A County in Alabama Strikes a Bankruptcy Deal

Jefferson County, Ala., took a big step toward resolving its historic bankruptcy case on Tuesday, saying it had reached an agreement to refinance most of the debt at the heart of its financial breakdown.

The refinancing would save the county hundreds of millions of dollars and position it to emerge from bankruptcy in a matter of months, according to people briefed on the negotiations. But the terms must still be approved by a federal bankruptcy judge, and the county must clear several other hurdles before it can emerge from bankruptcy. Lawyers for the county are scheduled to present details of the agreement in federal bankruptcy court in Birmingham on Wednesday.

The deal, according to the people briefed on the negotiations, covers about $2.4 billion of Jefferson County’s total $3.078 billion in sewer debt, which was issued to pay for significant repairs needed to bring the county into compliance with federal clean water laws.

The interest due on the sewer debt shot up during the financial turmoil of 2008, and the repayment schedules accelerated sharply, leaving the county unable to pay. The repairs went unfinished as well.

The county also had other debt outstanding when it declared bankruptcy, for a total of $4.2 billion, making it the biggest municipal bankruptcy in United States history.

Governmental bankruptcies are rare and usually involve small single-purpose authorities and districts, not large, complicated counties with a lot of debt. Experts in public finance have been watching Jefferson County closely to see what kind of legal precedent it will set. Some were concerned that the successful application of Chapter 9 bankruptcy rules to municipal debt could cast a pall over the municipal bond market.

Residents of the county, for their part, have worried that they would bear the brunt of the bankruptcy, through lower property values or higher taxes or rates paid for county services.

The refinancing agreement covers debt held by creditors that include JPMorgan Chase, which holds about $1.22 billion of the sewer debt, the biggest block; three bond insurers; and seven hedge funds, according to a term sheet circulated in a meeting of the county commission on Tuesday.

The terms call for these creditors to receive about $1.84 billion for the $2.4 billion of debt they now hold. The concessions were weighted most heavily toward JPMorgan, the term sheet said, “to increase the recovery of other sewer creditors.”

The bank is giving up $842 million, or about 70 percent, of the face value of its debt, according to people briefed on the negotiations. Just before declaring bankruptcy in 2011, the county abruptly rejected a previous package of concessions that called for JPMorgan to give up about $750 million.

JPMorgan was widely expected to make big concessions as part of any bankruptcy settlement, because some former officials of the bank were found to have been involved in improprieties in connection with a county debt refinancing in 2002 and 2003. That refinancing involved a complex package of variable-rate bonds and derivatives called interest-rate swaps.

A lawsuit by the county against JPMorgan over the improprieties, still active in state court, would be resolved as part of the proposed agreement. In 2009, JPMorgan agreed to forgive all the termination fees the county owed on the swaps, or about $647 million, to settle a complaint from the Securities and Exchange Commission. The bank also paid the county $75 million under the same settlement.

Despite those concessions, residents of Jefferson County have still often complained that they were treated inequitably because several of their elected officials went to prison as a result of the refinancing, while no one from the bank was convicted of a crime. They have railed in particular against the possibility that their sewer rates would go up to allow the county to pay sewer debt that many now see as illegitimate.

On Wednesday, the federal bankruptcy judge, Thomas B. Bennett, is also scheduled to hear arguments in a lawsuit arguing that much of the debt was issued in violation of the state Constitution and should be voided, not restructured or repaid.

In addition, the Bank of New York Mellon, as trustee for small creditors, has asked Judge Bennett for a full independent review of the sewer system’s finances, as well as what it has called “poor planning, gross incompetence, waste, graft, corruption or fraud in connection with the construction, repair or rehabilitation” of the sewer system since 1997.

The term sheet indicated that the sewer fees for county residents would indeed rise, by 7.41 percent a year for the first four years of the refinancing deal. After that, they could rise by as much as 3.94 percent a year, depending on variables like inflation and new federal clean-water regulations.

Still, members of the county commission said the new agreement was significantly better than what they could have won without the bankruptcy filing. The five-member commission approved the terms in a 4-to-1 vote.

If the refinancing goes forward, the county’s public creditors on the sewer debt will be offered a choice: either 80 cents for every dollar of sewer debt they now hold, if they relinquish all other claims, or 65 cents on the dollar with the right to pursue their own claims, either against the county or its bond insurers.

New Exchange Is Formed for Trading Patent Rights

Patent rights, which are usually bought and sold in private transactions, are set to be publicly traded on a new exchange, which plans to announce its first offering on Wednesday.

The Chicago-based exchange, Intellectual Property Exchange International, which says it is the first of its kind, has attracted a handful of blue-chip companies and prominent universities as its initial members. One of those companies, Royal Philips Electronics, the Dutch electronics giant, is set to begin marketing the rights to a portfolio of more than 600 patent assets.

The Philips portfolio, to be announced in a pair of online presentations on Wednesday, is expected to raise around $35 million, though the exact figure could change.

Two more offerings, which are expected to be announced in the next four to six weeks, will be in the finance and automotive industries, according to Gerard J. Pannekoek, the president and chief executive of IPXI, as the exchange is known.

JPMorgan Chase and Ford Global Technologies, a unit of the Ford Motor Company, are among the exchange’s member companies.

The product traded on the exchange is called a unit license right, a contract that allows the holder to use the underlying technology a certain number of times.

The goal of the exchange, which was established in 2008, is to make the patent licensing marketplace more transparent, said Mr. Pannekoek, who is a former executive of the Chicago Climate Exchange.

The Intellectual Property Exchange International does due diligence on patent offerings and plans to make a “data room” available to prospective buyers, which can include speculative investors and companies looking to use the technology.

Mr. Pannekoek said he was confident the exchange would get off to a strong start.

“The market will immediately recognize that companies will give us assets of significant quality,” he said.

But skeptics wonder if the patent market is mature enough for this new exchange.

“The intellectual property market just started liquefying,” said Ron Epstein, the chief executive of the patent advisory firm Epicenter IP Group, based in Redwood City, Calif. “It went from granite to lava in the last six to eight years. IPXI is trying to go from lava to water.”

Success for IPXI depends on a significant number of buyers and sellers populating the market. Some in the business are taking a wait-and-see attitude.

“The bottom line is, the volume of transactions when it comes to any particular patent portfolio is generally pretty small,” said John A. Amster, the chief executive and co-founder of RPX, a San Francisco-based firm that buys patents on behalf of clients. “It’s not like you need some massive electronic system to do this stuff.”

Still, proponents of the exchange point to the increased transparency it promises to bring to an opaque market. Philips, for its part, was confident enough to buy a 10 percent stake in the company in late 2011.

“The marketplace is not really functioning properly yet. There’s a lack of transparency,” said Ruud Peters, the chief intellectual property officer of Philips. “We will make more offerings in the future. That’s almost certain.”

S.E.C. to Vote on Proposal to Overhaul Money Funds

Regulators are preparing to take a crucial step toward overhauling some parts of the widely used money market fund industry.

