Judge Upholds S.E.C. Freeze on Account Tied to Suspicious Heinz Trades

WASHINGTON â€" A federal judge has upheld the Securities and Exchange Commission‘s recent action against a Swiss account linked to insider trading in the $23 billion takeover of H.J. Heinz, the agency announced on Friday.

The court ruling, by Judge Jed S. Rakoff in Manhattan, comes a week after the S.E.C. first froze the Swiss account at Goldman Sachs. In the action last week, the S.E.C. said it had detected a “highly suspicious” spike in options trades tied to Heinz. An unknown investor placed the trades, the S.E.C. said, just a day before Berkshire Hathaway and the investment firm 3G Capital agreed to buy the ketchup maker.

By throwing his support behind the S.E.C. at a hearing on Friday, Judge Rakoff enabled the agency to continue its investigation.

But the hearing did nothing to illuminate the identity of the suspect trader, a mystery confounding regulators and complicating the case. No one appeared in court on Friday to represent or defend the traders.

An S.E.C. investigator leading the case, Sanjay Wadhwa, disclosed the developments on Friday at a conference in Washington. He noted at the event, titled ! “S.E.C.. Speaks,” that the initial freeze last week was likely the “swiftest enforcement action” the agency ever filed. It came just over a day after Heinz announced the deal.

The action could cast a cloud over the deal, as investigators ramp up their case and explore which insiders may have leaked confidential information. In another sign of escalation, the Federal Bureau of Investigation indicated this week that it is examining potential criminal wrongdoing in the case.

Authorities are focused on more than 2,500 options trades placed the day before the Heinz takeover. That move struck authorities as “drastic,” the S.E.C. said, since there was scant options activity for months leading up to the deal.

The traders spent about $90,000 on the option, a position hat skyrocketed on paper to $1.8 million after the deal was announced and Heinz shares soared.

Despite the suspicious evidence, it could take authorities some time to unmask the traders. The investors, private wealth management customers of Goldman Sachs, funneled the trades through an account in Zurich, obscuring the view of American investigators.

The bank, which is not suspected of wrongdoing, said it is cooperating with the investigation.

But Goldman is limited it what it can reveal about its Swiss customers.

Goldman’s American lawyers recently informed the S.E.C. that they are unaware of the traders’ identities. Swiss privacy laws prevent the bank’s Zurich branch from sharing such details, people briefed on the matter said.

Expecting such complications, the S.E.C. reached out to the Swiss financial regulator last week to seek their help.

The Swiss regulator, Finma, confirmed on Friday that it had received the letter. A spokeswoman said the Swiss regula! tor would ! review the request and try to get the information to the S.E.C.

Unless the traders come forward, the S.E.C. will now rely on Finma to extract the identities from Goldman’s Swiss arm. As of Friday, the S.E.C. continued to lack access to the account information, the people briefed on the matter said

But Mr. Wadhwa warned that the S.E.C. will continue to investigate and suggested that it could file similar emergency cases in future deals.

“You will see more of these actions coming out of the S.E.C.,” he said at the conference.

Mark Scott contributed reporting from London.

Week in Review: Sweeping Changes or a Symbolic Reprimand

Prosecutors, shifting strategy, are building a new model for Wall Street cases. | Morgan Stanley is striving to coordinate two departments often at odds. | Andrew Ross Sorkin says Steven L. Rattner’s reputation, once sullied, has acquired a new shine.

A look back on our reporting of the past week’s highs and lows in finance.

Rothschild Loses Fight for Control of Indonesian Mining Giant | Shareholders of Bumi voted against a major board change proposed by the British financier Nathaniel Rothschild, Mark Scott reported. DealBook Â'

Office Supply Rivals’ Merger Leaked by a Wayward Report | A mistake by Thomson Reuters delivered an unwanted jolt to what Office Depot and OfficeMax had hoped would be a carefully choreographed union of equals, Michael J. de la Merced reported. DealBook Â'

• Office Depot May Merge With a Rival in Retailing | Mr. de la Merced examined the deal talks on Monday. DealBook Â'

Reader’s Digest in Second Filing for Bankruptcy | Four years after its first bankruptcy, the magazine is making the move to cut its $465 million debt by converting it into equity held by creditors, Mr. de la Merced reported. DealBook Â'

Crédit Agricole Cites Write-Downs in Posting a Record Loss | The chief executive pointed to positive signs that the French bank had turned a corner, David Jolly reported. DealBook Â'

Morg! an Strives to Coordinate 2 Departments Often at Odds | Pressure mounts to coax greater profits from the low-margin brokerage business by finding ways for retail and investment banking to work better together, Susanne Craig reports. DealBook Â'

DealBook Column: A Reputation, Once Sullied, Acquires a New Shine | Andrew Ross Sorkin says that Steven L. Rattner’s re-emergence as a power player is well under way. DealBook Â'

Court Gives Investor an Edge in a Lawsuit Against Apple | A federal judge said on Tuesday that he was leaning toward David Einhorn’s contention that Apple had violated securities regulations by bundling several shareholder proposals into one matter, Mr. de la Merced reported (On Friday, the judge blocked Apple from allwing a shareholder vote on the preferred stock proposal). DealBook Â'

For Michael Kors Insiders, Cashing Out Is Very Much in Fashion | Aggressive selling by the clothing designer and his colleagues added to the large volume of share sales by public company executives in recent weeks, Peter Lattman reported. DealBook Â'

In Europe, Indebted Companies May Turn to Public Markets | European companies are considering public stock offerings as part of broader plan to pay down debt and bolster profit, Mr. Scott reported. DealBook Â'

The Trade: A Revolving Door in Washington With Spin, but Less Visibility | Jesse Eisinger of ProPub! lica says! that the important fights in Washington are happening away from the media gaze. For lobbyists, the real targets are regulators and staff members for lawmakers. DealBook Â'

