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Why A.I.G. Did Not Sue the Government

When American International Group’s directors met this month to consider joining a lawsuit against the same federal agencies that rescued it with $182 billion financial crisis bailout, they received a stark warning from their lawyers. According to court documents released on Wednesday, one lawyer said that the lawsuit had a 20 percent chance of succeeding.

The long odds were not the only reason to steer clear of the case, which was based on the argument that A.I.G. shareholders lost tens of billions of dollars when the government attached onerous terms to the bailout. Even if it won the $25 billion lawsuit against the Treasury Department and the Federal Reserve Bank of New York, the lawyer pointed out, it could cost A.I.G. a far greater price: its reputation.

Citing recent negative media coverage, board members agreed. The lawsuit, they worried, “threatened to destroy much of the good work that A.I.G. and its employees had done rebuilding A.I.G. and its name and reputation following” th bailout, according to a letter by Paul Curnin, the lawyer who advised A.I.G.

The documents offer a lens into A.I.G.’s decision-making process over two days in early January. After the debate, directors unanimously voted to avoid the lawsuit.

The process began after a public uproar erupted after The New York Times reported that the company was weighing whether to join the case. Lawmakers slammed the company for even considering the case, which was filed on behalf of fellow shareholders by A.I.G.’s former chief executive, Maurice R. Greenberg, and the firm he now runs, Starr International.

The government argued that Mr. Greenberg’s claims were frivolous, as the company’s only alternative was bankruptcy.

The directors met on Jan. 8 with Mr. Curnin, who outlined his concerns about the case. While the board had a duty to its shareholders to consider the case, Mr. Curnin not! ed that “Starr’s claim had a low likelihood of success on the merits.” He reached the conclusion, he said, after hiring outside legal experts to study the case.

Both sides then made a final pitch to the directors at a Jan. 9 board meeting. The directors gathered to hear presentations from Mr. Greenberg’s lawyer and senior officials from the Treasury Department and the Federal Reserve Bank of New York.

In the middle of their deliberations, the directors learned that at least one state insurance regulator had called to talk the company out of joining the case, according to the letter filed on Wednesday.

Ultimately, the directors sided with the government. “A deal is a deal,” they said, according to the letter.



Kashkari, Treasury\'s Onetime $700 Billion Man, Considers Political Office

More than four years after the financial crisis, one of the key figures behind the Bush administration’s sweeping rescue plan is weighing a return to government service.

Neel T. Kashkari, who was the initial overseer of the Treasury Department’s bank bailout program, told The Wall Street Journal on Wednesday that he was planning on leaving his current post at Pimco to consider running for office. In a statement, he confirmed those plans.

“As much as I have enjoyed my time at Pimco, I feel an obligation and a desire to serve my community through public service,” Mr. Kashkari said in the statement. “My time at the Department of the Treasury was the most rewarding professional experience of my life and I want to find ways to continue to serve my fellow citizens in some capacity.”

Staying true to his roots, he would run as a Republican â€" even in overwhelmingly Democratic California.(Pimco’s headquarters, however, are in Newport Beach, Calif., an oasis of conservative politics in the largely liberal state.)

By Wednesday afternoon, Mr. Kashkari had created a Web page emphasizing his core concerns, including the state economy and education. He writes on his site:

California has so many strengths - a vibrant, diverse, hardworking population, world-class universities, unparalleled natural resources and beauty - it is up to us to unlock its potential and fulfill the dreams of all of our people. Our government must work for all Californians.

I am reaching out to leaders in communities across California to hear their ideas, share my own, and explore how I can best affect positive change in our state. After decades of benign neglect, I believe it is our duty to finally have an honest discussion about these issues and take bold action to help all Californians succeed.

Running for office would ! take Mr. Kashkari into perhaps his most public role since the financial crisis, when he gained attention for his role as the Treasury Department’s interim assistant secretary for financial stability. The young bureaucrat and former Goldman Sachs employee was only 35 at the time, with six years of experience in finance and government. He was put in charge of the taxpayer-financed lifeline known as the Troubled Asset Relief Program, earning him the nickname the $700 Billion Man, after the size of the extensive bailout.

Mr. Kashkari left the Treasury Department in 2009 to join Pimco, formally the Pacific Investment Management Company, tasked with building out the bond investor’s nascent stock-fund offerings.

It was something of a return home, since Mr. Kashkari, an Ohio native, moved to California in 1997 to work as an engineer for TRW. He later attended business school and joined Goldman, where h worked as an investment banker in Silicon Valley, known for his bald head and steady demeanor. It was at that firm that Mr. Kashkari became acquainted with Henry M. Paulson Jr., then Goldman’s chief executive.

When Mr. Paulson became Treasury secretary in 2006, Mr. Kashkari reached out and asked about joining the government. He became a lieutenant to Mr. Paulson, and co-wrote a doomsday bank rescue proposal, entitled “Break the Glass,” that formed the basis of what became TARP.



K.K.R. Takes 25% Stake in Firm That Invests in Natural Disasters

In its latest move to bolster its asset management arm, Kohlberg Kravis Roberts has found an unusual partner: a hedge fund seeking to invest in natural disasters.

The investment firm said on Wednesday that it had taken a 24.9 percent stake in Nephila Capital, an $8 billion firm that focuses on reinsurance opportunities tied to catastrophes like hurricanes and earthquakes. (The investment is being made by the firm itself, rather than through any of its private equity funds.)

Long known as a private equity powerhouse, K.K.R. has steadily built up other businesses that diversify its operations, moves arising in part from the firm’s transormation into a publicly traded company.

The investment in Nephila is the latest expansion by K.K.R.’s asset management business, which has grown in recent years through moves like a deal to buy Prisma Capital Partners, a fund of hedge funds.

But Nephila may be one of the division’s most unusual partners yet. The nearly 10-year-old firm, a spinoff from the Willis Group, makes money by taking on the risk of natural disasters from insurers. The bet is that by spreading out its investments across an array of catastrophes â€" a hurricane hitting the northeastern United States, an earthquake roiling Japan â€" will offer enough diversification to limit risk from any one incident.

As one of the few firms that focuses on reinsuring natural disasters, the hedge fund can charge higher premiums to assume that risk. One area that Nephila has focused on is working with state governments! , like Florida and California, that have been eager to find counterparties that will assume the risks that their populations bear.

Nephila’s principals, Greg Hagood and Frank Majors, have argued that their firm is attractive to investors because its returns aren’t tied to stock markets or other asset classes.

While the business sounds esoteric, Nephila’s team is well-known to K.K.R., which owned Willis at the time of the investment team’s inception.

