Fed Transcripts Reveal Concerns About Private Equity Boom

As the private equity bubble inflated during the first half of 2007 â€" a period defined by record-sized acquisitions by the world’s largest buyout firms â€" the Federal Reserve took notice.

In a transcript of the Fed’s March 2007 meeting, Janet Yellen, then president of the Federal Reserve Bank of San Francisco, appeared troubled by the frenzied private equity deal-making that had taken hold on Wall Street.

Despite the recent turmoil in equity and mortgage markets, a reassessment of overall risk has yet to occur. We are still in an environment of low long-term yields, ample liquidity, and what appears to be a generally low level of compensation for risk. For example, I recently talked with the principals of several major private-equity funds, who were not just amazed but also appalled about the amount of money their industry has attracted. [Laughter] One partner said that he would have no difficulty immediately raising $1 billion. Indeed, one of his biggest problems is woul-be investors who get angry at him because he is unwilling to take their money.

Ms. Yellen also highlighted the perverse incentives that were perhaps driving private executives to raise ever-more money.

My contacts suggest that some private-equity firms with similar assessments of the shortage of profit opportunities are less restrained and do take additional money, partly because of the large upfront fees that are generated by these deals. So just as we have seen in mortgage markets, the bubble in private equity, as my sources characterize it, and the overabundance of liquidity more generally raise the risk of a sharp retrenchment in credit and higher risk spreads with associated risks to economic growth and, conceivably, even financial stability.

A couple of months later, in June, the former Fed board member Randall Kroszner, raised similar concerns during the May meeting. Mr. Kroszner highlighted what he saw as potentially reckless lending pr! actices by Wall Street banks, who were tripping over each other to lend private equity firms money to help finance their debt-heavy deals. He also noted the loose financing terms â€" called “covenant-free” or “covenant-lite” loans â€" that had became popular.

In particular, there are concerns about banks chasing private equity deals going covenant-free. In many of my discussions with private equity folks, instead of saying, well, bring us on more capital, those contacts are the ones saying that the banks are pushing them to take greater leverage than they otherwise would want. Now, if that isn’t the fox guarding the henhouse, I do not know what is. You want the banks to be the disciplinary force, and that they would potentially be taking on very large risks is a real concern.

The following month, as the private equity boom was cresting, Blackstone Group went public, yielding nearly $2.5 billion in cash for the firm’s two co-founders, Pete Peterson and Stehen A. Schwarzman. Blackstone’s rival Kohlberg Kravis Roberts & Co. filed for an initial public offering that July, but the firm was stopped in its tracks when the credit bubble burst.

(A special hat tip to Jennifer Rossa, editor of financial newsletters at Bloomberg News, for spotting the Fed’s private equity discussion.)

Goldman Awards Blankfein $13.3 Million in Stock

Lloyd Blankfein is getting a pay raise.

Shortly after announcing a jump in quarterly profit, Goldman Sachs on Friday disclosed that the board had granted Mr. Blankfein, the bank’s chief executive and chairman, restricted stock valued at $13.3 million for 2012, according to a regulatory filing. That’s nearly double his stock award the previous year.

With a $2 million base salary, Mr. Blankfein’s 2012 pay package so far totals more than $15 million. Goldman has not yet revealed the size of his cash bonus, a detail likely to emerge when the company files its proxy statement in the spring.

A person briefed on Mr. Blankfein’s pay package said the bank is expected to follow the same formula used last year for calculating his cash bonus. Under that plan, Mr. Blankfein would take home a nearly $6 million bonus, bringing his total compensation to $21 million. The award ould represent a significant jump from 2011, when Mr. Blankfein earned $12 million in total pay.

The directors this week also handed out a $12 million stock package to Gary D. Cohn, the bank’s president, along with his $1.8 million base salary. The value of the stock awards is based on the company’s $141 share price as of Thursday’s close.

Even with the raise, Mr. Blankfein’s payday is a far cry from his lavish compensation before the financial crisis. In 2007, Mr. Blankfein made some $69 million, in an apparent record for executives at big Wall Street banks.

When the crisis hit and Goldman struggled, Mr. Blankefin briefly lost his cash bonus. After that, Jamie Dimon, the head of JPMorgan Chase, replaced him as the best paid bank chief.

But for the first time since the crisis, Mr. Blankfein out-earned Mr. Dimon. After JPMorgan suffered an embarrassing $6 billion trading loss last year, the bank’s board this week halved Mr. Dimon’s total compensation for 2012, down ! to $11.5 million.

Mr. Blankfein’s fortunes have risen with the firm’s. Goldman this week reported a fourth-quarter profit of $2.89 billion, or $5.60 a share, up from last year and well ahead of analysts’ expectations. The firm’s annual return on equity, a crucial measure of profitability, jumped to 10.7 percent.

Mr. Blankfein was not the only one to benefit. The average Goldman employee earned $399,506 last year, up from $365,000 in 2011.

Congresswoman Seeks Inquiry on Costs of Foreclosure Reviews

New York Congresswoman Seeks Inquiry on Costs of Foreclosure Reviews

The high cost of reviewing foreclosures at big banks has ignited an inquiry by one member of Congress.

Rep. Carolyn Maloney, shown in 2010, has asked regulators overseeing foreclosure reviews to provide details about the independent contractors who examined borrowers’ cases.

Carolyn Maloney, a New York Democrat who is a member of the House Financial Services Committee, has asked federal regulators overseeing foreclosure reviews to provide details about the independent contractors who examined borrowers’ cases. The contractors reportedly received more than $1 billion in fees for their work doing foreclosure reviews, which ultimately led to a $3.3 billion cash settlement for borrowers.

Regulators required the foreclosure reviews in 2011 after evidence had emerged of rampant improprieties by banks servicing troubled loans. The audits were supposed to cover some four million loans that entered foreclosure during 2009 and 2010.

In a letter sent late Thursday to Thomas J. Curry, the comptroller of the currency, and Ben S. Bernanke, the chairman of the Federal Reserve, Ms. Maloney asked for copies of the contracts awarded to the consulting firms by the 12 banks involved in the review program. She also asked for information about how the consultants’ fee structures were determined and what role officials with the Fed and comptroller’s office played in those determinations.

“Although I understand that hiring independent consultants was a requirement under the consent order,” Ms. Maloney wrote, “I can’t help but question the effectiveness of a process that led to $1.5 billion in fees to a small number of consultants and only slightly more than twice that in relief to millions of injured borrowers.”

Eight consulting firms were hired by the banks to conduct the foreclosure reviews required under the regulatory consent order. They included Ernst & Young, Deloitte & Touche, PricewaterhouseCoopers and Promontory Financial Group. The review was shut down this month after only a small portion of the loans had been analyzed.

It is unclear how the $3.3 billion will be divided among borrowers. When it stopped the review program, the comptroller’s office said it was doing so to benefit borrowers who would receive compensation more quickly than if the audit had continued.

“Millions of Americans fell victim to abusive mortgage practices. This review process was supposed to identify the injured borrowers, but it has taken too long and has been enormously expensive,” Ms. Maloney said in an interview last week. “The announcement of the settlement was clearly an indication that something went wrong with the process. Why were these consultants paid so much money and what did they do”

Troubled borrowers and lawyers who represent them have raised questions about the effectiveness of the foreclosure review and the aggressiveness of the consultants’ approach to their auditing duties. According to a person briefed on House Financial Services committee discussions, some staff members are considering asking regulators to claw back some of the consultants’ compensation if the payments appear excessive.

In her letter, Ms. Maloney asked the Fed and comptroller’s office to respond to her request by March 1. “It is important that members of Congress and the public understand as much as possible about how these fees were ultimately generated,” she wrote, “and how your supervision of the institutions impacted the progress of the independent foreclosure review process.”

Congresswoman Seeks Inquiry on Costs of Foreclosure Reviews

New York Congresswoman Seeks Inquiry on Costs of Foreclosure Reviews

The high cost of reviewing foreclosures at big banks has ignited an inquiry by one member of Congress.