Anheuser-Busch and U.S. in Talks to Resolve Antitrust Concerns | The Grupo Modelo deal is a vital merger for Anheuser-Busch InBev, which has been seeking greater access to emerging markets, Mr. de la Merced reported. DealBook Â'

Deal Professor: ‘Currency War’ Is Less a Battle Than a Debate on Economic Policy | Steven M. Davidoff says that big countries are responding to their own economic downturns by easing monetary policies, but emerging market economies that are affected cannot respond with similar effectiveness. DealBook Â'

F.B.I. Said to Be Looking at Heinz Trade | The F.B.I.’s involvement adds to the scrutiny surrounding the auspiciously timed options, by an investor or investors who have not yet been identified, Ben Protess reported. DealBook Â'

Prosecutors, Shifting Strategy, Build New Wall Street Cases | In prosecuting big banks, the government is seeking a balanced approach, aiming to hold financial institutions accountable without shutting them down, Mr. Protess reported. DealBook Â'

Shaggy’s ‘It Wasn’t Me’

‘It Wasn’t Me’ Will the “Shaggy Defense” work for prosecutors criticized for lettin! g Wall St! reet off the hook or financiers accused of using “pay to play” practices

Judge Sides With Einhorn and Halts Shareholder Vote on Apple Initiative

A federal judge on Friday ordered Apple to halt collecting shareholder votes on a contentious proposal to change some of its corporate charter, handing a victory to the hedge fund manager David Einhorn.

Mr. Einhorn’s firm, Greenlight Capital, has sued the iPad maker in federal district court in Manhattan, arguing that the company improperly tied together several shareholder in one voting matter. Such “bundling,” lawyers for the hedge fund argued, violated securities laws.

At the heart of the hedge fund’s complaint was that Apple combined a plan to eliminate its ability to issue preferred stock without shareholder approval with two other initiatives that Greenlight favored.

By allowing the vote to proceed, lawyers for the firm argued, Greenlight was being forced to vote against its own interests.

The judge overseeing the ase, Richard Sullivan, firmly agreed with that interpretation.

“Given the language and purpose of the rules, it is plain to the court that Proposal No. 2 impermissibly bundles ‘separate matters’ for shareholder consideration,” Judge Sullivan wrote in his order.

His ruling orders Apple to stop accepting shareholder votes on Proposal No. 2, and comes just days before the company’s shareholder meeting next Wednesday.

Apple had argued that the plan in its entirely was actually shareholder-friendly, and enjoyed the backing of prominent investors like the California Public Employees Retirement System.

Representatives for Greenlight and Apple weren’t immediately available for comment.

Ruling for Greenlight Capital in Battle With Apple by

After Heinz Deal, Other Food Companies Could Be Takeover Targets

After the Warren Buffett-backed takeover of Heinz, Big Food merits a fresh look. Companies that are purveyors of meals, sauces and spreads may offer better value than is immediately obvious.

The share prices of such companies depends on future cash flows. In many sectors, high profit margins are a fleeting thing â€" just ask yellow-pages publishers, or record-store clerks. But food-makers’ strong finances may have staying power. This is the sort of “moat”-like protection that Mr. Buffett famously prizes.

The food sector’s giants are built around strong brands, relentlessly promoted and rejuvenated. Technological disruption is minimal. Developing markets offer promise. Profitability is strong, and holds remarkably steady. Operating margins at Heinz have only wavered 2.2 percentage points in 10 years, arounda 15.5 percent average.

Willis Welby, a boutique research firm, argues that investors overlook this margin stability. They assign too-low multiples of earnings and put unfairly pessimistic projections of declining margins in their discounted cash flow models.

The Willis analysts work backward from current share prices. Using a discount rate of 8 percent and assuming that revenues increase in the long term at a 5 percent rate, they generate implied long-term margins, which they compare to analysts’ medium-term forecasts.

The results are striking. Even expensive-looking shares can offer good value. The $23 billion Heinz takeout, frequently described as expensive, looks fairly priced. And several big companies look downright cheap, notably Campbell Soup, ConAgra Foods, Danone, General Mills and Unilever.

Of course, this measure doesn’t automatically make a company a takeover target. Any buyer would need patience â€" and confidence that the products will keep on selling, no matter how fashions and diets change.

Moreover, some of the “cheap” companies are probably off-limits for a bid. Unilever is too big and Danone is too French. At Campbell, big family shareholders would need to be onboard. Even ConAgra, at $14 billion, and General Mills at $29 billion, would make big takeovers. But Nestle, which partners with General Mills to sell breakfast cereals outside North Amrica, could certainly afford it.

But suppose this contrarian view on valuation is right. Even without future M.&A., equity investors could pay a rich-looking price and still find good candidates.

Quentin Webb is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

Citigroup Pay Plan Raises the Bar Just a Bit

Citigroup’s new executive pay plan raises the bar, just not quite far enough. The bank’s board has put into effect a compensation scheme with more rigorous targets for the chief executive, Michael L. Corbat, and his lieutenants. One important performance metric, however, keeps expectations too low.

It took a shareholder revolt to force Citi to act in the first place. Egregiously easy ambitions set for then-boss Vikram S. Pandit led to 55 percent of the mega-bank’s shareholders voting againstthe plan at last year’s annual meeting. It left the chairman, Richard D. Parsons retiring on a low note.

Mr. Pandit was to receive $10 million simply for ensuring risk management was sound, promoting a culture of responsible finance and developing a good team. He was due at least $6 million more if pre-tax earnings at Citicorp, the bank’s core operations, totaled $12 billion between 2011 and 2012 â€" a 60 percent drop from 2010. They weren’t exactly the sort of goals that inspire hard work.

Under the new plan, executives must meet hard financial targets for the operations they oversee - including revenue, net income, operating efficiency and return on Basel III capital - to earn a bonus. Thirty percent of the payout will be delivered in the form of performance share units that can only be cashed in if! Citigroup hits certain hurdles on both return on assets and total shareholder returns.

