Peltz Said to Take Stake in Danone

Nelson Peltz is learning how to say “shareholder activism” in French.

The investor plans to begin a campaign against Danone of France, having acquired a 1 percent stake in the French food maker, according to a person briefed on the matter.

It is Mr. Peltz's first foray into France. The country has proved largely inhospitable to activism in the past, buoyed by the clubby ways of the traditional Gallic business communities.

As with many companies, including at Lazard, Mr. Peltz is expected to call for cuts in spending, this person said. His campaign is aimed at bolstering the stock price, which has largely drifted downward: Danone's shares have fallen nearly 20 percent over the past five years, closing on Tuesday at 48.13 euros.

Danone, known as one of the world's biggest sellers of yogurt, has grappled with falling sales in southern Europe, warning in June that countries like Spain were showing lesser demand for its products.

Unlike other a ctivists, like Carl C. Icahn and William A. Ackman, Mr. Peltz tends to shy away from headline-grabbing battles with management. He is expected to support Danone's current executives, led by chief executive Franck Riboud, this person said.

News of Mr. Peltz's plans was reported earlier by The Financial Times online.

McGraw-Hill Said in Talks With Apollo Over Education Unit Sale

McGraw-Hill has begun holding talks with Apollo Global Management over a potential sale of its education unit, though any deal might yield less than expected, a person briefed on the matter said on Tuesday.

Apollo bested Apax Partners to become the preferred bidder for the education unit in recent weeks. But the person briefed on the matter cautioned that McGraw-Hill may ultimately choose not to pursue a sale and may instead spin off the division.

By separating the decision its education division, McGraw-Hill is moving to focus on its faster-growing financial data operations, which includes the rating agency Standard & Poor's and the energy and metals information service Platts.

Should McGraw-Hill choose to forge ahead on a deal with Apollo, a sale may yield less than $2.5 billion, lower than what the publishing company had initially hoped. That is because of weakening performance in the education division, which reported an 11 percent decline in third-qu arter revenue, to $836 million, from the same time last year.

Harold McGraw III, the company's chief executive, said earlier this month that the business unit has had to struggle against “the weakest Kâ€"12 market in a decade.”

A spokeswoman for McGraw-Hill declined to comment.

News of McGraw-Hill's talks was first reported by The Wall Street Journal online.

Wall Street Offers a Second Career for Former Politicians

When you wake up on Wednesday morning and find out whether Mitt Romney or Barack Obama will be in the White House next year, don't pity the loser. He can always have a future career in high finance.

It's quite a lucrative one, too.

Take Tony Blair, the former British prime minister. In September, Mr. Blair was called to Claridge's hotel in London to mediate a renegotiation of the proposed acquisition of Glencore by Xstrata, according to British news reports. Mr. Blair, who negotiated peace in Northern Ireland, put his skills to good use, apparently earning himself roughly $1 million for three hours of work.

That's not a bad hourly rate, and it's in addition to the reported $4 million a year he is paid by JPMorgan Chase to be a senior adviser and “provide briefings on political trends.” You'll be happy to know, by the way, that Mr. Blair was able to save the Xstrata deal. Wall Street likes former politicians for lots of reasons. Perhaps like Mr. Blair they are good negotiators or mediators when a deal needs to be done.

But another reason is that they are simply good with people.

Remember Dan Quayle? Since 2000, the former vice president has worked at the hedge fund Cerberus Capital Management, where he is now chairman of the advisory board. His pay is not disclosed, but it is probably well into the millions if not more. And what does Mr. Quayle do for this money?

According to his personal Web site, he “regularly travels throughout the U.S., Europe, and Asia to meet with the heads of investment banks, corporations, buyout shops, potential investors and other business leaders,” among other things. In other words, he's a very well-paid schmoozer. In fairness, the former vice president states he also does things like advise Cerberus on the conduct of business by its portfolio companies.

Not only can vice presidents make money in finance by chatting up people, they can also build empires. Al Gore s hows that you can use Wall Street to become superrich and do it in the name of a cause, all while building your own franchise. Currently, Mr. Gore is chairman of Generation Investment Management and a partner of the venture capital firm Kleiner Perkins Caufield & Byers. He's also a member of Apple's board, where he has options on more than 100,000 Apple shares, and a senior adviser to Google. Apple, by the way, is trading at more than $600 a share. You do the math.

Mr. Gore's efforts are part of his mission to alert the world to global warming and embrace the environmental causes he firmly believes in. It's unclear what the former vice president does at Kleiner, but Generation Investment is focused on investing in sustainable companies. Mr. Gore closed the fund in 2008, having raised $5 billion. Whether this works is unclear because the fund's returns are not disclosed, but as of Sept. 30, the fund still had at least $3.6 billion. Mr. Gore has made millions building a finance empire based on his beliefs.

Sometimes it's not for a cause, but simply for the money. Mr. Gore's former boss, Bill Clinton, is most widely known in his post-presidential period for his work with the Clinton Global Initiative. But the former president has also made millions working in finance. Mr. Clinton was an adviser to Ronald W. Burkle's investment firm, the Yucaipa Companies, and made at least $15 million in that position.

