Senate Report Said to Fault JPMorgan

While a trader known as the “London whale” has come to represent a multibillion-dollar blowup at JPMorgan Chase, Congressional investigators have discovered that the problems involved more senior levels of the nation’s largest bank.

A report by the Senate Permanent Subcommittee on Investigations highlights flaws in the bank’s public disclosures and takes aim at several executives, including Douglas Braunstein, who was chief financial officer at the time of the losses, according to people briefed on the inquiry. The report’s findings â€" scheduled to be released on March 15 â€" are expected to fault the executives for allowing JPMorgan to build the bets without fully warning regulators and investors, these people said.

The subcommittee, led by Senator Carl Levin, could ask Mr. Braunstein and other senior executives to testifyat a hearing this month, according to the people. The subcommittee does not currently intend to call the bank’s chief executive, Jamie Dimon, but Congressional investigators interviewed Mr. Dimon last year.

JPMorgan, which has been cooperating with the investigation and discussed the findings with the subcommittee, declined to comment. Mr. Braunstein and other bank executives have not been accused of any wrongdoing, and he is not the focus of a separate law enforcement investigation into the trading loss.

Congressional officials have yet to set the final details of the hearing and plans may change, the people cautioned. Politico earlier reported the scheduled date for the release of the report.

The Congressional investigation could revive questions about the role of senior executives in the $6 billion trading lo! ss at a time when the bank has started to put the blunder behind it.

Mr. Dimon declared last year that the “Whale has been harpooned.” The bank reported record earnings in January and has forced out the architects of the bet.

The Senate report, however, shifts the focus from lower-level traders in London who placed the bet to senior executives and regulators who failed to stop it. Expanding on a sweeping report the bank released in January, the Congressional inquiry is expected to open a window into how executives ignored warning signs and failed to alert investors about changes to its method for detecting risk.

Because a large majority of the executives involved in the trade have since departed the bank, the hearing could increase scrutiny of Mr. Braunstein and Mr. Dimon, the remaining senior executives. Within JPMorgan, people close to the bank say, executives have expressed dismay about the lingering questions.

The report, a reminder that Wall Street blowups continue even fouryears after the financial crisis, could galvanize support for regulations like the Volcker Rule that aim to rein in risky trading. Mr. Levin, a Democrat of Michigan who champions the Volcker Rule, is expected to use the report to endorse policy changes, including stricter public disclosures.

But Mr. Levin’s staff is still negotiating with the committee’s Republicans over the recommendations. John McCain, the ranking Republican, has largely approved the report’s findings but continues to examine the policy ideas, the people said.

A spokesman for Mr. McCain declined to comment.

The subcommittee’s report coincides with a fede! ral inves! tigation into four employees in London, including Bruno Iksil, the so-called Whale, who carried out the trades at the bank’s chief investment office. The Federal Bureau of Investigation is conducting inquiries into some of the traders, according to officials, suspecting they hid problems from the bank.

But the subcommittee’s investigators seized on e-mails suggesting that Mr. Iksil had raised alarms about the bet. In an e-mail to a more senior trader in January 2012, he advised against increasing the bet, according to people who reviewed the message. The size of the trades, Mr. Iksil said, were becoming “scary” and advised that the investment office take the “full pain” now, according to a person briefed on the e-mails. JPMorgan released the e-mails without naming the trders.

By February, Mr. Iksil grew worried as he struggled to understand why losses were escalating. Later that month, he instructed a junior trader to temporarily halt trading. Their boss later reversed that decision.

The subcommittee’s report is expected to detail how senior executives failed to heed warnings from London. Some of those findings echo JPMorgan’s report, released this January, which examined the role of Mr. Braunstein; Ina Drew, who led the chief investment office; and Barry L. Zubrow, a former chief risk officer. Ms. Drew and Mr. Zubrow have since left the bank.

Scrutiny around Mr. Braunstein, who is now a vice chairman at the bank, partly focused on his reliance on other people’s assurances about the safety of the trades. In its own analysis of the trade, JPMorgan said Mr. Braunstein incorrectly assumed that the positions in the chief investment office were “manageable.”

The focus on Mr. Braunstein also stems from the bank’s inconsistent statements! . He dism! issed concerns about the positions in April 2012, assuring analysts in a conference call that the bank was “very comfortable with our positions.” The subcommittee has examined whether those disclosures were misleading.

The subcommittee further examined whether the bank failed to alert investors about a change in its internal alarm system. The bank in January 2012 introduced a new value-at-risk model that underestimated the losses in the investment office. The bank did not inform investors about the model change until May.

In the lead-up to the subcommittee’s reports, the bank faced questions about similar disclosures to regulators. In some instances, the people briefed on the report said, bank employees initially resisted requests from regulators at the Office of the Comptroller of the Crrency who sought deeper details.

But regulators will not escape criticism in the report.

The bank warned some regulators about the changing risk model, a person briefed on the matter said. In an e-mail to an official in the comptroller’s office, the bank disclosed that the new model could cut its risk in half, something that might have been viewed as a startling revelation.

The Debate Over Guns Now Colors a Buyout Bid

A takeover. Private equity. Politics. And guns.

That is the potent mixture of issues surrounding an obscure $200 million merger that is quietly combusting on Wall Street.

At the center of this fiery tale is Leo Hindery Jr., one of the biggest Democratic fund-raisers in the nation and a longtime media executive and investor who founded the YES Network, the cable channel of the Yankees.

Among the companies that Mr. Hindery’s private equity firm owns is InterMedia Outdoors, which publishes magazines including Guns & Ammo, RifleShooter and Handguns. It also owns the Sportsman Channel, which counts the National Rifle Associaton as one of its big advertisers. It broadcasts shows like “Cam and Company” from NRA News, and “Wanted: Ted or Alive,” featuring Ted Nugent.

Late last year, Mr. Hindery won a bid to acquire the rival Outdoor Channel, a publicly traded company, for $200 million. Outdoor Channel could be described as the more politically correct and less sensationalistic competitor to Sportsman Channel, focusing on hunting and fishing.

The deal, which is set for a shareholder vote on March 13, has inspired a heated debate about whether Mr. Hindery’s backing of Democrats who support stricter gun-control laws would alter programming and scare away advertisers. Some shareholders who see too much of a conflict between taking revenue from the National Rifle Association and supporting the likes of Gov. Andrew M. Cuomo of N! ew York, who recently signed a strong gun-control bill for the state, are seeking to block the deal.

The story took an even stranger turn last week with a conspiracy theory, published in The Daily Caller, the conservative news Web site, asserting that Mr. Hindery’s ultimate aim is “consolidating all of America’s leading gun-culture media outlets and stripping them down to virtual destruction.”

For Mr. Hindery’s part, he is dismayed by the speculation and said the accusations were categorically false. “This has nothing to do with gun rights or the fact I’m a Democrat,” he said in an interview.

He’s probably right. In truth, the debate over the Outdoor Channel has more to do with the price Mr. Hindery is paying â€" shareholders say it is not enough â€" than his politics.

Andrew Franklin, president of UTR,an investment firm with a large stake in Outdoor Channel, is among those who want a better payout. Mr. Franklin was part of a consortium that bid on the company but says his group was shut out of the auction in favor of a lower bid by Mr. Hindery.

While some other investors privately express opposition to the price, Mr. Franklin has emerged as the point man in the politically charged fight against Mr. Hindery. Mr. Franklin contends that because Mr. Hindery’s offer allows shareholders to receive cash or swap stock for a stake in the newly combined company, investors who choose to hold onto their investment in the combined company face risks because of Mr. Hindery’s supposed conflict of interest.