While the broad structure looks good, certain thresholds don’t. The return on assets target of 0.85 percent is more than double the 0.4 percent achieved last year. Strip out one-off items like accounting hits and restructuring charges, however, and the return was 0.64 percent.

The drag from Citi Holdings, which houses the assets the bank is trying to unload, will keep shrinking. Assume $30 billion a year goes through 2015. All else being equal, apply that to the Thomson Reuters consensus forecasts for net income and voilà, the 0.85 percent hurdle is met.

Of course, the return on assets counts for naught if total shareholder returns don’t beat half the board-appointed peer group of eight big banks. It’s just that at this stage, Citi andits shareholders ought to expect better.

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

Citigroup Pay Plan Raises the Bar Just a Bit

Citigroup’s new executive pay plan raises the bar, just not quite far enough. The bank’s board has put into effect a compensation scheme with more rigorous targets for the chief executive, Michael L. Corbat, and his lieutenants. One important performance metric, however, keeps expectations too low.

It took a shareholder revolt to force Citi to act in the first place. Egregiously easy ambitions set for then-boss Vikram S. Pandit led to 55 percent of the mega-bank’s shareholders voting againstthe plan at last year’s annual meeting. It left the chairman, Richard D. Parsons retiring on a low note.

Mr. Pandit was to receive $10 million simply for ensuring risk management was sound, promoting a culture of responsible finance and developing a good team. He was due at least $6 million more if pre-tax earnings at Citicorp, the bank’s core operations, totaled $12 billion between 2011 and 2012 â€" a 60 percent drop from 2010. They weren’t exactly the sort of goals that inspire hard work.

Under the new plan, executives must meet hard financial targets for the operations they oversee - including revenue, net income, operating efficiency and return on Basel III capital - to earn a bonus. Thirty percent of the payout will be delivered in the form of performance share units that can only be cashed in if! Citigroup hits certain hurdles on both return on assets and total shareholder returns.

While the broad structure looks good, certain thresholds don’t. The return on assets target of 0.85 percent is more than double the 0.4 percent achieved last year. Strip out one-off items like accounting hits and restructuring charges, however, and the return was 0.64 percent.

The drag from Citi Holdings, which houses the assets the bank is trying to unload, will keep shrinking. Assume $30 billion a year goes through 2015. All else being equal, apply that to the Thomson Reuters consensus forecasts for net income and voilà, the 0.85 percent hurdle is met.

Of course, the return on assets counts for naught if total shareholder returns don’t beat half the board-appointed peer group of eight big banks. It’s just that at this stage, Citi andits shareholders ought to expect better.

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

In Push for Transparency, a Law Firm Releases Its Financial Results

Call it the Dewey & LeBoeuf effect.

K&L Gates, one of the country’s largest law firms, disclosed its financial results on Thursday, sending tremors through an industry that has traditionally kept such information private.

A fast-growing Pittsburgh-based law firm with more than 2,000 lawyers, K&L Gates posted its 2012 numbers on its Web site, revealing its profits per partner, debt load and other key measures. The disclosure comes less than a year after the bankruptcy filing of the law firm Dewey & LeBoeuf, which collapsed amid questions about the integrity of its financial statements.

Peter Kalis, the chairman of K&L Gates, said in an e-mail that in some ways, the enhanced disclosures was a direct response to the Dewey debacle.

“The entire industry was tarred by Dewey, and the industry’s opacity and misleading statistics magnified the Dewey effect for all of us,”
Mr. Kalis said. “We wanted to head in a new direction and to promote change toward an informed transpareny.”

Large corporate law firms typically publish annual revenues and profits, but the release by K&L Gates is groundbreaking, legal industry experts say.

“This type of thoughtful, comprehensive, nuanced disclosure can only be good for our industry,” Bruce MacEwen, a legal industry consultant, wrote on his Web site, Adam Smith Esq.

Because they are private partnerships, the nation’s largest law firms have no obligation to report their financial results to the public. Yet in the wake of Dewey’s collapse, clients are asking more questions about the financial state of the firms they employ. In addition, prospective hires are also looking more closely at firms’ books.

Historically, the legal industry has looked to the American Lawyer magazine for financial information about the country’s largest law firms. But the integrity of the magazine’s annual “AmLaw100” rankings of law firm performance came! under scrutiny last year when it announced that it was making substantial revisions to two years of Dewey’s results. The magazine has defended its process and accused Dewey’s management of misleading them.

Like Dewey, K&L Gates has grown rapidly through acquisitions and recruiting high-priced lawyers from other firms. Its financial results, though, distinguish it from Dewey in crucial ways.

In contrast to Dewey, which struggled under a heavy debt load, K&L Gates has zero outstanding bank debt. In other “indicia of financial stability,” as it called a section of the disclosure, the firm cited cash balances of more than $220 million and the availability of $75 million under bank lines of credit.

The firm’s revenue dropped slightly from 2011, to $1.06 billion, with net income per “fully participating equity partners” reported at about $900,000. Including partners without full equity participating, the average was $636,920.

K&L Gates also disclosed that the highest paid eqity partner made 7.9 times the average compensation of the lowest paid equity partner, which is in the ballpark of the spread at many top law firms. By comparison, this ratio at Dewey, which doled out exorbitant guarantees to lure star lawyers away from other firms, had widened to more 25 to 1. One former Dewey partner described such a compensation structure as “something closer to feudalism than a true partnership.”

In response to whether he hoped that other firms would follow his lead and open up their books, Mr. Kalis said, “We’ll see in the times to come whether we’re a change agent for the industry or an isolated instance of transparency.”

Mindful of Bubbles in a Boom for Deals

Warren E. Buffett has teamed up with 3G Capital to buy the venerable H. J. Heinz Company for $23 billion. But the famed value investor isn’t exactly buying low: when the deal was announced on Valentine’s Day, Heinz shares were trading at a record high of nearly $61. Had Mr. Buffett and his partners bought a year ago, shares were selling for $53, a 13 percent discount.

