Another Executive Leaves JPMorgan, Raising Questions as Vote Nears

In the depths of the financial crisis, Jamie Dimon, the chief executive of JPMorgan, and his top lieutenants were hailed as “The Survivors” on a Fortune magazine cover. Today, of the 15 executives featured in that article, only three remain â€" and one of them has been demoted.

The most recent high-level exit at the bank â€" that of the co-chief operating officer, Frank J. Bisignano, regarded within JPMorgan as something of an operational wizard â€" has heightened worries about the persistent executive turnover at the bank and raised fresh questions about who is ready to succeed Mr. Dimon one day.

For Mr. Dimon, who is 57, the latest departure comes at a precarious time, just weeks before the results are tallied on a shareholder vote on whether to split the roles of chairman and chief executive. Mr. Dimon currently holds both jobs. With voting now under way, the bank had hoped to keep a low profile, according to people briefed on the matter but not authorized to speak on the record.

And while people close to the chief executive say he is not worried about the executive turnover, others wonder if the many reshufflings at the top point to a larger problem within the bank.

More changes in the executive suites could distract shareholders from the bank’s successes. Earlier this month, JPMorgan reported its 12th consecutive quarterly profit, bolstered by strong revenue from investment banking and mortgage-related businesses. JPMorgan executives are emphasizing the positives of the bank’s businesses in making their case to shareholders.

JPMorgan’s Trading Loss

Still, the turnover at the top is a reminder of unfinished business at JPMorgan as the bank wrestles with the fallout from a multibillion-dollar trading loss in 2012. A number of agencies, including the Federal Bureau of Investigation, the Securities and Exchange Commission and the Commodity Futures Trading Commission, are ivestigating the trading losses. The inquiries and the need to improve relations with regulators promise to be a burden for those executives staying on.

The losses, which stemmed from a soured bet on credit derivatives, prompted a number of the recent departures.

Shortly after the losses were announced in May 2012, Ina R. Drew, who headed the unit at the center of the trades, resigned. In January, JPMorgan produced a 129-page internal report that dissected the bad bet and offered a rare window into the factors that led to the risk breakdowns. Losses on the trades have swelled to more than $6 billion.

The trading missteps also ensnared Barry L. Zubrow, who was a chief risk officer at the bank during the time that the chief investment office was making riskier bets. He announced his departure from the bank in October.

The trading debacle, however, explains only part of the executive exodus. In January, James E. Staley, who was the former head of JPMorgan’s investment bank, announced he would leave to join a hedge fund. Another executive, S. Todd Maclin, ceded his spot on JPMorgan’s management committee and moved to Texas, where he is chairman of the consumer and commercial bank.

Mr. Dimon has struck a positive tone about the turnover, writing in his annual letter to shareholders that the changes are “not as pronounced” as they may appear. He added that the exits did not leave a leadership vacuum, in part because the vacancies were being filled by people who already had experience in the roles they were stepping into.

For example, Matthew E. Zames, who now becomes the bank’s sole chief operating officer, already shared the job with Mr. Bisignano.

Mr. Bisignano, whose departure was announced on Sunday, is leaving JPMorgan to become chief executive of First Data, a payment-processing firm. His is a particularly difficult loss for the bank, according to people briefed on the matter, because he was widely considered to be skilled at tackling thorny problems at a time when the bank has been faulted over weak oversight in places.

The most recent departures put a spotlight on a handful of possible successors to Mr. Dimon, including Mr. Zames. Mr. Dimon lauded Mr. Zames in a statement on Sunday, calling him a “proven business executive” who will “continue to have an important impact on our company.” Mr. Zames joined JPMorgan in 2004 from Credit Suisse.

Another potential executive to succeed Mr. Dimon is Michael J. Cavanagh, who held the chief financial officer post from 2004 to 2010. As part of the management overhaul in the wake of the trading losses, Mr. Cavanagh, like Mr. Zames, gained more power within the bank. He became the co-chief executive of the corporate and investment bank.

Mr. Cavanagh has a long history with JPMorgan’s chief executive. He was head of strategy and planning at Bank One, where he worked closely with Mr. Dimon.

Mr. Dimon appears unfazed by the steady stream of departures. At meetings inside the bank he has lauded the executive team that remains, and although the bank’s succession plans are not known, he has told people close to him that he is confident the bank will be in good hands when he does decide to leave.

JPMorgan shareholders are scheduled to meet on May 21. At that time the company will announce the results of a shareholder proposal calling for the separation of the roles of chairman and chief executive officer.

In recent years, pension funds and other shareholders have pushed companies to split these roles. Wall Street executives have largely scoffed at the idea, saying a powerful lead director is just as effective as a nonexecutive chairman. Goldman Sachs recently reached an agreement with a shareholder group to withdraw a resolution to split its chairman and chief executive jobs.

Such a vote is still advancing at JPMorgan, however, and last year a similar proposal was supported by 40 percent of the shares voted. Last year’s vote happened not long after JPMorgan first disclosed the trading losses to its investors, and in recent interviews, many shareholders said the news was so fresh at the time that it did not play a factor in how they voted.

The trading losses â€" and Congressional hearings and a Senate investigation that looked into them â€" are expected to play a much bigger role this time around.

As a result, JPMorgan has been working behind the scenes to avert losing the vote, calling a wide swath of shareholders to encourage them to cast a ballot. Some big shareholders are scheduled to meet with some directors on the bank’s board so they can air any concerns they might have.

Voting to split the roles would send a powerful message to the bank, but could have serious side effects, something shareholders must weigh. If the vote goes against the company and the board decides to split the role, Mr. Dimon might resign rather than see his powers reduced.

JPMorgan is owned by a wide array of shareholders, from big institutions like the Vanguard Group to mom-and-pop investors. Despite the concerns over the trading loss, the firm’s biggest shareholders, including the asset managers BlackRock and Vanguard, have a history of voting with management, suggesting that it is unlikely the proposal to split the top roles will carry the day.

Nonetheless, firms that advise shareholders on how to vote are expected to recommend again that JPMorgan separate the two top posts. While voting has already begun, most shareholders typically vote in the two weeks leading up to the annual meeting. One big JPMorgan shareholder who has yet to vote and is not authorized to speak on the record said he believed the vote would be close.

“There is so much attention on JPM’s situation that shareholders who might previously have voted to keep the roles together will this year think twice about it because there is bound to be increased scrutiny on how everyone votes,” the shareholder said.

Studying the Dark Art of Leaking Deal Talks

Psst.

That’s how you might imagine a “leak” of a big merger or acquisition would start. A well-placed phone call. An off-handed comment over lunch. A confidential document accidentally left on an airplane.

It seems as if news of most big deals is invariably leaked ahead of the official announcement. Of the biggest deals of the year so far â€" the buyout of Dell, Warren Buffett’s acquisition of Heinz, American Airlines-US Airways, Liberty Global-Virgin Media â€" none made it to the finish line without the news media finding out about it first, soetimes with weeks of advance notice, some with just hours to go.

An intriguing academic study casts new light on the dark arts of the leak â€" or what used to be affectionately known in London as “the Friday night drop.” (It’s a bit of lore, but deal leaks used to be delivered by envelope on Friday night on Fleet Street to the gossipy Sunday broadsheets where the news could be placed as a trial balloon ahead of the markets’ reopening on Monday.)

According to the study, conducted by the Cass Business School in London â€" and commissioned by Intralinks, a provider of electronic data rooms for deal makers â€" sellers are often perversely rewarded by leaks in the marketplace: buyers of companies involved in deals that leaked before the announcement paid a premium averaging 18 percentage points more than in deals that did not leak.

The study examined 4,000 deals between 2004 and 2012. On average, the study suggests, despite anecdotal evidence to the contrary, that leaks have actually been reduced in recent years. According to the study, 11 percent of all deals were leaked between 2004 and 2009.

Remarkably, there is a huge divergence based on region. During the period examined, 19 percent of all deals in Britain were leaked, while only 7 percent of deals in the United States were leaked; 10 percent of deals were leaked in Asia.

To the casual observer, those numbers may seem to understate the situation, especially because it is usually the big, complex transactions with brand names that receive the headlines.

In Britain, the Financial Services Authority published a report in 2010 suggesting that word of a whopping 30 percent of all deals was leaked before they were officially announced. At the time, the agency said, “Strategic leaks, designed to be advantageous to a party to a transaction, are particularly damaging to market confidence and do not serve shareholders’ or investors’ wider interests.” It went on to push for “a much stricter culture that firmly and actively discourages leaks.”

The Cass study also reflected a distinct downside to deal-leaking: a deal’s chances of completion drop significantly. Leaked deals were 9 percent less likely to close than those kept under wraps and took, on average, a week longer to complete, perhaps given the added commotion and complexity created by the leak. (The study did not look at what happened to deals that were leaked but never reached the point of being announced.)

So how did the study explain the reduction of leaks in recent years?

The authors attributed it to “a stricter regulatory environment with more active enforcement and, perhaps most significantly, the subdued deal-making environment and fewer buyers in the market, which has encouraged firms to play it safe and not complicate a deal by leaking.”

