Goldman Overcomes Its Latest Headache

It was an American success story gone horribly wrong.

A married couple started a software business in their Massachusetts home and eventually sold it to a Belgian company for $580 million. Just a few months after the sale, the Belgian company, which paid for the purchase with its stock, collapsed in an accounting fraud, wiping out the couple’s newly minted fortune.

And like so many American success stories gone wrong, this one ended up in court. The couple, James and Janet Baker, sued the investment bank that represented them in the sale â€" Goldman Sachs â€" contending that the bank had failed to uncover that their acquirer, Lernout & Hauspie, was a fraud.

Goldman battled back, arguing that detecting fraud was not its job. And late Wednesday, in a resounding victory for the bank, a jury rejected all of the Bakers’ legal claims.

“When you hire a banker, you ask it to do certain things, but delving into the books, doing accounting and finding fraud, is not one of them,” JohnD. Donovan, one of Goldman’s lawyers, said during the monthlong trial, which was heard in Federal District Court in Boston.

The case brought by the Bakers was among a spate of legal problems and public relations headaches that have been distractions for Goldman in recent years. A former Goldman director was convicted of leaking boardroom secrets to a hedge fund manager last spring.

A Goldman vice president publicly quit with an opinion article in The New York Times, “Why I Am Leaving Goldman Sachs,” that criticized the bank’s business practices. In 2010, Goldman paid $550 million to settle civil accusations that it had defrauded investors in the sale of subprime mortgage securities.

Goldman and other large banks typically settle lawsuits rather than engage in costly and protracted litigation. But several attempts to mediate the dispute with the Bakers failed, and Goldman dug in for a fight. The bank took the case to trial, despite the real risk that a jury of ordinary citize! ns might be predisposed to punishing a Wall Street bank in the post-financial-crisis era.

“We believed we were right on the facts, and while you can never predict what a jury will decide, we were confident that with a fair hearing we had a substantial chance of prevailing,” said Paul Vizcarrondo of Wachtell, Lipton, Rosen & Katz, a member of Goldman’s trial team.

The origins of the case date back more than a decade to the dot-com boom, when highflying technology companies dominated Wall Street. In the early 1980s, the Bakers founded Dragon Systems, a company that invented a pioneering voice-recognition technology. Large corporations like Sony and Intel expressed interest in the company, s did Lernout, an ambitious, fast-growing European outfit.

Bombarded with offers, the Bakers retained Goldman to advise them on a sale. The terms of engagement were explicit: Goldman would help structure a deal and negotiate its terms, but not do the financial analysis. Lawyers for the bank established during the trial that the Bakers had disregarded a Goldman memo that advised them to conduct a comprehensive accounting of Lernout.

Goldman’s lawyers also told the jury that the Bakers, faced with rapidly deteriorating financial results at their company, rushed to do a deal with Lernout. A failed 1999 initial public offering had increased the pressure to get a deal done, Goldman argued. A former Dragon president testified during the trial that the Bakers were in a hurry to get the highest price possible for their company.

In March 2000, with the tech bubble cresting, Lernout agreed to acquire Dragon for about $580 million. Lernout, taking advantage of a near tripling of its stock pr! ice in ju! st four months, paid for Dragon entirely with newly issued stock. The deal was not without risk; for months, Wall Street analysts and the media had raised questions about Lernout’s accounting practices.

By the summer, those questions erupted into a full-blown financial scandal with cooked books, phantom customers and shell companies. Lernout sought bankruptcy protection and its stock sank to zero.

“These people lost their life’s work,” said Mr. Donovan, Goldman’s outside lawyer at Ropes & Gray, during his closing argument. “But that’s not what this case is about. They sold their life’s work. They freely decided to part with it in exchange for a price.”

The Bakers turned to the courts for redress, filing a flurry of lawsuits against Lernout’s bankers and auditors, including the accounting firm KPMG. Those actions resulted in more than $70 million in settlements for the Bakers, according to court records.

After securing those settlements, nearly a decade after the dal, the Bakers took aim at Goldman.

“Jim and Janet Baker spent about 25 years of their lives creating Dragon to realize their dream of having millions of people use computers and other devices that understand human speech,” Alan K. Cotler, a lawyer for the Bakers, said in a previous statement. “Goldman Sachs played a fundamental role in the Bakers’ losing all that.”

The jury disagreed. Not only did it find in Goldman’s favor, it also found that the Bakers had mishandled their roles in the transaction. The jury determined that the Bakers had breached their fiduciary duty to their co-founders in failing to advise them about potential problems with the deal.

Mr. Cotler did not respond to requests for comment on Thursday.

Throughout the trial, the lawyers for the Bakers maligned the Goldman bankers, portraying them as unsupervised, lazy neophytes. The bankers on the deal â€" all in their 20s and 30s â€" were mockingly referred to as “the Goldman four” and derided a! s “the ! bottom of the barrel” and “the ‘D’ team.”

Goldman rebutted these claims. The jury heard testimony from Gene Sykes, the head of the bank’s mergers-and-acquisitions business and one of Wall Street’s most powerful bankers. Mr. Sykes said his role was to advise clients and negotiate transactions, but ultimately the decision to sell was the client’s own.

“I make sure I try to give them the right advice so that they can make good decisions about the various options they have,” Mr. Sykes said.

One of the Goldman bankers on the deal, Richard Wayner, also testified in Boston. During direct examination, Mr. Wayner, who left Goldman in 2002 but who still works in finance, broke down on the witness stand while discussing how the lawsuit had tarnished his name.

“It is regrettable the plaintiffs went to such lengths to unfairly and publicly attack the reputations of the Goldman Sachs bankers who advised Dragon Systems,” a Goldman spokeswoman said. “Those bankers have our ull support.”

Jones Day Names M.&A. Partner to Head New York Office

The law firm Jones Day said on Thursday that Wesley R. Johnson, a mergers and acquisitions lawyer, would lead the firm’s New York office.

He succeeds Willis Goldsmith, who has been partner-in-charge of the New York office since 2008. Mr. Goldsmith will continue his practice and be based in New York.

Mr. Johnson, 58, has been with Jones Day since joining the firm’s Paris office in 1986. He has advised a number of large French companies on cross-border deals, including Alcatel-Lucent, Société Générale, Credit Agricole and Sanofi. He has also advised U.S. and Chinese clients.

Steve Brogan, the managing partner of the law firm, said in a statement that Mr. Johnson’s “experience dvising clients on acquisitions in Europe as well as advising European clients on acquisitions elsewhere will make him a unique resource for clients seeking representation in the important New York market.”

The New York office is Jones Day’s largest, with nearly 300 lawyers. Jones Day is among the leading legal advisers on mergers. For the last 12 months, it ranks No. 21 among law firms worldwide, advising on 401 transactions worth more than $106 billion, according to Thomson Reuters data.

A graduate of Harvard Law School, Mr. Johnson earned an M.A. and B.A. from Cambridge University and a B.A. from the University of Michigan.

Morgan Stanley Chief to Take Pay Cut for a Second Year

After a year of mixed financial performance at Morgan Stanley, the firm’s chief executive, James P. Gorman, is expected to take a pay cut for the second consecutive year.

Mr. Gorman’s total pay for last year is estimated to be slightly less than the $10.5 million he took home for his work in 2011, according to a person briefed on the matter. That pay package was down 25 percent from the previous year.

The total value of his compensation package for 2012 is not yet known, but according to a regulatory filing on Thursday, the bank’s board awarded Mr. Gorman stock options valued at $2.6 million, on top of his base salary of $800,000. Mr. Gorman is also expected to earn another $2.6 million in deferred cash, according to this person, who spoke on the condition of anonymity because the compensation details are not yet public.

Morgan Stanle had to contend with a number of challenges in 2012. On the one hand, its stock rose 26 percent to $19.12, and its fourth-quarter earnings were fairly strong, exceeding analysts’ expectations. Still, it only managed to produce a return on shareholder equity of 5 percent, compared with 10.7 percent at its rival Goldman Sachs. Simply to cover its debt expenses and other capital costs, Morgan Stanley needs to achieve a return on equity closer to 10 percent.