Graphic

Mr. Buffett is hardly the only buyer pursuing deals now that the stock market is hitting levels last seen in 2007. The Wilshire 5000 index recently set a record, and the Dow Jones industrial average has pierced 14,000 several times in the last three weeks.

Thomson Reuters reports that during the first two months of 2013 there have been over a thousand deals valued at almost $163 billion in total. That’s more than double the amount for the same months in 2012. If this blistering pace continues, merger and buyout deals could surpass $2 trillion in 2013, far more than the $1.57 trillion in 2007.

We all know what happened after that. From its peak in October 2007, the Standard & Poor’s 500-stock index plunged 56 percent.

“Buy low and sell high” is probably the most common adage in investing. So why do so many highly paid chief executives of acquiring companies persist in doing the opposite

Mr. Buffett, it should be said, may be the exception that proves the rule, since he’s been among the few willing to make big deals when stocks are cheap.

His company, Berkshire Hathaway, completed a $34 billion purchase of Burlington Northern in November 2009, when the S.& P. 500 hit an 11-year low. It surely ranks as one of the best deals ever, since stocks generally, and railroad stocks in particular, have surged since then.

Mr. Buffett kept busy throughout the downturn, buying profitable stakes in Goldman Sachs and General Electric in the depths of 2008 while also bolstering investor confidence.

But even Mr. Buffett can get swept up in a deal-making frenzy. He called his 2007 investment in the Texas utility TXU bonds a “huge mistake” and “unforced error.” The $45 billion TXU buyout, led by Kohlberg Kravis Roberts, a veteran deal maker and buyout firm, still ranks as the biggest leveraged buyout ever â€" and may turn out to be one of the worst.

“You always see a lot of M.& A. activity when the market is overvalued,” Matthew Rhodes-Kropf, an associate professor at Harvard Business School who has studied the phenomenon and also advises private equity and venture capital firms. “Of course, you only know a market peak with benefit of hindsight. But when you look back, you’ll see a lot of M.& A. activity.”

One reason is that there has to be two sides to every deal, and, “When prices are low, sellers don’t want to sell,” Professor Rhodes-Kropf said. “They know their stock will go up with even modest growth. All they have to do is hang on.”

The same thing happened after the recent real estate crash, when owners withdrew their homes from the market rather than sell at fire-sale prices, and the number of transactions plunged.

Conversely, as stock prices rise, some executives start to worry about their ability to meet investors’ growth expectations and whether their stocks are getting overvalued, Professor Rhodes-Kropf said. A merger or buyout may provide an attractive option, both for the seller, who can cash in at a premium, and the buyer, who gets immediate revenue gains and may benefit from the growth prospects at the newly acquired company.

Professor Rhodes-Kropf’s research suggests that mergers and buyouts occur disproportionally in overvalued industries and overvalued companies.

Still, that doesn’t explain why so many mergers and buyouts occur when the stock market is as overvalued as it turned out to be in both 2000 and 2007. You’d expect sellers to be plentiful, but not buyers.

Stephen A. Schwarzman, chairman and chief executive of Blackstone Group, one of Wall Street’s best-known and most successful deal makers, told me this week that early in the merger cycle: “You typically buy companies that are in the same industry or where there’s a fit. Those deals tend to be smart, pretty reasonable, and they usually work.”

Consumer Complaints May Offer Insight Into Pyramid Schemes

There’s a big unknown at the heart of the debate over Herbalife: Regulators have given no indication of what they think about the diet supplement company’s business practices.

Bearish investors like the hedge fund manager William A. Ackman contend that Herbalife acts like a pyramid scheme, dependent on recruiting new members rather than generating new sales. In defense, bullish shareholders and the company points to Herbalife’s decades of profit and growth.

As the two sides duke it out, all eyes are on the main government agency that polices pyramid schemes, the Federal Trade Commission. It has not taken any public action. (Another government agency, the Securities and Exchange Commission, has opened an investigation into Herbalife.)

One piece of data may help clarify how the F.T.C. assesses for pyramid schemes.

In response to a Freedom of Information Act request by The New York Times, the agency released how many consumer complaints were registered against an entity that the F.T.C. recently took strong action against, believing it had some characteristics of a pyramid scheme. This helps outsiders understand the role of consumer complaints in motivating the regulator to act.

In January, the F.T.C., along with some state attorneys general, moved to shut down the Kentucky-based Fortune Hi-Tech Marketing. Before that happened, consumers had registered 156 complaints against Fortune Hi-Tech over about five years, according to material released by the commission. That’s not a high number, given the sort of abuses regulators contended took place and the long period. Yet the relatively low figu! re didn’t seem to stop regulators going after Fortune Hi-Tech.

What does say about the Herbalife situation

The commission also recently released the number of complaints against Herbalife. There were 192 consumer complaints over a roughly similar period registered with the government. That’s more than the amount of complaints against Fortune Hi-Tech, but still a seemingly low figure.

Herbalife’s critics may seize the low number of complaints against Fortune Hi-Tech to bolster their case. They could argue that regulators thought Fortune Hi-Tech might be a pyramid scheme, even though the public didn’t flock to complain about it. As a result, the relatively small number of complaints against Herbalife says little about what the company really does. Often, victims won’t complain for a number of reasons, the critics might add.

Herbalife declined to comment.

But an industry group called the Direct Selling Association weighed in. Joe Mariano, president of the association, sad the substance and nature of the complaints mattered. And this is what the Federal Trade Commission probably takes into account when it looks at companies, he added.

He said his association had a code of ethics that barred its members, including Herbalife, from engaging in pyramid scheme activities. He declined to supply a number of complaints made to the association against Herbalife. Mr. Mariano noted that Fortune Hi-Tech was not a member of the association.

“Herbalife is bound by our self-regulatory code that prohibits pyramid schemes,” he said. “Obviously, they wouldn’t be members of the association if we believed they were in violation.”

In Dell’s Waning Cash Flows, Signs of Concern

The proposed Dell buyout may be motivated more by fear than greed.

