Berkshire Hathaway Wins Bid for ResCap Loans

Warren E. Buffett said on Wednesday that he was “salivating” to strike another big deal. But it appears that he'll settle for a $1.5 billion one for now.

His investment vehicle, Berkshire Hathaway, successfully bid for a 47,000-loan portfolio held by Residential Capital, the bankrupt mortgage lender. The deal still requires approval by the federal judge overseeing the Chapter 11 case.

It was the second sale of assets by Residential Capital, known as ResCap, in as many days. On Wednesday, the lender announced that a duo led by Ocwen Financial had won the bidding for its loan-servicing platform with a $3 billion offer.

Berkshire had expressed interest in participating in that other transaction as well, though it did not make the final round of the auction.

ResCap, which filed for bankruptcy this year, has been seeking to sell off huge swaths of itself to pay off its creditors. The lender's Chapter 11 filing was also meant to help insulate the comp any's parent, Ally Financial, from the legal burdens that led to a $17 billion taxpayer-financed bailout.

As a Benchmark Loses Prominence, Brazil Seeks Alternatives

SíO PAULO, Brazil - Investment benchmarks are meant to be stable, authoritative guideposts for sizing up assets and performance.

But as the recent scandal involving the London interbank offered rate, or Libor, has shown, traditional benchmarks can come under attack. Even ones that have proved reliable may become obsolete, especially in a rapidly changing emerging market.

In Brazil, a system that has been in place for decades may soon change and force fund managers to dive into riskier investments in order to meet performance goals.

Since the 1980s, most Brazilian asset managers have shaped portfolios, measured performance and assigned bonuses based on a single benchmark: Brazil's interbank deposit certificate rate, known in Portuguese as the Certificado de Depósito Interbancário, or C.D.I.

Because of Brazil's history of high inflation and high government debt, common global benchmarks for fund performance were for many years not relevant.

T o attract wary investors, the government had to issue bonds whose yields automatically changed with the Central Bank of Brazil's basic interest rate, ensuring attractive returns even after inflation. Both giant pension funds and individual retirees bought these bonds en masse.

To reflect this reality, in the 1980s the financial industry created the C.D.I. rate, a daily average of overnight interbank loans, which hovers close to the central bank's basic interest rate.

The C.D.I.'s influence extends throughout the economy, where many other interest rates rise and fall with it on a daily basis. Bank certificates of deposit pay a percentage of the C.D.I., corporate debt pays a percentage of the C.D.I. or the C.D.I. plus a spread, and most of Brazil's asset management industry uses it as its benchmark.

Currently, fixed-income and all-asset funds aim to beat the C.D.I., sometimes called the D.I. rate.

Aggressive hedge funds that leverage up and invest prima rily in equity, corporate debt, currencies and derivatives take their 20 percent cut not on absolute profits, but on performance that exceeds the C.D.I.

But in the last decade, Brazil has become a rising power. Gone are the days of high inflation, and budget deficits are far lower than in most of the developed world. The country is now the world's sixth-largest economy.

As a result, it no longer makes sense to invest with a focus on loans with a duration of a single day, but most fund managers' mandates still require them to do just that.

Executives from Brazil's three largest asset managers, who together hold almost half the industry's assets in their portfolios, say they expect the government to take measures soon to prod them toward reducing the use of the C.D.I. as a benchmark.

Joaquim Levy, chief executive of Bradesco Asset Management, which has more than 276 billion reais, or $136 billion, in assets under management, said that the government was “working to create a package of incentives to encourage investors to take more market risk.”

Mr. Levy, who was Brazil's treasury secretary from 2003 to 2006, cautioned that this prediction was merely his opinion, because no formal negotiations between the market and the government had begun yet, but “these are the signals we are hearing.”

For years, the C.D.I. provided nominal returns in the double digits and real returns in the high single digits, but with the C.D.I. at 7.11 percent as of Thursday, and inflation expected to hit 5.41 percent over the next 12 months, the C.D.I.'s yield is no longer as attractive to retail investors. It will also not be enough for pension funds to meet their obligations.

New benchmarks could accelerate movement away from floating-rate government debt into riskier investments. The industry has 2.09 trillion reais, or $1.03 trillion, in assets under management, so even a small increase in appetite for risk could cause tens of billions to move into corporate debt, longer-term and fixed-rate government debt, the local stock market and foreign investments.

Carlos André, chief investment officer of Brazil's largest asset manager, BB DTVM, is cautious about predicting the timing, but he too is preparing for a change he calls “natural.” About 76 percent of BB DTVM's 442 billion reais, or $218 billion, in assets under management are in funds that use the C.D.I. as benchmark.

Mr. André said this percentage, in line with the fund industry average, was already declining. “Every time interest rates drop, investors' predisposition to assume risk grows. The C.D.I. is losing importance naturally,” he said. “I think the government is seeking to take advantage of this scenario to induce the market to accelerate the transition.”

The matter is delicate, he said, as tax or regulatory incentives, if not carefully put in place, could lead to a sudden migration from one asset cl ass to another, throwing the market out of balance.

Mr. André said natural replacements for the C.D.I. as a benchmark for fixed-income funds are two indexes computed by the Brazilian Financial and Capital Markets Association: the IMA-B, which follows inflation-indexed debt, and the IRF-M corporate debt index. For all-asset and hedge funds, Mr. André said, many will start aiming for absolute returns or inflation plus a certain spread.

Paulo E. Corchaki, chief investment officer of Itaú Asset Management, with more than 311 billion reais, or $153 billion, in assets under management, said he expected that the transition would come in two phases: first pension funds, then the rest of the industry.

Mr. Corchaki said that about 80 percent of his firm's funds use the C.D.I. as benchmark, but he was less concerned about how his fund managers would handle the transition to new benchmarks and more concerned with how some clients might react. “Brazilian investors are accustomed to mutual funds that have very little volatility,” he said. “If funds start to use different benchmarks and make longer-term investments, they will become more volatile. Investors will have to get used to seeing losses some months.”

Still, some say the change will eventually be embraced by investors.

“Everyone in the market is already preparing to take on more risk,” said Mr. Levy of Bradesco. “It is part of the transformation of Brazil.”

Lawmakers Seek Urgency in Volcker Rule

With the Volcker Rule, a complex plan to rein in Wall Street risk taking, the waiting is the hardest part.

A year after first proposing the rule, regulators are still fine-tuning a final version. And the Congressional supporters of the crackdown, which would limit big banks from trading with their own money, are growing antsy.

“We urge you to move quickly, make the final adjustments needed to simplify and strengthen the October 2011 proposal, and bring the process to a conclusion,” Senator Carl Levin, Democrat of Michigan, and Senator Jeff Merkley, Democrat of Oregon, said in a letter to regulators on Thursday.

The lawmakers pushed the rule through Congress in 2010, arguing that banks should not make risky wagers while enjoying government deposit insurance and other federal support. The rule is named for Paul A. Volcker, a former chairman of the Federal Reserve who campaigned for the ban on proprietary trading.

The letter on Wednesday is the lat est Congressional attempt to light a fire under the five regulatory agencies writing the rule, including the Federal Reserve and the Securities and Exchange Commission. In April, 22 senators called for regulators to adopt a final rule by the summer. Representative Barney Frank, the Massachusetts Democrat who co-authored the Dodd-Frank financial regulatory overhaul that created the Volcker rule, once called on regulators to issue a final rule by Labor Day.

Regulators aimed to wrap up in September, but they encountered delays in the wake of JPMorgan Chase‘s $6 billion trading loss, which became a flash point in the debate over the rule. Regulators, which are still split on certain details of the rule, now hope to finalize the plan by the end of the year.

That's too slow for Mr. Levin and Mr. Merkley. Some regulators, they argued, should publish the final rule even if all the agencies are not yet on board.

“While American families and businesses should be enjoying the protection of the Volcker rule, your agencies' ongoing failure to implement these important protections has left them and our economy at greater risk of another financial crisis,” they wrote.

Tallying the Costs of Bank of America\'s Countrywide Nightmare

If only there were mulligans on ill-advised Wall Street takeovers.

When Bank of America bought Countrywide Financial, the subprime lending specialist, it initially paid $4 billion.

Some analysts have pegged the true financial toll - including write-downs, legal expenses and settlements - at upward of $40 billion.

The costs threatened to add up even more on Wednesday, when federal prosecutors in New York sued Bank of America over a mortgage program it inherited from Countywide. The Justice Department seeks to collect more than $1 billion in penalties over the program, known as “the hustle,” which prosecutors say churned out fraudulent loans at a rapid pace.

The final cost of that suit could total even more - $3 billion. The Justice Department, seeking compensation for bad loans that Countrywide steered to government-backed mortgage agencies Fannie Mae and Freddie Mac, filed the case under a law that could provide for triple the damages suffered by taxpayers. Fannie and Freddie guaranteed the mortgages and later suffered steep losses.