While the firm has made progress in building out its wealth management operation, its fixed-income department, which was badly bruised during the financial crisis, continues to struggle. These issues, according to a person briefed on the matter, played a role in the board’s decision to cut Mr. Gorman’s pay.

In 2012, Mr. Gorman was awarded stock options, which give him the righ! t to buy Morgan Stanley shares in the future at a preset price. But the options would be worthless if the company’s shares fell below that price. In previous years, Mr. Gorman had been granted restricted stock units, which are stock grants tied to the price of the firm’s shares when they vest down the road.

The board decided to grant options rather than restricted stock in 2012 because Morgan Stanley failed to meet the performance criteria set out in a 2001 shareholder resolution that would have allowed it to qualify for full corporate tax deductibility. Part of the reason it failed to meet the conditions was an accounting charge that created huge volatility in its earnings but did not reflect its underlying performance. As a result, the company reported a loss of $117 million for last year. Excluding that charge, its yearly profit was roughly $3 billion.

Mr. Gorman was not the only Wall Street chief to see his pay fall. JPMorgan Chase announced last week that its board was cutting in half the 2012 pay of its chief executive, Jamie Dimon, to $11.5 million, after the bank suffered an embarrassing $6 billion trading loss last year on his watch.

In contrast, Goldman’s chief executive, Lloyd C. Blankfein, is on track to get a raise. Last week, he was granted restricted stock valued at $13.3 million for 2012, nearly double his stock award the previous year, on top of a base salary of $2 million. Goldman has not yet revealed the size of Mr. Blankfein’s cash bonus.

Other! top exec! utives at Morgan Stanley are also expected to see their pay drop somewhat, according to the person briefed on the matter. Gregory J. Fleming, who leads the firm’s wealth management division, was granted options valued at $2.4 million, as was Colm Kelleher, who runs institutional securities. Their total compensation packages are not known, but the person briefed on the matter said their pay would be down from the previous year.

Moving From Wall Street to the Tech Sector Proves Tricky

When Vinicius Vacanti set out to make a pitch for a local deals start-up to investors, he figured he understood the process given his four years on Wall Street.

But minutes into his first meeting with a venture capitalist, Mr. Vacanti realized he would be rejected. The investor quickly pointed out the flaws, including the site’s lack of users. As Mr. Vacanti rode the bus back to New York from Boston, he considered scrapping the project and starting over.

“The skills you build on Wall Street don’t correlate to a start-up,” said Mr. Vacanti, 31, a founder of the daily deal aggregator Yipit, who previously worked at the private equity firms Blackstone Group and the Quadrangle Group. While some of those skills are useful, he said, “a couple of those are actually bad.”

As more financiers jump to the technology sector, some are finding that their background, typically considered an asset in the corporate world, can be a liability. Some do not know how to write computer code. Others are ill-prepared for the penny-pinching and frustration of start-up life. In short, they have trouble persuading the Silicon Valley establishment that they have what it takes to nurture a young company.

“We start a little skeptical of someone from a finance background,” said Eric Paley of Founder Collective, the investor who declined to back Mr. Vacanti’s original idea. “It’s the lack of having to create something for a customer, find the market opportunity and persevere through it with very,! very low economics.”

The challenge has become particularly acute as big investors become more discerning with their money. While the technology scene has boomed in recent years, venture capitalists are showing signs of pulling back, especially after the struggles of Facebook, Groupon, Zynga and other former Internet darlings.

Last year, venture capitalists invested $1.78 billion in 302 deals in New York City. That compares with $2.27 billion in 317 deals in 2011, according to PricewaterhouseCoopers and the National Venture Capital Association, which use < href="http://dealbook.on.nytimes.com/public/overviewsymbol=TRI&inline=nyt-org" class="tickerized" title="More information about Thomson Reuters Corporation">Thomson Reuters data.

“There’s definitely fewer dollars available” for young companies that need an additional round of financing, said David Pakman, a New York-based partner at the venture capital firm Venrock. “Capital is tight and getting tighter.”

For young Wall Street professionals contemplating a bleak job market, the lure of working at a start-up â€" with its cachet and prospects for riches â€" can be powerful. But many financiers are finding it difficult to make the switch.

When Evan Rose left his job at the hedge fund Dynamic Capital Management to start an online night life service, he did not know how to write code. At first, he tried to outsource the programming for the site to Web developers in India. But he had to throw out the final product. “It was pretty much gobbledygook,” said Mr. Rose, 25.

Afte! r that, he started from scratch, learning to write code using Google and online forums. It took him a year to create the finished product.

When he eventually took the project to investors, he was excited about the idea, which he called an “OpenTable for night life.” But the site, NiteFly, had a chilly reception. “Although to him it was a novel concept, we’d heard it before,” said Kyle Widrick, a venture capitalist at Burch Creative Capital who heard the pitch.

To be taken seriously, Mr. Rose realized that he would need a deeper knowledge of the intended industry. So he abandoned NiteFly to work on a different start-up, eCruit, which aims to connect corporate recruiters to college students through online video conferences.

He worked with a human resources employee at a big bank, who used his contacts to attract recruiters to the servic.. With a seed investment from Ted Dintersmith, a partner emeritus at Charles River Ventures, eCruit is now planning its inaugural recruiting sessions for this year.

Some first-time entrepreneurs turn to mentorship programs like Y Combinator and TechStars to gain experience and tap into sources of financing.

Olga Vidisheva, the founder of the online fashion company Shoptiques, had a classic Wall Street background when she entered Y Combinator, having spent two years at Goldman Sachs before going to Harvard Business School. Two of her earliest investors were friends from Goldman, and her first employee came from the buyout firm Providence Equity Partners.

With no technical background, Ms. Vidisheva, 27, used the opportunity at Y Combinator to find a programmer. After the three-month-long program, she also ended up raising $2 mil! lion from! prominent venture capital firms like Andreessen Horowitz, Greylock Partners and Benchmark Capital.

Only a handful of “Wall Street refugees” have gone through Y Combinator, said Paul Graham, a founder of the incubator, adding that the number of applicants from finance has been growing in the last couple of years. “What we like about them is they tend to be pretty fierce,” Mr. Graham said. “You can point them at any problem, and if they don’t know how to solve it, they’ll figure out how to solve it and then solve it.”

Others are trying to bring their Wall Street experience to the Web, rather than entering a completely new field.

Nick Sedlet, a former quantitative strategist at Goldman Sachs, and Elli Sharef, a former management consultant at McKinsey & Company, started HireArt, a site that connects qualified job seekers with employers. They modeled the program on the in-depth interview process at Goldman and McKinsey, which require applicants to tackle math and logic problem.. Prospective employees might be asked to design a marketing campaign for a fitness start-up, or calculate the amount of capital that a chief executive should invest in new property.

“McKinsey and Goldman are two institutions that have really thought about how to assess people,” said Mr. Sedlet, 27. “We saw a very easy way to make that methodology available online.”

Keenly aware of the challenges of start-up life, Mr. Vacanti, of Yipit, now writes a blog chronicling his experiences and sometimes speaks at gatherings for young professionals considering a similar path. After the disappointing meeting in 2010, Mr. Vacanti took the investor’s advice to heart and decided to “pivot,” in tech parlance, moving from offering local discounts to aggregating daily deals from sites like Groupon. In 2010, Yipit raised $1.3 million from investors; in 2011, it raised $6 million.

Last March, in response to one of Mr. Vacanti’s blog posts, Mr. Paley commented on their meeting. “Glad I could help,” Mr. Paley wrote on Twitter. “Should have invested in the pivot!”

Mary Jo White\'s Greatest Hits

Mary Jo White, President Obama’s pick to lead the Securities and Exchange Commission, brings experience as both a prosecutor and a defense attorney.