Mr. Clinton's job was apparently to promote Yucaipa and enhance Mr. Burkle's reputation, and as Mr. Burkle put it to BusinessWeek after the two had a falling out, “When Clinton left the presidency he had to make money, and there were certain limits on how he could do it.” Until March of this year, Mr. Clinton also served as a paid adviser to another private equity and financial consulting firm, Teneo Capital. It's no surprise that the former president recently said that private equity was “good work.” It was for him.

Private equity is a favorite of prominent former politicians because it is often less public than investment banking or other finance jobs. Private equity firms like the connections former politicians bring for deal-making. Private equity is also an equal opportunity employer across both sides of the aisle. George H. W. Bush was involved with private equity after his term as president was up, serving as an adviser to the Carlyle Group until 2003. Carlyle is a bastion of political refugees. Frank Carlucci, a former secretary of defense, served as chairman, and former Secretary of State James A. Baker III has also been an adviser.

And if working for the industry as a deal maker, schmoozer, adviser or just as a name is a problem, a former politician can always find freelance opportunities in speaking to the finance industry.

President Obama's predecessor, George W. Bush, has largely stayed away from business ventures after leaving the White House. But he has taken t o the speakers' circuit, where fees can run more than $100,000 a speech. Last week, the former president gave a speech at the Ritz-Carlton on Grand Cayman Island at the Cayman Alternative Investment Summit. The speech was closed to journalists and raised some eyebrows because the idea behind such a conference was to move investing outside the United States. But according to the organization's Web site, Mr. Bush offered “his thoughts on eight years in the Oval Office, the challenges facing our nation in the 21st century, the power of freedom and the role of faith.” I just want to say to the organizers that next year, I can talk about three of these four topics, at half the price.

Such $100,000 speaking engagements are mostly from finance organizations - after all, they are the ones with the money. One of Sarah Palin's first speeches following her tenure as governor of Alaska was in Hong Kong to the CLSA Asia-Pacific Markets meeting, a gathering of Asian investors th at advertises itself as “Asia's premier investment conference.” She was reportedly paid $100,000 for the speech.

So what does this mean for Mr. Romney and Mr. Obama? Well, it's hard to see either one plunging knee-deep into Wall Street. Mr. Romney has already made his private equity money. As for Mr. Obama, it just doesn't seem to be in his DNA. This doesn't mean that either will pass up the occasional $100,000 speaking engagement.

I can't begrudge politicians making money after years of relatively low-paid public service. But at best, this is clearly a case of not asking where the money is coming from. The wholesale involvement of politicians in finance as opposed to, say, working at industrial America or advising the nation's educational and charitable institutions may be a serious misdirection of resources. More sinisterly, as Simon Johnson and James Kwak contend in their book “13 Bankers: The Wall Street Takeover and the Next Financial Meltdown” (Pant heon Books), a too cozy relationship between Wall Street and Washington was a direct cause of the financial crisis. Whether or not they are right, the ties are still strong. One has to wonder whether we are repeating the mistakes of the past.

F.T. Up for Sale, Report Says, but Pearson Says Not So Fast

Pearson is finally entertaining takeover offers for the Financial Times newspaper, according to Bloomberg News, in what could lead to a sale that had been anticipated for years.

But the British publishing company quickly moved to try and knock down the report by deeming it untrue.

Per Bloomberg's story, Pearson “has decided to consider offers” for the famously pink-colored newspaper this year, as it prepares for the impending departure of Marjorie Scardino as chief executive. She will be succeeded by John Fallon, the head of the company's international education unit.

Though well known, the F.T. is seen by analysts as a much slower-growing business compared to Pearson's education assets, and a transaction has been regarded as a way to pump new life into the company's stock.

Bloomberg speculated that potential buyers may include deep-pocketed magnates and Bloomberg LP; other potential buyers, like the News Corporation or Thomson Reuters, may hold off.

But Pearson, which has tried to squelch speculation about a possible sale of the F.T., released a public statement fairly quickly after the Bloomberg report was published. A company spokesman said in a statement: “We have said many times that the F.T. is a valued and valuable part of Pearson. We are not in the habit of responding to rumors, speculation or reports about our portfolio, however this particular Bloomberg story is wrong.”

An Election Guide for Wall Street

Wall Street is betting on a game-changing election. But the industry may not be so lucky, even if Mitt Romney wins.

Analysts and lobbyists have painted a murky picture of the campaign. While a Romney administration could help banks and hedge funds, a Republican victory could bring uncertainty, too.

At the same time, a second term for President Obama might not be a doomsday situation. In many ways, the industry has already adjusted to the new regulatory environment, and the administration might rein in its fervor for change. An Obama victory might also allow Wall Street to pivot its focus to the “fiscal cliff,” the dreaded package of tax increases and spending cuts slated to kick in on Jan. 1.

