Herbert M. Allison Jr., Former Merrill President, Dies at 69

Mr. Allison served in a number of roles in the private and public sector and as a political appointee under both Presidents Obama and George W. Bush.

Herbert M. Allison Jr., Former Merrill President, Dies at 69

Mr. Allison served in a number of roles in the private and public sector and as a political appointee under both Presidents Obama and George W. Bush.

Baidu to Pay $1.9 Billion for Chinese App Store Operator

HONG KONG â€" Baidu, China’s biggest Internet search engine company, said on Tuesday it had reached a preliminary agreement to pay $1.9 billion to acquire 91 Wireless, a major developer of app stores in China.

The proposed deal comes as Baidu seeks to branch out beyond its traditional search business in order to better compete against rival Chinese Internet giants Alibaba and Tencent, and is the latest in a series of acquisitions in the sector.

In May, Baidu agreed to pay $370 million for the online video business of PPStream. One week earlier, Alibaba had said it would pay $586 million for an 18 percent stake in Weibo, a hugely popular Twitter-like microblogging service in China owned by Sina Corporation.

Baidu, which is listed on the Nasdaq, said Wednesday it had signed a legally-binding memorandum of understanding to acquire majority control of 91 Wireless from NetDragon Websoft, a Hong Kong-listed company that invests in online gaming and mobile Internet businesses in China.

The preliminary deal calls for Baidu to pay NetDragon $1.09 billion for its 57.4 percent stake in 91 Wireless, and to offer around $800 million on similar terms to the owners of the remaining 42.6 percent stake, who were not identified. The companies have until August 14 to agree on final terms for the transaction.

Last month, NetDragon said revenue in its mobile Internet business in the first quarter of the year rose to 144.7 million renminbi, or $23.5 million, more than tripling from a year earlier.

A key part of that business is 91 Wireless, which was setup in 2007 and today operates the popular 91 Assistant and HiMarket app stores in China, which run on Google’s Android operating system. As of March, the two stores had reached more than 10 billion cumulative app downloads, according to NetDragon’s latest earnings release. The 91 Wireless unit also develops its own apps, like PandaReader, which allows users to read and bookmark documents created in a number of file formats.

NetDragon said Wednesday in a stock exchange filing that a separate plan announced in December to seek a potential spinoff of the 91 Wireless business on Hong Kong’s secondary board would be scrapped, pending finalization of the sale to Baidu.

Arsenal of Legal Firepower Masses Around Tourre Trial

When Wall Street lawyers gathered at a conference in Orlando, Fla., during the 2008 financial crisis, one law firm posted an outsize picture of Sean Coffey’s head on the body of a wrestler, labeling him Public Enemy No. 1.

Five years later, Mr. Coffey’s role is reversed. Once famous for suing Wall Street â€" Mr. Coffey extracted $6.2 billion from big banks in the wake of WorldCom’s collapse â€" he is now defending a former Goldman Sachs trader, Fabrice Tourre, in one of the biggest actions stemming from the financial crisis.

The Securities and Exchange Commission’s civil case against Mr. Tourre went to trial on Monday in a federal courthouse in Lower Manhattan, putting a spotlight on Mr. Coffey and a tightknit network of other legal players, many of whom are playing unusual roles in the case.

Mr. Coffey’s co-counsel is Pamela Chepiga, a former federal prosecutor who once played basketball with another diminutive lawyer, Mary Jo White, the chairwoman of the S.E.C. The defense team is facing off against the head of the S.E.C.’s trial unit, Matthew T. Martens, who typically supervises cases, but has never before led a jury trial at the S.E.C. (He is a friend of Mr. Coffey’s from private practice, though Mr. Martens recently unfriended Mr. Coffey on Facebook.) Rounding out the roster, the two sides will argue before Judge Katherine B. Forrest, a longtime corporate lawyer and relative newcomer to the bench who will face her biggest securities trial yet.

The convergence of such prominent lawyers exemplifies the insular world of the securities bar â€" and the revolving door its members often pass through on their way back and forth between government and private practice. It also underscores the importance of a trial in which Mr. Tourre is fighting a possible ban from the securities industry, and the S.E.C. is seeking a defining victory in its uneven campaign to punish those at the center of the crisis.

In the Goldman case, the S.E.C. accused Mr. Tourre of misleading investors about a mortgage security that ultimately failed. Mr. Tourre, the agency says, sold what is known as a synthetic collateralized debt obligation, a deal linked to the performance of mortgage-backed bonds, while omitting a crucial fact: a hedge fund helped pick the bonds and then bet against them. Goldman chose to settle the case, paying a $550 million penalty without admitting or denying guilt.

On Monday, Ms. Chepiga explained to the nine-person jury that synthetic C.D.O.’s are structured such that someone needs to bet against the deals. One investor bets the bonds will fail; another bets they will pay out, creating what she called a “zero-sum game.”

Still, the case will test the lawyers’ ability to translate such sophisticated concepts â€" C.D.O.’s and mortgage bonds, to say nothing of hedge fund strategy â€" to a jury that includes a minister, a retiree and a graphic designer who likes to watch Fox 5 News.

“You guys are going to have a hard time making this case non-mumbo jumbo,” Judge Forrest told the lawyers at a hearing last week. Mr. Coffey later joked: “I couldn’t spell C.D.O. a few months ago.”

Mr. Coffey’s partner on the case, Ms. Chepiga, found her way into securities law as a young federal prosecutor working for Jed S. Rakoff, now one of New York’s best-known federal judges. While Ms. Chepiga has handled mostly securities cases at the Allen & Overy firm, she also helped lead a team in 2004 that sued the government on behalf of 15 detainees from Yemen held on suspicion of terrorism at Guantánamo Bay.

In the Goldman case, Ms. Chepiga has represented Mr. Tourre since the S.E.C. filed its suit in 2010. And on Monday â€" which also happens to be both her and Mr. Coffey’s birthday, 64 for her and 57 for him â€" she delivered opening arguments in the case.

Mr. Coffey’s career has also included turns as a federal prosecutor and a defense lawyer. But unlike other securities lawyers, he is a retired naval officer who tracked Soviet submarines during the cold war and served as a personal military assistant to then-Vice President George H. W. Bush. He also defended a death-row inmate in one of the first cases involving DNA evidence.

But it was as a plaintiff’s lawyer at Bernstein Litowitz Berger & Grossmann where Mr. Coffey became an enemy of Wall Street. Tom Ajamie, a securities lawyer who attended the seminar in Orlando, said the message was clear: “Here is the guy you need to attack.”

The WorldCom case, possibly Mr. Coffey’s biggest success at Bernstein, led him to Ms. Chepiga. While he was suing WorldCom’s banks and directors, she represented some of the directors.

Mr. Coffey left Bernstein in 2009 and began what turned out to be an unsuccessful bid for New York attorney general.

He went on to create BlackRobe Capital Partners, which helped finance litigation against big corporations, but he closed the company recently before joining Mr. Tourre’s legal team. One of his partners at BlackRobe was Ms. Chepiga’s husband, Michael J. Chepiga.

While Mr. Coffey is also friends with Mr. Martens from their days at the corporate law firm Latham & Watkins, the similarities appear to stop there. Mr. Coffey is a liberal Democrat. Mr. Martens, after graduating first in his class from the University of North Carolina School of Law, was a law clerk to William H. Rehnquist, the conservative former chief justice of the Supreme Court.