How true. With so few deals these days, everyone involved in a transaction â€" management, boards, bankers, lawyers, accountants, public relations professionals, consultants and other fixers â€" are reluctant to leak and risk their fees, many of which are typically contingent on a deal’s completion.

Still, of course, the art of leaking news of a deal has long been part of the mergers and acquisition machine.

Bryan Burrough, the author of “Barbarians at the Gate,” described how Henry Kravis reacted in 1986 when news that he was planning to bid for RJR Nabisco leaked, and he made a phone call to a banker he was convinced was responsible.

“I can’t believe you did this to me,” Mr. Kravis reportedly told Jeff Beck of Drexel Burnham Lambert.

“I didn’t do it! I didn’t do it! You’ve got to believe me! It was Wasserstein! It had to be Wasserstein!” Beck shot back, referring to Bruce Wasserstein. Years before Mr. Wasserstein died, he insisted to me that he wasn’t behind that leak, but he did say that leaking was part of every deal maker’s arsenal in the 1980s. I can confirm that Mr. Wasserstein never leaked to me.

Of course, the topic of this column hits a little too close to home. I will share a bit more, but not too much. A magician, as they say, never reveals his secrets.

First, leaks become exponentially more likely as more people are added to a transaction, whether it be people inside the acquirer or target, or perhaps, as additional advisers are included in the process. If a big deal needs financing â€" as in debt from banks â€" the risk of leaks jumps. Every bank contacted then knows about the deal, as does the bank’s law firm. And it is not just one or two bankers and lawyers who were first contacted â€" it’s often dozens of them. Every banker or lawyer who brings on a new client must clear the new assignment with a “conflicts committee.” That committee can have half a dozen or more people on it â€" and those people may have to check with others at the firm who are working on competitive projects. This is true not just of banks and law firms but of consulting firms, accounting firms and public relations firms.

The private equity world poses its own problem. Those firms often have large investment committees and also employ armies of outside consultants and law firms that typically do much of the heavy lifting when it comes to going through the books and records of prospective targets.

By the time deal talks begin in earnest, it is almost impossible that fewer than 100 people know about it; more likely it’s many more. If there is a “bake-off” â€" a competition among advisers for the assignment â€" the number is even higher. And if there is an auction, well, forget about it.

The Cass study suggests all sorts of motivations for deal leaks. “Leaks from the seller are seen primarily as a way to improve the target’s bargaining power,” for example. The authors added that “leaks from a buyer are seen as a tool to scupper a deal which has not progressed as originally hoped.” The authors also said that third parties, not involved in a deal but aware of it, are “seen as a source of leaks designed to sabotage a deal.” Yet, the authors also said that “some M.&A. practitioners also feel that leaks can be used to help drive a deal through when one side is delaying.”

Those explanations make sense. Over the years, I’ve heard it all: a chief executive who wanted to get a deal done despite opposition from his board and was convinced that if the market knew, investors would cheer and bolster his position; a board member who wanted to block a deal but didn’t have the votes and was convinced that if the market knew there would be an outcry; a banker who lost the business to a rival firm and wanted to make his competitor appear to be a leaker.

But the one problem with the Cass study is this: It assumes the leaks are rational and based on a considered strategy. As a reporter who has covered the world of deal-making for more than a decade, I can attest that most “leaks” are actually not that organized. More often than not, they start out as accidents â€" a tip from a competitor about a transaction they heard about that then gets passed on.

The rate of deal leaks may be down. But if the economy begins chugging along â€" and a merger boom, a good gauge of market sentiment, returns â€" keep your eyes peeled. The “Friday night drop” might stage a comeback.

Technology Start-Ups Take Root in Berlin

BERLIN â€" Near the Rosenthaler Platz subway station here, signs of the city’s high-tech future blend seamlessly with its communist past.

Decrepit breweries and stables have been converted to communal offices decked out in colorful Ikea furniture. Achingly cool coffee shops with names like Betahaus and St. Oberholz are packed with programmers in their 20s and 30s hunched over shiny new laptops. And even as the city’s unemployment broadly remains high, vintage clothing stores selling patent-leather Dr. Martens boots for 180 euros, or $235, entice technology transplants from across Europe with promotions in English.

“I got sucked into Berlin,” said Henrik Berggren, a Swedish college dropout who moved here in 2011 to work on his e-book venture, ReadMill. “It became clear that this was the place to be.”

More than two decades after the fall of the Berlin Wall, the German capital has gone from a cold war relic to one of the fastest-growing start-up communities. Engineers and designers have flooded into Berlin in recent years, attracted by the underground music scene, cutting-edge art galleries, stylish bars and low rent.

Hours after landing at Tegel airport, Mr. Berggren, a bearded 33-year-old computer programmer, found an apartment with two 20-something Germans in one of the city’s trendiest neighborhoods for just 300 euros, or $390, a month. A few days later, he secured a cheap office for his four-person team, a space they shared with several other start-ups.

With the new wave of entrepreneurs, Berlin, once viewed as the poor relation to Germany’s main business centers, like Frankfurt and Hamburg, is improving its ranking in the country’s economic hierarchy.

In March, the country’s chancellor, Angela Merkel, toured several local technology firms in a show of support. The city’s politicians also are trying to make it easier for international workers to get visas by fast-tracking applications from technology professionals and other workers.

“The scene is very young,” said Alex Ljung, the co-founder of SoundCloud, a music Web site backed by the American venture capital giant Kleiner Perkins Caufield & Byers. “Berlin isn’t proven yet. It’s much like a start-up in that way.”

By Silicon Valley standards, Berlin is still a backwater.

Entrepreneurs say high-quality programmers and engineers are hard to find, and a lack of early-stage funding from venture capital firms, particularly those in Europe, has hampered companies’ growth. After getting burned by the dot-com bust, German venture capitalists have largely shied away from making big investments, preferring to finance early-stage companies with checks of less than $2 million.

The city also is trying to overcome its reputation for copying American business models rather than developing innovative ideas.

The Samwer brothers, whose Berlin start-up incubator Rocket Internet has completed a series of successful deals, sold German versions of eBay and Groupon to their more famous competitors. The brothers â€" Alexander, Oliver and Marc â€" have used the proceeds to invest in companies like Facebook and Zynga. One of their latest projects, a German rival to the online retailer Zappos, is valued at $3.7 billion.

“Previous generations of Berlin start-ups were copycats,” said Matt Cohler, a partner at the venture firm Benchmark Capital, who was one of the first employees at both LinkedIn and Facebook, and has invested in a Berlin start-up. “It was the predominant playbook.”

More important, there have been few successful exits â€" sales to larger companies or lucrative initial public offerings â€" that could cement Berlin’s place in the global start-up community. Among those deals, few break the $1 billion mark.

In 2010, Groupon bought the European rival CityDeal for around $260 million. Google acquired DailyDeal, a similar daily deals Web site from Berlin, for a reported $200 million in 2011; earlier this year, the Internet giant sold the start-up back to its founders.

“Many funds got started at the wrong time,” said Christophe Maire, an angel investor in Berlin, whose nickname is the Conductor because he has mentored, and invested in, many of the city’s new generation of young entrepreneurs.

“There’s a reluctance to back innovation.”

But as local start-ups gain global audiences â€" and international backing â€" entrepreneurs and investors are betting on Berlin. While venture capital investment in the rest of Europe has remained flat since the financial crisis began, the city attracted 173 million euros ($226 million) in venture funding last year, a 164 percent increase compared with 2009.

Big technology companies are showing interest, too. Earlier this month, the Japanese technology giant Panasonic bought Aupeo, a local audio streaming service, for an undisclosed amount. Google has invested in a local start-up hub called the Factory that is being built at a site that once was part of the Berlin Wall.

“There are billion-dollar companies just waiting to happen,” said Ciaran O’Leary, a partner in the local venture firm Early Bird, in his minimalist office in the center of the city. “Something big is going to happen. It’s just a question of time.”

Ijad Madisch knows the limits of starting a technology company in Germany.

Mr. Madisch, a Harvard-educated medical doctor, also holds a Ph.D. in virology and has studied computer science. Yet when he started working on Research Gate, a social networking site that allows scientists to share work and collaborate on projects, he faced resistance.

Returning to Hanover to be closer to his family in 2008, Mr. Madisch’s college supervisor told him to give up his pet project after he asked to work part time to focus on the start-up.

The next day, Mr. Madisch, 32, quit his job. He soon transferred to Harvard where a former boss was happy to let him work fewer hours while he pursued his business idea. Friends also put him in contact with blue-chip American venture firms, including Benchmark Capital and Accel Partners.

After securing early-stage fund-raising from West Coast backers, Mr. Madisch moved Research Gate from Boston to Berlin in 2011, and has expanded his staff tenfold in less than two years, to 120 employees. The site now connects more than 2.6 million scientists worldwide, and Mr. Madisch plans to make money by selling advertisements for academic conferences and job openings.

In an ironic twist, Mr. Madisch’s former boss, who had warned him against starting the company, is now one of the site’s most active users.

“I had to leave Germany to get back to Germany,” Mr. Madisch said in his three-floor office in central Berlin that has a large game room and sleeping pods to keep programmers fresh.

“German venture capitalists had this idea in front of them, and they didn’t do anything about it.”