A partner at Debevoise & Plimpton, she has defended some of the biggest Wall Street names. But as the United States attorney in Manhattan, she went after a Japanese bank for fraud. Here are some of her most memorable cases:

Defense Attorney

2012: N.F.L | Ms. White was hired by the N.F.L. to look into allegations that the New Orleans Saints carried out a bounty system for hurting opponents.

2010-2012: JPMorgan Chase | Ms. White represented JPMorgan Chase in cases stemming from the financial crisis.

2011: News Corporation | Independent directors of the media company hired Ms. White amid a phone-hacking scandal.

2010: Kenneth Lewis | Ms. White represented Bank of America’s former chief executive, Kenneth Lewis, when he was sued by the New York attorney general. Mr. Lewis was accused of defrauding investos in the acquisition of Merrill Lynch.

2008: Siemens | Siemens paid $1.6 billion to resolve a federal bribery investigation. The German company had retained Ms. White to conduct an internal investigation.

2007: HCA | Ms. White represented the hospital chain HCA in an investigation by the S.E.C. and the Justice Department into whether Senator Bill Frist violated insider trading laws when he sold his stake in the company. The investigation was closed with no charges filed.

2005: Morgan Stanley | Ms. White was retained by the board of Morgan Stanley to vet John Mack for the job of chief executive. She attracted some controversy in that role, when she sought information from the director of enforcement of the Securities and Exchange Commission.

2004: Tommy Hilfiger | Ms. White represented the clothing company as it was being investigated for possible tax violations.

Prosecutor

2002: Presidential Pardons | When Ms. White stepped down as United States at! torney, she left behind an unfinished investigation into whether there was any wrongdoing in President Bill Clinton’s 177 final pardons and commutations.

2002: Campaign Finance | Ms. White wrapped up a three-year investigation into campaign contributions to Sen. Robert G. Torricelli, ultimately deciding not to file charges.

2001: United States Embassies in Africa | Four followers of Osama bin Laden were convicted for their roles in the bombing of American embassies in Africa in 1998. Over all, Ms. White’s office announced 10 criminal indictments of bin Laden and his followers.

2001: Los Angeles International Airport | Ms. White’s office won the conviction of an Algerian man in a plot to blow up the airport.

1999: Financial Fraud | Patrick R. Bennett was convicted in a financial scheme that prosecutors said cheated investors out of nearly $700 million.

1996: Jetliner Plot | Ramzi Ahmed Yousef was convicted in a failed plot to blow up a number of American jetliners as they lew over the Pacific Ocean. Mr. Yousef was also convicted the following year for his role in the 1993 bombing of the World Trade Center.

1995: Daiwa Bank | Ms. White announced the indictment of the Japanese firm Daiwa Bank, forcing it to close its operations in the United States. The bank was accused of illegally covering up $1.1 billion in trading losses.

1993: United Nations Plot | Ms. White’s office prosecuted Sheik Omar Abdel Rahman, a blind Egyptian cleric, in connection with a plot to blow up the United Nations and other New York landmarks. Mr. Abdel Rahman and nine others were convicted in 1995.

1993: World Trade Center Bombing | The year she took office as the United States attorney in Manhattan, Ms. White oversaw a prosecution stemming from the Feb. 26, 1993, bombing of the World Trade Center. That resulted in four convictions the following year.

1992: John Gotti | As the chief assistant United States attorney in the eastern district of New York, Ms. White led the s! uccessful! prosecution against John Gotti, who was convicted of murder and racketeering.

Greenhill Results a Positive Omen for M.&A. Boutiques

If Greenhill’s results are anything to go by, M.&A. boutiques should have a certain degree of staying power.

The firm, led by Scott Bok, on Wednesday reported a 4 percent drop in advisory revenue last year, a week after larger rivals JPMorgan and Morgan Stanley posted declines of 17 percent and 21 percent, respectively. It’s a good sign for smaller shops if they can handle a weaker market as well as a strong one.

The type and size of transactions have probably helped. Divestitures and spinoffs accounted for almost half of last year’s $2.6 trillion of deal volume. That’s the highest percentage since Thomson Reuters started collecting data in 1980. Often, such moves require no financing, which diminishes the need to hire an adviser with a hefty balance sheet - and thus plays right into the hands of independent firms.

Large acquisitions also tailed off. The number of completed transactions worth more than $5 billion dropped by a quarter last year to 51 and their value by almost 20 percent, the biggest decline of any segment. Such mega-deals are what big banks rely upon for their all-important league-table credit and the juicy fees to make running the business worthwhile. Boutiques, on the other hand, can rely on smaller mergers to pick up the slack. Some, like Houlihan Lokey, focus on them.

Even so, there’s no reason to think at this stage that an upswing in big-ticket mandates will cause independent houses to wither markedly. With few or no ties to financing, underwriting or trading, their conflicts-free! advice has found greater appeal in the post-crisis world. Court castigations of Barclays and Goldman Sachs have only reinforced the precept.

The longer-term momentum is with the boutiques, too. Since 2000, the share of the mergers and acquisitions fee pool claimed by the industry behemoths has shrunk from 63 percent to 44 percent, according to Thomson Reuters data. Over the same period, the top 20 independents - including Greenhill, Moelis, Perella Weinberg, Qatalyst and Lazard last year - have doubled their proportion to 21 percent of the pie. These merger specialists look well placed to keep holding their own.

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

Greenhill Results a Positive Omen for M.&A. Boutiques

If Greenhill’s results are anything to go by, M.&A. boutiques should have a certain degree of staying power.

The firm, led by Scott Bok, on Wednesday reported a 4 percent drop in advisory revenue last year, a week after larger rivals JPMorgan and Morgan Stanley posted declines of 17 percent and 21 percent, respectively. It’s a good sign for smaller shops if they can handle a weaker market as well as a strong one.

The type and size of transactions have probably helped. Divestitures and spinoffs accounted for almost half of last year’s $2.6 trillion of deal volume. That’s the highest percentage since Thomson Reuters started collecting data in 1980. Often, such moves require no financing, which diminishes the need to hire an adviser with a hefty balance sheet - and thus plays right into the hands of independent firms.

Large acquisitions also tailed off. The number of completed transactions worth more than $5 billion dropped by a quarter last year to 51 and their value by almost 20 percent, the biggest decline of any segment. Such mega-deals are what big banks rely upon for their all-important league-table credit and the juicy fees to make running the business worthwhile. Boutiques, on the other hand, can rely on smaller mergers to pick up the slack. Some, like Houlihan Lokey, focus on them.

Even so, there’s no reason to think at this stage that an upswing in big-ticket mandates will cause independent houses to wither markedly. With few or no ties to financing, underwriting or trading, their conflicts-free! advice has found greater appeal in the post-crisis world. Court castigations of Barclays and Goldman Sachs have only reinforced the precept.

The longer-term momentum is with the boutiques, too. Since 2000, the share of the mergers and acquisitions fee pool claimed by the industry behemoths has shrunk from 63 percent to 44 percent, according to Thomson Reuters data. Over the same period, the top 20 independents - including Greenhill, Moelis, Perella Weinberg, Qatalyst and Lazard last year - have doubled their proportion to 21 percent of the pie. These merger specialists look well placed to keep holding their own.

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

In Davos, Merkel Presses Leaders to Keep Focus on Economy

DAVOS, Switzerland â€" Angela Merkel, the German chancellor, warned her fellow euro zone leaders on Thursday not to falter in their efforts to reinvigorate their economies now that they face less pressure from financial markets. She gave voice to widespread concern here that a tentative European recovery could be undercut by political complacency.

Measures in recent months by the European Central Bank to help banks and struggling euro zone countries have calmed markets but have not solved the euro zone’s underlying economic problems, Ms. Merkel said in a speech to participants at the World Economic Forum.

‘‘The E.C.B. has done a lot,’’ she said. Now, she added, ‘‘there is a political duty for us to do our homework.’’

Reprising the role of European taskmaster for which she is often resented, Ms. Merkel made her remarks shortly after Mario Monti, the prime minister of Italy, had assured an audience at an auditorium in Davos that his country was making progress in efforts o reduce its debt load and streamline its economy. Italy is removing barriers to competition, rebuilding infrastructure and dismantling labor regulations that inhibit hiring and firing, Mr. Monti said.