After Latham, Mr. Martens joined the Justice Department as an aide to Assistant Attorney General Michael Chertoff. He later became a federal prosecutor in North Carolina, specializing in white-collar fraud.

While Mr. Martens, 41, has tried more than 20 cases in his career, Mr. Tourre’s case will be his first jury trial at the S.E.C., reflecting its importance to the agency. He did, however, represent the S.E.C. in court for its settlement with Citigroup, another C.D.O. case that was among the agency’s most complex.

“He’s really good at explaining things in plain English,” Mr. Chertoff recalled.

Colleagues at the agency described Mr. Martens as serious â€" he rarely smiles, they say â€" but also “brilliant.”

At times, S.E.C. investigators have complained that Mr. Martens’s team is too timid. The team has argued against filing cases that the agency spent years building, according to officials who spoke on the condition that they not be named.

Yet the level of caution has impressed some S.E.C. veterans who argue that the agency should pursue appropriate outcomes, not headlines. The agency also notes that, under Mr. Martens, its Washington office has expanded its docket of actively litigated cases to 90, up from 60 when Mr. Martens started in 2010.

As Mr. Tourre’s trial begins, Mr. Martens’s unit is in transition. In recent town halls, officials say, the agency has discussed assigning a group of litigators to each team of S.E.C. investigators, an idea aimed at generating more cooperation at the agency.

Mr. Martens is also facing a change himself. Mr. Tourre’s trial is seen as one of his final acts for the agency, officials say, as he considers joining a law firm, with Kirkland & Ellis and WilmerHale among the possibilities.

The trial will also prove one of the biggest cases yet for Judge Forrest. A former corporate lawyer who served in the Justice Department’s antitrust division, she joined the bench in fall 2011. In perhaps her most prominent ruling, she moved to permanently block the federal government from employing a legal provision allowing for the military detention of people deemed to have provided support to the likes of Al Qaeda or the Taliban.

Ms. Forrest, 49, came from a difficult childhood â€" her family was briefly homeless â€" to attend Wesleyan College and then New York University’s law school. She began her career at the law firm Cravath, Swaine & Moore, focusing on antitrust and litigation, but also handling pro bono matters like First Amendment cases.

Friends and former colleagues described Ms. Forrest â€" known as Kitty to close acquaintances â€" as decisive.

“To my mind, she has the perfect judicial temperament,” said C. Allen Parker, the presiding partner of Cravath.

On Monday, Judge Forrest urged the legal teams to “have a heart” when explaining “gibberish” like C.D.O.’s to the jury. “Do not assume people know what an investment bank does.”

On Wall St., a Culture of Greed Won’t Let Go

Ethics. Values. Integrity.

Wall Street firms spend a lot of time using those catchwords when talking about developing the right culture. Bank chief executives often discuss how much effort they devote to instilling a sense of integrity at their institutions. The firms all have painstakingly written codes of conduct, boasting, “Our integrity and reputation depend on our ability to do the right thing, even when it’s not the easy thing,” as JPMorgan Chase’s says, or, “No financial incentive or opportunity â€" regardless of the bottom line â€" justifies a departure from our values,” as Goldman Sachs says.

And yet a new report on industry insiders about ethical conduct, to be released on Tuesday, disturbingly suggests that Wall Street’s high-minded words may largely still be lip service.

Of 250 industry insiders from dozens of financial companies who responded to questions â€" traders, portfolio managers, investment bankers, hedge fund professionals, financial analysts, investment advisers, among others â€" 23 percent said that “they had observed or had firsthand knowledge of wrongdoing in the workplace.”

If that’s not attention-grabbing enough, consider this: 24 percent said they would “engage in insider trading to make $10 million if they could get away with it.”

As we approach the fifth anniversary of the onset of the financial crisis this September, it appears memories are shorter than ever. If the report is accurate, the insidious culture of greed is back â€" or maybe it never left.

The questions were posed last month by the law firm Labaton Sucharow at the behest of one of its partners, Jordan A. Thomas, a former assistant director and assistant chief litigation counsel in the enforcement division of the Securities and Exchange Commission. The results are a telling reminder of the continued challenges the industry faces, challenges that appear endemic.

While the results may not be scientific, they are stark. For example, 26 percent of respondents said they “believed the compensation plans or bonus structures in place at their companies incentivize employees to compromise ethical standards or violate the law.”

There is a view that the ethical problems come from the very top: 17 percent said they expected “their leaders were likely to look the other way if they suspected a top performer engaged in insider trading.” It gets even more troubling: “15 percent doubted that their leadership, upon learning of a top performer’s crime, would report it to the authorities.”

There is nothing acceptable about these responses.

Wall Street has a very real problem, whether the leaders of the industry want to believe it or not.

It is often said that it is unfair to paint an entire industry with a broad brush, and it is. There are clearly good people out there doing good work. A large majority falls in that category. But the numbers presented in the report reflect an unsettling reality that there may be more than just a few bad apples in the industry, too. It should be considered a red flag when insiders say this: “28 percent of respondents felt that the financial services industry does not put the interests of clients first.”

Perhaps oddly, the problem is most pronounced among the youngest employees in finance, the next generation of leadership on Wall Street.

Remember the question about whether an executive would commit insider trading for $10 million if there were no repercussions? Well, if you parse the numbers by seniority in the industry, respondents with under 10 years of experience were even more likely to break the law: 38 percent said they would commit insider trading for $10 million if they wouldn’t be caught.

That result is particularly striking since I would have expected the next generation of financiers to be the most interested in helping to build a new, anti-Gordon Gekko culture on Wall Street.

Virtually every top M.B.A. program in the country now teaches ethics classes, many of them required. In 2008, a coalition of students started the MBA Oath, a voluntary pledge among students to “create value responsibly and ethically.” So far, more than 6,000 students have signed the pledge.

And yet, the report and other anecdotal evidence suggest that whatever is being done both in the classroom and on the job is not enough. According to a controversial study called “Economics Education and Greed” that was published in 2011 by professors at Harvard and Northwestern, an education in economics surprisingly may be making the problem worse.

“The results show that economics education is consistently associated with positive attitudes towards greed,” the authors wrote. “The uncontested dominance of self-interest maximization as the primary (if not sole) logic of exchange, in business schools and corporate settings alike, may lead people to be more tolerant of what other people see as morally reprehensible.”

The problem is compounded by a trait shared by everyone, no matter their industry. “People predict that they will behave more ethically than they actually do,” according to a 2000 study led by Ann E. Tenbrunsel, a professor at Harvard. “They then believe they behaved ethically when they didn’t. It is no surprise, then, that most individuals erroneously believe they are more ethical than the majority of their peers.”

That may help explain why, in the Labaton Sucharow report, 52 percent said they “believed it was likely that their competitors have engaged in illegal or unethical activity in order to be successful.”

It may also explain why 89 percent of respondents “indicated a willingness to report wrongdoing” yet so few do.

As part of the Dodd-Frank financial overhaul law, the S.E.C. developed a $500 million whistle-blower program that pays 10 to 30 percent of penalties collected to the whistle-blower. The fund still has some $450 million in it, despite recent remarks by Stephen L. Cohen, associate director of the S.E.C.’s enforcement division, that we should expect bigger payouts soon. Mr. Thomas of Labaton Sucharow helped develop the whistle-blower program when he was at the S.E.C., and he now represents whistle-blowers.