Rep. Carolyn Maloney, shown in 2010, has asked regulators overseeing foreclosure reviews to provide details about the independent contractors who examined borrowers’ cases.

Carolyn Maloney, a New York Democrat who is a member of the House Financial Services Committee, has asked federal regulators overseeing foreclosure reviews to provide details about the independent contractors who examined borrowers’ cases. The contractors reportedly received more than $1 billion in fees for their work doing foreclosure reviews, which ultimately led to a $3.3 billion cash settlement for borrowers.

Regulators required the foreclosure reviews in 2011 after evidence had emerged of rampant improprieties by banks servicing troubled loans. The audits were supposed to cover some four million loans that entered foreclosure during 2009 and 2010.

In a letter sent late Thursday to Thomas J. Curry, the comptroller of the currency, and Ben S. Bernanke, the chairman of the Federal Reserve, Ms. Maloney asked for copies of the contracts awarded to the consulting firms by the 12 banks involved in the review program. She also asked for information about how the consultants’ fee structures were determined and what role officials with the Fed and comptroller’s office played in those determinations.

“Although I understand that hiring independent consultants was a requirement under the consent order,” Ms. Maloney wrote, “I can’t help but question the effectiveness of a process that led to $1.5 billion in fees to a small number of consultants and only slightly more than twice that in relief to millions of injured borrowers.”

Eight consulting firms were hired by the banks to conduct the foreclosure reviews required under the regulatory consent order. They included Ernst & Young, Deloitte & Touche, PricewaterhouseCoopers and Promontory Financial Group. The review was shut down this month after only a small portion of the loans had been analyzed.

It is unclear how the $3.3 billion will be divided among borrowers. When it stopped the review program, the comptroller’s office said it was doing so to benefit borrowers who would receive compensation more quickly than if the audit had continued.

“Millions of Americans fell victim to abusive mortgage practices. This review process was supposed to identify the injured borrowers, but it has taken too long and has been enormously expensive,” Ms. Maloney said in an interview last week. “The announcement of the settlement was clearly an indication that something went wrong with the process. Why were these consultants paid so much money and what did they do”

Troubled borrowers and lawyers who represent them have raised questions about the effectiveness of the foreclosure review and the aggressiveness of the consultants’ approach to their auditing duties. According to a person briefed on House Financial Services committee discussions, some staff members are considering asking regulators to claw back some of the consultants’ compensation if the payments appear excessive.

In her letter, Ms. Maloney asked the Fed and comptroller’s office to respond to her request by March 1. “It is important that members of Congress and the public understand as much as possible about how these fees were ultimately generated,” she wrote, “and how your supervision of the institutions impacted the progress of the independent foreclosure review process.”

Treasury to Begin Selling Off Its Remaining G.M. Stake

The Treasury Department said on Friday that it would begin selling off its remaining 19 percent stake in General Motors, as part of the Obama administration’s plan to unwind its bailout of the automaker.

The department said in a statement that it had begun a prearranged trading plan that would eventually dispose of its 300.1 million shares by early next year. Earlier this week, The Treasury Department said that it had hired Citigroup and JPMorgan Chase to lead the sales of its stock holdings in G.M.

For the moment, the government will not emark upon a big block sale, but will instead sell smaller increments over time, depending on market conditions.

Last month, the Treasury Department sold 200 million shares back to G.M. for $5.5 billion, as the company sought to expedite the process of becoming a fully private enterprise once more.

The sale is expected to generate a loss for taxpayers of more than $12 billion. But government officials have argued that the G.M. bailout was aimed at saving millions of jobs, not turning a profit.

Treasury to Begin Selling Off Its Remaining G.M. Stake

The Treasury Department said on Friday that it would begin selling off its remaining 19 percent stake in General Motors, as part of the Obama administration’s plan to unwind its bailout of the automaker.

The department said in a statement that it had begun a prearranged trading plan that would eventually dispose of its 300.1 million shares by early next year. Earlier this week, The Treasury Department said that it had hired Citigroup and JPMorgan Chase to lead the sales of its stock holdings in G.M.

For the moment, the government will not emark upon a big block sale, but will instead sell smaller increments over time, depending on market conditions.

Last month, the Treasury Department sold 200 million shares back to G.M. for $5.5 billion, as the company sought to expedite the process of becoming a fully private enterprise once more.

The sale is expected to generate a loss for taxpayers of more than $12 billion. But government officials have argued that the G.M. bailout was aimed at saving millions of jobs, not turning a profit.

Private Equity\'s Penguins on Parade

Twitter can’t seem to get enough of Mr. Schwarzman’s penguins.

It began when the Blackstone Group posted on Thursday, without much fanfare, a picture of two little flightless birds wandering around the investment giant’s Midtown Manhattan office. As DealBook learned, the two Magellanic penguins were visiting courtesy of SeaWorld, the aquatic theme park company that Blackstone owns.

The two birds were part of an exhibit that SeaWorld was setting up for The New York Times Travel Show, and with a little bit of downtime, their trainers brought the pair over for a visit to their corporate parent. According to a person with direct knowledge of the matter, the penguins â€" whose species re known to be shy â€" waddled about with relative authority.

While the penguins were well-behaved during their visit, the person with knowledge of the matter admitted that the unhousebroken visitors left a couple of unexpected mementos on a carpet and a conference table.

Courtesy of Blackstone, here are a few more shots from the birds’ exploits in the big city.

Op-Ed: Make Law Schools Earn a Third Year

Make Law Schools Earn a Third Year

TODAY, leaders of the New York bar, judges and law school faculty members will gather at New York University to discuss a proposed rule change. If adopted by the state’s highest court, it could make law school far more accessible to low-income students, help the next generation of law students avoid a heavy burden of debt and lead to improvements in legal education across the United States.

The proposal would amend the rules of the New York State Court of Appeals to allow students to take the state bar exam after two years of law school instead of the three now required. Law schools would no doubt continue to provide a third year of legal instruction â€" and most should (more on that in a bit) â€" but students would have the option to forgo that third year, save the high cost of tuition and, ideally, find a job right away that puts their legal training to work.

Like many industries today, the legal profession is in the midst of a period of destabilizing change. Myriad services are now being outsourced (often abroad) to nonlawyers, and the number of positions with large firms is dwindling, making it harder for graduating students â€" many of whom are saddled with six-figure student-loan debts â€" to find work at the outset of their careers that can even begin to pay off their obligations.

Such prospects are discouraging many young people from pursuing law degrees, and pushing away lower-income students the most.

Part of the problem is that tuition and fees (which topped $40,000 a year, on average, at private schools in 2012) have been soaring, and law schools must do a better job of containing these costs. We also need more financial aid for students. But a straightforward solution â€" one that would shave the current law school bill by a third for those who take this option â€" is simply to permit law students to sit for the bar exam and begin practicing even if they have not received a law school degree.

While this wouldn’t increase the number of available jobs, a two-year option would allow many newly minted lawyers to pursue careers in the public interest or to work at smaller firms that serve lower- or average-income Americans, thereby fulfilling a largely unmet need. As it is now, many young lawyers say they would love to follow this path but cannot afford to because of their onerous debts.

The rationale for reforming the three-year rule, however, is not merely financial. As legal scholars, jurists and experienced attorneys have attested for decades, many law students can, with the appropriate course work, learn in the first two years of law school what they need to get started in their legal careers.

In the 1970s, when similar proposals were discussed, two distinguished panels of experts â€" one led by Paul D. Carrington, then a University of Michigan law professor, and the other, the Carnegie Commission on Higher Education, overseen by a Stanford law professor and a dean â€" issued reports supporting a two-year curriculum, as long as certain essential courses were included.