Dell’s founder, Michael S. Dell, and the investment firm Silver Lake are offering to take the company private in a $24.4 billion deal. One interpretation of the offer is that savvy investors, using cheap loans, see a nice opportunity to unlock the value from a company that has fallen out of favor with stock investors. The fact that large shareholders are opposed to the deal, thinking it is priced too low, supports the idea that Dell is a diamond in the rough.

But there is an opposite interpretation: The buyout is a last-ditch effort to revive the company. To some, taking Dell private is what’s necessary t implement the sort of bold measures that could prevent the steady decline of a company that has been left behind in many of its markets. And like many acts of desperation, the risks are high that going private will fail.

This viewpoint starts with Dell’s cash flows. How much actual money a company makes each quarter is always an important metric. It’s especially critical at firms that go private in leveraged buyout deals. Once private, Dell would have a lot more debt - and it would need divert more cash to service it.

Going private may allow the company to slash costs, which preserves cash. But management may also feel liberated to spend more on initiatives it feels enthusiastic about, which would use up cash initially. In a botched buyout, management’s plans fail to produce results and a dangerous cash crunch occurs.

And there are some signs that Dell’s cash flows are weakening going into the deal.

The cash flow metric that matters is called free cash flow, which tak! es the money generated by Dell’s operations and then subtracts what the company spends on capital expenditures. Through the end of its latest fiscal year, which ended in February, Dell’s free cash flows were $2.77 billion. That is well below the $4.85 billion reported in the prior fiscal year. And the recent cash flows may have gotten a boost from financial moves that might be hard to repeat. In the most recent quarter, Dell generated a lot of cash from taking longer to pay its suppliers.

It’s easy to paint a grim picture from these numbers. A privately held Dell might have an extra $700 million to $1 billion of extra interest a year, which could in theory take annual free cash flows below $2 billion. That provides little margin for safety if Dell’s operations run into serious trouble, even if the company does decide to dip into its large pool of overseas cash.

But there are some reasons to believe this analysis is overly pessimistic.

First, the cash flow numbers probably don’t flly factor in how much cash can be generated by Dell’s recent acquisitions. Just as a couple of items helped bolster cash flows in recent quarters, others used up a lot cash, and may not do so in the future. For instance, Dell had a $450 million cash drain in the last fiscal year just from the “deferred income taxes” line. That could be the result of a one-off action rather than a recurring trend.

With all its acquisitions contributing, optimists might contend that Dell can produce $3.5 billion of free cash flow a year. If investors paid seven times that, the company would be valued at the $24 billion, which is where it is valued today on the stock market. Other shareholders think Dell is worth a lot more than $24 billion, and has the cash flows to justify it.

But right now, Dell’s cash flows are weakening. And if they continue to wane, Mr. Dell may soon have a tough job ahead of him. He may already know that â€" looking at those cash flows.

Banning Corzine Proves Problematic

BANNING CORZINE PROVES PROBLEMATIC  |  The National Futures Association, the self-regulatory group for the futures industry, faced an obstacle in considering a lifetime ban for Jon S. Corzine, the former Democratic senator who ran the now-defunct MF Global: Mr. Corzine isn’t a member, DealBook’s Ben Protess writes.

The group convened on Thursday with two of its board members pushing for a ban of Mr. Corzine as punishment for his role in the demise of MF Global, which improperly used customer money. Mr. Corzine’s lack of membership wasn’t the only stumbling block. The group’s chairman said in a statement that the board “does not wish to take any action that could interfere” with “ongoing investigations concerning Mr. Corzine’s activities at F Global.” Once the investigations wrap up, “N.F.A. has the authority to bring disciplinary action against Mr. Corzine for violations of any N.F.A. rules that occurred while he was a member,” said the chairman, Christopher Hehmeyer.

“A ban from the futures association would have amounted to little more than a wrist slap to someone like Mr. Corzine, who once ran Goldman Sachs and served as a senator from New Jersey,” Mr. Protess reported. “Still, the move would have complicated any future plans he might have to open a trading firm. And if Mr. Corzine decides to one day rejoin the industry, he could face an unfriendly welcome.”

CITIGROUP TOUGHENS RULES ON BONUSES  |  Citigroup, a closely watched player in the debate over Wall Street compensation, is changing how it calculates bonuses for top executives. The bank announced on Thursday that part of the $11.5 million pay package awarded to Mi! chael L. Corbat, the chief executive, would be closely tied to performance. “So far, though, the changes are only affecting a small portion of Citigroup’s executive compensation packages without reining in the big bonuses that have become one of the hallmarks of Wall Street,” The New York Times’s Nathaniel Popper and Jessica Silver-Greenberg report.

Michael O’Neill, the bank’s powerful chairman, said in a regulatory filing on Thursday that the committee on executive pay had come up with its new formula after meeting with investors representing more than 30 percent of the bank’s outstanding shares. Part of the new pay packages will be tied to the bank’s performance relative to rivals. For 2012, Mr. Corbat was awarded $3.1 million in performance share units, 27 percent of his total pay.

The change comes less than a year after shareholders opposed a pay package for te previous chief, Vikram S. Pandit. “When our shareholders spoke last year about Citi’s compensation structure, we listened,” Mr. O’Neill said in the filing. Still, Nell Minow, a shareholder advocate at GMI Ratings, said the new approach was “far from perfect, or even good, but it’s less terrible than it used to be.”

EINHORN INTRODUCES ‘IPREFS’  |  David Einhorn has a name for the preferred shares he wants Apple to give to shareholders: iPrefs. The hedge fund manager, outlining on Thursday his strategy for encouraging Apple to return some cash to shareholders, said the class of perpetual perfered shares could produce $61 a share in additional benefits for investors. Apple could issue one preferred share, with a quarterly dividend of 50 cents each, for each outstanding common share. “We know th! ey embrac! e innovation and can recognize it when they see it, even if it isn’t the kind of innovation people usually think of when they think of Apple,” said Mr. Einhorn, who runs Greenlight Capital.