For entrepreneurs, Berlin offers the infrastructure, without the costly overhead of Northern California, New York or London. Commercial rents in the once-communist side of the city are about half of that in London, allowing entrepreneurs to stretch their start-up budgets.

Three years ago, the founders of EyeEm, a mobile photo app similar to Instagram, borrowed an art gallery in a chic part of Berlin to start a global online photography competition. The showcase received more than 2,000 entries from around the world and formed the basis of their business idea.

EyeEm later replicated the exhibition in SoHo. But costs quickly rose as the founders had to fork over high rent for a trendy gallery, submit multiple forms to receive licensing permits and pay high wages to waiters and security staff.

“The cheap rent Berlin buys you time, and time is everything,” said Lorenz Aschoff, a co-founder of EyeEm, in the company’s converted loft space. “If we hadn’t received the original gallery for free, it would have killed the idea before it took off.”

As start-ups in the German capital become more established, entrepreneurs and investors alike are hoping that one of the city’s companies will turn the growing interest in Berlin into cash.

Many eyes have focused on Wooga, an online game start-up founded in 2009 that competes with Zynga for users on mobile phones and social networking sites like Facebook.

At a converted bakery colorfully adorned with characters from Wooga’s games, the company’s 250 employees from more than 35 countries busily plan their next online game.

After raising money from both European and American venture firms, Jens Begemann, Wooga’s co-founder and chief executive, said investors are slowly reconsidering untested ideas. He is focused on beefing up its games for smartphones in an effort to diversify away from sites like Facebook.

“Gaming involves combining skilled engineering with a creative atmosphere,” said Mr. Begemann, 36, in the start-up’s five-story office where programmers share ideas in an open-plan kitchen that has been designed to look like a leafy forest. “Wooga couldn’t exist in any city other than Berlin.”

Level Global to Pay $21.5 Million to Settle S.E.C. Case

Level Global Investors, one of the largest hedge funds ensnared by the government’s insider trading crackdown, has agreed to pay more more than $21.5 million in fines and penalties to resolve its role in the investigation.

The Securities and Exchange Commission announced on Monday that Level Global, which closed in 2011 shortly after a raid by the F.B.I., had settled a lawsuit accusing the firm’s co-founder and an analyst of illegally trading in the shares of the technology companies Dell and Nvidia while in possession of secret information about them.

“The insider trading at Level Global was hardly an isolated event - it occurred repeatedly, and involved multiple companies and multiple quarterly announcements,” Sanjay Wadhwa, a senior S.E.C. lawyer in New York, said in a statement. “This settlement serves as another reminder that the SEC will hold hedge fund managers accountable when their employees violate the securities laws.”

As part of the agreement, which requires a judge’s approval, Level Global neither admits nor denies the S.E.C.’s accusations. The fund’s investors will not pay absorb any of the cost of the penalty; instead, it will be paid by the fund’s management company, which is in wind-down mode.

Level Global was once a rising force on Wall Street. Two tech-stock specialists, David Ganek and Anthony Chiasson, started the fund in 2003, splitting off from SAC Capital Advisors. SAC, the $14 billion hedge fund run by the billionaire investor Steven A. Cohen, has become a focus of the government’s inquiry.

At its peak, Level Global managed about $4 billion in assets. In 2010, a unit of Goldman Sachs acquired a minority stake in Level Global. “We believe this investment by Petershill is an important milestone in the continued development of Level Global’s investment management platform as an institutional quality business,”  Mr. Ganek and Mr. Chiasson said at the time.

But just a year and a half later, the firm was dealing with the fallout of an F.B.I. raid of its Midtown Manhattan headquarters. A few months later the fund shut its doors. ”Unfortunately, the ongoing government investigation presents significant challenges to maintaining our collective focus,” wrote Mr. Ganek in a letter to his investors.

In January 2012, federal authorities charged Mr. Chiasson and a Level Global analyst, Spyridon Adondakis, and five others with participating in a “tight-knit circle of greed” that netted more than $72 million in illegal profits trading in Dell and Nvidia based on information leaked to them by company insiders. Mr. Adondakis pleaded guilty and cooperated with the government.

Mr. Chiasson denied the charges, and late last year was tried alongside another co-conspirator, Todd Newman of Diamondback Capital Management. Mr. Adondakis testified against Mr. Chiasson. A jury convicted both men. Mr. Newman is expected to be sentenced on Thursday, and Mr. Chiasson’s sentencing is scheduled for May 13.

During their trial, Judge Richard Sullivan ruled that Mr. Ganek was a co-conspirator in the case. Mr. Ganek has not been charged with a crime, and his lawyer has said there is no evidence that he knew about any inside information.

Most Banks Could Still Profit Under Tough New Overhaul Proposal

Most banks would still make good money under a tough new piece of financial overhaul legislation introduced in the Senate last week.

Senator Sherrod Brown, Democrat of Ohio, and Senator David Vitter, Republican of Louisiana, have written a bill that would substantially strengthen the financial foundations of most banks.

The legislation focuses on capital, the part of a bank’s balance sheet that acts as a buffer to absorb potential losses. Under the bill, banks with more than $500 billion in assets would have to hold capital that is equivalent to at least 15 percent of their assets. That’s far higher than the capital levels required today. But only six institutions, the nation’s megabanks, have more than $500 billion of assets.

Most other banks, many of them still quite big, would get to hold capital that is equivalent to 8 percent of their assets.

Many critics of the Brown-Vitter bill have said the proposed capital requirements are recklessly high. They contend that banks won’t be able to make a sufficient return on their capital. This would prompt them to curtail the unprofitable lending, depriving the wider economy of credit, according to the critics.

What do the numbers say?

A good starting point is to look at the profits that banks are earning on their assets. In 2012, bank earnings were equivalent to 0.75 percent to 0.8 percent of their assets, according to data from SNL Financial.

At a bank with $100 billion in assets, the 0.8 percent return on assets translates into earnings of $800 million a year. Under Brown-Vitter, the bank would have an 8 percent capital requirement, requiring it to hold capital of $8 billion.

The question then becomes: How much can that bank earn on that capital? Shareholders will want bank executives to try and maximize that measure of profitability, called return on equity (capital is composed of equity).

How does our $100 billion bank do? Pretty well, in fact. With capital of 8 percent, its $800 million of profits translates into a return on equity of 10 percent. Bank analysts estimate that the bank has to effectively “pay” 10 percent to 12 percent for its capital. So, this bank would just about cover its cost of capital.

But banks may earn far more than that in coming years. Currently, their return on assets is still somewhat depressed. Profits are likely to balloon if the housing market revives and the economy grows at higher rates. Look at what happens if the assets of our $100 billion bank show a return of 1.2 percent, a rate that was commonly achieved in better times and is already being exceeded by some banks now. That would translate into an impressive 15 percent return on equity.

But what about the six largest banks that would have to hold 15 percent capital? They would find it much harder to achieve strong returns on that much higher level of equity. As a result, they would have a big incentive to reduce their size below $500 billion to qualify for the lower 8 percent capital threshold. That could mean spinning off business. That would be disruptive, but shareholders might soon see the advantages of more streamlined banks and flock to those that focus on strengths.

Taxpayers would breathe more easily as banks downsize. When megabanks fail, the authorities feel they have to bail them out to protect the wider financial system. And it’s clear that Brown-Vitter would likely shrink the ranks of such lenders.

The Brown-Vitter bill may get nowhere. But the bill has already served a useful purpose. These numbers, based on the text of the legislation, show how a simple change to capital regulations could do much to protect the country from the too-big-to-fail threat while allowing the vast majority of banks to earn reasonable returns as they lend to consumers and companies.

The big risk would lie in shrinking the six largest financial companies. It would be no easy process to take Bank of America and JPMorgan from more than $2 trillion in assets to $500 billion. It would likely weigh on credit creation and confidence, even if it were done over an extended period.

In essence, then, Brown-Vitter forces us to ask whether that downsizing risk is preferable to the risk of living with too-big-too-fail banks for the foreseeable future.

Russian Bank Sells Shares in $3.3 Billion Offering

MOSCOW â€" VTB, Russia’s second-largest bank, announced on Monday that it had found buyers for all the shares it intended to place in a $3.3 billion secondary stock offering.

The quick deal showed that investor interest was still running high in the Russian banking sector. The country is the world’s biggest oil producer, and though the economy has slowed this year, trickle-down wealth from commodity sales still makes Russian banking stocks alluring.

Sberbank, the state retail bank and the largest bank in Russia, is the most common choice for investors. VTB, also majority owned by the state, is a distant second as measured by the volume of loans it provides.

VTB shares have also plummeted since their initial public offering in 2007, just before the financial crisis. During the crisis, the bank required the largest bailout in Russian history.

The sale Monday, however, suggested the price may have fallen far enough to make the bank’s shares attractive, given the overall prospects for the banking market in Russia.

“It shows that everything has a price,” said Bob Kommers, a banking analyst at Deutsche Bank in Moscow. “They found a price they could sell it to the market.”

The sovereign wealth funds of Norway, Qatar and Azerbaijan were among the investors that agreed to buy shares even before the placement came onto the market. The other investors were not disclosed.

VTB is issuing the shares to raise capital and has pledged to use the money to invest in expanding its domestic business.

