Prosecutors Build a Tougher Strategy to Go After Wall Street

Blamed for letting Wall Street off the hook after the financial crisis, the Justice Department is building a new model for prosecuting big banks.

In a recent round of actions that shook the financial industry, the government pushed for guilty pleas, rather than just the usual fines and reforms. Prosecutors now aim to apply the approach broadly to financial fraud cases, according to officials involved in the investigations.

Lawyers for several big banks, who spoke on the condition of anonymity, said they were already adjusting their defenses and urging banks to fire employees suspected of wrongdoing in the hope of appeasing authorities.

But critics question whether the new strategy amounts to a symbolic reprimand rather than a sweeping rebuke. So far, the Justice Department has extracted guilty pleas only from remote subsidiaries of big foreign banks, a move that has inflicted reputational damage but little else.

The new strategy first materialized in recent settlements with UBS and the Royal Bank of Scotland, which were accused of manipulating interest rates to bolster profit. As part of a broader deal, the banks’ Japanese subsidiaries pleaded guilty to felony wire fraud.

The settlements present a significant shift. Authorities have long avoided guilty pleas over fears they will destroy the banks and imperil the broader economy. By going after a subsidiary, prosecutors shield the parent company from losing its license, but still send a warning to the financial industry.

The Justice Department plans to continue the campaign as it pursues guilty pleas from other bank subsidiaries suspected of reporting false interest rates, acc! ording to the prosecutors and the lawyers who requested anonymity to discuss the cases. Authorities are scrutinizing Citigroup, whose Japanese unit is suspected of rate manipulation, after accusing one former trader there of colluding with other banks in a vast rate-rigging conspiracy.

Prosecutors want the rate-rigging investigation to serve as a template for other financial fraud cases. Two officials, who spoke on condition of anonymity, described a plan to eventually wring an admission of guilt from an entire bank.

“This Department of Justice will continue to hold financial institutions that break the law criminally responsible,” Lanny A. Breuer, the departing head of the agency’s criminal division, said in an interview.

The strategy will face significant roadblocks.

For one, banking regulators are likely to sound alarms about theeconomy. HSBC avoided charges in a money laundering case last year after concerns arose that an indictment could put the bank out of business. In the first interest rate-rigging case, prosecutors briefly considered criminal charges against an arm of Barclays, but they hesitated given the bank’s cooperation and its importance to the financial system, two people close to the case said.

The Justice Department will also face resistance from Wall Street. In meetings with authorities, banks are trying to distinguish their activities from the bad behavior at UBS and Barclays, according to the industry lawyers. One lawyer who represents Deutsche Bank acknowledged that Wall Street was girding for battle over the push for guilty pleas.

Some lawyers posit that the new approach amounts to a government shakedown, because institutions may plead guilty to dodge an indictment. “I think it’s a step in the wrong direction,” said James R. Copland, the director of the Center for Legal Policy at the Manhattan Institute.

Complicating matters, lawmakers and consumer advocates will continue to complain that banks get off too easily. In the rate manipulation cases, critics have clamored for more potent penalties, seeking convictions against parent companies.

The problems “should provide motivation to prosecutors, regulators and Congress to do more to ensure that this type of behavior is stopped, and that banks and their executives who manipulate markets are held accountable,” said Senator Carl Levin, Democrat of Michigan.

Critics point to the UBS case. Before UBS signed the deal, Japanese authorities assured the bank that a guilty plea would not cost the subsidiary its license, a person involved in the case said. While the case has weighed on the stock price, the subsidiary is operating normally and clients have stayed put, according to people with direct knowledge of the case.

Prosecutors defend their effort, saying it was born from painful experiences over the last decade.

After Arthur Andersen was convicted in 2002, the accounting firm went out of business, taking 28,000 jobs with it. The Supreme Court later overturned the case, prompting the government to alter its approach.

Prosecutors then turned to deferred-prosecution agreements, which suspend charges against corporations in exchange for certain concessions and a promise to behave. But the Justice Depa! rtment to! ok heat for prosecuting few top bank executives after the financial crisis. A recent “Frontline” documentary portrayed prosecutors as Wall Street apologists.

