie Mac. But it overlaps with a steep pile of lawsuits against big banks filed by government agencies, as well as those brought by Fannie Mae and Freddie Mac.

A spokesman for Bank of America did not immediately return a request for comment.

Business Day Live: Credit Card Data Breach at Barnes & Noble Stores

Hackers attack Barnes & Noble. | Safety of some energy drinks becomes a concern. | Selling coffee in a Starbucks world. | Corporate America's wariness over the economy.

Visa Names JPMorgan\'s Scharf as New Chief

Visa on Wednesday named Charles W. Scharf, a former head of JPMorgan Chase‘s vast retail arm, as its new chief executive, as the credit card giant's current leader prepares for retirement next year.

Mr. Scharf will start in his new position on Nov. 1 and take a seat on the board, while the current chief executive, Joseph W. Saunders, will become executive chairman until he retires on March 31.

The departure of Mr. Saunders, who led Visa's journey into life as a publicly traded concern, had long been expected. Upon his departure, the company will appoint a new independent chairman.

Mr. Scharf is no stranger to Visa. JPMorgan is one of the biggest partners to the payments company, and Mr. Scharf sat on Visa's board from 2007 through last year.

“The payments industry is an exciting place to be with both the continued migration across the globe to electronic payments and the development of ground-breaking new technologies, and Visa plays an importan t role in enabling both,” Mr. Scharf said in a statement. “The management team Joe has led has made Visa into the industry leader and I am excited to build on that momentum in an evolving and dynamic market.”

The move will give Mr. Scharf his most prominent post since last year, when he stepped down as the head of JPMorgan's retail division. That position was subsequently divided among a number of executives, and Mr. Scharf was transferred to One Equity Partners, an internal private equity division.

That represented something of a comedown for Mr. Scharf, who had once been seen as a potential successor to JPMorgan's chief executive, Jamie Dimon. Mr. Scharf began his career as an assistant to Mr. Dimon, working for him through the succession of deals that eventually created Citigroup.

When his boss was ousted from Citi and wound up at Chicago's Bank One, Mr. Scharf followed, turning around the regional bank's once-troubled retail operations. When JPMor gan bought the firm in 2004, he assumed the same role, dramatically expanding his retail empire in part through acquisitions like that of Washington Mutual during the financial crisis.

Since then, however, JPMorgan's retail arm has had to grapple with a number of legal headaches that have weighed down on the firm's results. While Mr. Dimon has said that the reassignment was not related to the bank's mortgage problems, he joked to DealBook last year that his former protégé “is looking forward to not working for me.”

For Whom Golden Parachutes Shine

Golden parachutes, those packages that reward top executives if their company is acquired, have attracted much attention from investors and public officials for more than two decades. Defenders of golden parachutes believe that they provide executives with incentives to facilitate a sale of their companies. While the evidence confirms this, it indicates that golden parachutes have significant costs as well and might fail to serve the interests of shareholders over all.

Shareholder resolutions opposing golden parachutes have often received substantial support over time. Congress adopted tax rules aimed at discouraging large golden parachutes, and the rules created during the financial crisis precluded companies receiving government support from providing golden parachute payments to top executives. Subsequently, the Dodd-Frank Act mandated advisory shareholder votes on all future adoptions of golden parachutes.

Many companies and financial economists, however, continue to believe that golden parachutes are an important and beneficial element of executive pay. Because top executives typically give up independence and control when their companies are acquired, executives that do not have a golden parachute might be excessively reluctant to sell â€" and often can impede or even derail an acquisition they dislike.

Golden parachutes make acquisitions more attractive to executives, and may prompt to them to support a beneficial sale of their company that they would otherwise oppose. It is worthwhile for shareholders to bear the costs of golden parachutes, so the argument goes, for the sake of facilitating such sales.
In an empirical study of golden parachutes that Alma Cohen, Charles Wang and I have carried out, we confirm that golden parachutes do indeed have a beneficial effect on acquisitions. We find that companies that offer such packages have a higher likelihood of both receiving an acquisition offer and being acquired .

Because golden parachutes make executives more eager to sell, they are also associated with lower premiums in the event of an acquisition. But this effect is sufficiently small so that, over all, golden parachutes are associated with higher expected gains from acquisitions. On average, shareholders in companies with golden parachutes pocket larger benefits from acquisition premiums, and we find evidence that this association is produced by the effect that golden parachutes have on executives' incentives.