“We are seeing a culture of silence,” he said. “There’s an unwillingness to come forward.”

Greed, for far too many, is still good, apparently. There’s still much work to be done before the catchwords become the culture.

Andrew Ross Sorkin is the editor-at-large of DealBook. Twitter: @andrewrsorkin

Third Point Reinsurance Files for I.P.O.

Third Point Reinsurance, a Bermuda-based reinsurer founded by hedge fund manager Daniel S. Loeb, has filed to go public.

Strauss-Kahn Re-Emerges in Finance, in Russia

MOSCOW - Dominique Strauss-Kahn, the former chief of the International Monetary Fund whose career unraveled in a series of sex scandals, is making a comeback in finance - this time, in Russia.

Rosneft, the Russian state oil company, has given Mr. Strauss-Kahn a position on the board of a banking subsidiary, the Russian Regional Development Bank. It is one of the first prominent job offers since Mr. Straus-Kahn, a French economist and political leader, resolved the last of his legal troubles this year.

Mr. Strauss-Kahn was arrested in the United States in 2011 on charges, later dropped, of assaulting a maid in a New York hotel. He later faced charges in France, also eventually dismissed, of involvement in a ring that obtained prostitutes for sex parties.

The bank announced the appointment in a regulatory filing on Friday. It said Mr. Strauss-Kahn was also employed with a consulting agency called Parness. Rosneft’s media office declined to elaborate on the appointment or on how Mr. Strauss-Kahn would be compensated.

The Russian Regional Development Bank is hardly a financial heavyweight. It ranks No. 64 in Russia in size as measured by assets. Vedomosti, the leading Russian business newspaper, reported Rosneft may be seeking to raise the profile of the bank by hiring a former I.M.F. director.

Russian state-owned businesses and many in the private sector have for years recruited Western business and political figures for seats on their boards for positions that often pay lavishly. The Western presence on the board is intended to indicate an endorsement that the company will adhere to international and ethical business standards.

In one example, Gerhard Schroeder, the former chancellor of Germany, took a job on the board of a Gazprom pipeline joint venture and TNK-BP for a reported compensation of more than $200,000 a year.

President Vladimir V. Putin once personally offered a position of chairman of the board of Rosneft to Donald L. Evans, the former United States commerce secretary, saying the company was looking for “high-class” foreign management. Mr. Evans declined.

Mr. Strauss-Kahn’s appointment appeared baffling if the intention is to raise the confidence of foreign investors in Rosneft, said one banker in Moscow who was not authorized to discuss the matter publicly.

The banker added that “an American company might think that because of his sexual reputation he is actually a liability.”

Last year, Mr. Strauss-Kahn’s lawyers negotiated a confidential settlement with Nafissatou Diallo, the hotel maid who had accused him of sexual assault in 2011. Mr. Strauss-Kahn was forced him to resign from the I.M.F. amid the ensuing publicity, but the charges were not pursued by the Manhattan prosecutor’s office because of doubts about her credibility.

In June, prosecutors in the French city of Lille asked to drop charges filed against Mr. Strauss-Kahn in connection with a ring that recruited prostitutes for sex parties in both France and the United States. Mr. Strauss-Kahn had not denied attending but said he was unaware the young women at these parties were prostitutes.

Looking Past G.D.P. to the Changes in China Ahead

China’s second quarter gross domestic product data met the official target of 7.5 percent but there were few positive data points and economists have again cut their forecasts for 2013 and 2014 growth.

Based on Monday’s release, the rebalancing toward consumption away from investment is not proceeding as planned. As Capital Economics wrote in reaction to the report:

5.9 percentage points (pp) of Q2’s growth came from investment, a massive increase on the 2.3pp contribution in Q1, and the highest since Q2 2010. The contribution from consumption dropped from 4.3pp to 2.5pp. Net exports had a negative contribution for the first time in a year.

We previously argued that there seems to be a seasonal pattern that elevates consumption in Q1. As such, the apparent slowdown in Q2 may not be as dramatic as first appears. The big picture though is that investment, rather than consumption, remains the key driver of grow.

Beijing does not appear to be panicking, perhaps because so far the data shows that the labor market is relatively healthy. The resistance to another round of aggressive stimulus may also be a sign that the conventional wisdom about social unrest if growth dropped below a certain level â€" 8 percent was the number for a while -was incorrect.

At this point whether or not G.D.P. is within a few basis points above or below the expected number probably does not matter, other than for the government’s public relations. How and at what cost China will digest its growing bad debt problem and how much resolve the leadership has for reforms are the key issues.

Last week’s column discussed the 2011 prediction by Li Zuojun, an economist at the Development Research Center of the State Council, that China would face a economic crisis in the summer of 2013. Xia Bin, a colleague of Mr. Li’s, said at a forum over the weekend that the G.D.P. fixation was misplaced and that China was already in a financial crisis:

Arguments about whether China will grow at 7 percent or 7.5 percent are “pointless” because the economy is already in a financial crisis which may only worsen if the government doesn’t address the country’s crippling debt problem…

We need to find ways to let the bubble burst and write off the losses we already have as soon as possible to avoid an even bigger crisis…

Deep adjustment means economic growth slows as costs are paid, it means hard days, it means the bankruptcy of some companies and financial institutions and it means reform.

The message from Beijing continues to be that reform and painful restructuring are coming. After the G.D.P. release, Caijing magazine, one of the best business publications in China, reported that “substantive reforms” are in the works:

“The restart of a new round of economic reforms will have a vital impact on the Chinese economy,” a source close to China’s top policy making agencies told Caijing, referring to a guideline expected to be announced at a plenary meeting of the Central Committee due this fall.

Reforms in areas such as taxation, finance and energy, which are well-prepared, will first kick off, said the source.

This is an interesting leak, perhaps done in an attempt to reassure that reforms are coming and better days are coming, eventually.

Another leak, reported Monday in The South China Morning Post, highlights the difficulty of reform. According to the newspaper, Premier Li Keqiang faced significant opposition to the recently announced plan for a Shanghai free-trade zone:

Financial industry regulators, including the China Banking Regulatory Commission (CBRC) and China Securities Regulatory Commission (CSRC), openly disagreed with Li’s plan to open Shanghai’s financial services sector to foreign investors. Three sources with first-hand knowledge of high-level government meetings told The South China Morning Post that Li lost his temper at one closed-door cabinet session. When told of the continuing opposition to his plans, he slammed his fist on the table in frustration.

The premier pushed the plan through, but much more difficult reforms that affect many more entrenched interests lie ahead.

It is now difficult for even the most bullish of China analysts to argue that the economy is not in very difficult straits that look to persist at least for several quarters. A hopeful argument may be that the almost uniform sense of existing or impending crisis will give Xi Jinping and Li Keqiang the levers they need to push forward the painful reforms.

We will know more by October when the Third Plenum meets. Even if the meeting passes an ambitious set of reforms it will still take several months or longer for those changes to flow through to the real economy, and implementation will likely be very difficult.

For those looking for historical support that the Party can enact another round of deep reforms, I highly recommend “Wealth and Power: China’s Long March to the Twenty-first Century,” an excellent new book from Orville Schell and John Delury. The book, excerpted here, goes a long way to explaining what drives the current leadership, and why betting against their resolve to reform may be risky in the medium to long-term.

But nothing destroys wealth like debt, and until China deals with its credit crisis the road to wealth is going to be very rocky.

