F.C.C. Clears Sprint Deals With SoftBank and Clearwire

The Federal Communications Commission on Friday cleared the way for the $21.6 billion purchase of Sprint by SoftBank of Japan. The approval ends months of posturing and uncertainty about the deal, as a rival, Dish Corp., had challenged the deal on national security grounds and tried to mount a rival takeover bid.

The F.C.C. said Friday that the deal would be positive for consumers since the two parties were not domestic competitors. An F.C.C. commissioner, Ajit Pai, praised the deal, saying it would help consumers “who stand to benefit from an invigorated company better able to deliver advanced wireless products and services.” He also noted that the deal helped companies, “As we’ve now shown that regulation need not impede access to the international financial markets and foreign capital.”

Sprint shareholders voted to approve the transaction last month. In May, after granting some concessions, Sprint also won approval from a government panel, the Committee on Foreign Investment in the United States, which signed off on the deal after reviewing national security issues. Dish, in part, sought to drum up fears based on SoftBank’s ties to Chinese telecommunications equipment makers.

The F.C.C. order also covers Sprint’s proposed takeover of the broadband network Clearwire.

Sprint is also close to acquiring full control of Clearwire, whose wireless spectrum holdings will go toward building its own high-speed data network. Last month, Sprint sweetened its bid for the 50 percent of Clearwire that it did not own in an attempt to defeat a rival offer by Dish.

Clearwire shareholders will vote on Monday on the Sprint offer. Clearwire’s board has supported the improved offer from Sprint.

The companies hope to complete both the Sprint-Clearwire deal and the Sprint-SoftBank merger in July.

Moral Quandaries at MF Global

A central question in the MF Global saga is how Edith O’Brien interpreted one of Jon Corzine's comments to her about over drafts in the final days leading up to the firm's downfall, writes James B. Stewart in the Common Sense column for The New York Times. “He didn’t actually tell anyone to murder the archbishop,” said one professor. “But people knew what would make him happy.”

How Regulators Can Restore Trust in Bank Capital

The Basel Committee just dealt another blow to the self-assessment of banking risk. This powerful group of global supervisors published new evidence on July 5 unmasking shortcomings in the models that tell lenders how much capital they need. For fans of the status quo, it makes gory reading.

Regulators currently allow banks to weight their assets by how risky they are. This then determines how much capital they need. But investors increasingly believe that lenders massage their sums to cut their capital requirements. From the outside it can be difficult to see where justified diversity of risk ends and where fiddling begins.

The committee has made a stab at cutting through this. It looked at 40 percent of the banking book assets of 32 banks, assumed they each held core Tier 1 ratios of 10 percent on their risk-weighted assets (R.W.A.’s), and tested how they would fare if each had to assess their assets using the average risk-weightings of all the banks in the study. One unnamed European bank winds up with a 7.8 percent core Tier 1 capital ratio, while an American peer rises to 11.8 percent. Apply the same assumptions to the whole banking book and the worst bank falls to 5.9 percent, with the best at 15.7 percent.

Not all of these differences reflect foul play. The appropriate risk weight for a Spanish mortgage will differ from a similar asset in Germany. What investors are rightly worried about is that the “own model” system allows banks to assign different risk weights to exactly the same loan - and that their own national regulators are complicit.

Basel’s study is timid on policy prescription, but it strengthens the case for standardization. The question is how to get there. Global regulators could force banks to work out risk weights by means of standardized inputs dictated by them, instead of selected by banks themselves. This could be quite painful: some of the R.W.A.’s yielded by banks’ own models in Basel’s study are only 25 percent of their standardized equivalents, which means capital needs would soar.

The committee knows this. The latest thinking is to force banks to disclose both their own model R.W.A.’s, but also their standardized figures, according to a person familiar with the situation. That stops short of holding banks to a higher capital standard overnight. But at least investors could then exercise proper scrutiny - and be better placed to ask if its management is pulling a fast one.

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

A Game of Chicken at Dell as a Proxy Adviser’s Report Looms

Michael S. Dell and the investment firm Silver Lake are currently standing firm by not raising their $24.4 billion offer for Dell Inc.

While they strongly believe that their bid of $13.65 a share is full and fair, the two appear to be staring down Institutional Shareholder Services, the biggest proxy advisory firm.