So far, so good. However, when we look beyond acquisitions to examine the relationship between golden parachutes and company value, we find that such packages hardly shine for the shareholders of companies adopting them. Companies that have adopted golden parachutes tend to see their valuations (relative to their industry peers) erode over time. Such companies have lower valuation already before adopting a golden parachute, but their value declines further in the subsequent several years.

We find a similar pattern when analyzing the stock returns of companies with and without a golden parachute during the period of more than 15 years for which we have data. Companies that adopted golden parachutes have lower (risk-adjusted) stock returns relative to those that didn't â€" both during the two-year period surrounding the adoption and in the next several years.

What explains this pattern? Why do companies with golden parachutes fail to deliver for their shareholders overall even though they provide them with more benefits in the form of acquisition premiums? This pattern could be at least partly a result of the adverse effect that golden parachutes have on the incentives and performance of executives not facing an acquisition offer.

The market for corporate control benefits shareholders not just by providing the prospect of pocketing an acquisition premium but also by affecting performance more generally. Executive s face the possibility that they might be ousted if they underperform. By ensuring executives of a cushy landing in the event of an acquisition, golden parachutes weaken the disciplinary force exerted by the market for corporate control.

Our corporate system provides executives with a significant power to impede or facilitate an acquisition. Golden parachutes are offered as a remedy to the concern that executives will deviate from shareholder interests in exercising this power. But this remedy is a highly imperfect one. While it does lead to more acquisitions, it also carries significant countervailing costs with it. Golden parachutes are not the easy fix for the incentives of executives as some might have hoped.

More work should be done to fully understand the consequences of golden parachutes and how they should be used. In the meantime, however, the evidence suggests that investors should continue to pay close attention to the use - and potential costs - of golden parachutes.

This article is based on a study, Golden Parachutes and the Wealth of Shareholders, that Mr. Bebchuk co-authored with Alma Cohen and Charles Wang.

Lucian A. Bebchuk is the director of the Program on Corporate Governance at Harvard Law School.

Wiretap Under Scrutiny

WIRETAP UNDER SCRUTINY  |  Wiretaps are the government's new best friend for going after insider trading. That was apparent in the case against Rajat K. Gupta, a former Goldman Sachs director convicted of leaking boardroom secrets, who is set to be sentenced at 2 on Wednesday afternoon.

But that technique will be challenged on Thursday. Lawyers for the convicted insider trader Raj Rajaratnam plan to argue that the government misled the judge who authorized the wiretap that ultimately landed the hedge fund manager behind bars, DealBook's Peter Lattman reports. While a ruling in Mr. Rajaratnam's favor is “considered a long shot,” Mr. Lattman writes, it would reverberate through a number of other cases and affect the government's ability to police insider trading.

Jérôme Kerviel, a former trader at Société Générale, failed to avoid prison for coverin g up rogue trading when a judge ruled on his appeal on Wednesday. Mr. Kerviel has to spend three years in prison and repay his former employer 4.9 billion euros.

 

FACEBOOK'S REVENUE BEATS FORECASTS  |  Facebook got an unusually warm reception from Wall Street on Tuesday. The social network reported third-quarter revenue that slightly exceeded expectations, even as it posted a net loss of $59 million, and its stock price rose more than 8 percent in after-hours trading. Investors were apparently reassured by the news that 14 percent of Facebook's advertising revenue came from mobile devices. “I want to dispel this myth that Facebook can't make money on mobile,” said Mark Zuckerberg, the chief executive. The Wall Street Journal's Heard on the Street column writes that, for Facebook, “mobile suddenly looks like less of a challenge and more of an opportunity - as long as the company doesn't frustrate its users.”

But the buzz around Zynga, a company closely tied to Facebook, was gloomier. Zynga's chief executive announced on Tuesday that the company was laying off about 5 percent of its work force and shutting down 13 of its games. Zynga reports earnings after the market closes on Wednesday, and expectations are low. Shares rose in after-hours trading but were down about 75 percent from the offering price last winter.

