JPMorgan Voters Are Denied Access to Results

When it comes to shareholder votes, the running tallies are a closely guarded secret. Only a handful of parties get a peek into how these corporate battles are shaping up.

Now, in the midst of one of the most closely watched investor votes in years â€" over whether to separate the roles of chairman and chief executive at JPMorgan Chase â€" that protocol has changed. The firm that is providing tabulations of the JPMorgan vote stopped giving voting snapshots to the proposal’s sponsors last week. The change followed a request from Wall Street’s main lobby group, the firm says.

The pension fund shareholders that are promoting a split at the top of the bank are crying foul. Knowing the current tally is critical for both sides in shaping their campaigns, they say â€" cutting off access to them gives JPMorgan, which is getting frequent updates, an upper hand.

“They have changed the rules in the middle of the game and it has created an unfair advantage,” said Michael Garland, assistant comptroller who heads corporate governance for the New York City comptroller John Liu. “It’s like playing a game where only the home team gets to know the score.”

JPMorgan declined to comment.

The results of the shareholder vote will be announced on Tuesday at the bank’s annual meeting in Tampa, Fla. This week, the shares of a number of big investors were voted. It is not known, however, how the vote is trending.

A majority vote in favor of stripping Jamie Dimon of the chairman’s job, while not binding, would be a heavy blow to the influential chief executive. Last year, a similar proposal garnered the support of 40 percent of the shares.

Broadly speaking, the ability to get real-time voting information is crucial for both Wall Street firms and the shareholders sponsoring proposals. A losing side may decide to pour more resources into its campaign, making additional calls or send additional correspondence to shareholders.

“It’s a critical part of the process,” said Charles M. Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. He noted that “if you feel you need to win by shutting off information, it calls into question the strength of your arguments.”

Lyell Dampeer, a senior executive at Broadridge, said his firm was required to give real-time results to companies, and for years Broadridge gave that same information to proposal sponsors. But late last week, he received a call from an employee of the Securities Industry and Financial Markets Association, Wall Street’s main lobby group, requesting that Broadridge cut off access to organizations that are sponsoring proposals, he said. Sifma represents JPMorgan and other big banks and brokerage firms.

Broadridge is a little-known firm that distributes materials on behalf of banks and brokers and provides voting tabulations. Mr. Dampeer said the brokerage firms were his clients so he was “contractually obligated” to comply with their request. “It was a short call,” he said.

“We don’t have a view on this but we are caught in the middle,” Mr. Dampeer added. He said neither securities laws nor client contracts said Broadridge had to give information to the sponsors of proposals. “We act at the behest of our clients,” he said. And publicly traded companies are entitled to updates on shareholder voting.

Sifma declined to answer questions. In a statement, the lobby group said one of its working groups had concerns about “the authority of a vendor to release confidential information” and that group asked Sifma to pursue the issue. Executives at some banks were concerned, according to people briefed on the matter, that shareholder groups were leaking early vote tabulations.

The decision by Broadridge sheds some light on the usually obscure world of shareholder voting. Mr. Dampeer did not know how many other shareholders had been cut off from access, but he said the new policy would apply to countless other votes around the country.

Broadridge informed the Securities and Exchange Commission on Monday of its decision because the agency regulates brokerage firms. A spokeswoman for the S.E.C. declined to comment.

“If they aren’t providing results to one side, they shouldn’t give it to the company,” said Brandon Rees, acting director of the A.F.L.-C.I.O. Office of Investment.

For shareholders sponsoring the proposals, the tallies are particularly important at companies’ annual meetings, one of the few times when a broad swath of investors have access to management and board members. William Patterson, the executive director of the CtW Investment Group, which represents union pension funds and owns six million shares in JPMorgan, said that when deprived of the initial tallies, shareholders were at the whim of management.

“If you go in blind,” Mr. Patterson said, “you can’t really make an informed case to management” at the annual meeting about voting results “and hold them accountable.”

In the case of the JPMorgan vote, the stakes for both sides are high.

If shareholders vote to sever the positions, it would be a major victory for the sponsors and big shareholder advisory firms like Institutional Shareholder Services and Glass, Lewis & Company, which have urged investors to vote for the split. Some of the big groups sponsoring this proposal have likened this effort to a presidential campaign and they say a vote in the favor would set the tone for dozens of other similar votes around the country.

For JPMorgan, a yes vote would put pressure on JPMorgan’s board to split the two roles. Management would not be required to do anything with the results, but failure to take some course of action could lead to more unrest at the bank. Over the last year, JPMorgan has been struggling with the fallout from a multibillion-dollar trading loss.

Behind the scenes, JPMorgan has been working to persuade shareholders to support having Mr. Dimon keep both the chairman and chief executive titles. He has been chief executive since 2005 and chairman since 2006.

Tesla Motors’ Bid for Cash May Also Fuel Critics

Tesla Motors on Wednesday announced plans to tap the markets for more cash, a move that will buy it precious time to meet its ambitious goals but will also fuel debate over its prospects.

Tesla, the maker of electric cars founded and led by the entrepreneur Elon Musk, said it hoped to raise approximately $830 million by selling new shares and debtlike securities. The company said that Mr. Musk personally planned to buy $100 million of shares in the offering.

The plans could raise questions about the company’s ability to generate cash flows from its operations. Last week in an investor conference call, Mr. Musk played down the notion that Tesla would soon tap the public markets to raise new money. “We don’t have any plans right now to raise funding,” he said.

Tesla’s main product, a luxury sedan called the Model S, was the subject of a New York Times article this year involving a test drive of the car and its charging capacity. Mr. Musk has repeatedly challenged the article, saying it was unfair.

Since then, however, Tesla has generated a stream of positive headlines, including a glowing review this month for the Model S from Consumer Reports.