What, then, of the third year, those famous semesters in which, as the saying goes, law schools “bore you to death” and student attendance drops like a stone With this reform, law schools would have an obvious financial incentive to design creative curriculums that law students would want to pursue â€" a third-year program of advanced training that would allow those who wished it to become more effective litigators, specialize or better prepare for the real-world legal challenges that lie ahead.

We are confident that many law schools will be able to meet that challenge.

In fact, that evolution is already going on, as many schools (including our own) reimagine their third-year curriculums through externships, public service programs and courses that offer in-depth practical training.

If this trend continues â€" and the two-year option would only encourage it â€" those who graduate from rigorous three-year programs will not only emerge with sharper legal skills, but also be more essential to employers, raising the rate of job placement out of law school.

But legal education is not, nor ever truly has been, a “one size fits all” system. We have long had varied routes to the profession. Northwestern, for example, offers an accelerated program that lets students pursue a three-year course of study in two years, allowing them to take the bar and enter the job market a year earlier. And a handful of states, including New York, allow individuals to take the bar after working for a law office for a number of years, in lieu of going to law school, though this approach is seldom used.

Some will argue that the two-year option would only create unequal classes of lawyers and glut the marketplace with attorneys who don’t have the skills and training that generations of law school graduates before them have had.

We doubt this will occur. And in any case, the risk ought to be balanced with the varied needs of the American people for legal services. A two-year option, in our view, would provide young lawyers with the training they need to get started, lift a heavy financial burden off the backs of many â€" and vastly improve third-year curriculums in the process. That would be a big step in the right direction.

Daniel B. Rodriguez is the dean at Northwestern University School of Law. Samuel Estreicher is a professor at New York University Law School and a director of its Opperman Institute of Judicial Administration.

A version of this op-ed appeared in print on January 18, 2013, on page A27 of the New York edition with the headline: Make Law Schools Earn a Third Year.

Courts Are Right to Hold Argentina to Equal Debt Treatment

Harry Tether is a retired managing director at JPMorgan Chase.

As the representative of a large New York financial institution, I participated in numerous sovereign debt restructuring negotiations in the 1980s and ’90s. It is, at long last, gratifying to see the recent rulings by the Federal District Court and the United States Court of Appeals for the Second Circuit regarding the pari passu clause and “equal treatment” clause present, in a variety of formulations, in many sovereign loan agreements. (Pari passu is a Latin phrase meaning “on equal footing.”) The interpretation adopted by those courts is consistent with the intentions of private creditors when they negotiated these clauses with sovereign debtors.

During the Latin American debt crisis of the 1980s, when sovereign borrowers sought concessions from private creditors, the equal treatment provision became a vitally important affirmative covenant to international banks. Our direct negotiations, often long and arduous, led o mutually satisfactory restructurings of debtors’ financial obligations, in part because they required debtors to include strong legal protections in the new borrowing contracts. The sovereign debtor’s interest was to regain access to international capital markets, while the creditors’ interest was to receive a predictable and sustainable repayment flow. As a diverse group of creditors, we left our competitive instincts at the door. The pari passu clause served as a common denominator that assured equal priority of payment to all creditors of a similar debt class.

To understand the importance of the pari passu clause, it is useful to review the evolution of the 1980s debt crisis. I view the crisis as having had three phases: refinancing, new debt and debt relief. Each of these phases required new debt agreements, and all of these agreements contained equal treatment covenants.

The refinancing phase covered the period from 1982 to 1985. During that time, banks lent new money to! stressed debtor countries such that they could continue paying interest. Sovereign debt service and bank loan books remained current. Lenders and debtors shared a common understanding: In spite of strained debtor-country budgets, all renegotiated external indebtedness would be treated equally in priority of payment.

The equal payment provision became even more important in the second phase of debt restructuring. Starting in 1985, it was generally recognized that lending in excess of interest refinancing was required to foster growth in the indebted countries. This has often been referred to as the “free rider” phase, in that some creditor banks refused to participate in this new lending. Instead, they preferred to continue receiving current debt-service payments without participating in new loans. The pari passu clause provided assurance that large creditor institutions, which were negotiating these agreements and often had differing motivations because of their physical presence in the borowing country, would not receive an unfair advantage in debt repayment over the smaller banks that lacked such negotiating leverage.

“Debt fatigue” developed during this phase, and many banks that probably should not have been lending to sovereigns in the first place exited by selling their loans in the newly emergent secondary market. Other creditors chose to absorb the losses of debt reduction through negotiated debt relief under the “Brady plan,” which served as a negotiated solution between private creditors and sovereign debtors. The guiding philosophy for all parties was that all creditors would receive equivalent treatment, even though there might be a diverse menu of alternative debt-relief options. New securities were typically issued in bearer form and not as registered instruments, to prevent a sovereign from compelling an increase in new debt and possibly discriminating in payments.

To persuade creditors to participate in each of these renegotiated debt agreements, n! ondiscrim! inatory payments by the sovereign were essential.

What is most disturbing about Argentina’s current intransigence is its refusal to uphold its contractual obligation of nondiscriminatory payment and abide by the rule of law to which it agreed in its contracts with the creditor community. Argentina’s political threats, dictated “take it or leave it” terms and selective defaults threaten to upset a balance that prevailed through decades of orderly and successful restructurings.

The international financial community has long depended on negotiated solutions that take into account a country’s ability to pay as the primary measure for resolving payment difficulties. But after years of exceptional economic growth, Argentina is neither insolvent nor impoverished. It simply refuses to pay anything to those creditors that it could not coerce into a voluntary rescheduling.

The recent rulings by federal courts in New York correctly interpret the pari passu clause and the “equal treatment€ covenant. These decisions reinforce what responsible debtors and creditors understood throughout the 1980s debt crisis and beyond. Where economic circumstances required the modification of financial terms and conditions, good-faith negotiations led to positive outcomes for all concerned. The pari passu clause and the fundamental principle of equal payment were understood then and have now been reaffirmed again to mean that debtors cannot discriminate in priority of payment to creditors holding comparable classes of debt.

The courts’ reiteration of these principles should and will motivate responsible sovereign debtors and private creditors to resolve their differences at the negotiating table, and not in the courtroom.

Canada Pension Plan Unit to Join K.K.R. Merchant Banking Venture

An arm of the Canada Pension Plan Investment Board said on Thursday that it would be the latest partner in a merchant banking business run by Kohlberg Kravis Roberts.

The addition of the Canadian pension fund is the first expansion of the operation, known as MerchCap Solutions and founded last summer by K.K.R. and Stone Point Capital. The business is aimed at providing capital markets advice and direct investments for middle-market companies and those owned by other private equity firms.

Under the terms of the partnership announced on Thursday, the Canadian pension fund will invest $50 million into MerchCap. It also plans to invest up t $2 billion in debt investments arranged by the business, including those to mid-market companies.

The Canada Pension Plan Investment Board’s head of private debt, Mark Jenkins, will also join MerchCap’s board and its strategic development and capital allocation committees.

“This investment is an excellent opportunity to expand C.P.P.I.B.’s private debt portfolio into the middle market, an attractive and underserved market segment,” Mr. Jenkins said in a statement.

Mr. Jenkins’s organization is one of several Canadian pension funds that have moved from being passive limited partners in private equity firms to investing directly in opportunities. The Canada Pension Plan has participated in the likes of the $1.6 billion takeover of 99 Cents Only Stores, in which it partnered with Ares Management.

New Barclays Chief Tells Staff to Accept Changes or Leave

LONDON - Antony P. Jenkins, the new chief executive of Barclays, has told employees who are unwilling to buy into the British bank’s push to rebuild its reputation to leave the bank.

The statement comes after the bank’s involvement in a rate-rigging scandal last year, and weeks before Mr. Jenkins is to announce the results of a strategic review into the firm’s operations that is expected to focus on reducing its exposure to risky trading activity.