 

WAR OF THE PHONE COMPANIES  | 
AT&T's failed attempt to acquire T-Mobile USA sent a message to the industry that “unless you acted soon to get bigger, you were not likely to be in the cellphone business for long,” Steven M. Davidoff writes in the Deal Professor column. The smaller competitors of AT&T and Verizon - Sprint Nextel and T-Mobile, and Leap Wireless and Metro PCS - began scrambling to make deals. Mr. Davi doff writes:

“We've seen this story before - in the battle over RJR Nabisco that was made famous by ‘Barbarians at the Gate' and in deal-making frenzy during the dot-com boom. When faced with a changing competitive landscape, executives spend billions because they believe they have no other choice. The cost to the company - and to shareholders - can be immense. In this world, executive hubris tends to dominate as overconfidence and the need to be the biggest on the block cloud reason.”

 

ON THE AGENDA  | 
Data on new home sales in September is coming at 10 a.m. The Federal Reserve's policy-making committee releases a statement at 2:15 p.m. after a two-day meeting. Warren E. Buffett is on CNBC at 7 a.m. After his appearance on CNBC on Tuesday, Greg Smith will be on Bloomberg TV at 11 a.m. to talk about his book on Goldman Sachs. Sheila C. Bair, former chairwoma n of the Federal Deposit Insurance Corporation, is on CNBC at 3:10 p.m. AT&T, Delta and Nasdaq report earnings before the opening bell.

 

A $100 MILLION THANK-YOU TO CENTRAL PARK  |  The hedge fund manager John A. Paulson put a price on his affection for Central Park on Tuesday when he gave $100 million to the Central Park Conservancy. His fondness for the park stretches back to the days when he “hung out at the fountain as a teenager, beneath the bronze statue Angel of the Waters, which was then scrawled with graffiti and bone dry,” The New York Times writes. At a press event on Tuesday, Mr. Paulson avoided talking about his business dealings and instead mused on the park, declaring that it was “very peaceful when it snows. But you have to wear the right shoes.” DealBook's Michael J. de la Merced notes that Mr. Paulson is not the first big-name financier to be entrance d by the park's charms.

 

 

 

Mergers & Acquisitions '

KDDI and Sumitomo in Joint Bid for Japanese Cable Firm  |  The Japanese companies KDDI Corporation and Sumitomo Corporation have offered to pay $2.7 billion for the piece of a domestic cable operator, Jupiter Telecommunications, they do not already own. DealBook '

 

Ally's Sale of Canadian Arm Aims to Repay Bailout  |  Ally Financial took its biggest step yet to slim down while raising money to repay its $17.2 billion taxpayer-financed bailout after it agreed to sell its Canadian operations to the Royal Bank of Canada for about $4.1 billion. DealBook '

 

Target to Sell $5.9 Billion Credit Card Portfolio to TD Bank  |  The Target Corporation said on Tuesday that it planned to sell a $5.9 billion portfolio of credit card receivables to TD Bank. DealBook '

 

Europe Delays Vote on Corporate Quota for Women  |  A European Union official delayed action on a plan that would have required public companies to fill at least 40 percent of board seats with women, The Financial Times reports.
FINANCIAL TIMES

 

Sirius Chief to Step Down  |  The chief executive of Sirius XM Radio, Mel Karmazin, plans to step down on Feb. 1, as Liberty Media moves closer to a takeover of Sirius, the Me dia Decoder blog reports. NEW YORK TIMES MEDIA DECODER

 

Moody's Puts TNK-BP and Rosneft on Review for Downgrade  | 
DOW JONES

 

Germany's Plan for Aerospace Giant  |  Reuters reports: “Germany plans to quickly purchase a stake in EADS to preserve its influence over the aerospace group, fearing that Daimler could unload shares it holds in the company on the open market, a document obtained by Reuters showed.” REUTERS

 

INVESTMENT BANKING '

Wall Street Ponders a Romney Presidency  |  Some speakers at the annual meeting of the Securi ties Industry and Financial Markets Association, Wall Street's chief lobbying group, were eager to feed hopes that Mitt Romney would win the election. DealBook '

 

Exchanges Look to Alter Trading Tools  |  NYSE Euronext and Nasdaq are facing criticism that certain tools could unfairly benefit high-speed traders or pose risks to the market, The Wall Street Journal writes. WALL STREET JOURNAL