“In backing Nephila, we are partnering with a team we have known for more than 15 years, dating back to our investment in Willis Group,” Henry R. Kravis and George R. Roberts, K.K.R.’s co-founders, said in a statement. “As the first dedicated manager of catastrophe risk investment strategies, they share the entrepreneurial spirit that pervades K.K.R.’ culture and, with an excellent 14 year track record, we think they are the best team in the industry.”



Firm Focused on Investing in Lawsuits Brings in Old Leader

Parabellum Capital, a firm that seeks to profit from financing lawsuits, is welcoming home one of the men who essentially founded the business.

The firm has hired Howard Shams from Credit Suisse as a managing principal, working alongside a group that he assembled nearly seven years ago. He will be a co-leader of the firm alongside Aaron Katz.

Separately, Parabellum has obtained more than $200 million in capital facilities to back its business.

The move reunites what until early last year was Credit Suisse’s legal risk strategies and finance unit, which Mr. Shams helped found in 2006. The team, which spun off from the Swiss bank last January, specializes in an unusual sort of investment: aiding plaintiffs in their costl legal battles, in exchange for a piece of any future winnings.

Firms like Parabellum, Bentham Capital and BlackRobe Capital have sought to cash in on the high waves of litigation that has swept across corporate America. Cases backed by these shops have become more widespread, argued by top law firms like Simpson Thacher & Bartlett and Latham & Watkins.

Still, the practice has its detractors, who say that litigation financing may encourage more frivolous lawsuits.

Mr. Shams spent 15 years at Credit Suisse and a predecessor firm, Donaldson, Lufkin & Jenrette, focusing on “special situations” that seek to profit from unusual asset classes like distressed debt and vendor receivables. He was formerly a lawyer who worked at firms like Dewey Ballantine, focusing on bank lending work.



In Bet Against Green Mountain, Einhorn Suffers a Loss

One of David Einhorn’s highest-profile bets has turned against him.

Mr. Einhorn, the hedge fund manager who runs Greenlight Capital, had a setback in his short-selling position in Green Mountain Coffee Roasters, as the stock rose during the fourth quarter, he said Tuesday in a letter to investors. The stock’s 74 percent climb wiped out the position’s 2012 profits, Mr. Einhorn said.

It was a rough three months for Greenlight over all, as a 4.9 percent loss during the quarter pared the yearly performance down to a gain of 7.9 percent. Still, Mr. Einhorn said, the firm is largely sticking with its strategy.

“While it is hard to view our performance last year as a catastrophe, it nonetheless falls short of our goals,” Mr. Einhorn wrote. “We think that we should have had a much better performance in this kind ofinvesting climate, and we headed into the fourth quarter on track to do so.”

Another notable stumble for Mr. Einhorn was his firm’s long position in Apple, which lost its third-quarter gains at the end of the year. Greenlight’s stake in Marvell Technology was the “biggest loser” of 2012, with the shares falling to $7.26 from $13.85, Mr. Einhorn said.

Still, Marvell, which was handed an unfavorable jury verdict last year, continues to be attractive, Mr. Einhorn said. That persistence appeared to pay off Wednesday afternoon, with Marvell’s shares rising more than 4 percent as investors digested Greenlight’s letter.

The hedge fund manager announced a new bearish stance on the iron ore sector, saying Greenlight was betting against a number of stocks. “After a decade-long bull market, supply is now exceeding demand,” Mr. Einhorn wrote.

But that thesis wasn’t borne out in the fourth quarter, as the stocks in question rallied.

“Our coffee was too hot, our ! apple was bruised and our iron supplements didn’t go down smoothly,” Mr. Einhorn wrote.

The short position in Green Mountain initially appeared to be a winner, when Mr. Einhorn questioned the company’s accounting in 2011. He reiterated those arguments in a presentation last October.

But Green Mountain’s stock began to recover at the end of 2012, as the company reported robust quarterly results.



Davos Day 1: Dimon\'s Cuff Links, Schwarzman\'s Tone and Swag

It’s only the first day of the World Economic Forum festivities in Davos, and already the gloves are coming off.

Jamie Dimon, the chief executive of JPMorgan Chase, clashed with an official of the International Monetary Fund in a debate over the financial system, as Jack Ewing reported in DealBook. In addition, Mr. Dimon tangled with Paul Singer, head of the hedge fund Elliott Management, over bank transparency.

In response to Mr. Singer’s assertion that it was impossible to know which banks were “actually risky or sound,” Mr. Dimon said, according to The Financial Times: “With all due respect hedge funds are pretty opaque too.”

The talk turned to regulation â€" specifically, limits on proprietary trading, a central aim of the Dodd-Frank law. Lauren LaCapra of Reters reported:

Mr. Dimon was sporting an unusual accessory on Wednesday, as David Enrich of The Wall Street Journal noticed:

The day was full of celebrity-spotting. In addition to the bold-face names in attendance (including Charlize Theron, Derek Jeter and the writer Paulo Coelho) some big financial heavyweights roamed the Congress Hall at Davos.

Daniel S. Loeb of Third Point was spotted standing near Mr. Dimon. Ray Dalio of Bridgewater Associates was “holding forth” about markets, according to Daniel Gross of Newsweek/Daily Beast. Steven A. Cohen of SAC Capital Advisors was spotted by Felix Salmon of Reuters:

Mr. Enrich snapped a picture of Michael Dell, who is in talks with a private equity backer to acquire his company.

Stephen A. Schwarzman of the Blackstone Group, who once compared the Obama administration’s tax proposals to Hitler’s invasion of Poland (and later apologized), appeared to soften his tone at Davos. “I like President Obama as a person, and he’s well-intentioned,” Mr. Schwarzman told Bloomberg TV.

But he made some more pointed remarks in an encounter with Ms. LaCapra of Reuters. Mr. Schwarzman, who was sitting alone at a small table, referred to President Obama as “the guy who forgot to mention the economy after four years as presidentâ! € in his! inauguration speech this week, according to Ms. LaCapra. “That wasn’t an accident,” Mr. Schwarzman said.

The overall mood was more sober than in years past, with some well-known parties off the agenda, Andrew Ross Sorkin reported. Even the swag bag for attendees was “serious and well-meaning,” as well as “pragmatic” and “boring,” according to Henry Blodget of Business Insider.

One thing everyone could agree on: the weather was chilly. Mr. Coelho observed:



Financial Crisis Lawsuit Suggests Bad Behavior at Morgan Stanley

On March 16, 2007, Morgan Stanley employees working on one of the toxic assets that helped blow up the world economy discussed what to name it. Among the team members’ suggestions: “Subprime Meltdown,” “Hitman,” “Nuclear Holocaust” and “Mike Tyson’s Punchout,” as well a simple yet direct reference to a bag of excrement.