Mr. Jenkins, who took over as the bank’s chief executive after his predecessor, Robert E. Diamond Jr., resigned in the wake of the manipulation of the London interbank offered rate, or Libor, told staff members that anyone unable to support the bank’s plans should resign, according to an internal memo obtained by DealBook.

“My message to those people is simple,” said Mr. Jenkins, who previously ran the consumer banking business at Barclays before taking the top job. “Barclays is not the place for you. The rules have changed. You won’t feel comfortable at Barclays and, to be frank, we won’t feel comfortable with you as colleagues.”

Mr. Jenkins acknowledged that last year had been difficult for the bank, adding that 2013 would also not be easy as Barclays tries to rebuild a reputation tarnished by the rate-rigging scandal.

The British bank was the first global financial institution to settle claims connected to Libor after it agreed to pay $450 million to American and British regu! lators in June.

Authorities discovered that some Barclays traders had manipulated the key benchmark rate, which underpins trillions of dollars of financial instruments worldwide, for financial gain. Some of the bank’s senior managers had also altered Libor to portray Barclays in a favorable light during the recent financial crisis, according to regulatory filings.

In the aftermath, Mr. Diamond and the bank’s chairman, Marcus Agius, resigned, while Barclays quickly announced a strategic review of its business units.

The results of review, part of which has been called “Project Mango,” will be outlined on Feb. 12. Mr. Jenkins has promised to increase the firm’s focus on retail banking and shift away from riskier activity in its investment banking unit.

In his note to the staff, Mr. Jenkins said the banking sector had become detached from the wider community. He added that over the last 20 years some individuals at the bank had become too aggressive and focused on short-term gins.

The message contrasts with the actions of Mr. Diamond, who helped build the investment banking division from scratch since the mid-1990s through canny deals, including the purchase of the American operations of Lehman Brothers after the Wall Street firm went bankrupt.

Mr. Jenkins also told employees that some staff members had put short-term individual gains ahead of the bank’s reputation.

“In doing so we damaged our ability to make long-term sustainable returns,” Mr. Jenkins said.

In the future, staff pay packages will be more closely linked to values and ethics in an effort to not repeat past mistakes, according to the internal memo from the bank.

“We must never again be in a position of rewarding people for making the bank money in a way which is unethical or inconsistent ! with our ! values,” he said.

Below is a copy of the memo from Mr. Jenkins:

Dear Colleagues,

We are at the start of a year which will be crucially important in building the ‘Go-To’ bank at Barclays.

Next month I will be setting out the results of our strategic review, which has looked at all of our operations more thoroughly and from a broader perspective than we have previously done, and provides the blueprint for Barclays for at least the next decade. Ensuring that we have the right shaped business, both in terms of the returns we make for our shareholders, and the role we play in society, is of course vital to our future as an institution.

Today I am unveiling something which is equally fundamental to Barclays long term success - our new Purpose and Values. These represent the set of standards under which all of us at Barclays will work, and against which the performance of every one of us will be assessed and rewarded.

There is no doubt that 2012 was a difficultyear for Barclays and the entire banking sector. Again financial institutions found themselves too often in the news for the wrong reasons. This damaged trust in banks, which was already at a low ebb, and overshadowed the excellent and valued work you do.

The behaviour which made those headlines in 2012 took place in the past. But it helped underline how banking as a whole had lost its way, and had lost touch with the values on which reputation and trust were built.
Over a period of almost 20 years, banking became too aggressive, too focused on the short-term, too disconnected from the needs of our customers and clients, and wider society. We were not immune at Barclays from these mistakes.

Over this period much great work was done right across our bank. We helped large numbers of customers and clients buy homes, grow businesses and save for their futures. But there was also a tendency at times, manifest in all parts of the bank, to pursue short-term profits at the expense of the val! ues and r! eputation of the organisation. In doing so we damaged our ability to make long-term sustainable returns.

Let me be quite clear. The notion that there must always be a choice between profits and a values-driven business is false. Barclays will only be a valuable business if it is a values-driven business. Unless we operate to the highest standards and our stakeholders trust us to behave with integrity, no business - and certainly no financial institution - can continue to be successful. Nor do they deserve to be. There is no choice between integrity and profit in this business, and to pose them as opposites fundamentally misunderstands the problems the banking sector faces. This is the difference between generating short term profits and long term shareholder value.

Having a firm commitment throughout the business to strong values is not something I want to do for public relations or political benefit. It is not window dressing. It is simply how I will run Barclays and make it a more valuable andsustainable institution.

As part of the TRANSFORM programme, we have looked afresh at what we want to achieve and how we want to do it. We have reflected on our history - captured in the ‘Made by Barclays’ film we shared with you in December - which shows us what we can achieve when we are grounded in
strong values and a common goal. By remaining grounded and committed in that way we will create a bank that does the right thing for colleagues, customers and clients, our shareholders, and indeed all of our stakeholders.

That is what will make us the ‘Go-To’ bank.

We have agreed a single cross-business Purpose for Barclays, and five core Values which underpin it. These are a product of extensive business-wide input and consultation, and the deliberations and drafting of the Executive Committee and the Senior Leadership Group.

Our Purpose is helping people achieve their ambitions - in the right way. Put simply this is the answer to the question ‘What is Barclays fo! r’ and ! it should guide our every action. By ‘people’ we of course mean our customers and clients, but more broadly every individual with a relationship to Barclays, including colleagues.

The phrase ‘in the right way’ is a critical qualifier to our intent to help people achieve their ambitions. We will not compromise our values to do so, and nor do we need to.

The Values are Respect, Integrity, Service, Excellence and Stewardship.

So what, briefly, do these mean

Respect means respecting and valuing those we work with - our colleagues and other partners. It is about building trust and promoting collaboration.

Integrity demands we act fairly, ethically and honestly. This requires us to have the courage always to do the right thing, never tolerating the wrong thing, and to be accountable for our decisions.

Service means ensuring our clients and customers are always uppermost in our minds. We must strive to exceed their expectations so we automatically become their ‘Go-To†bank.

Excellence calls on us to use all our energy, skills and resources to deliver great service for our customers and clients and outstanding sustainable results for shareholders.

Stewardship is about being determined to leave things better than we found them, so we constantly strive to improve the way we operate as an organisation and the impact we have on society.
In many ways, agreeing these core values was the easy part. The difficult challenge is to ensure we live by them.

Not just most of the time, but all of the time. Not just for most of us, but for everyone who works at Barclays.

Over the next few weeks, we will be training over a thousand colleagues so that they are able to explain the importance of our values to every single colleague in the bank, and how they must guide us in our decisions and delivery. This will help embed them throughout our business at every level.

If we are serious about making sure we believe in these values and live by them, the! n we also! need to make sure they play a big part in how we measure and reward individual and business performance. Performance assessment will be based not just on what we deliver but on how we deliver it. We must never again be in a position of rewarding people for making the bank money in a way which is unethical or inconsistent with our values.

The new performance assessment approach will be introduced for senior leaders by the summer. It will be phased in for all employees over the following 12 months. In the meantime, all reviews will take account of performance against our values.

I have no doubt that the overwhelming majority of you, no matter in which area of the business or country you work, will enthusiastically support this move. But there might be some who don’t feel they can fully buy in to an approach which so squarely links performance to the upholding of our values.

My message to those people is simple: Barclays is not the place for you. The rules have changed. You won’t feel cofortable at Barclays and, to be frank, we won’t feel comfortable with you as colleagues.

For all the rest of us, becoming the ‘Go-To’ bank in a highly competitive environment will be very demanding. It will require each of us to work harder to make Barclays a better bank, and we will only achieve this ambition if our values guide us in all our decisions. Having seen how much you care about our business, how disappointed you were that trust in the way we operate was damaged, and how hard you work for our customers and clients, I have no doubt you will rise to the challenge.

We have very good foundations on which to build. Through a prolonged difficult economic environment, our performance has been strong. Customer satisfaction rates have improved. We have a record of innovation not just in the services we provide but in how we serve our communities.