 

Gloom Descends on Corporate America  |  Stocks fell on Tuesday as some big companies reported disappointing results. NEW YORK TIMES

 

UBS to Cut More Investment Banking Jobs  |  The Wall Street Journ al reports that a new round of cuts at the Swiss bank “could run into the thousands.”
WALL STREET JOURNAL

 

Asian Investment Banks Quietly Shed Clients  | 
REUTERS

 

Wells Fargo Authorizes More Share Buybacks  | 
REUTERS

 

PRIVATE EQUITY '

Providence Equity's Richardson to Assume Senior Adviser Role  |  Julie G. Richardson, a managing director at Providence Equity Partners and one of the most prominent female private equity executives, has reduced her responsibilities by becoming a senior adviser. DealBook '

 

Blackstone Said to Plan to Buy Stakes in Fund Managers  |  The private equity firm Blackstone Group is getting ready to start a new fund to buy equity stakes in hedge fund managers from other firms that hold them, Reuters reports, citing an unidentified person familiar with the plans. REUTERS

 

Buyout Firms Circle Dental Services Company  |  K.K.R., Apax Partners and Madison Dearborn Partners are bidding for Heartland Dental Care, which could be valued at about $1.3 billion, Reuters reports, citing unidentified people familiar with the matter. REUTERS

 

Heelys Is Sold to Private Equity Firm  |  Ever green Group Ventures is buying the operating assets of Heelys, the company that makes children's shoes with wheels, for $13.9 million in cash, Reuters reports. Heelys is then being liquidated. REUTERS

 

HEDGE FUNDS '

The Hedge Fund All-Stars  |  Appaloosa Management, Lone Pine Capital, Pine River Capital Management, Tilden Park and the Barnegat Fund are among the small group of hedge funds that have defied the industry's broad slump this year, The Wall Street Journal writes. WALL STREET JOURNAL

 

Judge Approves Bonuses for LightSquared Executives  | 
WALL STREET JOURNAL

 

Former Citadel Manager to Start New Fund  | 
BLOOMBERG NEWS

 

I.P.O./OFFERINGS '

Netflix Results Fall Short of Expectations  |  The company said the number of subscribers to its streaming service reached 25.1 million in the third quarter, up from the quarter a year earlier but weaker than expected. NEW YORK TIMES MEDIA DECODER

 

Manchester United Not for Sale  |  The English soccer club Manchester United, which went public on the New York Stock Exchange in August, is not for sale even though overtures have been made, said the vice chairman of the club, Ed Woodward, according to The Guardian. GUARDIAN

 

VENTURE CAPITAL '

Yelp Buys a European Competitor  |  Yelp is paying $50 million for Qype, a venture-capital-backed company that was seen as its biggest rival in Europe. TECHCRUNCH  |  ALLTHINGSD

 

Debit Card Company Attracts $3.2 Million  |  PEX Card, a company that provides debit cards to businesses, said on Tuesday that it had raised a round of financing led by iNovia Capital and Bluff Point Associates. NEWS RELEASE

 

LEGAL/REGULATORY '

One Year After MF Global, New Protections for Customer M oney  |  The Commodity Futures Trading Commission will propose protections aimed at closing loopholes, bolstering internal controls and requiring firms to provide more disclosures. DealBook '

 

Lawyers for Corzine Seek Dismissal of MF Global Fraud Suit  | 
WALL STREET JOURNAL

 

Royal Bank of Scotland Settles Nevada Case Over Mortgages  |  The New York Times reports: “The Royal Bank of Scotland agreed to pay $42.5 million late Tuesday in a settlement with the Nevada attorney general that ends an 18-month investigation into the deep ties between the bank and two mortgage lenders during the housing boom.” NEW YORK TIMES

 

Debt Collectors to Be Federally Supervised  |  The Consumer Financial Protection Bureau begins overseeing debt collection agencies on Jan. 2, The New York Times reports. NEW YORK TIMES

 

Google's Earnings Incident Shines Light on a Stealth Industry  |  Since earnings information is crucial these days, the accidental release of Google's earnings report last week by an outside filing firm raises questions about whether more companies should move the filings process in-house. DealBook '

 

S.E.C. Said to Investigate Pandit's Departure From Citigroup  | 
FOX BUSINESS

 

< p>Should the Fed Buy Municipal Bonds?  |  Three professors at Stanford Law School write in an opinion piece in The New York Times that “maybe it's time for a QE-Muni.” NEW YORK TIMES

 

Nike to Sell Umbro Brand to Iconix for $225 Million

Nike said on Wednesday that it planned to sell its Umbro soccer brand to the Iconix Brand Group for $225 million to slim down its product offerings.