So the government is seeking a balanced approach, aiming to hold banks accountable without shutting them down. Prosecutors consulted federal policies that required them to weigh action with “collateral consequences” like job losses. Mr. Breuer also collected input from staff, including the head of his fraud unit, Denis J. McInerney, a former defense lawyer who represented Arthur Andersen.

Mr. Breuer eventually deployed a strategy built on guilty pleas for subsidiaries. He imported the model, in part, from his foreign bribery actions and pharmaceutical cases.

“Extracting a guilty plea from a wholly owned subsidiary finally enables the Justice Department to look tough on financial institutions while sparing them from the corporate death penalty,” said Evan T. Barr, a former federal prosecutor who now defends white-collar cass as a partner at Steptoe & Johnson.

As the Arthur Andersen cases fades from memory, some prosecutors say their new approach will lay the groundwork for parent companies to plead guilty.

But first, officials say, they are testing the strategy in the interest rate-rigging case. Authorities suspect that more than a dozen banks falsified reports to influence benchmark interest rates like the London interbank offered rate, or Libor, which underpins the costs for trillions of dollars in financial products like mortgages and credit cards.

Prosecutors focused on Japanese units because e-mail traffic exposed how traders there had routinely manipulated rates to increase profits, officials say. The units also have few ties to American arms of the banks, containing any threat to the economy.

! After the! Barclays case, authorities shifted to UBS, given the scope of the evidence and the bank’s past brushes with authorities, according to officials. The bank’s Japanese subsidiary was also a hub of rate-rigging activity. “The Justice Department had a clear view on the past of this institution,” said one executive who met with government officials.

Along with paying $1.5 billion in fines, the bank agreed to bolster its controls and have its Japanese unit plead guilty. It was the first big global bank subsidiary to plead guilty in more than two decades.

The Royal Bank of Scotland met a similar fate. The bank’s conduct was less severe than the actions of UBS, but it too had a rogue Japanese subsidiary. The bank announced a $612 million settlement with authorities this month, including a guilty plea in Japan.

Using the settlements as a template, prosecutors are building cases against other banks ensnared in the investigation, people involved in the case said, and guilty pleas are likely Deutsche Bank is expected to settle with authorities by late 2013, the people said.

Citigroup and JPMorgan Chase, two American banks under scrutiny, pose a thornier challenge. So far, authorities have flexed their newfound muscle with foreign banks.

American regulators may warn that extending the campaign to Citigroup would threaten the company’s stock and prompt an exodus of clients. Japan’s regulators, some feeling upstaged by the recent actions, might raise similar concerns. Citigroup’s lawyers will also push back, people involved in the case said, citing the bank’s cooperation with investigators and emphasizing that wrongdoing never reached upper levels of management. It fired the trader recently charged by the Justice Department.

Authorities could counter that Citigroup’s Japanese unit is a repeat offender. I! t butted ! heads with Japanese regulators three times over the last decade.

“This is hard-nosed negotiation,” said Samuel W. Buell, a former prosecutor who is now a professor at Duke Law School. “It’s a game of chicken.”

Mark Scott contributed reporting from London and Hiroko Tabuchi from Tokyo.

A Reputation, Once Sullied, Acquires a New Shine

How do you describe Steven L. Rattner

Up until three years ago, he was typically referred to in these pages as a former journalist turned successful financier â€" the vice chairman of the investment bank Lazard and then a co-founder of the Quadrangle Group, the private equity firm.

With much fanfare, he then became the White House auto czar assigned to fix General Motors and Chrysler, after years of trying to become part of the Washington firmament like so many on Wall Street who have wanted to make the leap.

He was he ultimate consigliere to power. Then, it all fell apart.

He was accused of using “pay to play” practices while raising money from a New York state pension fund when he was still at Quadrangle. In 2010 he paid more than $16 million to Andrew M. Cuomo, who was then New York’s attorney general, and the Securities and Exchange Commission to settle the civil cases without admitting or denying wrongdoing.