The five members of the Securities and Exchange Commission are scheduled to vote Wednesday morning on a proposal that could eventually do away with the stable dollar-a-share value that has long defined money market funds, according to people briefed on the proposal.

The proposal suggests that it may be necessary to eliminate the fixed share value only on money funds used by big institutional investors, not those used by small investors, and only on so-called prime money funds that invest in corporate debt, not on money funds that invest in government and municipal debt. The affected funds are the ones that were hit the hardest during the financial crisis in 2008.

The long document to be voted on Wednesday is only a proposal, and if it is passed it will face months of public comment before a final vote.

The proposal, developed by the commission’s staff, suggests that an end to the fixed share value on some types of money market funds may be enough to put to rest investors’ worries about a fund’s “breaking the buck” and prevent a run if some funds’ share values fell below $1 routinely. But the proposal also puts forward many additional options that could be considered in the coming months, people briefed on the report said.

The vote is something of a milestone in the effort to revamp the $2.6 trillion money market fund industry. It is a campaign that has moved in fits and starts and has been the subject of intense industry lobbying.

Money funds are supposed to be one of the safest investments. But during the financial crisis, there was a run on the industry after one of the largest funds fell below $1 a share. The market recovered only after winning unusual government guarantees.

The former chairwoman of the S.E.C., Mary L. Schapiro, tried to bring her own proposal to a vote last summer but called it off at the last minute after it became clear that three commissioners were opposed to opening the proposal to comment.

A top council of regulators came together last fall to urge the commission to take action, given what they said were lingering systemic risks.

Even before she took over in May, the current chairwoman, Mary Jo White, made it clear that moving ahead quickly with changes was a top priority. Commissioners who opposed Ms. Schapiro’s proposal have indicated they are likely to vote for the current efforts.

The industry bitterly fought Ms. Schapiro’s efforts and has, in the past, generally opposed moving any funds to a floating net asset value. Industry executives have said that big institutions would stop using money funds if they had a floating share value, posing accounting headaches.

The industry has continued to lobby vigorously on the issue. Members of the commission have had nearly 30 meetings with representatives of the industry this year, according to S.E.C. records.

Recently, many in the industry have struck a more conciliatory note and acknowledged that a floating share value on some funds may be the best option.

The limited nature of the proposed rules could result in opposition from some critics of the industry who have called for a more sweeping overhaul. The Systemic Risk Council, which is made up of many former regulators, has said that all money funds should go to a floating share value.

David Scharfstein, a professor of finance at Harvard, is one of many specialists who have called for money fund managers to put aside capital to protect funds from potential losses. Mr. Scharfstein said that forcing only some funds to use a floating share value would not stop future runs.

“I’m somewhat skeptical that it will really move the dial in terms of risk taking and run prevention,” Mr. Scharfstein said.

Better Late Than Never on Nonbank Too Big to Fail

New systemic-risk tags are better late than never. American International Group, GE Capital and Prudential Financial are among the first nonbank firms to be deemed systemically important financial institutions, or Sifis, by the Financial Stability Oversight Council. These are no-brainers for the moniker. Trouble is, five years on, watchdogs are still bogged down in the last crisis rather than looking out for the next one.

All three financial giants on Monday said they had been flagged for the stiffer oversight bestowed on SIFIs, but A.I.G. and GE Capital seem especially deserving. Uncle Sam had to swoop in and help both during the financial crisis, with A.I.G. receiving a $182 billion lifeline and GE Capital a federal guarantee for its new debt.

It’s taken a long time, however, to reach this point. Regulators need to be careful that they justify the Sifi label, which can force companies to spend a lot more on compliance. But former Treasury Secretary Timothy Geithner identified A.I.G. and GE Capital three years ago as the type of nonbanks deserving special regulatory attention. In the interim, the two companies have largely fixed their weaknesses, diminishing the danger they once posed to the financial system.

That doesn’t make the regulators’ efforts pointless. Excessive risk-taking is a hard habit to break. But the watchdogs have gotten bogged down in the financial crisis. They still need to reform money market mutual funds and implement Volcker Rule limits on banks’ proprietary trading. And the fate of Fannie Mae and Freddie Mac remains up in the air.

Meanwhile, financial markets are evolving quickly. The proliferation of exchange-traded funds, the rise of giant asset managers like BlackRock and the decline of banks’ role in making markets is changing how money flows through the system. Moreover, a rash of cyber attacks on financial institutions has made security a pressing issue. Regulators need to make sure a focus on the past doesn’t blind them to new dangers lurking just ahead.

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

F.B.I. Nominee Could Offer Peek Into the World of Ray Dalio

In the revolving door between Washington and Wall Street, President Obama’s planned F.B.I. nominee, James B. Comey, will be just the latest to spin through. And it’s not unusual that the financial institution where Mr. Comey, a former deputy attorney general, had worked was a hedge fund â€" you may recall that Lawrence H. Summers, the former Treasury secretary, had a short spell at D. E. Shaw, making millions.

What may raise some eyebrows is the hedge fund itself: Bridgewater Associates, the largest hedge fund in the world, with some $120 billion in assets under management.

The first thing that’s remarkable is Bridgewater’s success. Since its founding by Ray Dalio in 1975, it has reaped huge returns. Mr. Dalio was the second-highest-paid hedge fund manager last year, making $1.7 billion despite his fund’s so-so performance, and Forbes estimates his net worth at $12.5 billion. Mr. Dalio, however, is known as much for the work culture he creates as the money he mints. He has written a 123-page manifesto titled “Principles” that is at the center of the distinct philosophy being “lived out” at the fund.

It’s easy to poke fun at the 210 principles as a latter-day model of EST or another 1970s personal discovery group. Take for example the notation in Principle 18 of “pain + reflection = progress,” the Christian-like maxim in Principle 122 to “teach your people to fish rather than give them fish” and the last principle, which lets you know something your mother told you: “Don’t try to please everyone.”

It is phrases like these that led a writer for New York magazine to describe the principles as “written in a digressive, self-serious style that reads as if Ayn Rand and Deepak Chopra had collaborated on a line of fortune cookies.”

It’s not all about personal attitude. Some of the principles express the harsh type of Darwinian capitalism that financiers tend to love. Principle 131 states that “when people are ‘without a box,’ consider whether there is an open box at Bridgewater that would be a better fit. If not, fire them.”

I’m not really sure what the box is, but I think the principle is saying if you don’t fit inside it, you’re gone.

And of course, because the principles are about being a better person, there is some type of system intended to make you not just to improve your life but make you a better employee of Bridgewater. Principle 166, “design your machine to achieve your goals,” sets up a number of objectives for running your life to produce maximum outcomes.

All of this would be sort of comedic except that they are lived out at Bridgewater. And all of the principles are subsumed to a fundamental “truth.” Bridgewater employees are supposed to live in a world of “radical honesty,” a concept that has raised controversy and something that most of us don’t even live out in our homes let alone in the workplace. Employees are encouraged to express their opinions and ideas without bar, criticize what they see as employee failings and search for ultimate truth. Meetings and phone conversations are recorded even at the highest level to make sure that there is a record and no dispute of what is said. And no one is allowed to talk behind the back of another. For those who want a taste, videos are made by young, bright-faced, mostly white employees about how Bridgewater changed their lives.