A Bank of America spokesman, Lawrence Grayson, declined to comment. On Wednesday, when the Justice Department released its complaint, Mr. Grayson cast doubt on the government's claims.

“Bank of America has stepped up and acted responsibly to resolve legacy mortgage matters; the claim that we have failed to repurchase loans from Fannie Mae is simply false,” he said in a statement. “At some point, Bank of America can't be expected to compensate every entity that claims losses that actually were caused by the economic downturn.”

Whatever the merits of the case, it further reinforced the notion that Bank of America was better off without Countrywide.

Once the nation's largest mortgage lender, Countrywide pioneered lending programs that aggressively reached into minority and low-income neighborhoods. But by early 2008, as the mortgage bubble was bursting, th e firm was hobbled by soured loans and it needed a buyer.

Kenneth D. Lewis, then Bank of America's chief, saw an opportunity to seize the company for a bargain price. But that was only the first expense that led to a flood of red ink.

“Obviously, there aren't many days when I get up and think positively about the Countrywide transaction,” Brian Moynihan, Mr. Lewis's successor, once said.

In financial reports, Bank of America does not break out losses and write-downs sustained by its own mortgage division versus Countrywide, so it is difficult to pinpoint an exact cost of the Countrywide deal. But some of the enormous costs of Countrywide include these bills:

• January 2008: Bank of America agreed to pay $4 billion for Countrywide.
• June 2010: The government fines start relatively small, with the Federal Trade Commission leveling a $110 million penalty against two Countrywide mortgage servicing companies accused of overcharging “cash-s trapped borrowers.”
• August 2010: Countrywide agrees to pay $600 million to settle a lawsuit from shareholders, including New York pension funds that claimed the lender misled them about its health.
• October 2010: Bank of America pays $20 million to cover the former Countrywide chief executive Angelo Mozilo's $67.5 million civil fraud settlement with the Securities and Exchange Commission.
• January 2011: Bank of America pays more than $2.5 billion to buy back troubled mortgages and resolve related claims from Fannie and Freddie.
• April 2011: The spending spree continued with a $1.6 billion payout to Assured Guarantee, which insured the toxic mortgage bonds sold to investors.
• May 2011: The Justice Department collects a $20 million fine after accusing Countrywide of wrongly foreclosing on more than 150 active duty members of the military.
• June 2011: Bank of America reached a preliminary $ 8.5 billion deal to settle claims by inve stors who purchased Countrywide mortgage securities that soured when the housing bubble burst.
• December 2011: Bank of America pays $335 million to settle claims from the Justice Department that Countrywide carried out a “widespread pattern or practice of discrimination against qualified African-American and Hispanic borrowers.”

Rajaratnam\'s Lawyers Argue to Overturn Conviction

A lawyer for the former hedge fund manager Raj Rajaratnam asked a panel of federal appeals court judges on Thursday to set aside his conviction, arguing that the government used deceptive methods to obtain permission to wiretap his cellphone.

Patricia Ann Millett, a lawyer for Mr. Rajaratnam, told the judges that the government's application to a federal judge seeking authorization to secretly record Mr. Rajaratnam's conversations was riddled with problems.

“You had cascading errors, paragraph after paragraph after paragraph,” said Ms. Millett, arguing before the United States Court of Appeals for the Second Circuit in Manhattan.

As a result of those errors, Ms. Millett argued, the appeals court should suppress the wiretap evidence used by federal prosecutors at Mr. Rajaratnam's trial. Such a ruling would force the government to retry Mr. Rajaratnam without the use of dozens of incriminating phone calls during which he brazenly swapped confidential i nformation about publicly traded companies with numerous informants. The arguments echoed those in briefs filed by Mr. Rajaratnam's lawyers.

A jury found Mr. Rajaratnam, who ran the now-defunct Galleon Group hedge fund, guilty in May 2011 after a two-month trial. He is serving an 11-year sentence at a federal prison in Massachusetts.

Multimedia: Insider Trading

Mr. Rajaratnam's appeal came a day after one of his informants, the former Goldman Sachs director Rajat K. Gupta, was sentenced to two years in prison for leaking boardroom secrets about the bank to Mr. Rajaratnam.

During Thursday's hearing, the three appellate judges weighing Mr. Rajaratnam's appeal - José A. Cabranes, Robert D. Sack and Susan L. Carney - revealed little about their position on the case. They did not ask Andrew L. Fish, the federal prosecutor arguing on the government's behalf, any questions that appeared skeptical of the government's wiretap a pplication. But they let Ms. Millett argue for roughly double her allotted 15 minutes, suggestion they might have been receptive to her argument.

Mr. Rajaratnam's appeal centers on the propriety of the government's application to wiretap his cellphone. Given the privacy concerns raised by wiretap usage, the law requires that federal authorities obtain a judge's approval before employing electronic surveillance techniques during an investigation. There are narrowly prescribed conditions under a which a judge can approve a wiretap applications, including the requirement that the government demonstrate that other more conventional investigative procedures, like interviewing witnesses and reviewing documents, have tried and failed.

Ms. Millett said that the government misled the authorizing judge, Judge Gerard Lynch, by failing to disclose in its application that the Securities and Exchange Commission had been conducting a parallel civil investigation of Mr. Rajaratn am for a year and a half. The lack of disclosure, she said, showed a “reckless disregard for the truth” and made it impossible for Judge Lynch to do his job. She noted several other problems with the wiretap application, including the government's omitting that it has already subpoenaed individuals to appear before a grand jury and making false statements about the criminal history of a key witness in the case.

“You can't have this much wrong with an affidavit,” said Ms. Millett, a partner at Akin, Gump, Strauss, Hauer & Feld. “Full stop - that mandates suppression.”

Yet Judge Sack appeared to disagree with Ms. Millett and sympathize with the trial-court judge in the Rajaratnam case who allowed the wiretap evidence despite finding defects in the government's application. Judge Sack suggested that had Judge Lynch had known about the extent and length of the S.E.C. investigation, which had yet to yield substantial evidence of criminal conduct, there mig ht actually have been a better case for him to grant the wiretap application. A ruling on the appeal is expected in the coming months.

The government's use of wiretaps in the Rajaratnam investigation was historic, heralding a new chapter in criminal enforcement on Wall Street. Never before had court-authorized wiretaps been used to target significant insider trading. Ms. Millett reminded the judges of this on Thursday, noting that “for 75 years of the federal securities laws the government has used conventional means to investigate insider trading.”

Gamesmanship in Xstrata-Glencore Merger Vote

If nothing else, the executives at Xstrata, the Swiss mining giant, get marks for being clever.

On Thursday, the company set Nov. 20 as the date for a shareholder vote on its megamerger with trading behemoth Glencore. The vote has been structured in a way to maximize efficiency in the hope that $200 million in management retention payments are also approved. It's just part of the machinations intended to influence the voting on the largest deal of the year.

Xstrata shareholders initially objected to the low premium being offered by Glencore, which also owns 34 percent of Xstrata. On Sept. 7, Glencore, about to lose an Xstrata shareholder vote on the deal, raised the ratio it was willing to pay from 2.8 shares Glencore shares per Xstrata share to 3.05 Glencore shares. That valued the combined company at about $90 billion.

Some shareholders, led by Knight Vinke Asset Management and Threadneedle Investments are still objecting. In a letter to The Financi al Times on Sept. 14, Knight Vinke's head, Eric Vinke, wrote “we have been disappointed at the lack of robust independence exhibited by the board in the context of Glencore's hostile takeover bid.” For the understated English, words like “disappointed” are practically extreme rhetoric.

But Xstrata's board is not only coming under fire for selling to Glencore on the cheap. It is also being criticized for initially planning to pay large retention bonuses in the amount of $275 million to management.

In the newest iteration, Xstrata has reduced the aggregate by $75 million, primarily because Xstrata's chief executive, Nick Davis, will no longer head the combined group. Still, pay is a touchy topic in Britain these days and shareholders like the American asset manager BlackRock reportedly remain dissatisfied that the payment is not only too big, but misdirected. Xstrata has stated it needs to pay this amount to retain its mining experts, but about 15 of th e intended 72 recipients are central administration professionals, according to reports.

It is here where the voting games begin.

The initial deal required that the merger and retention package be approved together. But in a clever move bound to have its shareholders' heads spinning, Xstrata claims it has decoupled the two issues by separating out the vote.

The first question is a vote to approve or disapprove the retention pay package. The second, however, is in two parts. Shareholders are being asked to vote to:

Part I: Approve the merger and accept the compensation package.
Part II: approve the merger and reject the compensation package

Shareholders can vote yes or no on the first question and also yes or no for both parts of the second question. Critically, Xstrata is letting shareholders vote yes to both parts of question two.

This is important because if the first question (whether to approve the compensation package) is approved, then any votes made to approve the merger and reject the compensation package are disregarded and only votes to approve the merger and accept the compensation package are counted. If the first question is disapproved, then any votes made to approve the merger and accept the compensation package are disregarded and only votes to approve the merger and disapprove the compensation package are counted.