Ha ha. Those hilarious investment bankers.

Then they gave it its real name and sold it to a Chinese bank.

We are never going to have a full understanding of what bad behavior bankers conducted in the years leading up to the financial criss. The Justice Department and the Securities and Exchange Commission have failed to hold big wrongdoers to account.

We are left with what scraps we can get from those private lawsuits lucky enough to get over the high hurdles for document discovery. A case brought against Morgan Stanley by a Taiwanese bank in a New York State Supreme Court in Manhattan has cleared that bar.

The results are explosive. Hundreds of pages of internal Morgan Stanley documents, released publicly last week, shed much new light on what bankers knew at the height of the housing bubble and what they did with that secret knowledge.

The lawsuit concerns a $500 million collateralized debt obligation called Stack 2006-1, created in the first half of 2006. Collections of mortgage-backed securities, C.D.O.’s were at the heart of the financial crisis.

But the documents suggest a pattern of behavior larger than this one deal: people across the bank understood that the American housing market was in trouble. They took advantage of that knowledge to create and then bet against securities and then also to unload garbage investments on unsuspecting buyers.

Morgan Stanley doesn’t see the narrative as the plaintiffs do. The firm is fighting the lawsuit, contending that the buyers were sophisticated clients and could have known what was going on in the subprime market. The C.D.O. documents disclosed, albeit obliquely, that Morgan Stanley might bet against the securities, a strategy known as shorting. The firm did not ick the assets going into the deal (though it was able to veto any assets). And any shorting of the deal was part of a larger array of trades, both long and short. Indeed, Morgan Stanley owned a big piece of Stack, in addition to its short bet.

Regarding the profane naming contest, Morgan Stanley said in a statement: “While the e-mail in question contains inappropriate language and reflects a poor attempt at humor, the Morgan Stanley employee who wrote it was responsible for documenting transactions. It was not his job or within his skillset to assess the state of the market or the credit quality of the transaction being discussed.”

Philip Blumberg, the Morgan Stanley lawyer who composed most of the names, meet the underside of a bus, courtesy of your employer.

Another Morgan Stanley employee sent an e-mail that same morning, suggesting that the deal be called “Hitman.” Thi! s might h! ave been an attempt to manage up, because “Hitman” was the nickname of his boss, Jonathan Horowitz, who helped head the part of the group that oversaw mortgage-backed C.D.O.’s. Mr. Horowitz replied, “I like it.”

Both Mr. Blumberg and Mr. Horowitz, now at JPMorgan, declined to comment through spokespeople at their banks.

In February 2006, Morgan Stanley began putting together the Stack C.D.O. According to an internal presentation, Stack “represents attractive business for Morgan Stanley.”

Why In addition to fees, another bullet point listed: “Ability to short up to $325MM of credits into the C.D.O.” In other words, Morgan Stanley could â€" and did â€" sell assets to the Stack C.D.O., intending to profit if the secrities backed by those assets declined. The bank put on a $170 million bet against Stack, even as it was selling it.

In the end, of the $500 million of assets backing the deal, $415 million ended up worthless.

“While investors and taxpayers all over the world continue to choke on Wall Street’s toxic subprime products, to this day not a single major Wall Street executive has been held accountable for misconduct relating to those products,” said Jason C. Davis, a lawyer at Robbins Geller who is representing the plaintiff in the lawsuit. “They are generally untouchable, but we are pleased that the court in this case is ordering Morgan Stanley to turn over damning evidence, so that the jury will get to see what Morgan Stanley really knew about the troubled nature of its supposedly ‘higher-than-AAA’ quality product.”

Why might Morgan Stanley have bet against the deal Did its traders develop a brilliant thesis by assessing the fundamentals of the housing market through caref! ul analys! is of the public data The documents suggest something more troubling: bankers found out that the housing market was diseased from their colleagues down the hall.

Bankers were getting information from fellow employees conducting and receiving private assessments of the quality of the mortgages that the bank would purchase to back securities. These reports weren’t available to the public. It would be crucial information for trading in securities backed by those kinds of mortgages.

In one e-mail from Oct. 21, 2005, a Morgan Stanley employee warns a banker that the mortgages Morgan Stanley is buying from loan originators are troubled. “The real issue is that the loan requests do not make sense,” he writes. As an example, he cites “a borrower that makes $12K a month as an operation manger (sic) of an unknown company â€" after research on my part I reveal it is a tarot reading huse. Compound these issues with the fact that we are seeing what I would call a lot of this type of profile.”

In another e-mail from March 17, 2006, another Morgan Stanley employee writes about a “deteriorating appraisal quality that is very flagrant.”

Two of the employees who received those e-mails joined an internal hedge fund, headed by Howard Hubler, that was formed only the following month, in April 2006. As recounted in Michael Lewis’s “The Big Short,” Mr. Hubler infamously bet against the subprime market on Morgan Stanley’s behalf, a fact that Morgan Stanley’s chief financial officer conceded in late 2007. Mr. Hubler’s group was supposed to be separate from the rest of Morgan Stanley, but the two bankers continued! to recei! ve similar information about the underlying market, according to the person briefed on the matter.

At no point did they receive material, nonpublic information, a Morgan Stanley spokesman says.

I struggle to see how the private assessments that the subprime market was imploding were immaterial.

Another of Morgan Stanley’s main defenses is that it couldn’t have thought the investment it sold to the Taiwanese was terrible because it, too, lost money on securities backed by subprime mortgages. As the Morgan Stanley spokesman put it, “This deal must be viewed in the context of a significant write-down for Morgan Stanley in 2007, when the firm recorded huge losses in its public securities filings related to other subprime C.D.O. positions.”

This is a common refrain offered by big banks like Citigroup, Merrill Lynch and Bear Stearns to absolve them of any responsibility.

But does losing money wipe away sin

Yes, Mr. Hubler made his bets in what turned out to be a deeply disastrous way. As part of a complex array of trades, he bet against the middle slices of subprime mortgage C.D.O.’s. He bought the supposedly safe top parts. The income from the top slices helped offset the cost of betting against the middle slices. But when the market collapsed, the top slices â€" called “super senior” because they were supposedly safer than Triple A â€" didn’t hold their value, losing billions for Mr. Hubler and Morgan Stanley. Mr. Hubler did not respond to requests ! for comme! nt.

So Morgan Stanley lost a great deal of money.

But let’s review what the documents suggest is the big picture.

In the fall of 2005, bank employees share nonpublic assessments of how the subprime market is a house of tarot cards.

In February 2006, the bank begins creating Stack in part so that it can bet against it.