The bank issued the new stock with an option for the existing shareholders, including the Russian state, to buy them at a discount of about 10 percent to their market price. In the deal announced Monday, the Russian government sold its options, proportional to its overall stake in the bank of 75 percent, to the sovereign wealth funds and other investors.

The investor group also announced a bid for the remaining options held by minority shareholders before the deal closes on May 17, meaning it is willing to buy the entire issue of new stock.

The new shares will trade on Russia’s Micex stock exchange this year. That is in keeping with President Vladimir V. Putin’s template for privatizing stakes in state-owned companies. A fierce critic of the 1990s privatizations in rigged auctions, Mr. Putin has said the government would earn more in share sales on public stock exchanges.

But he has said that state companies should float on Russia’s own Micex exchange, rather than in London or New York, to support the domestic financial industry.

Investors had shied away from VTB because its earnings often seemed to rely on one-time profits, like gains from foreign exchange rate movements or trading windfalls, and not from core banking business, Mr. Kommers, the banking analyst, said. VTB issues 17 percent of the loans in Russia compared with 33 percent for Sberbank.

With news that sovereign wealth funds, which tend to hold stock for long periods, were buying the new issue, VTB shares rose 3.8 percent on Monday.

Russian Bank Sells Shares in $3.3 Billion Offering

MOSCOW â€" VTB, Russia’s second-largest bank, announced on Monday that it had found buyers for all the shares it intended to place in a $3.3 billion secondary stock offering.

The quick deal showed that investor interest was still running high in the Russian banking sector. The country is the world’s biggest oil producer, and though the economy has slowed this year, trickle-down wealth from commodity sales still makes Russian banking stocks alluring.

Sberbank, the state retail bank and the largest bank in Russia, is the most common choice for investors. VTB, also majority owned by the state, is a distant second as measured by the volume of loans it provides.

VTB shares have also plummeted since their initial public offering in 2007, just before the financial crisis. During the crisis, the bank required the largest bailout in Russian history.

The sale Monday, however, suggested the price may have fallen far enough to make the bank’s shares attractive, given the overall prospects for the banking market in Russia.

“It shows that everything has a price,” said Bob Kommers, a banking analyst at Deutsche Bank in Moscow. “They found a price they could sell it to the market.”

The sovereign wealth funds of Norway, Qatar and Azerbaijan were among the investors that agreed to buy shares even before the placement came onto the market. The other investors were not disclosed.

VTB is issuing the shares to raise capital and has pledged to use the money to invest in expanding its domestic business.

The bank issued the new stock with an option for the existing shareholders, including the Russian state, to buy them at a discount of about 10 percent to their market price. In the deal announced Monday, the Russian government sold its options, proportional to its overall stake in the bank of 75 percent, to the sovereign wealth funds and other investors.

The investor group also announced a bid for the remaining options held by minority shareholders before the deal closes on May 17, meaning it is willing to buy the entire issue of new stock.

The new shares will trade on Russia’s Micex stock exchange this year. That is in keeping with President Vladimir V. Putin’s template for privatizing stakes in state-owned companies. A fierce critic of the 1990s privatizations in rigged auctions, Mr. Putin has said the government would earn more in share sales on public stock exchanges.

But he has said that state companies should float on Russia’s own Micex exchange, rather than in London or New York, to support the domestic financial industry.

Investors had shied away from VTB because its earnings often seemed to rely on one-time profits, like gains from foreign exchange rate movements or trading windfalls, and not from core banking business, Mr. Kommers, the banking analyst, said. VTB issues 17 percent of the loans in Russia compared with 33 percent for Sberbank.

With news that sovereign wealth funds, which tend to hold stock for long periods, were buying the new issue, VTB shares rose 3.8 percent on Monday.

Russian Bank Sells Shares in $3.3 Billion Offering

MOSCOW â€" VTB, Russia’s second-largest bank, announced on Monday that it had found buyers for all the shares it intended to place in a $3.3 billion secondary stock offering.

The quick deal showed that investor interest was still running high in the Russian banking sector. The country is the world’s biggest oil producer, and though the economy has slowed this year, trickle-down wealth from commodity sales still makes Russian banking stocks alluring.

Sberbank, the state retail bank and the largest bank in Russia, is the most common choice for investors. VTB, also majority owned by the state, is a distant second as measured by the volume of loans it provides.

VTB shares have also plummeted since their initial public offering in 2007, just before the financial crisis. During the crisis, the bank required the largest bailout in Russian history.

The sale Monday, however, suggested the price may have fallen far enough to make the bank’s shares attractive, given the overall prospects for the banking market in Russia.

“It shows that everything has a price,” said Bob Kommers, a banking analyst at Deutsche Bank in Moscow. “They found a price they could sell it to the market.”

The sovereign wealth funds of Norway, Qatar and Azerbaijan were among the investors that agreed to buy shares even before the placement came onto the market. The other investors were not disclosed.

VTB is issuing the shares to raise capital and has pledged to use the money to invest in expanding its domestic business.

The bank issued the new stock with an option for the existing shareholders, including the Russian state, to buy them at a discount of about 10 percent to their market price. In the deal announced Monday, the Russian government sold its options, proportional to its overall stake in the bank of 75 percent, to the sovereign wealth funds and other investors.

The investor group also announced a bid for the remaining options held by minority shareholders before the deal closes on May 17, meaning it is willing to buy the entire issue of new stock.

The new shares will trade on Russia’s Micex stock exchange this year. That is in keeping with President Vladimir V. Putin’s template for privatizing stakes in state-owned companies. A fierce critic of the 1990s privatizations in rigged auctions, Mr. Putin has said the government would earn more in share sales on public stock exchanges.

But he has said that state companies should float on Russia’s own Micex exchange, rather than in London or New York, to support the domestic financial industry.

Investors had shied away from VTB because its earnings often seemed to rely on one-time profits, like gains from foreign exchange rate movements or trading windfalls, and not from core banking business, Mr. Kommers, the banking analyst, said. VTB issues 17 percent of the loans in Russia compared with 33 percent for Sberbank.

With news that sovereign wealth funds, which tend to hold stock for long periods, were buying the new issue, VTB shares rose 3.8 percent on Monday.

How a Fiat-Chrysler Merger Could Work

It took about a generation before Italian immigrants to the United States adopted the ways of their new home and shook off those of the old country. Italy’s premier industrial enterprise may do it in a matter of years. A spat over Fiat’s plans to fully acquire Chrysler, Detroit’s No. 3 car maker, could hasten the process.

Sergio Marchionne, Fiat chief executive and son of Italian migrants to Canada, is negotiating the purchase of the remaining 41.5 percent in Chrysler that is owned by a United Automobile Workers union health care trust. The two sides, who are some $3 billion apart on price, aired their disagreements about the negotiating process in a court hearing last week.

Despite the differences on valuation, there’s no doubt about the outcome. Mr. Marchionne has long envisioned a fully integrated Fiat-Chrysler as the first step in a continuing consolidation designed to squeeze out the excess capacity that plagues the car industry, particularly in Fiat’s home market.

Mr. Marchionne has barely hidden his concerns about Italy, which just barely managed over the weekend to form a new government. The economy has been stalled for a decade. Rigid labor rules stifle entrepreneurship and competition. Outside investment has dwindled and the stock market is a pale shade even of its former byzantine self.

The more Fiat is forced to pay for Chrysler, the more fresh equity it will need to raise to avoid a credit downgrade. One way to make that easier could be for Mr. Marchionne to structure the deal in two stages. First Fiat would buy Chrysler, then the combined company would offer new shares. This would look a bit like an initial public offering for the enlarged group, and a bit like a rights issue for existing Fiat shareholders.

New York offers a far bigger pool of investor capital than Milan. As with the merger of Fiat Industrial with CNH Global announced last year, that would give Mr. Marchionne a reason to shift the merged entity’s domicile and move its listing to the United States. An eventual deal on the value of the Chrysler stake could buttress the logic. At the mid-point of the two parties’ marks Chrysler’s equity, at $7.25 billion, would be more valuable than Fiat’s market cap of $6.9 billion.

Once the arguments about the Detroit company’s value are over, Fiat could be on the fast track toward U.S. citizenship.

Rob Cox is editor of Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

The Exodus From JPMorgan’s Executive Suites

The departure of Frank J. Bisignano adds to an exodus of top executives from JPMorgan Chase in recent years.

Mr. Bisignano, a top lieutenant of Jamie Dimon, JPMorgan’s chief executive, left to become chief executive of First Data Corporation on Monday, an exit that was described as voluntary. It was the latest departure since the bank reported a trading loss of at least $6.2 billion last year.

Lost track of all the executives who have moved on? Here are some of the most notable depatures of recent years:

Steven D. Black | After helping to broker the Bear Stearns acquisition as co-head of JPMorgan’s investment bank, Mr. Black left the bank in early 2011. In an internal memorandum in November 2010, Mr. Dimon said Mr. Black was “one of the finest and most capable executives I have ever met.” He had become a vice chairman of JPMorgan earlier that year.

Heidi Miller | As head of JPMorgan’s international efforts, Ms. Miller was once seen a possible successor to Mr. Dimon. By the time her retirement was announced in June 2011, Ms. Miller had “established herself as one of the great leaders in our industry,” Mr. Dimon said in an internal memorandum. She left the bank in early 2012.