According to Xstrata, “this voting structure provides eligible Xstrata shareholders with the ability to vote against the resolution to approve the revised management incentive arrangements in the knowledge that a vote against the revised management incentive arrangements is not necessarily a vote against the merger.”

Really?

The problem is that if you want the merger to go through but don't want the incentive package, you are faced with a quandary. If the retention package is approved and you vote no on the merger and retention package, your vote won't count toward the 75 percent of shares needed to approve the merger.

The result may be that a merger you want does not happen because the necessary vote cannot be achieved.

This is a diabolical game of the prisoner's dilemma. As Institutional Shareholder Services wrote in a note to its clients this week, the only viable strategy if you want the merger to succeed is to vote yes for both parts of question two. Otherwise, you could be left with no merger and no compensation package. But such a vote almost ensures the passage of the retention package with the merger.

Xstrata claims that it has decoupled the vote on the merger from the compensation decision, but when you really look at it, the company appears to have just rejiggered it to push shareholders into accepting the package.

It may backfire on the company, however, if shareholders really do find the payments so objectionable they vote against their economic interests to have the merger ap proved. This is yet another test of attitudes on compensation in Britain.

Even without this gamesmanship, Xstrata faces an uphill battle. To win, Xstrata must have the deal approved by 75 percent of the shares not held by Glencore.

This effectively means that holders of 16.5 percent of Xstrata's shares can block the deal, itself an opening for more maneuvering. And here, the government of Qatar with 12 percent of Xstrata's shares becomes the real player. It will determine whether this deal goes through.

Those in favor of the deal cheered when Prime Minister Sheikh Hamad bin Jassim bin Jabr al-Thani of Qatar, stated cryptically that “We're looking in favor of doing something between the two companies,” taking this for a sign of support. But still there is no express statement and previously Qatar had said it would back an offer at a ratio of 3.25 Glencore shares.

The real question is whether Xstrata can be sold to anyone else and if so, wheth er Glencore is underpaying. Xstrata is important to Glencore for its cash flow but other huge mining conglomerates may also be interested. Vale, the Brazilian mining company, reportedly had discussions to buy Xstrata in 2008. Whether Vale would be willing to bid again is unknown, as is whether there is anyone out there who can compete to buy Xstrata or whether it is more valuable for Xstrata to stay independent. But with Glencore the only deal on the table Xstrata seems to be willing to pursue, these are questions left unanswered.

Instead, as this deal heads to another vote, it is stuck in the land of voting gamesmanship.

Mayer Strikes First Deal at Yahoo With Acquisition of Stamped

Marissa Mayer promised earlier this week that Yahoo‘s deal-making would likely revolve around smaller add-on acquisitions. On Thursday, she proved that she meant what she said.

The Internet company announced that it had purchased Stamped, a start-up focused on mobile products, for an undisclosed amount. The deal amounts to an “acqui-hire,” Silicon Valley's term for buying a start-up for its talent.

The Stamped deal fits into two major initiatives that Ms. Mayer, Yahoo's chief executive, mentioned on the company's earnings call on Monday. One was a focus on smaller deals, none of which was likely to be blockbuster-sized.

“Many acquisitions and most acquisitions, a vast majority, are less than $100 million,” she told analysts on the call. “And so we're looking for smaller-scale acquisitions that align well overall with our businesses.”

The other is a race to build up Yahoo's mobile offerings, an area that she described as lacking at the current company.

“While we've made progress, Yahoo hasn't capitalized on the mobile opportunity,” she said. “We haven't effectively optimized our Web sites, we've underinvested in our mobile front-end development and we've splintered our brands.”

Buying Stamped is intended to help address those issues. The company produced an app that centered on recommendations of restaurants, music and other by users. Its investors included Bain capital Ventures and Google Ventures, and its advisers included Mario Batali and the Instagram co-founder Kevin Systrom.

“Their experience building fun, useful, personalized mobile products aligns well with Yahoo!'s vision to create the best everyday mobile experience for our users,” Adam Cahan, a Yahoo senior vice president of emerging products and technology, wrote in a blog post on Thursday. “They will be a great asset as we expand Yahoo's mobile efforts and build a world-class mobile development organization.”

For its part, Stamped's team - composed in large part of former employees of Google, like Ms. Mayer - wrote in their own blog post: “As entrepreneurs, it's never easy to walk away from something you built from the ground up, but the folks we met with at Yahoo! are simply top-notch and we're thrilled to be joining them!”

A Windows 8 Cheat Sheet

October 25, 2012, 3:08 pm

In my New York Times column on Thursday, I pointed out that Microsoft's new Windows 8 feels like two operating systems in one. There's the traditional desktop Windows, best for mouse and keyboard, and the new TileWorld (as I call it), best for touch screens.

Why “best”? Because desktop Windows has tiny buttons, menus and controls that are generally too small for finger manipulation, and TileWorld is filled with gestures that make sense only on touch screens.

If you install Windows 8, you'll have to learn both environments, like it or not; you can't live in just one environment or the other. So the question arises: how are you supposed to operate TileWorld if you have a nontouch computer?

Answer: There are mouse and keyboard equivalents for the touch gestures.

Surprisingly, you have to dig around a bit online to find out what they are. So here, for the benefit of Windows 8 adopters, is your centralized cheat sheet: all of the most important touch/mouse/keyboard shortcuts for Windows 8.

Open the Start screen. The colorful rectangular tiles that make up the new Start screen are easy to reach.

Touch screen: Swipe your finger into the screen from the right border to make the Charms panel appear (described next); tap Start.

Mouse: Point to the lower-left corner of the screen; when the Start screen icon appears, click.

Keyboard: Press the Windows key.

Many new tablets and laptops have a dedicated Windows-logo button under the screen. Pressing it also opens the Start screen.

Open the Charms panel. The Charms menu is a thin vertical panel of important icons like Search, Share, Start and Settings.

Touch screen: Swipe your finger into the screen from the right border.

Mouse: Point to the top right corner of the screen.

Keyboard: Press the Windows key+C.

You can also jump directly to one of the buttons on the Charms panel.

Share button: Windows+H

Settings button: Windows+I

Devices button: Windows + K

Open the App menu. Programs designed for TileWorld often have a few options, represented as icons in a hidden horizontal bar. In Internet Explorer, for example, this bar shows all your open browser tabs.

Touch screen: Swipe into the screen a short distance from the top or bottom of the screen.

Mouse: Right click anywhere in the window.

Keyboard: Press the Windows key+Z.

Next app. Here's how you jump from one TileWorld app to the next. (The Desktop, and all of its own programs, are represented as one jump.)

Touch screen: Swipe into the screen from the left border.

Mouse: Point to the upper left corner of the screen.

Keyboard: Press and release the Windows key+Tab.

App Switcher. In regular Windows, Alt+Tab (and hold down the Alt key) shows you a little dashboard displaying the icons of all open programs, so you can jump directly to the one you want.

Touch screen: Swipe into the screen from the left border, then back out again. A vertical column of open app icons appears.

Mouse: Point to the lower left corner of the screen.

Keyboard: Press Windows key+Tab, but keep the Windows key pressed.

Or press Alt+Tab (hold down Alt) as you always have. That brings up the traditional horizontal row of open-app icons. This app switcher includes open desktop apps (traditional Windows apps).

Split the screen between two apps. This feature made its debut with Windows 7; it lets you split your screen between two programs' windows.

Touch screen: Swipe your finger slowly into the screen from the left or right border. Or swipe down from th e top edge, then to right or left.

Mouse: Drag a window's title window to the left or right side of the screen until its outline changes to a full-height, half-width window. Release.

Keyboard: Press Windows key plus the left or right arrow key.

Close an app. Here's how to exit a program in TileWorld.

Touch screen: Swipe down from the middle of the top border, almost all the way down the screen.

Mouse: Point to the top of the window to make the grabber handle appear; drag it all the way down the screen.

Keyboard: Press Alt+F4.

Right click. In Windows, right clicking an item summons a shortcut menu - a short menu listing commands relevant only to the object you clicked. In Windows 8, that menu takes the form of a horizontal strip at the bottom of the Start screen, offering options like Uninstall and Unpin (from the Start screen).

Touch screen: Swipe down from a tile on the Start screen.

Mouse: Right click, of course.

Keyboard: Press the little menu key.

Zooming in or out. To magnify or shrink your view of a photo, map or Web page, proceed like this:

Touch screen: Spread or pinch two fingers on the screen, just as on an iPad.

Mouse: While pressing the Ctrl key, turn your mouse's scroll wheel.

Keyboard: Press Ctrl and the + or â€" key.

Zooming fully out. On the Start screen, you can zoom out so far that your tiles become little icons; in this mode, you can group them or move them en masse.

Touch screen: Pinch two fingers on the screen.

Mouse: While pressing the Ctrl key, turn your scroll wheel. Or point to the bottom right, and then click the Summary View icon that appears. (To zoom out again, click any blank area.)