“The industry is probably not thrilled with an Obama win, but they know what they're getting,” said Brian Gardner, a Washington research executive at KBW.

After taking a rhetorical and regulatory licking from the Obama administration, Wall Street has t hrown its hopes and riches behind Mr. Romney. The industry has spared no expense to try to elect the former private equity executive, with Mr. Romney's top five donors hailing from the financial industry. Goldman Sachs and Bank of America lead the list, according to the Center for Responsive Politics.

The spending spree stems, in part, from Wall Street's fraught relationship with Mr. Obama. After helping to usher in Mr. Obama's election four years ago, Goldman and other firms became disillusioned with the president's regulatory crackdown known as the Dodd-Frank Act. Some executives also find Mr. Obama disengaged, while others never forgave the president for his pejorative depiction of them as “fat cats.”

“There's fatigue in the industry from being a target, and that will obviously color their views,” said Kenneth E. Bentsen Jr., a former Democratic representative in Congress who is now a senior Wall Street lobbyist at the Securities Industry and Financial Markets Association.

Wall Street will no doubt reap some benefits from a Romney presidency.

Mr. Romney will appoint new leaders at most financial regulatory agencies, including the Commodity Futures Trading Commission, an aggressive rule-writing bureau that has become the scorn of many bankers. Under Republican control, the agencies could also have a lighter touch, bringing fewer enforcement cases against big banks and hedge funds.

In a more significant move, a Romney administration is expected to pursue a makeover of the Consumer Financial Protection Bureau, the new consumer watchdog born out of the Dodd-Frank overhaul. Republicans hope to wrestle control from a single director, Richard Cordray, and refashion the bureau into a bipartisan commission. Mr. Cordray, whose term extends through 2013, was appointed by Mr. Obama during a Congressional recess.

Sallie Mae, the largest student lender in the nation, could be another winner if Mr. Romney is elec ted. During the race, the Romney campaign hinted that it would allow private lenders back into the system for distributing federal loan money. A Republican administration, some analysts say, would also abandon proposed reforms that would allow students to discharge loan debt in bankruptcy.

The changes could similarly extend to Dodd-Frank, leading authorities to prolong public comment periods for unfinished rules. Under a Republican president, some provisions passed in the wake of the financial crisis could be tweaked. One of the more hotly contested areas was the swap-dealer designation, which requires that banks increase disclosures to trading partners and hold additional capital. Should Mr. Romney win, bank lobbyists say the industry will focus on taming these rules, which are still being hashed out at the trading commission.

“The Republicans would control the pen, which is tremendous power,” Mr. Bentsen said.

Mr. Romney, the former governor of Mass achusetts and a longtime executive at Bain Capital, has vowed to “repeal and replace” Dodd-Frank. While Mr. Romney has not explained what would take the place of the law, his promise has fed Wall Street's election fervor.

But Wall Street's wager on Mr. Romney, the analysts and lobbyists say, is hardly a sure bet. Even if tens of millions of dollars in donations from the financial industry help push Mr. Romney into the White House, the Senate is likely to remain in the hands of Democrats.

That political stranglehold would prevent Republicans from passing a sweeping overhaul of Dodd-Frank. Regulators could also scramble to finish the most contentious Dodd-Frank policies, including the Volcker Rule, during Mr. Obama's lame duck presidency to safeguard their work from Republican second-guessing.

In a recent report, Dan Alamariu of the Eurasia Group noted that “financial regulation is for Republicans what the Patriot Act was for Democrats in 2008: somethin g disliked, but also something useful.”

And Mr. Romney may not prove such a friendly face to Wall Street in some cases.

In the first presidential debate, Mr. Romney took aim at one of the few Dodd-Frank provisions that Wall Street actually supports â€" a plan to unwind the “systemically important” banks. He derided the plan as “the biggest kiss that's been given to New York banks I've ever seen.”

Mr. Romney also promises to eject the Federal Reserve chairman, Ben S. Bernanke, who is beloved by many on Wall Street. Some financiers worry that Mr. Romney would also install Thomas M. Hoenig, a former Fed official who favors breaking up the big banks, as chairman of the Federal Deposit Insurance Corporation.

“The changes” that could come from a Republican victory, Mr. Gardner said, “are probably friendlier to community banks than the ‘too big to fail' firms.”

Netflix\'s Poison Pill Has a Shareholder-Friendly Flavor

Netflix's adoption of a shareholder rights plan, commonly known as a poison pill, to fend off the activist investor Carl C. Icahn is no surprise. Still, Netflix, the video-streaming and DVD rental company, couldn't resist putting some unusual terms into the pill just to keep things exciting and place a shareholder-friendly spin on the event.

The workings of a poison pill are intricate but essentially boil down to this: When a shareholder acquires a percentage of shares above a certain threshold, the pill is activated. Setting off the pill means that the poison is taken, and the net result is that every shareholder but the one who sets it off receives discounted stock. Consequently, the stake of the trigger-puller gets hugely diluted.