Charles W. Scharf | A longtime protégé of Mr. Dimon, Mr. Scharf stepped down in 2011 from his role as head of JPMorgan’s retail arm, as mortgage troubles weighed on the division. He was transferred to One Equity Partners, an internal private equity division, in a move that was viewed as something of a comedown but was framed by the bank as an amicable change that Mr. Scharf had requested. Last fall, Mr. Scharf became chief executive of Visa.

Jay Mandelbaum | The departure of Mr. Mandelbaum, the former head of strategy and business development, was announced in January of 2012. He left “to focus on entrepreneurial and other interests,” Mr. Dimon said in an internal memorandum at the time.

Ina R. Drew | The former chief investment officer, Ms. Drew oversaw the office that produced the huge trading loss, and retired from the bank in May of last year. She started at Chemical Bank, a predecessor to JPMorgan Chase, in 1981, and earned about $14 million in 2011. After her departure, Ms. Drew offered to return about two years of compensation.

Barry L. Zubrow | As chief risk officer from 2007 to 2012, Mr. Zubrow has been associated with the trading loss. In January of last year, before the loss emerged, Mr. Zubrow received a new assignment as head of corporate regulatory affairs. Then, in October, he announced he would leave the bank.

James E. Staley | The former head of JPMorgan’s investment bank, Mr. Staley announced his departure in January of this year. Mr. Staley, a longtime lieutenant of Mr. Dimon, said he would join BlueMountain Capital Management, one of the hedge funds on the other side of the London Whale trade. “The idea was not to go into the same space that JPMorgan is in, but a different space,” Mr. Staley said in an interview at the time.

Frank J. Bisignano | After the departure of Mr. Bisignano as co-chief operating officer, Matthew E. Zames, who shared the role, took over all aspects of the job.

Deutsche Bank Profit Rises, as Bank Plans to Raise New Capital

FRANKFURT â€" Deutsche Bank, Germany’s largest bank, said Monday that it planned to issue new stock, a move that would dilute the value of existing equity. The announcement came as the firm also said that its profit rose in the first quarter of 2013, as cost cutting offset a decline in revenue from investment banking.

Net profit rose to 1.66 billion euros ($2.16 billion), up nearly 18 percent from 1.41 billion euros a year earlier, Deutsche Bank said in announcing earnings a day earlier than previously scheduled.

The bank’s shares, however, fell after it announced that it would issue 2.8 billion euros in new shares in order to increase its capital reserves. Deutsche Bank said it would sell the new shares privately to institutional investors and that there would not be a public share issue.

Banks are under intense pressure from regulators to raise capital so they are better able to absorb shocks. Deutsche Bank has faced criticism for having too little capital compared to other banks its size.

The share sale announced Monday helps address that criticism and should make the bank more impervious to risk. But it will also increase the number of existing shares and could reduce the size of the dividend that shareholders receive.

Jürgen Fitschen and Anshu Jain, co-chief executives of the bank, said in a statement that the earnings report “reflects the strength of our franchise in the face of continued regulatory challenges, and cost efficiencies arising from our operational excellence program.”

Since taking over the bank last year, Mr. Fitschen and Mr. Jain have promised to cut back on risk taking and address what they admitted were ethical lapses in the past. On Monday the bank said it had reduced its assets, the total amount of money at risk, to 325 billion euros at the end of the first quarter compared to 334 billion euros at the end of 2012.

Regulators as well as investors have pushed banks to reduce risky investments and raise capital, which should help prevent future financial crises. But as banks become safer, they are also likely to become less profitable.

“Banking has to become boring again,” Rüdiger Filbry, director of the German banking practice at Boston Consuling Group, said during a meeting with reporters Monday, referring to the industry in general. “We expect significantly lower profits than we have seen in the past.”

Deutsche Bank said revenue in the first three months of this year was nearly flat, rising 2 percent to 9.4 billion euros. In the investment banking division, often the largest source of earnings, profit fell 2 percent to 1.85 billion euros.

Much of the increase in profit came from cost cutting. Deutsche Bank said it cut expenses not including interest by 370 million euros, to 6.6 billion euros.

Goldman and Deutsche Bank Seen Helping Apple Bond Sale

Based on your reading history you may be interested in:

"; var reco_tab = "

Based on your reading history you may be interested in:

"; var enabled = BLOOMBERG.global_var.enable_xlike; var default_tabs = { 'most_popular':{'header':most_pop_header, 'content': most_pop_tab}, 'recommended':{'header':reco_header, 'content': reco_tab} }; if(/control/.test(cookie_val) || cookie_val == '' || enabled == false){ render_default_tabs(default_tabs); BLOOMBERG.right_rails_tabbed_module.recommended_click_event("6", "http://recommendations.bloomberg.com/", "") }else if(/reco/.test(cookie_val)){ var valid_countries = ["DE","AT","CH","ES","FR","IT"]; if(valid_countries.indexOf(cookie_val.substr(-2)) > -1 ){ var xlike_story_limit = "6"; init_xlike(xlike_story_limit, cookie_val, default_tabs); } else { render_default_tabs(default_tabs); BLOOMBERG.right_rails_tabbed_module.recommended_click_event("6", "http://recommendations.bloomberg.com/", "") } } //]]>

Ralph Lauren Case Shows the Benefits of Cooperation

The Ralph Lauren Corporation’s settlement of an investigation into whether it made illegal payments and gifts to foreign officials shows once again just how much a company’s cooperation can provide it with the benefit of a slap on the wrist by the government rather than the trumpeting of embarrassing details.

Settling the case with the Securities and Exchange Commission and Justice Department through nonprosecution agreements - the mildest form of rebuke - is a powerful example of the incentive for companies to turn themselves in rather than even hint at fighting the government.

As part of the settlements, Ralph Lauren paid more than $700,000 to the S.E.C. in forfeited profits and a criminal fine of $882,000 to the Justice Department.

Although nonprosecution agreements are most commonly used by federal prosecutors, the S.E.C. highlighted the one in the Ralph Lauren case as the first to resolve violations of the Foreign Corrupt Practices Act. This statute has become a particularly fertile field for pursuing companies over the last few years, with prominent investigations into companies like Walmart and Avon consuming hundreds of millions of dollars in corporate resources for internal investigations and bolstered compliance programs.

It remains to be seen whether companies caught up in foreign bribery investigations will go to the same lengths as Ralph Lauren in the hope of receiving a nonprosecution agreement to settle their cases.

The company paid $568,000 in bribes to customs officials in Argentina through a broker there to help expedite paperwork that allowed it to import products into the country, according to the government documents. The payments were hidden in the corporate records by creating false accounts for “loading and delivery expenses” and “stamp tax/label tax.” In addition, Ralph Lauren gave three Argentine government officials gifts that included perfume, dresses and handbags valued at $400 to $14,000 each.

While the bribes and unlawful gifts were modest, the real problem was the absence of effective compliance measures to prevent such misconduct. As the S.E.C. noted in a statement of facts accompanying the nonprosecution agreement, the company did not identify a single instance of an improper payment during the four years in which the violations occurred.

In February 2010, Ralph Lauren instituted a new policy to prevent violations of the foreign bribery law, and just a few months later the improper payments came to light. At that point, the company reacted swiftly, reporting itself to the Justice Department and S.E.C. only two weeks after learning of the problem.

It then took significant steps to show its willingness to cooperate with the government, which the S.E.C. said included “summarizing witness interviews that the company’s investigators conducted overseas” and “making overseas witnesses available for staff interviews and bringing witnesses to the U.S.” The S.E.C. noted the benefits of the cooperation, pointing out that Ralph Lauren “saved the agency substantial time and resources ordinarily consumed in investigations of comparable conduct.”

After reporting itself, the company took further steps that showed the measure of its cooperation. Not only were the employees and outside agents involved in the illicit payments fired, but Ralph Lauren even shut down its operations in Argentina.

In extolling the company’s approach, the S.E.C. did not make the decision to close the Argentina subsidiary appear to be a requirement for receiving a nonprosecution agreement. But by pointing out how the company responded, the S.E.C. sent a message to others about the aggressive steps the government will look at in deciding the terms on which to settle a case.

The S.E.C. has entered into few nonprosecution agreements since announcing a new policy in 2010 to allow for them. The only other parties to these agreements have been Fannie Mae and Freddie Mac, companies that are controlled by the government, and Carter’s Inc., a case in which accounting problems were considered isolated. The agency also entered into a deferred prosecution agreement in a foreign bribery case with Tenaris, a maker of steel pipes.

The benefit of a nonprosecution agreement, as opposed to a deferred prosecution agreement, is that no charges are ever filed. That allows a company to proclaim truthfully that it was never even accused of wrongdoing, providing at least some public relations benefit.

Moreover, the S.E.C.’s public announcement of the settlement highlighted the virtues of Ralph Lauren’s cooperation rather than the venality of its conduct. One could easily imagine a news release that included embarrassing details about the gifts given to foreign officials and measures taken to hide the bribes that would make the company the butt of headlines, something largely missing in this case.