Keyboard: Press Ctrl+the minus key.

Search for files or settings. The new TileWorld Search command requires that you specify what you're looking for: an app, a file and so on. But there are shortcuts for file searches and s ettings searches.

Touch screen: Swipe in from the right border; tap Search; tap Files or Settings.

Mouse: Point to the top right corner of the screen; tap Search; tap Files or Settings.

Keyboard: Press the Windows key+F for files, Windows key+Q for settings.

Search for apps. This one's really best with the keyboard: you can jump to an app on the Start screen, even if it's several horizontal scroll-pages away.

Touch screen: Swipe in from the right border; tap Search.

Mouse: Point to the top right corner of the screen; tap Search.

Keyboard: At the Start screen, just start typing.

External monitor/projector options. Do you want your main screen mirrored on the external screen, or extended onto it? You can open a handy panel that lists your options.

Touch screen: Swipe in from the right border; tap Devices; tap Second Screen.

Mouse: Point to the top right corner of the screen; tap Devices; tap Second Screen.

Keybo ard: Press Windows key+P.

David Einhorn Continues His Take Down of Fed Policy

It's David Einhorn versus the Fed.

Mr. Einhorn, the head of Greenlight Capital, is known for his contrarian views, but rarely have his foes been as powerful as the Federal Reserve. The hedge fund manager says the central bank's loose-money policy is hindering economic growth, an argument he expanded on during a conference in New York on Thursday.

“We would be way better off if we did pretty much the opposite of the current monetary policy,” Mr. Einhorn said, at the Buttonwood Gathering, hosted by The Economist magazine.

Policy leaders, he said, are engaged in a “reflexive groupthink” in support of the Fed's efforts. Although prominent economists have endorsed the Fed's policy, Mr. Einhorn said that his job as an investor was to “figure out how people actually behave.”

Mr. Einhorn insisted that the Fed, by keeping interest rates near zero, was hurting savers and therefore stifling spending and other economic activity. His argument on Thur sday echoed the critique of the Fed in Greenlight's latest quarterly letter, which compares recent central bank policy to American Express cards.

Mr. Einhorn has been building this argument for some time. In May, he said in a blog post on The Huffington Post that the Fed's easy money was like an excess of jelly doughnuts.

Ben S. Bernanke, the Fed chairman, tackled some of these arguments during a news conference last month, saying rising stock prices that come with quantitative easing tend to make people feel wealthier.

But on Thursday, Mr. Einhorn said Mr. Bernanke's argument took its own conclusion for granted: namely, that the Fed's policy promoted growth.

With the Fed pledging to continue on this track for the foreseeable future, Mr. Einhorn's firm has stuck with “a large allocation to gold,” according to the investor letter. Gold made a “material contribution” to the firm's performance in the quarter, the letter said.

Other hedge fu nd managers also took contrarian views as well in other sectors.

Hugh Hendry, who runs the London-based Eclectica Asset Management, offered bearish views on China and Japan when he spoke earlier in the day. Calling himself an “existentialist” and a “student of uncertainty,” Mr. Hendry said he was long gold and short the Standard & Poor's 500-stock index.

Others like John A. Paulson, also have a penchant for gold and and a tendency toward gloom. But Mr. Hendry takes it a step further. “I'm here to tell you that God is dead,” he said on Thursday, referring to the principles of Albert Camus. “I'm sorry about that.”

He suggested that the public nature of the conference was preventing him from speaking freely.

“Am I sitting here with video cameras saying the Chinese economy is going to contract 23 percent? Of course I'm not,” he said. “But if we have a coffee later, I might say something different.”

New Taxes on Global Reinsurers Would Hurt Response to Natural Disasters

J. David Cummins is a Professor at Temple University's Fox School of Business. Bradley Kading is the President of the Association of Bermuda Insurers and Reinsurers.

After disasters like earthquakes in California and hurricanes along the coast of the Gulf of Mexico, the public face of recovery often is the insurance companies. Just as important to ensuring this sector's survival are the reinsurers that provide backup insurance coverage, particularly in high-risk areas.

But legislation proposed by Representative Richard Neal, Democrat of Massachusetts, and Senator Robert Menendez, Democrat of New Jersey, would impose punitive taxes that will drive up the costs for consumers and businesses. A similar proposal is also included in President Obama's budget for the 2013 fiscal year.

The Neal-Menendez bill, H.R. 3157 and S. 1693, is intended to reverse current policies that allow insurance companies based in the United States to claim a deduction as an ordinary business expense on their corporate tax return for the amount of reinsurance premiums paid to a foreign affiliate. The net effect of this legislation, however, would impose a costly tariff on international reinsurance firms.

Aiming at global insurance companies with these taxes would be disastrous for areas vulnerable to natural calamities. An economic impact study prepared on behalf of an insurance industry coalition by the Brattle Group, a leading economic consulting firm based in Boston, found that the proposed tax would reduce the net supply of reinsurance in the United States by 20 percent. American insurers depend heavily on international reinsurers for nearly two-thirds of their backup catastrophe coverage, with insurers based in Bermuda providing 40 percent.

A new tax that restricts the supply of reinsurance is bad for consumers. For example, in 2005, Hurricane Katrina caused total losses of $125 billion. Insured losses amounted to $62.2 billion, with for eign insurers and reinsurers paying more than 60 percent. Similarly, in the aftermath of the 2001 terrorist attacks on New York, international insurance and reinsurance firms paid 64 percent of the estimated $27 billion in United States payouts for the claims.

As we learn in Economics 101, reducing the supply of something raises its price. The Brattle Group study estimates that the proposed tax would increase the price of insurance in the United States by 2.1 to 2.4 percent and up to 9 percent in some industries. To maintain their level of coverage, consumers across the county would have to pay a total of $11 billion to $13 billion more annually. Furthermore, because of the design of the proposed tax, it would significantly disrupt insurance markets, yet fail to raise much revenue.

With the potential losses from extreme weather on the rise, the need for global reinsurance will continue to expand. A recent report by the catastrophe risk management firm Karen Clark & Company, based on an analysis of more than a century of hurricanes, warns that the United States can expect insured losses of at least an average of $10 billion from a hurricane every four years.

Though reorganizing United States business to avoid the proposed tax may seem like the simple solution, many sound business policies have led several global reinsurers to be started in Bermuda. The regulatory environment there provides a speedy license process, which is supervised by a respected independent regulator, the Bermuda Monetary Authority.

Even risk-averse capital providers are comfortable with Bermuda's government and its economic environment.

And Bermuda's low-tax environment allows reserves to be built up to cover the huge disasters. Low taxes for reinsurers doesn't mean “no tax” - all United States-to-Bermuda transactions are subject to a special federal excise tax, which goes into the Treasury's coffers.

Far from being a “tax haven,” Bermuda has helped the reinsurance industry develop excellent best practices, innovate to better serve customers and establish highly regarded enterprise risk management programs. This attention to detail helps the major reinsurers retain their important credit ratings, better meet shareholder expectations and demonstrate resilience to global customers. During the worst days of the financial crisis, the Bermuda Monetary Authority tested its reinsurers to determine whether they could still meet their promises if large catastrophic losses occurred. The reinsurers passed these tests, with flying colors.

Bermuda's insurance regulation meets or exceeds standards used by state insurance regulators in the United States. Bermuda's insurance regulator meets international regulatory standards and is regularly measured against the standards by the International Monetary Fund. Bermuda's financial regulators have cooperation agreements in place with many American and international agencies, with more negotiated every day. In addition, European regulators have assessed Bermuda for equivalency with its own new solvency regulation regime.

Moreover, the Departments of Justice, State and Treasury have all cited Bermuda's government as a cooperative partner and the United States has two tax law enforcement treaties with Bermuda. Many federal and state agencies in the United States have said that Bermuda's government is a cooperative partner in many areas, including financial regulation, protection of sensitive marine environments, anti-money-laundering measures and tax law enforcement.

With the increased threat of natural disasters, the United States needs a robust insurance market that is open to as many competitors as possible and encourages direct foreign investment - including Bermuda. Establishing a punitive tax that restricts global risk-spreading will increase consumer costs and take away from the pool of money needed for the unforese en hurricanes, earthquakes and other catastrophes that cannot be handled with traditional insurance alone.

The Shift Toward Law School Specialization

The twilight of the generalist law degree is here.

As Peter Lattman reported last week, New York University School of Law is retrofitting its third-year curriculum to allow for increased specialization. Options include advanced study in areas like tax or corporate law, working in Washington at a federal agency or foreign study in Buenos Aires, Paris or Shanghai.

While the study-abroad aspect of the program has received much of the attention, the heart of the proposal is an important shift toward specialization.

In the traditional model of legal education, schools offer a general professional degree in law. No majors or concentrations. Schools provide a strong foundation of legal analysis and grounding in the common law, on the assumption that law firms will teach new associates the specifics of what they need to practice law, whether that means drafting deal documents or taking a deposition.