Still, some investors in Apple have called on Mr. Einhorn to stop his fight, which involves a lawsuit over a vote on shareholder initiatives. “I came off the call deeply puzzled,” Anne Simpson, the director of global governance for the California Public Employees’ Retirement System, told DealBook’s Michael J. de la Merced.

While discussing Apple, Mr. Einhorn also criticized Dell, which received a controversial buyout offer. “Dell’s go-private effort shows the disingenuous nature of hoarding cash,” he said.

ON THE AGENDA  |  The European Commission publishes new forecasts for the euro zone economy. Afte Hewlett-Packard reported lower revenue in the first quarter, Meg Whitman, the chief executive, appears on CNBC at 9 a.m. James Bullard, president of the St. Louis Fed, is on CNBC at 7 a.m.

TRADING TAX MAY TAKE EFFECT IN EUROPE  |  “To the dismay of the United States government â€" not to mention Wall Street â€" much of Europe seems poised to begin taxing financial trading as soon as next year,” Floyd Norris, a columnist for The New York Times, writes. Arguments against the tax, including the idea that it would drive trading to other countries, “have not proved persuasive in Europe, which thinks it has found a way to keep institutions from avoiding the tax. If Europe proves ! to be cor! rect, it could turn out to be a seminal moment in the relation of governments to large financial institutions. The tax would be tiny for investors who buy and hold, but could prove to be significant for traders who place millions of orders a day.”

Mergers & Acquisitions Â'

K.K.R. Is Said to Bid $3.7 Billion for Gardner Denver  |  Kohlberg Kravis Roberts has bid about $3.7 billion â€" or roughly $75 a share â€" for Gardner Denver, a maker of industrial equipment like blowers and compressors, a person briefed on the matter says.
DealBook Â'

The Elusive ‘Urge to Merge’  |  Though a survey by PwC found that only 28 percent of chief executives planned to make acquisitions this year, “there is anecdotal evidence that these predictions are too low, says Bob Moritz, who runs PwC in America,” The Economist writes.
ECONOMIST

CNBC to Buy ‘Nightly Business Report’  |  CNBC is buying the rights to the public television series “Nightly Business Report,” according to Media Decoder.
DealBook Â'

Russian Billionaire Sells Stake in Polyus Gold for $3.6 Billion  |  Mikhail Prokhorov, the billionaire behind ! the Brook! lyn Nets, received approval from a British regulator for a sale of his 37.8 percent stake in Polyus Gold International, Bloomberg News reports.
BLOOMBERG NEWS

Linn Energy to Buy Berry Petroleum for $2.5 Billion  |  Deal making in the oil patch continued, as Linn Energy agreed to buy Berry Petroleum for about $2.5 billion in stock, expanding its presence in oil-rich shale formations.
DealBook Â'

The Tax Advantages Behind an Oil Deal  |  Linn Energy’s acquisition of Berry Petroleum is the first time an oil-producing master limited artnership has swallowed a whole exploration company, Christopher Swann of Reuters Breakingviews writes.
DealBook Â'

INVESTMENT BANKING Â'

Rothschild Loses Fight for Control of Indonesian Mining Giant  |  Bumi shareholders voted against a major board change proposed by the British financier Nathaniel Rothschild, including his goal to replace 12 of Bumi’s 14 board members.
DealBook Â'

Navigating the Hudson River With Goldman Sachs  |!   One of Goldman Sachs’s ferry boats, which recently began service, features a “decidedly unferry-like seating arrangement,” Bloomberg Businessweek notes.
BLOOMBERG BUSINESSWEEK

Influential Market Forecaster Has Died  |  “Martin Zweig, an influential investor and television pundit who predicted the 1987 stock market crash, published a closely followed newsletter and in 1999 made what at the time was the most expensive residential purchase in New York history, died on Monday at his home in Fisher Island, Fla. He was 70,” The New York Times writes.
NEW YORK TIMES

ING’s Australian Unit Plans Sale of Mortgage Bonds  |  The Australian unit of the Dutch financial firm ING may sell as much as $2.05 billion of mortgage bonds this year, Bloomberg News reports.
BLOOMBERG NEWS

JPMorgan Said to Tap New Head of Brazil Unit  | 
BLOOMBERG NEWS

American Express Names 2 Directors to Its Board  | 
BLOOMBERG NEWS

PRIVATE EQUITY Â'

Owner of Bausch & Lomb Said to Prepare for I.P.O.  |  Bloomberg News reports: “Warburg Pincus LLC is interviewing banks for an initial public offering of Bausch & Lomb Inc. after an effort to sell the eye-care company resulted in disappointing bids, said people with knowledge of the matter.”
BLOOMBERG NEWS

Billabong Lowers Expectation of Annual Profit  | 
FINANCIAL TIMES

HEDGE FUNDS Â'

A.I.G. a Hedge Fund Favorite  |  It was once Apple, but now the American International Group has become “the hedge fund industry’s favorite stock, according to a Goldman Sachs Group analysis of fourth-quarter regulatory filings,” Reuters reports.
REUTERS

Hedge Fund Said to Host an Apple Executive  |  Coatue Management, a longtime Apple investor that sold part of its holdings in the fourth quarter, hosted Peter Oppenheimer, Apple’s chief financial officer, at its annual investor meeting in New York! this wee! k, Absolute Return reports. The hedge fund “distributed iPad minis to attendees.”
ABSOLUTE RETURN

I.P.O./OFFERINGS Â'

For Michael Kors Insiders, Cashing Out Is Very Much in Fashion  |  Since the I.P.O. of his fashion company in 2011, Michael Kors has sold roughly $650 million worth of his company’s stock. He still retains a roughly $300 million stake.
DealBook Â'

In Qatar, a New Wave of I.P.O.’s Looks a Bit Ambitiou  |  The planned I.P.O. bonanza in Qatar is intended to foster a more responsible spending culture among its citizens, but there are concerns that the markets will not be able to absorb all the new issues, Una Galani of Reuters Breakingviews writes.
DealBook Â'