Because activating a pill is economically stupid â€" why would you cause your stake to be reduced without compensation? - there has only been one intentional trigger of a poison pill in recent memory. The case involved the co mpany Selectica, and it didn't go so well for the shareholder. The Delaware courts found the pill to be valid, and the shareholder was left with a stake worth much less than before it intentionally activated the pill.

The threshold set by the company is thus important because it effectively places a hard cap on the number of shares an investor can buy.

Netflix took an unusual tack in setting its threshold. For institutional shareholders who take a passive stake, the limit is 20 percent. For all other shareholders, the limit is 10 percent, just a bit above Mr. Icahn's current holdings of 9.98 percent.

Regular pill watchers of the world will immediately see what is unusual here. Typically, the threshold for a poison pill is 15 percent for all shareholders, though a 10 percent bar is increasingly common. The twist here is that Netflix treats passive shareholders differently.

The 10 percent cap is a symptom of increased aggressiveness by companies ag ainst activist hedge funds. Under Delaware law, to justify a pill, a company needs to show that there is a threat and that the response is proportional in relation to the threat. Lawyers call this a Unocal review, after the case that adopted part of the standard.

In Netflix's case the threshold of 10 percent versus 15 percent or even 20 percent makes no difference in terms of working to prevent a takeover, unless the board agrees. And this consequence jibes with the traditional notion behind a pill, to prevent an unwanted takeover that undervalues the company. But setting the standard at the lower level also prevents Mr. Icahn or another shareholder from accumulating more shares to vote to influence the board to sell the company or take other strategic actions.

Netflix is likely to justify this limitation of shareholders by the fact that Mr. Icahn has specifically mentioned his goal is a sale. In this light, the 20 percent threshold can be viewed as a public r elations move, adding a shareholder-friendly gloss to the pill adoption. Netflix can argue that it is still looking out for its shareholders because it is really taking aim only at those pesky activists. The Fidelity Investments and other mutual funds of the world can still buy more shares, they just can't actively campaign against the company.

The hedge funds are likely to counter that the threat though is misidentified because it really is all about keeping the Netflix board in power and preventing any activist from effectively running a campaign to unseat them. In this regard, their rights as shareholders are being unduly limited.

Netflix's move would undoubtedly be upheld by the Delaware courts as a matter of practicality if nothing else. The Delaware judges have not been keen to side with hedge fund activists.

Moreover, the justification that Netflix would give â€" that it is really just trying to prevent a forced sale on the cheap - has particular salience because Mr. Icahn has said he'd like the company to explore a sale.

Still, while Netflix's maneuver may be justified in this case, it is part of a more aggressive tone taken by companies against shareholder activists. Expect the trend to continue. Left hanging is the question of whether it is a net benefit for boards to protect themselves in this manner.

The other notable thing about Netflix's poison pill is how it tries to limit Mr. Icahn's contacts with other shareholders. Poison pills typically have expansive definitions, treating shareholders as a group and adding their shares together to determine if the pill is activated. The goal is to limit them from ganging up on the company. And other companies have taken aggressive positions in defining a group in order to limit conversations between hedge funds and shareholders generally.

For example, Barnes & Noble's original pill, adopted to fend off Ronald W. Burkle, defined a group to include shareholders with “any agreement, arrangement or understanding (written or oral) to cooperate in obtaining, changing or influencing the control of the company.” The provision effectively chilled almost all shareholder communication, and its validity was challenged in court by Mr. Burkle. Barnes & Noble dropped it before the court could rule. Other companies have been even more aggressive. According to a memo by the law firm Latham & Watkins, other companies have adopted group language like “acting with conscious parallelism,” “acting in concert” or “cooperating” in order to prevent activist hedge funds from working together.

But in Netflix's case, the company did not go this route. Instead, Netflix, just added the usual language that “any agreement, arrangement or understanding” among parties would lump them together.

While a poison pill may raise shareholder rights concerns, the Netflix pill can be viewed as a nonevent because it doesn't change much. It appears that the company is going out of its way to be noncontroversial in its adoption and to put on a shareholder-friendly face. In addition, Mr. Icahn's stake is just below 10 percent, although he could have acquired more, so he will not be affected and is not likely to care.

The main event remains whether anyone will take Mr. Icahn's bait to try to buy Netflix.

Morgan Stanley\'s Fix-It Job in Fixed Income

Colm Kelleher may have the toughest job on Wall Street.

On Monday, Mr. Kelleher was named the sole head of Morgan Stanley's securities arm. His main challenge lies in the firm's fixed-income division, where traders deal in bonds, derivatives, currencies and commodities. Fixed income is a big contributor to earnings at most Wall Street firms. But it is a fiercely competitive business that can sometimes lead to steep losses - and now it has the added difficulty of being subject to new regulations that have crimped profitability.

Such headwinds prompted UBS to scale back in fixed income, a plan that was announced last weekend. Investors actually liked the plan, believing in part that UBS would stop deploying capital in nonproductive ways, and the bank's shares jumped.