“Sponsors and advertisers will have a difficult time reconciling the fact that network ownership supports politicians and policies that are severely harming their business,” Mr. Franklin wrote in a commentary in The Daily Caller, which, somewhat oddly, has had a fascination with this deal. “Hindery will continue to be a lightning rod for aggrieved gun-control activists who will target the media network as a proxy. Should Hindery succumb to political pressure from his close friends in the Obama White House and throughout the Democratic Party, we could see a shift in programming, which would further alienate loyal viewers.”

Mr. Hindery said it was a disingenuous argument. For starters, his political views have not altered the tone and direction of his gun culture media holdings in the several years he has owned the companies. He insisted that his publications were simply responsible voices about hunting and fishing, what he described as the largest sport in the country.

“I believe in the Second Amendment,” he said, adding that he grew up hunting and fishing. Yet he insisted, “I’m a Democrat and I’m proud of it.” He said te contention that he has a grand plan to destroy the hunting media is plainly false. The claim, according to The Daily Caller, came from an InterMedia employee who spoke on the condition of anonymity.

“This is coming from a disgruntled employee,” Mr. Hindery said. “We know who it is.”

He also said that his company could responsibly accept the financial support of the N.R.A. “The N.R.A. is an appropriate advertiser. They represent four million people who hunt and fish.”

So does Mr. Hindery advocate reform of gun laws

“I believe in appropriate restrictions â€" that’s just my personal view,” he said without providing additional detail, but still differing with the N.R.A. He added, in reference to the coverage of hunting that his company provides, that “nobody with any integrity has said it should be limited.”

He said he was very sensitive to the issues of gun violence, which have been thrust into the national debate since the December mass shooting at ! Sandy Hook Elementary School in Newtown, Conn.

“What happened in Sandy Hook is an inescapable tragedy,” he said.

Still, Mr. Franklin, the investor, said in an interview that one other potential risk to the deal raised particular questions about the state of investing after the Sandy Hook killings.

The New Jersey General Assembly recently passed a bill aiming to prevent its state pension fund from investing in firearm manufacturers. The state is the biggest institutional investor in Outdoor Channel. Mr. Franklin questions whether the fund would feel pressure to withdraw from its investment in a combined InterMedia-Outdoors.

Mr. Hindery said the argument made no sense. “We don’t manufacture weapons. We don’t manufacture ammunition,” he said.

A spokesman for the New Jersey pension fund delined to comment.

Mr. Franklin’s grievances may be for naught. A rival bidder with a higher offer worth $8.75 a share, compared with Mr. Hindery’s $8 a share, emerged late last week: E. Stanley Kroenke, owner of the St. Louis Rams, the Denver Nuggets and the Colorado Avalanche.

Mr. Kroenke has made an all-cash offer and has been described as a staunch Republican.

Mr. Hindery said he wouldn’t talk about the deal’s price or whether he would raise it. If there new battle over the deal, it will most likely be more over cash than conspiracies.

Heinz Sale Could Yield a Big Payday for Chief

How will William R. Johnson console himself if he’s dismissed as H.J. Heinz‘s chief executive following the ketchup titan’s sale to Warren E. Buffett and a Brazilian investment firm

With a hefty payday, according to a new securities filing.

Heinz disclosed late on Monday that Mr. Johnson, its chief executive of 15 years, could stand to make nearly $213 million if Heinz’s new owners decide to show him the door. That’s through a combination of “golden parachute” payments, stock and stock options awards and additional equity grants that will have likely have vested by the time the deal closes.

It’s a fairly hefty exit package for Mr. Johnson, wh led the negotiations that led to Heinz’s $23 billion sale to Mr. Buffett’s Berkshire Hathaway and 3G Capital, the Brazilian firm that owns a majority stake in Burger King. The two buyers have agreed to pay $72.50 a share for the ketchup maker. (Heinz’s board also set up a special transaction committee, led by Thomas J. Usher and advised by a separate team of bankers and lawyers, to help oversee the negotiations.)

Mr. Johnson will likely collect on the amount â€" at least, assuming that he is indeed terminated â€" since according to the proxy filing Heinz’s buyers have specified that they will not ask management members to roll over their equity into the newly private company.

Mr. Johnson first joined the company in 1982 and rose through the ranks, becoming president in 1996 and adding the chief executive title two years a! fterward.

A spokesman for Heinz said in a statement:

The payments reflect Mr. Johnson’s success in creating billions of dollars in shareholder value over his successful 15-year tenure as President and C.E.O. This success includes delivering total shareholder returns of 177 percent since 2006 and the 19 percent premium to Heinz’s all-time high share price that all Heinz shareholders will receive in the merger. This compensation consists of equity that Mr. Johnson accumulated over his 30-year career with Heinz and existing equity awards and contractual rights that were in place well before the announcement of the proposed merger.

Bondholders and Mexico Glass Maker Reach Deal

MEXICO CITY â€" The giant Monterrey glassmaker Vitro said Monday that it had reached an agreement with bondholders, ending a dispute among powerful financiers that had ricocheted between Mexican and American courts.

Under the agreement, Fintech, which is owned by the Monterrey-born investor David Martinez, will buy the bonds held by a group of hedge funds and pay additional cash to cover legal fees. In return, Fintech will receive a 13 percent stake in a Vitro subsidiary and a $235 million note issued by the subsidiary.

Bondholders will receive 85.25 cents on the dollar for their bonds, according to the agreement. The company said that Fintech would buy a “substantial majority” of the $729 million in bonds that are in dispute.

The legal fight had produced ripple effects in the emerging debt markets. For example, Cemex, one of the worl’s largest building materials companies, was forced to sign a “Vitro clause” when it issued debt last year. Cemex, with a reputation for strong corporate governance and a company that is also based in Monterrey, Mexico’s industrial heartland, promised debtors that it would not grant subsidiaries or related-party creditors the same rights as bondholders.

“Ever since Vitro came out with this cockamamie scheme,” there has been uncertainty about bankruptcy proceedings in Mexico, said Arturo C. Porzecanski, economist in residence at American University’s School of International Service.

The Vitro bondholders had been fighting the company in United States courts, arguing that Vitro borrowed money from its subsidiaries, turning them into new creditors who then outvoted bondholders on a plan to restructure $1.2 billion in defaulted debt.

A Monterrey court approved the plan in February 2012, where bondholders who agreed to the new financial plan received almost 69 cents on the ! dollar for their debt, according to James V. Harper, the head of research at BCP Securities in Greenwich, Conn.

But several giant hedge funds, including Elliott Management and Aurelius Capital Management, held out. Elliott Management is run by Paul E. Singer, who has made a career out of extracting payments from debtors that have defaulted.

Instead, the funds asked American courts to reject the Mexican bankruptcy plan, calling it “a testimony to audacity, brazen manipulation and greed.”

Last June, Judge Harlin DeWayne of the Federal Bankruptcy Court in Dallas refused to apply the Mexican bankruptcy plan in the United States. A federal appeals court upheld the judge’s decision in November.

Mr. Harper said those decisions removed any legal bankruptcy protection for Vitro in the United States and forced it to negotiate. “I think they were surprised when they didn’t get it,” he said. “I don’t think they counted on such aggressive opposition.”

Without protection, Vtro might have faced collection efforts on its sales in the United States, which amounted to $446 million last year.

It is rare for an American judge to refuse to enforce another country’s bankruptcy law in the United States, Mr. Harper said. “That was a substantial setback for Vitro and a substantial victory for the holdouts.”

Noting that the Mexican government had filed a brief in support of Vitro, Mr. Porzecanski, the economist, said, “The fact that the workout process was not recognized in the United States leaves Mexico with a black eye.”

Under the agreement announced Monday, Vitro and the bondholders agreed to drop all legal disputes.

“These agreements allow us to close the book on a challenging period for our company, and focus entirely on our business and meeting our customers’ needs,” said Vitro’s chairman, Adrián G. Sada.