VENTURE CAPITAL Â'

Stanford Sets Fund-Raising Record  |  Last year, Stanford became the first university to raise more than $1 billion in a single year, according to the Council for Aid to Education, partly “because of large donations from entrepreneurial alumni who have made their fortunes in Silicon Valley,” The New York Times reports.
NEW YORK TIMES

LEGAL/REGULATORY Â'

After a Landmark Deal, Homeowners Still Face Foreclosure  |  A year after a national settlement with five big banks over claims of foreclosure abuses promised billions of dollars in aid, homeowners are still not getting the help they need to prevent foreclosures, according to housing advocates and homeowners, The New York Times reports.
NEW YORK TIMES

Regulator Takes Aim at CME  |  The Commodity Futures Trading Commission sued the CME Group, accusing the exchange operator and two former employees of sharing details about trades with a broker, The Wall Street Journal reports.
WALL STREET JOURNAL

Identity of Trader in Heinz Options Remains Obscured  |  Goldman Sachs told a Securities and Exchange Commission official that the account involved in suspicious trading in Heinz options was held by a private wealth client, but added that the firm “does not have direct access to information about the beneficial owner or owners behind any particular transaction or position,” a filing said, according to Bloomberg News.
BLOOMBERG NEWS

Law Firm Releases Unusually Detailed Results  |  K&L Gates “has released what could be one of the most complete pictures of a U.S. legal firm’s financial performance, a step it says is a move toward greater transparency in a profession where financial results are often opaque,” The Wall Street Journal writes.
WALL STREET JOURNAL

JPMorgan Raises Questions About Government Lawyer  |  JPMorgan Chase “raised questions about the involvement of a senior lawyer from the New York Attorney General’s office in one of the few government lawsuits alleging wrongdoing by banks in the run-up to the finanial crisis,” Reuters writes.
REUTERS

Carmakers Are Hiring, a Sign of Comeback  | 
NEW YORK TIMES

ING Group Appoints New Chief Executive

Amsterdam, 22 February 2013

ING announced today that Jan Hommen will step down from his position as CEO of ING Group per 1 October 2013. He will be succeeded as CEO by Ralph Hamers (1966, Dutch) currently CEO of ING Belgium.

Jan Hommen's current four-year term in the Executive Board will expire after the annual General Meeting (AGM) on 13 May 2013. The Supervisory Board will propose to the AGM to re-appoint him for the period until 1 October to ensure a smooth leadership transition. Ralph Hamers will be nominated as a member of the Executive Board per the AGM. As of 1 October 2013 he will succeed Jan Hommen and become the eighth CEO of ING Group.

Jan Hommen has been a member of the Supervisory Board of ING Group since 2005 and its Chairman since 2008. In 2009 he became CEO of ING Group and Chairman of the Executive Board.

Following his appointment to the Executive Board Ralph Hamers will also become a member of the Management Board Banking (MBB) and Management Board Insurance Eursia (MBE), and as of 1 October 2013 he will succeed Jan Hommen as CEO of the MBB and MBE. Decisions regarding the composition of the Board of Directors of ING US are pending in light of the company’s planned IPO.

Jeroen van der Veer, Chairman of the Supervisory Board of ING Group said: "Over the past four years Jan Hommen has done an outstanding job, guiding ING through the most challenging period in its history. Under his stewardship ING not only became financially stronger and less complex, but it also managed to put the customer again at the heart of the company. We are glad he has agreed to stay on for another five months to ensure a seamless transition. We are convinced that in Ralph Hamers we have found a successor who has the leadership style, skills and expertise to continue to execute the strategic course ING is on."

Jan Hommen, CEO of ING Group said: "It has been an honour to serve ING in these extraordinary times for both the company and the financial sector. I am proud of w! hat we have achieved for ING, our employees and our customers over the past years. Ralph Hamers is an excellent choice to carry on with the many tasks that still lie ahead on our road towards successful, independent futures for our Insurance and Banking businesses. I am determined to do everything in my capacity to make sure that Ralph can take over smoothly on 1 October ."

Ralph Hamers has a wealth of experience in both Retail and Commercial banking and an excellent track-record in risk management and in leading strategic change processes. Ralph Hamers has been CEO of ING Belgium and Luxemburg since March 2011. There, he played a pivotal role in driving the strategic “universal direct model” to expand online sales channels and modernise the branches. He holds a Master of Science in Business Econometrics/Operations Research from Tilburg University in the Netherlands and has completed professional programmes at the Netherlands Institute for Banking, the Amsterdam Institute of Finance, Oxford Univesity and INSEAD.

Ralph Hamers joined ING in 1991 as a relationship manager for Structured Finance in the Global Clients Division. In 1997 he moved to Global Risk Management and he became General Manager of ING Romania in 1999. In 2005 he was appointed CEO of ING Bank in the Netherlands before becoming Global Head of the Commercial Banking Network in 2007. In 2010 he was appointed Head of Network Management for Retail Banking Direct and International. In that year he also became member of the ING Banking Management Team which governs corporate development and strategic activities.

Ralph Hamers said: " I am extremely proud that the Supervisory Board has expressed its confidence in me and nominated me as a member of the Executive Board and the next CEO of this company. Together with my colleagues I am determined to build on the strong , customer-oriented foundation that Jan Hommen has laid for us. I look forward to working with Jan and the other Board Members towards the handover in October.! "

! ING's 2013 Annual General Meeting of shareholders will be held in Amsterdam on 13 May 2013. The full proxy materials relating to the meeting will be made available on the ING website (www.ing.com) as of 28 March 2013.