I.S.S., as the advisory firm is known, will likely publish its recommendation on the management buyout within the next week. Advisers to both the buyers and to a special committee of Dell’s board currently assume that the report will likely be unfavorable toward the deal, potentially dealing a huge blow to its chances of success. That, however, could serve the interests of Mr. Dell and Silver Lake.

The two parties believe that Dell’s stock will tumble if I.S.S. comes out in opposition to the deal, as investors fear that the transaction fails and flee the stock. A significant portion of the shareholder base â€" by some counts, more than 15 percent â€" is currently held by arbitrageurs who are betting on the success of the leveraged buyout and are inclined to bail out if signs emerge that the takeover is on the rocks.

There already appears to be a hint of that phenomenon: the company’s shares fell as much as 4 percent on Friday after reports in The New York Post and Bloomberg News said that the buyers intended to stand firm on their current bid. As of midday, the stock was still down nearly 3 percent for the day, at $12.94.

That drop may serve to help the buyout offer. People close to both them and to the Dell special committee are betting that I.S.S. may still be swayed to support the deal if the company’s stock plummets in the wake of the transaction’s failure. the tumble in the price on Friday may help prove their point.

Meanwhile, the Dell special committee published a supplemental investor presentation on Friday that further painted a gloomy picture of the company’s future if the deal doesn’t succeed. The materials were produced to follow-up questions from I.S.S. about how a standalone Dell’s shares might trade if the deal fails.

In its presentation, the committee argues that an alternative proposal by the billionaire Carl C. Icahn and the asset management firm Southeastern Asset Management â€" a buyback of 1.1 billion shares at $14 each â€" values Dell at about 12 times earnings before interest, depreciation and amortization. That’s more than twice the 4.6 times Ebitda valuation at which Hewlett-Packard currently trades.

The committee also pointed to analyst price targets for Dell’s stock before word of the leveraged buyout emerged. Analysts generally estimated that the company would trade at about 7.2 times earnings for the 2014 fiscal year. At the current earnings estimates of $1.04 a share, that would mean that Dell is expected to trade at about $7.49 a share.

(Mr. Icahn has argued that the company is overstating its state of financial duress. One sum-of-the-parts estimate that he has put forward for Dell is about $22.34 a share.)

Of course, it remains to be seen whether I.S.S. will be moved by both Mr. Dell’s and Silver Lake’s hard stance and the special committee’s dire predictions. And it’s possible that Mr. Dell in particular may blink and push to raise the bid after all if the proxy adviser calls his group’s bluff. The special committee has already encouraged him to raise his offer to save the company.

For now, however, some investors aren’t planning to wait for the endgame.

Photoshop’s New Rental Program, and the Outrage Factor

My review of Photoshop CC on Thursday â€" especially its availability only as a rental, with a monthly or yearly subscription fee â€" generated a lot of reader feedback. Some of it was astonishing.

Here’s a sampling, with my responses.

Can you rent for a few months, stop for a couple of months, resume as needed, stop as desired? That could have advantages for non-pros.

Yes, you can. That’s the purpose of the month-to-month rental programs ($30 a month for a single program, like Photoshop). Of course, having the software is much less expensive if you agree to rent for an entire year ($240 a year instead of $360).

There is an alternative to Photoshop you didn’t mention: GIMP. It has one big advantage: it is free.

Many readers wondered why I didn’t mention the free GIMP program. It does indeed do most of what Photoshop does. I’ve found it to be even more dense and complex than Photoshop. But since it’s free, everyone who’s unhappy with Adobe’s new rental program for Photoshop should definitely give it a try.

Good article but you fail to mention what happens with plug in programs. Many of us find programs like the Nik series to be much better at doing some adjustments than Photoshop. How does CC handle this?

Exactly the same way. Remember: Photoshop CC is a program that you download to your computer and run from there â€" exactly like previous Photoshop versions. Nothing changes in the way it works with plug-ins.

Does Adobe actually pay you for mindlessly reprinting their press releases and calling it “news”? An actual journalist would have at least mentioned that huge numbers of Photoshop users are FURIOUS about this sleazy move by Adobe and are refusing to go along with it. More than 35,000 people have signed a Change.org petition to demand the restoration of the perpetual license. Lots of people are going to be seriously hurt by your journalistic malpractice.