It was Fintech’s owner, Mr. Martinez, who helped Vitro put together a plan to revamp its finances. Mr. Martinez remains ! a mystery! , despite being known as a collector of art and owner of one of the most expensive apartments in Manhattan, atop the Time Warner Center.

“Fintech’s participation was crucial in order to establish the foundation for the agreements we have reached,” Claudio Del Valle, Vitro’s chief restructuring officer, said in a statement.

Elliott on Hess’ Proposal: ‘Incomplete’ and Lacking ‘Accountability’

Despite the multitude of proposals that the Hess Corporation unveiled on Monday to unlock its shareholder value, it appears that the oil company’s most outspoken investor isn’t satisfied.

Elliott Management, the hedge fund leading a proxy fight against Hess, said in a statement that the plan doesn’t go far enough to address what the firm says are the problems at the company.

“Hess’ announcement is incomplete and it lacks accountability,” Elliott, led by Paul Singer, said in its statement. “Substantial change needs to be delivered rather than partial change promised.”

A month after Elliott fist announced its broadside, Hess said that it planned to sell off its retail and refining arm and announced a shake-up of its board, adding several former oil industry executives. The company also said it would raise its dividend and buy back up to $4 billion shares.

The oil exploration and production concern argued that the proposals were an outgrowth from a lengthy turnaround campaign that the company had pursued on its own. John Hess, its chief executive, said in an interview that the hedge fund “got on the train after it left the station.”

But Elliott appeared unswayed by the plans. The investment firm pointed out that Hess had announced several culminations of a turnaround since 2010.

And despite the change in board members, Elliott said, the company’s new lead director is John Mullin III, who is tied to the Hess family estate.

The hedge fund also argued that the company had understated its poor stock performance in the months before Elliott announced its intentions! , and that Hess had minimized years of mismanagement.

“Shareholder nominees will deliver change,” Elliott said of itself, “not just promise it.”

Why Carried Interest Is a Capital Gain

Steve Judge is the president and chief executive of the Private Equity Growth Capital Council.

The current debates on tax reform and government spending levels have often focused on raising taxes on carried interest. While many, including a recent opinion piece in The New York Times by Lynn Forester de Rothschild, have homed in on carried interest to raise revenue, little discussion has focused on how carried interest actually functions and why it was treated as a long-term capital gain in the first place.

Furthermore, changing the tax treatment of carried interest would not generate the significant revenue needed to close our huge budget shortfall. Some of the atest proposals on carried interest would deprive private equity, venture capital and real estate partnerships of the same long-term capital gains treatment available to other kinds of businesses - and would only pay for merely 3.1 hours a year in federal government operations.

In order to understand why carried interest is a capital gain, we should first examine what private equity does. Private equity is an industry of investors with management expertise and vision who form partnerships with pension funds, university endowments and charitable foundations to buy companies. It is the epitome of patient capital, investing in promising companies poised for growth and those in need of a turnaround.

The average private equity investment spans three to seven years. Companies owned by private equ! ity are located throughout the country, touching nearly every community. More than eight million people work at private equity-owned businesses based in the United States.

Private equity funds are a partnership between the firm, or general partner, and the investors, also known as limited partners. Partnerships are the oldest form of business.

In the case of private equity, the managers contribute their understanding of the companies to buy, operational expertise and, often, capital to the partnership. The limited partners - pensions, endowments and foundations - contribute just capital to the endeavor.

The partnership structure results in an alignment of interest between the private equity general partner and their investors to expand companies over the long term. Private equity firms are true owners in the companies they buy. Because they develop strategic business plans, sit on boards and work to strengthen the companies they own over many years, the income they receive is a capita gain.

The private equity firm is compensated with this alignment of interest in mind. Typically private equity investors are paid a 2 percent management fee, on which they pay ordinary income tax rates, and a 20 percent carried interest of the partnership’s profits that is only paid after limited partners receive a preferred return of 8 percent.

Carried interest, therefore, is the profits share on the sale of a capital asset and not “ordinary income” as some would have it treated. In other words, it is a capital gain within a partnership and is rightfully taxed at the long-term capital gains rate â€" provided that the asset, or company, is held for more than one year.

The aristocratic argument presented by Ms. de Rothschild and others that capital gains treatment should only be available to those with money to invest would advance a policy that puts a higher value on financial contributions than vision, hard work and other forms of “sweat equity.”

The underlying! principl! e is no different than two friends who partner together to purchase a restaurant. One might bring capital and the other brings expertise. The restaurant could be in disrepair or a great concept that needs additional capital to expand. The chef identifies the restaurant to buy and possesses the skills to manage the restaurant and add value to the enterprise over time. The friend has the capital to invest, but doesn’t possess the operational or investment skills to generate a return.

When they sell the restaurant years later, both partners receive capital gains treatment on their long-term investment. A private equity partnership works in the same way. This is Partnership Law 101.

The capital gains rate exists to provide incentive for investment partnerships to take risks, invest hundreds of billions of dollars of capital into new and existing businesses and contribute operational expertise to improve these businesses over time.

The Joint Committee on Taxation, a nonpartisan committe of Congress, has pegged the additional revenue from carried interest at just $16.85 billion over 10 years. The joint committee estimate even includes the controversial enterprise value provision, which experts believe constitutes two-thirds of the total revenue assumption.

Permanent tax increases on private equity, venture capital and real estate in exchange for a short-term spending patch does not come close to solving our country’s fiscal situation. Policy makers should reject calls to eliminate this incentive for long-term economic growth in exchange for 3.1 hours of federal government operations.

Dealing with the Foreign Corrupt Practices Act

The pressure is only increasing on companies that get caught up in bribery cases, making it unlikely that efforts to soften United States laws will occur anytime soon.

Despite overtures from the United States Chamber of Commerce and other business organizations for a more lenient approach to the application of the Foreign Corrupt Practices Act, the Justice Department and Securities and Exchange Commission continue to aggressively pursue investigations of bribery abroad.

Information made public last week about two prominent investigations are more evidence of how mindful companies need to be about the law, which has taken on new relevance for global business.

The Las Vegas Sands Corporation disclosed Friday that its internal investigation into dealings related t its casino properties in Macau showed “that there were likely violations of the books and records and internal controls provisions” of the act. It tried to soften the blow by noting “that in recent years, the company has improved its practices with respect to books and records and internal controls,” but that does not insulate the company from potential criminal and civil penalties for violations.

In addition, the Kimco Realty Corporation, a real estate investment trust specializing in shopping centers, disclosed on Wednesday that it received a subpoena from the S.E.C. as part of the investigation into foreign bribery by Wal-Mart in its Mexican subsidiary and elsewhere. That investigation came about after extensive reporting in The New York Times related to bribes paid to officials to gain approval to build stores in Mexico.

Wal-Mart has already spent more than $100 million co! nducting a global review of its operations. It is not clear how Kimco might be involved, but the latest subpoena is a signal of a potentially widened investigation on the part of government officials.

Foreign Corrupt Practices Act cases were a centerpiece of the term of the former assistant attorney general, Lanny A. Breuer, who until Friday had led the Justice Department’s criminal division. His return to private practice is unlikely to have changed the focus on foreign bribery.

As the corruption investigations have ramped up, the United States Chamber of Commerce has pushed back against the law by arguing that it hampers American businesses because of how broadly it can be applied. Recent cases against pharmaceutical companies, like Pfizer for payments to foreign doctors who are part of state-controlled health systems show how the law can be used in areas once thought to fall outside its purview.

In response to citicisms about how the law was being applied, the Justice Department and S.E.C. issued a resource guide last November that outlines their views about the scope of the law. Companies hoped that the guidance would take a more restrictive view of the Foreign Corrupt Practices Act by providing clearer guideposts on when the statute does â€" and more important does not â€" apply to a transaction.

