UBS Settlement Minimizes Impact of Guilty Plea

The Swiss banking giant UBS paid a fairly stiff price to settle the rate-rigging case. In addition to approximately $1.5 billion in penalties and disgorgement, the bank's Japanese securities subsidiary pleaded guilty to a charge of felony wire fraud.

As DealBook reported, the guilty plea by the UBS subsidiary is the first time an arm of major financial institution has been convicted of a crime since Drexel Burnham was more than 20 years ago. Although that distinguishes this case from most others, the Justice Department and UBS also structured the settlement to keep the potential fallout from the plea to a minimum.

A guilty plea in a corporate criminal investigation is uncommon, with most cases concluded by a deferre d or nonprosecution agreement. Just last week, HSBC received a deferred prosecution agreement related to money laundering. Barclays struck a deferred prosecution agreement to settle its rate manipulation case.

This is not the first time UBS has been caught up in an investigation of criminal violations. In February 2009, the bank entered into a deferred prosecution agreement over its role in aiding tax evasion by Americans using secret accounts that resulted in $780 million in fines and penalties.

In the rate-manipulation settlement, the parent company received a separate nonprosecution agre ement, which will be in effect for two years, after which the criminal investigation will be closed without any charges being filed. Under this type of arrangement, the bank does not suffer the embarrassment of having charges made public while prosecutors hold them in abeyance.

UBS was required to accept a statement of facts outlining its misconduct, which will be useful to private plaintiffs. More important, the nonprosecution agreement does not affect the bank's ability to continue to do business in the United States in the same way a criminal conviction could because the parent company will be able to keep its charter.

The Japanese subsidiary, where much of the manipulation involving the yen-denominated London interbank offered rate, or Libor, occurred, does not have any operations in the United States and so is not subject to direct regulation in this country. Its criminal conviction will not have a direct effect on UBS's operations here.

The impact in Japan on the UBS subsidiary also is likely to be minimal. The Financial Services Agency, which oversees Japanese banks and securities firms, issued an administrative order in December 2011 sanctioning UBS Securities Japan for manipulation of the yen-denominated Libor. The action included a 1-week suspension from derivatives transactions and an agreement to improve its compliance measures. The Japanese authorities might revisit the case, but it appears they have already disposed of the matter.

One concern that has been expressed about pursuing criminal charges in the United States against global companies in heavily regulated industries like banking is the potentially devastating impact a conviction could ha ve on their operations. If a large bank were suddenly put out of business, the financial system might be substantially harmed because it has become so interdependent, not to mention the loss of jobs and threat to investments.

This is the fear of the “Arthur Andersen” effect, named after the accounting firm that went out of business in 2002 when it was convicted of obstruction of justice related to auditing work for Enron. Since its demise, federal prosecutors have relied primarily on deferred and nonprosecution agreements to resolve corporate criminal investigations. Even when the Justice Department obtains a guilty plea as part of the resolution of a corporate criminal investigation, it has structured the case to minimize the collateral consequences to the company from a conviction.

For example, in the hea lth care area, the government has allowed nonoperating subsidiaries â€" basically corporate shells â€" to be the defendant pleading guilty while the parent company is involved only in a civil settlement or, as with UBS, enters into a deferred or nonprosecution agreement.

In 2009, Pfizer agreed to a $2.3 billion settlement for illegal promotion of its products in which its Pharmacia & Upjohn subsidiary, which had ceased operations years earlier, pleaded guilty. Earlier this year, GlaxoSmithKline, which is incorporated in Britain, paid $3 billion as part of a settlement for unlawful promotion of its drugs while a Delaware limited liability company it owned pleaded guilty.

One reason health care companies need to avoid a criminal conviction is that certain violations result in an automatic five-year exclusion from participating in Medicare and Medicaid. That would have a devastating effect on a drug company. So the settlements have a nonoperating subsidiary bear the consequences of the conviction while the parent stays in business.

Using the Japanese subsidiary as the vehicle for the guilty plea spares UBS from having its operations in other countries hampered. In addition to the Justice Department, one of the parties to the settlement is the Commodity Futures Trading Commission, which imposed $700 million of the $1.5 billion in penalties. As such, UBS is likely to have resolved its dealings with the federal government.