Fixed-income trading nearly blew up Morgan Stanley in the financial crisis, and since then it has been volatile. This year, a strong first quarter for fixed-income trading gave way to a terribl e second quarter.

When markets freak out, as they did about Europe earlier this year, clients seem more likely to pull back from Morgan Stanley than other large firms. Over the last two years, Goldman Sachs' fixed-income revenue has not only been much larger in dollar terms than at Morgan Stanley, it has also been more stable.

As the head of the trading businesses in the securities division since 2010, Mr. Kelleher is partly responsible for the patchy performance. Still, it's down to him to show that Morgan Stanley isn't UBS, and it can compete with the likes of Goldman and JPMorgan Chase in fixed income. His two main challenges are to bolster bond-trading revenue and get rid of the whiplash movements that can unnerve both clients and Morgan Stanley's shareholders.

One viewpoint posits that the odds are implacably stacked against Morgan Stanley.

By such thinking, the Wall Street firm is little more than a huge inventory of bonds, stocks and other asse ts. It then calculates a firm's profit as a percentage of its assets. At Morgan Stanley, that “return on assets” is lower than at peers, as it was before the financial crisis.

In the past, this didn't matter too much to shareholders. The firm could increase its borrowings, or lever up. This increased profits for shareholders, even though its assets still had meager returns. In accounting jargon, a firm with a low return on its assets could use leverage to bolster its return on shareholders' equity.

But since the crisis, regulators have essentially capped leverage. A firm with low-returning assets is effectively trapped. Without high leverage, the only way to strengthen profits for shareholders is to increase the profitability of the assets it holds.

This new constraint on Morgan Stanley's profits were outlined in a September research note from Richard Ramsden, a Goldman Sachs banking analyst. For Morgan Stanley to get close to hitting its return-on-equi ty targets, he estimated that the bank would have to increase its return on assets to 0.7 percent. That is close to what Morgan Stanley was making on its assets before the financial crisis, when markets were booming and banks held higher-yielding assets than they hold now.

How big a leap that is depends on where Morgan Stanley's return on assets is today. Over the 12 months through the end of September, it was just 0.23 percent, close to that of UBS, and well short of Goldman's 0.59 percent.

But stripping out a large charge in the fourth quarter of last year, Morgan Stanley's return on assets comes to 0.38 percent, significantly higher than 0.23 percent, but still well short of the 0.7 percent that Mr. Ramsden, the Goldman analyst, says that Morgan needs. His research says the key to improving Morgan Stanley's profits is to improve returns in its fixed income business.

Given the obstacles, how might Mr. Kelleher transform fixed income?

Some things mig ht be easier than others. Profitability should increase as the firm holds less of the riskier, less-liquid assets it acquired before the crisis. If the global economy avoids more large disruptions, client confidence in Morgan Stanley should increase.

Market stability could also allow Morgan Stanley to borrow more cheaply. Its own borrowing costs, higher than at some other banks, are a major determinant of profitability.

But there are harder tasks.

In its news release on Monday, Morgan Stanley's chief executive, James P. Gorman, said he wanted to align trading more closely with investment banking. The idea might be that the traders sell more fixed-income products to companies doing bond deals with Morgan Stanley. But this could backfire if companies feel they are being asked to do business that may not fit their exact needs.

Then there's the task of wringing more revenue out of Morgan Stanley's fixed-income inventory.

Broadly, fixed-income busine sses make money in two main ways. One is through the money they earn on the assets they hold, like interest payments on bonds. Another way is by earning the “spread,” which is buying bonds from clients and then selling them on at a higher price. Firms that excel in fixed income turn over their inventory more often, creating more opportunities to earn spread income. To do this, Wall Street firms need to show clients that they will consistently provide reliable prices for assets.

Morgan Stanley may have given clients confusing signals since the crisis by pulling back and then expanding in fixed income. Winning client trust may therefore take time. It also requires nimble inventory management, so the firm isn't stuck with too many fixed income assets when markets recoil.

The stakes are high. If Mr. Kelleher fails, the UBS's about-face will look very attractive to Morgan Stanley's shareholders.

Restructurings and the Impact of Credit-Default Swaps

Last week we learned that one of the biggest critics of derivatives â€" Warren E. Buffett â€" actually made a lot of money from them.

This is kind of indicative of the general reality: no matter how much has changed with regard to derivatives after the enactment of Dodd-Frank, much remains the same.

Take, for example, the issue of credit-default swaps and financial distress. Before the financial crisis, bankruptcy scholars, including myself and others, noticed that the growth of these swaps had the potential to change the way restructurings were conducted.

While it is normally assumed that creditors are interested in keeping a solvent but financially distressed company out of bankruptcy and are therefore willing to renegotiate out of court, a hedged creditor may lack the incentive to participate in an out-of-court workout.