Unfortunately, the government did not provide the kind of definitive guidance that companies sought. In a previous article, I noted that business organizations like the Chamber of Commerce would probably undertake a “reinvigorated effort to change the statute and provide brighter lines for companies doing business abroad.”

That effort arrived with a letter to the Justice Department and the S.E.C. dated Feb. 19 on behalf of more than 30 business organizations. In it, the business lobbying group reiterated many of its criticisms of the Foreign Corrupt Practices Act and suggested changes to the law and guidance.

The letter recommended amending the statute to give a “compliance defense” to insulate from harm a company whose employees engaged in foreign bribery to by circumventing internal measures intended to prevent such misconduct. This is the same proposal offered in 2011 by a former attorney general, Michael B. Mukasey, on behalf of the Chamber of Commerce, an effort that was stymied by the revelations in The New York Times about Wal-Mart’s Mexican bribery.

A compliance defense may not truly protect a company against criminal charges. As I wrote in a recent article published in The Ohio State La Journal, prosecutors may engage in an even broader investigation of a company’s practices if there is a concern about countering such a defense, which could be even more intrusive than current inquiries that are limited to just the foreign bribery.

The Chamber of Commerce also complained about the lack of concrete guidance on who is a “foreign official” and what is an “instrumentality” of the government. While other parts of the resource guide give examples of the types of conduct that comes within the statute, the section dealing with these terms is much shorter and contains no examples. The letter states that this perpetuates “uncertainty in the business community regarding the meaning of these terms and make it more difficult for businesses to determine when they are interacting with ‘foreign officials.’”

American businesses continue to express frustration with the Foreign Corrupt Practices Act, but more countries are adopting or expanding their antibribery laws to! follow t! he United States model. For example, a bill introduced in February in the Senate of Canada would expand the foreign bribery law to reach conduct by any Canadian company or citizen throughout the world, and establish that it is a violation to make false entries in corporate accounting records to cover up illicit payments. These provisions are almost identical to the United States law.

Whether American companies will be able to gain much traction in Congress to revise the foreign bribery statute remains questionable. Apart from the various budget battles on Capitol Hill that will be a top priority, there is the issue about what message revising the law would send if Congress gives companies greater leeway to avoid punishment for corrupt payments by employees.

Take This Job and Securitize It

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Restless Shareholders May Force Buffett’s Hand on Dividends

Warren Buffett’s stance against paying Berkshire Hathaway shareholders a dividend looks to be wearing thin.

In his annual letter to shareholders, Mr. Buffett defended his long-held objection to cash payouts. But the company’s performance over the last four years has been disappointing, and Mr. Buffett reckons it won’t match its glory days again. That’s likely to increase the chances of a cash payout, whether from Mr. Buffett or his successor.

In his must-read missive, Mr. Buffett used a fair bit of ink to beat himself up about the “subpar” showing in 2012. He and his lieutenants created $24.1 billion of value for shareholders, but it wasn’t enough to beat gains in the Standard & Poor’s 500-stock index - a breach of the billionaire’s code of success. If 2013 continues that trend, the Berkshire’s stock will lag the index over a five-year span â€" the first time it has ever done that.

This has unnerved some of his friends, according to Mr. Buffett’s letter, who are givng him grief about not paying a dividend. With $42 billion of cash sitting idle at the end of 2012, their impatience is understandable. Last month’s $28 billion Heinz deal will only chew up $12 billion. He even acknowledges that there are very few potential deals left that would be large enough to increase returns. Better, surely, to give investors some cash back to invest elsewhere.

But for Mr. Buffett, issuing a dividend is akin to admitting failure. In his letter, he argues that selling just 3.2 percent of stock each year should, over a decade, be more profitable - assuming Berkshire keeps delivering double-digit returns - than paying out a third of annual earnings over the same period as a dividend.

Mr. Buffett has built up enormous clout with investors. But the more that subpar growth appears to be the direct result of scale - Berkshire had $73 billion to invest in 2012, compared with $39 million in 1970 - the more their faith is likely to falter. That’s likely to be even more th! e case for Mr. Buffett’s successor.

Perhaps Mr. Buffett is hoping that airing his thoughts will alleviate such concerns. He is even, for the first time, allowing a bearish analyst to take part in a panel at Berkshire’s annual meeting in May. Of course, such openness may actually provide more grist for the dividend mill.

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

False Modesty in Decline in European Bank Bonuses

European banks were asking for a slap when new rules on pay were unveiled last week. Just consider this year’s bonus round. Lower payouts had been predicted, reflecting the relative weakness of the business environment. In fact, pay for the average investment bank employee at Europe’s top four firms fell just 2 percent last year, to $313,000. Deferred awards cloud the picture, but there’s little sign of pay restraint.

Of the big four European investment banks, UBS paid out the most to its investment banking staff last year - $350,000 on average. That was only a 3.5 percent drop from the previous year, despite the Swiss bank’s $1.5 billion fine for Libor rgging. Average pay at Credit Suisse fell a mere 2 percent to $330,000. Barclays, which also settled with regulators over Libor, slashed deepest: pay fell 7 percent to just shy of $300,000. But compensation rose 5 percent at Deutsche Bank to $290,000.

The modest overall drop comes despite fees in the Europe, Middle East and Africa region slumping 16 percent, against a 5.5 percent rise in the Americas, according to Thomson Reuters data. Bank employees have understandably fared better in the United States, where pay was flat to up. All the same, one might have expected European bank bosses to show more contrition in the year that the Libor scandal erupted.

True, the proportion of compensation paid out of revenue has fallen across the board. Banks have also shed staff, leaving greater rewards for those who remain. And compensation data are muddied because about three-quarters of all banks’ numbers are comprised of salaries and deferred awards made in prior periods.

But it’s not as if shareholders are doing that well. Deutsche Bank and Credit Suisse intend merely to hold dividends per share steady from last year. Barclays has recommended a modest increase. UBS, in recovery mode, has offered a larger 50 percent bump, but that’s still only a paltry 0.15 Swiss francs a share.

The staggered nature of pay awards means it will take time for recent bonus reductions to showfully. But it looks bad that this was meant to be disappointing bonus round and overall pay numbers are barely down. No wonder the banks are being thwacked.

Dominic Elliott is a columnist at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

Investors Sue to Block CommonWealth’s Stock Offering

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China’s Push to Cool Down Housing Raises Questions

Chinese shares fell the most in two years on Monday as the Shanghai stock exchange’s property index tumbled 9.25 percent. Late on Friday, China’s State Council had announced a new set of policies designed to cool down the housing market.

Economic data released in the last few days has called into question the strength of China’s recovery. It may be that Beijing is so confident in the health of the economy that it can afford to squeeze the real estate sector harder. Or it may be that the government is so concerned about the social implications of a resurgent property market and the effect that real estate may have onthe effort to rebalance the economy toward consumption from investment, that it is willing to take that risk.

The new rules include a 20 percent tax on gains from a sale, higher down payments and mortgage rates, and requirements that cities set annual price easing targets. The announcement was met with both skepticism and criticism.

This latest round of real estate controls is the ninth in the last 10 years, yet prices have increased markedly, and some on the Internet questioned the legality of levying taxes through administrative means and called for much more transparency and accountability in how the government might spend the proceeds.

Clearly investors are spooked, though as Yao Wei, chief economist at Societe Generale CIB wrote, accor! ding to Reuters:

“The actual impact of the new policy can be very severe or not severe at all, depending on implementation. But the wording is unexpectedly harsh. … In three months time, the impact may not be big at all. But it has stirred very high negative expectations.”