The bank is not immune from further enforcement activity in the United States, however. As Standard Chartered learned recently when it had to settle a claim filed by the New York State Department of Financial Services by paying $340 million, state regulators may want their own payments for violation of banking laws.

UBS has branches in New York and Connecticut with billions of dollars in assets, so it would not be a surprise if authorities in those states raise questions over its manipulation of Libor and perhaps seek their own pound of flesh from the bank.

The Justice Department has upped the ante for other banks involved in the Libor investigation by including criminal charges rather than just employing a deferred or nonprosecution agreement. Although UBS did everything it could to avoid pleading guilty, in the end the Justice Department held firm.

It will be interesting to see if a guilty plea has become the price of a settlement with federal prosecutors. If so, that may not bode well for other banks involved in the investigation.

Questions Remain About New Plan on \'Too Big to Fail\'

The Federal Deposit Insurance Corporation and the Bank of England recently put out a new paper on how they might work together to aid a major financial institution that gets into trouble.

Lots of good feelings all around about international cooperation, but h aving spent the week giving the document a close read, I'm struck by how much remains unknown or simply speculative.

The basic problem is that Dodd-Frank's orderly liquidation authority as originally presented was - and still is - probably unworkable. I have written about how the fractured nature of financial institution regulation and insolvency in the United States means that in or out of the authority, failure of a big, integrated “universal bank” (or as close as we get to those in the United States) would be something of a calamity.

The F.D.I.C. has sensibly moved on, and now plans to stabilize the holding company, providing it will provide enough financing and liquidity to keep the rest of the operation afloat.

It's generally a good plan, but let's just stipulate now that whatever political party does not hold the White House will call this a bailout. So be it. I leave it to the F.D.I.C. to deal with the politics

More important, for the agency's new plan to work on a global scale, you need to make several assumptions. First, all the relevant countries have to basically agree to abstain from action, and trust that the F.D,I.C. will be able to stabilize the enterprise. Getting London on board is huge in this regard, because of the crucial role that Britain pla ys in most major American financial institutions.

There remains lost of assumptions in the paper about parties involved having “strong incentives” to behave rationally once the F.D.I.C. is standing behind the institution. One might question whether assuming that people will be rational in the kind of financial crisis we are talking about here makes a lot of sense.

But you also have to assume that the problem is not caused by a foreign subsidiary that itself has become insolvent. Rather, much of the new plan seems to turn on insolvency at the holding company level, which can be easily solved by the effects of inflicting pain on bondholders and injecting cash.

This model does not fit nicely with a foreign operating subsidiary that develops a gigantic, A.I.G.-like, cash-sucking hole. In Paragraph 37 of the new report, the regulators suggest that such a situation would require a separate, forcible equity for debt swap at the subsidiary level.

Not easy to do with the liquidation authority applying only to domestic parts of the financial institution, and doing that does seem to lead to the breakup of the institution. Creditors at the subsidiary level might not be the same creditors as at the parent level, and before you know it, one group owns the head and another the body.

The paper also talks at cross-purposes at times. On the one hand, it's quite clear that the F.D.I.C. would want to get rid of its control of the financial institution as soon as possible. Thus, the paper talks a lot about a quick turnover of new equity to old creditors.

On the other hand, it also says that as part of the resolution process, the agency might well require a significant operational restructuring of the financial institution, even to the extent of requiring a breakup of the institution. How is that going to happen if the F.D.I.C. is also giving up control right away?

The paper provides an answer: The F.D.I.C. will mandate changes that the new owners (creditors of the financial institution) will have to put into place.

Right. So, that still leaves the question of how the agency will know which changes to mandate in the short time it has control over the institution. It may also leave the creditors wondering precisely what it is that the F.D.I.C. is handing them in this process.

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.

Ackman Outlines Bet Against Herbalife

From the perspective of Herbalife‘s executives, the company is built on a sound model that benefits its participants.