I can’t pretend that 2013 will be an easy year. There is a great deal of hard work ahead. But I do believe it will be a fulfilli! ng and su! ccessful 12 months. Sometimes we will falter, but the key will be that we make continuous progress. I am also confident, when you see the results of our strategic review on February 12, that you will be excited by what the future holds for this business.

Barclays has been around for 320 years. Its success and longevity has been based on integrity and its attention to customers and clients. When we have forgotten that, we have paid the price. If we combine the right values with the right strategy, we will build a more successful business not just this year but in the years and decades that follow.

Thank you for your continuing support.

Antony

Julia Werdigier contributed reporting.

SurveyMonkey Raises Nearly $800 Million While Staying Private

SurveyMonkey’s fund-raising success is showing that the business of Internet surveys is worth a lot of money.

On Thursday, the company announced a $444 million fund-raising round that it closed in December, drawing in investors like Google and the hedge fund Tiger Global Management. And it plans to raise $350 million in debt, in a round led by JPMorgan Chase.

All told, the new round of money will value the company at about $1.35 billion.

That will let SurveyMonkey make good on a promise by Dave Goldberg, the company’s chief executive, to stay private for now. Mr. Goldberg, who has increased his own ownership stake by participating in the fund-raising, said the unusual financing arangement would prevent the company from being burdened by the issues entailed in going public. And yet it still allows employees and shareholders to cash out and the company to draw in new capital.

“This transaction affords us all of the capital benefits of a public offering without the costs and distractions of an I.P.O. and the demands of operating as a public company,” Mr. Goldberg said in a statement.

It is something that he has seen firsthand. Mr. Goldberg, a veteran technology executive who sold a previous company to Yahoo, is also the husband of Sheryl Sandberg, Facebook’s chief operating officer and one of the main overseers of the Web giant’s rocky initial public offering last ye! ar.

Through the financing, SurveyMonkey has let existing shareholders cash out some of their holdings, one of the traditional motivations behind any decision to go public. Spectrum Equity Investors, co-leader of a 2009 takeover of the company, said it would continue to hold a stake.

In the nearly four years since that deal, SurveyMonkey has grown into a surprisingly durable business. It has increased its user base nearly sevenfold, to 14 million free users and 360,000 paid customers, while expanding its international base.

Beyond taking on Tiger Global and Google, who will gain a directorship and a board observer spot, respectively, SurveyMonkey has drawn in a number of other investors. They include Iconiq Capital, Social + Capital Partnership and Laurel Crown Partners.

Few Silver Linings in Gloomy Bank Reports

Bank of America and Citigroup are giving investors nothing but reasons to fret.

The stocks of the two American banks were among the best performers last year. Bank of America’s doubled, while Citigroup’s jumped by 50 percent. But their fourth-quarter earnings, which both announced on Thursday, offer little to support further optimism.

Both of them had a messy final three months of the year, full of litigation costs and other charges. Bank of America’s chief executive, Brian Moynihan, had to book $5 bilion of charges stemming from an attempt by his predecessor, Ken Lewis, to build the nation’s largest mortgage lender and servicer with purchases like the disastrous Countrywide Financial. It also took a $700 million accounting hit because improving credit made its own liabilities go up in value.

There were some offsets, like a $2.4 billion tax break. Stripping out all the one-offs bumps Bank of America’s fourth-quarter net income to around $2.2 billion, about triple the reported figure. But even that equates to a dismal 4 percent annualized return on equity.

Citigroup’s new boss, Michael L. Corbat, has done better.  The bank set aside $1.3 billion for mortgage litigation and $1 billion to help pay for the restructuring Mr. Corbat announced last month. Back those out, as well as a $485 million accounting loss as Citigroup’s creditworthiness improved, and the bank earned $3 billion â€" also almost triple the official showing.

Yet even on that basis, Citigroup’s annualized return on equity was only 6.4 percent, way below the rule of thumb of 10 percent needed to beat the cost of capital. JPMorgan Chase has been running above that level for a while, and Goldman Sachs nudged its full-year 2012 return to 10.7 percent largely by setting much less aside for pay in the last quarter.

With their rivals more solid, Mr. Moynihan and Mr. Corbat are under even more pressure to perform. Their costs are still way too high. Bank of America’s ratio of expenses to revenue, for example, was  86 percent last year, more than 25 percentage points higher than the average for institutions with government-insured deposits, according to the Federal Deposit Insurance Corporation. U.S. Bancorp, meanwhile, is at 51 percent.

There are bright! er spots.! Bank of America’s deposits increased 4 percent to $1.1 trillion. When interest rates finally move higher, lending them out should increase margins. But that - and the end of both banks’ post-crisis hangover - could be a long way off.

Antony Currie is an associate editor and Agnes T. Crane is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

Few Possibilities for Prosecution at JPMorgan

The internal report released by JPMorgan Chase this week related to a disastrous bet on a hedging strategy may not be a good guidebook for federal prosecutors.

As DealBook reported last October, the Federal Bureau of Investigation has been examining whether four traders in the London office of JPMorgan’s chief investment office may have broken laws by improperly valuing the securities that led to the trading loss, which has topped $6 billion. Prosecutors have been given access to recordings of the traders and notes of meetings, which could be used to build a criminal case.

But JPMorgan’s management report does not provide much support for pursuing charges. The tone of the report makes is sound as if the trading blunder were the product of a series of bad - or even stupid â€" bets; it does not provide any guidance on whether any traders tried to deceive management by making false entries in the ank’s records.

When JPMorgan made a presentation about the flawed trades last July, one entry said there were “Emails, voice tapes and other documents, supplemented by interviews, suggestive of trader intent not to mark positions where they believed they could execute.”

That seemed to indicate that the bank had found evidence of a conscious effort to make false entries in the bank’s records. As a publicly traded company, JPMorgan is required to maintain accurate books and records, and any attempt to falsify information can be the basis for a criminal prosecution.

The internal report from this week, however, does not include similar language about “trader intent.” Instead, it concludes that traders in London were aggressive in choosing prices for the securities, but that ultimately the company’s own internal estimates did not initi! ally raise any issues regarding the valuation.

According to the report, in March 2012, at the direction of a manager, one trader “assigned values to certain of the positions in the Synthetic Credit Portfolio that were more beneficial to C.I.O. than the values being indicated by the market.” That certainly sounds questionable, but the report goes on to state that the traders also believed that others trading in the market “were engaging in strategic pricing behavior and intentionally providing prices that did not accurately reflect market values.”

In other words, counterparties were trying to take advantage of JPMorgan’s position in order to profit from the bank’s distress by posting inaccurate quotes. While that would not excuse making false entries in the bank’s records, a trader could argue that it was not intended to falsify information because the person thought the prices were in fact accurate.

When it comes to a criminal case, a subjective belief that one is being truhful can undermine proving intend to mislead.

The most damning statement in the report about the traders involved accounting rules. Traders were required to make a good faith estimate of the value of the securities, but the report stated that that “at the direction of a more senior trader, however, the relevant trader may not have always done so.”

The wording leaves much open to interpretation. Note that JPMorgan used the word “may” rather than a more definitive statement that would suggest misconduct. Whether JPMorgan intended to or not, that kind of soft language suggests there is not evidence to support a criminal charge for making false entries or trying to mislead senior management.

Making things even more problematic for a criminal case is that JPMorgan’s own internal assessment of the valuations, which found that they were within an acceptable price range. At the end of the first quarter of 2012, as the issue of the size of the losses was being scrutinized, the va! luation c! ontrol group in the bank’s chief investment office determined that the prices of the securities were usually on the high side, but that “the trader marks were acceptable.”

The report also points out shortcomings in the bank’s methodology for assessing the values of its holdings, but that does not change the fact that JPMorgan’s own evaluation found the pricing was proper.