In an article about the hedge fund, Institutional Investor’s Alpha magazine stated that according to former employees at Bridgewater, “the focus is on an individual’s flaws and mistakes rather than a balance between positives and negatives” and that constant criticism can hurt. Alpha wrote that one employee said that “what [Dalio] doesn’t understand is that if you kick a dog enough … [the dog] curls up and just whimpers. And he kicks pretty hard.”

Because of all of this, The Daily Beast has called it the weirdest hedge fund out there, detailing how Harvard grads were running over themselves to work there, participating in the mock debates that Bridgewater uses to interview prospective employees. Because this is Bridgewater, these debates don’t cover finance but rather topics like abortion.

When I asked Bridgewater to comment on its culture and Mr. Comey’s tenure at the firm, I was referred to those videos online. Mr. Dalio also commented that “President Obama could not have picked a man with greater integrity or a stronger moral beacon than Jim Comey.”

So, what was a prominent Justice Department lawyer and potential top G-man doing in a place like this?

First, for whatever reason, Mr. Dalio’s philosophy works. Bridgewater makes real money, regularly making macroeconomic bets that beat the stock market for its clients, including many of the nation’s pension funds. And this system is intended to solidify and keep together 1,300 people at Bridgewater headquarters in Westport, Conn.

On Wall Street, people don’t mock money. They worship it. So, Mr. Dalio is often hailed as a genius. The New Yorker, in a glowing profile, doubted whether Bridgewater was a cult, saying no one was there against their will. So, maybe the rest of us are living a world of nonsense and Mr. Dalio is right.

The probable next director of the Federal Bureau of Investigation was part of this mind-set for about three years, from 2010 to 2013. Before that, Mr. Comey was general counsel at Lockheed Martin. There, he got decently rich, making $6.1 million in 2009 alone.

He left to become Bridgewater’s general counsel in charge of the legal, compliance and security departments. Presumably, it was for the money â€" when Mr. Comey discloses his Bridgewater earnings, it will almost certainly be a sum greater, perhaps far greater, than $6 million a year.

But did he buy into the Bridgewater culture? Or was it all about the money?

If it is all about the money and Mr. Comey didn’t believe in the firm or the culture, then this is perhaps a sad commentary on what people are willing to do not just to be rich, but to be superrich. Mr. Comey could have been quite comfortable in his previous job, yet he wanted more.

Or maybe not. Maybe the Bridgewater way is the way of the future and Mr. Comey bought into this belief when he was there. In the New Yorker profile, Mr. Comey was quoted as saying, “The mind control is working. I’ve come to believe that all the probing actually reduces inefficiencies over the long run, because it prevents bad decisions from being made.” Perhaps the F.B.I. is about to experience what “radical honesty” means for government, as well as what it means to fire people who don’t fit in.

Mr. Comey’s reasons for going to Bridgewater and what he thought of the culture there are only speculation at this point. If he is nominated, though, Mr. Comey may want to go before the Senate and let the public know what he thinks of the hedge fund and why he worked there.

New York Sues HSBC Over Foreclosures

HSBC Sued by New York Over Foreclosure Abuses

BUFFALO, N.Y./NEW YORK â€" New York state sued HSBC Holdings Plc for ignoring a law designed to protect struggling homeowners from being thrown into foreclosure without getting a chance to renegotiate their mortgages.

The lawsuit filed by Attorney General Eric Schneiderman accuses Europe's largest bank of letting foreclosure cases languish by ignoring a state law intended to give homeowners a chance to negotiate loan modifications.

Schneiderman said such delays have trapped as many as 25,000 homeowners in a "shadow docket" of foreclosure cases backlogged as long as 2-1/2 years, causing them to rack up thousands of dollars of needless interest, fees and penalties.

"Mick Jagger was wrong. If you're a homeowner, time is not on your side," Schneiderman said at a news conference, referencing the 1964 Rolling Stones hit "Time is On My Side."

Neal McGarity, an HSBC spokesman, declined to comment.

The lawsuit was filed on Monday in a New York state court in Buffalo and made public on Tuesday.

It accuses HSBC of regularly ignoring a state law requiring lenders to file paperwork, known as a request for judicial intervention, which entitles homeowners to settlement conferences within 60 days to negotiate loan modifications.

He said a sampling showed that since 2010 HSBC has been too slow to file required paperwork in 297 cases in the counties of The Bronx, Erie, Monroe and Suffolk, and that thousands of similar cases may exist in 58 other counties in the state.

"(HSBC's) business practices not only violate the law, but they make it more likely that homeowners will unnecessarily lose their homes," Schneiderman said in a court filing.

OTHER BANKS

The attorney general is still eyeing possible lawsuits against Bank of America Corp and Wells Fargo & Co for violating terms of a nationwide settlement over mortgage servicing abuses.

Schneiderman accused the nation's second- and fourth-largest banks last month of having failed to timely process modification applications. Wells Fargo is also the largest U.S. mortgage lender.

The $25 billion settlement reached in February 2012 also covered Ally Financial Inc, Citigroup Inc and JPMorgan Chase & Co, but not HSBC.

Schneiderman has not publicly suggested plans to sue those other lenders, but on Tuesday said unnamed financial institutions may become targets.

"Part of it depends on how this goes," he said, referring to the HSBC lawsuit. "We are hopeful banks will see this and comply."

As of March 31, HSBC Bank USA had $183.9 billion of assets, and operated more than 250 branches in 11 U.S. states and Washington, D.C., with about two-thirds of the branches in New York state.

Schneiderman's lawsuit seeks restitution for homeowners, a waiver of improper accrued charges and fees, other damages, and a requirement that HSBC file papers properly in the future.

The case is New York v. HSBC Bank USA et al, New York State Supreme Court, Erie County, No. 001660-2013.

(Reporting by Jonathan Stempel in New York and Neale Gulley in Buffalo, New York; Additional reporting by Karen Freifeld in New York; Editing by Eddie Evans, Maureen Bavdek and Leslie Gevirtz)

Calculating Apple’s True U.S. Tax Rate

One lesson from the Senate hearing about Apple’s offshore tax planning is that figuring out what a multinational company actually pays in taxes is harder than it should be. At the risk of sounding Clintonesque, it depends on what the meaning of “pays” is.

“The way I look at this is that Apple pays 30.5 percent of its profits in taxes in the United States,” Apple’s chief executive, Timothy D. Cook, said at the hearing. The statutory rate for companies is 35 percent, and in theory the government taxes corporations on their worldwide income at that rate. Mr. Cook explained that Apple paid less on a global basis because its profits generated abroad were taxed at a lower rate than in the United States.

The way I arrive the real taxes paid by Apple is a little different. As Bloomberg News highlighted recently, Mr. Cook’s calculation is based on a badly distorted measure of United States income.