From the perspective of the hedge fund manager William A. Ackman, Herbalife is a pyramid scheme - and an attractive short-selling opportunity.

Mr. Ackman, of Pershing Square Capital Management, announced on Thursday that his firm had an “enormous” short position in Herbalife stock. At a gathering sponsored by the Sohn Conference Foundation in Manhattan, Mr. Ackman kicked off a three-hour presentation, called “Who Wants to Be a Millionaire?,” arguing that Herbalife's retail sales were far less than it claimed.

The company's shares fell more than 10 percent by Thursday afternoon, at one point trading as low as $33.05. The stock had fallen 12 percent on Wednesday after reports that M r. Ackman was planning on announcing his short position.

“This is the best-managed pyramid scheme in the history of the world,” Mr. Ackman said on Thursday.

Herbalife, which is based in the Cayman Islands, sells nutritional supplements and personal care products using a network of independent distributors who are encouraged to recruit others. In addition to profit from their own sales, the distributors receive commissions when people they have recruited sell products. They also receive bonuses tied to how many people they recruit.

But Mr. Ackman argued that the participants in this structure make more money from recruitment than from sales. That qualifies the business as a pyramid scheme according to the Federal Trade Commission's definition, Mr. Ackman said.

“I don't think very many retail sales are actually happening at all,” he said.

Barbara Henderson, a spokeswoman for Herbalife, said in an e-mail that Mr. Ackman had “pointedly ref used” to allow the company to “participate in today's conference.”

“Now we know why,” she continued. “Had our executives been there, they would have been able to tear Mr. Ackman's premises and interpretation of our business model apart. His misstatements and mistakes are too numerous to address immediately.”

Herbalife investors were spooked earlier this year when another hedge fund manager, David Einhorn, asked pointed questions on a conference call with the company's management. That was enough to send shares down more than 20 percent, even though Mr. Einhorn never disclosed any short position.

On Thursday, the Pershing Square team left little doubt about their investment position.

An analyst at the firm, Shane Dinneen, took the audience through the details, showing charts of the company's sales structure. Levels in the structure have names like “millionaire team” and “founder's circle.”

Mr. Dinneen zeroed in on the way He rbalife reports sales. The suggested retail price that the company uses is not the price at which products are actually sold, Mr. Dinneen said. That suggested price is an “artificial, inflated number,” Mr. Dinneen said, while the actual price can be significantly lower.

The presentation included some humorous jabs. At one point, Mr. Ackman showed a video produced by Herbalife featuring a distributor who listed the rewards of his job. He took viewers on a tour of his house and referred to driving around town in a Ferrari or Bentley.

“Episodes of ‘MTV Cribs'?” Mr. Ackman asked, to chuckles from the audience. “No. These are Herbalife productions.”

Pershing has prepared a Web site with the full details of the presentation, a “very fascinating place to spend your time,” Mr. Ackman said. The presentation was also streamed online.

Herbalife products - Formula 1 drink mix, aloe water and herbal tea - were being offered on a table outside the auditorium where the presentation was held.

At various points during the presentation, Mr. Ackman and his team cited questions that Mr. Einhorn had asked of the Herbalife executives. They were later asked whether Pershing had consulted with Mr. Einhorn on the short-selling thesis. The answer was a firm no.

Making It Easier to Estimate Libor Losses

The potential victims of the Libor scandal are starting to estimate the costs to their bottom lines.

In its settlement with Barclays earlier this year, the Justice Department said that those who manipulated interest rates at the bank knew their activities hurt others.

The traders who rigged the London interbank offered rate “understood that to the extent they increased their profits or decreased their losses in certain transactions from their efforts to manipulate rates, their counterparties would suffer corresponding adverse financial consequences with respect to those particular transactions,” the Justice Depart ment said.

Now, a new report indicates that Fannie Mae and Freddie Mac, the mortgage entities that the government bailed out and now controls, may have suffered big losses related to the manipulation.

Rate-rigging may have cost the two firms more than $3 billion over just less than two years, according to a preliminary study from the inspector general's office that oversees the Federal Housing Finance Agency, Fannie and Freddie's regulator. The study was first reported by The Wall Street Journal.