In extreme cases, creditors might have incentives to thwart workouts and file involuntary bankruptcy cases, all with an eye to ward activating their default swap contracts. This problem could be especially extreme in North America, where, for historical reasons, “restructuring” is often not included as a credit event in standard default swap contracts.

It is also possible that the holder of a large, speculative swap position could acquire a position in a distressed firm's traded debt to block a potential workout. After the onset of financial distress, it could be that the cost of such a blocking position on the distressed debt market would be justified given a sufficiently large credit-default swap position.

Indeed, if the market for credit-default swaps is made up mostly of speculators, as seems likely, the above situation, or something like it, might be the most plausible. After all, it is unclear how many buyers of credit-default swaps actually use them to hedge ordinary bonds.

This is part of the phenomenon called the “empty creditor” problem by Professors Henry T.C. Hu and Bernard S. Black.

Dodd-Frank did not even attempt to address this issue, so how might be that be accomplished?

In a paper to appear in the Journal of Applied Corporate Finance, co-written with Rajesh P. Narayanan of Louisiana State University, I argue that one good starting point might be the Williams Act.

In particular, the Williams Act requires shareholders to disclose large (5 percent or more) equity positions in companies.

Perhaps holders of default swap positions should face a similar requirement. Namely, when a triggering event occurs, a holder of swap contracts with a notional value beyond 5 percent of the reference entity's outstanding public debt would have to disclose their entire credit-default swap position.

In the paper, Mr. Narayanan and I suggest that such a disclosure obligation could kick in at the onset of financial distress, when it becomes most useful to understand the incentives of parties to workout negotiations. On e clear indicator of financial distress that could be used is the issuance of a going concern qualification by the firm's auditors.

To our minds, this represents one workable solution to the challenges that credit-default swap contracts create for resolution of financial distress.

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

Rochdale in Rescue Talks After Errant Apple Trade

A small Connecticut brokerage firm is fighting for survival after one of its former traders made unauthorized trades in shares of Apple.

Rochdale Securities, which is known for employing the banking analyst Dick Bove, is in negotiations to sell itself or receive a cash infusion from outside investors, according to a person with direct knowledge of the talks.

Late last month, a trader at Rochdale purchased about $1 billion of Apple stock without permission, said this person, who requested anonymity because he was not authorized to discuss the matter publicly. After he bought the shares, Apple - a notoriously volatile stock - dropped in value, costing Rochdale several million dollars. The trader is said to have intended to buy 165,000 Apple shares but the order got executed at 1.65 million shares.

The losses crippled Rochdale, a small firm with only about $3.5 million in capital. The firm doesn't tend to make trades with its own capital, which made the App le trade even more out of the ordinary. Last weekend, Daniel Crowley, the president of Rochdale, told media outlets that the rogue trade had left his firm in a “negative capital position.”

The Rochdale employee who made the Apple trades is David Miller, according to this person. After placing the controversial trade, Mr. Miller shut down his computer and left the trading floor. He has not returned to the firm, said this person. Mr. Miller could not be reached for comment.

At Rochdale (pronounced “Rockdale”), Mr. Miller worked out of the firm's Stamford headquarters. The firm, which was started in 1975, employs roughly 60 traders and research analysts. Mr. Bove, a well-known bank analyst, is based in Florida.

Rochdale executives have been cooperating with various securities regulators, including the Financial Industry Regulatory Authority and the Securities and Exchange Commission.

Mr. Miller, a journeyman Wall Street trader, has worked at Roch dale since 2009, according to securities filings. Previously, he did stints at a number of small New York broker-dealers, including Ladenberg Thalman; Punk, Ziegel & Company; and M.H. Meyerson.

On Tuesday, an executive at Rochdale only identifying himself as “Pete,” declined to comment.

Rochdale's issue is the latest in a series of trading blunders that have rattled Wall Street. In August, an errant trading algorithm nearly brought down Knight Capital Group. There have been other prominent cases in recent years involving problematic trades, from the botched Facebook initial public offering early this year to a case involving a rogue trader at UBS who is said to have lost the firm $2.3 billion.

Suzuki\'s American Unit Files for Bankruptcy Protection

Bankruptcy for U.S. Suzuki Unit

The American Suzuki Motor Corporation filed for Chapter 11 bankruptcy protection on Monday evening and said it would cease selling automobiles in the United States as part of a plan to reorganize its business.

The company, based in Brea, Calif., is the sole distributor of Suzuki vehicles in the continental United States.

American Suzuki said it would focus on selling Suzuki motorcycles, all-terrain vehicles and marine outboard engines.

It said it was exiting the car business in the United States because of slow sales, unfavorable foreign exchange rates and the high costs of complying with state and federal regulatory requirements. American Suzuki sold just 2,023 cars in the United States last month.

The bankruptcy does not involve the company's parent, Suzuki Motor of Japan.

In documents filed with the Federal Bankruptcy Court for the Central District of California in Santa Ana, the company estimated that its debts and liabilities ranged from at least $100 million to $500 million. It also said it had 1,000 to 5,000 creditors.