He was “banned from appearing in any capacity before any public pension fund within the State of New York for five years” and for “associating with any investment adviser or! broker dealer” for two years, according to the suits. As the case proceeded, he stepped down from his position in the Obama administration.

Among the cocktail party circuit in Manhattan, Mr. Rattner was Topic A. And the schadenfreude was thick. Mr. Rattner, the narrative developed, had become Wall Street’s Icarus, flying too close to the sun. The New Republic headlined one article: “Rattner Hoisted on His Own Petard.” The question was asked: Would he ever eat lunch in this town again And what about Washington

Now, two years later, Mr. Rattner is lunching all over town. And, in truth, he may have never stopped.

As Mr. Rattner sat across from me in Midtown Manhattan two weeks ago, his re-emergence as power magnate was well under way. He is the overseer of Mayor Michael R. Bloomberg’s fortune of illions of dollars â€" you could call Mr. Rattner a money manager but that doesn’t capture the scope of it. He has appeared as a pundit about the economy on television (MSNBC’s “Morning Joe,” ABC’s “This Week” and “Fox News Sunday,” among others) and in newspapers (The Financial Times, Politico and The New York Times). And to take the story full circle, the Obama administration, which had eased Mr. Rattner out of his role, appears to have re-embraced him, even using him to campaign for the president last fall.

“It was the worst thing that ever happened in my professional life,” Mr. Rattner, who had taken off his trademark tortoise-rim glasses, said of the accusations and the settlement. “If you asked me, do I wish I had done some things differently about this whole situation, of course I wish I had done some things differently.” More on that in a moment, but he also has clearly worked unremittingly to move on. “Looking back, it was a bit like the half life of a radio! active is! otope. Every few months the intensity of what happened seemed to go down by half,” Mr. Rattner added, as he sipped English Breakfast tea.

If there was a question about his current status â€" and whether the chattering classes had moved on â€" the guest list of his 60th birthday party this last summer, overlooking Rockefeller Center, may provide the answer: Mr. Bloomberg, Barry Diller, Jamie Dimon, Harvey Weinstein, Senator Charles E. Schumer, Ralph Lauren, Brian Roberts and Fred Wilpon, among others, were all in attendance.

When Vice President Biden held his holiday party in December, Mr. Rattner was there. And at the home of Hillary Clinton last month for her farewell party from the State Department, where Mr. Rattner’s wife, Maureen White, works, he was there, too. (His wife was the finance co-chairwoman of the Hillary Clinton for President campaign.)

In a city where powerful figures are dropped at the whiff of trouble â€" and ra! rely retu! rn to positions of significant influence despite efforts at comebacks â€" Mr. Rattner’s narrative of a meteoric rise to embarrassing scandal and back again is notable.

His re-emergence may also be a telling commentary about the way the nation’s elite flock to people with power â€" and those with powerful friends.

Some of his friends, many of whom declined to comment on the record, said they were willing to overlook his past transgressions because they felt he had paid for them, through the fines and the negative publicity. Others said that he had always been honest with them. Still, there are other friends who say they have distanced themselves from him but haven’t cut him off entirely for fear of alienating themselves from other people in his circle.

Mr. Diller, the chairman of IAC, counts himself among Mr. Rattner’s friends. “Whatever complications there were, I never thought he was culpable.” He added, “When you get anybody who is up there, then the takedown is going to hve a pile-on effect. It is the nature of public life.”

That may be a truism. But at the time of the scandal, Mr. Cuomo used particularly pointed language: “Steve Rattner was willing to do whatever it took to get his hands on pension fund money including paying kickbacks, orchestrating a movie deal, and funneling campaign contributions.”

In the S.E.C.’s case, David Rosenfeld of the New York regional office said then that Mr. Rattner “delivered special favors and conducted sham transactions that corrupted the Retirement Fund’s investment process.”

Before we go any further, some disclosures are in order: It is well documented that Mr. Rattner is a longtime friend and confidant of the publisher of this newspaper, Arthur Sulzberger Jr. (Mr. Sulzberger was in attendance at Mr. Rattner’! s birthda! y party, too.) Mr. Rattner was a reporter for The Times in the late 1970s and early 1980s. He also now writes a monthly Op-Ed column in The Times, arguably providing him with a powerful platform that increases his influence. I purposely haven’t discussed anything about Mr. Rattner with Mr. Sulzberger before writing this column. Now that that’s done, let’s continue.