What is especially interesting about the watchdog's report is that it lays out an easy-to-follow road map for calculating potential Libor losse s.

It starts on the assumption that the overall effect of Libor manipulation was to make the interest rate lower than it would otherwise have been.

When markets were declining from 2007 to 2010, banks benefited from a lower Libor because it made it look as if they could borrow cheaply from each other. The banks faked Libor to increase confidence in themselves. In addition, the banks' own individual trades often benefited from an artificially low Libor, though the manipulators also made money by fixing Libor higher.

The study by the inspector general's office starts out by estimating how much lower Libor would have been without rigging. It does that by comparing Libor with a very similar interest rate, called the Eurodollar deposit rate.

Before the market turbulence, the two rates had been very close, the study says. But then, during the financial stress, Libor became lower than the other rate, a lot lower for a short period in 2008.

In the repor t, the inspector general's office then tries to work out what Fannie and Freddie's cash flows would have been if Libor had continued to be in line with the Eurodollar rate. A low Libor meant that Fannie and Freddie were effectively underpaid on certain swaps and overpaid on others. They would also have been underpaid on Libor-linked bonds. The net result was that Fannie and Freddie experienced a cash shortfall of over $3 billion, according to the inspector general's office.

The office acknowledges the exercise is not exhaustive, and suggests other financial instruments owned by Fannie and Freddie that could have been affected by Libor manipulation.

Clearly, in this exercise, so much depends on whether the Eurodollar deposit rate is a strong proxy for Libor that was not manipulated. The comparison between the rates has been made in Libor-related lawsuits, the inspector general's office notes. “It's a perfectly good place to start out,” said John Sprow, chie f risk officer at Smith Breeden Associates, an asset management firm.

Of course, financial firms may have balance sheets that don't look like those of Fannie and Freddie. An overly low Libor may have meant they were overpaid.

Still, the inspector general has done the financial sector a favor. It now has a rough-and-ready template for assessing Libor losses.

Federal Housing Finance Agency's Office of the Inspector General memo on Libor

NYSE Euronext\'s Decent Deal for Its Suffering Shareholders

At least Duncan Niederauer, the NYSE Euronext chief executive, isn't blind to the inevitable. He has agreed to sell the Big Board to IntercontinentalExchange for $8.2 billion.

While that's a 37 percent premium to Wednesday's closing price, it's a quarter less than ICE offered in its joint bid with Nasdaq OMX last year. Mr. Niederauer preferred to pursue a tie-up with Deutsche Börse, but that fell apart. With NYSE's shares lagging the exchange sector since then, capitulation was his best option.

He conceded in a conference call on Thursday morning that NYSE had failed to deliver value for shareholders, whether because of the environment or as a result of poor management. As of Wednesday's close, NYSE's stock had fallen 30 percent since the day before ICE and Nasdaq began their hostile offer in April last year â€" though Mr. Niederauer has paid out some cash in that time, too. Both ICE and Nasdaq have pretty much retained their value, while even Deutsche Börse' s stock is only down about 15 percent.

That suggests it's more a matter of NYSE's execution, or perhaps its overall direction, than market conditions. In taking ICE's offer, Mr. Niederauer is accepting he may have to unwind the New York company's grand strategy, too: Atlanta-based ICE has raised the prospect of separately listing its target's continental European bourses next year, especially if regulators push for it.

Despite not starting from a position of strength, the NYSE chief has managed to craft a decent deal for his suffering shareholders â€" it almost matches the value of their holdings before the company's spate of abortive deal-making last year.

The transaction stacks up financially for ICE, too. New annual cost savings of $300 million, on top of $150 million NYSE was already chasing, are currently worth perhaps $2 billion to investors in post-tax, present-value terms. That falls only just shy of the premium ICE is paying to Wednesday's closing price, and more than covers the smaller 27 percent premium to NYSE's average share price this year.

There is also industrial logic, with or without the European exchanges. The commodity futures-focused ICE finally wins the London-based derivatives exchange Liffe. Meanwhile, NYSE can fold its fledgling clearing business into its new owner's established operation, which ought to be a money-spinner as regulation forces more derivatives trades into clearing houses.