The announcement on Friday spurred a surge in existing home transactions. Some analysts, and most of the people with whom I have spoken, expect the tax to have the perverse effect of driving up the price of existing homes, as buyers will have to cover most of the tax, and pushing more of the sale into a side contract to hide both the true price and gains from the government.

The real estate market in China is already quite distorted, and these repeated rounds of repressive policies may be just layering on more distortions. But the changes required for a more rational housing market are so difficult that in the near tem it is easier to try to manage through administrative fiat.

In a bit of good timing for CBS, this week’s “60 Minutes” had two segments on Chinese real estate. The first was an interview with the billionaire developer Zhang Xin, chief executive of Soho China. “China’s Real Estate Bubble,” the second segment, examines the phenomenon of “Ghost Cities” that many China bears have highlighted over the last several years, complete with visits to the same empty malls and developments that we have been hearing about for years.

Jonathan Anderson of Emerging Advisors Group is out with a provocative report about! those ghost cities. In “Hurray for Ghost Cities,” Mr. Anderson argues that these wasted investments are not really a big deal, adding that it might be better that the money was blown on developments rather than even more excess manufacturing.

Tom Miller is also mostly dismissive of the “Ghost Cities problem” in his excellent new book “China’s Urban Billion.” In one chapter, Mr. Miller writes:

The truth of the matter is that China is not building too many apartments, and a handful of empty urban districts are not evidence of a giant property bubble. Chinese property investment may be inefficient, but it is sustained by a huge, growing and sustainable demand for new housing. …

China’s current modern housing stock, defined as homes with individual bathrooms and kitchens, is around 150 million units. But 200 million migrant workers currently live in dormitories or slum housing. If one believes that te urban poor deserve to live in proper flats, the corollary is that Chinese cities actually have a significant shortage of housing - somewhere in the region of 70 million units. China is not building too many new apartments; it is building too few.

I do not mean to completely dismiss some of the dangerous imbalances that have been building in certain property markets across China. But China is not one real estate market, and taking a binary boom-or-bust view about the “China market” is likely a mistake.

The Financial Times examined the diverging markets last week, writing:

China takes bifurcation to a new extreme. Not only are housing prices in the biggest cities moving in a different direction to those in smaller centers, there is also a glaring discrepancy in the amount of development being undertaken.

The country’s main metropolises - Beijing,! Shanghai! and Shenzhen, which each have populations of more than 10 million - suffer from chronic shortages of housing for low- to middle-income residents. By contrast, scores of smaller cities with populations of up to 3 million face an increasingly severe oversupply.

This is why a simple description of China’s housing market as a “bubble” misses the point. Does “bubble” refer to the soaring prices in the biggest cities, where only the wealthy can afford homes Or does it refer to the row upon row of empty apartment blocks in the smaller cities

One of the crucial questions, for which very smart people offer very different answers, is can bubbles burst in certain areas without bringing down the whole economy

Regardless of how that question is answered, we should perhaps give China’s leaders some credit for acknowledging potential bubles and taking steps to rein them in. What might have been different if American policy makers had recognized and tried to manage the risks of a housing bubble in 2005, 2006 or 2007

Buffett Picks His ‘Bear’ for Annual Meeting

Buffett has found his bear.

In his letter to shareholders published on Friday, Warren E. Buffett said that “to spice things up” he wanted to find a money manger with an unfavorable view of Berkshire Hathaway to participate in the company’s annual meeting.

“The only requirement is that you be an investment professional and negative on Berkshire,” he wrote.

On Monday, Mr. Buffett said Douglas A. Kass, a hedge fund manager, would be added to the panel of analysts who question Mr. Buffett and Berkshire’s vice chairman, Charles T. Munger, on stage during Berkshire’s annual gathering in Omaha on May 4.

Mr. Kass is a well-known stock picker by virtue of his writings for the financial Web site, TheStreet.com, and frequent appearances on CNBC.

“I am flattered, honored and surprised,” Mr. Kass, 63, who runs Seabreeze Partners Management in Palm Beach, Fla., said in an interview.

Mr. Buffett who is famous for his swift decision-making when it comes to business, wasted no time in picking his “Berkshire bear.” But also credit Mr. Kass for taking the bull by the horns, so to speak.

Mr. Kass said he had read the Berkshire letter as soon as it came out, just as he had done for the last 40 years. After seeing Mr. Buffett’s solicitation, he began preparing a proposal. Though Mr. Kass is not short Berkshire stock at the moment, in March 2008 he wrote a piece for TheStreet.com, “Kass Katch: 11 Reasons to Short Berkshire” that laid out the bear case for betting against Mr. Buffett.

“I have worshiped at the altar of Warren Buffett since the late 1970s,” Mr. Kass wrote. “Indeed my writings over the last seven years have often been punctuated with Buffett-isms.”

Yet Mr. Kass wrote that Berkshire faced a number of “headwinds.” He cited Mr. Buffett’s advanced ! age (he is now 82), explaining that “there will never be another Warren Buffett.” He also noted that Berkshire’s large size could impede returns, pointing out that even Mr. Buffett had written that the company’s asset base was too large to make outsize gains in the future.

So on Saturday, while watching the Kansas-West Virginia college basketball game, Mr. Kass prepared an application to present to Mr. Buffett. He included bearish Berkshire articles from The Street, as well as a presentation he gave at a value-investing conference last year, in which he advocated shorting the United States bond market.

He also included his résumé, which highlighted that he began his career as a housing analyst at the investment bank Kidder Peabody and later worked for the hedge fund manager Leon Cooperman, who runs Omega Advisors.

Mr. Kass, who said he had never met Mr. Buffett, also supplied him with a list of references of other investors who know Mr. Buffett, including Howard Marks, the chairmn of Oaktree Capital Management, and Mario Gabelli, the head of Gamco Investors. Finally, he asked the CNBC co-hosts Becky Quick and Andrew Ross Sorkin to help get his e-mail to Mr. Buffett. Ms. Quick and Mr. Sorkin, the DealBook columnist, are two of the three journalists who ask Mr. Buffett questions at the meeting.

On Monday morning, Mr. Buffett, in a live CNBC interview with Ms. Quick from La Vista, Neb., Mr. Buffett announced that he had selected Mr. Kass.

“Think of tough questions,” Mr. Buffett said to Mr. Kass on the air. “See if you can drive the stock down 10 percent.”

Mr. Kass was in his Palm Beach office, watching CNBC and preparing for the trading day, when Mr. Buffett made the announcement.

“I was as shocked as everyone else,” said Mr. Kass, who grew up in Rockville Centre, N.Y., on Long Island.

He will join two Berkshire “bulls,” the insurance analyst Cliff Gallant of Nomura Securities and Jonathan Brandt of Ruane, Cunniff & Goldfarb, on sta! ge at the! CenturyLink Center in Omaha.

And even though Mr. Kass will present a negative view on Mr. Buffett’s company, he acknowledges that deep down, he is still an unabashed fan.

“I can’t wait to take a picture with him,” Mr. Kass said.

CVC Hires Former Lloyds Banking C.E.O.

LONDON - CVC Capital Partners, a European private equity firm, has tapped the former chief executive of Lloyds Banking Group, Eric Daniels, to be a senior adviser for its banking team.

Mr. Daniels retired from Lloyds in 2011 and under his watch, the bank grew into Britain’s largest mortgage provider. But he also led the flawed acquisition of the troubled mortgage lender HBOS in 2008, which forced Lloyds to seek a government bailout during the financial crisis.

The bank clawed back some of Mr. Daniels’ 2010 bonus last year when Lloyds admitted it had made mistakes in selling certain insurance products to customers when Mr. Daniels was chief executive.

Jonathan Feuer head of CVC’s financial institutions group, said the company had hired Mr. Daniels for his “breadth of knowledge and understanding in banking, insurance and wealth management.”