Mr. Rattner’s re-emergence was not assured.

“There were some people inevitably who I thought were my friends who I found out were more fair weather and especially some in the political world,” he said. “I’m sure they said to themselves, let’s just keep a little space here and see what happens to Steve as opposed to let’s embrace Steve and say he’s my friend.”

One friend who never left was Mr. Bloomberg. When news of Mr. Cuomo’s case against him first broke, Mr. Rattner sent him an e-mail to give him a heads-up about the situation. Mr. Bloomberg’s reply “The only thing wrong with you is your golf gae.”

In an interview, Mr. Bloomberg said, “Steve is a good friend. You stick by your friends. And I don’t worry about what people say.” And despite all the chatter about Mr. Rattner, Mr. Bloomberg added, “I never heard anyone say they wouldn’t invite Steven Rattner to a party because of what was happening.”

The White House was less forgiving. While the Obama administration and Mr. Rattner portrayed his exit from Washington in July 2009 as a natural time to leave since his role helping G.M. through a government supported bankruptcy was finished, the president clearly made no effort to keep him, given the investigation hanging over him.

On the merits of the case that Mr. Rattner settled with Mr. Cuomo â€" which Mr. Rattner once described as “close to extortion” â€" he still has strong views. He and several other private equity firms, including the Carlyle Group, were accused of using Hank Morris, a political consultant, to help the firms obtain hundreds of millions of dollars to manage for the New York state pension fund.

Mr. Morris pleaded guilty to a felony count of violating the Martin Act for paying kickbacks and went to prison. Mr. Rattner was also accused of influencing a film distribution company that Quadrangle owned to secure a DVD distribution deal for a low-budget movie called “Chooch” that was produced by a pension fund official’s brother.

Mr. Rattner said: “I can’t imagine that any of the many firms that hired Hank Morris wouldn’t do that differently, given what he turned out to be. I appreciate clearly how important it is to avoid even the appearance of impropriety.”

Mr. Rattner and Mr. Cuomo chose to settle the cas on what some lawyers described as benign terms given the penalty of a $26 million fine and a lifetime ban from the securities industry that Mr. Cuomo originally sought. Mr. Rattner settled for $10 million and a ban from working with New York State pension funds for five years, none of which has prevented him from continuing his role of managing Mr. Bloomberg’s money.

Unusually, Mr. Cuomo even agreed that Mr. Rattner’s settlement would include none of the usual language about admitting or denying wrongdoing, which allows Mr. Rattner to deny he ever broke the law. Mr. Rattner said he chose to settle the case, rather than fight what he said he expected to be a drawn-out court battle, because he wanted to move on with his life. He also paid $6.2 million to settle the S.E.C. case.

He clearly feels a sense of regret about some his actions, but declined to discuss the accusations in detail, citing the settlements.

A spokesman for Governor Cuomo declined to comment.

Mr. Rattner s! aid he di! scovered a unique indicator to measure the impact of the scandal, which might just prove his theory that he should be compared with a radioactive isotope.

Right after the settlement, Mr. Rattner, who has long been active in political fund-raising for Democrats, said nobody would take his money. In fact, one politician, whom he declined to name, sent back a $500 donation from 2011. Several months later, he began to receive solicitations from politicians looking for his help in raising funds, he said. But does that say more about the state of Washington politics or Mr. Rattner

Despite his past, the White House called him last fall and talked about his campaigning for the president in Ohio, where the auto bailout was an important issue. (Mr. Rattner published a book in September 2010 about his experience in trying to fix Detroit called “Overhaul: An Insider’s Account of the Obama Administration’s Emergency Rescue of the Auto Industry.”)

David Axelrod, who was President Obama’s senior strategist for his re-election campaign, said in an e-mail of Mr. Rattner, “Whatever happened in New York didn’t obviate the great service he rendered.” He added: “Steve did an extraordinary job for the administration and the country in helping to shape the auto plan, which was a clear success.”