NYSE shareholders may wish they could still collect the extra $3 billion that rival suitors were offering last year. But Mr. Niederauer knew it was time to take ICE's offer, and at least they have a deal before things worsen.

Antony Currie is an associate editor at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

Chinese Companies Head For the Exit

HONG KONGâ€"Fed up with slumping share prices, prickly regulators and aggressive short sellers, an increasing number of Chinese companies listed on American stock exchanges are heading for the exits.

The most recent case is also the biggest yet. On Wednesday, the directors of Focus Media Holdings, a display advertising company based in Shanghai, whose shares had come under attack by short-sellers, said they had accepted a sweetened $3.7 billion privatization bid from a buyout group that included the American private equity giant Carlyle Group, several Chinese private equity firms and the company's chairman.

The deal would delist the company from Nasd aq. It includes $1.5 billion in debt financing from a consortium of Wall Street banks and mainly state-owned Chinese lenders and would rank as China's biggest-ever leveraged buyout. Pending shareholders' approval, the company expects the transaction to close in the second quarter of next year.

Including the Focus Media deal, which was first announced in August, Chinese companies began a record $5.8 billion worth of privatization bids in the first nine months of the year, according to the data provider Dealogic. That was a 42 percent increase from the same period a year earlier, and proposed Chinese delistings accounted for a record 16 percent of such transactions globally during the period, up from 6 percent a year earlier.

‘‘A lot of Chinese entrepreneurs want out of the U.S. markets. Share prices are depressed, and there are a lot of these deals in the pipeline,'' said David Brown, greater China private equity practice leader at the auditing firm Pricewater houseCoopers.

Valuations of companies from China that are listed in the United States have come under pressure in recent years after a wave of allegations of fraud and other accounting scandals. The Securities and Exchange Commission has deregistered the securities of nearly 50 China-based companies and has filed about 40 related fraud cases.

At the same time, a cross-border regulatory dispute over auditing procedures for Chinese companies listed in the United States escalated this month, when the S.E.C. charged the Chinese affiliates of the world's four biggest accounting companies with violating securities law for failing to turn over documents related to their auditing work on businesses in China.

The standoff between Unit ed States and Chinese regulators over the auditing issue has raised concerns among multinational corporations that operate in both countries.

‘‘Failure to reach an agreement will create regulatory dead zones that harm investors and businesses,'' the United States Chamber of Commerce said last week in a letter to securities regulators in Beijing and Washington. ‘‘The threat of retaliatory actions by regulators, on both sides of the Pacific, may create a regulatory protectionism that will harm both economies.''

The Deal for N.Y.S.E.

N.Y.S.E IN MERGER TALKS  |  The owner of the New York Stock Exchange is in talks to be acquired by the IntercontinentalExchange, an upstart commodities and derivatives trading platform, in an $8 billion deal, people briefed on the matter tell DealBook's Michael J. de la Merced. IntercontinentalExchange, known as ICE, is expected to offer about $33 a share, with two-thirds of that in stock, according to one of these people. That would be a 37 percent premium to NYSE Euronext's closing price on Wednesday.

“While the New York Stock Exchange, with its opening bell and floor traders, has been the public image of a stock market for two centuries, it is NYSE Euronext's businesses in the over-the-counter trading of derivatives - including the Liffe market in London - that appear to be the main attraction in the merger talks,” Mr. de la Merced writes. A deal would follow a failed attempt by ICE and the Nasdaq OMX Group more than a year ago to buy NYSE Euronext - an effort that fell apart after being challenged by regulators. “The newest merger might pose fewer problems because ICE focuses on commodities like oil, natural gas and cotton, while NYSE Euronext plies mainly in stock and stock options and derivatives.” A merger, Mr. de la Merced says, would underscore “how the global market for derivatives has eclipsed that for stocks.”

HOW UBS WAS DENIED LENIENCY  |  UBS made history on Wednesday when its Japanese unit agreed to plead guilty to fraud over interest-rate manipulation. “It was the first guilty plea from a major financial institution since Drexel Burnham Lambert admitted to six counts of f raud in 1989,” DealBook's Ben Protess reports.