The whole point of the Senate hearing was to show how Apple shifts substantial amounts of its economic profits from the United States to Ireland, where they are taxed at a rate close to zero. Those profits are then sheltered in Ireland and untaxed unless Apple decides to bring the cash back to the United States.

Mr. Cook’s 30 percent figure is also misleading because it includes not just current taxes, but deferred tax liabilities. Including future taxes is correct as a matter of accounting; shareholders care about both current and future taxes when trying to understand the value of a company.

But there is plenty of reason to doubt that Apple will ever pay taxes equal to the amount it has reserved.

Most of its deferred tax expense is attributable to foreign profits that will not be taxed until the cash is repatriated. But Apple is reluctant to repatriate its overseas cash; it would rather lobby for another tax holiday and bring the cash back tax-free. An added benefit of a tax holiday for Apple is that it would provide a quick jump in reported earnings when the accounting entry for the deferred tax liability is reversed.

My point is that politicians and voters are interested in a very different question than Apple’s shareholders. Shareholders are indifferent to whether a dollar of tax is paid to the Treasury Department or to a foreign government and credited in full by the American tax system. Either way, it’s a dollar that won’t be distributed to the shareholders.

But as voters we care about actual dollars flowing to the federal government. You can’t finance a food stamp program with foreign tax credits.

Most of us think of paying taxes as writing a check to the government or having money withheld from a paycheck. By this common sense measure, how much tax does Apple actually pay?

The number can be calculated from the company’s tax return, but tax returns are not public. Felix Salmon of Reuters has suggested that public companies file their tax returns with the Securities and Exchange Commission. The problem is that many companies would resist disclosing information that could offer competitors insight into company strategy, including tax avoidance strategies.

It’s sometimes possible to dig through a company’s filings and figure out the amount of cash paid in taxes, but accounting conventions make the task onerous and imprecise. It shouldn’t be this hard.

Here’s my suggestion. Congress should require every large American company to disclose to the public a simple number each year, which I would call the “true U.S. tax rate”: (1) the amount of cash tax payments to the Treasury Department divided by (2) worldwide pretax book income. To account for fluctuations, we might calculate this number over a three-year period.

According to the Senate report, Apple paid $5.3 billion to the Treasury Department in the fiscal years 2009 to 2011. Its worldwide pretax book income over that period was about $65 billion. Thus, Apple’s “true U.S. tax rate” was 8.2 percent.

Companies might complain that this figure is deceptive, as it does not account for foreign taxes paid and credited in the United States, or book-tax differences like accelerated depreciation. But so what?

The point of the disclosure is to allow voters and policy makers an easy way to understand how well the tax system is working and what each corporation contributes to the public coffers.

Victor Fleischer is a professor at the University of Colorado Law School, where he teaches partnership tax, tax policy and deals. Twitter: @vicfleischer

Calculating Apple’s True U.S. Tax Rate

One lesson from the Senate hearing about Apple’s offshore tax planning is that figuring out what a multinational company actually pays in taxes is harder than it should be. At the risk of sounding Clintonesque, it depends on what the meaning of “pays” is.

“The way I look at this is that Apple pays 30.5 percent of its profits in taxes in the United States,” Apple’s chief executive, Timothy D. Cook, said at the hearing. The statutory rate for companies is 35 percent, and in theory the government taxes corporations on their worldwide income at that rate. Mr. Cook explained that Apple paid less on a global basis because its profits generated abroad were taxed at a lower rate than in the United States.

The way I arrive the real taxes paid by Apple is a little different. As Bloomberg News highlighted recently, Mr. Cook’s calculation is based on a badly distorted measure of United States income.

The whole point of the Senate hearing was to show how Apple shifts substantial amounts of its economic profits from the United States to Ireland, where they are taxed at a rate close to zero. Those profits are then sheltered in Ireland and untaxed unless Apple decides to bring the cash back to the United States.

Mr. Cook’s 30 percent figure is also misleading because it includes not just current taxes, but deferred tax liabilities. Including future taxes is correct as a matter of accounting; shareholders care about both current and future taxes when trying to understand the value of a company.

But there is plenty of reason to doubt that Apple will ever pay taxes equal to the amount it has reserved.

Most of its deferred tax expense is attributable to foreign profits that will not be taxed until the cash is repatriated. But Apple is reluctant to repatriate its overseas cash; it would rather lobby for another tax holiday and bring the cash back tax-free. An added benefit of a tax holiday for Apple is that it would provide a quick jump in reported earnings when the accounting entry for the deferred tax liability is reversed.

My point is that politicians and voters are interested in a very different question than Apple’s shareholders. Shareholders are indifferent to whether a dollar of tax is paid to the Treasury Department or to a foreign government and credited in full by the American tax system. Either way, it’s a dollar that won’t be distributed to the shareholders.

But as voters we care about actual dollars flowing to the federal government. You can’t finance a food stamp program with foreign tax credits.

Most of us think of paying taxes as writing a check to the government or having money withheld from a paycheck. By this common sense measure, how much tax does Apple actually pay?

The number can be calculated from the company’s tax return, but tax returns are not public. Felix Salmon of Reuters has suggested that public companies file their tax returns with the Securities and Exchange Commission. The problem is that many companies would resist disclosing information that could offer competitors insight into company strategy, including tax avoidance strategies.

It’s sometimes possible to dig through a company’s filings and figure out the amount of cash paid in taxes, but accounting conventions make the task onerous and imprecise. It shouldn’t be this hard.

Here’s my suggestion. Congress should require every large American company to disclose to the public a simple number each year, which I would call the “true U.S. tax rate”: (1) the amount of cash tax payments to the Treasury Department divided by (2) worldwide pretax book income. To account for fluctuations, we might calculate this number over a three-year period.

According to the Senate report, Apple paid $5.3 billion to the Treasury Department in the fiscal years 2009 to 2011. Its worldwide pretax book income over that period was about $65 billion. Thus, Apple’s “true U.S. tax rate” was 8.2 percent.

Companies might complain that this figure is deceptive, as it does not account for foreign taxes paid and credited in the United States, or book-tax differences like accelerated depreciation. But so what?

The point of the disclosure is to allow voters and policy makers an easy way to understand how well the tax system is working and what each corporation contributes to the public coffers.

Victor Fleischer is a professor at the University of Colorado Law School, where he teaches partnership tax, tax policy and deals. Twitter: @vicfleischer

The Hurdles to Reviving an Investment Bank Partnership

Goldman Sachs’s initial public offering in 1999 seemed to hammer a nail in the coffin for the partnership model in investment banking. Now activist investment firm Knight Vinke is suggesting that UBS could adopt something like a partnership structure as part of its plan to split wealth management from investment banking. The breakup idea is overambitious today. Only with time, luck and possibly more capital, could an employee-owned UBS investment bank be made to work.

Knight Vinke wants UBS to sell or demerge its investment bank and accelerate the disposal of non-core assets. The idea is that the remaining wealth management business would enjoy a higher rating, unencumbered by the risk of the investment bank. Each obstacle to this plan has a difficult solution.