The deal comes fives months after Nike announced it would sell both Umbro and the Cole Haan lifestyle brand in a streamlining effort. The move is essentially an unwinding of previous diversification efforts.

But selling Umbro, which Nike acquired in 2008, will not leave the company without a presence in the global soccer market: it still sells the Nike Football line of gear.

“It is a difficult decision to divest any business, but this action will enable us to focus on our highest-potential growth opportunities,” Mark Parker, Nike's chief executive, said in a statement. “Umbro has a great heritage, but ultimately, as our category strategy has evolved, we believe Nike Football can serve the needs of footballers both on and off the pitch.”

The transaction will pass Umbro to Iconix, a “virtual” fashion company run by Neil Cole, brother of the designer Kenneth Cole. It essentially licenses brands to retailers like Wal-Mart Stores and Target that actually manufacture and sell the merchandise.

“Umbro is a true, authentic football brand with a global loyal consumer fan base, and we are thrilled to be adding it to our portfolio of iconic brands,” Neil Cole said in a statement.

Among properties owned by Iconix are Candie's shoes and the Mossimo, Marc Ecko and Badgley Mischka clothing brands. But the company has branched out from apparel: in 2010 it bought an 80 percent stake in the Peanuts brand, giving it licensing rights to Charlie Brown and Snoopy.

Two years ago, Iconix held talks to buy Kenneth Cole, potentially uniting the Cole brothers' empires. But those talks foundered.

Since then, Neil Cole has purchased the rights to the Ed Hardy and Sharper Image brands.

Speaking of brothers, the name Umbro is derived from the Humphreys brothe rs, who started the business in 1924 in Cheshire, England. The company makes the uniforms for a number of soccer teams, including England's national team.

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

Nike to Sell Umbro Brand to Iconix for $225 Million

Nike said on Wednesday that it planned to sell its Umbro soccer brand to the Iconix Brand Group for $225 million to slim down its product offerings.

The deal comes fives months after Nike announced it would sell both Umbro and the Cole Haan lifestyle brand in a streamlining effort. The move is essentially an unwinding of previous diversification efforts.

But selling Umbro, which Nike acquired in 2008, will not leave the company without a presence in the global soccer market: it still sells the Nike Football line of gear.

“It is a difficult decision to divest any business, but this action will enable us to focus on our highest-potential growth opportunities,” Mark Parker, Nike's chief executive, said in a statement. “Umbro has a great heritage, but ultimately, as our category strategy has evolved, we believe Nike Football can serve the needs of footballers both on and off the pitch.”

The transaction will pass Umbro to Iconix, a “virtual” fashion company run by Neil Cole, brother of the designer Kenneth Cole. It essentially licenses brands to retailers like Wal-Mart Stores and Target that actually manufacture and sell the merchandise.

“Umbro is a true, authentic football brand with a global loyal consumer fan base, and we are thrilled to be adding it to our portfolio of iconic brands,” Neil Cole said in a statement.

Among properties owned by Iconix are Candie's shoes and the Mossimo, Marc Ecko and Badgley Mischka clothing brands. But the company has branched out from apparel: in 2010 it bought an 80 percent stake in the Peanuts brand, giving it licensing rights to Charlie Brown and Snoopy.

Two years ago, Iconix held talks to buy Kenneth Cole, potentially uniting the Cole brothers' empires. But those talks foundered.

Since then, Neil Cole has purchased the rights to the Ed Hardy and Sharper Image brands.

Speaking of brothers, the name Umbro is derived from the Humphreys brothe rs, who started the business in 1924 in Cheshire, England. The company makes the uniforms for a number of soccer teams, including England's national team.