The Swiss bank fought to avoid its punishment, which also involves $1.5 billion in fines from an international group of regulators. Mr. Protess reports: “A week ago, in a bid for leniency over interest-rate manipulation, the bank's chairman traveled to Washington to plead his case to the Justice Department, according to people briefed on the matter. Knowing the long odds, the chairman, Axel Weber, asked the criminal division for a lighter punishment. But the government did not budge. With support from Attorney General Eric H. Holder Jr., the agency's criminal division decided the bank's actions were simply too egregious, people briefed on the matter said.”

The Justice Department also leveled criminal charges at two former UBS traders. Tom Hayes and Roger Darin were charged with conspiracy to commit wire fraud, and Mr. Hayes also faces an additional count of wire fraud and another related to price fixing.

Just six months ago, it seemed UBS's penalty would be similar to the $450 million settlement struck with Barclays over attempts to manipulate Libor. “Then the tone shifted this fall. After examining thousands of e-mails and hours of taped phone calls, the agency's criminal division concluded that the conduct at the Japanese subsidiary warranted a criminal charge.” Prosecutors wanted to send a warning. Other institutions, including JPMorgan Chase, remain in regulators' sights.

ACKMAN'S NEW TARGET  |  Shares of Herbalife began plummeting on Wednesday after reports that the hedge fund manager William A. Ackman was short-selling the company. According to CNBC, Mr. Ackman, of Pershing Square Capital Management, has said he considers the business to be a pyramid scheme. Herbalife's chief executive called that accusation “bogus.” But investors fled the stock, which fell 12 percent. Mr. Ackman is scheduled to announce his new thesis Thursday morning as the market opens, at an event in Manhattan sponsored by the Sohn Conference Foundation. He is also scheduled for a media tour, with appearances on CNBC at 12 p.m. and Bloomberg TV at 12:30 p.m. If Mr. Ackman is indeed taking aim at Herbalife, he would be the second prominent hedge fund manager this year to raise questions about the company. David Einhorn of Greenlight Capital, who has not announced any short position in Herbalife, prompted a selloff when he asked questions on a conference call in May.

< p>ON THE AGENDA  |  The maker of the BlackBerry, Research in Motion, reports earnings after the market closes. Discover Financial Services reports results before the opening bell. The final measure of third-quarter gross domestic product is out at 8:30 a.m. Data on existing home sales in November are out at 10 a.m. Robert Kindler, Morgan Stanley's head of global mergers and acquisitions, is on CNBC at 10:30 a.m. Robert Benmosche of A.I.G. is on CNBC at 4:30 p.m. John Donahoe, chief executive of eBay, is on Bloomberg TV at 6 p.m.

FRESH SETBACK FOR PAULSON  |  Some of John A. Paulson's investors appear to be reconsidering whether they should keep the ir money with the hedge fund manager, who has suffered a string of disappointing quarters. The latest doubts came from Morgan Stanley Smith Barney, which recommended that its financial advisers withdraw client money from Mr. Paulson's Advantage and Advantage Plus funds, according to Reuters, which cites an unidentified person familiar with the matter. “The move, which is expected to shave some $100 million in assets off the $5.7 billion Advantage and Advantage Plus funds, may be more humiliating than truly harmful for Paulson's $20 billion firm,” Reuters reports, adding that investors with Morgan Stanley “have already asked to pull out about $36 million of the $100 million that is expected to be redeemed.” In August, Citigroup's private bank was said to be with drawing $410 million from Mr. Paulson's funds.