The question is whether Ralph Lauren’s response becomes a template for other companies hoping their cooperation with the S.E.C. will result in a similar outcome. There are certain pitfalls that companies will have to consider in deciding whether they want to follow the same path.

Most important, the speed with which Ralph Lauren reported itself may give other companies pause if it is viewed as a prerequisite to obtaining a nonprosecution agreement. Coming to the Justice Department and S.E.C. just two weeks after learning about the violations could be dangerous because a company would probably want to know whether any misconduct was isolated or signaled more widespread problems before telling the government what it believed happened.

The first contact with government investigators can be crucial because of the need to establish credibility to show the company is being forthright about any potential violations. Coming forward too quickly runs the risk that corporate counsel could misstate the nature or extent of what took place, leading investigators to mistrust the company if additional issues come to light that could make it look as if there were an effort to cover up or soft-pedal any problems.

The option to close an overseas operation may not be possible for many companies, especially if they have a substantial investment there.

The S.E.C. also highlighted Ralph Lauren’s decision to fire everyone who was involved in the wrongdoing, which sends a clear message that a company needs to take stern measures with anyone tainted by illegal payments if it hopes to establish its cooperation. Of course, whether that is fair to the employees or undermines corporate morale appears to be secondary.

The S.E.C. may well be using the nonprosecution agreement with Ralph Lauren to reinforce its position that it wants â€" and perhaps even expects â€" a higher level of cooperation from companies that discover violations. It looks as if self-reporting alone will not result in the softest resolution the S.E.C. can deliver if there is delay or the response to wrongdoing appears to be tepid.

Apple of the Debt Market’s Eye

Apple may need to make its iOUs as desirable as iPhones.

Right now, money managers are gaga for the company’s bonds even before they have made their market debut. But the scale of issuance that could come from the tech giant is on a par with huge borrowers like banks. To be sustainable, that would call for some of Apple’s magic.

Debt from cash-rich U.S. technology companies used to be exceedingly rare. But low interest rates have changed that. Borrowing cheaply is a better financial bet than repatriating cash earned overseas and paying tax on it. Microsoft tested the waters in 2009 and has raised nearly $15 billion since then, according to Thomson Reuters data.

But Apple could be looking to borrow more than that every year. The company recently expanded its budget for dividends and stock buybacks to $100 billion by the end of 2015. Assuming $45 billion of its cash pile is onshore - a figure consistent with what the company has said - and ignoring new inflows, that means borrowing $55 billion in less than three years, according to research firm CreditSights, or nearly $20 billion a year.

That would put Apple in the same issuance ballpark as large banks like Bank of America and Citigroup and other big financial firms. And many of those are mostly refinancing old debt. The iPhone maker would be asking more of investors since it would be looking for new money each time.

Most companies would have to pay lenders a premium to borrow so much. Apple is different, and not just because fixed-income fund managers may want to feel like the cool kids for once. A company with lots of cash, even if it’s trapped overseas, is a godsend for those who simply don’t want to worry about default. Apple has garnered a AA-plus rating from Standard & Poor’s, one notch down from AAA. Microsoft, a rare top-rated company, will pay less than 2.5 percent interest on the $1 billion of 10-year bonds it sold on Thursday.

If its bonds keep on marching to market, however, Apple’s novelty as a borrower will wear off and the company will need to keep investors engaged. Innovation could help. Just as Apple visionary Steve Jobs seemingly knew what people wanted before they did, the company may be able to use its brand and perhaps innovative structures to create a category of bonds investors suddenly can’t do without. If Apple manages it right, iOUs could be the next big thing.

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

Second Thoughts About the S.E.C.’s Whistle-Blower Program

David Zaring is assistant professor of legal studies at the Wharton School of Business at the University of Pennsylvania.

The Securities and Exchange Commission’s rapid development of its whistle-blower program may well catch criminal activity that falls under the radar. The program sounds great, in theory, but there are several ways its success may harm the agency.

In a sense, the program privatizes enforcement just as the agency is struggling to get more public financing. It also may not add a necessary new incentive to some decent old ones, and it creates a perverse financial motivation for employees at corporations. A closer look at these problems:

Privatization Whistle-blower programs that offer a share of the spoils of any judgments are designed to encourage private citizens to police publicly traded firms. They also spur the development of an army of lawyers who will go out and find such citizens.

In this way, a whistle-blower program is a privatization approach, not unlike hiring a private company to run a prison. But for the S.E.C., it is law enforcement that is being privatized. Rather than being able to take aim at particularly worrisome corners of the securities markets, the program leaves the S.E.C. beholden to tippees. Moreover, if Congress believes whistle-blowers, rather than the agency, are doing the work, it will have yet another justification for placing tight limits on the agency’s budget.

For these reasons, it is depressing that Mary L. Schapiro, when she was the chairwoman, characterized the program as “critical” for an agency with “limited resources like the S.E.C.”

Need Although we regularly worry about undiscovered financial fraud, it is not clear that the answer lies in the bounties whistle-blowers receive. Encouraging whistle-blowing by insiders may not be worth it, given that suspicious competitors and irate customers already have good reasons to keep the agency informed of wrongdoing.

There are plenty of incentives to provide information about matters worthy of S.E.C. inquiry. Competitors, for example, seek a level playing field. Harry Markopolos, who was ignored by the agency when he first began to suspect Bernard L. Madoff of fraud, was originally assigned by his firm to try to understand how it was consistently outperformed by Mr. Madoff. By the same token, customers who feel defrauded are unlikely to keep their concerns to themselves.

Corporate Loyalty Corporations have become rightly worried about the prospect of their compliance officers, lawyers and accountants going straight to the government when they suspect wrongdoing, rather than first telling the firm that corrective action is needed. Why put these systems into place, they wonder, if they encourage sanctions, bad publicity and an appearance of noncompliance?

It is not a far-fetched situation. An outside consultant, not an insider, received the first (and so far only) award from the S.E.C.’s 20-month-old whistle-blower program. The prospect that the hired help might generally act this way led corporations to unsuccessfully seek an S.E.C. requirement that the whistle-blower present concerns internally before going to the agency.

The program does appear to create strange incentives within publicly traded corporations, where those who investigate internal wrongdoing must decide whether their loyalty lies with the firm or the S.E.C. â€" and the prospect of a cash payment.

Perhaps, then, it is unsurprising that the agency has, until now, approached whistle-blowers with caution. The S.E.C.’s so-called bounty program, which ran from the 1980s, provided awards only six times over two decades; the total expenditure amounted to $1.15 million. In the wake of the dot-com collapse, Congress gave the agency the authority to prevent businesses from retaliating against whistle-blowers. But the S.E.C. did nothing to provide incentives for whistle-blowers to come forward; its role was to protect them once they had done so.

The Dodd-Frank Wall Street Reform and Consumer Protection Act changed all that with its provision to share up to 30 percent of recovered money. The statute made whistle-blowing a potentially profitable sword to be wielded by the private sector, rather than a shield for leakers administered by the S.E.C.

The program’s only real parallel in government is so-called qui tam cases, which permit private individuals who uncover fraudulent claims for money from the government to receive a share of the spoils. Qui tam comes from a Latin phrase that translates roughly as “he who sues in this matter for the king as for himself.”

By taking a program that was meant to keep the government’s own house in order and repurposing it to police the financial markets, the S.E.C.’s whistle-blower program does more than protect the king’s assets. In many ways, it does the king’s work for him.

Kodak Strikes New Deal for Imaging Units to Win Exit From Bankruptcy

Only two weeks ago, Eastman Kodak announced a plan to sell its document imaging business to Brother of Japan for $210 million.

Now the bankrupt film pioneer has struck an even more advantageous deal that paves the way for its exit from bankruptcy protection.

Kodak will instead spin off the document imaging unit, along with its personal imaging arm, to its British pension plan for $650 million in cash and noncash considerations. More important, the pension plan will settle its bankruptcy claim of $2.8 billion, paving the way for it to emerge from Chapter 11 in the United States. On Tuesday, Kodak plans to file a draft plan to emerge from bankruptcy.

It’s a turnaround for Kodak, which had previously sought to sell off the two imaging operations. But after a protracted sales process, the company reached an agreement to sell just one of them to Brother â€" with the proviso that it could revisit the deal if it could sell both personalized and document imaging together.

“In one comprehensive transaction, Kodak will realize its previously announced intention to divest its personalized imaging and document imaging businesses and settle its largest legacy liability,” Antonio M. Perez, Kodak’s chairman and chief executive, said in a statement.

Michele Davis to Join Morgan Stanley

Michele A. Davis, a prominent Washington insider, has been named to run the corporate communications department at Morgan Stanley.

Ms. Davis, a partner at public relations firm Brunswick Group, played a major role in the government’s response to the financial crisis, advising then Treasury Secretary Henry M. Paulson Jr. among others on their communication strategy. She also counseled BP the wake of its 2010 oil spill that wreaked havoc on the Gulf Coast.

“Michele has worked at the nexus of political and financial media throughout her career, serving in a number of senior communications positions in the U.S. Treasury Department, Fannie Mae, and the White House from 2001 to January 2009,” Morgan Stanley’s chief executive, James Gorman, and the firm’s vice chairman, Tom Nides, wrote in a memo to staff sent on Monday morning.