If criminal charges were pursued against any of the traders, their first line of defense would be that JPMorgan did not find any flaws in valuations, so how can the government show that they knew the entries were false or that they intended to mislead anyone at the bank

The government would have a hard time going after only junior employees, especially when a corporate review that found nothing improper in their pricing.

Last year, the Securities and Exchange Commission ran afoul of the “Where’s Waldo” defense in a civil enforcement action against a mid-level manager at Citigroup over the structuringof a collateralized debt obligation who pointed the finger at management as responsible for any violations. The London traders could advance the same argument if accused of a violation. Such a defense may well resonate with a jury when the victim is a bank that has achieved record earnings despite the flawed investment strategy.

If JPMorgan’s internal investigation had found more damaging evidence of misconduct by traders over the pricing of the securities, that would be strong evidence it could use to exonerate management. Instead, it looks as if the bank found little indication of intentional misconduct.

The London traders are not citizens of the United States and currently reside abroad, so bringing them to this country would be difficult even if prosecutors had a strong case. The difficulties in proving intent makes it even less likely that the Justice Department will pursue a criminal prosecution.

E*Trade Names Former Barclays Executive as New Chief

E*Trade Financial on Thursday named Paul T. Idzik, a former executive at Barclays, as its new chief, ending a five-month search for a new leader.

Mr. Idzik will take over for the online brokerage’s chairman, Frank J. Petrilli, who had stepped in on an interim basis.

The appointment ends a search that cut a wide swath through the financial industry, as a number of prominent executives were interviewed for the position. E*Trade eventually went with Mr. Idzik, who worked for 10 years at Barclays, most recently as the British firm’s chief operating officer. He left the bank in 2008 and subsequently joined DTZ Holdings, a British property services provider â€" only to resign in 2011, onths before the firm sold itself to UGL, an Australian rival.

Before joining Barclays, where he gained a reputation as a somewhat eccentric manager who reportedly snapped an employee’s pen because it bore the logo of a rival, Mr. Idzik was a consultant at Booz Allen Hamilton.

“I look forward to joining E*Trade and working with its management team,” he said in a statement. “E*Trade has great strengths, from its iconic brand to its industry-leading technology and its world-class product and service offerings.”

Blackstone\'s Latest Hired Help No, Just Two Well-Dressed Visitors

It appears that a couple of visitors to the Blackstone Group elevated the private equity firm’s dress code for an afternoon.

Late on Thursday, the private equity firm’s Twitter account posted the following message with little fanfare:

Just another Thursday at Blackstone… http://t.co/uDoPq1Jx

â€" The Blackstone Group (@blackstone) 17 Jan 13

Yep, that’s a pair of Magellanic penguins, calmly milling around the reception area for Blackstone’s offices in Midtown Manhattan. No, Mr. Popper wasn’t in town.

Some might assume that the little tuxedoed birds were the newest members of Blackstone’s help staff. But as it turns out, they were just visiting for a little while.

The visit was arranged courtesy of staffers from SeaWorld Parks and Entertainment, a Blackstone portfolio company currently in the process of going public, on hand for a presentation at The New York Times Travel Show this week, according to a person with direct knowledge of the matter.

Trainers for the two, part of an Antarctic exhibit, took advantage of some downtime to bring the birds over to SeaWorld’s corporate parent. Blackstone staffers trailed the penguins around, taking a series of pictures that are scheduled to be posted to Twitter on Friday.

The two eventually had a chance to shake appendages with Bla! ckstone chief Stephen A. Schwarzman, though he was tied up in a meeting at the time the picture was taken, this person said. But despite Magellanic penguins’ reputation for being among the most skittish members of their genus, the birds strode waddled around the firm’s offices with relative confidence, this person said.

Unfortunately, the pair left some unsolicited presents on a carpet and a conference table â€" both easily cleaned up.

Norwegian Cruise Line Prices I.P.O. at $19 a share

Norwegian Cruise Line Holdings is setting sail into life as a newly public company in good stead.

The cruise ship operator has sold shares in itself at $19 apiece, a person briefed on the matter said on Thursday, reaping about $446.5 million in proceeds. Norwegian’s underwriters had expected to sell the company’s stock at between $16 and $18 a share.

At that price, the company is valued at about $3.8 billion. It will begin trading on the Nasdaq stock market on Friday under the ticker symbol “NCLH.”

Norwegian expects to use proceeds from the offering to pay down some of the debt taken on during its debt load, which totaled $2.9 billion as of Sept. 30.

In January 2008, Genting, a cruise operator based in Hong Kong, sold 50 percent of the company to two buyout firms, Apollo Global Management and TPG Capital. After the offering, the three shareholders would have voting control over about 88 percent of the newly public company, according to the prospectus.

Norwegian’s ofering was led by UBS and Barclays, with Citigroup, Deutsche Bank, Goldman Sachs and JPMorgan Chase ser! ving as additional underwriters.

Mortgage Crisis Lingers On at Citigroup and Bank of America

More than four years after the financial crisis, many big banks have regained their footing. But Bank of America and Citigroup remain dogged by the past.

On Thursday, the two banks disclosed that substantial legal costs undercut their fourth-quarter earnings. The expenses, the banks said, stemmed from huge settlements involving their mortgage businesses.

While the settlements lifted a dark cloud that hung over the banks, other legal problems will persist. Both banks continue to wrestle with federal authorities over claims they wrongfully evicted homeowners after using shoddy, flawed or inaccurate documents in foreclosure proceedings. Bank of America and Citigroup also face a torrent of pivate lawsuits asserting that the banks duped investors into buying troubled mortgage securities that later blew up.

“The 2008 collapse was not the flu â€" it was a major debilitating disease,” said Lawrence Remmel, a partner at the law firm Pryor Cashman. “It takes time rebuilding your strength,” he said, and it is “unpredictable when some of the institutions will fully recover.”

The mortgage overhang weighed on the banks’ quarterly earnings.

While Bank of America notched strong quarterly gains across several divisions, the mortgage settlements drained the bank’s profit, which plunged 63 percent to $732 million, or 3 cents a share. All told, one-time expenses wiped out $5.9 billion, or 34 cents a share, from the bank’s quarterly earnings.

!

At Citigroup, a $1.3 billion legal bill dragged down profits. The bank reported a fourth-quarter profit of $1.2 billion, or 38 cents a share, significantly below analysts’ estimates.

On Thursday, Bank of America’s shares dropped 4.2 percent to $11.28. Citigroup’s stock fell 2.9 percent to $41.24.

“Litigation expenses have taken a huge toll,” said James Sinegal, an analyst with the research firm Morningstar.

The results come in contrast to those of competitors like Wells Fargo and JPMorgan. The two banks reported banner profits in recent days, with strong gains in their mortgage businesses. Those banks face their own legal costs, but the damage has been less severe.

For Bank of America and Citigroup, the recent mortgage settlements are a reminder of past mistakes. During the housing boom, Citigroup, like other Wall Street firms, sold to investors billions of dollars of securities backed by subprime mortgages that later hurt its balance sheet. Bank of America largely inherited its mortgage woes through Countrywide Financial, the subprime lending giant it bought in the depths of the financial crisis.

Now, the banks are hoping to close a dark chapter in their histories. Th! is month,! Bank of America and Citigroup, along with eight other banks, signed a sweeping $8.5 billion settlement with the Federal Reserve and the Office of the Comptroller of the Currency over foreclosure abuses like erroneous fees and flawed paperwork.

The settlement allowed them to a halt an expensive review of millions of loans in foreclosure. The pact follows a $26 billion deal in February involving the five largest mortgage servicers and 49 state attorneys general, an agreement to resolve accusatins that bank employees were blowing through mountains of documents used in foreclosures without checking for accuracy.

Bank of America last week also struck an agreement to resolve claims that it had sold troubled mortgages to the government-controlled housing finance giant Fannie Mae, which suffered deep losses from the loans. The deal put to rest a bitter battle with Fannie Mae that had lingered since the housing bubble burst.