So will Mr. Rattner ever have a chance to work in government again For years, his name was always part of the parlor game of potential nominees for Treasury secretary.

He had a quick answer about returning to Washington: “Probably not.” He said now that he had worked in the capital and lived in the glare of the spotlight, he better appreciates the upside and downside. He said: “I had a great experience, but I also found out how thankless and frustrating it can be.”

Morgan Stanley Strives to Coordinate 2 Departments Often at Odds

Several hundred Morgan Stanley retail branch managers descended on the JW Marriott Orlando Grande Lakes resort in Florida early this month for a retreat. They were greeted by an unlikely colleague, Colm Kelleher, who runs the company’s sales and trading and investment banking departments.

Traditionally, traders and investment bankers think of themselves as the elite of Wall Street and look down on the retail business, seeing it as pedestrian. Yet Mr. Kelleher had a message for the branch managers: His group can work with retail brokers to increase profits at Morgan Stanley.

That message evokes the strategic emphasis that followed the 1997 merger of Morgan Stanley with Dean Witter, Discover & Company. The rationale for that deal was to create a financial supermarket where the retail brokerage and the investment banking businesses could complement each other.

But the company’s swaggering traders wanted little to do with the financial advisers, creating tension and turmoil that would led to upheaval at the top.

The company over the years has set up revenue sharing agreements between bankers and traders. But that, too, created strife, with bankers and traders accusing each other of deliberating misstating revenue to avoid splitting fees, which some traders called the investment banker tax.

“Morgan Stanley has a horrible history of getting these groups to work together,” said Richard Bove, an analyst with Rafferty Capital Markets.

Yet since Morgan Stanley moved to acquire control of the Smith Barney brokerage business from Citigroup in 2009, the balance of power has shifted to wealth management, which now accounts for almost 52 percent of the company’s earnings, up from roughly 16 percent in 2006.

Gregory J. Fleming, the chief of the brokerage business, and Mr. Kelleher have been under pressure from shareholders to coax greater profits from the low-margin brokerage business by finding ways for retail and investment banking to work better together. The tw! o men are said to have a good working relationship, leading to renewed optimism that the company can finally find synergies among its various divisions.

That is a change from a few months ago, when cooperation was difficult, according to employees at the company, because of personality conflicts between Mr. Kelleher and the investment banker Paul Taubman, who were the two co-heads of the institutional securities business. The employees spoke on the condition of anonymity because of the policy against speaking to the news media without permission.

Mr. Taubman departed recently after a power struggle, leaving Mr. Kelleher solely in charge of sales and trading, and investment banking.

In recent months, the company has made changes intended to improve communication among divisions. Last fall, Morgan Stanley transferred Eric Benedict, an ally of Mr. Kelleher, to wealth management to run its capital markets operation. Previously Mr. Benedict worked for Mr. Kelleher on the equity syndicate desk.

A few months after Mr. Benedict moved to wealth management, the company created a bond, or fixed income, sales group to focus on middle-market clients. The company then transferred some of its smaller banking clients into wealth management to give them more attention. The fixed-income division will share revenue from this middle-market unit with wealth management.

James P. Gorman, the chief executive of Morgan Stanley, is hoping that its sales and trading unit will work more closely with wealth management to increase lending, better tailor structured products for retail clients and improve collaboration on events like public offerings, company insiders said.

For instance, Morgan Stanley may take a company public and the executives at that company may need advice managing their personal wealth. In such an instance, the bankers would alert wealth management, which could dispatch a broker to assess the situation.

In January, on a call with investors to discuss the company’s four! th-quarte! r results, Mr. Gorman said 35 projects were under way to encourage collaboration between these businesses. One focus is how to increase lending to the firm’s corporate and individual clients.

A lot is riding on Mr. Gorman’s strategy. Morgan Stanley, which for years was best known for its high-flying trading operations and investment bank, was badly bruised in the financial crisis. Since then regulators have established rules that require banks to post more capital against riskier operations, compelling Morgan Stanley to scale back or get out of certain businesses. Morgan Stanley has shrunk its fixed income department, where most of its risk taking was embedded.