In the emerging model, law students must add on a degree, certificate or other indication of readiness to engage in a particular practice area or industry. N.Y.U.'s strategy committee described this goal as providing “professional pathways that prepare students to operate in a world that demands increasing specialization.” (Full disclosure: I was a visiting professor of law at N.Y.U. in 2010.)

Law schools, like most established enterprises, change only when they have to. In this case, the ripples of change arising from the segmentation of the market for legal services have been felt by corporate clients, law firms and law schools.

Corporate clients are more savvy, sophisticated and cost-aware. Routine legal work is increasingly outsourced offshore, outsourced to contract attorneys or performed by professionals who do not have a Juris Doctor degree.

Law school graduates who fail to land one of the shrinking number jobs at big law firms find themselves moving down-market to small law firms for low pay, or compet ing with college graduates and M.B.A.'s for jobs in compliance, risk management or business development.

Law firms are struggling with the new normal of a segmented industry. The new economics of the profession are marked by increased lateral mobility among partners, increasing numbers of nonequity partners, increased client scrutiny of fees and a decrease in the routine legal work that used to support the pyramid model. As a result, it is harder for law firms to devote nonbillable time to training entry-level associates. Law graduates are expected to arrive knowing more than just how to “think like a lawyer.” The tricky part for law schools is trying to figure out what, exactly, they need to know.

In my view, law schools should play matchmaker, guiding students toward specialties that are likely to endure. Big firm attorneys in some practice areas will continue to have a comparative advantage over low-cost attorneys, in-house lawyers and other professionals. One area is bet-the-company litigation, where high stakes justify high fees. Another is mergers and acquisitions and securities work, where, in addition to negotiating and drafting documents, lawyers usually quarterback the deal to closing. A third area is any practice that demands highly specialized legal and regulatory knowledge, like bankruptcy, tax and financial regulation. The knowledge required is intrinsically legal and cannot be easily moved offshore or outsourced to nonlawyers or contract attorneys.

N.Y.U.'s shift toward specialization is more significant than it might appear. The school's lawyering program, which is mandatory for all first-year law students, will now include a module on business and financial literacy. N.Y.U. is also introducing an upper division course that will provide an introduction to statistics, accounting and quantitative analysis, which may be followed with additional courses on deals.

Other schools ought to consider a full fir st-year deals course, which could also provide a more comprehensive introduction to accounting and finance. But the first-year curriculum is the third rail of law school faculty politics â€" adding a smidgen of finance to the One-L curriculum is comparable to means-testing Social Security. It's a big step.

Brian Leiter, a well-respected scholar and leading figure in legal education, criticized this aspect of the N.Y.U. plan, noting that the financial literacy course “seems an important kind of course to make available to law students, but to require it seems to involve an assumption about career paths that isn't warranted.”

Few law students go into academia or become public defenders. But the more common narrative is for law students to arrive at law school with a vague notion of doing international or environmental law, then meander aimlessly around the curriculum. Eventually, realizing that gainful employment is probably a good idea, they find themselves in a job interview wondering what in the world a bond covenant is. At that point, offering an elective course in accounting and finance is too little, too late.

Tax can serve as a model for this shift toward specialization. The tax L.L.M., or Master of Law degree, is perhaps the one example of specialized legal education that has already proved successful for both schools and students, at least at the top programs. A tax L.L.M. builds on foundational law school training (unlike a master's degree in tax accounting), and it signals a breadth and depth of tax knowledge that cannot be readily provided by low-cost competitors. Even as the number of large law firm jobs has declined, tax L.L.M.'s have the option of competing for good jobs in accounting firms. Several schools now offer three-year J.D.-tax L.L.M. programs.

Could the same approach work in other areas of law that demand specialized legal expertise, like securities law, banking law or patent law? The critical question is whether there is sufficient market demand to supply an adequate number of jobs with six-figure salaries.

Promising areas are government relations, energy and regulated industries, health care, telecommunications and intellectual property, and financial regulation. There is a risk that schools will guess wrong on this question, leaving students with a useless certification. But the alternative to specialization is the status quo.

And the one thing we do know from the data is that private sector demand for smart but financially illiterate law graduates with a general professional degree and no particular industry expertise is, to say the least, dwindling.

None of this solves the broader problem at nonelite schools: the supply of law graduates simply exceeds market demand. The median salary of law school graduates at many schools is about $50,000, while average debt load is now over $100,000. As specialization takes hold, the next logical step is to lobby the American Bar Association to make the J.D. a two-year degree, with an optional third year of specialization for schools where that makes sense.

*****

For further reading on the current state of legal education, see Brian Z. Tamanaha's “Failing Law Schools” (University of Chicago Press, 2012).

Victor Fleischer is a professor at the University of Colorado Law School, where he teaches partnership tax, tax policy and deals. Twitter: @vicfleischer

Chevron, Intent on European Shale Gas, Buys Lithuanian Stake

LONDON - Chevron, the second largest U.S. oil company, after Exxon Mobil, said Thursday it had acquired a 50 percent stake in a privately held Lithuanian oil and gas exploration company, LL Investicijos.

Chevron, among the most active of the major companies in pursuing shale gas in Europe, said it was attracted to the exploration acreage controlled by Investicijos. The acquisition “fits in with Chevron's regional strategy,” Derek Magness, director general of Chevron's onshore European operations, said in an interview.

“We believe Lithuania is going to be a good host government,” Mr. Magness added, because it needs to develop its hydrocarbon resources for energy security. Lithuania is currently wholly dependent on Russia to supply its natural gas.

At a news conference Thursday, the Lithuanian Prime Minister Andrius Kubilius said he welcomed the Chevron investment, calling it “a significant event” because Lithuania had substantilal shale gas reserves to tap, Reuters reported.

Terms of the deal were not disclosed. Mr. Magness said Chevron would probably increase its stake in the future.

Shale gas, extracted through the environmentally controversial method of hydraulic fracturing, or fracking, has transformed the U.S. natural gas market. Mr. Magness is leading Chevron's shale gas exploration efforts in Europe.

The company has identified a belt across Europe from the Baltic countries to the Mediterranean that it predicts may hold large accumulations of extractable shale gas. It has already acquired roughly four million acres of exploration acreage in Poland and Romania. Chevron is also negotiating a production-sharing contract in Ukraine and is trying to coax Bulgaria into lifting its moratorium on shale gas drilling.

Mr. Magness says that so few wells have been drilled in most eastern European countries that it is almost impossible to assess the size of the potential resources or whether they are commercially exploitable at all.

Exxon Mobil stopped drilling in Poland earlier this year after just two wells. “The information strongly suggested it wasn't going to be commercially viable,” Tristan Aspray, Exxon Mobil's Greenland operations manager, said in an interview. But he emphasized that Exxon's view applied only to the area where it drilled - not the rest of the country.

Mr. Magness said he and his colleagues, in their hunt for data, have clambered around “in torn jeans” in the dusty repositories of state geological services trying to find old paper records of wells and rock cores. Chevron has drilled two wells on its Poland concessions and is planning to begin another soon.

The company is also planning to reopen one of the earlier wells, in southeast Poland, to perform further tests. Mr. Magness said that what he had found in the early efforts was enough to interest him in investing more time and money. “I am not seeing anything that would tell me to pull the drill bit up and go away,” he said.

Because of fears that the extraction method could pollute drinking water, several European countries, including France, have barred fracking in their territories, despite indications of promising shale gas deposits. Exxon Mobil temporarily halted drilling in Lower Saxony in Germany in deference to local opposition.

Stephan Singer, energy policy director for the World Wild Life Fund in Brussels said that the concerns about hydraulic fracturing included the large volumes of water that it uses for shale gas operations. Another worry: that fracking would damage geological formations, turning them into “a leaky swiss cheese” unsuitable for storing carbon dioxide in the future, as environmental groups hope.

Environmentalists also worry fear that tapping into huge troves of gas will lead to an enormous new volume of carbon dioxide emissions in the atmosphere, Mr. Singer said.

Mr. Magness, a crew-cut New Orleans native, contends that persuasion and data can overcome the environmental resistance. But Chevron has encountered protesters in Poland, including people blocking roads to its drill sites.

“We need to sit down and talk to folks and not have them put themselves in harm's way,” he said.

He said he was confident that a case could be made to at least some European governments that shale gas could bring them major benefits in terms of jobs and energy security. A big selling point is that successful development of shale gas would lessen the dependence of former Soviet satellites like Poland on gas imports from Russia's Gazprom monopoly.

Easing dependence on Russian gas is perhaps the strongest argument in the oil companies' arsenal when they approach countries in eastern Europe about shale gas. Europe received a painful reminder of this dependence in the winter of 2009 when a pricing dispute between Gazprom, the Russian gas export giant, and Ukraine led to a three week cutoff of gas that left hundreds of thousands of people without heat.