Trial of Former Goldman Trader Gets Under Way

The trial of former Goldman Sachs trader Fabrice Tourre started on Monday morning with a stern warning: No mumbo jumbo.

Judge Katherine Forrest, who is overseeing the trial, told lawyers representing Mr. Tourre, and the Securities and Exchange Commission, which brought lawsuit against him, to “have a heart” and try and keep the case simple for the nine jurors selected to hear the case.

“Do not assume people know what an investment bank does,” she said.

Mr. Tourre is defending himself against allegations that he was part of a conspiracy in 2007 to mislead investors when selling a mortgage security that ultimately failed. Mr. Tourre, a trader stationed in Goldman’s mortgage department when the S.E.C. brought its case, is one of only a handful of employees at big Wall Street firms to land in court over the financial crisis.

Mr. Tourre was in court this morning, wearing a dark suit with an orange-patterned tie. He arrived early, and before trial was seen engaged in animated conversation with his lawyer Sean Coffey.

Jury selection dominated most of the morning, but before that Ms. Forrest listed several words she wants lawyers to steer clear of.

“Trading desk, mere mortals don’t know what a trading desk is,” she told the courtroom. She also asked lawyers to steer clear of or not use other words, including protection, intermediate, swap, inventory, circular, warehouse, offering memorandum and premiums. She referred to the term “synthetic C.D.O.,” a security at the heart of this case, as “gibberish.”

Another taboo word is intermediate. “Need I say more,” she said.

Lawyers on each side plan to draft a list of terms and definitions, and it will be circulated to jurors. If the lawyers assume the jury understands them, jurors “are going to be horrified,” the judge said.

Public-Private Partnerships Could Be a Lifeline for Cities

Kent Rowey is a partner in the energy and infrastructure practice at Allen & Overy in New York.

Detroit is fighting for its fiscal survival. Over the last four years, the city has spent $100 million more each year than it has collected. Long-term liabilities are estimated to be as high as $20 billion. Gov. Rick Snyder of Michigan installed an emergency manager, who most assume is preparing for a Chapter 9 filing, which would be the largest municipal bankruptcy in United States history.

In May, the manager, Kevyn Orr, was considering selling parts of the permanent collection at the Detroit Institute of Arts to pay creditors. Mr. Orr later backed off that threat, but no doubt he wanted to scare city fathers into getting serious about averting financial disaster. But new worries followed that he would have to unload the city’s collection of 62 classic cars.

Detroit’s plight may be extreme, but its problems are increasingly common in cities across the United States. Municipalities are struggling to make public payroll, maintain basic services or meet pension fund obligations. Many of the hard choices Detroit has to make will be repeated in towns in the Midwest, Rust Belt, California and throughout the Northeast.

In truth, Detroit does not have to part with its Diego Rivera murals or its vintage Mustangs and Cadillacs. Instead, it should be taking an inventory of revenue-producing public assets â€" including on-street and off-street parking systems, water systems, toll bridges, solid waste disposal plants, utilities and airports â€" to lease or divest with help from private partners willing to invest capital in improving them.

Public-private partnerships are the ideal solution for the fiscal problems plaguing many American cities. In a so-called P3 transaction, private equity investors make a large up-front payment to run a public service or utility â€" often for hundreds of millions of dollars. In return, they gain a concession to operate the service under a contract that can last for decades.

Gaining much needed cash and operating efficiency are prime incentives for municipalities to undertake such transactions. Chicago entered into a concession for 36,000 parking meters a few years ago through a 75-year contract valued at more than $1 billion. Besides streamlining the costs of running the citywide program, the new concession exposed abuses of handicapped parking permits and led to the passage of a law preventing abuses. Today, the Chicago Metered Parking System is considered one of the world’s best.

Does Detroit’s lurch toward bankruptcy make it a less-desirable candidate for a public-private transaction? Not necessarily. A municipality that has already filed Chapter 9 may have greater impetus to privatize infrastructure assets to restructure its balance sheet just like any business trying to work through insolvency.

P3 deals are also effective for cities on the brink. Not only can they generate substantial revenue to stave off defaults, but they need not involve an outright sale of assets. Ownership of the services often remains with the city, avoiding the prospect of a fire sale. As for cities in good financial shape, they should consider private partnerships as a means of undertaking long-term civic improvements at a time when the fiscal roof isn’t leaking.

How does a city ensure that it’s receiving fair value in a P3? These deals are subject to external market forces. Bidders for public infrastructure assign a value based on prospects for long-term revenue collection â€" will there be enough drivers crossing a toll bridge or parking their cars on city streets? In reality, infrastructure assets are in general relatively straightforward to value and represent a long-term, income-producing annuity for the right investor.

Privatization often ignites fears of price-gouging by Wall Street. In fact, your corner grocery store or nail salon has more power to raise prices than a private equity fund operating a public service. The assets at the center of these deals â€" parking garages, utilities, toll roads â€" operate under tight regulatory regimes. Rates are adjusted according to inflation and can’t be raised without an arduous process of public hearings and agency approvals. Bayonne, N.J., contracted a 40-year concession for its water and waste system through a partnership with Kohlberg Kravis Roberts and United Water, which abides by a strict scheduled rate protocol.

Some people have a knee-jerk aversion to allowing private enterprise to manage public works. The truth is that cities have terrible track records in maintaining their bridges and roadways. Gas and electric utilities have long been run by private entities. If a city can trust private business to operate its nuclear power plant, it has nothing to fear in allowing an investment fund to manage its parking meters.

Privatizing municipal services is not a hand-off of the public trust. The assets in a P3 rely on millions of paying customers for their revenue stream, not city coffers. If the assets remain in the hands of near-bankrupt municipalities, crucial services and infrastructure will become melting ice cubes financed by a vastly shrinking tax base.

Harrisburg, Pa., has been teetering on the edge of bankruptcy for several years, having to service $370 million in debt tied to a trash incinerator built a decade ago. Had the incinerator been developed through a concession with a private investor, Harrisburg’s balance sheet would look a lot brighter today.

What about jobs? Don’t private operators of public infrastructure torch contracts with municipal unions? In fact, the jobs needed to run these services remain unionized after a P3, typically governed by collective bargaining terms. Yet private concessions frequently create jobs through capital programs that had been sidelined by broke city governments.

Public-private partnerships have gotten a bad rap because of some highly publicized failures. In 2008, when Gov. Ed Rendell of Pennsylvania tried to lease the state’s turnpike to an infrastructure fund, the legislature killed the $12.8 billion deal. In Pittsburgh, the city council rejected a $500 million bid for a municipal parking concession that would have more than covered a $350 million shortfall in parking revenue.

These failures did not reflect inherent problems with the P3 structure â€" the transactions were derailed because of political grudges and fear-mongering. The reality is that government agencies are so constrained they can’t meet their responsibilities to operate and maintain â€" much less build new - public infrastructure. P3s regularly replace aging infrastructure and provide state-of-the-art services. The private operator of the Chicago parking meter system replaced all coin operated meters with credit card devices, which will soon feature pay-by-cellphone options. This would not have been possible had the city continued to manage the meters.

This should be a golden age of public-private partnerships â€" the need exists in cities across the country. And the capital is there, from private investors seeking long-term returns. American infrastructure has fallen behind countries like France, Italy, Spain, Portugal, Poland, Hungary and countries that have long embraced privatization of urban systems. Ironically, the United States has become an emerging economy when it comes to developing P3 projects â€" in which opportunity needs to be matched with political will and bold thinking to undertake.