But among big investors, many of whom are here in Davos, there is skepticism whether Europe’s political leaders will follow through on such changes.

‘‘These are fairly important measures,’’ said Olivier Marchal, managing director for Europe at the consultant Bain & Company, speaking on European reform efforts. But, he predicted, ‘‘apart from the psychological effect, there will not be any tangible impact before 2014.’’

David Cameron, the British prime minister, has intensified pressure on the euro zone with his announcement Wednesday that he would ask Britons to vote on European Union membership within five years. He amplified those remarks here Thursday, saying that Britain didn’t want to turn its back on Europe but to make it ‘‘more competitive, open and fl! exible.’’

The discussion about European competitiveness came as results of a business survey released in London on Thursday raised hopes that the euro zone could emerge from recession sooner than expected. But the survey of purchasing managers, by the data provider Markit, showed a sharp divergence among countries. While German managers became more optimistic, French sentiment slumped.

Separately, a report from Madrid on Thursday showed that Spanish unemployment rose to a record high of 26 percent at the end of 2012, with six million people out of work.

Mr. Marchal of Bain & Company said many of the businesspeople he had talked with remained cautious and reluctant to invest. ‘‘Many of them are either postponing strategic moves or preparing for things to get worse,’’ he said.

During her speech, Ms. Merkel described herself as ‘‘conditionally optimistic’’ and said, ‘‘The investment climate in Europe has improved.’’ But she went on to lament the high levelof youth unemployment. The Spanish data released Thursday showed that the jobless rate among people from 16 to 24 years old was 55 percent in the last three months of 2012, up from 52 percent in the previous quarter.

‘‘Our biggest burden is youth unemployment,’’ she said.

The European Union needs to better exploit its status as the world’s largest market, Ms. Merkel said. ‘‘We can make a lot of that if we remain open, innovative and when we don’t take it for granted that Europe has a right to be the leading continent on the world.’’

While Germany is considered healthier than other large economies in Europe, growth is hardly dynamic. Output shrank in the last three months of 2012. This year, the German economy will grow by about 1 percent, according to numerous forecasts.

‘‘Things are better,’’ Thomas J. Donohue, president of the United States Chamber of Commerce, said during an interview here. ‘‘But there’s a big distance between things being! better a! nd having the growth we need to start hiring people.’’

Mr. Donohue noted that the United States, Europe and China had become highly dependent on trade with one another. ‘‘If the E.U. has even a little bit of negative growth, that’s not going to be good for any of the three of us,’’ he said.

Ms. Merkel praised Mario Draghi, the president of the European Central Bank, for insisting that countries improve economic performance as a condition for his help containing market pressure.

But many of the business managers who predominate among the attendees in Davos are worried that progress will stall because of resistance from interest groups that stand to lose quasi-monopolies or other privileges ensured by government regulation. In addition, they say, European labor unions have held up changes in laws that make it nearly impossible to fire workers who are not needed or not performing.

Mr. Monti’s reform drive has helped Italy win back international respect, but there is coniderable nervousness about what will happen after elections in February. Because Italian borrowing costs have retreated from alarming highs last year, political leaders feel more heat from voters than they do from bond investors.

Since Mr. Draghi promised last year to do whatever it took to preserve the euro, ‘‘I have seen in no country hard new measures,’’ Maximilian Zimmerer, chief financial officer of the German insurer Allianz, said in an interview.

Mr. Zimmerer expressed optimism that reforms would resume, but added, ‘‘You do not have the pressure of markets for now.’’

In Davos, Merkel Presses Leaders to Keep Focus on Economy

DAVOS, Switzerland â€" Angela Merkel, the German chancellor, warned her fellow euro zone leaders on Thursday not to falter in their efforts to reinvigorate their economies now that they face less pressure from financial markets. She gave voice to widespread concern here that a tentative European recovery could be undercut by political complacency.

Measures in recent months by the European Central Bank to help banks and struggling euro zone countries have calmed markets but have not solved the euro zone’s underlying economic problems, Ms. Merkel said in a speech to participants at the World Economic Forum.

‘‘The E.C.B. has done a lot,’’ she said. Now, she added, ‘‘there is a political duty for us to do our homework.’’

Reprising the role of European taskmaster for which she is often resented, Ms. Merkel made her remarks shortly after Mario Monti, the prime minister of Italy, had assured an audience at an auditorium in Davos that his country was making progress in efforts o reduce its debt load and streamline its economy. Italy is removing barriers to competition, rebuilding infrastructure and dismantling labor regulations that inhibit hiring and firing, Mr. Monti said.

But among big investors, many of whom are here in Davos, there is skepticism whether Europe’s political leaders will follow through on such changes.

‘‘These are fairly important measures,’’ said Olivier Marchal, managing director for Europe at the consultant Bain & Company, speaking on European reform efforts. But, he predicted, ‘‘apart from the psychological effect, there will not be any tangible impact before 2014.’’

David Cameron, the British prime minister, has intensified pressure on the euro zone with his announcement Wednesday that he would ask Britons to vote on European Union membership within five years. He amplified those remarks here Thursday, saying that Britain didn’t want to turn its back on Europe but to make it ‘‘more competitive, open and fl! exible.’’

The discussion about European competitiveness came as results of a business survey released in London on Thursday raised hopes that the euro zone could emerge from recession sooner than expected. But the survey of purchasing managers, by the data provider Markit, showed a sharp divergence among countries. While German managers became more optimistic, French sentiment slumped.

Separately, a report from Madrid on Thursday showed that Spanish unemployment rose to a record high of 26 percent at the end of 2012, with six million people out of work.

Mr. Marchal of Bain & Company said many of the businesspeople he had talked with remained cautious and reluctant to invest. ‘‘Many of them are either postponing strategic moves or preparing for things to get worse,’’ he said.

During her speech, Ms. Merkel described herself as ‘‘conditionally optimistic’’ and said, ‘‘The investment climate in Europe has improved.’’ But she went on to lament the high levelof youth unemployment. The Spanish data released Thursday showed that the jobless rate among people from 16 to 24 years old was 55 percent in the last three months of 2012, up from 52 percent in the previous quarter.

‘‘Our biggest burden is youth unemployment,’’ she said.

The European Union needs to better exploit its status as the world’s largest market, Ms. Merkel said. ‘‘We can make a lot of that if we remain open, innovative and when we don’t take it for granted that Europe has a right to be the leading continent on the world.’’

While Germany is considered healthier than other large economies in Europe, growth is hardly dynamic. Output shrank in the last three months of 2012. This year, the German economy will grow by about 1 percent, according to numerous forecasts.

‘‘Things are better,’’ Thomas J. Donohue, president of the United States Chamber of Commerce, said during an interview here. ‘‘But there’s a big distance between things being! better a! nd having the growth we need to start hiring people.’’

Mr. Donohue noted that the United States, Europe and China had become highly dependent on trade with one another. ‘‘If the E.U. has even a little bit of negative growth, that’s not going to be good for any of the three of us,’’ he said.

Ms. Merkel praised Mario Draghi, the president of the European Central Bank, for insisting that countries improve economic performance as a condition for his help containing market pressure.

But many of the business managers who predominate among the attendees in Davos are worried that progress will stall because of resistance from interest groups that stand to lose quasi-monopolies or other privileges ensured by government regulation. In addition, they say, European labor unions have held up changes in laws that make it nearly impossible to fire workers who are not needed or not performing.

Mr. Monti’s reform drive has helped Italy win back international respect, but there is coniderable nervousness about what will happen after elections in February. Because Italian borrowing costs have retreated from alarming highs last year, political leaders feel more heat from voters than they do from bond investors.

Since Mr. Draghi promised last year to do whatever it took to preserve the euro, ‘‘I have seen in no country hard new measures,’’ Maximilian Zimmerer, chief financial officer of the German insurer Allianz, said in an interview.

Mr. Zimmerer expressed optimism that reforms would resume, but added, ‘‘You do not have the pressure of markets for now.’’