The financing announced on Wednesday could prove a pivotal development in the intense debate over Tesla’s future.

The company’s shares have risen by 150 percent this year as more and more investors have started to express belief the company will make electric vehicles that people will flock to buy because they perform as well as gasoline cars.

Other investors, however, remain unconvinced. They have bet against Tesla’s shares, saying they believe there is not much of a market for its cars beyond a small group of enthusiasts. These skeptics say they think that excitement has evolved into a stock mania. Tesla’s market value, nearly $10 billion, now exceeds that of Fiat.

But the investors who placed skeptical bets, called short sellers in stock-market parlance, will have suffered heavy losses as Tesla shares have soared. In fact, because of the paradoxical dynamics of short selling, when these investors unwind their negative Tesla bets, they help force the company’s shares even higher. That phenomenon partly explains why Tesla’s stock is up 50 percent in just the last five days.

“Right now, Tesla is a story stock,” said Carter W. Driscoll, who analyzes clean-technology companies for Ascendiant CapitalMarkets. “Let’s be realistic here, they’ve only produced a quarter’s worth of vehicles.”

For investors betting against the shares, that skepticism will have been particularly painful in recent days. For Tesla, though, the meteoric spike in its shares presents an attractive opportunity to raise money without hurting existing shareholders too much.

“You have to give them kudos for their timing,” Mr. Driscoll said.

The company will take in the money in two ways: it will offer new shares on the public markets to investors; and it will raise $450 million from the debtlike securities, which the company will have to pay back in 2018. The company expects to price the offerings after the close of regular trading on Thursday, according to Sarah Meron, a Tesla spokeswoman.

The company said some of the money would be used to pay down a big federal loan that helped it set up production facilities for the Model S.
Critics of the Obama administration’s clean-energy financing program have focused on the Tesla loan. In last year’s presidential campaign, Mitt Romney included Tesla in group of companies he called “losers.”

The company has about $440 million outstanding on the loan, which was made by the Energy Department. Ms. Meron declined to say when the company would pay off the loan.

The cash from the loan also gives Tesla an important cushion to fall back on if its young operations stutter. During the investor call last week, Mr. Musk did say the company may tap markets to protect itself against “some sort of risk event.”

While buying time for Tesla, the decision to raise cash could also end up emboldening critics who said they believed that Tesla was going to experience weak cash flows from its operations this year. In the investor call last week, Tesla executives did not project that cash flows would be positive in the second quarter. They also suggested a decline was possible in North American sales as the year progresses.

The company has also stopped giving out the amount of reservations in place for its cars, a metric that investors had previously found useful for assessing future demand.

Third Point Sells Morgan Stanley Stake

Daniel S. Loeb has ended his engagement with Morgan Stanley.

Mr. Loeb’s hedge fund, Third Point, disclosed in a filing on Wednesday that it had sold its 7.8 million shares in the Wall Street firm during the first quarter of this year, not long after accumulating the stake. An activist investor, Mr. Loeb had taken aim at the compensation of Morgan Stanley’s board members.

Third Point â€" which this week called for a breakup of Sony â€" likely made money on its Morgan Stanley investment. Shares of Morgan Stanley rose 15 percent in the first quarter to $21.98 a share. The hedge fund had bought shares at an average of price of $16.77 in the fourth quarter of last year.

In a letter to investors, Mr. Loeb had said how “surprised” he was about how much Morgan Stanley’s directors were paid, even as he praised the firm and its management. Morgan Stanley’s board members received an average of $351,080 in 2011, making their compensation the second highest for directors on Wall Street, according to Equilar, a compensation data firm.

“We hope Morgan Stanley will show that its reinvention begins at the top and set an example for the company by quickly revising its board practices,” Mr. Loeb wrote in the letter.

Separately, the hedge fund manager sold off another prominent investment, Herbalife, during the first quarter, the filing on Wednesday shows.

Third Point disclosed in January that it had taken an 8.2 percent stake in Herbalife, a company that had been loudly criticized by a rival hedge fund manager, William A. Ackman.

Herbalife’s stock rose 13.7 percent in the first quarter.

Compromise Seen on Derivatives Rule

In the battle over regulation, Wall Street is poised to notch another win.

Lobbyists for the nation’s biggest banks have persuaded federal regulators to soften a proposed rule under the Dodd-Frank Act, the financial overhaul law passed after the crisis of 2008. The rule, which regulators plan to approve on Thursday, could protect Wall Street’s control over the $700 trillion derivatives market, a lucrative business that helped cause the financial crisis.

Regulators initially planned to force asset managers like Vanguard and Pimco to contact at least five banks when seeking a price for a derivatives contract, a requirement intended to bolster competition among the banks. Now, according to officials briefed on the matter, the Commodity Futures Trading Commission has agreed to lower the standard to two banks. In about 15 months, it will automatically rise to three banks, though the rule requires the agency to eventually produce a study that could undermine the higher standard.

That compromise was forged from much internal wrangling at the five-person commission, which was sharply divided over the plan. Gary Gensler, the agency’s Democratic chairman, championed the stricter proposal. But he met opposition from the Republican members on the Commodity Futures Trading Commission, as well as Mark Wetjen, a Democratic commissioner who has sided with Wall Street on other rules.

Mr. Wetjen argued that five was an arbitrary number, according to the officials briefed on the matter. He also noted that the lower requirement would not prevent companies from seeking additional price quotes.

Mr. Gensler, eager to rein in derivatives trading but lacking an elusive third vote, accepted the compromise.

People close to the agency who were not authorized to speak publicly defend the decision to strike a compromise on the derivatives plan, arguing that the rule will still push derivatives trading from the shadows of Wall Street onto regulated trading platforms. They also note that the agency plans to adopt two other rules on Thursday that will subject large swaths of trades to regulatory scrutiny.