In April 2006, the bank creates its own internal hedge fund, led by Mr. Hubler, who shorts the subprime market. Among the traders in this internal shop are people who helped create Stack and other deals like it, and at least two employees who had access to the private due diligence reports.

Mr. Hubler’s group had no investment position in Stack, according to a person briefed on the matter, but it sure looks as if the bank saw what was coming and tried to position itself for a subprime market collapse.

Finally, by early 2007, the bank appears to realize that the subprime market is cratering even worse that it expects. Even the supposedly safe piecesof C.D.O.’s that it owns, including its piece of Stack, are facing losses. So Morgan Stanley bankers set to scouring the world to peddle as a safe and sound investment what its own employees are internally deriding.

Morgan Stanley declined to comment on whether it made money on its Stack investments over all. But it looks to have turned out well for the bank. In Stack, it managed to fob off a nuclear bomb to the Taiwanese bank.

Unfortunately for Morgan Stanley, it had so many other pieces of C.D.O.’s, so many nuclear warheads, that it couldn’t find nearly enough suckers around the world to buy them all.

And so when the real collapse came, Morgan Stanley was left with billions of dollars in losses.

That hardly seems exculpatory.



Financial Crisis Lawsuit Suggests Bad Behavior at Morgan Stanley

On March 16, 2007, Morgan Stanley employees working on one of the toxic assets that helped blow up the world economy discussed what to name it. Among the team members’ suggestions: “Subprime Meltdown,” “Hitman,” “Nuclear Holocaust” and “Mike Tyson’s Punchout,” as well a simple yet direct reference to a bag of excrement.

Ha ha. Those hilarious investment bankers.

Then they gave it its real name and sold it to a Chinese bank.

We are never going to have a full understanding of what bad behavior bankers conducted in the years leading up to the financial criss. The Justice Department and the Securities and Exchange Commission have failed to hold big wrongdoers to account.

We are left with what scraps we can get from those private lawsuits lucky enough to get over the high hurdles for document discovery. A case brought against Morgan Stanley by a Taiwanese bank in a New York State Supreme Court in Manhattan has cleared that bar.

The results are explosive. Hundreds of pages of internal Morgan Stanley documents, released publicly last week, shed much new light on what bankers knew at the height of the housing bubble and what they did with that secret knowledge.

The lawsuit concerns a $500 million collateralized debt obligation called Stack 2006-1, created in the first half of 2006. Collections of mortgage-backed securities, C.D.O.’s were at the heart of the financial crisis.

But the documents suggest a pattern of behavior larger than this one deal: people across the bank understood that the American housing market was in trouble. They took advantage of that knowledge to create and then bet against securities and then also to unload garbage investments on unsuspecting buyers.

Morgan Stanley doesn’t see the narrative as the plaintiffs do. The firm is fighting the lawsuit, contending that the buyers were sophisticated clients and could have known what was going on in the subprime market. The C.D.O. documents disclosed, albeit obliquely, that Morgan Stanley might bet against the securities, a strategy known as shorting. The firm did not ick the assets going into the deal (though it was able to veto any assets). And any shorting of the deal was part of a larger array of trades, both long and short. Indeed, Morgan Stanley owned a big piece of Stack, in addition to its short bet.

Regarding the profane naming contest, Morgan Stanley said in a statement: “While the e-mail in question contains inappropriate language and reflects a poor attempt at humor, the Morgan Stanley employee who wrote it was responsible for documenting transactions. It was not his job or within his skillset to assess the state of the market or the credit quality of the transaction being discussed.”

Philip Blumberg, the Morgan Stanley lawyer who composed most of the names, meet the underside of a bus, courtesy of your employer.

Another Morgan Stanley employee sent an e-mail that same morning, suggesting that the deal be called “Hitman.” Thi! s might h! ave been an attempt to manage up, because “Hitman” was the nickname of his boss, Jonathan Horowitz, who helped head the part of the group that oversaw mortgage-backed C.D.O.’s. Mr. Horowitz replied, “I like it.”

Both Mr. Blumberg and Mr. Horowitz, now at JPMorgan, declined to comment through spokespeople at their banks.

In February 2006, Morgan Stanley began putting together the Stack C.D.O. According to an internal presentation, Stack “represents attractive business for Morgan Stanley.”

Why In addition to fees, another bullet point listed: “Ability to short up to $325MM of credits into the C.D.O.” In other words, Morgan Stanley could â€" and did â€" sell assets to the Stack C.D.O., intending to profit if the secrities backed by those assets declined. The bank put on a $170 million bet against Stack, even as it was selling it.

In the end, of the $500 million of assets backing the deal, $415 million ended up worthless.

“While investors and taxpayers all over the world continue to choke on Wall Street’s toxic subprime products, to this day not a single major Wall Street executive has been held accountable for misconduct relating to those products,” said Jason C. Davis, a lawyer at Robbins Geller who is representing the plaintiff in the lawsuit. “They are generally untouchable, but we are pleased that the court in this case is ordering Morgan Stanley to turn over damning evidence, so that the jury will get to see what Morgan Stanley really knew about the troubled nature of its supposedly ‘higher-than-AAA’ quality product.”

Why might Morgan Stanley have bet against the deal Did its traders develop a brilliant thesis by assessing the fundamentals of the housing market through caref! ul analys! is of the public data The documents suggest something more troubling: bankers found out that the housing market was diseased from their colleagues down the hall.

Bankers were getting information from fellow employees conducting and receiving private assessments of the quality of the mortgages that the bank would purchase to back securities. These reports weren’t available to the public. It would be crucial information for trading in securities backed by those kinds of mortgages.

In one e-mail from Oct. 21, 2005, a Morgan Stanley employee warns a banker that the mortgages Morgan Stanley is buying from loan originators are troubled. “The real issue is that the loan requests do not make sense,” he writes. As an example, he cites “a borrower that makes $12K a month as an operation manger (sic) of an unknown company â€" after research on my part I reveal it is a tarot reading huse. Compound these issues with the fact that we are seeing what I would call a lot of this type of profile.”

In another e-mail from March 17, 2006, another Morgan Stanley employee writes about a “deteriorating appraisal quality that is very flagrant.”

Two of the employees who received those e-mails joined an internal hedge fund, headed by Howard Hubler, that was formed only the following month, in April 2006. As recounted in Michael Lewis’s “The Big Short,” Mr. Hubler infamously bet against the subprime market on Morgan Stanley’s behalf, a fact that Morgan Stanley’s chief financial officer conceded in late 2007. Mr. Hubler’s group was supposed to be separate from the rest of Morgan Stanley, but the two bankers continued! to recei! ve similar information about the underlying market, according to the person briefed on the matter.

At no point did they receive material, nonpublic information, a Morgan Stanley spokesman says.