The first challenge would be to check the capital position of the standalone investment bank and legacy trading assets. UBS has 30 billion Swiss francs ($31.8 billion) in equity against 645 billion francs in assets for both its core and non-core divisions. On that basis, the leverage for UBS’s investment banking-related businesses is 22 times. That’s well below the maximum 33 times mandated by Basel III and should provide sufficient comfort to investors in spite of UBS’ recent history of trading mishaps. UBS also has plentiful equity to meet Basel III requirements to cover its risk weighted assets in both its good and bad investment banks. Its latest results show its corporate centre has an extra 7.8 billion Swiss francs of common equity in reserve above its 10 percent core Tier 1 ratio. That could be used to top up the capital of an independent investment bank.

However, funding requirements for the remaining investment bank would be an issue. Jefferies’ reversal into conglomerate Leucadia last year means there are no standalone investment banks with large trading arms. Even Morgan Stanley and Goldman Sachs have large asset gathering operations. Before the Leucadia merger, the annual cost of insuring Jefferies’ five-year bonds against default with credit default swaps â€" one of the best indicators of bank risk â€" was 130 basis points. That implies a big increase in funding costs: UBS’s five-year CDS currently trades at around 90 basis points. And UBS’s trading operation is many times larger than Jefferies. Evn a standalone investment bank with relatively high level of equity would face higher funding costs. It might therefore need even more capital before it could fund itself without the benefit of an implicit state guarantee.

Then there’s the time it would take to transform the investment bank into a partnership. An average of five analysts’ estimates puts its sum-of-the-parts value at about 10 billion Swiss francs, or 813,000 francs per employee. It would probably take the unit’s 12,500 employees eight years to earn that value through bonuses alone, given about a quarter of total compensation is typically handed out in bonuses annually after base salaries and deferred awards are paid.

For their part, UBS’s investment bankers would suffer more from a split than their wealth counterparts. Having a captive investor audience helps investment banks to sell their expertise to institutional and corporate clients. Without those cross-selling benefits, the standalone investment bank’s value might fall. But even if the unit was worth 15 percent less â€" the 8.5 billion francs at which Knight Vinke values it â€" it would take more than six years to transform the business into a partnership.

True, UBS could lend its investment bankers the money to buy the division. Future bonuses could then be used to pay back the loan, assuming interest payments were non-existent or extremely low. But the risk of staff defaulting on the loan would remain with UBS in the event of another trading fiasco.

The wealth management division is worth about 35 billion Swiss francs, according to analyst estimates. If it traded on the same 1.7 price to book value multiple as pure-play private bank Julius Baer, that would imply an additional 14 billion francs in market capitalisation (UBS group trades on 1.3 times book today).

The snag is that axing the investment bank would probably cost UBS valuable wealth management business. UBS’s ultra-high net worth clients â€" defined as those with at least 50 million Swiss francs to invest â€" accounted for 45 percent of its total 870 billion Swiss francs in invested assets as of the end of March. Ultra-wealthy clients like to have ready access to structured products created by an investment bank, or easy access to fast-growing equity investments, such as UBS’s placing of Formula 1 stock ahead of its initial public offering last year. Juerg Zeltner, UBS’s private-banking head, is an ardent believer in having an in-house investment bank and says it reduces client costs.

If a substantial portion of UBS’s ultra-rich clients pulled their deposits from a group shorn of an investment bank, the wealth manager’s value would be more like 30 billion francs, even on a 1.7 price-to-book multiple. To be sure, UBS might replace some of those clients with more moderately wealthy customers happy to invest in a safer institution.

It may be that UBS’s investment bankers and wealth managers would love to see the back of each other, and the former would relish becoming partners in the firm. And it may be that shareholders would benefit too. But with so many ifs and buts, many of the current generation may have retired before such a plan materializes.

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

After Leaving JPMorgan, Staley Sizes Up Banks for Hedge Fund

As the head of JPMorgan Chase’s investment bank, James E. Staley helped the company navigate the thicket of new regulations that emerged after the financial crisis.

Now, he is betting that those regulations present an investment opportunity. Mr. Staley, who left JPMorgan this year to join the hedge fund BlueMountain Capital Management as a managing partner, said on Tuesday that European banks would have to adapt as regulators remain concerned about the problem of too-big-to-fail.

On a panel at the Bloomberg Hedge Funds Summit in New York, Mr. Staley discussed what is known as resolution authority, in which regulators help wind down failing banks. The process of adapting to these new rules, he said, would give banks a “more clearly defined capital structure,” and thereby create opportunities for investors.

“There’s going to be tremendous mis-pricing between the different levels of the capital structure in these banks,” Mr. Staley, who is known as Jes, said on the panel.

European leaders are currently developing a system for dealing with failing banks, as part of a broader effort to unify the Continent’s financial oversight. This system may involve the creation of a new body, according to a news report this week.

While he did not discuss JPMorgan, which is the largest United States bank, Mr. Staley mused on the general issue of big banks that had to be rescued in the financial crisis.

“It’s inherently unstable to give liquidity to depositors and invest money for seven years,” he said. “But society thought it was important enough that to give stability they put the government behind the banks.”

But because banks have gotten so big, he said, “the government can’t stand behind banks anymore.”

BlueMountain, a firm that has done business with JPMorgan over the years, was one of the hedge funds on the other side of the London Whale trade, in which the bank lost billions of dollars. The chief executive of BlueMountain, Andrew Feldstein, previously worked at JPMorgan.

Some hedge funds have been lining up to buy assets that European banks are forced to sell to comply with new regulations. One participant of the panel on Tuesday, Victor Khosla, the chief investment officer of SVP Global, said Europe was like “El Dorado.”

“This is the opportunity of the moment,” Mr. Khosla said, discussing the prospect of long-term gains to be had from investing in European assets.

Mr. Staley also gave his thoughts on the economic situation in Europe, expressing cautious optimism.

“I personally think tremendous progress has been made both in Europe and the U.S.,” he said.

Later, he added, “It’s very hard to bet against a central bank.”

Crunch Time for China’s High School Seniors

Friday and Saturday will be momentous days for millions of Chinese families, but not because of the upcoming California summit meeting between President Obama and China’s new leader, Xi Jinping.

On those two days high school seniors from around China will sit for the annual college entrance examination, called the Gaokao in Chinese. Most Chinese students prepare for years under intense pressure and families spend huge amounts on tutoring and after-school study sessions. While increasing numbers of Chinese students go overseas for college â€" nearly 200,000 went to North America for the 2011-12 academic year â€" the vast majority have no option for higher education but to do well on the national exam.

Cheating is a concern; last year 1,500 people were arrested on suspicion of selling equipment including “clear-plastic earphones, wireless signal receivers, and modified pens, watches, glasses and leather belts.” This year, one province has banned anything that “makes the metal detector beep”, including bras with metal clasps.

As with just about everything in China, there are too many people competing for a scarce resource. And through the household registration (hukou) system, the college entrance process is biased in favor of urban applicants.