After leaving Lloyds, Mr. Daniels, an American, also became a senior adviser to the financial advisory firm StormHarbour. He is also a board member of the Smithsonian Tropical Research Institute.

Banks Find More Foreclosure Problems

Big banks discovered they wrongfully foreclosed on more than 700 military members during the housing crisis and seized homes from about two dozen other borrowers who were current on their mortgage payments, Jessica Silver-Greenberg and Ben Protess report in The New York Times. The banks â€" Bank of America, Citigroup, JPMorgan Chase and Wells Fargo â€" found the foreclosures after regulators ordered them to examine mortgages as part of a multibillion-dollar federal settlement, according to people with direct knowledge of the findings.

“The analysis, which was turned over to regulators in recent days, provides the first detailed glimpse into the extent of wrongful foreclosures amid the collapse of the housing market,” Ms. Silver-Greenberg and Mr. Protess write. “While lenders previously acknowledged that they relied o faulty documents to push through foreclosures, the banks claimed borrowers were rarely evicted by mistake, including military personnel protected by federal law.” The new revelations “could provide fresh ammunition for Wall Street critics and prompt regulators to adopt a tougher stance.”

Banks had previously resolved claims of improper foreclosures on military members, but the problems have turned out to be more extensive than those cases indicated, raising questions about a deal that was finalized last week. “When regulators forced them to take a close look at their loans, JPMorgan, Wells Fargo and Bank of America, the largest loan servicers, each discovered about 200 military members whose homes were wrongfully foreclosed on in 2009 and 2010, according to the people with direct knowledge of the findings. Citigroup had at least 100 such foreclosures. The forec! losures violate the Servicemembers Civil Relief Act, a federal law requiring banks to obtain court orders before foreclosing on active-duty members.”

AT JPMORGAN, SELLING THE HOME BRAND  |  Brokers in an elite group at JPMorgan Chase, who are central to the bank’s expansion into wealth management, work in a sales-driven culture that is unusually aggressive, Susanne Craig and Jessica Silver-Greenberg report in DealBook. “While financial advisers at other firms are typically free to offer a variety of investments, JPMorgan pressures brokers to sell the bank’s own products, according to the current and former employees. Several advisers who resisted said they were told to change their tactics or be pushed out.”

JPMorgan disputes the characterization, saying it puts clients♠needs first. But current and former brokers in the program, known as Chase Private Client, “contend that the bank, at times, prioritized profit to the detriment of its clients. While such criticism is not uncommon in the financial industry or other sales-driven businesses, the brokers say JPMorgan took an extreme approach,” Ms. Craig and Ms. Silver-Greenberg write.

“You need to be presenting the private-bank, JPMorgan products and managed investment solutions,” Andrew Held, a manager at the group, told Johnny Burris, a former financial adviser, according to a recording Mr. Burris made of the conversation. “I’m not questioning your sales numbers,” Mr. Held said, according to the recording. “What I’m saying to you is you’re not embracing the JPMorgan private-bank platform.” Mr. Burris was later fired.

HSBC PROFIT FALLS  |  The British bank HSBC said on Monday that profit fell 17 percent last year, in part because of a fine to settle money-laundering charges. The bank reported profit fell to $13.5 billion in 2012 from $16.2 billion in 2011, missing analysts’ expectations. HSBC’s shares fell in early trading in London, as the bank also missed its own target for return on equity.

Last year was “a difficult one for all at HSBC as we addressed the restructuring of the firm against a lower-growth economic backdrop and with legacy issues and regulatory challenges imposing a further set of imperatives,” Douglas J. Flint, HSBC’s chairman, said in a statement. In December, HSBC agreed to a record $1.92 billion fine to settle charges that it broke money laundering rules.

BUFFETT PLAYS UP NEWSPAPERS IN ANNUAL LETTER  |  Warren E. Buffett’s annual letter to shareholders, which was published onFriday, underscored the investor’s contrarian instinct. “In a year when Mr. Buffett did not make any large acquisitions, he bought dozens of newspapers, a business others have shunned. His company, Berkshire Hathaway, has bought 28 dailies in the last 15 months,” DealBook writes. Mr. Buffett is expanding on those views on CNBC on Monday morning from 6 a.m. to 9 a.m.

ON THE AGENDA  |  A group of regulators â€" including Thomas Curry, the comptroller of the currency; Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation; and Gary Gensler, chairman of the Commodity Futures Trading Commission â€" addresses the Institute of Internation! al Banker! s in Washington. Mike Mayo, an analyst with CLSA, is on CNBC at 11 a.m.

SWISS VOTERS SUPPORT LIMITS ON EXECUTIVE PAY  |  Swiss citizens voted on Sunday to impose severe curbs on executive compensation, “ignoring a warning from the business lobby that such curbs would undermine the country’s investor-friendly image,” Raphael Minder reports in The New York Times. “The vote gives shareholders of companies listed in Switzerland a binding say on the overall pay packages for executives and directors. Pension funds holding shares in a company would be obligated to take part in votes on compensation packages.”

“In addition, companies would no longer be allowed to give bonuses to executives joining or leaving the business, or to executives when their company was taken ovr. Violations could result in fines equal to up to six years of salary and a prison sentence of up to three years.”

WALL STREET DEFENDS WRESTLING  |  The announcement by the International Olympic Committee that wrestling would probably be dropped from the Olympics after the 2016 games has prompted a pushback from the leaders of Russia and Iran. On Wall Street, too, a group of executives is rallying behind an effort to reverse the decision. The president of the Fortress Investment Group, Michael Novogratz, who wrestled at Princeton University, is leading a campaign to raise $3 million, The Financial Times reports. “Other financially prominent supporters include Josh Harris of Apollo Global Management, Todd Boehly of financial services group Guggenheim, Barry Bausano of Deutsche Bank and Rich! ard Tavos! o of RBC Capital Markets. All wrestled in their youth, a grounding Mr. Hovogratz said is ideal preparation for Wall Street’s rough and tumble.”

Mergers & Acquisitions »

News Corp. to Sell Stake in New Zealand TV Operator  |  News Corporation is selling its 44 percent stake in Sky Network Television “to a broad range of institutional and retail investors,” The Wall Street Journal reports. WALL STREET JOURNAL

Disney and News Corp. Discuss Hulu’s Fate  |  Walt Disney and News Corporation “hae begun discussions about resolving uncertainty over their jointly controlled online video site Hulu L.L.C., with one possible outcome being that one or the other company sells their stake,” The Wall Street Journal reports. WALL STREET JOURNAL

Bristol-Myers Squibb Contemplates Deals  |  The drug maker “has weighed, albeit preliminarily, doing a large acquisition, according to people familiar with the company’s thinking,” The Wall Street Journal reports. WALL STREET JOURNAL

As Takeover Effort Fades, Best Buy Focuses on Turnaround  | 
REUTERS

INVESTMENT BANKING »

Nasdaq Executes Some Trades at a Loss  |  Nasdaq OMX “is executing some U.S. stock trades at an operating loss in what analysts are calling an aggressive act to regain market share,” The Financial Times writes. FINANCIAL TIMES

Lenders Issue Less Debt at Start of Year  |  The Financial Times reports: “Issuance so far this year of a mainstay of bank funding is at its most depressed since the financial crisis, as lenders fae additional regulations and weak economic growth.” FINANCIAL TIMES

Wegelin’s Fall From Grace  |  On Monday, the once-prestigious Swiss bank Wegelin “is expected to become the first foreign bank to be criminally sentenced in the U.S. for tax violations, according to court documents,” The Wall Street Journal reports. WALL STREET JOURNAL

Goldman and Citigroup Warn Over Cyberattacks  | 
BLOOM! BERG NEWS!