In addition, the European Union recently opened an investigation into whether the Russian export monopoly Gazprom blocks fair competition in the natural gas markets of Central and Eastern Europe. Gazprom raised strong objections to the investigation.

“It is incumbent on us to show a government what is there,” he said. “Once people know what is there we can have a conversation about developing it.”

A version of this article appeared in print on October 26, 2012, in The International Herald Tribune.

Business Day Live: U.S. Accuses Bank of America of a \'Brazen\' Fraud

Prosecutors sue Bank of America over bad loans. | The inventor James Dyson on patent infringements. | Zynga plays a game called survival.

Evercore\'s 3rd-Quarter Profit Drops 13%

Evercore Partners‘ third-quarter profit slipped 13 percent in the quarter from the same time a year ago, as the investment bank grappled with a slowdown in its advisory and investment management businesses.

The firm reported $17.3 million in adjusted pro forma net income from continuing operations, or about 40 cents a share. That still handily beat the average analyst estimate of 33 cents a share, according to Standard & Poor's Capital IQ.

Firms that specialize in deal advisory, like Evercore and Lazard, have been seeking ways to grapple with a slower mergers environment. Despite the absence of blockbuster transactions, however, Evercore said that it had found ways to increase its share of the M.&A. market.

The firm advised on deals like the spinoff of the Kraft North American grocery business from what is now known as Mondelez International, as well as MetroPCS in its proposed takeover by T-Mobile USA.

“We are pleased with our third quarter res ults, reporting our third best quarter for revenue on sustained strong performance in our advisory business,” Ralph Schlosstein, Evercore's chief executive, said in a statement.

Still, the firm's investment management division posted a 15 percent drop in revenues for the quarter, with lower operating margins and a 2 percent quarter-on-quarter decline in assets under management. Much of that came from lower revenue in the division's core institutional asset management operation.

Evercore also said that it continued to hold the line on expenses, with its compensation ratio falling slightly to 60 percent.

A Big Insider Trading Scalp, and a Challenge

A BIG INSIDER TRADING SCALP - AND A CHALLENGE  |  Rajat K. Gupta, the most prominent person to be convicted in the government's insider trading crackdown, was sentenced to two years in prison on Wednesday for leaking boardroom secrets to the fallen hedge fund titan Raj Rajaratnam. But on Thursday, a fundamental part of the government's broad investigation will be challenged by lawyers for Mr. Rajaratnam.

The question is whether the government should have been allowed to use a wiretap in going after Mr. Rajaratnam. His lawyers, who are to make arguments on Thursday before a panel of three judges, say the government misled the judge who signed off on the tactic. Some respected legal experts, including eight former federal judges, have sympathized with that argument. Still, as DealBook's Peter Lattman notes, a ruling in Mr. Rajaratnam's favor is considered a long sh ot.

In any event, the decision will have implications for Mr. Gupta, a former Goldman Sachs director, who got a $5 million fine in addition to the prison sentence. His punishment was less harsh than the government had wanted, reflecting Judge Jed S. Rakoff's view that Mr. Gupta was “a good man.” Judge Rakoff said: “The court can say without exaggeration that it has never encountered a defendant whose prior history suggests such an extraordinary devotion, not only to humanity writ large, but also to individual human beings in their times of need.”

 

BANK OF AMERICA SUED, AGAIN  | 
The housing market crashed five years ago, but the lawsuits keep coming. In a new complaint against Bank of America on Wednesday, federal prosecutors claim the bank's Countrywide Financial unit defrauded Fannie Mae and Freddie Mac by selling troubled loans, and are seeking at least $ 1 billion in penalties. For Bank of America, which recently reached a $2.4 billion settlement related to its purchase of Merrill Lynch, the lawsuit is the latest headache stemming from the financial crisis. Recently, similar cases have been piling up. “There's no central traffic cop,” Dan Hurson, a former federal prosecutor who now defends securities cases, told DealBook's Ben Protess.

 

EUROPEAN BANKS PLAY DEFENSE  | 
Two big banks in Europe, Credit Suisse and Banco Santander, reported lower profit in the third quarter, as they continued to build up their defenses against the Continent's debt crisis. Banco Santander, which reported a 94 percent drop in quarterly profit, set aside more money to cover potential real estate losses. It said net income in the quarter was 100 million euros, compared with 1.8 billion euros in the period a year earlier. Shares of the Spanish bank rose slightly in trading in Madrid on Thursday.

For Credit Suisse, the 63 percent drop in quarterly profit reflected a charge related to the value of its debt. Profit totaled 254 million Swiss francs in the quarter, compared with 683 million francs in the period a year earlier. The bank said it was strengthening its capital in response to concerns from Switzerland's central bank.

 

NEW BOARD FOR BARCLAYS?  |  The incoming chairman of Barclays, David Walker, is cleaning house, according to The Financial Times. When Mr. Walker joins the troubled bank in November, he plans to carry out “a clean sweep” of the board and replace “some key executive positions,” The Financial Times says. Mr. Walker has “spent recent weeks sounding out a selection of top figures over their suitability to join the bank in a variety of roles,” according to the newspaper.

 

ON THE AGENDA  |  Two technology giants, Apple and Amazon, report earnings after the market closes on Thursday. The Economist's Buttonwood Gathering goes into its second day at the National Museum of the American Indian in Manhattan, with some prominent speakers on the schedule. Marc Lipschultz, global head of energy and infrastructure at K.K.R., is on a panel at 9 a.m. Philipp M. Hildebrand, former head of Swiss National Bank who recently moved to BlackRock, is on a panel with Lawrence Summers at 10:15 a.m. Hugh Hendry, chief investment officer of Eclectica Asset Management, is being interviewed at 11:30 a.m. And David Einhorn of Greenlight Capital, who announced his latest short thesis this month, is being interviewed at 12:45 p.m. Bloomberg Link is hosting its Dealmakers Summit at the Signature Theatre, with Jim Millstein and Wilbur L. Ross Jr. appearing on a panel at 9:05 a.m. Donal d J. Gogel, head of Clayton, Dubilier & Rice, is being interviewed at 10:15 a.m. Glenn Hutchins of Silver Lake is being interviewed at 1:55 p.m. Economic data for September to be released on Thursday include durable goods orders at 8:30 a.m. and pending home sales at 10 a.m. Kweku Adoboli, a former UBS trader accused of fraud and false accounting related to a $2.3 billion loss, is to appear in court in London.

 

BEST BUY SHUFFLES MANAGEMENT  |  Best Buy is making another attempt to turn itself around, as it faces the possibility of a buyout bid. The retailer said on Thursday that it was eliminating some management positions, including president of its United States business. One analyst, Carol Levenson, director of research at Gimme Credit, told Bloomberg News that the changes seemed like “too little too late.” Richard M. Schulze, the founder, offered to buy the company thi s summer, and is now trying to amass financing for a bid. He may gain an advantage if Best Buy posts another weak quarter. The company warned on Wednesday that third-quarter profit, to be reported Nov. 20, would be “significantly” below the quarter a year earlier.

 

 

 

Mergers & Acquisitions '

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. DealBook '

 

In Tech, Small Deals Are the Norm  |  Marissa Mayer's strategy for Yahoo fits a broader trend in the industry, The Wall Street Journal writes. WALL STREET JOURNAL

 

Cnooc Holds Out Hope for Nexen Bid  |  “We still expect to get the approval by the end of the year,” Cnooc's chief financial officer told reporters. REUTERS

 

Bumi's Partners Approach a ‘Divorce'  |  “Indonesia's Bakrie family has agreed in principle to pay compensation to coal tycoon Samin Tan for his soured $1 billion investment in their joint stake in Bumi,” Reuters reports. REUTERS

 

General Motors Looks to Buy Stake in Its South Korean Unit  | 
REUTERS

 

INVESTMENT BANKING '

Bank of China Profit Rises 17% on Loan Growth  |  The first of China's biggest banks to report quarterly earnings recorded a strong rise in profit on growth in new loans. DealBook '

 

Visa Names JPMorgan's Scharf as Its New Chief  |  Charles W. Scharf, a former head of JPMorgan Chase's vast retail arm, will take over as Visa's chief executive once Joseph W. Saunders, the company's current leader, retires next year. DealBook '

 

A New Job for Knight Capital's Chief?  |  Thomas Joyce of Knight Capital has told his board that he had “preliminary talks regarding the C.E.O. post” at E*Trade Financial, The Wall Street Journal says. WALL STREET JOURNAL

 

At Goldman Sachs, Self-Flagellation  |  Lloyd C. Blankfein told CNBC about Goldman's response to Greg Smith's book, saying the firm is adept at self-criticism. “Nobody can flagellate themselves as well as Goldman Sachs can,” he said. CNBC

 

Buffett Adds to Wells Fargo Stake  |  Warren E. Buffett told CNBC he bought more shares of Wells Fargo in the last week. CNBC

 

PRIVATE EQUITY '