But, if Mr. Gorman can make it work, Mr. Bove predicted the chief could return Morgan Stanley to its former glory, “albeit in a different form.” Mr. Bove has a buy rating on Morgan Stanley.

Morgan Stanley emerged from the financial crisis safer, but less profitable. In 2012 it posted a return on equity (excluding a charge reated to its debt) of 5 percent. Return on equity is an important measure of how effectively shareholder money is being deployed. Goldman posted a return on equity for the same period of 10.7 percent. To simply cover its debt expenses and other capital costs, Morgan Stanley must achieve a return on equity closer to 10 percent.

Investors also focused on another number, from Morgan Stanley’s wealth management unit. That division posted a pretax profit margin of 17 percent in the fourth quarter of 2012, exceeding most analysts’ expectations.

The number was higher than expected, according to people briefed on the matter but not authorized to speak on the record, because the company deferred from the fourth quarter some major costs like compensation for certain executives.

As a result, some analysts and rivals are wondering how sustainable that level is. Morgan Stanley insiders say while some one-time items did help increase that number, it wasn’t significant and they expect Mr. Fle! ming to p! roduce a lower but still high pretax profit margin for the current quarter.

“Although the first-quarter margin is seasonally lower, we believe that we can drive margins to the high teens and above over time even with only with modest revenue growth and a low interest rate environment,” said Ruth Porat, chief financial officer at Morgan Stanley, on a conference call last week with fixed-income investors.

For that number to rise significantly, Mr. Fleming must make some of recent initiatives work, analysts say.

“Everyone is watching that number,” said an executive at a rival firm who was not authorized to speak on the record. “If they can increase, it will be a sign Gorman’s strategy is working, but so far not everyone is convinced.”

Office Depot and OfficeMax Said in Talks to Merge

Two of the big names in office supplies are hoping that a merger can make the business of selling staplers and toner more profitable.

Office Depot and OfficeMax are in talks to combine in an all-stock deal that may be announced as soon as this week, a person briefed on the matter said on Monday.

While talks are at an advanced stage, they may still fall apart, this person cautioned.

Should a deal be reached, it would unite two of the main retailers of office supplies after years of suffering at the hands of rivals. Traditional retailers, laden with big real estate holdings, have struggled against nimbler competitors.

Combined, the companies reported about $4.4 billion in revenue for thir third quarter last year; by contrast, Staples disclosed $6.4 billion in sales for the same time period.

The age of the Internet and bulk discounters has also weakened the two companies, as Amazon.com and Costco emerged as significant competitors capable of undercutting their prices.

The possibility of a merger between Office Depot and OfficeMax has been bandied about for some time. Analysts and investors have argued that as profitability shrinks, traditional office supply retailers would need to combine to cut costs and elimina! te overcapacity. And with the leader in the field, Staples, having signaled little desire to buy, attention has fallen on its two closest competitors.

Late last month, analysts at Goldman Sachs speculated that the chances of a merger had risen to as high as perhaps 50 percent.

The two companies’ stocks have risen significantly over the past year, largely on speculation that a union between the two was in the works. OfficeMax’s shares have jumped 87 percent, closing on Friday at $10.75; those in Office Depot have climbed 41 percent, closing on Friday at $4.59.

Office Depot has also been under pressure from an activist hedge fund, Starboard Value, which sent a letter to the retailer’s board last fall. In the missive, the investment firm called for more costs and a greater focus on higher-margin businesses like copy and print servces.

With a 14.8 percent stake, Starboard is the company’s biggest investor.

Office Depot has weighed ways to improve its stock price since then, including a potential sale of its 50 percent stake in its Mexican unit to Grupo Gigante. But it also has sought to protect itself by adopting a shareholder rights plan, a corporate defense maneuver aimed at shielding the company against a hostile takeover.

A spokesman for Office Depot declined to comment. A representative for OfficeMax wasn’t immediately available for comment.

News of the talks was reported earlier by The Wall Street Journal online.