Mergers & Acquisitions '

Google to Sell Cable-Box Business for $2.35 Billion  |  The Arris Group is buying Google's Motorola Home business for $2.35 billion.
BLOOMBERG NEWS

Emirates Bank to Buy BNP's Egyptian Assets  |  The Dubai bank Emirates NBD said it would acquire the Egyptian assets of BNP Paribas in a roughly $500 million deal.
WALL STREET JOURNAL

$3.13 Billion Specialty Insurance Deal  |  The Markel Corporation, a specialty insurer, on Wednesday said it had agreed to acquire a rival, Alterra Capital, for $3.13 billion.
DealBook '

Kodak to Sell Patents for $525 Million  |  Eastman Kodak on Wednesday announced that it had successfully sold its sizable patent portfolio for $525 million to a consortium led by Intellectual Ventures and the RPX Corporation. Company officials have considered the sale a crucial step toward rebuilding the beleaguered company, Andrew Martin reports in The New York Times.
DealBook '

Chief of Martha Stewart Living to Resign  | 
NEW YORK TIMES MEDIA DECODER

INVESTMENT BANKING '

Morgan Stanley Makes Donation After Sandy Hook Massacre  |  Morgan Stanley, where three employees lost family members in the Sandy Hook Elementary School shooting, has donated $150,000 to charities honoring the victims. In addition, about 1,400 employees have made pledges, contributing just over $1 million in tot al.
DealBook '

Bank of America Chief Said to Block Pay Cuts for Brokers  |  Bloomberg News reports: “Bank of America Corp. Chief Executive Officer Brian T. Moynihan blocked a proposal to cut the main component of most brokers' pay for 2013, said a person with direct knowledge of the matter.”

BLOOMBERG NEWS

Aegon, Dutch Insurer, to Form Venture With Banco Santander  | 
REUTERS

Scandal Grows Around Deutsche Bank  |  The latest revelations are hurting the German firm's ability to rehabilitate its image, The Wall Street Journal notes.
WALL STREET JOURNAL

Fidelity's ‘Invisible Heir'  |  Abigail Johnson, a 24-year veteran of Fidelity Investments with a net worth estimated at $10 billion, “has become the leading member of what today is still a very small club” of powerful women, Bloomberg Businessweek writes.
BLOOMBERG BUSINESSWEEK

< /div>

PRIVATE EQUITY '

Chinese Companies Head For the Exit  |  The $3.7 billion bid to privatize Nasdaq-listed and Shanghai-based Focus Media, a leveraged buyout backed by private equity and management, is the biggest deal in a rising wave of Chinese companies seeking to delist from American exchanges.
DealBook '

Focus Media Agrees to $3.7 Billion Buyout  |  The Chinese advertising company Focus Media, which is listed in the United States, agreed to a buyout offer from the Carlyle Group and other private equity funds.
FINANCIAL TIMES

K.K.R. in Deal to Collect Water Revenue  |  On Thursday, K.K.R. “kicked off a joint venture with Suez Environment to run the water and wastewater systems of a New Jersey city it hopes will become a model for cash-strapped local authorities in the United States,” Reuters reports.
REUTERS

HEDGE FUNDS '

Hedge Fund Challenges Benckiser's Deal for Caribou  |  Accretive Capital Partners, which has a 4 percent stake in Carib ou Coffee, “urged the company to pursue a better deal after it agreed to be sold to Germany's Benckiser group for $340 million, saying it is easily worth double that price,” Reuters reports.
REUTERS

Pecora Capital, Quantitative Hedge Fund, Opens Its Doors  |  The new fund is trying to avoid the fate of similar funds, which have suffered losses this year, Reuters writes.
REUTERS

I.P.O./OFFERINGS '

Brazilian Cement Producer Said to Plan $3 Billion I.P.O.  |  Bloomberg News reports: “Votorantim Cimentos SA, the biggest cement producer in Brazil, is preparing an initial public equity offering of at least $3 billion, according to three people with direct knowledge of the matter.”
BLOOMBERG NEWS

Pinnacle Foods Aims for $100 Million I.P.O.  |  The company is backed by the Blackstone Group.
DOW JONES

VENTURE CAPITAL '

Start-Ups That H elp Companies Outsource Tasks  |  “This season, dozens of start-ups are competing to take on your holiday headaches,” The New York Times writes.