But the compromise, coming on the heels of other Wall Street lobbying victories, still illustrates the financial industry’s continued influence in Washington.

“It’s really on the edge of returning to the old, opaque way of doing business,” said Marcus Stanley, the policy director of Americans for Financial Reform, a group that supports new rules for Wall Street.

The compromise also concerned Bart Chilton, a Democratic member of the agency who has called for greater competition in the derivatives market. While he might propose an amendment on Thursday that would require five banks to offer quotes for at least a portion of the derivatives, Mr. Chilton signaled that he might vote for the rule either way.

“At the end of the day, we need a rule and that may mean some have to hold their noses,” he said.

The push for competition follows concerns that a few select banks control the market for derivatives contracts, which companies buy from Wall Street to hedge risk. Just five banks - JPMorgan Chase, Citigroup, Bank of America, Morgan Stanley and Goldman Sachs - hold more than 90 percent of all derivatives contracts.

That grip, regulators and advocacy groups say, empowers those banks to overcharge some asset managers and companies. It also raises concerns about the safety of the banks, some of which nearly toppled in 2008 after the derivatives contracts soured.

“It’s important to remember that the Wall Street oligopoly brought us the financial crisis,” said Dennis Kelleher, a former Senate aide that now runs Better Markets, an advocacy group critical of Wall Street.

With that history in mind, Congress inserted in Dodd-Frank a provision that forces derivatives trading onto regulated trading platforms. The platforms, known as Swap Execution Facilities, were expected to open a window into the secretive world of derivatives trading.

But Congress left it to Mr. Gensler’s agency to spell out how the trading would actually work.

There was a time when Mr. Gensler envisioned the strictest rule possible. In 2010, he pushed a plan that could, in essence, make the bids for derivatives contracts public. Facing widespread complaints, the agency instead proposed a plan that would require at least five banks to quote a price for all derivatives contracts passing through a swap execution facility.

But even that plan prompted a full-court press from Wall Street lobbyists. Banks and other groups that opposed the plan held more than 80 meetings with agency officials over the last three years, an analysis of meeting records shows. Goldman Sachs alone attended 19 meetings; the Securities Industry and Financial Markets Association, Wall Street’s main lobbying group, was there for 11.

Chinese Couple Settle S.E.C. Fraud Case

The husband-and-wife team that ran a Chinese waste-treatment company agreed on Wednesday to pay $3.75 million to settle accusations that they defrauded American investors.

The settlement with the Securities and Exchange Commission came more than two years after the company, Rino International, at one time worth about $500 million on the Nasdaq stock exchange, collapsed after a short-seller accused the company of claiming revenue from nonexistent contracts. It also came more than three years after the company raised $100 million from American investors in a stock offering.

The S.E.C. complaint said the company; its chief executive, Zou Dejun; and his wife, Qiu Jianping, the chairwoman; kept two sets of books. The Chinese books, which the S.E.C. said were correct, showed total revenue of $31 million from the first quarter of 2008 through the third quarter of 2010. The United States books, which were used in financial statements, showed revenue of $491 million, or about 15 times as much.

The 2009 public offering, which raised $100 million by selling stock and warrants to buy more shares, valued the shares at more than $30 each, and they traded for as much as $34.25 in Nasdaq trading. They were delisted by Nasdaq in 2010 and now trade over the counter for about a nickel.

As part of the settlement, Mr. Zou agreed to pay a penalty of $150,000 and Ms. Qui $100,000. In addition, they agreed to pay $3.5 million to settle a related class-action suit.

The S.E.C. said that days after the 2009 public offering, the couple, who together controlled 65 percent of the company’s stock, used $3.5 million of the money raised to buy a home for their use in Orange County, Calif., then gave conflicting accounts to auditors regarding what the money was used for. They eventually signed notes indicating that they had borrowed the money from the company.

The fraud fell apart in November 2010 after the Muddy Waters research Web site, which has exposed a number of Chinese frauds, released a report saying some of the company’s reported revenue came from phony contracts with purchasers. The company did not deny the report, saying only that it would investigate, and the stock fell sharply. A few days later the company’s auditors, Frazer Frost, reported that Mr. Zou had admitted that some of the contracts did not exist. The auditors withdrew their previous certifications of the financial results.

On Nov. 30, the company sent a letter to the S.E.C. saying it “intends to file restated audited financial statements” for 2008 and 2009 “as soon as practicable.” It has made no such filings since, and the company’s Web site is no longer available.

A Tech M.&A. Machine Hits the Brakes

Over the past decade, Nuance Communications has been on a frenetic shopping spree. The $6 billion firm now encompasses businesses ranging from medical transcription to powering Siri on the iPhone. But Nuance, the M.&A. machine, is sputtering. Margins are falling, the stock hasn’t advanced in five years, and debt is accumulating. Moreover, Carl C. Icahn recently increased his stake in the company from 9 percent to 11 percent in what could signal an end to acquisitions â€" even the start of a breakup.

Acquisitive companies in fragmented industries often follow a similar trajectory. At first, growth is easy, with a plethora of rivals to buy. Investors, excited by fast expansion, attach a high multiple to the company’s stock, allowing it to buy rivals cheaply and putting a higher value on the acquired profits. As a company gets bigger, though, it needs more or larger deals to grow. And managing all the acquisitions, never mind integrating them into a cohesive whole, becomes more difficult as size increases.

After laying out roughly $4 billion on purchases, Nuance now appears to have hit this familiar wall. Routinely spending more on acquisitions than the company’s free cash flow means debt has rapidly increased to $2.3 billion. Organic growth has stalled, and the company was in the red last quarter. Nuance blamed trouble integrating recent acquisitions. Falling margins in all its businesses may signal deeper problems. Furthermore, free cash flow is falling.