The Dual Duties of the Next S.E.C. Chief

After critics said that the appointment of Joseph P. Kennedy as the first chairman of the Securities and Exchange Commission was like putting the fox in charge of the henhouse, President Franklin D. Roosevelt is reported to have responded, “Set a thief to catch a thief.”

The choice of Mary Jo White as the next S.E.C. chairwoman will not elicit the same comparisons. Rather, it may be analogous to binging a bazooka to a knife fight.

As a former United States attorney in Manhattan, Ms. White has a strong law enforcement background. Her appointment likely means that the S.E.C.’s close working relationship with the Justice Department will continue. In addition, her former office in Manhattan has taken the lead in a number of insider trading prosecutions, so that issue is likely to remain a focus.

After leaving public service, Ms. White also spent more than 10 years as a leading white-collar defense lawyer. That means she has also been privy to how firms and individuals respond to government investigations. In that sense, she is a bit like Mr. Kennedy and should already know many of the tricks of the trade.

In private practice, Ms. White was not a well-known trial lawyer. Instead, her work appears to have been mostly beneath the radar, representing clients in cases that did not make headlines by being played out in front of a jury.

This is actually a testament to her e! ffectiveness. Most white-collar defense lawyers do their best work far from the public spotlight by keeping a client from being accused of a violation and, when necessary, working out a resolution to keep negative publicity to a minimum.

One controversy may re-emerge, however. In 2005, Ms. White sought information from the S.E.C.’s director of enforcement about the status of an insider trading investigation involving John J. Mack. At the time, Ms. White was legal counsel to Morgan Stanley, and the firm was considering whether to reappoint Mr. Mack as its chief executive. It did not appear tha she did anything improper by using her contacts with the agency to gather information, though some may dredge up the issue during her confirmation hearing.

As chairwoman of the S.E.C., Ms. White can be expected to continue the program of aggressive enforcement of the securities laws set by her predecessor, Mary L. Schapiro, in response to the fiasco over Bernald L. Madoff’s Ponzi scheme. Among her first appointments will be a director of enforcement to replace Robert Khuzami, who stepped down in January.

There is a strong likelihood the next enforcement director will have a prosecutorial background. Mr. K! huzami wo! rked for Ms. White in the United States attorney’s office.

Prosecutors like to deal with members of the same club, so it would be a shock if an appointee did not have experience in the Manhattan office Ms. White led, and perhaps even someone who worked for her. As a result, the S.E.C. is likely to continue to adopt tactics employed by federal prosecutors, including deferred and nonprosecution agreements.

The S.E.C.’s enforcement role is likely to be enhanced by Ms. White’s appointment. But she is likely to have to focus her attention much more on the agency’s regulatory role, where the impact of the S.E.C. can be much greater. The S.E.C.’s civil charges generate headlines, but it is the agency’s rules that affect how the financial markets operate on a daily basis.

Two of the most important issues facing the agency are regulations governing money market funds and the Volcker Rule. Ms. Schapiro tried, and failed, to adopt additional restrictions on money market mutual funds that hold more than $2.7 trillion in assets. Whether Ms. White will be able to devise a compromise with her fellow commissioners to protect the funds from a “run on the bank” that almost occurred during the financial crisis will be a crucial test of her leadership.

The Volcker Rule, intended to prevent banks from making risky speculative investments with their own money, involves taking coordinated action with a number of other agencies, even as Congress looks over the S.E.C.’s shoulder. Just getting the rule adopted will be a major challenge.

Unlike a prosecutor, the S.E.C. leader does not always set the agenda or exercise control over how the process will unfold. Moreover, much of the work in law enforcement takes place well outside the public eye, especially in an investigation that is often not e! ven ackno! wledged by the government.

Ms. White is no stranger to controversy, having dealt with a number of prominent cases as a prosecutor, including the investigation of the pardons issued by President Bill Clinton on his last day in office. But serving as the chairwoman of the S.E.C. will be different from anything she has done before. She will be at an agency subject to a host of laws that make much of her work transparent.

Like any good lawyer, Ms. White will have to adapt to these new circumstances while dealing with a host of competing constituencies both at the agency and on Capitol Hill.

The Dual Duties of the Next S.E.C. Chief

After critics said that the appointment of Joseph P. Kennedy as the first chairman of the Securities and Exchange Commission was like putting the fox in charge of the henhouse, President Franklin D. Roosevelt is reported to have responded, “Set a thief to catch a thief.”

The choice of Mary Jo White as the next S.E.C. chairwoman will not elicit the same comparisons. Rather, it may be analogous to binging a bazooka to a knife fight.

As a former United States attorney in Manhattan, Ms. White has a strong law enforcement background. Her appointment likely means that the S.E.C.’s close working relationship with the Justice Department will continue. In addition, her former office in Manhattan has taken the lead in a number of insider trading prosecutions, so that issue is likely to remain a focus.

After leaving public service, Ms. White also spent more than 10 years as a leading white-collar defense lawyer. That means she has also been privy to how firms and individuals respond to government investigations. In that sense, she is a bit like Mr. Kennedy and should already know many of the tricks of the trade.

In private practice, Ms. White was not a well-known trial lawyer. Instead, her work appears to have been mostly beneath the radar, representing clients in cases that did not make headlines by being played out in front of a jury.

This is actually a testament to her e! ffectiveness. Most white-collar defense lawyers do their best work far from the public spotlight by keeping a client from being accused of a violation and, when necessary, working out a resolution to keep negative publicity to a minimum.

One controversy may re-emerge, however. In 2005, Ms. White sought information from the S.E.C.’s director of enforcement about the status of an insider trading investigation involving John J. Mack. At the time, Ms. White was legal counsel to Morgan Stanley, and the firm was considering whether to reappoint Mr. Mack as its chief executive. It did not appear tha she did anything improper by using her contacts with the agency to gather information, though some may dredge up the issue during her confirmation hearing.

As chairwoman of the S.E.C., Ms. White can be expected to continue the program of aggressive enforcement of the securities laws set by her predecessor, Mary L. Schapiro, in response to the fiasco over Bernald L. Madoff’s Ponzi scheme. Among her first appointments will be a director of enforcement to replace Robert Khuzami, who stepped down in January.

There is a strong likelihood the next enforcement director will have a prosecutorial background. Mr. K! huzami wo! rked for Ms. White in the United States attorney’s office.

Prosecutors like to deal with members of the same club, so it would be a shock if an appointee did not have experience in the Manhattan office Ms. White led, and perhaps even someone who worked for her. As a result, the S.E.C. is likely to continue to adopt tactics employed by federal prosecutors, including deferred and nonprosecution agreements.

The S.E.C.’s enforcement role is likely to be enhanced by Ms. White’s appointment. But she is likely to have to focus her attention much more on the agency’s regulatory role, where the impact of the S.E.C. can be much greater. The S.E.C.’s civil charges generate headlines, but it is the agency’s rules that affect how the financial markets operate on a daily basis.

Two of the most important issues facing the agency are regulations governing money market funds and the Volcker Rule. Ms. Schapiro tried, and failed, to adopt additional restrictions on money market mutual funds that hold more than $2.7 trillion in assets. Whether Ms. White will be able to devise a compromise with her fellow commissioners to protect the funds from a “run on the bank” that almost occurred during the financial crisis will be a crucial test of her leadership.

The Volcker Rule, intended to prevent banks from making risky speculative investments with their own money, involves taking coordinated action with a number of other agencies, even as Congress looks over the S.E.C.’s shoulder. Just getting the rule adopted will be a major challenge.

Unlike a prosecutor, the S.E.C. leader does not always set the agenda or exercise control over how the process will unfold. Moreover, much of the work in law enforcement takes place well outside the public eye, especially in an investigation that is often not e! ven ackno! wledged by the government.

Ms. White is no stranger to controversy, having dealt with a number of prominent cases as a prosecutor, including the investigation of the pardons issued by President Bill Clinton on his last day in office. But serving as the chairwoman of the S.E.C. will be different from anything she has done before. She will be at an agency subject to a host of laws that make much of her work transparent.