The Economist this week has an excellent article on urbanization that examines some of the social barriers to expanding urbanization (last week’s China Insider column looked at some of the political and financial obstacles):

The hukou perpetuates a rigid caste system. Children of holders of rural hukou inherit their parents’ second-class status, even if they are born in cities. Many urbanites want to keep this system in place, to protect their preferential access to jobs, education and health care.

Getting into college however does not guarantee a good job upon graduation, especially this year. Seven million students who succeeded at the Gaokao four years ago are now looking for work in the toughest job market ever.

While those millions of Chinese students are sweating through the two-day test, Mr. Obama and Mr. Xi will be talking in the California desert, in their first meeting since Mr. Xi succeeded Hu Jintao.

The venue for the United States-China summit meeting, Sunnylands, the former estate of Walter and Lee Annenberg, is an inspired choice that will allow the two leaders to have focused discussions in an informal setting. California will be the last stop in Mr. Xi’s Americas tour that has included visits to Trinidad and Tobago, Costa Rica and Mexico.

The agenda has not been disclosed, but it is likely the topics of discussion will include cyber issues, North Korea, maritime issues including the South China Sea and the disputed Diaoyu/Senkaku islands, Iran, Syria, and trade and the economy.

More important than any specific agenda item is that the two leaders build some sort of rapport. As Paul Haenle, director of the Carnegie-Tsinghua Center for Global Policy in Beijing and previously a National Security Council official in both the George W. Bush and Barack Obama administrations, told Bloomberg News:

“What these two leaders need to do is really begin to establish a working relationship… The biggest problem we have had in our interaction with China is that it has been very stilted, and very much in accordance with scripted talking points.”

The meeting should have political benefits for Mr. Xi, as it will likely show him as a down to earth, confident, global statesman, in marked contrast to the style of his predecessors. One “senior Obama administration official” told The Wall Street Journal that “there is a lot more hope… the previous government was more 20th century. The new team seems to be more 21st century.”

President Obama is under increasing pressure from Congress to show progress on cyber-security, but we should not expect any breakthroughs. The U.S. and China have agreed to hold talks on hacking but it is not clear that the Chinese government understands how serious this issue has become on Capitol Hill and the impact it may have on the relationship:

A new, bipartisan Senate measure, for example, calls for the creation of a “watch list” of foreign countries engaging in cyber espionage. For the worst offenders, the president could “block imports of certain categories of goods if they benefited from the stolen U.S. technology or proprietary information,” explained Sen. Carl Levin (D-Mich.) in a letter to Obama last week.

“I thought you could refer to this bill in your meeting with President Xi as an example that the U.S. will indeed impose real costs on China should they continue to steal our intellectual property,” added Levin, who promised he would seek action on the bill this year.

THE NEW FOREIGN POLICY MANTRA for the Chinese government is building “a new type of great power relations.” The meaning is not yet clear but it is probably safe to assume that it involves a relative diminution of American power vis a vis China. While there are many positive aspects to the U.S.-China relationship, including bilateral trade that may exceed $450 billion in 2013, managing the rise of China is going to require statesmanship and strategic thinking that, given the partisan politics in Washington, could be lacking.

I have two suggestions for the summit meeting organizers. First, Peng Liyuan and Michelle Obama will be with their husbands at Sunnylands, and it would be great if there were a global initiative on which they could cooperate.

Second, given the proposed acquisition of Smithfield Foods by Shanghui International, serve some Smithfield Ham.

Gleacher to Shut Its Investment Bank

Gleacher & Company, the troubled boutique bank, said on Tuesday that it was shutting down its investment banking business and that it had named a restructuring expert as its chief executive.

The hiring of Christopher J. Kearns of the Capstone Advisory Group as chief executive and chief restructuring officer portends tougher days ahead. Mr. Kearns’ firm was retained to help explore strategic alternatives and provide reorganization advice.

Among the first orders of business was Gleacher shuttering its mainstay investment banking â€" the division created when Eric Gleacher, a veteran deal maker, founded the firm over two decades ago â€" affecting 20 employees.

Gleacher said that it was considering a further wind-down of itself, exploring a potential merger and reinvesting its liquid assets. The firm had already considered a merger over the past year and change, having turned down opportunities to sell to the likes of Stifel Financial. (Mr. Gleacher had expressed frustration over the board choosing not to sell the company, though he has said that he left earlier this year because he wanted to become more of a freelance adviser.)

Shares in Gleacher dipped slightly by midday on Tuesday, to $13.52. The firm now carries a market value of $82.9 million.

Gleacher to Shut Its Investment Bank

Gleacher & Company, the troubled boutique bank, said on Tuesday that it was shutting down its investment banking business and that it had named a restructuring expert as its chief executive.

The hiring of Christopher J. Kearns of the Capstone Advisory Group as chief executive and chief restructuring officer portends tougher days ahead. Mr. Kearns’ firm was retained to help explore strategic alternatives and provide reorganization advice.

Among the first orders of business was Gleacher shuttering its mainstay investment banking â€" the division created when Eric Gleacher, a veteran deal maker, founded the firm over two decades ago â€" affecting 20 employees.

Gleacher said that it was considering a further wind-down of itself, exploring a potential merger and reinvesting its liquid assets. The firm had already considered a merger over the past year and change, having turned down opportunities to sell to the likes of Stifel Financial. (Mr. Gleacher had expressed frustration over the board choosing not to sell the company, though he has said that he left earlier this year because he wanted to become more of a freelance adviser.)

Shares in Gleacher dipped slightly by midday on Tuesday, to $13.52. The firm now carries a market value of $82.9 million.

Cliffhanger at SAC

Wall Street was in suspense over what would become of SAC Capital Advisors, as the embattled hedge fund faced a regularly scheduled quarterly deadline for investors to ask for their money back. For most of Monday, a report about the investor exodus was the most-viewed article on Bloomberg data terminals. With SAC facing an intensifying insider trading investigation, a major reason for the concern on Wall Street is a commercial one.

For brokerage firms, SAC has been a source of billions of dollars in revenues over the years, DealBook’s Peter Lattman writes. Several executives, citing client confidentiality, said the prospect of a severely diminished SAC, the hedge fund giant founded by Steven A. Cohen, would hurt their bottom line. “This is going to have a significant impact to the Street, full stop,” said a senior executive at a brokerage firm that counts SAC as one of its largest clients. “It’s like that line in ‘Bonfire of the Vanities’: a lot of golden little crumbs have fallen off of SAC, and now it looks like there will be less of them.”

SAC employees, and the brokers and stock salesmen that service the firm, are expecting outside investors to take back several billion dollars by the deadline, Mr. Lattman reports. “Combined with the $1.7 billion that outside investors took out earlier this year, the withdrawals could leave SAC and Mr. Cohen with only about $1 billion of other people’s money. The fund could announce to its clients as soon as Tuesday the amount of money that investors asked to withdraw.”