This could be merely a quarterly hiccup. A recently announced $500 million stock buyback could rev up Nuance’s shares, making them a valuable currency again. Plans to slow its acquisition pace and focus on smaller companies could be the pause that refreshes. And the company thinks organic revenue growth should resume in 2014. But the buyback may simply reduce the amount of dry powder the company has on its balance sheet for deals.

Mr. Icahn’s presence should act as a further brake. He is a passive investor now. But his investment history suggests that will change if Nuance’s position worsens. Mr. Icahn likes to tell companies to simplify themselves. Nuance has no shortage of well-defined operations such as medical, enterprise, and consumer that could be sold or spun off. One more stumble, and Mr. Icahn’s views will become clearer â€" and probably won’t involve much nuance.

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

Why Hedge Funds’ Criticism of the Fed May Be Right

The economics world has been having a lot of fun with hedge fund managers.

After several such managers at a recent conference denounced the aggressive money-printing policies of Ben S. Bernanke, the Federal Reserve chairman, the economic blogosphere rose up to mock them.

Many hedge fund managers have been predicting that high inflation and fleeing creditors would send interest rates skyrocketing. Stanley Druckenmiller, Paul Singer, J. Kyle Bass and David Einhorn â€" all big names in the investing world â€" have warned against the supposedly runaway central banker. Mr. Druckenmiller said that Mr. Bernanke was “running the most inappropriate monetary policy in history.”

And they have been wrong. Those silly hedge fund managers. They don’t understand macroeconomics! As Paul Krugman (and many others) have explained, the lack of demand explains why there isn’t any inflation and why interest rates haven’t risen despite all the money-printing.

Economists and bloggers have been competing to figure out why these supposedly smart guys are so confused. In an astute post, a Berkeley economist, Brad DeLong, explained his theory: Hedge fund managers thought they could muscle the Fed into caving on its big trade, much like they got JPMorgan Chase to cave on the “London Whale” trades. But they fought the Fed, and the Fed won.

Or perhaps they are simply expressing class preferences. They are ideologues, worried about their tax bills and redistribution policies. Hedge fund managers are wealthy. Asset owners hate inflation because it destroys the value of their holdings.

Or, more subtly, maybe it’s an expression of preferences in their narrow professional role. These fund managers get paid mainly to manage other people’s money. It’s much easier to do that when assets are more volatile and when the short-term interest rates are significantly lower than long-term rates. Fixed-income managers like Pimco used to make a decent return buying long-term Treasuries, essentially investing in risk-free assets and charging fees to do it. No longer. Mr. Bernanke has revealed many of these managers to be empty suits â€" and they are lashing out.

The Druckenmillers of the world have been and will continue to be wrong about a coming debt crisis and runaway inflation. A dose of moderate inflation would help the economy right now. It would spur spending and investment, and ease debtors’ plight.

But what these investors are expressing should trouble all of us: they have almost no confidence in the Federal Reserve or the economics profession. And for good reason.

It’s impressive that the Fed and many economists have successfully predicted the path of interest rates and inflation in the wake of the worst financial crisis in a generation. But neither the central bank nor academicians managed to predict or prevent the crisis in the first place. The failure dwarfs the accomplishment.

The Fed’s track record is out-and-out abysmal. Fund managers remember only too well how Alan Greenspan encouraged the stock bubble of the late 1990s, convincing investors that he would bail them out if the stock market dropped severely. Worse, Mr. Greenspan urged people in 2004 to buy homes by taking out adjustable rate mortgages. Then the central bank did nothing to curtail the housing bubble. (Whether the Fed kept rates too low for too long is hotly debated; in Mr. Greenspan’s defense, the credit bubble kept inflating after the Fed started raising rates.)

The Fed began its lender-of-last-resort role in 2007, but did little to avoid or minimize the financial crisis. Once it hit, it did the right thing to flood the markets with money, but â€" along with the Treasury and a passive Justice Department â€" let banks and top executives off the hook. And now, asset prices are going wild. Junk bonds are up. Stocks are up. Housing in Phoenix and Brooklyn is going mad.

This prebubble euphoria only undermines the Federal Reserve’s fragile credibility. It reinforces the notion that it seems to know only two things: how to inflate bubbles and how to studiously not recognize them.

Flush from their victory predicting inflation and interest rates, some economists discount the worrisome market activity. Mr. Krugman, a columnist for The New York Times, recently urged Mr. Bernanke to ignore bubble talk.

And lo and behold, the Fed chairman gave a talk on the very subject last week.

The Fed needs to convince the markets that it is on high alert for excesses that could cause the next crisis. And it has to come from the chairman. Encouragingly, Mr. Bernanke said the Fed was on the lookout for unusual valuations, high leverage, new and dangerous products and excessive risk-taking.

Alas, the speech had shortcomings. Right up at the top, Mr. Bernanke delivered this laugher: “Of course, the Fed has always paid close attention to financial markets, for both regulatory and monetary policy purposes.”

Of course. With notably rare exceptions, as Mr. Greenspan might put it.

Then Mr. Bernanke scared hedge fund managers out of their open-collar shirts and fleeces by reiterating long-standing Fed dogma: that bubbles cannot be identified ahead of time and that “neither the Federal Reserve nor economists in general predicted the past crisis.”

Answering questions, he gave an example of what the Fed might be looking for. “Microsoft’s stock is worth well more than it was some time ago, and it could still prove to be a bubble,” Mr. Bernanke said, “but so far, so good.”

Microsoft? Hello 1999! Is this what state-of-the-art monitoring gets us?

But Mr. Bernanke hasn’t spoken about what may be a deeper problem: What if the Fed’s loose monetary policy, with its giant bond purchases, is harmful?