Ultimately, Detroit and other stressed cities don’t have much choice. They must land on solid ground and use new revenue to pay off existing debt. The marvel of public-private partnerships is that a significantly reduced debt load and shift of responsibility to the private sector can allow a city to turn to other priorities, like buying more textbooks for students or enhancing local parks that are a city’s true public trust. Divesting noncore assets may be the best way for many towns â€" not just Motown â€" to regain their momentum.

Banks Dodge a Bullett With Deal on Swaps

A deal between American and European regulators on derivatives has helped banks dodge a bullet. Before a compromise hatched on July 11, the Commodity Futures Trading Commission intended to force swaps involving United States’ counterparties to be cleared in America. That would have frozen cross-border flows and hammered volumes by creating separate regulatory jurisdictions.

Fortunately for global banks, that scenario has been averted. Banks will now have the choice of trading and clearing transatlantic swaps in either Europe or the United States. To satisfy the Dodd-Frank reforms, the regulatory framework on swaps will be judged as “essentially identical” in each jurisdiction â€" although they are nothing of the sort in reality.

The two regimes differ in that Europe’s swaps reforms are taking longer to implement than America’s, but are more stringent on most of the main issues. The European Securities and Markets Authority reckons it will take at least a year, possibly two, before they are in place. U.S. rules, meanwhile, are ready to come into force. Europeans are tougher on data transparency, margin posting and trade reporting. They also cover foreign-exchange swaps.

The C.F.T.C.’s guiding principle was to prevent another blowup like American International Group. The U.S. insurer embraced the light-touch regulation afforded to its London subsidiary to build a portfolio of credit-default swaps that soured in 2008. But there is reason to suppose that Europe has upped its game. Swaps face greater scrutiny because of central counterparty clearing requirements. Greater rigor in mark-to-market provisions should also expose risk. And financial institutions have to post more collateral than before as protection for over-the-counter trades.

That’s not to say that regulatory arbitrage has vanished in swaps markets. The C.F.T.C. still has to guard against slippage in jurisdictions other than the European Union. In the meantime it has chosen to delay rules forcing all foreign firms to comply with its cross-border rules.

Banks should also not get too carried away: the C.F.T.C.’s so-called “no-action letters” aren’t iron-clad rules. Legal wrangling over how much data foreign watchdogs should be allowed to access could yet damage the agreement. But swaps regulation is in a better place than it was. That, at least, is progress.

Dominic Elliott and George Hay are columnists at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

Insider Traders Should Be Ready to Do Hard Time

The length of the sentences being meted out for insider trading have been on an upward trajectory lately, and recent decisions by federal appeals courts in Manhattan and Philadelphia will further that trend. The message some judges are trying to send is that being caught trading on confidential information can be very costly, far beyond the gains a defendant might realize.

Two recent cases illustrate that message. Zvi Goffer, who organized a ring of sources that used disposable cellphones for sharing tips, was sentenced to 10 years in jail. Matthew Kluger, a lawyer who funneled information from his law firms over a number of years, received 12 years. Both had challenged their sentences as unreasonably long compared with what others have received.

Mr. Goffer was convicted after trial of paying lawyers at Ropes & Gray for deal information that he then traded on and distributed to others. He was known by the nickname “Octopussy” because of the many connections he had to sources of inside information. Under the federal sentencing guidelines, his recommended sentence was 10 to 12 and a half years.

Mr. Kluger pleaded guilty to charges of passing information through a middleman to a trader, Garrett Bauer. Mr. Kluger is said to have gleaned the information from different law firms where he worked over a 17-year period. The three men were supposed to share the profits, but Mr. Bauer bought far more than he ever told the others, reaping total profits of over $47 million. Mr. Kluger’s recommended sentence was approximately 11 to 14 years.

The appeals courts rejected their challenges, making it clear that the wide judicial discretion in deciding the appropriate sentence is not constrained even if others received much lighter punishments for similar violations. The opinions emphasize the need for deterrence as a means to preserve the integrity of the financial markets by making it very costly to trade on inside information.

Sentences have grown longer in the last few years, in large part because of how the federal sentencing guidelines rely on the size the defendant’s gain or avoided loss as the primary determinant of the punishment. A profit of $1 million, for example, will result in a recommended sentence of at least four years in prison, while a $20 million gain can lead to a recommendation of more than 10 years.

Nor must the defendant personally receive the benefits of the illegal trading to risk a significant prison term. Mr. Kluger claimed that he had an agreement with his co-conspirators to limit trading to modest amounts to avoid detection, and that he was unaware of the outsize profits Mr. Bauer generated from the tips.

The United States Court of Appeals for the Third Circuit rejected the argument that Mr. Kluger should not be held accountable for unforeseen conduct by Mr. Bauer, stating that “we are sending a clear warning to individuals, such as Kluger, who, in an attempt to limit their responsibility and the extent of their potential sentencing exposure allege that they had agreements with their co-conspirators to cap the illicit gains.” In other words, a lack of honor among thieves is not a valid reason to reduce the punishment.

Some insider trading cases have resulted in sentences well below the punishment recommended by the sentencing guidelines. Judge Jed S. Rakoff of United States District Court in Manhattan, in particular, has been a strident critic of the use of gains and losses as the best measure of the appropriate sentence for economic crimes. He told an audience of white-collar defense lawyers that the federal guidelines should “be scrapped in their entirety.”

The aversion to the guidelines is one reason for the growing disparity in sentences in insider trading cases, even leaving aside light punishments for those who cooperate and receive little if any jail time. Judge Rakoff has routinely given sentences well below the guidelines recommendation. He sentenced Rajat K. Gupta to a two-year jail term rather than the recommended six and half years, while Winifred Jiau received a four-year sentence although the government had sought a 10-year prison term.

In his appeal, Mr. Kluger cited Judge Rakoff’s statement in the sentencing of Ms. Jiau: “There’s no way that I’m going to impose a guideline sentence in this case,” the judge said, “[because] the guidelines give a mirage of something that can be obtained with arithmetic certainty.”
The appeals court was not persuaded, however, explaining that there were good reasons Mr. Kluger’s case was qualitatively different from others, including that of Mr. Bauer, who received a nine-year prison term. The appeals court pointed out:

“It is really quite remarkable that Kluger could not even wait to graduate from law school before using his employment at a law firm to initiate his illegal activities, and it is equally remarkable that during most of his legal career he was involved in criminal activity, so that in an actual though perhaps not in a legal technical sense as the term is used in the sentencing guidelines, he truly was a career criminal.”

In Mr. Goffer’s case, the United States Court of Appeals for the Second Circuit rejected his argument that lighter sentences given in other insider trading cases made his punishment unreasonable. The appeals court explained that just because “some judges have chosen as a policy matter not to sentence white-collar criminals to the harshest permissible punishments, this does not entitle other white-collar criminals to lighter punishments than are reasonable under the Guidelines.”

Defendants have hoped that lighter punishments in other insider trading cases, coupled with accompanying criticisms of the sentencing guidelines themselves, would establish a ceiling on what is permissible. But these two appeals court decisions have largely squelched that position, making it clear that judges can be as tough - or lenient - as they see fit, so long as the particular sentence is justifiable under the circumstances.