Press enquiries

ING Group Media Relations
+31 20 576 5000
Media.relations@ing.com

Investor enquiries

ING Group Investor Relations
+31 20 576 6396
Investor.relations@ing.com

ING PROFILE

ING is a global financial institution of Dutch origin, offering banking, investments, life insurance and retirement services to meet the needs of a broad customer base. Going forward, we will concentrate on our position as an international retail, direct and commercial bank, while creating an optimal base for an independent future for our insurance and investment management operations

IMPORTANT LEGAL INFORMATION

Certain of the statements contained in this document are not historical facts, including, without limitation, certain statements made of future expectations and other forward-looking statements that are based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation: (1) changes in general economic conditions, in particular economic conditions in ING's core markets, (2) changes in performance of financial markets, including developing markets, (3) consequences of a potential (partial) break-up of the euro, (4) the implementation of ING's restructuring plan to separate banking and insurance operations, (5) changes in the availability of, and costs associated with, sources of liquidity such as interbank funding,as well as conditions in the credit markets generally, including changes in borrower and counterparty creditworthiness, (6) the frequency and severity of insured loss events, (7) changes affecting mortality and morbidity levels and trends, (8) changes affecting persistency levels, (9) changes affecting interest rate levels, (10) changes affecting currency exchange rates, (11) changes in investor, customer and policyholder behaviour, (12) changes in general competitive factors, (13) changes in laws and regulations, (14) changes in the policies of governments and/or regulatory authorities, (15) conclusions with regard to purchase accounting assumptions and methodologies, (16) changes in ownership that could affect the future availability to us of net operating loss, net capital and built-in loss carry forwards, (17) changes in credit-ratings, (18) ING's ability to achieve projected operational synergies and (19) the other risks and uncertainties detailed in the risk factors section contained in the mos! t recent annual report of ING Groep N.V.

Any forward-looking statements made by or on behalf of ING speak only as of the date they are made, and, ING assumes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or for any other reason. This document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities.

Citigroup Toughens Executive Bonus Rules

Responding to anger over executive pay, Citigroup is changing the way it calculates the bonuses given to top executives. It announced on Thursday that part of the $11.5 million in compensation awarded to the new chief executive, Michael L. Corbat, would be closely tied to performance.

Michael L. Corbat, Citigroup’s chief executive, earned a $3.1 million bonus in 2012.

So far, though, the changes are only affecting a small portion of Citigroup’s executive compensation packages without reining in the big bonuses that have become one of the hallmarks of Wall Street.

Citigroup has been a prominent symbol in the debate over the outsize Wall Street compensation. The changes come less than a year after Citi shareholders voted against a $15 million pay package forVikram S. Pandit, then the chief executive. That vote was the first time shareholders had united to oppose compensation at a giant financial firm.

In April, the bank’s powerful chairman, Michael O’Neill, took the reins of a five-member committee on executive pay. He said in a regulatory filing Thursday that the committee had come to its new formula after meeting with investors who hold more than 30 percent of the bank’s total outstanding shares.

A portion of the pay packages given to Citi’s executives will now be linked to the company’s performance relative to other big banks. “When our shareholders spoke last year about Citi’s compensation structure, we listened,” Mr. O’Neill said in the filing.

Nell Minow, a shareholder advocate at GMI Ratings, said the new approach was “far from perfect, or even good, but it’s less terrible than it used to be.” Citi’s board members will continue to approve base salaries, cash bonuses and deferred stock given to top Citi executives, the same way they were in the past. But now a new segment of the pay, called performance share units, will be linked to the new metrics. For 2012, Mr. Corbat was awarded $3.1 million in performance share units. That amounts to 27 percent of his total $11.5 million pay package.

The new formula still puts Mr. Corbat at a similar compensation level to his peers. Mr. Corbat is being paid the same amount for 2012 that JPMorgan Chase recently said it was handing to its chief executive, Jamie Dimon. JPMorgan’s board cut Mr. Dimon’s pay from $23 million a year earlier after the bank suffered a multibillion-dollar trading loss. Bank of America announced this week that its chief executive,Brian T. Moynihan, would receive $12.1 million, a raise from 2011.

United States politicians and regulators have chosen not to impose significant new rules on how companies determine their executive pay, despite widespread public anger about the ballooning bonuses across corporate America in the wake of the financial crisis.

The 2010 Dodd-Frank Act for financial regulation mandated that banks offer shareholders a chance to approve their executive compensation plans. But the votes are not binding.

Last April, 55 percent of Citi’s shareholders voted against the bank’s bonus packages, after compensation experts criticized the bank for leaving the pay up to the discretion of the board. The vote was seen as a stinging rebuke for the bank, which has struggled to recover from the financial crisis.

Citigroup has been steadily working through soured loans, whittling costs and unwinding unprofitable business lines. As part of its cost-cutting, the bank announced in December that it would slash 11,000 jobs worldwide.

Since Citi’s shareholders rejected Mr. Pandit’s compensation, Citi has overhauled its top management. In a move that surprised Wall Street, Mr. O’Neill abruptly unseated Mr. Pandit and his top lieutenant, John P. Havens. Mr. Corbat, who was chosen to take over as chief, has vowed to continue the cost-cutting and refocusing that began under Mr. Pandit.

The company’s filing Thursday laid out the formula that will be used to calculate the new performance share units, incorporating both the performance of the company’s stock compared with similar banks, and the so-called return on assets, a measure of profit relative to overall size.

Anne Simpson, director of corporate governance for the California Public Employees’ Retirement System, said she was glad the bank had responded to the shareholder vote. But she said she was concerned that it had not taken into account the amount of risk the bank was taking.

“We’d like to make sure that the incentive structures aren’t focusing on revenues and returns without thinking about risk, because that’s how we got ourselves into the financial crisis,” said Ms. Simpson.

A version of this article appeared in print on February 22, 2013, on page B1 of the New York edition with the headline: Citigroup Toughens Executive Bonus Rules.

Evonik of Germany Prepares for I.P.O.

The owners of the German chemical company Evonik said on Friday that they had placed a combined stake of less than 10 percent with institutional investors as part of a renewed attempt at an initial public offering. Evonik, which is part owned by the private equity firm CVC Capital Partners, canceled plans to go public last year, and analysts say the new listing could value the company at more than $15 billion. Read more »