If the price of lower unemployment were that hedge fund managers get a little richer, of course, we’d take the jobs. And if the choice were between helping someone get a job today or curtailing a potential crisis in the future, you put people to work now (though it depends on how big the crisis is likely to be).

But that might not be the choice. It sure seems like Fed policy is helping only the wealthy, and not doing much for the economy. The net worth of the top 7 percent of American households rose in the first two years of the recovery, while the net worth of the bottom 93 percent declined. The percentage of working-age people who have jobs is dangerously low. Median income was lower in 2011 than it was in 1999. This cannot all be laid at the feet of the financial crisis. Working-age male income has been squeezed for decades. The economy has deeper problems.

Maybe monetary policy is simply reinforcing these trends.

Professional investors see it that way.

“What a lot of hedge fund managers are worried about is the inflation in asset prices, not cost and wages,” said James Chanos, a noted hedge fund manager who is left of center. “This is leading to recurring booms and busts, which in addition are exacerbating income inequality.”

The Fed has explicitly welcomed rising asset prices as a sign that its monetary policies are working, as lower rates push investors to put their money to work. But something is wrong. Companies are sitting on their profits. Businesses aren’t investing and hiring enough.

In fact, the Fed may be inadvertently making things worse. What if it succeeds in bringing average people back into the markets right at the top? Is the Fed setting these poor suckers up to come in to buy from the hedge fund managers?

“The people you are trying to help don’t get the message till the end of move,” Mr. Chanos said. “You keep impoverishing them.”

Now, I’m not remotely suggesting that the hedge fund denunciations are motivated out of a desire to help the unemployed. Please.

But they can read markets, and they can see that the Fed isn’t engineering the hiring, inflation and recovery it would like. Instead of dismissing the critiques, the Fed and economists would do well to pay heed.

Jana Takes Stakes in Groupon and Zynga

Barry Rosenstein seems to think he’s found bargains in the Internet company aisle.

His hedge fund, Jana Partners, disclosed big new stakes in the online commerce company Groupon and the game maker Zynga on Wednesday, as part of a quarterly 13F securities filing.

The firm reported owning 21.9 million shares in Groupon, giving it a 3.3 percent stake, and 25.5 million shares in Zynga, for a 4.3 percent stake. Those holdings make Jana one of the top six shareholders for both companies.

Though both Internet companies have struggled since their high-flying initial public offerings, their stocks have rebounded healthily this year. Groupon’s shares were up nearly 42 percent through Tuesday, while Zynga had risen 41 percent.

It’s unclear what Jana has in mind or whether the activist hedge fund intends to try and shake things up at the two companies. Jana has taken on the likes of McGraw-Hill and CNet.

But the hedge fund’s ability to agitate for change in the onetime investor darlings may be limited. Both Groupon and Zynga have multiple classes of stock, effectively giving public shareholders a much smaller voice in running the company. Groupon’s three founders control the company’s Class B shares, which have 150 votes apiece compared with Class A shares’ single vote.

Zynga has an even more complicated triple-class structure. While Class A shares have one vote each, Class B shares have seven and Class C shares have 70 apiece. Mark Pincus, the company’s founder and chief executive, effectively controls the game maker with 59 percent of its voting power as of Dec. 31.

As Larger British Rivals Perk Up, a Heralded Small Bank Stumbles

LONDON â€" Just as larger banks in Britain are recovering from the financial crisis, a smaller one championed by lawmakers as an alternative to institutions like Barclays and Royal Bank of Scotland is floundering, complicating the government’s plan to shake up the industry and testing its new regulatory system.

Much like its maligned larger rivals, the troubles of the Co-operative Bank stem from too many risky real estate loans and too thin a buffer against losses. Moody’s Investors Service cut its rating last week by six levels, to junk, and said the bank might require “external support” if the loan losses grow much more. The next day, the bank’s chief executive, Barry Tootell, resigned.

The developments are an embarrassment for George Osborne, the chancellor of the Exchequer, who made it one of his goals to support the growth of smaller banks to improve the stability of the banking sector and increase competition. The government frowned upon the concentration of the market in which the top five banks control 85 percent of the personal checking accounts, arguing that more competition would strengthen the sector.

In a speech in February, Mr. Osborne said he wanted “upstart challengers offering new and better services that shake up the established players.” He mentioned the Co-op Bank by name, saying that Britain had started to make some headway but that he wanted to see “more banks on the high street, so customers have more choice.”

In an industry that had cost the government billions to support throughout the financial crisis and had recently shocked clients with a string of scandals, the Co-op Bank continued to enjoy a relatively unscathed reputation.

Its structure also makes it stand out. The bank is the main subsidiary of the Co-operative Group, one of the largest cooperative businesses. It is owned by seven million members, mainly its employees and customers. Apart from the bank, the Co-operative Group also owns funeral services, pharmacies, food stores and farms.

Much of the government’s hope to expand the Co-op Bank relied on the planned purchase of 632 branches that the Lloyds Banking Group had to sell to comply with European competition rules after receiving a government bailout in 2008. The purchase would have tripled the Co-op Bank’s branch network to about 1,000.

But the Co-op Bank pulled out of the £750 million ($1.2 billion) deal in April, almost a year after agreeing on the terms, citing the economic environment and the increasing regulatory requirements. Analysts said the bank had neither the financial strength nor the technological know-how to complete the transaction. A month earlier, the Bank of England had asked banks to raise a combined £25 billion before the end of the year to plug a capital shortfall.

“There could have been closer scrutiny,” Simon Maughan, an analyst at Olivetree Securities, said. But he also said that “there’s an irony: the government is insisting on higher capital, then having to go and help the banks as they’re trying to achieve that.”