I struggle to see how the private assessments that the subprime market was imploding were immaterial.

Another of Morgan Stanley’s main defenses is that it couldn’t have thought the investment it sold to the Taiwanese was terrible because it, too, lost money on securities backed by subprime mortgages. As the Morgan Stanley spokesman put it, “This deal must be viewed in the context of a significant write-down for Morgan Stanley in 2007, when the firm recorded huge losses in its public securities filings related to other subprime C.D.O. positions.”

This is a common refrain offered by big banks like Citigroup, Merrill Lynch and Bear Stearns to absolve them of any responsibility.

But does losing money wipe away sin

Yes, Mr. Hubler made his bets in what turned out to be a deeply disastrous way. As part of a complex array of trades, he bet against the middle slices of subprime mortgage C.D.O.’s. He bought the supposedly safe top parts. The income from the top slices helped offset the cost of betting against the middle slices. But when the market collapsed, the top slices â€" called “super senior” because they were supposedly safer than Triple A â€" didn’t hold their value, losing billions for Mr. Hubler and Morgan Stanley. Mr. Hubler did not respond to requests ! for comme! nt.

So Morgan Stanley lost a great deal of money.

But let’s review what the documents suggest is the big picture.

In the fall of 2005, bank employees share nonpublic assessments of how the subprime market is a house of tarot cards.

In February 2006, the bank begins creating Stack in part so that it can bet against it.

In April 2006, the bank creates its own internal hedge fund, led by Mr. Hubler, who shorts the subprime market. Among the traders in this internal shop are people who helped create Stack and other deals like it, and at least two employees who had access to the private due diligence reports.

Mr. Hubler’s group had no investment position in Stack, according to a person briefed on the matter, but it sure looks as if the bank saw what was coming and tried to position itself for a subprime market collapse.

Finally, by early 2007, the bank appears to realize that the subprime market is cratering even worse that it expects. Even the supposedly safe piecesof C.D.O.’s that it owns, including its piece of Stack, are facing losses. So Morgan Stanley bankers set to scouring the world to peddle as a safe and sound investment what its own employees are internally deriding.

Morgan Stanley declined to comment on whether it made money on its Stack investments over all. But it looks to have turned out well for the bank. In Stack, it managed to fob off a nuclear bomb to the Taiwanese bank.

Unfortunately for Morgan Stanley, it had so many other pieces of C.D.O.’s, so many nuclear warheads, that it couldn’t find nearly enough suckers around the world to buy them all.

And so when the real collapse came, Morgan Stanley was left with billions of dollars in losses.

That hardly seems exculpatory.



Q. & A. on Wall Street\'s Untouchables

On Tuesday, “Frontline” investigated why the leaders of Wall Street have escaped prosecution for their role in the country’s financial meltdown.

Peter Eavis of DealBook is moderating a conversation beginning at 2 p.m. Eastern with the show’s producer, Martin Smith. Watch the show above and submit your questions now.



How Yahoo, Dell and Others Avoid Taxes

Yahoo, Dell Swell Netherlands’ $13 Trillion Tax Haven - Bloomberg
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Personal Finance Best Sellers From Amazon

"); }) var widget_links = widget_content.find('a') widget_links.attr('rel','nofollow'); widget_links.each(function() { $(this).mousedown(function() { BLOOMBERG.tracker.EVENTTRACK.record('Module Content Link Tracking', "amazon_widget", this.href); }) }); if(!$.browser.msie){ try{ $.each(widget_content.find('.asin_h1 a'), function(){ $(this).trigger('mouseover'); var hl = $('#amzn_popup_div .asin_h1').text(); if(hl.length>70){ hl = $.trim(hl).substring(0, 70).split(" ").slice(0, -1).join(" ") + "..."; } $(this).text(hl); $(this).trigger('mouseout'); })} catch(e){} } widget_links.each(function() { $(this).removeAttr('onmouseout').removeAttr('onmouseover'); }); $("#amzn_popup_div").hide(); widget.show(); } }, 3000); }); } //]]>

Last update: 8:41 AM ET, Jan 23

"+formatted_duration+"

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Cisco to Buy Intucell, a Maker of Cellphone Network Equipment

Acquisition Advances Cisco's Service Provider Mobile Networking Leadership

SAN JOSE, Calif. - Jan. 23, 2013 - Cisco today announced its intent to acquire privately held Intucell.  Headquartered in Ra'anana, Israel, Intucell provides advanced self-optimizing network (SON) software, which enables mobile carriers to plan, configure, manage, optimize and heal cellular networks automatically, according to real-time changing network demands. The acquisition of Intucell enhances Cisco's commitment to global service providers by adding a critical network intelligence layer to manage and optimize spectrum, coverage and capacity, and ultimately the quality of the mobile experience.

The proliferation of connected mobile devices, faster network speeds, and growing demand for high-bandwidth applications and services are driving greater network traffic and complexity.  As mobile service providers continue to face increased end-user demand, the need to optimize network bandwidth, usage and services is increasing. Intucell's SON software platform addresses these challenges by examining the network, identifying issues in real time, and intelligently adapting the network to meet demand. 

With the evolution of LTE 4G networks, mobile operators are increasingly looking for a more cost effective and efficient way to keep up with demand for bandwidth and reduce complexity. Intucell enhances Cisco's ability to deliver next-generation solutions with a SON software platform that supports multi-application, multi-vendor and multi-technology capabilities and enables service providers to manage operational costs and make better use of infrastructure investments.

"The mobile network of the future must be able to scale intelligently to address growing and often unpredictable traffic patterns, while also enabling carriers to generate incremental revenue streams," said Kelly Ahuja, senior vice president and general manager, Cisco Service Provider Mobility Group. "Through the addition of Intucell's industry-leading SON technology, Cisco's service provider mobility portfolio provides operators with unparalleled network intelligence and the unique ability to not only accommodate exploding network traffic, but to profit from it."

The acquisition of Intucell exemplifies Cisco's innovation framework and supports Cisco's five foundational priorities to lead the market in networking across all customer segments. The acquisition is well-aligned to Cisco's goals of developing and delivering innovative network and software technologies. 

Upon the close of the acquisition, Intucell employees will be integrated into Cisco's Service Provider Mobility Group, reporting to Shailesh Shukla, vice president and general manager, Software and Applications Group. Under the terms of the agreement, Cisco will pay approximately $475 million in cash and retention-based incentives to acquire the entire business and operations of Intucell. The acquisition is expected to close in the third quarter of Cisco's fiscal year 2013, subject to customary closing conditions, including applicable regulatory approvals.

