Stalemate Puts Strain on a Vital Debt Market

During the financial crisis of 2008, the vast and shadowy machinery of the financial system seized up, making a bad situation worse.

Five years later, as Washington struggles to reach a fiscal deal, these netherworlds are once again becoming a concern. Crucial elements of the system remain vulnerable to shocks.

The biggest is the market where Wall Street firms borrow billions of dollars of short-term debt each day just to run their businesses. This debt market is heavily dependent on money market funds, a major source of weakness in 2008. Before the fiscal battle flared up, regulators were calling for further measures to strengthen both the Wall Street debt market and the money market funds.

Adding to the worries on Tuesday, Fitch Ratings said that the United States’ AAA credit rating was at risk of a downgrade.

It said that even if the budget conflict is resolved, it could push up the cost of borrowing across the economy and harm long-term growth.

But with just two days to go before the Treasury Department says it will run out of room to borrow more, investors remained skittish.

The Standard & Poor’s 500-stock index fell 12 points, or 0.71 percent. Investors, fearing a government default, continued to shed Treasury bills that come due in the next few months.

Citigroup’s chief financial officer, John C. Gerspach, said on Tuesday that his bank held no Treasuries that come due in October.

The system is in many ways stronger today than it was in 2008. The government has been putting in place an ambitious overhaul to make banks and markets more resilient to shocks.

But the current flight from certain Treasuries adds a unique and unpleasant twist to the stress in the markets. Treasuries are widely held and have long been used to help put values on all sorts of other financial assets, from corporate loans to mortgages. They also underpin trades in the $600 trillion derivatives markets. As a result, doubts about what Treasuries are really worth could reverberate deeply through the system.

“That’s when the uncertainty and disruption starts to build,” said Donald L. Kohn, a former vice chairman of the Federal Reserve and now a senior fellow at the Brookings Institution.

Even if a fiscal deal is reached soon and a default is avoided, investors around the world may view American sovereign debt as tainted for some time. Some of the same difficulties that came with the European debt crisis may linger in America.

“It’s hard to think about a well-functioning financial system and economy when your risk-free asset is under threat,” said Jacques Cailloux, chief European economist at Nomura.

Still, ordinary banks appear better protected than they were in 2008.

They hold substantially more capital, the financial buffer they need to absorb losses. A deep recession caused by a government default would certainly damage the banks in many ways. But they appear adequately insulated from any losses on Treasuries. Banks in the United States held $166 billion of Treasuries at the end of June, according to figures from the Federal Deposit Insurance Corporation, a primary bank regulator. By comparison, they had $1.63 trillion of capital.

Activities outside traditional banking look more exposed, though.

Wall Street firms and their clients, for instance, borrow trillions of dollars through the so-called repo market. In this market, large investment banks borrow for very short periods from investors with spare cash, pledging assets like Treasuries as collateral for the loan. They use the market to finance the purchase of securities.

In 2008, the repo market froze. The Fed rushed in to support the market with enormous credit lines to banks. Since then, regulators have introduced measures to strengthen the repo market, but they say they want to do more.

Treasuries back one-third of all transactions done in the $2 trillion repo market that brokers use the most. A violent sell-off in Treasuries could reduce the value of the collateral that brokerage firms use in repo, making it difficult for them to do business.

If the repo system was impaired, it would be “very dangerous for the largest dealers because they might be unable to find financing for their securities,” said Darrell Duffie, a professor of finance at Stanford.

One often-identified flaw in the repo market is that it depends on cash provided by money market funds, the investment vehicles that individuals often think of as safe places to park their cash. The mutual fund industry has taken steps to gird the money funds. Even so, regulators continue to press for further measures.

The threat of small losses in the money market funds â€" perhaps from defaulted Treasuries â€" could prompt many investors to withdraw their money.

“Even if the funds do prepare themselves, they can’t control it if their customers are pulling money out of the funds,” said Scott Skyrm, a former Wall Street trader who writes a blog on the repo market.

Right now, the repo market indicators show that it is about as stressed as it was during the more perilous days of the 2011 fiscal battle, Mr. Skyrm said.