The Co-op Bank’s troubles stem mainly from a portfolio of commercial real estate assets that it inherited when it combined with Britannia Building Society in 2009. Over the years, the bank put aside money to cover losses from bad loans, but not enough. In March, the bank shocked the market when it reported a loss of £674 million for 2012. Impairment charges more than quadrupled, to £469 million.
The bank’s core Tier 1 ratio, a measure of a bank’s ability to weather financial crises, is 6.7 percent, according to new stricter accounting rules known as Basel III, below the 7 percent the Bank of England ordered British banks to achieve by the end of this year, Moody’s said.

The troubles are also the first serious test for Britain’s new regulatory regime. Five years after the government had to bail out Lloyds Banking Group and the Royal Bank of Scotland and was forced to privatize the mortgage lender Northern Rock, London overhauled the way it supervised banks, shifting more powers to the Bank of England. A spokesman for the Bank of England’s Prudential Regulation Authority, one of Britain’s new financial regulators, declined to comment on the Co-op Bank, citing its policy not to comment on specific companies.

Ian Gordon, an analyst at Investec Securities, said it was “curious that the bank was allowed to run with such weak levels of capital” and said there was “an element of regulatory neglect” that represents a lesson for the new regime.

“Supervision isn’t a transparent process,” added Julia Black, a professor at the London School of Economics, “but I’m surprised it hasn’t already been required to hive off the bad loans or to set aside more capital.”

The Co-op Bank said it would not need a government bailout and is working with the regulator to improve its capital position, mainly through selling businesses and loan portfolios. The bank’s cooperative structure means it cannot sell equity to improve its capital buffer but relies on selling assets and pooling capital from its profitable nonbanking businesses.

Some analysts suggest the Co-operative Group might be better off without owning a bank in the long run. And that Mr. Osborne might be better off looking elsewhere for a new banking champion.

Krawcheck Agrees to Buy the Women’s Network 85 Broads

Sallie L. Krawcheck, a former executive of Bank of America and Citigroup, has agreed to buy 85 Broads, a global organization that supports women.

Ms. Krawcheck is buying the organization from its founder, Janet Hanson, a former executive of Goldman Sachs, according to an announcement by 85 Broads on Wednesday. Financial terms were not disclosed.

“I look forward to working with 85 Broads’ members to expand our mission of empowering women around the world â€" as women invest in themselves and each other through the network,” Ms. Krawcheck said in a statement. “I believe we’re at a tipping point of women’s engagement in the economy, and our community’s ability to play an important role in that is exciting, as we move from advocacy of women to the smart business of real investment in women.”

The announcement helps clarify Ms. Krawcheck’s post-Wall Street plans, a subject of much speculation over the last year and a half. Ms. Krawcheck left her job as head of Bank of America’s wealth management division during a management shake-up in 2011.

Since then, she has become involved in start-ups like the online broker Motif Investing and built a following on Twitter and LinkedIn, writing on financial topics and sharing personal stories.

“For most of my career, I tried to avoid the topic of being a woman in business, vaguely concerned that talking too much about it would hold me back in some way,” Ms. Krawcheck wrote on LinkedIn on Wednesday. “But I’ve been thinking about it over the past year…..a lot.”

“I am becoming involved with and investing in 85 Broads because investing in women is smart business,” she continued. “And women investing in themselves and in others, as they do through the network, is even smarter business.”

Ms. Hanson, the group’s founder, will keep an ownership stake and become chairwoman emeritus.

“Sallie’s decision to become the next steward of 85 Broads is exciting to me because she is passionate about the role women are playing on the global stage, and she understands the transformational power of connection,” Ms. Hanson said in a statement. “With Sallie at the helm, 85 Broads will enable women from all parts of the globe to advance and achieve their greatest career objectives and leadership aspirations.”

85 Broads, which was founded in 1997, is a “global membership community” of more than 30,000 women, representing 130 countries with more than 40 regional chapters and campus clubs, the announcement said. Its members include entrepreneurs and executives.

The name 85 Broads is a reference to the address of the former headquarters of Goldman Sachs on Broad Street in Manhattan, where the founding members worked.

Dimon and Blankfein, Foxhole Buddies

Jamie Dimon, wrestling with the fallout from JPMorgan Chase’s multibillion-dollar trading loss, has received advice from a rival, Lloyd C. Blankfein of Goldman Sachs, Susanne Craig and Jessica Silver-Greenberg report in DealBook. “The two executives have talked privately a number of times in recent months about the challenges that Mr. Dimon is facing, people with knowledge of the relationship but not authorized to speak on the matter, have said.”

The conversations between the two chief executives underscore a role reversal. “It is now Mr. Dimon who is in a harsh public spotlight, seemingly at odds with regulators. It was not long ago that Mr. Blankfein was being questioned by Congress over accusations that Goldman had misled investors during the financial crisis over the sale of mortgage-backed securities,” DealBook writes. “Now, with Goldman cleared of crisis-era investigations and its profits rising, Mr. Blankfein is enjoying something of a renaissance as an elder statesman of Wall Street.” One person with knowledge of the relationship who was not authorized to speak on the record said: “I would call them foul weather friends.”

Mr. Dimon faces a test in the coming days, as shareholders vote on whether to separate his positions of chairman and chief executive. But the debate over that matter is “silly,” Steven M. Davidoff writes in the Deal Professor column. “People make mistakes, and whether having yet another voice supervising risk would make a difference is uncertain. With JPMorgan, an independent chairman is probably not going to bolster risk management in any meaningful way.” Mr. Davidoff continues, “Given what can be realistically expected from separating the chairman and chief executive positions, this shareholder vote appears to be more about the uneasiness people feel about big banks.”

AN UNINVITED GUEST IN JAPAN  |  In pushing for a breakup of Sony, Daniel S. Loeb is bringing an American style of investing to a clubby corporate culture where such activism has traditionally been greeted with hostility, Hiroko Tabuchi writes in DealBook. “How Sony, and Japan, react to the demands brought by Mr. Loeb on Tuesday could become a test of how far the country has come in making good on promises to open up to more foreign investment and, more important, change.”