Buyout Firms Increase Focus on Southeast Asia  |  Moves by the Carlyle Group and K.K.R. show their “increasing interest in one of the world's most promising, but complicated, emerging markets: Indonesia,” The Wall Street Journal writes. WALL STREET JOURNAL

 

K.K.R. Sees Opportunity in Europe  |  Henry Kravis of K.K.R. said at a news conference on Thursday, according to Reuters: “We are not in any way writing off Europe. In fact, we are putting money to work there.” REUTERS

 

Cerberus Is Said to Consider Breakup of Supervalu  |  Reuters reports: “A sale of Supervalu Inc. heralds an eventual breakup of the far-flung supermarket operator, with its diverse brands and assets sold to rival supermarket chain operators and private equity firms, according to people familiar with the matter.” REUTERS

 

HEDGE FUNDS '

Tax Havens Consider Raising Taxes  |  In the Cayman Islands, the Bahamas and elsewhere, officials are confronting growing deficits and debt burdens “that rival Greece,” Bloomberg News reports. BLOOMBERG NEWS

 

One Hedge Fund, Disparate Political Ties  |  Renaissance Technologies is home to James H. Simons, a big Democratic donor, and Robert L. Mercer, who has given to Republicans. WASHINGTON POST

 

Hedge Funders Enter the Boxing Ring for Charity  | 
BLOOMBERG NEWS

 

I.P.O./OFFERINGS '

Facebook Posts Its Biggest Single-Day Gain  |  Investors were quite pleased with Facebook on Wednesday, sending its shares up about 19 percent. NEW YORK TIMES BITS

 

Zynga Revenue Beats Gloomy Expectations  |  The game company Zynga said it generated $317 million of revenue in the third quarter, more than in the period a year earlier and more than analysts were expecting. Its battered stock price rose in after-hours trading. NEW YORK TIMES

 

VENTURE CAPITAL '

Venture Capital Dollars Growing Scarce  |  According to new data, comp anies “that rely on venture capital investment to expand their businesses and hire employees have struggled to raise money this year,” The Washington Post reports. WASHINGTON POST

 

LEGAL/REGULATORY '

A Housing Regulator's Days May Be Numbered  |  Edward DeMarco, the director of the of the Federal Housing Finance Agency, has clashed with the White House on various issues. Now, The Financial Times reports that “senior White House officials” have been “quietly telling housing industry activists in recent weeks that he will be replaced” if the president is re-elected. FINANCIAL TIMES

 

Wall Street Leaders Peer Into Economic Gloom  |  At the Buttonwood Gathering , hosted by The Economist magazine, it was clear that executives were contending with a world that is not easy to figure out. DealBook '

 

Oops! Can I Take Back That Earnings Release?  |  Just a few days after Google's earnings were inadvertently released ahead of schedule, Dow Chemical and Daimler both found themselves in similarly awkward positions. DealBook '

 

Federal Reserve Stays the Course  | 
NEW YORK TIMES

 

Study Finds Illinois Debt Hinders Services  | 
NEW YORK TIMES

 

French T rader Vows to Keep Fighting  |  After a judge upheld the conviction and prison sentence for Jérôme Kerviel, a former Société Générale trader, he told a radio station that he would appeal the decision to France's highest court. NEW YORK TIMES

 

Peugeot to Receive State Assistance  |  PSA Peugeot Citroën is receiving state credit guarantees from France that will help it strengthen its finance unit. NEW YORK TIMES

 

Judging if Wiretaps Are Necessary

“Necessity” is a simple word that means “an imperative requirement or need for something.” In Raj Rajaratnam's appeal of his convictions for conspiracy and insider trading that will be heard on Thursday by the United States Court of Appeals for the Second Circuit, the critical issue will be whether the government established that it needed to use wiretaps because other avenues of investigation were not fruitful.

Under the federal Wiretap Act, the government must demonstrate that the necessity of using a wiretap by providing a federal district judge with “a full and complete statement as to whether or not other investigative procedures have been tried and failed or why they reasonably appear to be unlikely to succeed if tried or to be too dangerous.”

Congress put this requirement into the law to ensure that wiretaps were not a first choice for investigating a case because they involve such a significant invasion of privacy.

If a wiretap was not properly authorized, the statute prohibits using the evidence at a trial. For Mr. Rajaratnam, that would lead to reversal of his convictions because the wiretaps were crucial to proving the case.

In addition to Mr. Rajaratnam's filings, a group of eight former federal judges submitted a brief arguing that the wiretap evidence should be suppressed because the government's inadequate disclosure in the application resulted in a significant invasion of privacy. Known as an “amicus curiae,” or “friend of the court” brief, it may carry some weight with the appeals court because these are former colleagues on the federal bench â€" which certainly gives Mr. Rajaratnam's argument some support. The judges are taking the position that the government should be held to a strict standard when it seeks the authority to overhear private telephone calls.

Multimedia: Insider Trading

The question of necessity for the wiretaps has been hotly contested since the start of the prosecution of Mr. Rajaratnam. The wiretaps were authorized while the Securities and Exchange Commission had a continuing insider trading investigation of his hedge fund, Galleon Group. The inquiry included taking his deposition and gathering about four million pages of documents. Yet, the wiretap application made only a few passing references to the S.E.C. and stated that other investigative techniques had been unsuccessful.

Richard J. Holwell, the federal judge who has since stepped down from the bench, found that an affidavit submitted to support the wiretap application “made a glaring omission” by not disclosing the S.E.C. investigation. He even determined that “this broad omission also rendered several specific statements in the affidavit misleading.”

Nevertheless, Judge Holwell refused to suppress the evidence because even if the omitted information about the S.E.C. investigation had been provided, the court would have authorized the wiretaps. For basketball fans, this was essentially a “no harm, no foul” conclusion.

Nearly 90 percent of Mr. Rajaratnam's briefs filed in the appeals court discuss this issue. He also makes a small argument about a potential flaw in the jury instruction about the materiality of the information that is tacked on at the end, but this point is unlikely to merit much discussion at the oral argument.

The stakes in this appeal are high for both sides. A finding that the wiretap application was inadequate and requires suppression would affect not only Mr. Rajaratnam's case but also other defendants who went to trial, most prominently Rajat K. Gupta, who was convicted of tipping Mr. Rajaratnam and sentenced Wednesday to two years in prison. A Federal District Court judge, Jed S. Rakoff, rejected Mr. Gupta's motion to block the wiretap evidence in a decision that largely tracked Judge Holwell's analysis, so an appeals court decision suppressing the wiretaps would have a significant impact.

The three appellate judges hearing the case are José A. Cabranes, Robert D. Sack and Susan L. Carney. All were appointed by Democrats (Judges Cabranes and Sack by President Clinton, and Judge Carney by President Obama), and none have a prosecutorial background.

Judge Sack is an expert on First Amendment freedom of the press and defamation law, having written two books on those topics. He may be particularly attuned to arguments regarding the privacy concerns animating the necessity requirement for a wiretap. Judges Cabranes and Carney both worked at Yale in its general counsel's office before joining the federal bench.

If the panel focuses on the inadequacies in the government's application and the need to protect privacy, it would be a boon to Mr. Rajaratnam's position. If the court finds that a continuing civil investigation undermines the claimed necessity for authorizing a wiretap, that wou ld raise questions about how often the Justice Department can seek this investigative tool in white-collar cases.

Wiretaps are used most often in organized crime and drug cases because there are few viable alternatives for uncovering violations, so demonstrating necessity is not difficult. In white-collar investigations, however, there is frequently a parallel civil investigation by a regulatory agency like the S.E.C. that may be able to gather evidence of wrongdoing. If necessity requires first exhausting those avenues for obtaining information, then the use of wiretaps could be curtailed substantially.

In the end, the most persuasive point against Mr. Rajaratnam's appeal may well be the success of the wiretaps, which produced a trove of evidence of widespread insider trading that was unlikely to be uncovered by civil subpoenas and depositions. The assertion in the application that other investigative techniques had failed or were “unlikely to succeed” turned out to be correct. Although the end does not justify the means, success may well dissuade the appellate judges from suppressing such powerful evidence on the grounds that the government should have done a better job of describing why it needed the wiretaps.

Federal prosecutors have amassed an impressive record of convictions in insider trading trials over the last three years. Persuading the appeals court to uphold Mr. Rajaratnam's convictions is crucial to keeping that winning streak alive.

Lazard\'s Profit Falls 33% in 3rd Quarter

Lazard‘s third-quarter profit fell 33 percent from the year-ago period, the investment bank reported on Thursday, as the business of advising companies on mergers and bankruptcies declined.

And under pressure from investors like the activist Nelson Peltz, the firm said that it is taking steps to cut about $125 million in annual costs, including through layoffs and lowered compensation.

Lazard said that it earned $35 million in adjusted profit for the quarter, amounting to 26 cents a share. That still bested the average analyst estimate of 22 cents a share, according to Standard & Poor's Capital IQ.

(Using generally accepted accounting principles, Lazard's profit fell 47 percent, to $33 million.)