One of the goals of Congress in adopting federal sentencing guidelines was to minimize the disparity in punishments for similar offenses, especially white-collar crimes. The Supreme Court’s decision in 2005 in United States v. Booker, in which the court determined that the guidelines were advisory rather than mandatory, has permitted judges more freedom to apply their own predilections, as Judge Rakoff and others have done in insider trading cases.

As a result, the potential sentence is much more difficult to determine in advance. The appeals court decisions involving Mr. Goffer and Mr. Kluger show that the assignment of a case to a particular judge, which is done at the beginning of a prosecution, can have a significant effect on the eventual punishment if the defendant is convicted.

VMware Sells Zimbra Amid Shift in Strategy

When VMware bought Zimbra in 2010, the deal was considered integral to the company’s strategy. Three years later, it’s a different story.

VMware is selling Zimbra, a provider of corporate e-mail and collaboration software, to Telligent, which makes social software for businesses, according to an announcement on Monday. The companies plan to merge under the name Zimbra to offer a “unified social collaboration suite.”

Zimbra is to receive investments from Intel Capital, NXT Capital Venture Finance, VMware and other firms, the announcement said. VMware’s shares rose modestly in morning trading on Monday.

The deal, financial terms of which were not disclosed, reflects VMware’s shift in strategy. The cloud computing company has been selling assets this year as part of a plan announced in January, and Monday’s sale represents the completion of those divestitures.

It also underscores the broader challenges facing VMware and its industry.

VMware pioneered the business of server virtualization, helping companies make the most of their server resources. But with many servers now virtualized, the company faces a saturated market, said Mark L. Moerdler, senior research analyst at Sanford C. Bernstein.

“You have a company that is becoming less of a traditional growth story,” Mr. Moerdler said. “The core business is slowing significantly.”

VMware has been making forays into related business. Zimbra, which VMware bought from Yahoo in 2010, was seen as a ticket to e-mail- and calendar-services.

But amid a broader realignment, which included a management change last year, VMware is now focusing more on what it calls a software-defined data center, in addition to other computing services.

“In order to continue focusing on these areas, we determined that the collaboration and communication features of Zimbra as a standalone product would be best delivered by a partner such as Telligent in order to continue enhancing the Zimbra technology platform and growing the business,” Erik Frieberg, VMware’s vice president of product marketing for end-user computing, said in a blog post on Monday.

Telligent, which is based in Dallas, emphasized the strategic advantages that the deal would confer.

“Zimbra enables traditional collaboration through features such as email, calendar sharing and address books, while Telligent supports real-time collaboration via chat, social networking, online communities and more,” Patrick Brandt, Telligent’s chief executive, who will lead the new company, said in a statement. “The combination of the two will enable companies to easily share documents and ideas instantly, providing true unified collaboration.”

Zimbra has grown under VMware’s ownership, Mr. Frieberg said in the blog post. It has added a net of 2,600 new customers in its e-mail and collaboration business, expanding to more than 85 million mailboxes, the post said.

The combined company would have more than 5,000 customers and 400 partners, with offices in Dallas, Palo Alto, Calif., London, Tokyo and Pune, India, the announcement said.

Two More Charged in Libor Investigation

LONDON - British authorities on Monday charged two former brokers at RP Martin Holdings with fraud as part of the widening investigation into the manipulation of global benchmark interest rates.

The Serious Fraud Office said that Terry J. Farr was charged with two counts and James A. Gilmour with one count of conspiracy to defraud. The announcement comes one month after Tom A. W. Hayes, a former UBS and Citigroup trader, was charged with eight counts of fraud in what was the first criminal case in Britain linked to the far-reaching rigging of the London interbank offered rate, or Libor.

Mr. Farr, 41, and Mr. Gilmour, 48, “attended Bishopsgate police station this morning where they were each charged by City of London Police,” the fraud office said in a statement. Mr. Farr, Mr. Gilmour and Mr. Hayes were arrested last December but released on bail pending further investigation.

Since taking over the fraud office as director last year, David Green, made the Libor case one of his priorities, arguing that a successful and fast-moving investigation was needed to restore trust in London as a financial center. British authorities had previously taken a back seat to United States authorities in the Libor investigation, but the recent charges signal a shift in momentum.

Mr. Hayes has already appeared in a London court twice since he was charged and is scheduled to attend a hearing in October when he may enter a plea. Andrew Honnor, a spokesman for RP Martin, declined to comment on the charges. Lawyers for Mr. Farr and Mr. Gilmour could not immediately be reached for comment.

Two More Charged in Libor Investigation

LONDON - British authorities on Monday charged two former brokers at RP Martin Holdings with fraud as part of the widening investigation into the manipulation of global benchmark interest rates.

The Serious Fraud Office said that Terry J. Farr was charged with two counts and James A. Gilmour with one count of conspiracy to defraud. The announcement comes one month after Tom A. W. Hayes, a former UBS and Citigroup trader, was charged with eight counts of fraud in what was the first criminal case in Britain linked to the far-reaching rigging of the London interbank offered rate, or Libor.

Mr. Farr, 41, and Mr. Gilmour, 48, “attended Bishopsgate police station this morning where they were each charged by City of London Police,” the fraud office said in a statement. Mr. Farr, Mr. Gilmour and Mr. Hayes were arrested last December but released on bail pending further investigation.

Since taking over the fraud office as director last year, David Green, made the Libor case one of his priorities, arguing that a successful and fast-moving investigation was needed to restore trust in London as a financial center. British authorities had previously taken a back seat to United States authorities in the Libor investigation, but the recent charges signal a shift in momentum.

Mr. Hayes has already appeared in a London court twice since he was charged and is scheduled to attend a hearing in October when he may enter a plea. Andrew Honnor, a spokesman for RP Martin, declined to comment on the charges. Lawyers for Mr. Farr and Mr. Gilmour could not immediately be reached for comment.

Citigroup Profit Climbs 42 Percent

Citigroup beat earnings expectations on Monday as profit swelled by 42 percent in the second quarter as the sprawling bank works to cut its costs and expand its international lending operations.

The bank, which has hitched much of its hopes for growth to emerging markets, reported a profit of $4.18 billion, or $1.34 a share, compared with $2.94 billion, or $1 a share, in the period a year earlier. Citigroup, the nation’s third-largest bank by assets, reported revenue of $20.5 billion, up 12 percent from revenue in the period a year earlier.

Excluding a $477 million gain that stemmed from a valuation adjustment on Citi’s debt, the bank reported earnings of $1.25 a share. Earnings were bolstered by strong gains in trading revenue.

The results on Monday exceeded analysts’ expectations of $3.55 billion in profit, or $1.19 a share. Citibank was expected to report revenue of $19.76 billion, up from $18.64 billion a year earlier.

With international lending operations that dwarf those of many of its United States rivals, Citi’s opportunities for growth rise and fall with the fate of emerging markets. Any sluggishness overseas, particularly in Mexico where Citi has alarge presence, always lurks as an issue that could undercut the bank’s earnings.

During a conference call on Friday, Jamie Dimon, the brash chairman and chief executive of JPMorgan Chase, commented on the strength of emerging markets when the bank reported its earnings. “Our folks in emerging markets did a particularly good job, which might not be the same for some others reporting,” he said.

Citigroup has been wrestling with largely stagnant growth in its consumer banking unit and turbulence in Asia and Latin America.