Like any good lawyer, Ms. White will have to adapt to these new circumstances while dealing with a host of competing constituencies both at the agency and on Capitol Hill.

Commissioner Overseeing MF Global Inquiry at C.F.T.C. Abruptly Quits

Jill E. Sommers, a Republican regulator overseeing the investigation into MF Global’s collapse, has abruptly decided to depart the Commodity Futures Trading Commission, the agency said on Thursday.

It is a surprising move for Ms. Sommers, a veteran commissioner who will exit with more than a year left on her term and without concluding the MF Global investigation, an inquiry into how the bankrupt brokerage firm misused customer money. A former lobbyist and Congressional staff member, she is departing without indicating a next career move, according to agency officials.

Ms. Sommers, who submitted a letter of resignation on Thursday, will leave the agency after the first quarter of the year. Her letter did not specify a reason for resigning, though some people close to the agency surmised that Ms. Sommers planned to spend more time with her three children.

“As I prepare to leave the Commodity Futures Trading Commission I would like to acknowledge the hard work and dedication of my felow commissioners and the many talented staff with whom I have had the pleasure of working for the past five years,” Ms. Sommers said in a statement.

Her departure, the agency officials said, does not portend a broader shakeup at the agency, a small but important regulator overseeing Wall Street. Gary Gensler, a Democrat whose time as chairman of the agency ends in December, and other senior regulators are not planning to depart the agency.

Instead, her exit offers Mr. Gensler and his two fellow Democrats a lopsided advantage. With only one Republican commissioner remaining, Mr. Gensler is likely to encounter fewer obstacles adopting new rules for derivatives trading on Wall Street.

Over her five-year tenure at the agency, Ms. Sommers positioned herself as a soft-spoken skeptic of derivatives regulation, in sharp contrast to Mr. Gensler’s strong support for a Wall Street crackdown. The two often clashed on rule-writing under the Dodd Frank Act, the regulatory overhaul law passed! in response to the financial crisis.

In a statement, Mr. Gensler praised Ms. Sommers for her work on Dodd-Frank. “Along with our fellow Commissioners, Jill has worked to bring common-sense swaps market reforms to life and to safeguard the integrity of the futures market,” he said, adding that she was “essential to these historic efforts.”

But her most prominent position came as the senior commissioner tasked with overseeing the investigation into MF Global, the brokerage firm that blew up in October 2011 after misusing more than $1 billion in customer money.

She inherited the job after Mr. Gensler, a Goldman Sachs alumnus, recused himself because of his past association with Jon Corzine, the head of MF Global, who years before had run Goldman.

Bart Chilton, a Democratic commissioner at the agency, may take over Ms. Sommers’s role in the MF Global case.

Just months ago, when President Obama’s re-election hopes were shaky, Ms. Sommers was considered a Republican canddate to replace Mr. Gensler as chairman of the trading commission. Her husband, Mike Sommers, is a top aide to John Boehner, the speaker of the House.

Ms. Sommers began her Washington career more than 20 years ago as an aide to then-Senator Robert J. Dole, Republican of Kansas. She later moved in and out of Washington’s revolving door, landing as a lobbyist for what is now known as the CME Group, the giant Chicago exchange that she now regulates at the trading commission. She was also a lobbyist for the International Swaps and Derivatives Association, a Wall Street trade group that specializes in derivatives issues.

President Bush nominated Ms. Sommers to join the trading commission in 2007, and President Obama put her up for a second term that expires in 2014.

At Davos: Meetings Behind Closed Doors

An exclusive Wall Street power lunch

Between panel discussions at the World Economic Forum in Davos on Thursday, some financial chieftans were spotted gathering for a private discussion. According to Lauren LaCapra of Reuters, the private equity boss Stephen A. Schwarzman and the hedge fund manager Paul Singer were there, in addition to a who’s-who of bank C.E.O.’s:

Seen so far at private Wall Street meeting: Jamie Dimon, Brian Moynihan, James Gorman, Michael Corbat, Sergio Ermotti, Brady Dougan.

â€" Lauren Tara LaCapra (@LaurenLaCapra) 24 Jan 13

But one notable chief executive â€" Lloyd C. Blankfein of Goldman Sacs â€" was apparently absent from the lunch.

Lloyd Blankfein too cool for financial CEO meeting, sources say. #davos

â€" Lauren Tara LaCapra (@LaurenLaCapra) 24 Jan 13

Mr. Blankfein was in Davos to promote Goldman’s charitable program 10,000 Women, highlighting it in a blog post with Arianna Huffington Thursday morning.

After a dinner on Wednesday, Mr. Blankfein and Ms. Huffington said in the blog post that “our two organizations are joining forces,” and they outlined a discussion on 10,000 Women scheduled for Thursday.

Mr. Blankfein was sporting an unusual look, according to Lionel ! Barber of The Financial Times:

From the Davos Bubble, a bear market signal. Lloyd Blankfein is back - with a beard!

â€" Lionel Barber (@BarberLionel) 23 Jan 13

The Wall Street lunch on Thursday was just one of many closed-door meetings. Barclays hosted a private dinner Wednesday evening where the former president of France, Nicolas Sarkozy, was the guest speaker, according to The Times of London. Mr. Sarkozy’s appearance fueled speculation that he might “be on the hunt for a job,” the newspaper says.

Attendees at Davos are organized in a hierarchy, with V.I.P.’s getting the most access to events. You can identify the elites by their badges â€" and also, apparently, by whether they’re ridin in a car.

“There are three kinds of people who get cars in Davos,” explained Rahul Bajaj, the billionaire chairman of Bajaj Auto, in an interview with Bloomberg News. “The first are prime ministers and political leaders. The second are double-As, who can get into the private entrance. The third can drive around, but don’t have access to much. I’m a double-A.”

This being Davos, the meetings featured an exchange of cutting-edge ideas. To Anthony Scaramucci, managing partner of SkyBridge Capital, one particular concept, “impact investing,” was a source of confusion:

At impact investing breakfast here in Davos up mountain- still clueless about what that is.

â€" Anthony Scaramucci (@Scaramucci) 24 Jan 13

Mary Jo White to Be Named New S.E.C. Boss

President Obama is naming Mary Jo White, a former United States attorney turned white collar defense lawyer, to be the next chairwoman of the Securities and Exchange Commission, according to a White House official.

Mr. Obama will announce the nomination at the White House on Thursday at 2:30 pm, the official said. As part of the event, he will also re-nominate Richard Cordray to lead the Consumer Financial Protection Bureau, a role that he has held for the last year as a recess appointment.

In appointing Ms. White and Mr. Cordray, the White House is sending a signal about the importance of holding Wall Street accountable for wrongdoing. Both are former prosecutors.

Regulatory chiefs are often market experts or academics. But Ms. White, now a partner at Debevoise and Plimpton, spent nearly a decade the United States Attorney in New York, the first woman named to this post. Among her prominent cases, she oversaw the prosecution of John Gotti, the mafia boss, as well as the individuals respnsible for the 1993 World Trade Center bombing.

As the attorney general of Ohio, Mr. Cordray made a name for himself suing Wall Street companies in the wake of the financial crisis.

The White House expects Ms. White and Mr. Cordray to draw on their prosecutorial backgrounds while carrying out a broad regulatory overhaul that Congress enacted in response to the crisis.

“The President will name two individuals to serve in top enforcement roles in his administration to help ensure we are effectively implementing these reforms so that Wall Street is held accountable and middle class Americans never again are harmed by the abuses of a few,” the official said.

The decision to appoint Ms. White was widely expected after her name emerged as the likely pick in news reports last week. Ms. White will replace Elisse Walter, a longtime S.E.C. official, who took over as chairwoman after Mary L. Schapiro stepped down as the agency’s leader in November.

Sternlicht\'s Starwood to Buy Distressed Debt Manager for $1.05 Billion

Real estate mogul Barry Sternlicht is making his latest deal.