So far, the money flowing out of money market funds has not been overwhelming. Last week, large investors withdrew $20 billion from money funds that specialize in government debt, 2.5 percent of the total in the funds, according to figures from the Investment Company Institute.

But an actual government default could lead to much heavier withdrawals. The funds would have to sell more Treasuries, forcing their prices lower, and Wall Street firms would have to make do with fewer repo loans.

“With money market funds, we know there is always a risk of runs, depending on how investors react,” said Adi Sunderam, an assistant professor at Harvard Business School.

Though the Dodd-Frank law, passed in 2010, makes it harder for the Fed and the Treasury Department to bail out the repo market and money market funds, banking specialists say they believed the government would still step in.

Regulations that govern what the Fed can buy appear to allow it to purchase defaulted Treasuries, said Oliver I. Ireland, a partner at Morrison & Foerster, and a former lawyer at the Fed.

“I can’t imagine that the Fed wouldn’t find a way to keep the markets liquid in the event of a default,” he said. “The Fed has got some pretty robust contingency plans.”

Many people on Wall Street still expect the politicians to reach a deal in time. But the dangers of flirting with default could linger.

“The experience in Europe has shown that these contagion channels can be very violent and unexpected,” said Mr. Cailloux, the Nomura economist.

JPMorgan Said to Reach Deal With Trading Regulator

JPMorgan Chase has reached a preliminary agreement with a federal regulator to settle accusations that a trading blowup in London last year represented reckless behavior in an important corner of the financial marketplace â€" a breakthrough that came after the bank agreed to make a rare admission of wrongdoing.

The settlement with the Commodity Futures Trading Commission could come as soon as this week, according to people briefed on the negotiations who were not authorized to discuss the private settlement talks. Aside from admitting to some wrongdoing, the bank is expected to pay about $100 million to resolve the case, which stems from the bank’s more than $6 billion trading loss known as the “London Whale” debacle.

The deal would cap weeks of negotiations that initially broke down when the trading commission demanded an acknowledgement of wrongdoing from JPMorgan. The agency argued that the bank’s trading was so large that it violated the law. It is illegal for banks to recklessly use a “manipulative device” in the market for credit derivatives, financial contracts that allowed the bank to bet on the health of companies like American Airlines.

The bank, arguing that its trading was legitimate, balked at making such an admission. And the trading commission drafted a potential lawsuit.

But ultimately, the people briefed on the negotiations said, JPMorgan agreed to admit that its trading amounted to illegal market activity on one particular day. The trading commission is likely to reference other trading in its order against the bank, but JPMorgan is expected to neither admit nor deny wrongdoing in those instances.

Although the narrow admission appears to be something of a compromise, it could still set a precedent that exposes the bank to scrutiny whenever it builds a large trading position. To resolve an array of investigations into the trading losses, JPMorgan already paid $920 million to four other regulatory agencies and admitted to the Securities and Exchange Commission that it violated federal securities laws.

The latest deal might offer the Commodity Futures Trading Commission a template for pursuing other Wall Street manipulation cases using its new authority under the Dodd Frank Act.

For years, the agency had to prove that a trader intended to manipulate the market â€" and successfully created artificial prices, an obstacle that deterred the agency from filing such cases. But under Dodd-Frank, the financial regulatory overhaul passed after the crisis, the agency must only show that a trader acted “recklessly.” The agency harnessed that new authority to pursue the JPMorgan activity, where it was unclear whether the traders intended to distort the market.

The bank declined to comment on the settlement talks. The people briefed on the negotiations cautioned that the settlement could face delays since the government is currently shutdown. The trading commission is operating with about 30 employees, a fraction of its roughly 700-person staff.

Twitter Picks N.Y.S.E. for Its Stock Listing

Score one for the Big Board.

Twitter has picked the New York Stock Exchange as the home for its coming listing, the company disclosed in an amended prospectus on Tuesday, giving the exchange a piece of the highest-profile initial public offering this year.