The recruitment of Ms. Davis is a big hire for Morgan Stanley, which has been without a permanent global head of corporate affairs for several months since Jeanmarie McFadden left in February. Ms. Davis has been in talks with Morgan Stanley for weeks, according to people briefed on the matter but not authorized to speak on the record. It is unclear exactly what duties Ms. Davis will have at Morgan Stanley but Ms. McFadden oversaw media relations, marketing and community affairs. Ms. McFadden was also a member of the firm’s management committee. Ms. Davis will report to Mr. Nides, according to the internal memo.

Ms. Davis currently lives in Washington and is expected to split her time between New York City and the Capitol, these people said.

Ms. Davis was a character in the HBO movie “Too Big to Fail,” which chronicled the events that led up the financial crisis. Her part was played by Cynthia Nixon.

Alibaba Buys Stake in Sina Weibo, a Chinese Answer to Twitter

Alibaba was once known as China’s answer to eBay. Now the Internet giant is forging closer ties to the country’s counterpart to Twitter.

The company agreed on Monday to buy an 18 percent stake in the Sina Corporation’s Weibo, the most popular of China’s microblogging services, for $586 million. It has the right to raise its stake to 30 percent in the future.

Alibaba and Sina also agreed to cooperate in improving ways to marry social networking with e-commerce, as microblogging services like Sina’s continue to grow in popularity. Sina Weibo said late last year that it had over 46 million users, up 82 percent over the same time a year ago.

(That remains a fraction of Twitter’s user base, however. And a recent study of about 30,000 Sina Weibo users found that about 57 percent of the sampled accounts had no measurable activity or posts.)

Meanwhile, Alibaba continues to grow into one of the biggest e-commerce companies in the world, most recently valued by analysts at more than $55 billion. It recently reshuffled its management ranks ahead of a hotly anticipated initial public offering that could come as soon as later this year, a stock sale that is expected to fetch widespread investor interest.

The growth of social networking and its close ties to the continuing boom in mobile Internet usage, has prompted a natural response: how to make money off of the phenomenon. Sina and Alibaba expect their efforts to yield about $380 million in advertising and commercial revenue for the Weibo service over the next three years.

“We believe that the cooperation of our two robust platforms will bring unique and valuable services to Weibo users, as well as making the mobile Internet a core part of Alibaba’s strategy,” Jack Ma , Alibaba’s chairman, said in a statement.

Financiers’ Charity Gala Goes the Way of Canapés

LONDON - Every spring, top financiers would mingle with royalty and guests like Madonna, Bill Clinton and Kevin Spacey for a gala to raise money for programs to improve literacy in India and fight AIDS in Africa.

The dinner was a fund-raiser for Ark, the children’s charity founded by the hedge fund manager Arpad A. Busson. The $15,500-a-ticket fund-raiser, known for its exclusive guest list and extravagant menu served in unusual locations, became an annual fixture for London’s top hedge fund managers and celebrities.

But several thousand canapés and empty bottles of champagne later, Ark said the gala dinner, held for the last 10 years, was no longer the right way to raise money. The charity, which received about $28 million in donations at the party last year, will now focus on exhibitions about its projects and smaller events to raise funds, it said.

“The dinner was a great thing to get people to know us but we now want the programs to be front of mind,” said a spokeswoman for Ark, which stands for Absolute Return for Kids. The charity might still hold gala dinners, the spokeswoman added, but no longer as an annual event.

Last year, Prince William and his wife, Kate, the Duchess of Cambridge, joined Pierre Lagrange, a co-founder of GLG Partners, and Louis Bacon of Moore Capital Management. The event was held in Kensington Palace Gardens, surrounded by some of the most expensive properties in the world. After playing a few songs, the band Kings of Leon agreed to donate a guitar, which was auctioned off together with other prizes like a week on a yacht.

Over the years, the dinners helped Ark to raise more than $230 million for its projects, including those supporting vaccinations in Zambia and helping orphans in Romania and Bulgaria. Mr. Busson is chairman of EIM, a fund-of-funds company he set up in 1991. He is a co-chairman of Ark along with Ian Wace, the chief executive and co-founder of the hedge fund Marshall Wace.

The cancellation of the gala was first reported by The Financial Times.

Auxilium to Buy Actient Pharmaceuticals

CHESTERBROOK, Pa. and LAKE FOREST, Ill., April 29, 2013 /PRNewswire/ -- Auxilium Pharmaceuticals, Inc. (NASDAQ: AUXL), a specialty biopharmaceutical company, today announced that it has completed the acquisition of  Actient Holdings LLC ("Actient"), a private urology specialty therapeutics company, for $585 million in upfront cash plus certain contingent consideration and warrants to purchase Auxilium common stock.  Auxilium expects to receive a tax benefit, with a net present value of approximately $60 million, as a result of the acquisition of Actient.  The transaction is expected to be immediately accretive on a non-GAAP basis to Auxilium's 2013 adjusted net income. 

(Logo: http://photos.prnewswire.com/prnh/20101202/MM10881LOGO )

Actient is a private company primarily focused on urology.  Actient's urology portfolio includes TESTOPEL®, the only long-acting implantable testosterone replacement therapy ("TRT"), Edex®, the leading branded non-oral drug for erectile dysfunction, Striant®, a buccal system for testosterone delivery, and Osbon ErecAid®, a device for aiding erectile dysfunction.  Actient also has a non-promoted respiratory franchise, including Theo-24® and Semprex®-D, along with three other non-promoted products.  The company has approximately 165 employees, including 100 sales representatives in two focused field forces. 

"The acquisition of Actient is a major step forward in our strategy to expand our specialty therapeutic offerings: we believe that it expands our TRT portfolio, strengthens our commitment to urologists, enhances our growth trajectory, and will create significant value for our shareholders," said Adrian Adams , Chief Executive Officer and President of Auxilium.  "This is a compelling fit from both a strategic and financial standpoint.  The transaction creates a leading urology franchise with a diversified product portfolio and sales force leverage that is well positioned for growth of our current portfolio as we pursue the potential expansion of our label for XIAFLEX® in Peyronie's disease.  From a financial perspective, we expect Actient to be immediately accretive on a non-GAAP basis to our 2013 adjusted net icome and to yield a strong return on invested capital.  We believe this transaction will help enable us to increasingly drive our future earnings growth."

Ed Fiorentino , Chief Executive Officer of Actient, commented "We are excited to join the Auxilium team and look forward to what we can accomplish together.  As part of a larger company with enhanced capabilities, we will offer our urology customers a wider range of solutions, and our other specialty pharmaceutical products should have greater opportunities to grow.  Actient and Auxilium share a culture of innovation and a strong focus on our physician customers and patients.  I am confident that this is a winning combination for our customers and the patients we collectively serve as we continue to fulfill our mission of improving patient outcomes."

Adams concluded, "We are pleased to welcome the Actient team to the Auxilium family.  Together we will remain focused on satisfying unmet medical needs to provide the highest quality care to our patients."

Expected Benefits of the Transaction

• Creates a Leading Urology Franchise.  Together, Auxilium and Actient will create a leading urology platform with the widest range of products for TRT, including topical, buccal and long-acting options.  Auxilium expects the TRT market will continue to remain a significant opportunity for growth across multiple testosterone delivery options.  The combined urology franchise will offer Testim®, TESTOPEL and Striant for testosterone replacement, Edex, and Osbon ErecAid for erectile dysfunction, and if approved by the U.S. Food and Drug Administration, XIAFLEX for treatment of Peyronie's disease. 
• Strong Growth Profile.  As a result of the transaction, Auxilium believes it will be able to generate strong top-line growth over time which will help the combined company achieve greater leverage in its commercial infrastructure, creating the possibility of higher operating margins.  In addition, Auxilium expects to realize approximately $20 million of run- rate cost synergies and expects to achieve the majority of these synergies in 2014.  Auxilium also believes that there are significant cross-selling opportunities that create potentially meaningful revenue synergies from this transaction. 
• Financially Compelling.  The transaction is expected to be immediately accretive on a non-GAAP basis to Auxilium's adjusted net income in 2013 and beyond.  As a result of the transaction, Auxilium expects to receive a step-up in basis that will result in tax deductible amortization of goodwill with a net present value of approximately $60 million.
  Auxilium believes the transaction creates a sustainable base of high cash flow legacy products, which will enable the combined company to generate strong operating cash flow, which it intends to use to pay down debt and grow the business.
• Enhances Existing Commercial Efforts Through Combined Sales Force.  The combined company is expected to be able to leverage its U.S. sales force more efficiently, which together reaches an extensive network of more than 24,000 prescribing physicians within orthopedics, urology, endocrinology and rheumatology, to enhance sales efforts.  By joining two experienced sales and marketing teams with expertise in TRT as well as with buy and bill delivery models, we believe we will better serve our TRT physician customers across the spectrum.  
• Diversifies and Balances Core Product Portfolio.  The combined company will offer 11 products in attractive specialty markets and will have a more diverse revenue stream. 

Transaction Details
Auxilium will pay Actient unit holders $585 million in upfront cash a warrant for 1.25 million shares of Auxilium common stock with an exercise price of $17.80 per share and up to $50 million of contingent consideration based upon the achievement of future revenue targets.  Auxilium expects to receive a tax benefit, with a net present value of $60 million, as a result of the acquisition of Actient. 