American Suzuki said it had enough cash to operate during the reorganization and intended to honor all car warranties and buyback agreements. It will work with its car dealerships to help them make the transition to parts-and-service operations. In some cases, the dealerships will be closed, it said.

The reorganized company will retain the American Suzuki Motor name, the company said.

A version of this article appeared in print on November 6, 2012, on page B3 of the New York edition with the headline: Bankruptcy for U.S. Suzuki Unit.

The Big Day, but More Uncertainty to Come

THE BIG DAY, BUT MORE UNCERTAINTY TO COME  |  It may be Election Day, but the outcome won't end uncertainty for Wall Street, Andrew Ross Sorkin writes in the DealBook column. Regardless of whether President Obama or Mitt Romney wins, the business world will face a series of political unknowns that could last through much of next year.

First up is the so-called fiscal cliff, the tax increases and spending cuts set to go into effect on Jan. 1. “Many investors have already begun selling stocks and companies in anticipation of tax increases,” Mr. Sorkin says. Then there is Europe. And the Middle East. And the question of who will take over for Ben S. Bernanke at the Federal Reserve. “Over the next year and a half, Mr. Bernanke's future as the Fed chairman will feed a sense of uncertainty among investors who have become accustomed to his easy money policies.”

As the fight over the fiscal cliff drags on, “investors could be among the biggest losers,” writes The Wall Street Journal's Heard on the Street column. Unanswered questions have led one investment strategist, David Joy of Ameriprise Financial in Boston, to recommend shunning riskier investments, according to Reuters.

 

MORGAN STANLEY TAPS A TRADER  | 
Morgan Stanley is betting that Colm Kelleher has what it takes to revive its securities unit. The firm chose Mr. Kelleher, rather than Paul J. Taubman, his partner and rival, to become the sole president of the unit in January, a job that involves persuading clients “who rely on Morgan Stanley for advice on mergers and stock sales to use it for trading services as well,” DealBook's Michael J. de la Merced and Susanne Craig write. Trading seems likely to remain a focus. One analyst, Glenn Schorr of Nomura, said the task of getting “fixed income right” falls “squarely in Colm's world.”

The strategy contrasts with that of another firm, UBS, which is drastically scaling back its trading business, Antony Currie writes in Reuters Breakingviews. Morgan Stanley controls about 7 percent of the fixed-income market, “at best half the share of the biggest player, JPMorgan,” Mr. Currie notes. The stakes are high for Mr. Kelleher, who is now positioned to be a possible successor to the chief executive.

 

ON THE AGENDA  |  The election is finally here, bringing the most expensive presidential race in the country's history to a close. Wall Street will also be watching some important Senate races closely, including in Massachusetts where Elizabeth Warren, a Democrat, is facing off against the incumbent Scott Brown, a Republican. NYSE Euronext, AOL and Office Depot report earnings b efore the opening bell. News Corporation announces results after the market closes. AOL's chairman and chief executive, Tim Armstrong, is on CNBC at 10:40 a.m. and on Bloomberg TV at 11:15 a.m. Pete Peterson is on Bloomberg TV at 10 a.m. Simon Johnson, professor of finance at the MIT Sloan School of Management, is on Bloomberg TV at 8 p.m.

 

GOLDMAN'S NEW DIRECTOR  |  Mark E. Tucker, the chief executive and president of the Asian life insurance company AIA Group, is joining Goldman Sachs's board as its 12th director. Mr. Tucker brings experience in Asia and in the banking and insurance industries, Lloyd C. Blankfein, Goldman's chief executive, said in a statement. He was selected to lead AIA in July 2010 by Robert H. Benmosche, A.I.G.'s chief executive, as AIA was preparing to be spun out of A.I.G. through an initial public offering, according to a Bloomberg News article at the time.

 

 

 

Mergers & Acquisitions '

Nike Nears Deal to Sell Cole Haan to Private Equity Firm  |  Nike is nearing a deal to sell its Cole Haan brand to Apax Partners for about $500 million as Nike looks to streamline its product offerings, DealBook reports. DealBook '

 

Netflix Adopts Poison Pill  |  Netflix announced that its board had adopted a shareholder rights plan, or poison pill, just days after the activist investor Carl C. Icahn disclosed he had acquired a 9.98 percent stake. DealBook '

 

Ousted Duke Energy Chief Named Head of Tennessee Utilit y  |  William D. Johnson, the ousted chief executive of Duke Energy, was named the head of the Tennessee Valley Authority, the government-created provider of wholesale power in Tennessee and parts of six other southern states. DealBook '

 

Rothschild Proposes Alternative to Bumi Asset Sale  |  The mining company Bumi said on Monday that it had received a proposal from the British financier Nathaniel Rothschild, less than a month after Indonesian shareholders in the mining company had offered to buy Bumi's coal mining assets for around $1.2 billion. DealBook '

 

Stifel Financial to Buy KBW for $575 Million  |  The Stifel Financial Corporation agreed on Monday to buy the investment ba nking firm KBW Inc., acquiring a 50-year-old concern known for its role as an adviser to the financial services industry. DealBook '