Morning Agenda: Where Tourre Is Known as ‘Breezy’

Fabrice P. Tourre is best known as Fabulous Fab, the former Goldman Sachs trader whose e-mails about the mortgage crisis became a symbol of Wall Street hubris and will now highlight the government’s case against him, Susanne Craig and Ben Protess write in DealBook. Mr. Tourre’s trial opens on Monday in a federal courtroom in Lower Manhattan.

But an inner circle of friends knows Mr. Tourre from a different set of dispatches â€" e-mail updates he sent from Africa during a stint as a volunteer. It was in Rwanda that Mr. Tourre became known simply by the nickname Breezy. “Rwandan coffee yields have significant room for improvements,” he wrote in a March 2011 message to friends, describing his adventure a world away from Wall Street. “Plenty of ideas and projects to focus on, with the ultimate goal to improve coffee farmers’ income and living conditions!”

The e-mail provides a rare glimpse into Mr. Tourre’s life after Goldman, and after the Securities and Exchange Commission accused him of misleading investors about a mortgage security that ultimately failed, Ms. Craig and Mr. Protess write. After going to Africa, Mr. Tourre enrolled in an economics doctoral program at the University of Chicago, where professors described him as a “standout.” Mr. Tourre’s character will come into focus in the trial; the human elements of the case might sway a jury bogged down in the minutiae of high finance.

QUESTIONS ON JPMORGAN’S CAPITAL  |  On a conference call on Friday, there was one number that JPMorgan Chase’s chief financial officer, Marianne Lake, seemed to not want to reveal, DealBook’s Peter Eavis writes. The call came after regulators proposed a new leverage ratio rule, in an effort to get large banks to hold capital that meets a certain percentage of assets, plus other risks embedded in their balance sheets. At the JPMorgan parent company, the leverage ratio would effectively have to be 5 percent, while regulators want the ratio to be 6 percent at the banking subsidiaries that are covered by federal deposit insurance, Mr. Eavis writes.

JPMorgan Chase estimated on Friday that it was already close to meeting the 5 percent requirement at its holding company, saying it had enough capital to get to a 4.7 percent leverage ratio there. “Naturally, analysts also wanted to know whether JPMorgan Chase’s deposit-gathering subsidiaries, which are far larger than the holding company, were close to meeting the 6 percent requirement,” Mr. Eavis writes. But Ms. Lake said she would not disclose the bank leverage ratio, adding that it was lower than at the holding company.

AT&T’S DEAL FOR LEAP WIRELESS  |  AT&T, thwarted by regulators nearly two years ago on a planned $39 billion acquisition of T-Mobile USA, is back in the merger hunt, albeit with a much smaller target. The company said on Friday that it had agreed to acquire a smaller rival, Leap Wireless International, for nearly $1.2 billion, the latest sign of consolidation in the telecommunications industry. AT&T is paying $15 a share in cash for Leap, a prepaid cellphone service provider, about 88 percent above Leap’s closing price on Friday. Under the terms of the deal, AT&T would gain five million new customers and acquire Leap’s network, licenses and retail stores. Leap had $2.8 billion of net debt on April 15.

The deal comes after months of speculation about the future of AT&T and other wireless companies. But it is unlikely to solve AT&T’s challenges, said Craig Moffett, a telecommunications analyst who recently started his own firm. “It does not really change the trajectory of AT&T or its deal-making,” Mr. Moffett said. “There’s not much that AT&T can do anymore in the United States. The rest of the wireless business is probably off limits for regulatory reasons.”

ON THE AGENDA  |  Citigroup reports earnings before the market opens. Data on June retail sales is out at 8:30 a.m. C. Dean Metropoulos, chief of Hostess Brands, is expected to appear on CNBC.

MICHAEL DELL’S FIGHT TO RECLAIM HIS LEGACY  |  Dell shareholders are set to vote on Thursday on whether to accept Michael S. Dell’s offer of $13.65 a share, or $24.4 billion, for the company. For Mr. Dell, the founder, the fight to take the business private is, in a sense, an effort to turn back the clock, Quentin Hardy writes in The New York Times. Dell is a company that many say is doomed, having missed the consumer shift to smartphones and tablets, and also missed the move of corporate computing to data centers and cloud-based networks.

Still, Mr. Dell’s friends and advisers say he is trying to protect his legacy. “This guy has no desire to see his name on a company people think is irrelevant,” said Marius A. Haas, who runs Dell’s sales to big business.

Mergers & Acquisitions »

Loblaw to Buy Shoppers Drug Mart in Canada  |  The Loblaw Companies, Canada’s largest food retailer, announced on Monday that it would acquire Shoppers Drug Mart, the country’s biggest pharmacy chain, for $11.9 billion in cash and stock. DealBook »

Investor Hires Advisers in Push for Smithfield Breakup  |  Starboard Value contends that the pork producer Smithfield Foods is worth more broken up than the $34-a-share offer from Shuanghui International of China. DealBook »

Proxy Advisory Firm Recommends Against 4 Directors of McKesson  |  Institutional Shareholder Services recommended that shareholders vote against four directors of the McKesson Corporation, the health care services and information technology company, citing concerns with executive pay, The Wall Street Journal reports. WALL STREET JOURNAL

For Yahoo’s Chief, Fortunate Timing  |  Yahoo’s stock has climbed since Marissa Mayer took over as chief executive last year, but “the entirety of the value appreciation is due to the rapid growth of Alibaba and Yahoo Japan,” Brian Wieser, an analyst at Pivotal Research, told The Financial Times. FINANCIAL TIMES

Google Executives Discuss YouTube, the Phone Business and Taxes  |  Unlike the usual practice of staying mum at the annual Allen & Company media and technology conference in Idaho, Google executives used a news conference to promote their business. DealBook »

Bid for Invensys Gives Investors Appetite for More  |  Schneider Electric’s $5 billion offer for Invensys prompted a jump in the stock price that indicated investors were hoping for a higher offer or even a counterbid from a rival bidder. DealBook »

As Promised, Icahn Adds to His Bid for Dell  |  In a letter to Dell shareholders, Carl C. Icahn and his partner, Southeastern Asset Management, proposed giving shareholders a sweetener in his pitch to buy the computer company. DealBook »

INVESTMENT BANKING »

Trouble in European Commercial Mortgage Securities  |  The Financial Times reports: “Defaults among financial instruments backed by European commercial mortgage payments have more than doubled, highlighting the widespread problems facing the region’s moribund commercial property market.” FINANCIAL TIMES

Finance Industry Is Expected to Surpass Tech as Most Profitable  |  If large technology companies report second-quarter results in line with analysts’ expectations, “finance will be well on its way to overtaking tech this year to once again become the U.S. industry that earns the most annual profit,” a columnist writes in USA Today. USA TODAY

Wells Fargo Profit Jumps 19 Percent  |  Wells Fargo, the nation’s largest home lender, overcame a slowdown in the mortgage market to report record net income of $5.5 billion. DealBook »

A Lifetime at Goldman Sachs  |  Having worked at Goldman for 80 years, Alfred Feld was honored as the firm’s longest-serving employee. WALL STREET JOURNAL

What It Takes to Fully Engage Your Employees  |  Questions that chief executives â€" and others â€" ought to regularly ask themselves, not just to be good citizens, but as a powerful way to build competitive advantage. DealBook »