On Thursday, two of his companies â€" Starwood Capital Group and Starwood Property Trust â€" agreed to pay $1.05 billion for LNR Property, bolstering their positions in distressed commercial real estate.

The deal comes at a potentially opportune time. Big banks, particularly in Europe, have been unloading assets to raise capital and shore up their balance sheets. The largest financial institutions in Europe are expected to sell $78 billion of non-core assets this year, with many reducing their exposure to real estate, according to a study by PricewaterhouseCoopers.

“We are delighted to announce this transformative and highly strategic acquisition that diversifies Starwood Property Trust’s revenue sources, adds significant scale to our operating platform and dramatically expands our proprietary origination capabilities,” Mr. Sternlicht, the chief executive and chairman of Starwood Property Trust said in a statement.

Starwood expects the deal will add to earnings and cash flow in 2013 and 2014. The deal is expected to close in the second quarter.

Inside A.I.G.\'s Decision Not to Sue

It was not just lawmakers and taxpayers who expressed concern when the board of the American International Group met this month to consider joining a lawsuit against the government agencies that rescued the insurer during the financial crisis. The company’s lawyers, too, delivered a stark warning to the board, with one saying the lawsuit had only a 20 percent chance of success, according to a letter filed on Wednesday.

The directors also worried that joining the lawsuit could harm A.I.G.’s reputation, DealBook’s Ben Protess reports. The lawsuit, which was brought by the insurer’s former chief executive, Maurice R. Greenberg, and the firm he now runs, Starr International, “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,” the directors feared, according tothe letter by Paul Curnin, the lawyer who advised A.I.G. The directors also learned that at least one state insurance regulator had called to urge them not to join the case, the letter says.

A ‘NUCLEAR HOLOCAUST’ ASSET, CREATED BY MORGAN STANLEY  |  Documents released in a lawsuit shed new light on what bankers knew at the height of the housing bubble and how they used that knowledge, Jesse Eisinger writes in DealBook. The case centers on a $500 million collateralized debt obligation created in the first half of 2006 that Morgan Stanley sold to a Chinese bank â€" an asset that employees, in e-mail, jokingly referred to as “Subprime Meltdown,” “Hitman” and “Nuclear Holocaust.” The documents raise a larger concern, that “people across the bank understood that the American housi! ng market was in trouble,” Mr. Eisinger writes. “They took advantage of that knowledge to create and then bet against securities and then also to unload garbage investments on unsuspecting buyers.”

“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.” Morgan Stanley, for its part, contends that the buyers of the asset were sophisticated, that the firm disclosed its strategy and that any shorting of the deal was part of a larger array of trades.

GOLDMAN CLEARED OVER SALE GONE WRONG  |  Goldman Sachs emerged victorious on Wednesday from a legal fight over its role in the doomed sale of Dragon Systems to Lernout & Hauspi for $580 million. A federal jury in Boston found that the investment bank was not negligent in arranging the deal, which went awry 13 years ago when the buyer collapsed in a huge accounting fraud, Reuters reports. The plaintiffs, including Dragon’s founders, Jim and Janet Baker, had sought several hundred million dollars in damages.

Goldman’s chief executive, Lloyd C. Blankfein, received word of the verdict in Davos, Switzerland, where he showed up sporting a beard, according to Lionel Barber of The Financial Times.

ON THE AGENDA  |  Among the companies reporting earnings on Thursday evening are Microsoft, AT&T, E*Trade Financial and Star! bucks. Ray Dalio of Bridgewater Associates is on CNBC at 7:30 a.m. Gary Cohn, Goldman Sachs’s president, is on Bloomberg TV at 11 a.m. Glenn Hutchins of Silver Lake, the firm discussing a possible buyout of Dell, is on CNBC at 11:10 a.m. The chief executive of Citigroup, Michael L. Corbat, appears on CNBC at 3 p.m.

IN SHORT: NEW PAPER FROM RESEARCH AGENCY  |  The Office of Financial Research, an agency created under the Dodd-Frank law to monitor risks to the financial system, has released a paper on bank stability. It’s called “CoCos, Bail‐In, and Tail Risk.”

KASHKARI PLANS A RETURN TO PUBLIC SERVICE  |  The man who as the initial overseer of the Treasury Department’s bank bailout program, Neel T. Kashkari, is planning to leave his job at Pimco to run for government office. “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 a statement. Mr. Kashkari, who would run as a Republican, has created a Web page outlining his ideas. DealBook’s Michael J. de la Merced writes: “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. A former Goldman Sachs employee, he was only 35 at the time, with six years of experience in finance and government.” He was nicknamed “the $700 billion man” in reference to his work on the Troubled Asset Relief Program.

Mergers & Acquisitions Â'

Mining Companies May Take Cautious Approach to Deals  |  A number of C.E.O.’s in the mining sector have stepped down in the last year. Their successors may initially be cautious to make big deals, even as commodity prices are rebounding, The Wall Street Journal writes. WALL STREET JOURNAL

Jana Partners Goes to Investors With Plan to Break Up Agrium  |  Reuters reorts: “Activist shareholder Jana Partners L.L.C. said on Wednesday it is taking its case for splitting up Agrium Inc. to the fertilizer company’s Canadian investors, just ahead of an Agrium move to solidify its support among sell-side analysts.” REUTERS

Electra Said to Consider Sale of Animal Identification Company  |  The private equity firm Electra “has hired Rothschild to explore a sale or a refinancing of electronic animal identification company Allflex, which is worth about $1 billion, four industry sources with knowledge of the plan said,” Reuters reports. REUTERS

INVESTMENT BANKING Â'

Commerzbank to Cut Up to 6,000 Jobs  |  Facing a sluggish economy and tougher capital requirements, Commerzbank says it will cut up to 10 percent of its work force in a bid to increase earnings, joining other European banks that have announced restructuring plans in recent months. DealBook Â'

JPMorgan Names New Head of Compliance  |  Cindy Armine, JPMorgan Chase’s co-chief control officer, is taking over from Martha Gallo, who has overseen compliance at the bank for more than two years, according to The Financial Times. FINANCIAL TIMES

Citigroup’s C.E.O. Says He’ll Wait to Shed Assets  |  “Today, it doesn’t make sense” for Citigroup to shed assets more quickly, the bank’s chief executive, Michael L. Corbat, said on Bloomberg TV. BLOOMBERG TV

Barclays Moves to Cut Jobs in Asia  |  Barclays plans to lay off about 70 employees in its investment banking division in Asia, or about 15 percent of the unit, as part of its broader plans to reorganize, The Wall Street Journal reports. WALL STREET JOURNAL

W! ith Uneve! n Results, Citigroup’s Retail Bank Under Pressure  | 
WALL STREET JOURNAL

At Davos: Dimon’s Cuff Links, Schwarzman’s Tone and Swag  |  The overall mood at Davos was more sober than in years past, but there was plenty of room for pointed remarks from luminaries and dignitaries in attendance. DealBook Â'

PRIVATE EQUITY Â'

K.K.R. Takes 25% Stake in Firm That Invests in Natural Disasters The investment firm K.K.R. 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. DealBook Â'

Predicting a Private Equity Comeback  |  The Wall Street Journal reports on the chatter at Davos: “A range of finance executives said here Tuesday that they expect the buyout business to boom in 2013. In conversations Blackstone Group’s John Studzinski, Lazard C.E.O. Kenneth Jacobs, and Guggenheim Partners chief investment officer Scott Minerd all expected LBO volume to surge.” WALL STREET JOUR! NAL

HEDGE FUNDS Â'

In Bet Against Green Mountain, Einhorn Suffers a Loss  |  In a letter to its investors, Greenlight Capital writes: “Our coffee was too hot, our apple was bruised and our iron supplements didn’t go down smoothly.” DealBook Â'

Einhorn Said to Have Bet Against Herbalife  |  David Einhorn told investors on Tuesday that Greenlight Capital had profited last year on a bet against Herbalife, a company at the center of a clash between hedge fund titans, The Wall Street Journal reports, citing unidentified people familiar with the firm. WALL STREET JOURNAL