Rohatyn Writes to the Editor  |  Felix Rohatyn, the veteran investment banker who is a special adviser to Lazard Frères & Company, says in a letter to the editor of The New York Times: “As chairman of New York City’s Municipal Assistance Corporation in the 1970s, I saw firsthand how the city avoided financial collapse and won a bright future, thanks to millions of New Yorkers who supported their banks and their unions working together to save each other and the city.” NEW YORK TIMES

Tip Bankers Like Waiters  |  Forget about Europe’s proposed bonus rules. Instead, Antony Currie of Reuters Breakingviews writes, why not put a ceiling on banker salaries and let clients reward goodservice, just as they do in restaurants DealBook »

Deutsche Bank Shares Fall on Capital Concerns  |  Shares of Deutsche Bank fell sharply in Frankfurt trading on Friday after Goldman Sachs cut its rating on the bank to a “sell,” Bloomberg News reports. DealBook »

PRIVATE EQUITY »

Blackstone and Apollo Disclose Executive Compensation  |  Stephen A. Schwarzman, chief executive of the Blackstone Group, made $213.3 million in pay and cash dividends in 2012; Leon ! Black, ch! ief executive of Apollo Global Management, received $125.5 million, Bloomberg News reports. BLOOMBERG NEWS

K.K.R. Reorganizes Team in Europe  |  The European chief of K.K.R. “is clearing the path for a younger generation after his funds went through ups and down in the wake of the financial crash,” The Financial Times writes. FINANCIAL TIMES

HEDGE FUNDS »

Einhorn Ends Legal Challenge to Apple  |  David Einhorn’s Greenlight Capial dropped its lawsuit against Apple after a judge ruled in the hedge fund’s favor, Reuters reports. “Apple removed the bundled proposal from the shareholder meeting, therefore resolving the issue,” Greenlight said in a statement. REUTERS

Taking on Apple, Greenlight Appears to Gain Little  | 
REUTERS

I.P.O./OFFERINGS »

JPMorgan Said to Be Tapped for Bausch & Lomb I.P.O.  |  Warburg Pincus, which bought Bausch & Lomb in 2007, chose JPMor! gan Chase! to lead an I.P.O. of the eye care products maker that could raise as much as $1.5 billion, Bloomberg News reports, citing unidentified people with knowledge of the matter. BLOOMBERG NEWS

Looking Back at Tech I.P.O. Troubles  |  Since going public, Facebook, Groupon, MetroPCS, Zynga and Yandex, a Russian search company, have collectively lost about $60 billion of stock market value, The New Yorker writes. NEW YORKER

VENTURE CAPITAL »

Wth Apps in the Workplace, Secret Data Is Vulnerable  |  As employees use dozens of apps on various devices to store company information, protecting data becomes more difficult, The New York Times writes. NEW YORK TIMES

Former Dot-com Millionaire Pleads Guilty to Selling Drugs  | 
NEW YORK TIMES

LEGAL/REGULATORY »

Casino Operator Admits Likely Violation of Antibriber! y Law  |  The New York Times reports: “The Las Vegas Sands Corporation, an international gambling empire controlled by the billionaire Sheldon G. Adelson, has informed the Securities and Exchange Commission that it likely violated a federal law against bribing foreign officials.” NEW YORK TIMES

Obama to Tap Foundation President for Budget Chief  |  “President Obama plans to nominate Sylvia Mathews Burwell, the president of the Walmart Foundation, as his budget chief, a White House official said on Sunday,” The New York Times reports. In the 1990s, Ms. Burwell “served in a variety of economic policy roles in the Clinton administration, including as a top aide to Robert E. Rubin, then the Treasury secretary, and s a staff member of the White House’s National Economic Council.” NEW YORK TIMES

The New York Fed’s Promise to Bank of America  |  Gretchen Morgenson writes in The New York Times that in an agreement between the Federal Reserve Bank of New York and Bank of America that recently came to light, the New York Fed “agreed to testify on behalf of the bank in its legal battle against A.I.G. over fraud claims.” BLOOMBERG NEWS

Bernanke’s Late Night Speech  |  In a speech on Friday evening, Ben S. Ber! nanke off! ered a fresh defense of the central bank’s effort to stimulate the economy. NEW YORK TIMES ECONOMIX

Ireland Wants Easing of Debt Terms  |  After receiving a bailout of 85 billion euros ($110 billion) from international lenders in 2010, Ireland is now “pressing for the right to ease the payback terms of billions of euros of debt it incurred in that process,” The New York Times reports. NEW YORK TIMES

Hess to Sell Refining Arm and Revamp Its Board

The Hess Corporation said on Monday that it planned to sell its retail, refining and processing businesses and would change up its board in a bid to shake up its operations and fend off activist investors.

Hess pitched its wide-ranging plans, which include raising its dividend and buying back up to $4 billion worth of stock, as the culmination of a multiyear campaign to improve its operations and refashion itself into a leaner oil exploration and production company.

“It’s the logical endpoint of our five-year plan,” John Hess, the company’s chief executive and the son of its founder, said in a telephone interview on Monday. The company did not offer any estimates on how much it expected to raise from the sale proceeds.

But it also folows a public fight waged by Elliott Management, which owns a 4 percent stake and is mounting one of the biggest activist investor campaigns in recent years. Last month, the hedge fund nominated five candidates for Hess’s board, in what the firm said was an attempt to force the oil company into becoming more disciplined about its operations and spending.

Elliott was later joined by Relational Investors, an activist hedge fund with deep roots in the oil industry.

But Mr. Hess argued that the new initiatives weren’t developed in response to Elliott’s charges. Instead, he said, their roots could be traced back to efforts he undertook upon becoming chief executive in 1995.

“Elliott got on the train after it left the station,” Mr. Hess said.

In a letter to investo! rs, Hess said that it planned to fully sell off its so-called downstream assets, after having already announced plans to sell off its network of oil terminals. The company also plans to sell off its holdings in Indonesia and Thailand.

Some of the proceeds from those sales will go toward raising the company’s dividend to $1, from 40 cents, as well as committing to the share repurchase plan.

Hess will also consider ways to gain additional cash from its operations in the Bakken shale formation in the northern United States in 2015. Mr. Hess said that one possible move could be placing the assets into a master limited partnership, which would yield tax advantages, but that the business needs further development before any such move could happen.

Perhaps most prominently, Hess named six new directors to its board, most of whom are former oil industry executives. They include John Krenicki Jr., the former head of GE Energy; William Scrader, a former chief operating officer of TNK-BP; and James H. Quigley, a former chief executive of Deloitte.

In naming its director candidates last month, Elliott criticized the company’s board as being largely a collection of cronies with ties to the Hess family. Mr. Hess defended the departing directors as having helped craft the oil producer’s current strategy, but acknowledged that the board needed some shaking up.

The directors who are leaving include Thomas Kean, the former governor of New Jersey; Samuel A. Nunn, the former United States senator from Georgia; and Gregory P. Hill, Hess’s president of worldwide exploration and production.

“While our board was substantive, we realized the optics were an issue,” he said. “With the new company that we’re becoming, we feel that we have the right people for the board.”

Hess also used its letter to rebut Elliott’s pr! oposals f! or the company, including breaking up its operations into two companies: one focused on finding and producing oil from overseas sites, and one concentrating largely on the Bakken shale formation in the United States.

The company argued in its letter that what Elliott had called for would produce only a short-term pop in its stock price and was “flawed” and unfeasible.

Mr. Hess said that he has not heard from Elliott since the hedge fund went public last month and has not heard from Relational since late last year, but said he would be willing to talk to the hedge fund if it approached him.

Temasek Increases Stake in Spanish Energy Concern

LONDON - Singapore’s sovereign wealth fund Temasek Holdings said on Monday that it had increased its stake in the Spanish energy company Repsol in a deal worth around 1 billion euros, or $1.3 billion.