When Owning a Home Isn’t a Virtue  |  “This is a good time to ask a basic question,” Robert J. Shiller, a professor of economics at Yale, writes in The New York Times. “In today’s world, is it wise for the government to subsidize homeownership?” NEW YORK TIMES

PRIVATE EQUITY »

Restoration Hardware May Be a Boon to Private Equity  |  The private equity firms that bought Restoration Hardware Holdings in 2008 “are on track to make about eight times their initial investment, when including their remaining stock holdings in the company, according to a Wall Street Journal analysis of securities filings,” the newspaper reports. WALL STREET JOURNAL

Max Azria May Lose Control of Fashion House  |  The designer Max Azria is in discussions that are “likely to leave investment firm Guggenheim Partners L.L.C. â€" which holds about $475 million of BCBG Max Azria Group Inc.’s roughly $685 million in debt â€" with a controlling interest in the company, people familiar with the discussions said,” The Wall Street Journal reports. WALL STREET JOURNAL

HEDGE FUNDS »

Funds Betting on Corporate Announcements Find Success  |  “The recent burst of activist pressure, coupled with a proliferation of hostile deals, has allowed event-driven funds to outperform,” The Financial Times writes. FINANCIAL TIMES

Hedge Funds Increase Bets on Gold  |  The moves came as comments from Ben S. Bernanke, the Federal Reserve chairman, eased fears that the central bank would wind down its stimulus program sooner than hoped, Bloomberg News reports. BLOOMBERG NEWS

I.P.O./OFFERINGS »

Tnuva, Backed by Apax, Said to Consider I.P.O.  |  Tnuva Food Industries, an Israeli company that is controlled by private equity fund Apax Partners, is “considering an initial public offering that would value the company at 8 billion shekels ($2.2 billion), according to a person familiar with the plans,” Bloomberg News reports. BLOOMBERG NEWS

A Word of Caution on I.P.O.’s  |  “There are lots of I.P.O.’s to pick from. But that doesn’t mean you should,” The Wall Street Journal writes. WALL STREET JOURNAL

VENTURE CAPITAL »

With Investment, Advertising Firm Has Eye on Emerging Markets  |  On Monday, the Publicis Groupe, one of the world’s largest advertising holding companies, is to announce a $15 million investment in Jana, a mobile technology start-up that rewards users with free airtime if they take a survey, The New York Times reports. NEW YORK TIMES

A Venture Capitalist on Nepotism  |  “What could be better than working with your children?” Ken Lerer, an investor and the chairman of BuzzFeed, told The New York Times Magazine. NEW YORK TIMES

LEGAL/REGULATORY »

U.S. Regulators Approve Stricter Trading Rules Overseas  |  The Commodity Futures Trading Commission voted 3 to 1 to rein in lucrative trading by American banks doing business overseas, inviting an onslaught of lobbying from financial institutions. DealBook »

Foreign Banks Win New Delay in Tax Evasion Rule  |  The latest rollback of the deadline, a six-month extension to July 1, 2014, underscores a struggle by the Treasury Department to enforce the new law, which was approved in 2010 amid heightened scrutiny of offshore private banking services sold to wealthy Americans. It was originally supposed to go into effect last January. DealBook »

A Patent Warrior Puts Corporate America on Edge  |  “Once you go thug, though, you can’t unthug,” Erich Spangenberg, the owner of IPNav, told The New York Times. “Actually, you can unthug, but if you do that, you can’t rethug. Then you just seem crazy.” NEW YORK TIMES

The Fairness of a Split-Second Advantage for Traders  |  Regulators are taking a second look at media companies that try to generate revenue by charging fees for early access to financial information, says James B. Stewart, the Common Sense columnist for The New York Times. NEW YORK TIMES

A Proposed Rule on Capital Makes Banks Uneasy  |  “Last week, when federal financial overseers unveiled a potent new weapon against too-big-to-fail banks, it seemed as if â€" just maybe â€" the winds in Washington were shifting,” Gretchen Morgenson writes in The New York Times. NEW YORK TIMES

Bringing Bank Regulation to the Masses  |  “The Bankers’ New Clothes” tries to make topics like risk-weighted assets, leverage ratio and return on equity appealing to ordinary people. It has been unpopular with many bankers. DealBook »

Loblaw to Buy Shoppers Drug Mart in Canada

Loblaw release

The Loblaw Companies, Canada’s largest food retailer, announced on Monday that it would acquire Shoppers Drug Mart, the country’s biggest pharmacy chain, for $11.9 billion in cash and stock.

The total offer of 61.54 Canadian dollars ($59.05) represents a premium of 27 percent to Shoppers Drug Mart’s closing stock price on Friday on the Toronto Stock Exchange.

Loblaw agreed to pay 33.18 Canadian dollars in cash plus 0.5965 Loblaw share for each share of Shoppers Drug Mart.

“This transformational partnership changes the retail landscape in Canada,” Galen G. Weston, the executive chairman of Loblaw, said in a statement. “With scale and capability, we will be able to accelerate our momentum and strengthen our position in the increasingly competitive marketplace This combination creates a compelling new blueprint for the future, positioning us to capitalize on important trends in society, from the emphasis on health, wellness and nutrition, to the imperatives of value and convenience.”

Domenic Pilla, the chief executive of Shoppers Drug Mart, said: “We are delighted to partner with Loblaw to leverage our combined strengths. For our shareholders, this transaction provides significant and immediate value, as well as the ability to benefit from future upside by virtue of their continued ownership of shares in the combined company.”

Bank of America Merrill Lynch acted as financial adviser to Loblaw. RBC Capital Markets advised Shoppers Drug Mart and has provided an opinion to the board of directors of Shoppers Drug Mart. Loblaw retained Torys as its legal counsel and Borden Ladner Gervais in connection with competition matters. Osler, Hoskin & Harcourt acted as legal counsel to Shoppers Drug Mart.

Loblaw to Buy Shoppers Drug Mart in Canada

Loblaw release

The Loblaw Companies, Canada’s largest food retailer, announced on Monday that it would acquire Shoppers Drug Mart, the country’s biggest pharmacy chain, for $11.9 billion in cash and stock.

The total offer of 61.54 Canadian dollars ($59.05) represents a premium of 27 percent to Shoppers Drug Mart’s closing stock price on Friday on the Toronto Stock Exchange.

Loblaw agreed to pay 33.18 Canadian dollars in cash plus 0.5965 Loblaw share for each share of Shoppers Drug Mart.

“This transformational partnership changes the retail landscape in Canada,” Galen G. Weston, the executive chairman of Loblaw, said in a statement. “With scale and capability, we will be able to accelerate our momentum and strengthen our position in the increasingly competitive marketplace This combination creates a compelling new blueprint for the future, positioning us to capitalize on important trends in society, from the emphasis on health, wellness and nutrition, to the imperatives of value and convenience.”

Domenic Pilla, the chief executive of Shoppers Drug Mart, said: “We are delighted to partner with Loblaw to leverage our combined strengths. For our shareholders, this transaction provides significant and immediate value, as well as the ability to benefit from future upside by virtue of their continued ownership of shares in the combined company.”

Bank of America Merrill Lynch acted as financial adviser to Loblaw. RBC Capital Markets advised Shoppers Drug Mart and has provided an opinion to the board of directors of Shoppers Drug Mart. Loblaw retained Torys as its legal counsel and Borden Ladner Gervais in connection with competition matters. Osler, Hoskin & Harcourt acted as legal counsel to Shoppers Drug Mart.