I.P.O./OFFERINGS Â'

Netflix Reports a Surprisingly Strong Quarter  |  The Media Decoder blog writes: “Netflix’s growth spurt in streaming â€" up by 2.05 million customers in the United States, from 25.1 million in the third quarter â€" was its biggest in nearly three years, and helped the company report net income of $7.9 million, surprising many analysts who had predicted a loss.” NEW YORK TIMES MEDIA DECODER

In Japan, Equity Deals Ha! ve a Stro! ng Start to the Year  | 
WALL STREET JOURNAL

VENTURE CAPITAL Â'

Foreign Incubators of Start-Ups Expand in the U.S.  |  The Wall Street Journal reports: “At a time when some U.S. incubators are shrinking, start-up incubators from Russia, Australia and Japan are ramping up in the Bay Area, buying office space and launching programs to establish ties with Silicon Valley investors.” WALL STREET JOURNAL

LEGAL/REGULATORY Â'

Barclays Executives Are Named in Rate-Rigging Case  |  The Financial Times reports: “Barclays’ former senior executives including Bob Diamond, John Varley, Jerry del Missier and current chief financial officer Chris Lucas are among 104 of the bank’s current and former employees who attempted to keep their names private in High Court litigation involving the first British damages claim over the alleged manipulation of Libor.” FINANCIAL TIMES

Informant for F.B.I. Said to Implicate Former SAC Trader  |  An informant told investigators that he shared confidential stock tips with Dipak Patel, formerly of SAC Capital Advisors, The ! Wall Stre! et Journal reports, citing unidentified people briefed on the matter. WALL STREET JOURNAL

Wells Fargo Sued by German Agency Over Losses  |  Wells Fargo “was sued Wednesday by a German government agency that accused it of mismanaging a collateralized debt obligation, resulting in more than $160 million in losses,” Reuters reports. REUTERS

Firm Focused on Investing in Lawsuits Brings in Old Leader  |  Parabellum, which focuses on the exotic business of fnancing lawsuits, has hired Howard Shams from Credit Suisse as a managing principal. He will work alongside a group that he assembled nearly seven years ago. DealBook Â'

Commerzbank to Cut up to 6,000 Jobs

LONDON - Commerzbank, the second largest lender in Germany, is planning to cut up to 6000 jobs in a bid to increase profits, the latest European bank to announce restructuring plans in recent months.

The German bank said on Thursday that it expected to cut between 4,000 and 6,000 jobs by 2016, or roughly 7 to 10 percent of its total work force.

The layoffs will affect Commerzbank’s global operations, particularly its retail division that expanded rapidly over recent years, according to a person with direct knowledge of the matter, who spoke on the condition of anonymity because he was not authorized to speak publicly.

In the wake of tougher capital requirements, sluggish economic growth and growing concerns about risky trading activity, several European banks have announced efforts to reduce their work forces, shed unwanted assets from their balance sheets and boost capital reserves.

Last October, the Swiss financial giant UBS said that it would cut 10,000 jobs in its investment ank in a move to reduce exposure to risky trading activity and to focus on its wealth management division.

Barclays, which will unveil its own restructuring plan on Feb. 12, also started consulting with staff in its investment banking unit this week over potential layoffs.

The expected job cuts at the British bank could result in up to a 10 percent reduction, or around 2,000 jobs, in the division, according to two people with direct knowledge of the matter, who spoke on the condition of anonymity because they were not authorized to speak publicly. On Thursday, the British bank started to reduce its investment banking staff in Asia by 15 percent, or 70 jobs, as part of the restructuring plan, according to one of the people.

On Jan. 17, the firm’s new chief executive, Antony Jenkins, told staff that they should leave the bank if they did not want to help rebuild its reputation. Barclays agreed to a $450 million settlement with U.S. and British authorities last year over the manipula! tion of the London interbank offered rate, or Libor.

The layoffs at Commerzbank follow efforts by the bank’s chief executive, Martin Blessing, to offload some of the firm’s 160 billion euros, or $213 billion, of so-called non-core assets like shipping and real estate investments. The bank also is trying to reduce its exposure to European sovereign debt amid the ongoing volatility in countries like Spain and Greece.

The German bank said it would start negotiations with employee unions in early February to decide on the final number of layoffs.

Commerzbank received an 18.2 billion euro bailout from the German government in 2008 after its mis-timed acquisition of a rival German bank, Dresdner, for 5.5 billion euros at the height of the financial crisis. As part of the deal, the German government still owns a 24 percent stake in Commerzbank.

Shares in Commerzbank bank rose less than 1 percent in morning trading in Frankfurt.

European banks have been struggling through a seriesof recent financial scandals, mounting demands to increase capital reserves, and growing political pressure to increase lending to stimulate local economies.

The Continent’s major financial institutions will begin reporting earnings next week, and analysts will be waiting to see if they will follow UBS’s lead in announcing major changes in response to these pressures.

‘‘We believe that UBS has kicked off the much-awaited industry restructuring, even if each bank takes a different path,’’ Citigroup banking analysts told investors in a research note.

Neil Gough reported from Hong Kong

Commerzbank to Cut up to 6,000 Jobs

LONDON - Commerzbank, the second largest lender in Germany, is planning to cut up to 6000 jobs in a bid to increase profits, the latest European bank to announce restructuring plans in recent months.

The German bank said on Thursday that it expected to cut between 4,000 and 6,000 jobs by 2016, or roughly 7 to 10 percent of its total work force.

The layoffs will affect Commerzbank’s global operations, particularly its retail division that expanded rapidly over recent years, according to a person with direct knowledge of the matter, who spoke on the condition of anonymity because he was not authorized to speak publicly.

In the wake of tougher capital requirements, sluggish economic growth and growing concerns about risky trading activity, several European banks have announced efforts to reduce their work forces, shed unwanted assets from their balance sheets and boost capital reserves.

Last October, the Swiss financial giant UBS said that it would cut 10,000 jobs in its investment ank in a move to reduce exposure to risky trading activity and to focus on its wealth management division.

Barclays, which will unveil its own restructuring plan on Feb. 12, also started consulting with staff in its investment banking unit this week over potential layoffs.

The expected job cuts at the British bank could result in up to a 10 percent reduction, or around 2,000 jobs, in the division, according to two people with direct knowledge of the matter, who spoke on the condition of anonymity because they were not authorized to speak publicly. On Thursday, the British bank started to reduce its investment banking staff in Asia by 15 percent, or 70 jobs, as part of the restructuring plan, according to one of the people.

On Jan. 17, the firm’s new chief executive, Antony Jenkins, told staff that they should leave the bank if they did not want to help rebuild its reputation. Barclays agreed to a $450 million settlement with U.S. and British authorities last year over the manipula! tion of the London interbank offered rate, or Libor.

The layoffs at Commerzbank follow efforts by the bank’s chief executive, Martin Blessing, to offload some of the firm’s 160 billion euros, or $213 billion, of so-called non-core assets like shipping and real estate investments. The bank also is trying to reduce its exposure to European sovereign debt amid the ongoing volatility in countries like Spain and Greece.

The German bank said it would start negotiations with employee unions in early February to decide on the final number of layoffs.

Commerzbank received an 18.2 billion euro bailout from the German government in 2008 after its mis-timed acquisition of a rival German bank, Dresdner, for 5.5 billion euros at the height of the financial crisis. As part of the deal, the German government still owns a 24 percent stake in Commerzbank.

Shares in Commerzbank bank rose less than 1 percent in morning trading in Frankfurt.

European banks have been struggling through a seriesof recent financial scandals, mounting demands to increase capital reserves, and growing political pressure to increase lending to stimulate local economies.

The Continent’s major financial institutions will begin reporting earnings next week, and analysts will be waiting to see if they will follow UBS’s lead in announcing major changes in response to these pressures.

‘‘We believe that UBS has kicked off the much-awaited industry restructuring, even if each bank takes a different path,’’ Citigroup banking analysts told investors in a research note.

Neil Gough reported from Hong Kong