With the emergence of Mr. Peltz's Trian as a major investor with a 5.1 percent stake, Lazard has embarked on a series of initiatives aimed at both cutting costs and returning more money to shareholders.

Much of the plan is expected to be completed by the end of the fourth quarter, with results showing over the next two years. They include cutting $85 million in compensation-related expenses and $40 million in noncompensation costs.

Kenneth M. Jacobs, Lazard's chairman and chief executive, said on a conference call with analysts that he expects the cuts to have a “minimal” impact on revenue.

Meanwhile, the relative lack of confidence among would-be corporate buyers was evident in the firm's results. Financial advisory revenues were down 13 percent, at $220 million, with both deal and restructuring results down by double digits.

Still, Lazard executives argue that their firm is still performing above expectations, landing big cross-border mandates. The firm is involved in several of the biggest deals of the year, including T-Mobile USA's proposed merger with MetroPCS, Anheuser-Busch InBev‘s $20.1 billion purchase of the rest of Grupo Modelo and Walgreens‘ deal for an eventual takeover of Alliance Boots.

“We're up when the market's down,” Mr. Jacobs told DealBook in a phone interview on Thursday. “That's pretty good outperformance.”

He added that many factors for increased deal-making, including rising valuations and the general availability of financing, were present. But clients still showed uncertainty about the economic environment and potential hurdles like the United States' fiscal cliff, somewhat dampening an appetite for riskier transactions.

Lazard's asset-management arm, which is meant to provide a stable counterweight to the more volatile advisory business, was up slightly for the quarter. Revenue rose 2 percent, to $220.3 million, as incentive fees grew by double-digits. Its assets under management also grew 8 percent from the second quarter, to $160 billion.

Separately, the firm announced that it had added an outsider, the former Goldman Sachs banker Andrew Alper, to its board.

McKesson to Buy PSS World Medical for $1.46 Billion

McKesson Corporation, the health care services and information technology company, agreed on Thursday to buy PSS World Medical for $1.46 billion.

McKesson, based in San Francisco, is offering shareholders of PSS World Medical $29 in cash for each share in the medical products and services company, a 34 percent premium on the company's closing price on Wednesday. With the assumption of debt, the deal is valued at $2.1 billion.

Shares of PSS jumped more than 30 percent in pre-market trading. The Jacksonville, Fla.-based company also canceled its second-quarter earnings conference call.

The acquisition is McKesson's biggest since November 2010, when it agreed to buy US Oncology, which has links to 1,300 community-based oncologists, for $2.16 billion, including debt.

McKesson said it would combine its own medical surgical business with the operations of PSS to offer medical supplies and other services to healthcare professionals.

“The combina tion of McKesson's medical surgical business and PSS World Medical is an exciting next step in McKesson's commitment to improve business health and clinical performance across healthcare,” McKesson's chief executive, John H. Hammergren, said in a statement.

The announcement is the latest in a flurry of health care deals in recent months.

The UnitedHealth Group agreed to buy a 90 percent stake in the Brazilian health care provider Amil Participações for $4.9 billion on Oct. 8 as the American insurer looked to expand in the fast-growing country. Health Care REIT Inc. also agreed in August to buy Sunrise Senior Living for $844.6 million in a deal aimed at creating one of the biggest owners of nursing homes in the United States, Canada and Britain.

McKesson said it planned to secure $100 million of annual cost savings by the fourth year after the deal to buy PSS World Medical is completed.

Perella Weinberg Hires Gatto, a Veteran Mergers Adviser

The boutique investment bank Perella Weinberg Partners has hired Joseph D. Gatto as a partner and senior banker focused on the consumer and industrial sectors. A veteran deal maker, Mr. Gatto most recently worked at Barclays.

The move is one of the most prominent recent appointments by the firm, as it seeks to become a bigger competitor to more established rivals.

Until his retirement last year, Mr. Gatto was chairman of investment banking for the Americas at Barclays. He joined the British firm when it bought the bulk of Lehman Brothers‘ North American operations out of Chapter 11, and he had previously served as a co-head of corporate finance at the American investment bank.

Mr. Gatto began his nearly three-decade career at Goldman Sachs, where he started as a mergers specialist and made partner in 1994. It was there that he began working with Peter Weinberg, one of Perella Weinberg's founders and a scion of Goldman's prominent Weinberg family.

“Perella Weinberg Partners is a firm of highly experienced bankers known for providing exceptional independent advice to decision makers globally,” Mr. Gatto said in a statement. “I look forward to rejoining Peter and working with Joe and the other advisory professionals.”

Mr. Weinberg said: “I have known Joe for 25 years. He is a highly regarded senior banker who is deeply committed to putting his clients first and providing them with honest, savvy counsel.”

Bank of China Profit Rises 17% in Third Quarter

HONG KONGâ€" The Bank of China, the first of the country's major state-owned lenders to report earnings for the third quarter, said Thursday that profit for the period rose a robust 16.6 percent from a year earlier, beating analysts' expectations.

Fresh signs that the world's second-biggest economy after the United States may have turned a corner have stimulated demand for new loans in recent months, and analysts are forecasting that China's biggest banks will report healthy growth in earnings for the July to September quarter over the coming days.

Bank of China, the smallest of China's so-called Big Four lenders by assets - the other three are the Industrial and Commercial Bank of China, China Construction Bank and Agricultural Bank of China - saw third-quarter net income rise to 34.76 billion renminbi, or $5.57 billion, against analysts' forecasts for profit of 33 billion renminbi.

The result marked a rebound from the second quarter, when the bank re ported a year-on-year profit increase of just 5.2 percent, its slowest growth in quarterly profit in three years.

New lending drove the increase in earnings. For the quarter, the Bank of China expanded total assets by 7.7 percent from a year ago to 12.74 trillion renminbi, or $2.04 trillion. The result was a 14.5 percent rise in net interest income, to 65.4 billion renminbi.

Wary of signs that Beijing may be moving to partly deregulate the nation's fixed-interest rate regime, which guarantees a comfortable margin for banks between their lending and deposit rates, many Chinese banks have in recent years been seeking to reduce their reliance on their loan business by tapping other sources of income.

However, Bank of China appeared to head in the opposite direction during the third quarter, with net interest income driving results while earnings from transaction fees and commissions lagged.

Fee and commission income fell 1.1 percent from a year ago t o 15.68 billion renminbi, the bank said. By contrast, the rise in net interest income coincided with the increasing profitability of the lending business. Bank of China's net interest margin widened to 2.12 percent at the end of September, up slightly from 2.1 percent at the end of June, after regulators this summer moved to partly loosen lending and deposit rates.

Santander Profit Falls 94% in Third Quarter

LONDON â€" The Spanish bank Banco Santander on Thursday reported a 94 percent drop in its net profit in the third quarter, after setting aside funds to cover potential losses in its domestic real estate market.

The Madrid-based bank has faced growing headwinds in its home market as the Spanish economy continues to struggle as one of the worst hit by the European debt crisis. Santander's international units, including Brazil and Britain, also reported subdued performance reflecting concerns about the global economy.

As a buffer, Santander â€" one of Europe's largest banks â€" said it had earmarked 5 billion euros ($6.5 billion), including a further 1 billion euros in the third quarter, to offset potential losses connected to the Spanish real estate market. The bank said it now had provisions totaling 9.5 billion euros to cover bad loans.

Santander said that its net income in the three months through Sept. 30 totaled 100 million euros, compared to 1.8 billi on euros in the same period last year.

“The bank's capacity to generate profit enables us to set aside hefty real estate provisions in Spain in 2012 and significantly increase non-performing loan coverage,” Santander's chairman, Emilio Botín, said in a statement.

In early morning trading in Madrid, shares in the bank had risen less than 1 percent.

The bank's volume of bad real estate loans in Spain and abroad continued to rise. Santander reported that its percentage of so-called non-performing loans in Spain now stands at 6.38 percent, a 1.2 percentage point increase compared to the same period last year. For its global operations, the figure also increased to 4.33 percent.

Santander is reducing its lending in its troubled domestic real estate market. The bank said that its exposure to the sector in Spain fell to 26.5 billion euros at the end of September, a 16 billion euro reduction over the last four years.

Santander's global operations c ontinue to play an important role in offsetting its domestic troubles.

Latin American operations, which include units in Brazil, Mexico and Chile, represented 50 percent of the bank's profits in first nine months of the year, the company said. Yet even in these fast-growing markets, the bank reported a 6 percent decline, to 3.3 billion euros, in net income over the period after Santander sold several businesses across the region.

Last month, the company raised around $4.2 billion through the initial public offering of its Mexican unit, Grupo Financiero Santander México, in New York and Mexico. The dual listing was the third-largest initial public offering this year, after Facebook and Japan Airlines.

The bank's core Tier 1 ratio, a measure of a firm's ability to weather financial shocks, was 10.4 percent at the end of the third quarter, compared to 9.4 percent in the same period last year.