NEW YORK TIMES

Kleiner Partners Talk Clean Tech  |  John Doerr of Kleiner Perkins Caufield & Byers told The Wall Street Journal: “We're very committed to green and the numbers are showing how that pays off.”
WALL STREET JOURNAL

LEGAL/REGULATORY '

Ireland Passes Law to Bolster Housing  |  The bill overhauls several aspects of Ireland's consumer debt laws, including a measure that would let stressed borrowers work with banks to write down the value of their mortgages.
DealBook '

Ally Repays Last of Debt Borrowed Under F.D.I.C. Guarantee  |  Ally Financial, the former G.M.A.C., said Wednesday that it had repaid $4.5 billion in debt that was guaranteed by the Federal Deposit Insurance Corporation after the 2008 financial crisis.
DealBook '

L ast-Ditch Challenge to the Volcker Rule  |  Simon Johnson writes on the Economix blog: “In a desperate attempt to prevent implementation of the Volcker Rule, representatives of megabanks are resorting to some last-minute scare tactics.”

NEW YORK TIMES ECONOMIX

S.E.C. Moves Against Day-Trading Broker  |  The Securities and Exchange Commission has revoked the license of a Canadian brokerage firm over failing to prevent overseas day traders that used its system from manipulating stocks in the United states.
DealBook '

France Out lines Plan to Reduce Banking Risk  |  The banking bill unveiled on Wednesday “was a far cry” from the tough talk of the president, François Hollande, in January, The New York Times writes.

NEW YORK TIMES

Looking Back on a Year of Bank Scandals  | 
REUTERS

Municipalities Fight to Preserve Tax Exemption  |  The New York Times reports that “local and state governments, bond dealers, insurers and underwriters” have mounted a lobbying campaign †œthat is trying to pre-empt any attempt to limit or even kill” a tax exemption on municipal bond interest.
NEW YORK TIMES

Bank of Japan Steps Up Monetary Easing  |  Japan's central bank is expanding the size of its asset-purchase program.

WALL STREET JOURNAL

Upstart Market Operator Clinches $8.2 Billion Deal for N.Y.S.E.

8:39 a.m. | Updated

The owner of the 220-year-old New York Stock Exchange on Thursday agreed to an $8.2 billion deal that would give control of the longstanding symbol of American capitalism to an upstart competitor.

NYSE Euronext said that it would sell itself to the IntercontinentalExchange for about $33.12 a share in cash and stock. The combined company would have headquarters in both I CE's home of Atlanta and in New York.

The takeover signals the revival of consolidation in the world of market operators, after a wave of deals dissipated amid concerns over antitrust and nationalist sentiment. ICE had partnered with NYSE Euronext's main rival, the Nasdaq OMX Group, in an $11 billion hostile bid for the Big Board's parent, but that offer was blocked by the Justice Department.

And NYSE Euronext had sought to combine with Deutsche Börse, creating a global giant in the trading of derivatives. But that merger was stymied by European antitrust regulators.

Thursday's deal is expected to run into fewer problems. ICE and NYSE Euronext have little overlap: the former focuses on the trading of commodities like energy products, the latter on stocks and derivatives.

Indeed, while the New York Stock Exchange, with its opening bell and floor traders, has been the public image of a stock market for two centuries, it is NYSE Euronext's businesses in the over-the-counter trading of derivatives - including the Liffe market in London - that is the main attraction in the merger talks.

As part of the deal, ICE will consider spinning off NYSE Euronext's European stock market operations.

Shareholders of NYSE Euronext would own about 36 percent of the combined company.

ICE's chief executive, Jeffrey C. Sprecher, would keep that role in the newly enlarged market operator. NYSE Euronext's chief, Duncan L. Niederauer, would be president.

Both companies relied on armies of advisers. ICE was advised by Morgan Stanley, BMO Capital Markets, Broadhaven Capital Partners, JPMorgan Chase, Lazard, Société Générale and Wells Fargo. It received legal counsel from Sullivan & Cromwell and Shearman & Sterling.

NYSE Euronext was advised by Perella Weinberg Partners, BNP Paribas, the Blackstone Group, Citigroup, Goldman Sachs and Moelis & Company. It was counseled by Wachtell, Lipton, Rosen & Katz; Slaughter & May; and Stibbe N.V.