In Europe, Mounting Debt May Push Companies to Public Markets

LONDON â€" The steady revival in European stocks is offering hope to the region’s highly indebted companies seeking to raise money on the public markets.

As concerns about the fate of the euro zone wane, European companies are considering public stock offerings as part of broader plan to pay down debt and bolster profit.

The deals cannot come soon enough. The Continent’s corporate sector has a combined $430 billion of debt coming due by end of 2014, according to figures from the ratings agency Standard & Poor’s, making many companies eager to find ways of unburdening their balance sheets.

“We will see more I.P.O. activity,” said Mark Hughes, a capital markets partner at the accounting firm PricewaterhouseCoopers in London. “For corporate spinoffs, the rise in European equities has made new listings a ealistic option again.”

Much of the recent efforts have involved companies seeking to raise billions of dollars by spinning off assets â€" in essence, “carving out” profitable business units to unlock their value. The money raised is being used to help repay large debt loads, restock cash reserves and revamp operations after shedding unwanted assets.

For instance, the Royal Bank of Scotland raised $1.3 billion late last year by selling a 30 percent holding in its insurance unit, Direct Line. The Spanish telecommunications giant Telefónica also has pocketed 1.5 billion euros, or $2 billion, by selling a stake in its German subsidiary Tel! efónica Deutschland in October, Europe’s largest initial public offering of 2012. The offering was so successful that Telefónica has shelved plans to list its Latin American subsidiary.

The hospitable atmosphere is a start contrast to just a few years ago, when fears about the future of Europe reached fever pitch. At the time, investors jettisoned stock, fearing that the debt crisis would hamstring the Continent’s corporate sector.

Now, however, Europe’s equity markets have rebounded and many indexes are trading at levels not seen since 2009. The FTSE 100, the leading British index, has risen 79 percent over the last three years, while the German benchmark DAX index has more than doubled in value over the same period.

But several analysts caution that European companies are testing the markets at a time when investors are still skittish, and the strategy of raising money through the public markets could backfire in some cases. Short-term concerns about the sluggish economy in some egions, particularly indebted southern European countries, may reduce investor enthusiasm.

Bankers say that companies also continue to demand high valuations on potential spinoffs, though investors are still unwilling to pay large premiums on European listings that are still at risk from the region’s anemic growth. As a result, the pricing levels of potential I.P.O.’s are gradually falling.

And investor confidence in the success of I.P.O.’s remains shaky after the amount of money raised through European offerings fell 58 percent, to $16.5 billion, last year from the year before, according to the data provider Dealogic.

But European companies are facing critical pressures to make such moves. As the financial crisis enters its sixth year, corporations have a wall of debt that must be repaid by 2014. While many firms have tried to raise money by selling noncore assets to rivals or private equity buyers, the Continent’s mergers and acquisitions market remains subdued despite the recent pickup of activity in global deals.

Last year, European deal activity fell 14 percent, to $697 billion, compared with 2011, according to Dealogic. The total was the lowest figure since 2003.

Through mid-February, European deal activity has fallen 48 percent, to $45.4 billion, compared with the previous period in 2012, according to the data provider Thomson Reuters. In contrast, takeover activity in the United States has jumped 140 percent, to $159.3 billion, over the same period.

Analysts say sellers are still demanding high prices for unwanted businesses, despite the economic slowdown. Faced with uncertainty about the global economy, buyers looking at European assets aso are cautious about spending money that they may need to either bolster their own operations or return to nervous investors if the global financial markets again take a turn for the worse.

“A lack of confidence is holding back the M.& A. market,” said Dominic Morris, a partner at the law firm Allen & Overy in London.

The problems aren’t concentrated at blue-chip companies, like Siemens and Volkswagen, which operate from a healthy economy and are able to tap debt markets to meet their financing needs. Smaller firms and those from struggling industries like retail or construction will be forced to rely more heavily on new stock issuances and spinoffs to raise the cash, analysts said.

“Vulnerable companies are still going to have refinancing issues over the next two years,” said Paul Watters, head of corporate credit resear! ch at Sta! ndard & Poor’s in London. “They will have to look at other avenues, such as carving out or selling noncore assets.”