About Cisco

Cisco (NASDAQ: CSCO) is the worldwide leader in networking that transforms how people connect, communicate and collaborate. Information about Cisco can be found at http://www.cisco.com. For ongoing news, please go to http://newsroom.cisco.com.

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 Cisco and the Cisco logo are trademarks or registered trademarks of Cisco and/or its affiliates in the U.S. and other countries. A listing of Cisco's trademarks can be found at www.cisco.com/go/trademarks. Third-party trademarks mentioned are the property of their respective owners. The use of the word partner does not imply a partnership relationship between Cisco and any other company.

Forward-Looking Statements

 This press release may be deemed to contain forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including the expected completion of the acquisition and the time frame in which this will occur, the expected benefits to Cisco and its customers from completing the acquisition, and plans regarding Intucell personnel.  Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors, including, among other things, the potential impact on the business of Intucell due to the uncertainty about the acquisition, the retention of employees of Intucell and the ability of Cisco to successfully integrate Intucell and to achieve expected benefits, business and economic conditions and growth trends in the networking industry, customer markets and various geographic regions, global economic conditions and uncertainties in the geopolitial environment and other risk factors set forth in Cisco's most recent reports on Form 10-K and Form 10-Q.  Any forward-looking statements in this release are based on limited information currently available to Cisco, which is subject to change, and Cisco will not necessarily update the information. 



For Dell Deal, Silver Lake May Find a Partner in Microsoft

Silver Lake may have found a deep-pocketed investor to join a takeover effort for Dell. Microsoft, Dell’s longtime ally, is in talks to contribute up to several billion dollars to a potential bid, which could exceed $20 billion, a person briefed on the matter tells DealBook’s Michael J. de la Merced. Microsoft, which has not yet made a commitment, has more than $66 billion in cash on hand. The company has done business with Silver Lake in the past, including when Microsoft acquired Skype in 2011.

“A vibrant Dell is an important part of Microsoft’s plans to make Windows more relevant for the tablet era, when more and more devices come with touch screens,” Mr. de la Merced writes. Their partnership is especially important as Microsoft’s move into making hardware has strained the company’s relationships with PC makers. Shares of Dell rose 2. percent on Tuesday to $13.12, while shares of Microsoft fell 0.4 percent to $27.15 after CNBC reported Microsoft’s potential involvement in a deal.

MISSING AT DAVOS: TALK OF CRISIS, AND PARTIES  |  The official agenda at the World Economic Forum includes few meetings on financial risk, creating the impression that the world’s leaders have other priorities. “This is a problem,” Steven M. Davidoff writes in the Deal Professor column. “We are five years past the beginnings of the financial crisis, and there is still no real explanation for what happened, let alone a solution.” He continues: “If the financial titans gathered there are really going to fight off the small but growing number of critics who are calling for the breakup of the big banks or even more likely ! a stronger Volcker Rule, they should put forth an alternative or an explanation for why these blowups keep occurring.”

On Wednesday, there was some discussion about financial regulation. The hedge fund manager Paul Singer said defining proprietary trading â€" a major task of the Dodd-Frank law â€" was a “metaphysical exercise,” according to Lauren Tara LaCapra of Reuters. Axel Weber, the chairman of UBS, addressed the issue of overseeing so-called shadow banks.

This year’s World Economic Forum seems decidedly more sober than in the past. Gone are the big dinners and blowout parties, Andrew Ross Sorkin writes. Google, Accel Partners nd Nike, which usually host memorable bashes, are opting out this year. “Have those companies given up on Davos for good Is there something bigger here at play than just parties”

PROSECUTING WALL STREET  |  Should bankers have faced criminal action for events surrounding the financial crisis Why didn’t the government crack down more forcefully Those questions were tackled on Tuesday night in “The Untouchables,” a special on PBS’s “Frontline.” DealBook’s Peter Eavis is taking questions on the topic in a live chat that begins at 2 p.m.

ON THE AGENDA  |  Amid reports of a possible weakeni! ng of dem! and for its products, Apple announces earnings after the market closes. Netflix and Amgen also report results on Wednesday evening, and United Technologies and US Airways report on Wednesday morning. The International Monetary Fund updates its world economic outlook at 10 a.m. George Soros is on CNBC at 10:10 a.m. James P. Gorman, Morgan Stanley’s chief executive, is on Bloomberg TV at 11:30 a.m. An interview with Jamie Dimon of JPMorgan Chase airs on CNBC at 3:10 p.m. Jeffrey Gundlach of DoubleLine Capital is on CNBC at 5 p.m.

MORGAN STANLEY’S PAY LATER PLAN  |  Morgan Stanley has been trying to cut expenses by shedding thousands of employees over the last year. But the firm is increasingly pushing bills into the future by deferring compensation for its employee â€" allowing it to wait before recording that expense. DealBook’s Susanne Craig reports: “In recent years, Morgan Stanley has been deferring its cash bonuses for top earnings for up to three years. Not surprisingly, the amount of deferred compensation â€" cash and stock â€" has risen sharply at Morgan Stanley, according to regulatory filings. In 2009, the firm deferred 40 percent of its total compensation. That percentage climbed to 60 percent in 2010 and 75 percent in 2011.”

Morgan Stanley says the move amounts to good corporate governance. But “eventually that tab will come due,” said a rival Wall Street executive who asked not to be named. Morgan’s stock rose after the firm reported earnings on Friday, and it closed up 2.7 percent on Tuesday.

Mergers & Acquisitions Â'

Allergan to Buy MAP Pharmaceuticals for $958 Million  |  Allergan has agreed to pay nearly $1 billion to acquire MAP Pharmaceuticals and gain full control of its experimental treatment for migraine headaches. DealBook Â'

Apollo and Metropoulos Said to Lead Bidding for Hostess Unit  |  A team of Apollo Global Management and C. Dean Metropoulos & Company “has emerged as a leading contender to make an opening bid for most of Hostess Brands Inc.’s cakes business, said people familiar with the negotiations,” The Wall Street Journal reports. WALL STREET JOURNAL

Yahoo Buys a Social News Start-Up  |  Yahoo said it had acquired Snip.it, which lets people organize and share news articles. REUTERS

In Board Changes at EADS, Questions of Independence  |  Reuters writes: “In theory, a new ownership structure means European plane maker EADS is no longer controlled by Paris and Berlin, free to pick the very best person in the world for the vacant job of board chairman. In practice, whoever it is, expect somebody French.” REUTERS

INVESTMENT BANKING Â'

Dimon Opines on Aggressive Monetary Policy  |  “If we do everything right, we could get out of this. If we don’t, it could very well go on for another 10 years,” Jamie Dimon, JPMorgan Chase’s leader, said during a panel discussion at the World Economic Forum, according to Bloomberg News. Quantitative easing, he added, “is one of the greatest monetary experiments of all time, they’ll be writing books about it for a thousand years.” BLOOMBERG NEWS