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

KDDI and Sumitomo Offer $2.7 Billion to Buy Rest of Jupiter

The Japanese companies the KDDI Corporation and the Sumitomo Corporation on Wednesday offered to buy the remaining stake in the domestic cable operator Jupiter Telecommunications that they do not already own for a combined $2.7 billion.

Under the terms of the deal, KDDI and Sumitomo, which currently own around a 70 percent stake in the company, will offer Jupiter shareholders 110,000 yen ($1,378) for each of their shares in Japan's largest cable operator.

The offer represents a 33 percent premium on Jupiter's share price on Friday, when a potential deal was first reported. Shares of the Japanese company closed down 1.33 percent, at 111,200 yen, on Wednesday in Tokyo.

As part of the deal, KDDI â€" one of Japan's largest mobile phone operators - and Sumitomo plan to operate the business as a joint venture in which both companies will own a 50 percent stake in the unit.

The Japanese companies said they would use Jupiter's dominant market share in the c ountry's cable industry to expand their own offerings, particularly on smart phones and other mobile devices. KDDI and Sumitomo said they would merge their separate cable operations upon completion of the deal.

KDDI, which currently owns a 30.7 stake in Jupiter, said it would acquire Jupiter shares worth around 71 billion yen. The mobile phone operator bought its initial stake in the cable company in 2010 after KDDI paid $4 billion to Liberty Global, the United States-based communications company controlled by John C. Malone, for the holding.

Sumitomo, which founded Jupiter in the mid-1990's, said it would create a separate unit with KDDI to buy a stake in the cable company worth a combined 145 billion yen. The Japanese conglomerate currently owns a 39.9 percent stake in Jupiter.

Bank Settles Over Loans in Nevada

The Royal Bank of Scotland agreed to pay $42.5 million late Tuesday in a settlement with the Nevada attorney general that ends an 18-month investigation into the deep ties between the bank and two mortgage lenders during the housing boom.

Most of the money paid by R.B.S. - $36 million - will be used to help distressed borrowers throughout Nevada. In addition, R.B.S. agreed to finance or purchase subprime loans in the future only if they comply with state laws and are not deceptive.

The settlement between the bank and Catherine Cortez Masto, Nevada's attorney general, relates to conduct at Greenwich Capital, the R.B.S. unit that bundled mortgages into securities and sold them to investors. Nevada found that R.B.S. worked closely with Countrywide Financial and Option One, two of the most aggressive lenders during the boom.

Officials working with Ms. Masto say that they examined R.B.S.'s activities from 2004 to 2007. During those years, the bank provided funding for more than $100 billion of risky loans, many made by Countrywide and Option One. In 2005 and 2006, R.B.S. was the third-largest securitizer of subprime mortgages and adjustable-rate loans.

“I remain committed to enforcing Nevada's laws against the players - including those on Wall Street - that contributed to and profited from reckless and deceptive mortgage lending in Nevada,” Ms. Masto said in a statement. “The payment from R.B.S. will alleviate some of the injury to the Silver State and its residents. The changes to its securitization process should help make sure that we do not go down this road again.”

In agreeing to the settlement, R.B.S. neither admitted nor denied the acusations.

During the investigation, Nevada officials examined more than one million pages of documents and interviewed former R.B.S. employees and borrowers. Ms. Masto's office concluded that the bank had essentially created joint ventures with Countrywide and Option One and that its financing enabled those lenders to make reckless loans that were unlikely to be repaid.

The attorney general also examined whether R.B.S. reviewed the mortgages bought from Countrywide and concluded that the bank bundled and sold loans even after identifying them as problematic. Moreover, at Countrywide's request, the bank limited the number of loans it reviewed, the attorney general's office said.

Nevada has been hit hard by the foreclosure crisis. Some 60 percent of borrowers in the state have mortgages of greater value than the properties underlying them, according to Core Logic, a real estate data company.

Ms. Masto's case comes after several others brought recently by state regulators against firms involved in mortgage securities. Earlier this month, the New York attorney general sued Bear Stearns over its conduct during the boom, and last week, the Massachusetts securities regulator sued Putnam Advisory, a unit of Putnam Investments, for misleading investors who bought a collateralized debt obligation it was managing. Officials at both firms rejected the allegations and said they would vigorously defend themselves in court.

Some securities lawyers say that it is easier for state officials to bring successful actions against banks for questionable activities than it is for federal investigators. That is mostly because of stringent requirements under federal securities laws.