Investors initially cheered Mr. Loeb’s efforts, as shares of Sony rose nearly 10 percent in the United States on Tuesday, to $20.76. But the reaction among Sony’s managers has been muted. “Sony is an icon. Until now, it hasn’t had a fellow like this coming in and making demands in public,” said Nicholas Benes, a former Wall Street banker who now advises Japanese companies on corporate governance. In the past, American activist investors have met with frustration in their efforts to add value at Japanese companies.

So far, Mr. Loeb has been far more polite in this campaign than in his previous efforts, DealBook’s Michael J. de la Merced notes. In a letter hand-delivered to Sony’s chief executive, Mr. Loeb said he wanted to be a partner to the company. But followers of the investor know he has made his name on his poison pen. In one example, a 2005 letter to the chief executive of Star Gas, a heating oil distributor, Mr. Loeb said: “It is time for you to step down from your role as C.E.O. and director so that you can do what you do best: retreat to your waterfront mansion in the Hamptons where you can play tennis and hobnob with your fellow socialites.”

ON THE AGENDA  |  Hedge funds disclose their holdings in 13-F filings. Data on industrial production in the United States in April is out at 9:15 a.m. Macy’s reports earnings before the market opens; Cisco Systems reports results Wednesday evening. A House Financial Services subcommittee has a hearing at 10 a.m. on too-big-to-fail institutions. Robert Wolf of 32 Advisors is on CNBC at 8 a.m. Gary D. Cohn of Goldman Sachs is on CNBC at 1:30 p.m.

BLOOMBERG L.P., WALL STREET PLAYER  |  “Long thought of as a company that serves the needs of Wall Street firms, Bloomberg L.P. is quietly becoming more like them, moving recently into businesses that have been the domain of the largest banks,” Peter Eavis and Nathaniel Popper write in DealBook. “This relatively unheralded expansion by Bloomberg helps explain Wall Street’s consternation at recent disclosures that some customer data was freely available to reporters and others inside the company. The fear inside banks is that Bloomberg could use that data not only to write negative news articles but also to compete directly.”

“In recent years, Bloomberg has offered new ways to trade stocks, bonds and more complicated financial products, potentially taking revenue from subscribers to the ubiquitous Bloomberg desktop terminals, which contain a vast store of market data. The expansion is even leading Bloomberg to offer traditional Wall Street services like wealth management and research.”

Mergers & Acquisitions »

J.C. Flowers to Buy British Debt Collector  |  The private equity firm run by J. Christopher Flowers is buying Cabot Credit Management, in its largest deal ever in Britain, according to The Financial Times. FINANCIAL TIMES

Dell Expected to Miss Profit Estimates  |  Dell, at the center of a takeover contest, “pushed up the timing for releasing its quarterly profits, which the company expects to be far worse than Wall Street had expected, according to a person briefed on the results,” The Wall Street Journal reports. WALL STREET JOURNAL

Actavis Said to Have Rejected a $15 Billion Offer  |  The drug maker Actavis rejected a takeover offer from Mylan last week, according to Reuters, which cites an unidentified person familiar with the situation. REUTERS

Dish Network to Sell $2.5 Billion in Debt  |  The Dish Network Corporation said on Tuesday that it would sell $2.5 billion in debt to help finance its $25 billion offer for Sprint Nextel. Read more »
DealBook »

Warner Music Secures European Approval to Buy Parlophone Label  |  Universal Music is selling Parlophone to Warner as a condition of Universal’s purchase of EMI’s recorded music business. REUTERS

INVESTMENT BANKING »

HSBC Plans More Job Cuts in Effort to Save Up to $3 Billion  |  HSBC said on Wednesday that it planned to find an additional $2 billion to $3 billion in cost cuts by 2016 that would include the elimination of as many as 14,000 jobs. DealBook »

Morgan Stanley Shareholders Approve Executive Compensation Plan  |  At Morgan Stanley’s annual meeting on Tuesday, 86.2 percent of shareholders approved the executive compensation plan, compared with 94.8 percent a year ago. WALL STREET JOURNAL

Japanese Banks Expect Profit to Decline  |  Three giant Japanese banks “forecast earnings will decline this year as monetary easing makes loans less profitable even as borrowing picks up amid an economic recovery,” Bloomberg News writes. BLOOMBERG NEWS

Embattled Italian Bank Reports Better-Than-Expected Revenue  |  Monte dei Paschi di Siena reported a loss that was narrower than analysts had expected, according to Bloomberg News. BLOOMBERG NEWS

Regulatory Pressure Drives Commerzbank to Seek Out New Capital  |  The German bank will try to raise 2.5 billion euros ($3.2 billion), to protect against future shocks and to help repay a 2009 government bailout. DealBook »

PRIVATE EQUITY »

Courting the Small, Local Investor  |  The New York Times writes: “Taking a page from Web sites like Kickstarter and Indiegogo, real estate upstarts like Fundrise, Property Peers, Realty Mogul and Prodigy Network, which is based in New York, are transforming the way real estate projects are built and who profits from them, by allowing the public to invest in an asset class that has traditionally been the exclusive domain of wealthy investors and private equity firms.” NEW YORK TIMES

In Asia, Borrowing to Cash Out  |  Private equity firms in Asia are adding debt to companies they own in order to pay dividends, a practice that “makes the debt riskier for investors who buy it,” The Wall Street Journal writes. WALL STREET JOURNAL

Deborah L. Bernstein, Private Equity Partner, Dies at 41  |  Deborah L. Bernstein, a partner at the private equity firm Aquiline Capital Partners, died on Friday in New York. She was 41. DealBook »