“We put a lot of risk behind us in 2012,” Bruce R. Thompson, the company’s chief financial officer, said in a conference call on Thursday. “We just feel like we’re in a much better place going into 2013.”

Despite the huge payouts, the mortgage headaches will take a while to fully dissipate. On an earnings call on Thursday, John C. Gerspach, Citigroup’s chief financial officer! , hinted ! at the banking industry’s continuing legal woes. “I think that the entire industry is still looking at some additional settlements that are still yet to appear,” he said.

Even if they can reach an understanding with regulators, the banks still face dozens of claims from prosecutors, investors and insurers related to more than $1 trillion worth of securities backed by residential mortgages. “Mortgage-related litigation is at an unprecedented high,” said Christopher J. Willis, a lawyer with Ballard Spahr, which handles securities and consumer litigation.

In October, for example, federal prosecutors in New York accused Bank of America of perpetrating a fraud through Countrywide by churning out loans at such a pace that quality controls were, for the most part, ignored.

A high-stakes lawsuit under way in federal court could also crmp the banks’ future profits. The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, sued Bank of America and Citigroup, along with 15 other banks, in 2011, claiming that the banks sold securities backed by shaky mortgages.

Beneath the jarring settlements and the headline numbers, Bank of America and Citigroup both reported improvements across their varied divisions. Bank of America reported that fewer homeowners were falling behind on their bills, with the number of home loans delinquent for more than 60 days falling 17 percent in the fourth quarter. And Bank of America’s wealth management unit recorded quarterly profits of $578 million, up 79 percent.

Citigroup was buoyed by gai! ns in its! securities and banking group, helped by investment banking, equities and fixed income. The unit reported net income of $629 million for the quarter, in contrast to a $158 million loss in the period a year earlier. Citigroup, which is focused on expanding in markets like Mexico and Asia, reported that revenue within the global consumer banking group increased 4 percent to $4.9 billion in the fourth quarter.

Both banks are also ruthlessly whittling down their expenses to help bolster their profitability. At the end of 2012, Bank of America had 14,601 fewer employees than it had at the end of 2011. Also looking to be leaner, Citigroup said in December that it would eliminate 11,000 jobs worldwide, part of a much larger contraction.

Still, Mr. Gerspach, Citigroup’s chief financial officer, struck a cautious tone on Wednesday during an earnings call. “I don’t think we are alone in still working through some of these legacy issues,” he said.

A version of this article appeared in print on 0/18/2013, on page B1 of the NewYork edition with the headline: Mortgage Crisis Lingers On At Citi and Bank of America.

Michael Dell\'s Empire in a Buyout Spotlight

The computer empire of Michael S. Dell spreads across a campus of low-slung buildings in Round Rock, Tex.

But his financial empire â€" estimated at $16 billion â€" occupies the 21st floor of a dark glass skyscraper on Fifth Avenue in Manhattan.

It is there that MSD Capital, started by Mr. Dell 15 years ago to manage his fortune, has quietly built a reputation as one of the smartest investors on Wall Street. By amassing a prodigious portfolio of stocks, companies, real estate and timberland, Mr. Dell has reduced his exposure to the volatile technology sector and branched out into businesses as diverse as dentistry and landscaping.

Now, Mr. Dell is on the verge of makingone of the biggest investments of his life. The 47-year-old billionaire and his private equity backers are locked in talks to acquire Dell, the company he started with $1,000 as a teenager three decades ago, in a leveraged buyout worth more than $20 billion. MSD could play a role in the Dell takeover, according to people briefed on the deal.

The private equity firm Silver Lake has been in negotiations to join with Mr. Dell on a transaction, along with other potential partners like wealthy Asian investors or foreign funds. Mr. Dell would be expected to roll his nearly 16 percent ownership of the company into the buyout, a stake valued at about $3.5 billion. He could also contribute additional personal money as part of the buyout.

That money is managed by MSD, among the more prominent so-called family offices that are set up to ha! ndle the personal investments of the wealthy. Others with large family offices include Bill Gates, whose Microsoft wealth financed the firm Cascade Investment, and New York’s mayor, Michael R. Bloomberg, who set up his firm, Willett Advisors, in 2010 to manage his personal and philanthropic assets.

“Some of these family offices are among the world’s most sophisticated investors and have the capital and talent to compete with the largest private equity firms and hedge funds,” said John .. Rompon, managing partner of McNally Capital, which helps structure private equity deals for family offices.

A spokesman for MSD declined to comment for this article. The buyout talks could still fall apart.

In 1998, Mr. Dell, then just 33 years old â€" and his company’s stock worth three times what it is today â€" decided to diversify his wealth and set up MSD. He staked the firm with $400 million of his own money, effectively starting his own personal money-management business.

To head the operation, Mr. Dell hired Glenn R. Fuhrman, a managing director at Goldman Sachs, and John C. Phelan, a principal at ESL Investments, the hedge fund run by Edw! ard S. La! mpert. He knew both men from his previous dealings with Wall Street. Mr. Fuhrman led a group at Goldman that marketed specialized investments like private equity and real estate to wealthy families like the Dells. And Mr. Dell was an early investor in Mr. Lampert’s fund.

Mr. Fuhrman and Mr. Phelan still run MSD and preside over a staff of more than 100 overseeing Mr. Dell’s billions and the assets in his family foundation. MSD investments include a stock portfolio, with positions in the apparel company PVH, owner of the Calvin Klein and Tommy Hilfiger brands, and DineEquity, the parent of IHOP and Applebee’s.

Among its real estate holdings arethe Four Seasons Resort Maui in Hawaii and a stake in the New York-based developer Related Companies.

MSD also has investments in several private businesses, including ValleyCrest, which bills itself as the country’s largest landscape design company, and DentalOne Partners, a collection of dental practices.

Perhaps MSD’s most prominent deal came in 2008, in the middle of the financial crisis, when it joined a consortium that acquired the assets of the collapsed mortgage lender IndyMac Bank from the federal government for about $13.9 billion and renamed it OneWest Bank.

The OneWest purchase has been wildly successful. Steven Mnuchin, a former Goldman executive who led the OneWest deal, has said that the bank is expected to consider an initial public offering this year. An I.P.O. would generate big prof! its for M! r. Dell and his co-investors, according to people briefed on the deal.

Another arm of MSD makes select investments in outside hedge funds. Mr. Dell invested in the first fund raised by Silver Lake, the technology-focused private equity firm that might now become his partner in taking Dell private.
MSD’s principals have already made tidy fortunes. In 2009, Mr. Fuhrman, 47, paid $26 million for the Park Avenue apartment of the former Lehman Brothers chief executive Richard S. Fuld. Mr. Phelan, 48, and his wife, Amy, a former Dallas Cowboys cheerleader, also live in a Park Avenue co-op and built a home in Aspen, Colo.

Both areinfluential players on the contemporary art scene, with ARTNews magazine last year naming each of them among the world’s top 200 collectors. MSD, too, has dabbled in the visual arts. In 2010, MSD bought an archive of vintage photos from Magnum, including portraits of Marilyn Monroe and Mahatma Gandhi, and has put the collection on display at the University of Texas, Mr. Dell’s alma mater.

Just as the investment firms Rockefeller & Company (the Rockefellers, diversifying their oil fortune) and Bessemer Trust (the Phippses, using the name of the steelmaking process that formed the basis of their wealth) started out a! s investm! ent vehicles for a single family, MSD has recently shown signs of morphing into a traditional money management business with clients beside Mr. Dell.

Last year, for the fourth time, an MSD affiliate raised money from outside investors when it collected about $1 billion for a stock-focused hedge fund, MSD Torchlight Partners. A 2010 fund investing in distressed European assets also manages about $1 billion. The Dell family is the anchor investor in each of the funds, according to people briefed on the investments.