BEFORE THE SAC CASE  |  Trades by Raj Rajaratnam’s younger brother in a technology stock nearly seven years ago may have put SAC on regulators’ radar, government documents show, Anita Raghavan writes in DealBook. SAC is the biggest hedge fund to become the focus of a government inquiry since the Galleon Group, Mr. Rajaratnam’s old firm.

“In the course of investigating Sedna Capital, the $80 million fund of Mr. Rajaratnam’s younger brother, Rengan, over accusations of ‘cherry picking,’ regulators found some communications between Rengan and an SAC trader who is no longer with the firm. ‘Cherry picking’ is when an asset manager reserves his winning trades for one fund, typically a friends and family fund,” Ms. Raghavan writes. “A court filing made public on Monday indicates that Rengan Rajaratnam is in talks with prosecutors over a possible plea agreement.”

THIS TIME, WALL STREET IS THE HOME BUYER  |  Home prices in some of the nation’s most depressed markets have been heating up. But unlike the last housing boom, the buyers this time are Wall Street investors, Nathaniel Popper writes in DealBook. “The influx has been so great, and the resulting price gains so big, that ordinary buyers are feeling squeezed out. Some are already wondering if prices will slump anew if the big money stops flowing.” Suzanne Mistretta, an analyst at Fitch Ratings, said: “The question is how much the change in prices really reflects market demand, rather than one-off market shifts that may not be around in a couple years.”

Wall Street played a major role in the last housing boom by providing easy financing. Now, firms like the Blackstone Group and Colony Capital, an investment firm based in Los Angeles, have become big landlords on Main Street. Such firms are buying thousands of homes and renting them out, with the possibility of unloading them when prices rise far enough.

ON THE AGENDA  |  The Bloomberg Hedge Funds Summit, with panels of industry professionals, takes place in New York. Dollar General reports earnings before the market opens. Data on international trade in April is out at 8:30 a.m. Sergio Ermotti, chief executive of UBS, is on CNBC at 3 p.m. Anshu Jain, co-chief executive of Deutsche Bank, is on CNBC at 3:10 p.m.

A TRADER’S TALE OF EXCESS  |  Turney Duff, a former stock trader and recovering cocaine user who once worked for Raj Rajaratnam of the disgraced Galleon Group hedge fund, now lives in comparatively humble environs, in a modest split-level house in a sleepy Long Island neighborhood, DealBook’s Peter Lattman writes. He traces his descent in “The Buy Side,” an industry tell-all set for publication on Tuesday that illuminates the world at the center of insider trading scandals.

“None of it surprises me,” Mr. Duff said, referring to the dozens of indictments of his onetime peers. “I liken it to the steroid era in Major League Baseball; it wasn’t about right and wrong but about getting an edge in a game where the stakes were huge.”

Mergers & Acquisitions »

Continental Grain to Walk Away From Smithfield  |  The Continental Grain Company said it had chosen to exit its position of roughly 6 percent in Smithfield Foods and would not challenge the pork company’s planned deal with Shuanghui International. DealBook »

Sprint Says Dish’s Bid for Clearwire Violates Delaware Law  |  In a letter to Clearwire’s board, Sprint Nextel said Dish Network’s tender offer of $4.40 a share was not “actionable,” since it broke an existing shareholder agreement at the wireless network operator. DealBook »

For Vodafone, Renewed Interest in German Operator  |  The Vodafone Group “has revived its evaluation of a potential takeover” of the German cable operator Kabel Deutschland Holding, The Wall Street Journal reports, citing unidentified people familiar with the matter. WALL STREET JOURNAL

McGraw Hill Financial to Raise Stake in Indian Credit Ratings Agency  |  McGraw Hill Financial said late on Sunday that it would buy an additional 22 percent stake in Crisil Ltd., an Indian credit ratings agency, for $336.3 million. DealBook »

American Realty to Buy Properties From GE Capital  |  American Realty Capital Trust IV has agreed to buy 986 retail properties from GE Capital, a portfolio that the real estate investment trust said was worth $1.45 billion. DealBook »

Glencore Copper Mines Said to Draw Interest From Asia  |  “Two companies linked to Chinese state-backed groups are weighing rival bids for Glencore Xstrata P.L.C.’s roughly $5 billion worth of copper mines in Peru,” Reuters reports, citing unidentified people familiar with the matter. REUTERS

INVESTMENT BANKING »

Firms Singled Out for More Oversight  |  The American International Group, Prudential Financial and GE Capital were designated systemically important by the Financial Stability Oversight Council, meaning they might be subject to increased supervision, Bloomberg News reports. BLOOMBERG NEWS

Mutual Funds Stung by Bond Losses  |  The Financial Times reports: “Every one of the most popular class of U.S. mutual funds investing in bonds lost money in May, highlighting the risks for investors as interest rates rise.” FINANCIAL TIMES

Lawmakers Developing Plan to End Fannie and Freddie  |  The proposed legislation could be introduced this month. BLOOMBERG NEWS

Former JPMorgan Trader Starts Hedge Fund  |  Deepak Gulati, a former head of global equity proprietary trading at JPMorgan Chase, raised about $300 million for a hedge fund, Bloomberg News reports, citing two unidentified people with knowledge of the matter. BLOOMBERG NEWS

PRIVATE EQUITY »

Billabong Shares Fall as Takeover Talks End  |  Sycamore Partners Management and Altamont Capital are no longer in talks to buy the Australian surfwear company Billabong and have begun discussions over refinancing and asset sales instead. Billabong “lost about half of its stock market value” on the development, Bloomberg News reports. BLOOMBERG NEWS

Calpers to Sell Stake in Carlyle Group  |  The California Public Employees’ Retirement System, known as Calpers, plans to sell its 4 percent stake in the Carlyle Group, an investment valued at $373.3 million as of the end of the day Monday, Reuters reports. REUTERS

HEDGE FUNDS »

Ackman to Reduce Stake in Canadian Pacific  |  William A. Ackman’s Pershing Square Capital Management plans to sell shares in Canadian Pacific Railway after a significant rise in the stock price, Bloomberg News reports. BLOOMBERG NEWS

Investor Returns, With Bold Bet on Greece  |  Paul Kazarian, who made his name years ago as the founder of Japonica Partners, disclosed plans to buy up to $3.8 billion of Greek government bonds. WALL STREET JOURNAL

I.P.O./OFFERINGS »

Zynga Lays Off 18% of Work Force  |  “None of us ever expected to face a day like today, especially when so much of our culture has been about growth,” Mark J. Pincus, the chief executive, told Zynga employees in a blog post. NEW YORK TIMES BITS

Advertising on Social Media Intersects With Free Speech  |  “As social media sites pursue advertising in a bid for new revenue, they are finding that they must simultaneously create a safe space for the advertisers they attract,” The New York Times writes. NEW YORK TIMES

Qingdao Port Said to Seek Up to $300 Million in Hong Kong I.P.O.  | 
WALL STREET JOURNAL

VENTURE CAPITAL »