 

Humana to Buy Metropolitan Health Networks for $500 Million  | 
WALL STREET JOURNAL

 

INVESTMENT BANKING '

Berkshire Hathaway's War Chest Swells  |  Berkshire Hathaway's cash rose 17 percent, to $47.8 billion, in the third quarter, as Warren E. Buffett “extended his search for larger acquisitions,” Bloomberg News reports. BLOOMBERG NEWS

 

Wall Street Turns to Hurricane Relief  |  Financial firms have promised various forms of aid, including donations, loans and waived fees, and many in the financial industry are volunteering in recovery efforts. DealBook '

 

Credit Suisse Announces Venture With Qatar Fund  | 
REUTERS

 

Deutsche Bank's Head of Acquisitions in Asia Said to Depart  | 
BLOOMBERG NEWS

 

Scottish Money Managers Take a Shine to Small American Banks  | 
BLOOMBERG NEWS

 

PRIVATE EQUITY '

Warburg Pincus Said to Be Selling Sc otsman Industries  |  Warburg Pincus agreed to sell Scotsman Industries, a maker of ice machines, to the Ali Group, an Italian food-service conglomerate, for about $575 million, The Wall Street Journal reports, citing unidentified people familiar with the deal. WALL STREET JOURNAL

 

A Look at a Pension Fund's Private Equity Investments  |  The California State Teachers' Retirement System has updated its data on how its $22 billion private equity portfolio performed across different funds. FORTUNE

 

HEDGE FUNDS '

Einhorn Bets Against British Media Company  |  David Einhorn's Greenlight Capital disclosed a short position in Daily Mail and General Trust, which publishes the popular British newspaper Daily Mail. BLOOMBERG NEWS

 

Harbinger Enters Natural Gas Partnership  |  Philip Falcone's Harbinger Group is betting on natural gas, buying a stake in gas fields from Exco Resources for $373 million, Bloomberg News reports. BLOOMBERG NEWS

 

Whitney Tilson's Bet on the Election  |  The hedge fund manager Whitney Tilson, a rare Obama supporter on Wall Street, sent out an e-mail saying he was “willing to match up to $25,000 worth of bets on the outcome of the presidential race.” BUSINESS INSIDER

 

Robertson Backs a Fund Focused on Asia  |  Julian Robertson, the founder of Tiger Management, is providing seed capital to Tiger Pacific Capital, Reuters reports. REUTERS

 

I.P.O./OFFERINGS '

Zillow Announces an Acquisition  |  The real estate information company Zillow said it was paying about $12 million in cash and 150,000 shares of restricted stock for Mortech, which caters to the mortgage industry. Zillow also offered a downbeat projection for revenue in the fourth quarter. ALLTHINGSD

 

VENTURE CAPITAL '

A Struggle Over Online Privacy Rules for Children  |  Silicon Valley and Washington are at loggerheads over “the data collection and dat a mining mechanisms that facilitate digital marketing on apps and Web sites for children,” The New York Times reports. NEW YORK TIMES

 

Pioneering Venture Capitalist Dies at 79  |  Paul M. Wythes, a co-founder of Sutter Hill Ventures, was “one of Silicon Valley's earliest venture capitalists,” Bloomberg News writes. BLOOMBERG NEWS

 

LEGAL/REGULATORY '

France Plans $25 Billion in Tax Breaks for Businesses  |  The tax credit is scheduled to go into effect next year and last for three years. ASSOCIATED PRESS

 

Suzuki's American Unit Files for Bankruptcy Protection  | 
ASSOCIATED PRESS

 

A Triple Whammy for Barclays  |  Just months after settling a rate-rigging investigation, Barclays now finds itself caught in two more inquiries - one related to energy price manipulation and the other involving the Foreign Corrupt Practices Act, Peter J. Henning writes in the White Collar Watch column. DealBook '

 

European Regulators Raise Antitrust Concerns With TNT-U.P.S. Deal  |  The Wall Street Journal reports: “European Union regulators have warned that a planned deal to create Europe's largest package-delivery company raises competition problems in almost all 27 member states, according to a person familiar with the situation.” WALL STREET JOURNAL

 

Rochdale Securities Under Scrutiny  |  The Financial Industry Regulatory Authority is looking into possible unauthorized trading at Rochdale Securities. WALL STREET JOURNAL

 

ING to Pay $8.8 Million Penalty to Taiwan  | 
BLOOMBERG NEWS

 

MF Global Customers Take Aim at PricewaterhouseCoopers  |  The accounting firm PricewaterhouseCoopers was added as a defendant in a lawsuit over the collapse of MF Global, Reuters reports. REUTERS

 

G-20 Officials Put a Focus on Growth  |  Officials from the Group of 20 countries who met in Mexico City “warned that efforts to deal with debt troubles in Europe and the United States must be balanced with actions to spur the global economy,” The New York Times reports. NEW YORK TIMES