I was stunned by the number of readers who came away from my column thinking that I am a fan of Adobe’s new rental-only program. In fact, I thought that I had written a 1,300-word condemnation of this practice.

“You have to pay $30 a month, or $240 a year, for the privilege of using the latest Photoshop version,” I wrote. “Adobe isn’t offering the rental plan â€" it’s dictating it. The 800-pound gorilla of the creative world has become the 1,600-pound gorilla.”

I then listed alternatives to Photoshop, and concluded: “Nobody knows what improvements Adobe plans to add, how many, how often, or what the subscription rates will be next year or the year after that. Adobe is just saying, ‘Trust us.’”

As for the Change.org petition with 35,000 signatures: Somehow my readers managed to miss this paragraph in my column:

“The switch to a rental-only plan may sound like a rotten deal for many creative people, especially small operators on a budget. And, indeed, many of them are horrified by the switcheroo. A touching but entirely hopeless petition (http://j.mp/1aynMtK) has 35,000 signatures so far. (‘We want you to restart development for Adobe Creative Suite 7 and all future Creative Suites,’ it says. ‘Do it for the freelancers. For the small businesses. For the average consumer.’)”

It’s possible that what angered these readers so much is my reference to the petition as “touching but entirely hopeless.” This is not a put-down of the petition. This is a simple acknowledgment that companies like Adobe have already factored in the anger.

Remember when Netflix raised the price of its most popular DVD rental/streaming-movie price by 60 percent? A million people canceled their Netflix subscriptions.

An employee told me at the time that, incredibly, Netflix’s spreadsheets showed that the company would still come out ahead, even with the mass defections. Netflix had already factored the anger into its business plan.

And that’s exactly what Adobe’s spreadsheets show. Even if the predicted number of angry customers abandon Photoshop, the total annual revenue for Photoshop will increase as a result of the rental-only program.

That’s why the petition is utterly hopeless. Adobe won’t change its course, because Adobe doesn’t care about those people. It already considers them a lost cause.

It’s very clearly a case where customer happiness is being sacrificed for more profit. And that’s the most upsetting part of all.

Basel Report Sees Diverging Bank Views on Risk

LONDON - Regulators are still grappling with how best to rein in banks’ appetite for risk.

On Friday, the Basel Committee on Banking Supervision, a body of central bankers, said it had found significant differences in how some of the world’s large banks continue to assess risks on their balance sheets.

The authorities said that 32 banks, in the United States, Europe and elsewhere, all took different views on the level of capital that they believed was necessary to protect against major losses from potential delinquent corporate, sovereign and consumer debts.

The differences form part of the ongoing debate surrounding the rules known as Basel III, which the Federal Reserve approved earlier this week.

The rules include requiring major international banks to hold as much as 9 percent in high-quality capital like stock or retained earnings to guard against potential future financial shocks.

The financial services industry has fought to water down the changes, which will mean they must hold back more capital on their balance sheets and reduce their exposure to risky assets.

In the report published on Friday, the Basel Committee said that banks continue to hold differing views on what constituted risky assets.  These differences allowed some banks to hold less capital in reserve in case the holdings ran into trouble.

“The considerable variation observed warrants further attention,” the chairman of the Basel Committee, Stefan Ingves, said in a statement on Friday. “Information from this study on the relative positions of banks is being used by national supervisors and banks to take action to improve consistency.”

The global regulators added that steps might need to be taken to create an international standard for these so-called risk-weighted assets to create a level playing field for investors.

Risk weighting allows banks to hold less capital in reserve depending on the perceived risk of the underlying asset. Banks typically carry out these calculations themselves under the guidance of the local regulator.

The potential options to improve the current system include forcing banks to disclose greater detail on how they calculate risk or defining how much risk is associated with specific types of assets.

International authorities have been working in response to the financial crisis after many of the world’s largest banks were found to be undercapitalized when many of their assets turned sour.

While both American and European firms have pared back their exposure to risky lending and used retained earnings to bolster their balance sheets, critics contend that the new regulatory changes still do not force banks to hold enough capital on their balance sheets to protect against future major financial shocks.

Echoes of an Ugly Bailout

Floyd Norris of The New York Times writes about the recently emerged tapes of phone conversations between top executives at Anglo Irish Bank in 2008.