Wells Fargo Raises Dividend 14%  |  The bank said it had increased its dividend 3 cents, to 25 cents a share, as part of a plan approved by the Federal Reserve in 2012. REUTERS

Urging Banks to Break Up  |  Respondents to a Bloomberg News poll said that breaking up banks would help restore investors’ confidence. BLOOMBERG NEWS

Former CLSA Analyst Starts Bank Research Firm  |  The Wall Street Journal reports: “Daniel Tabbush, a longtime head of Asian bank research at brokerage CL! SA, enjoy! s playing devil’s advocate, digging beneath the surface to uncover the details that tell the hidden story. Now he’s doing it for his own firm, launched this month with the goal of providing an independent voice on Asia’s banks.” WALL STREET JOURNAL

Creating Coalitions of Aggrieved Bondholders  |  The Wall Street Journal writes: “Texas banking tycoon Andrew Beal is known for making unconventional moves, including gambling on high-stakes poker and a self-financed plan to launch rockets into space. His latest gambit: an attempt to wring money from giant banks by banding together aggrieved bondholders.” WALL STREET JOURNAL

PRIVATE EQUITY Â'

Private Equity Hunts for Oil Start-Ups in Brazil  |  A plan by Brazil to sell offshore oil licenses is attracting private equity firms like Denham Capital Management, which “is among funds in talks with start-ups before a government auction,” Bloomberg News reports. BLOOMBERG NEWS

South African Private Equity Firm Raises $800 Million Fund  | 
BLOOMBERG NEWS

HEDGE FUNDS Â'

New Hedge Fund to Charge Lower Fees  |  The Core Macro fund at Cantab Capital is avoiding the classic “2 and 20” structure, instead charging 0.5 percent of invested capital and 10 percent of profits, The Financial Times reports. FINANCIAL TIMES

Loeb Said to Bet Against Nu Skin  |  Daniel S. Loeb’s Third Point, which said it had acquired a stake in Herbalife, has a short position in another multilevel marketing company, Nu Skin, according to The New York Post. NEW YORK POST /p>

A Hedge Fund Manager’s Theatrical Side  |  David Tepper of Appaloosa Management sang some bars from “Bye Bye Birdie” on Bloomberg TV, explaining that in his younger days he performed in the show. BLOOMBERG TV

I.P.O./OFFERINGS Â'

Indian Matchmaking Site Looks to Raise Up to $125 Million  |  Reuters reports: “Consim Info Pvt. Ltd., owner of BharatMatrimony.com, a matchmaking portal, plans an initial public offering to raise between $100 million and $125 million later this year, two sources with direct knowledge of the matter said.” REUTERS

VENTURE CAPITAL Â'

Ribbit Capital, New V.C. Firm, Raises $100 Million Fund  |  Ribbit Capital is investing in start-ups focused on finance, including mobile payments and lending. ALLTHINGSD

Inside the Origins of Siri  |  The original version of Siri, created by a start-up that Apple later acquired, offers a possible “blueprint for how a growing wave of artificially intelligent assistants will slot into our lives,” Bianca Bosker of The Hffington Post writes. HUFFINGTON POST

LEGAL/REGULATORY Â'

Deutsche Bank Agrees to Settle Energy Trading Inquiry  |  Deutsche Bank has agreed to a settlement with the Federal Energy Regulatory Commission over charges that the bank manipulated California’s energy markets in 2010. The bank will pay a $1.5 million fine and surrender profit of about $170,000. DealBook Â'

‘Robin Hood’ Trading Tax Moves Ahead in Europe  |  A contested ta! x on fina! ncial trades has taken a big step forward after European Union finance ministers allowed several countries to proceed with the plan. The so-called Robin Hood tax would apply to trading in stocks, bonds and derivatives, and could bring in billions of euros for struggling European governments, James Kanter reports in The New York Times. NEW YORK TIMES

Federal Class-Action Securities Lawsuits Fell in 2012, Study Finds  |  The number of federal class-action securities lawsuits filed in 2012 came to 152 cases last year, well below the level in 2011, according to a study by Cornerstone Research. DealBook Â'

Bank of Japan’s Bond-Buying Meets Criticism  |  “With no more room left to cut interest rates and previous steps unsuccessful, the Bank of Japan is taking a page from the Federal Reserve’s playbook and will pump trillions more yen into the economy by directly buying government bonds and other assets,” but “as in the United States, there are doubts about just how much of an effect the move will have in Japan,” The New York Times reports. NEW YORK TIMES

Rajat Gupta Seeks Reversal of Insider Trading ConvictionGupta Se! eks Rever! sal of Insider Trading Conviction  |  Lawyers for Rajat K. Gupta, a former Goldman Sachs director, have made several arguments on appeal. Among the most significant is that the government should not have been allowed to use certain wiretap evidence during his trial. DealBook Â'

How Companies Can Sue Defendants in Insider Trading Cases  |  Two defendants convicted in insider trading cases face efforts by Wall Street firms to claw back legal fees and other expenses, Peter J. Henning writes in the White Collar Watch column. DealBook Â'

Egan-Jones Barred for 18 Months on Some RatingsEgan-Jones Barred for 18 Months on Some Ratings  |  The agreement settles accusations that the firm made misstatements about its record when applying for a government designation, the S.E.C. said. DealBook Â'

S.E.C. Fills Senior Enforcement Spot  |  The Securities and Exchange Commission announced on Tuesday that Vincente L. Martinez, a veteran of the agency, would run a powerful unit that culls tips about Wall Street wrongdoing. DealBook Â'



At Davos, Financial Leaders Debate Reform and Monetary Policy

DAVOS, Switzerland â€" Jamie Dimon, the chief executive of JPMorgan Chase, apologized again for the bank’s $6 billion trading loss, this time in front of an audience that included the elite of the financial world. But in character for the confident chief executive, it was a diet portion of humble pie.

“If you’re a shareholder of mine, I apologize,” Mr. Dimon said at the World Economic Forum annual meeting here. But he quickly added, “We did have record profits. Life goeson.”

During an often contentious panel discussion in Davos that included several other bank executives, Mr. Dimon clashed with a top official of the International Monetary Fund about whether the banking system was still too dangerous.

Zhu Min, deputy director of the I.M.F., said the financial industry was too large in proportion to the economy. More than four years after the financial crisis, Mr. Min noted that banks still operated on too much borrowed money and still traded in overly complicated derivatives that were impossible for outsiders to understand.

“The whole financial sector is too big,” Mr. Min said.