HEDGE FUNDS »

Hedge Funds Bet on a Recovery for Mortgage Giants  |  Hedge funds including Paulson & Company, which made a fortune in the housing crash, have bought preferred shares in Fannie Mae and Freddie Mac in the expectation that the mortgage finance giants will eventually make payments to holders of such securities, The Wall Street Journal writes. WALL STREET JOURNAL

In Fight With Hess, Elliott Proposes Seating All Board Nominees  |  Elliott Management offered on Tuesday to seat both its slate of five director nominees and the Hess Corporation’s slate, in what it said was a step toward completely remaking the energy company’s board. DealBook »

Elan Shareholders Put a Number on Claim Against SAC  |  Shareholders of the drug company Elan filed an amended and consolidated class action complaint against SAC Capital, seeking nearly $1 billion, The New York Post reports. NEW YORK POST

I.P.O./OFFERINGS »

China Galaxy Securities Raises $1.1 Billion in I.P.O.  |  The deal priced at the low end of its expected range, for the biggest I.P.O. in Hong Kong in six months, Reuters reports. REUTERS

Tesla’s Stock Is Trading at Rich Multiples  |  To justify Tesla’s high 2016 valuation multiple, revenue would need to keep growing at a fast clip, Antony Currie of Reuters Breakingviews writes. REUTERS BREAKINGVIEWS

VENTURE CAPITAL »

Two Music Moguls Seek Tech Talent  |  The record producer Jimmy Iovine and the rapper Dr. Dre, his business partner, are giving $70 million to the University of Southern California to create a degree combining business, marketing, product development, design and liberal arts, The New York Times reports. “If the next start-up that becomes Facebook happens to be one of our kids, that’s what we are looking for,” Mr. Iovine said. NEW YORK TIMES

Thiel Brings Money and Some Credibility to Europe  |  Valar Ventures, the venture fund of Peter Thiel, led a $6 million investment round for TransferWise, a financial services start-up based in London. DealBook »

Google Expected to Introduce a Subscription Music Feature  |  The subscription music service would compete with services like Spotify, The New York Times reports. NEW YORK TIMES

LEGAL/REGULATORY »

U.S. Budget Deficit Shrinks Faster Than Expected  |  A new report by the Congressional Budget Office estimates that the deficit for this fiscal year will fall to about $642 billion, or 4 percent of the nation’s annual economic output, about $200 billion lower than the estimate three months ago, The New York Times writes. NEW YORK TIMES

Ex-Wife of SAC’s Cohen Hires New Lawyer in Revived Lawsuit  |  Patricia Cohen has hired Joshua L. Dratel, a New York trial lawyer, to represent her after a federal appeals court revived her lawsuit against Steven A. Cohen, her former husband. DealBook »

Europe Raids 3 Companies in Oil Price Inquiry  |  The New York Times reports: “The authorities on Tuesday raided the offices of several oil companies and an industry data provider as part of a broader inquiry by the European Commission into potential price manipulation.” NEW YORK TIMES

U.S. Portrays Apple as ‘Ringmaster’ in E-Book Price-Fixing Lawsuit  |  The Justice Department now says that Apple had “a more direct leadership role than originally portrayed in the department’s April 2012 antitrust lawsuit against Apple and five publishing companies,” The New York Times writes. NEW YORK TIMES

Report on I.R.S. Audits Points to Management Flaws  |  “An inspector general’s report issued Tuesday blamed ineffective Internal Revenue Service management in the failure to stop employees from singling out conservative groups for added scrutiny,” The New York Times writes. NEW YORK TIMES

HSBC Plans More Job Cuts in Effort to Save Up to $3 Billion

LONDON - After two years of far-reaching cost cuts and asset sales, HSBC said on Wednesday that it planned to find an additional $2 billion to $3 billion in cost savings by 2016 that will include the elimination of as many as 14,000 jobs.

In a meeting with its investors to update them on HSBC’s strategy, the management said it also aims to increase dividends and consider share buybacks. A share buyback would be a first among Europe’s top financial institutions, which until now focused mainly on increasing their capital reserves to comply with stricter regulation.

Some investors welcomed the additional cost savings, but HSBC’s shares dipped slightly in London on Wednesday morning, falling 0.3 percent, after the bank abandoned a target to bring costs related to income down to between 48 percent to 52 percent. It is now aiming for a cost-income ratio of about 55 percent by 2016.

Stuart T. Gulliver, the chief executive, had warned previously that the difficult economic environment in Europe and slower-than expected economic growth in China had hurt the bank’s income. While the bank stuck to its cost savings plan, the global economy thwarted HSBC’s efforts to generate the income it needed to achieve its target.

On Wednesday, Mr. Gulliver told investors that the bank “will continue to exert tight cost discipline while streamlining processes and procedures.”

“Taken together, we are confident that these measures will deliver consistent and superior financial results and move us closer to achieving our ambition of being the world’s leading international bank,” he said.

HSBC expects to achieve additional cost savings by simplifying some of its internal processes and aligning internal systems across its operation. The total number of jobs could fall to as low as 240,000 by 2016 from 254,000 once all planned business sales are completed in the coming months.

HSBC has sold or exited 52 businesses since 2011 and reduced costs by $4 billion. It sold its unit in Panama to Bancolombia for $2.1 billion and its stake in the Chinese insurer Ping An for $9.4 billion. Last month, HSBC said it would eliminate about 1,150 jobs at branches in Britain, adding to the reduction of 30,000 positions two years ago.

Over the next three years, HSBC plans to focus its attention on commercial banking in Asia and Latin America, relying on the bank’s Hong Kong roots. It also aims to gain market share in wealth management in developing markets, it said.

HSBC reported last week that its earnings rose almost 50 percent, to $8.43 billion, more than analysts expected.