MSD has largely remained below the radar, though its name emerged a decade ago in the criminal trial of the technology banker Frank Quattrone on obstruction of justice charges. Prosecutors introduced an e-mail that Mr. Fuhrman sent to Mr. Quattrone during the peak of the dot-com boom in which he pleaded fr a large allotment of a popular Internet initial public offering.

“We know this is a tough one, but we wanted to ask for a little help with our Corvis allocation,” Mr. Fuhrman wrote. “We are looking forward to making you our ‘go to’ banker.”

The e-mail, which was not illegal, was meant to show the quid pro quo deals that were believed to have been struck between Mr. Quattrone and corporate chieftains like Mr. Dell â€" the bankers would give executives hot I.P.O.’s and the executives, in exchange, would hold out the possibility of giving business to the bankers. (Mr. Quattrone’s conviction was reversed on appeal.)

The MSD team has also shown itself to be loyal to its patron in other ways.

On the MSD Web site, in the frequently asked questions section, the firm asks and answers queries like “how many employees do you have” and “what kind of investments do you make.”

In the last question on the list, MSD asks itself, “Do you use Dell computer equi! pment” ! The answer: “Exclusively!”

Michael J. de la Merced contributed reporting.

This post has been revised to reflect the following correction:

Correction: January 18, 2013

An earlier version of this article misstated when an energy hedge fund raised money from outside investors. It was in 2011, not earlier this year.

A version of this article appeared in print on 01/18/2013, on page B1 of the NewYork edition with the headline: Michael Dell’s Empire In a Buyout Spotlight.

Banker Behind Armstrong Says He Was Unaware of Doping

The financier Thomas Weisel recently boxed up the bright-yellow cycling jerseys that lined an entire wall of his office, which overlooks San Francisco’s harbor. They were gifts from Lance Armstrong, a longtime friend whom Mr. Weisel had bankrolled through seven Tour de France wins.

The evidence that Mr. Armstrong repeatedly used performance-enhancing drugs, which culmiated in a televised confession with Oprah Winfrey on Thursday night, has destroyed his career, and now threatens to blacken the reputation of Mr. Weisel.

Mr. Weisel, 71, the founder of the cycling team that is at the center of the sport’s biggest doping scandal, is accused of wrongdoing in a federal whistle-blower suit that was leaked publicly this week. The suit, filed by Floyd Landis, a former teammate of Mr. Armstrong’s who has admitted to doping, claims that Mr. Weisel and other team officials “engaged in a systematic program of doping.” Mr. Weisel has also been linked to a $500,000 payment aimed at silencing a drug test Mr. Armstrong purportedly failed in the late 1990s.

Mr. Weisel, in his first public comments on the matter, said those accusations were false.

“I did not know until very recent! ly that Lance Armstrong had engaged in doping while riding for the team,” he said. “Any allegation that I was aware of or condoned or supported doping by any team rider is false.”

Mr. Weisel said the credibility of the people interviewed in an October report by the United States Anti-Doping Agency, which described Mr. Armstrong’s doping activities, persuaded him that the cyclist had used performance-enhancing drugs. He said he had heard rumors of drug abuse, but dismissed them because the cyclists were passing the drug tests. He never personally saw an instance of doping on the team, he said.

Mr. Weisel is a legend in investment banking, where attention to detail can make â€" or break â€" a deal. Now it is clear that Mr. Armstrong and other cyclists involved in Tailwind Sorts, the holding company for the United States Postal Service cycling team and an organization that Mr. Weisel led as chairman, were using performance-enhancing drugs right under his nose. If he did not know about the team’s win-at-all costs approach, he should have, friends and rivals alike say.

Since October, when the antidoping report was issued, Mr. Weisel has found himself in the middle of a media storm. The report did not name Mr. Weisel, but did say that a “small army of enablers, including doping doctors, drug smugglers, and others within and outside the sport and on his team” helped Mr. Armstrong.

Mr. Armstrong, in hopes of mitigating his lifetime ban from Olympic sports, might implicate Mr. Weisel and other team owners, according to people briefed on the case. So far, Mr. Weisel said, neither Mr. Armstrong nor any rider on the team has said that he discussed doping with Mr. Weisel or that he witnessed Mr. Weisel participate in or observe any act of doping.

Mr. Weise! l said he! was cooperating with federal authorities and has testified that he knew nothing of Mr. Armstrong’s activities. About two years ago, he turned over pages of documents related to Tailwind’s activities. “I am as dismayed as everyone else to see a sport that I love and have supported scandalized by this inexcusable behavior,” he said.

Mr. Weisel is best known on Wall Street for the technology companies he has advised, like Yahoo, Sunglass Hut and Amgen. In the 1990s, he ran Montgomery Securities, eventually selling it for more than $1 billion. He then started his own firm, which struggled to survive in the volatile world of technology banking. It was eventually sold to Stifel Nicolaus, where he is now a co-hairman.

While many bankers fill their offices with tombstones, paperweight-like trinkets that commemorate the closing of a big deal, Mr. Weisel has always favored sports paraphernalia.

His passion for sports is no secret; he even liked to hire athletes to work at his firm. Mr. Weisel, who was raised in Milwaukee, is a former competitive speed skater and helped the troubled United States Ski Team get back on its feet.

An avid cyclist, Mr. Weisel started Montgomery Sports, his first cycling team, in the late 1980s. Mr. Armstrong was an early rider for one of its teams. The idea was to develop a top-flight professional United States cycling team. The team went through a number of corporate sponsors before the Postal Service signed on in the mid-1990s. According to a biography of Mr. Weisel, “Capital Instincts: Life as an Entrepreneur, Financier and Athlete,” Mr. Weisel invested over $5 million in the early days.

On Wall Street, people knew never to try to schedule a meeting ! with Mr. ! Weisel in July. His calendar was blocked because he was almost always in Europe for the Tour de France. He accompanied Mr. Armstrong for each of his consecutive victories between 1999 and 2005. Mr. Weisel said he was typically on the course for several days and would meet the team at the finish line in Paris.

“If not for Thom’s generosity and vision, there would be no Tour de France titles behind my name,” Mr. Armstrong wrote in the forward to Mr. Weisel’s book. Mr. Weisel, he wrote, did not “meddle with the team’s strategy or training,” but was instead a “spectator with the best seat in the house.”

“He’ll pull up alongside me, hanging out of the car, beating the side of the car, just screaming at the top of his lungs. That’s his bliss. I love it when he is there.”

In the wake of the antidoping report, Mr. Armstrong was stripped of his Tour de France titles. On one Tour, in 1999, the team masseuse, Emma O’Reilly, has said, according to published reports, that sh witnessed Mr. Weisel huddling with Mr. Armstrong after a report that the cyclist had tested positive for a banned substance. Mr. Weisel was frantic about what to do, she said. Mr. Weisel said he did not have “any recollection” of the incident to which Ms. O’Reilly was referring.

Mr. Weisel said he never discussed doping with Mr. Armstrong because the cyclist was constantly asked about the subject, was tested frequently and had denied doping countless times. “I believed him,” Mr. Weisel said.

Mr. Landis’ suit contends that Mr. Weisel’s financial ties and influence over a governing body of cycling “helped make it possible for the U.S.P.S. Team to carry on the extensive program of systematic doping.” The suit does not single out Mr. Weisel as being present in any of the many instances of blood transfusions and use or distribution of performance-enhancing drugs that Mr. Landis recounts from his years on the team, from 2002 to 2004.

Mr. Weisel removed Mr. Armstrong’s! jerseyâ€! ™s from his office after reading the antidoping report. He said that he had not spoken to Mr. Armstrong since the report, and that he had not been close to Mr. Armstrong for some time. “I’m disappointed,” Mr. Weisel said. “I believed that Mr. Armstrong and these other riders had not doped while on the team, as Mr. Armstrong had consistently and publicly stated.”

A version of this article appeared in print on 01/18/2013, on page B1 of the NewYork edition with the headline: Banker Says He Was Unaware of Doping.