Relationship Science Attracts $30 Million  |  Relationship Science, a networking service that is popular among the Wall Street set, raised $30 million in financing, Fortune reports. FORTUNE

Technology Entrepreneur Looks to Raise $10 Million Fund  |  Jason Calacanis said investors in his new fund include David Sacks, the founder of Yammer, according to peHUB. PEHUB

The Long Road Ahead for Tesla  |  Tesla’s chief executive, Elon Musk, needs to sell 540,000 vehicles a year for the company to be worth $43 billion by 2022, Antony Currie of Reuters Breakingviews argues. REUTERS BREAKINGVIEWS

LEGAL/REGULATORY »

G.M. to Replace Heinz in the S.&P. 500  |  After market close on Thursday, G.M. will replace H.J. Heinz in Standard & Poor’s 100- and 500-stock indexes, amid the automaker’s continued efforts to repay the federal government for its taxpayer-financed bailout. DealBook »

The S.E.C. Is ‘Bringin’ Sexy Back’ to Accounting Investigations  |  In the past, the Securities and Exchange Commission relied mainly on the market to flag accounting problems at companies that would lead to an investigation. Now, it is devising new programs to be more proactive, Peter J. Henning writes in the White Collar Watch column. DealBook »

No Easy Fix for Insider Trading  |  James Surowiecki, in his column in The New Yorker, argues for faster disclosures of material information as a means of discouraging insider trading. The proposal, however, has drawn skepticism. DealBook »

Abe of Japan Said to Urge New Strategy for Public Pensions  |  Reuters reports: “Japan’s government is set to urge the nation’s public pension funds â€" a pool of over $2 trillion â€" to increase their investment in equities and overseas assets as part of a growth strategy being readied by Prime Minister Shinzo Abe, according to people with knowledge of the policy shift.” REUTERS

Yen Move Presents Challenge for Abe  |  “Less than a month after the yen breached 100 to the dollar, celebrated as a milestone for this export-loving economy, the yen is back on the wrong side of that symbolic threshold,” The New York Times writes. NEW YORK TIMES

Salesforce to Acquire ExactTarget for $2.5 Billion

Salesforce.com agreed on Tuesday to buy ExactTarget, a provider of marketing software services, for about $2.5 billion, further bolstering its social marketing offerings.

Under the terms of the deal, Salesforce.com will pay $33.75 a share, nearly 53 percent above ExactTarget’s closing price on Monday.

The takeover is the latest by Salesforce.com, which has made a number of acquisitions to bolster its marketing offerings. Last year, it bought Buddy Media, a social media manager, for $689 million. And two years ago, it bought Radian6 for that company’s ability to help customers track their effectiveness on Facebook and Twitter.

Buying ExactTarget will give Salesforce.com a portfolio of digital marketing services that allow customers to manage their campaigns over e-mail, social networks and mobile devices. Salesforce.com pointed to surveys showing an increase in marketing spending on digital offerings, with Garner estimating that consumer technology companies planning to switch one-third of their ad spending to online efforts within two years.

“The addition of ExactTarget makes Salesforce the starting place for every company and puts salesforce.com in the pole position to capture this opportunity,” Marc Benioff, chairman and chief executive of Salesforce.com, said in a statement.

Bank of America Merrill Lynch advised Salesforce.com, while JPMorgan Chase advised ExactTarget.

I.B.M. Buys Cloud Computing Firm in Deal Said to Be Worth $2 Billion

I.B.M. announced on Tuesday that it had agreed to buy SoftLayer Technologies, a cloud computing company, in an effort to strengthen I.B.M.’s position in the fast-growing market for computing sold to businesses as a service delivered over the Internet.

The purchase price was not disclosed publicly. But it was about $2 billion, according to a person told of the negotiations, who has asked not to be named because he had not been authorized to speak about the terms.

SoftLayer, a private company based in Dallas, has a network of 13 data centers in the United States, Singapore and Amsterdam, and revenue of about $400 million a year. GI Partners, a private equity fund based in Menlo Park, Calif., is the majority owner of SoftLayer.

The acquisition is the largest made under the leadership of Virginia M. Rometty, who became chief executive in January 2012. The move, analysts say, also gives I.B.M. a broader presence in the business of cloud computing services.

I.B.M.’s first moves in the cloud market date back to 2007. But its early emphasis, analysts say, had mainly been on so-called private clouds, in which the computing is delivered to users as service over the Internet but from data centers owned by I.B.M.’s corporate customers.

But the SoftLayer acquisition will sharply expand I.B.M.’s capability to deliver computing services remotely to customers from I.B.M. data centers - the so-called public cloud model.

The SoftLayer data centers will be added to the 10 cloud services data centers I.B.M. now has worldwide.

Amazon is the leader in the public cloud arena, and its roster of customers includes not just start-ups and research projects, but also large companies like Netflix.

Amazon does not break out the revenue for its cloud business, Amazon Web Services, but it is growing fast. The unit had estimated revenue of $2 billion last year, according a recent research report from Barclays, which forecast that Amazon’s cloud business would reach $5 billion or more by 2014.

I.B.M. executives say its strategy is to compete in the public cloud market not with basic computing capabilities like processing and storage, but with software for marketing, procurement and customer service delivered as cloud offerings. Since 2007, the company has spent $4.5 billion on more than a dozen acquisitions to build up its cloud software and services offerings.

“We’re focusing on business services that leverage the cloud model,” said Ric Telford, vice president of I.B.M. cloud services.

Beyond the acquisitions, I.B.M. hopes to offer the company’s homegrown technology as cloud services, like its Watson artificial-intelligence software, which I.B.M. announced last month was being tailored as a smart customer-service assistant.

“Watson has a lot more potential because of the cloud delivery model,” Mr. Telford said.

Dannon, the yogurt maker, is a cloud services customer that reflects the I.B.M. strategy. It uses I.B.M. public-cloud software for optimizing its pricing, promotions and product planning. The cloud software has helped Dannon’s sales planning teams improve the percentage of products sold to consumers from 75 percent to 98 percent - crucial for a food stuff with a limited shelf life. The software was developed by DemandTec, which I.B.M. acquired last year.

In new projects, Dannon, owned by the French company Danone, is now pursuing a “cloud first strategy,” said Timothy Weaver, the chief information officer.

I.B.M. has earmarked its cloud business as an area for investment and growth. That business grew 70 percent in the first quarter of 2013 from the quarter a year earlier. By 2015, I.B.M. has forecast its cloud business should reach $7 billion, including private and public cloud services.

All the major technology companies - including Microsoft, EMC, Hewlett-Packard and Oracle - are pursuing cloud strategies. But analysts say I.B.M., perhaps more than any other company, can assure corporate customers to feel comfortable putting their business information in remote data centers and buying public cloud services.

More than a decade ago, I.B.M. demonstrated that endorsement effect, when it made a big commitment to Linux, the open-source operating system, helping it become a mainstream technology in corporate data centers.

“I.B.M. is very much a trusted brand here,” said Steven Milunovich, an analyst at UBS Securities. “Once they show up, they tend to have a big impact.”