Mr. Dimon responded that JPMorgan was fulfilling its duty to lend to businesses and governments. He said JPMorgan and other banks no longer dealt with ! subprime mortgages and some of the other complex financial concoctions that led to the crisis. He also said JPMorgan had not abandoned Spain or Italy despite the risks in those highly indebted countries.

“Everyone I know is trying to do a good job for their clients,” Mr. Dimon said during a debate moderated by Maria Bartiromo of the cable channel CNBC on the opening day of the meeting.

During the same discussion, Axel Weber, the chairman of UBS and former president of the Bundesbank, harshly criticized the European Central Bank and other central banks for keeping interest rates at record lows.

Mr. Weber said it was wrong to combat a crisis caused by excessive borrowing by encouraging even more borrowing. Record low official interest rates and other extraordinary measures to pump cash into the economy would eventually backfire, he said.

“We are trying to solve the crisis with more leveraging,” he said. “We are having a better life at the expense of future generations.”

Mr. Weber was once the front-runner to become president of the European Central Bank. But he resigned as head of the German central bank in 2011 after clashing with other members of the E.C.B. governing council over its purchases of euro zone government bonds.

Mario Draghi, who became president of the European! Central ! Bank instead, has since calmed financial markets with a promise to buy government bonds in whatever amounts needed to contain borrowing costs for countries like Spain.

“I haven’t changed my views too much” on bond purchases, said Mr. Weber, who did not mention Mr. Draghi by name.

Mr. Weber has since presided over attempts by UBS to deal with the aftermath of the financial crisis and wrongdoing by some bank employees. UBS, based in Zurich, agreed to pay a $1.5 billion fine as part of a settlement last month over the manipulation of crucial benchmarks used to set mortgage and other interest rates.

“There have been excesses,” Mr. Weber said on Wednesday. “We need to fix them and move forward.”

Participants in the panel agreed that new bank regulations had fallen far short of what was needed to prevent problems at individual lenders from causing wider economic and financial crises, though they disagreed on what could be done better.

“We just experienced the worst fiancial crisis since the 1930s,” Mr. Min of the I.M.F. said. “We’re not safer yet.”

Mr. Dimon said conditions for economic growth were good “if we do all the right things.”

“If not,” he added, “we could be experiencing crises for another 10 years.”



\'Robin Hood\' Trading Tax Nudged Forward in Europe

‘Robin Hood’ Trading Tax Nudged Forward in Europe

BRUSSELS â€" A hotly contested tax on financial trades took a big step forward on Tuesday when European Union finance ministers allowed a vanguard of member states to proceed with the plan.

Algirdas Semeta, the European tax commissioner.

The so-called Robin Hood tax would apply to trading in stocks, bonds and derivatives. Although the tax would probably be small â€" one-tenth of a percentage point or less on the value of a trade â€" it could earn billions of euros for struggling European governments.

Algirdas Semeta, the European commissioner in charge of tax policy, called the decision “a major milestone in tax history” and said the levy could be imposed starting next year. But deep concerns about how it would work could still lead to delays.

The European Commission, the bloc’s policy-making arm, still needs to draft the final legislation, and the 11 states in favor of the law will have to give their unanimous approval before it becomes law â€" two more than the minimum required for legislation to be drafted.

A significant complication is opposition to the tax by Britain, which has the largest trading hub in Europe in the City of London. But because Britain has decided to stay outside the group of states applying the tax, its resistance would probably not stop the plan from moving ahead.

Among the 27 members of the European Union, the proposal has firm backing from Germany, France and nine other countries. Others might eventually support the idea, which is closely associated with James Tobin, a United States economist and Nobel laureate who suggested a version of it in the 1970s.

Although Britain would not be required to assess the tax, the law could still have an effect on its financial sector by raising the costs of transactions that involve institutions inside the tax zone.

The decision to move forward with the tax was “regrettable and likely to serve as another brake on economic growth,” Richard Middleton, a managing director at the Association for Financial Markets in Europe, an industry group based in London, said on Tuesday.

Backers of the tax originally expected the proceeds to go to humanitarian and environmental causes. But the debt crisis and difficulties in the banking sector have adjusted priorities. Governments are now keener to use the revenue to help prop up shaky banks and finance the European Union’s budget.

If the plan were applied across the entire bloc, it could generate 57 billion euros annually, or about 0.5 percent of European Union’s output, according to the European Commission. But that amount is likely to be significantly less without Britain’s participation.

The next stage is for Mr. Semeta, the European tax commissioner, to propose legislation. He has already suggested a tax of 0.1 percent of the value of stocks and bonds traded, and 0.01 percent of the value of derivatives trades.

One challenge is formulating the law so it does not prompt traders to move outside taxed jurisdictions. Another is deciding who pays the tax when traders in cities like Frankfurt or Paris, where the tax would apply, conduct business with traders in cities like London or New York, where it would not.

Tuesday was the second day of a meeting that began here Monday with a session of the finance ministers from the 17 members of the euro zone, known as the Eurogroup.

On Monday evening, in a nearly unanimous vote, the group elected Jeroen Dijsselbloem, the Dutch finance minister, as its new president.

A version of this article appeared in print on January 23, 2013, on page B6 of the New York edition with the headline: Proposed Tax On Trading Moves Ahead In Euro Zone.

Deutsche Bank Settles FERC Trading Inquiry

The U.S. Federal Energy Regulatory Commission has reached a settlement with Deutsche Bank over allegations that the bank manipulated the California energy markets in 2010.

The agreement, announced late on Tuesday, includes a $1.5 million fine against Deutsche Bank, which also must surrender around $170,000 in profits related to the energy trading activity.

The settlement is the latest effort by the U.S. agency, which oversees the oil, natural gas and electricity sectors, to clamp down on market abuses.

The F.E.R.C. is also levying a $470 million penalty against the British bank Barclays related to alleged questionable trading activity, though Barclays is challenging the accusations. The financial penalty would be the largest ever fine from the energy regulator.

The regulator has also banned JPMorgan Chase’s U.S. energy rading unit from participating in a number of U.S. energy markets for six months after some of the firm’s employees provided false information during an investigation into market manipulation.

In its latest settlement with Deutsche Bank, the Federal Energy Regulatory Commission said some of the bank’s employees had entered into a number of transactions in early 2010 that unfairly benefited the bank.

‘‘Deutsche Bank violated the commission’s anti-manipulation rule by engaging in a scheme in which Deutsche Bank entered into physical transactions to benefit its financial position,’’ the F.E.R.C. said in a statement.

The Federal Energy Regulatory Commission had originally proposed the fine last September. The statement late Tuesday said Deutsche Bank neither admitted nor denied the allegations, adding that the bank failed to reduce the financial penalty during negotiations.



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