“This strategy sidesteps the need to prove intent to defraud and to detail fraud allegations as is required for similar actions under the federal securities laws,” said Lewis D. Lowenfels, an authority in securities law in New York. According to the Nevada attorney general's office, R.B.S. was among the larger bundlers of a risky type of loan known as a pay-option adjustable-rate mortgage. From 2004 through 2006, R.B.S. packaged $90 billion of these loans, many originated by Countrywide. The mortgages typically began with an artificially low interest rate that rose significantly after a year or two. Under the terms of these loans, borrowers could choose to pay only a fraction of what they owed monthly, resulting in a rising principle balance.

R.B.S. also worked hard to keep Countrywide generating loans for the bank's securities, investigators said.

Ms. Masto's office said that R.B.S.'s mortgage funding operation was widespread across Nevada, which is why most of the settlement will go to borrowers who have suffered harm.

A version of this article appeared in print on October 24, 2012, on page B3 of the New York edition with the headline: Bank Settles Over Loans In Nevada.

New Federal Rules for Debt Collectors

WASHINGTON - Debt collection agencies, whose sometimes aggressive tactics have earned them scrutiny from consumer protection groups and state regulators, will come under federal supervision for the first time beginning Jan. 2, when the Consumer Financial Protection Bureau begins oversight.

In addition to companies that specialize in collecting money from consumers for personal, family or household debt, the consumer bureau will begin monitoring debt collectors that contract with the Education Department to collect overdue student loans. The department has more than $850 billion in student loans outstanding, officials said.

“Millions of consumers are affected by debt collection, and we want to make sure they are treated fairly,” Richard Cordray, the director of the consumer bureau, said in a statement issued before the public release of the bureau's rules on Wednesday. “We want all companies to realize that the better business choice is to follow the law - not break it.”

The authority to oversee debt collection agencies comes under the portion of the Dodd-Frank regulatory law that deals with so-called nonbank financial companies.

The consumer agency will examine companies to ensure that they properly identify themselves to consumers and properly disclose the amount of debt owed. In addition, collectors must have a process to resolve disputes and communicate “civilly and honestly” with consumers.

The rules will cover collectors that have annual receipts of more than $10 million, roughly 175 companies. They account for about 63 percent, or $7.7 billion, of the industry's $12.2 billion in annual collections, the bureau said. Over all, there are about 4,500 debt collection companies in the United States.

Debt collection agencies have long been a target of consumer protection agencies, which accuse collectors of abusive practices like repeatedly engaging consumers or threatening to have them imprisoned for failure to pay debts.

The industry accounts for a large portion of consumer complaints to the Federal Trade Commission, which enforces restrictions against abusive practices. The F.T.C. said it collected more than 180,000 complaints about debt collectors in 2011, up from 13,950 in 2000

“There has been an explosion of shady debt collection tactics in recent years,” Suzanne Martindale, a staff attorney for Consumers Union, said. “Businesses have a right to collect what they are owed but not to harass consumers for debt that has been already paid off or doesn't belong to them.”

But debt collectors said that regulators, including the consumer bureau, have characterized the companies inaccurately, particularly about how they respond to consumer complaints. They said the number of complaints increased in large part because it has become easier to file them online.

This year, ACA International, a trade group representing collection companies, objected to the consumer agency's proposed rules, saying in a letter to the bureau that the regulations are arbitrary and do not follow the law.

The bureau has the authority to regulate “larger participants” in the debt collection market, but ACA said that the $10 million threshold was too low because the way the bureau measures annual receipts takes into account loan amounts that once collected are simply passed on to the company that originated the debt, less a commission.

The group said that the threshold should be $250 million. On the other side, the National Consumer Law Center recommended that the threshold be lowered to $7 million.

Beginning in January, the consumer bureau will begin requiring reports from debt collectors and conducting examinations of companies' compliance and procedures, and to detect risks to consumers and financial markets from their practices.

The consumer agency is releasing its final rules identifying the types of companies it will oversee on Wednesday, when it also will conduct a public hearing in Seattle on debt collection practices.

A version of this article appeared in print on October 24, 2012, on page B1 of the New York edition with the headline: New Rules For Debt Collectors.