The announcement is the latest effort by Repsol to ease pressure on its credit rating after Argentina nationalized the company’s 57 percent stake in the local energy firm Repsol YPF, which had provided large returns for its parent company.

Repsol agreed last week to sell a number of natural gas assets to Royal Dutch Shell for $4.4 billion in a bid to reduce the Spanish company’s debt burden. Repsol said the deal would reduce its outstanding net debt by half, to just under $3 billion./p>

Under the terms of the latest deal, Temasek will increase its holding in Repsol by five percentage points, to 6.3 percent, after Repsol sold shares to Temasek at a slight discount to its closing share price on Friday.

“The investment in Repsol deepens our exposure to the energy sector,” Tay Sulian, a managing director at Temasek, said in a statement. Shares in Repsol rose 2.3 percent in early afternoon trading in Madrid on Monday.

In response to Respol’s efforts, several of the international rating agencies, including Moody’s Investors Service, recently have revised their outlook on Repsol’s debt from negative to stable.

Several Middle Eastern and Asian sovereign wealth funds have acquired sizable minority! stakes in large American and European companies since 2007, though not every deal has been profitable.

After investing around $1.5 billion in the British bank Barclays at the height of the financial crisis, Temasek later sold its stake in the firm at a loss in 2009.

Temasek also has several other energy bets in its portfolio, including Chesapeake Energy, which has been shedding assets to reduce debt resulting from a decline in energy prices in the United States.

Voters Tighten Limits on Executive Pay in Switzerland

Swiss Voters Approve a Plan to Severely Limit Executive Compensation

GENEVA â€" Swiss citizens voted Sunday to impose some of the world’s most severe restrictions on executive compensation, ignoring a warning from the business lobby that such curbs would undermine the country’s investor-friendly image.

Thomas Minder, an entrepreneur and member of the Swiss Parliament who turned a personal fight against Swissair into a nationwide referendum against “rip-off merchants," spoke to the news media on Sunday.

Mr. Minder with others who supported the initiative, waiting for results.

The vote gives shareholders of companies listed in Switzerland a binding say on the overall pay packages for executives and directors. Pension funds holding shares in a company would be obligated to take part in votes on compensation packages.

In addition, companies would no longer be allowed to give bonuses to executives joining or leaving the business, or to executives when their company was taken over. Violations could result in fines equal to up to six years of salary and a prison sentence of up to three years.

The outcome of the referendum was a triumph for Thomas Minder, an entrepreneur and member of the Swiss Parliament (no relation to the reporter), who turned a personal fight against the management of Swissair, the flagship airline that collapsed in 2001, into a nationwide referendum against “rip-off merchants.”

Almost 68 percent of Swiss voters backed Mr. Minder’s proposals, according to results announced late Sunday.

“I am very proud of the Swiss people who have sent a very strong signal to the establishment,” Mr. Minder told Swiss television. Despite the fact that his referendum had been opposed by Switzerland’s main political parties, Mr. Minder, who is an independent member of the Swiss Parliament, called on all lawmakers to cooperate in swiftly enacting the law.

Nonbinding shareholder votes on executive pay have also been introduced in countries like the United States and Germany in response to Occupy Wall Street and other movements that have attacked the corporate excesses and abuses that fueled the world financial crisis. On Thursday, the European Parliament agreed to limit bonuses of bankers to two times their salaries.

In the case of Switzerland, however, Mr. Minder called for a much broader and tougher clampdown, striking a chord among citizens after the world financial crisis exposed major management failures at the financial giant UBS and other Swiss institutions.

Mr. Minder’s case was unexpectedly bolstered last month when Novartis, the pharmaceutical company, agreed to a $78 million severance payout for its departing chairman, Daniel Vasella. That set off a political storm and intense criticism from some investors, forcing Novartis to scrap the payout and prompting Mr. Vasella to tell shareholders that it had been a mistake.

Cristina Gaggini, an official from EconomieSuisse, the Swiss business federation, said Sunday that the business lobby had made some “major errors” in its efforts to stop Mr. Minder’s decade-long crusade, adding that the Novartis payout plan had amounted to a turning point in the referendum campaign.

After that, Ms. Gaggini said on Swiss national television, “It became impossible to return to a reasonable debate.”

Ahead of the vote, EconomieSuisse and Mr. Minder’s other opponents warned of dire consequences if the referendum passed, notably in terms of keeping Switzerland attractive to foreign companies and investors.

But Mr. Minder argued that Switzerland would benefit if it gave shareholders control over the companies in which they invested. Well over half the shares in many of the country’s largest companies are already held outside the country. “Investors put their money where they have the most to say, and that will clearly then be Switzerland,” Mr. Minder said ahead of the referendum.

Robin Ferracone, chief executive of Farient Advisors, an American advisory firm that specializes in executive compensation issues, said that even though the referendum would add “more burden to corporate processes, I do not predict an exodus from Switzerland,” because the tax and other benefits of being based in the country would still outweigh “the inconvenience” of having to adjust to stricter executive compensation rules.

Mr. Minder started his campaign after his family-owned business came close to bankruptcy because it had been a supplier of toothpaste and other body care products to Swissair, the airline that was grounded in October 2001.

While Swissair had run out of money, it still managed to pay an advance earlier that year of 12 million Swiss francs (about $9.6 million at the time) to a chief executive, Mario Corti, who then left shortly after the airline’s collapse.

Mr. Minder then broadened his campaign, accusing several bankers and other prominent executives of receiving “rip-off” pay packages. His campaign gained such momentum in recent months that relatively few such executives confronted him publicly, in this neutral and compromise-seeking country.

A version of this article appeared in print on March 4, 2013, on page B2 of the New York edition with the headline: Swiss Voters Approve a Plan to Severely Limit Executive Compensation.

HSBC Annual Profit Falls on Money-Laundering Charges

LONDON - HSBC, Britain’s biggest bank, said on Monday that its net profit fell 17 percent last year because of a record fine to settle money-laundering charges and changes related to the value of its own debt.

Profit fell to $13.5 billion last year from $16.2 billion in 2011, falling short of analyst expectations. The bank also missed its own target of a return on equity of between 12 percent and 15 percent. The shares fell 2.6 percent in early trading in London on Monday.

Douglas Flint, HSBC’s chairman, acknowledged in a statement that last year was “a difficult one for all at HSBC as we addressed the restructuring of the firm against a lower-growth economic backdrop and with legacy issues and regulatory challenges imposing a further set of imperatives.”

The bank’s chief executive, Stuart Gulliver, added in a statement that he expected the market environment to remain “difficult,” but that HSBC would benefit from growth of the economies in China and the United States even f European markets continued to struggle.

To fulfill his pledge of increasing profitability, Mr. Gulliver took the bank out of some markets, sold business divisions and cut jobs. HSBC has closed or sold 46 businesses and investments since 2011, including four this year. The bank sold its stake in China’s Ping An Insurance for $9.4 billion and offloaded its credit card unit in the United States to Capital One Financial for $2.6 billion. The British firm also sold its Panama unit to Bancolombia for $2.1 billion last month.

HSBC in December was forced to agree to a record $1.92 billion fine to settle charges with American authorities over breaching money-laundering rules, including that the bank handled money transfers worth billions of dollars for countries under U.S. sanctions.

HSBC generates more than half of its profit in Asia. Growth in China had helped the London-based bank compensate for shrinking or slower growing income in Europe since the beginning of the financial crisis. ! Europe was the only region where HSBC earnings declined last year.

The bank said it made good progress in gradually reducing the size of its consumer lending and mortgage portfolio in the United States. HSBC’s fastest growing business last year was its retail banking and wealth management operation.

HSBC added that it planned to increase the first three interim dividends this year by 11 percent.