Financing
To finance the acquisition, Auxilium is using cash on hand and the proceeds from a new secured loan of $225 million from Morgan Stanley Senior Funding, Inc.

First Quarter 2013 Financial Results
Separately today, Auxilium announced its first quarter 2013 financial results.  The press release is available on the investor relations section of the Company's website.

Revised 2013 Guidance
The Company has updated its guidance for 2013 and this can be seen in the slide presentation that will be used during the Investor Conference call.  This slide deck, which will be used on today's conference call, will be posted to the web site at approximately 7:00 a.m. ET.

Non-GAAP Measures
Auxilium management expects to provide certain financial measures on a non-GAAP basis.  Auxilium management will use these non-GAAP financial measures to monitor and evaluate our operating results and trends on an ongoing basis and internally for operating, budgeting and financial planning purposes.  We believe the non-GAAP information will be useful for investors by offering them the ability to better identify trends in our business and better understand how management evaluates the business. These non-GAAP financial measures that management will use will be presented in addition to results prepared in accordance with GAAP and should not be relied upon as an alternative to GAAP financial measures.  We currently anticipate that the following non-GAAP measures will be presented in future guidance and actual result presentations:

• Operating expenses will exclude stock-based employee compensation expense;
• Imputed interest related to the convertible senior notes due in 2018 will be excluded;
• Non-cash purchase accounting adjustments to the cost of inventory will be excluded;
• Non-cash amortization expense of intangible assets resulting from purchase accounting adjustments will be excluded;
• Costs incurred to complete the transaction, including fees paid to advisors, will be excluded;
• Non-recurring costs to achieve synergies, including severance and asset write offs will be excluded;
• Non-recurring costs associated with completing the integration of Actient into Auxilium will be excluded.

We believe the non-GAAP information will be useful for investors by:

• offering them the ability to better identify trends in our business;
• allowing investors to use the same non-GAAP financial measures to monitor and evaluate our operating results and trends on an ongoing basis as are used by management  internally for operating, budgeting and financial planning purposes; and
• providing a useful measure to compare our results period-over-period.

Advisors
Morgan Stanley and Centerview Partners are acting as financial advisors to Auxilium, and Willkie Farr & Gallagher LLP and Morgan, Lewis & Bockius LLP are acting as its legal advisors.  Jefferies LLC is acting as financial advisor to Actient and Kirkland & Ellis LLP and Hogan Lovells US LLP
are acting as its legal advisors. 

Conference Call & Webcast
A conference call to discuss the transaction, including the expected synergies and savings, 2012 Actient revenues, anticipated 2013 revenue targets for the combined company, and other pro-forma and estimated financial information, as well as the Company's first quarter 2013 financial results is scheduled for today at 8:30 a.m. Eastern Time.  The presentation slides to be used during the call will be available on the "For Investors" section of Auxilium's web site under the "Presentations" tab at 7:00 a.m. ET.  A question and answer session will follow the presentation.  The conference call and the presentation slides will be simultaneously web cast on the "Investors" section of the Auxilium web site under the "Events" tab.  The conference call will be archived for future review until July 29, 2013.

Date:       Â	 Monday, April 29, 2013
Time:        Â	8:30 a.m. ET
Dial-in (U.S.):	866-515-2913
Dial-in (International):	617-399-5127
Web cast:               Â	http://www.auxilium.com
Passcode:               Â	AUXILIUM
To access an audio replay of the call:
Access number (U.S.):                     Â	888-286-8010
Access number (International):  Â	617-801-6888
Replay Passcode #:Â	98775073

About Auxilium
Auxilium Pharmaceuticals, Inc. is a specialty biopharmaceutical company with a focus on developing and marketing products to predominantly specialist audiences.  Auxilium markets Testim® 1% (testosterone gel) for the topical treatment of hypogonadism in the U.S., XIAFLEX® (collagenase clostridium histolyticum (CCH)) for the treatment of adult Dupuytren's contracture patients with a palpable cord in the U.S., and distributes XIAPEX® (the EU tradename for CCH) in the European Union through Pfizer Inc. under a transition services agreement until the applicable marketing authorizations are fully transferred to Auxilium.  GlaxoSmithKline LLC co-promotes Testim with Auxilium in the U.S.  Ferring International Center S.A. markets Testim in certain countries of the EU and Paladin Labs Inc. markets Testim in Canada.  Asahi Kasei Pharma Corporation has development and commercial rights for XIAFLEX i Japan; and Actelion Pharmaceuticals Ltd has development and commercial rights for XIAFLEX in Canada, Australia, Brazil and Mexico.  Auxilium has three projects in clinical development. XIAFLEX is in phase III of development for the treatment of Peyronie's disease.  CCH is in phase IIa of development for the treatment of Frozen Shoulder syndrome (adhesive capsulitis) and phase Ib of development for the treatment of cellulite (edematous fibrosclerotic panniculopathy).  Auxilium also has rights to pursue additional indications for XIAFLEX. For additional information, visit http://www.auxilium.com.

About Actient
Actient is a specialty products company focused on therapeutics to improve patient outcomes. The company was formed to acquire companies and products with a focus on select physician specialties. For more information, please visit www.actientpharma.com.

AUXILIUM SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 
This news release contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, including statements made with respect to Auxilium's future business plan or goals, Auxilium's expected tax benefit and the amount of such benefit as a result of its acquisition of Actient, that the acquisition will be immediately accretive on a non-GAAP basis to Auxilium's 2013 adjusted net income; whether the Actient acquisition will provide Auxilium with a return on invested capital; whether Auxilium will receive a step-up in basis resulting in tax deductible amortization of goodwill as a result of the acquisition of Actient; whether the acquisition of Actient will enable Auxilium to drive its future earnings growth, generate strong top-line growth, achieve greater leverage in the commercial infrasructure and potentially higher operating margins; whether Auxilium will realize run-rate cost synergies and the value of such synergies from its acquisition of Actient and in what time frame; whether there are significant cross-selling opportunities that would create revenue synergies from Auxilium's acquisition of Actient; whether Auxilium's acquisition of Actient will create a sustainable base of high cash flow legacy products enabling the Auxilium to generate strong operating cash flow; whether the acquisition of Actient will expand Auxilium's portfolio; the degree to which Auxilium will remain committed to urology and the TRT market; whether the Actient acquisition will enhance Auxilium's growth trajectory and create significant value for shareholders; whether Actient and Auxilium will benefit from complementary commercial capabilities or an expanded sales force; the ability of Actient to better serve TRT physician customers; whether Auxilium will achieve other expected benefits from its acquisit! ion of Actient; whether the TRT market will remain a significant opportunity for growth across multiple testosterone delivery options; and the degree to which Auxilium's cash from operations will be available or used for amortizing outstanding indebtedness.  These statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance, achievements or prospects to be materially different from any future results, performance, achievements or prospects expressed in or implied by such forward-looking statements. In some cases you can identify forward-looking statements by terminology such as ''may'', ''will'', ''should'', ''would'', ''expect'', ''intend'', ''plan'', ''anticipate'', ''believe'', ''estimate'', ''predict'', ''potential'', ''seem'', ''seek'', ''future'', ''continue'', or ''appear'' or the negative of these terms or similar expressions, although not all forward-looking statements contain these identifying words. Our forward-looking statements convey mnagement's expectations, beliefs, plans and objectives regarding future performance of Auxilium and are based upon preliminary information and management assumptions.  No specific assurances can be given with respect to whether we will realize financial, strategic and other benefits as a result of our acquisition of Actient.  These forward-looking statements are subject to a number of risks and uncertainties, including those discussed under ''Risk Factors'' in Auxilium's Annual Report on Form 10-K for the year ended December 31, 2012 filed with the Securities and Exchange Commission (the "SEC") on January 23, 2013 as updated in Item 8.01 of the Current Report on Form 8-K that we filed with the SEC on April 29, 2013.  While Auxilium may elect to update the forward-looking statements made in this news release in the future, Auxilium specifically disclaims any obligation to do so.  Our SEC filings may be access! ed electr! onically by means of the SEC's home page on the Internet at http://www.sec.gov or by means of Auxilium's home page on the Internet at http://www.auxilium.com under the heading "For Investors - SEC Filings."  There may be additional risks that Auxilium does not presently know or that Auxilium currently believes are immaterial which could also cause actual results to differ from those contained in the forward-looking statements.  

Testim® and XIAFLEX® are registered trademarks of Auxilium Pharmaceuticals, Inc.  TESTOPEL®, Edex®, Striant®, Osbon Osbon ErecAid®, Theo-24® and Semprex®-D are registered trademarks of Actient.

For Auxilium:

James E. Fickenscher
CFO                
(484) 321-5900                                      
jfickenscher@auxilium.com               

William Q. Sargent, Jr.
V.P., IR
(484) 321-5900
wsargent@auxilium.com

For Actient:

Kellie Kennedy
(312) 933-4903
kelliek@theharbingergroup.com

SOURCE Auxilium Pharmaceuticals, Inc.

RELATED LINKS
http://www.auxilium.com/