To raise money, companies are already positioning themselves to hold secondary offerings to take advantage of bullish equity markets. So far this year, the steel giant ArcelorMittal, which has been hit by falling commodity prices linked to a slowdown in Asian markets, said it would issue $3.5 billion of new shares in a bid to reduce its $22 billion of debt.

Grupo Santander, the euro zone’s largest bank by market capitalization, also said it may list its consumer finance business in the United States later this year after the Spanish bank raised around $4 billion from the I.P.O. of its Mexican subsidiary in September.

“European companies are sitting on a number of large assets,” said Maria Pinelli, global vice chaiwoman of strategic growth markets at the accounting firm Ernst & Young in London. “Carve-outs can free up cash to repay debt or be used for future investment.”

The renewed effort to offload assets through I.P.O.’s has not been limited to Europe. On Jan. 31, Pfizer raised $2.2 billion by taking its animal-medicine unit public. The listing was the largest I.P.O. from an American company since Facebook’s beleaguered $16 billion offering in May.

While new offerings could help replenish companies’ coffers, the listings also may provide investors with a new source of returns. Over the last three years, investors had pulled back from European equities in large part because of the sovereign debt! crisis.

Instead, pension funds and other institutional investors flooded into the debt markets, whose returns â€" or yield â€" have plummeted as demand for new issuances far outstripped supply. Faced with investors clamoring for bonds, companies, even those in struggling industries like manufacturing, have been able to sell billions of dollars of new bonds with increasingly low yields.

In search of profits, analysts say, investors are prepared to take greater risks in European stock markets, including backing new offerings. To secure returns, they are hoping that the worst of the euro zone’s problems are behind it.

“Investors are trying to find yield,” said Klaus Hessberger, co-head of European equity capital markets at JPMorgan Chase in London. “For carve-outs to succeed, the market needs to be stable.”

Reader\'s Digest Files for Bankruptcy, Again

Executives at Reader’s Digest must be hoping that the magazine’s second trip to bankruptcy court in under four years will be its last.

The magazine’s parent filed for Chapter 11 protection late on Sunday in another attempt to cut down the debt that has plagued the pocket-sized publication for years. The company is hoping to convert about $465 million of its debt into equity held by its current creditors.

In a court filing, Reader’s Digest said it held about $1.1 billion in assets and just under $1.2 billion in debt. It has provisionally lined up about $105 million in financing to keep it afloat during the Chapter 11 case.

This week’s filing is the latest effort by the 91-year-old publisher, whose magazine once resided on many an American household’s coffee table, to fix itself in a difficulteconomic environment.

“After considering a wide range of alternatives, we believe this course of action will most effectively enable us to maintain our momentum in transforming the business and allow us to capitalize on the growing strength and presence of our outstanding brands and products,” Robert E. Guth , the company’s chief executive, said in a statement.

Reader’s Digest last filed for bankruptcy in 2009, emerging a year later under the control of lenders like JPMorgan Chase.

That reorganization substantially cut the publisher’s debt, and afterward the company worked to further shrink its footprint. It jettisoned nonessential publications in a series of deals, including the $180 million sale of Allrecipes.com and the $4.3 million sale of Every Day With Ra! chael Ray, both to the Meredith Corporation.

Most of the money from those transactions went toward paying down a still significant debt burden. But the company remained pressured by what it described in a court filing as the steep declines that still bedevil the media industry. Last year, the publisher began negotiating with its lenders, including Wells Fargo, about amending some of its debt obligations. That process eventually led to a “pre-negotiated agreement” with creditors, that will be put into effect by the bankruptcy filing.

This time, Reader’s Digest is hoping to spend even less time in court. Mr. Guth said in a court filing that the publisher aims to emerge from bankrupty protection in about four months.

The company’s biggest unsecured creditors include firms represented by Luxor Capital. The Federal Trade Commission also contends that it is owed $8.8 million in a settlement claim.

Reader’s Digest is being advised by Evercore Partners and the law firm Weil, Gotshal & Manges.

Reader's Digest bankruptcy petition (2013) by

Declaration by Reader's Digest Chief Executive by

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