The exchange has competed hard with its rival, the Nasdaq stock market, for Twitter. Nasdaq has traditionally been known as the home of technology initial offerings, though as of earlier this month, the two exchanges had each claimed 19 technology I.P.O.’s.

Nasdaq has snared several big names in the Internet space, including Facebook, Groupon and Zynga, while N.Y.S.E. has snagged LinkedIn.

But many in the deal industry had speculated that Twitter would elect to go with the Big Board in light of Nasdaq’s technical issues in handling Facebook’s offering, problems that many analysts, bankers and investors have blamed for that stock’s initial stumbles.

In a statement, the Big Board said: “This is a decisive win for the N.Y.S.E. We are grateful for Twitter’s confidence in our platform and look forward to partnering with them.”

For its part, Nasdaq said: “All of us at Nasdaq wish Twitter well as they pursue their initial public offering.”

A Push to End Securities Fraud Lawsuits Gains Momentum

A group of pro-corporate forces has begun a behind-the-scenes fight at the Supreme Court. You may not have heard about it, but it could just end shareholders’ ability to sue companies for securities fraud.

Securities fraud litigation â€" suits against companies for disclosure violations of the federal securities laws â€" has been a big business over the years. From 1997 to 2012, more than 3,050 securities litigation cases were brought, according to Cornerstone Research, a financial and economic consulting firm. Companies and their insurers paid $73.1 billion in judgments and settlements, and plaintiffs’ lawyers alone collected almost $17 billion in fees, Cornerstone’s research shows.

Not surprisingly, corporate America has spent decades criticizing this type of litigation as little more than costly nuisance suits. Not only that, since the chief executives and other officers who are accused of having made fraudulent statements never have to pay out of their own pockets, the companies end up paying their own shareholders. In other words, shareholders are really paying this money to themselves â€" with a nice tip for the lawyers, of course.

Shareholders and their advocates argue that fraud is fraud, and that shareholder litigation is merely punishing companies for their wrong conduct. They point to the more than $7.3 billion recovered in the case of Enron or the $6.1 billion from WorldCom.

Now, a loosely organized coalition is seeking to end such litigation, and it is pushing a case at the Supreme Court to do exactly that.

The case is Erica P. John Fund v. Halliburton, the oil-services company. The Erica P. John Fund exists to support the Catholic Archdiocese of Milwaukee.

The fund’s lawsuit was initially brought in 2002, and it accused Halliburton and its chief executive then of lying to the market about Halliburton’s asbestos liabilities. The company and chief executive were also accused of overstating revenue and hyping up claims about the companies’ merger with Dresser Industries.

As Dickens memorably portrayed in “Bleak House,” litigation can be interminable, and this case is no exception. The parties have spent a decade fighting over whether the case can be brought as a class action, meaning whether it can be brought on behalf of all shareholders.

The Supreme Court considered a related issue in the case in 2011, unanimously reversing a decision that the Erica P. John Fund had to show that the allegedly false statements had led to a loss for shareholders before the class could be certified.

The case was sent back to a lower court, which has now certified the class action, but Halliburton is still fighting. The oil company is again asking the Supreme Court to reconsider the case in a petition filed last month.

In its argument, Halliburton is asking the Supreme Court to confront one of the fundamental tenets of securities fraud litigation: a doctrine known as “fraud on the market.”

The doctrine has its origins in the 1986 Supreme Court case Basic v. Levinson. To state a claim for securities fraud, a shareholder must show “reliance,” meaning that the shareholder acted in some way based on the fraudulent conduct of the company.

In the Basic case, the Supreme Court held that “eyeball” reliance â€" a requirement that a shareholder read the actual documents and relied on those statements before buying or selling shares â€" wasn’t necessary. Instead, the court adopted a presumption, based on the efficient market hypothesis, that all publicly available information about a company is incorporated into its stock price.

Applying this doctrine, the Supreme Court reasoned that any fraud would affect a company’s price. The court held that therefore a shareholder need not prove reliance because the shareholder’s purchase or sale was based on an inaccurate share price, a price that changed as a result of false information.

Most investors, at least the average small investors and even many mutual funds, usually don’t read the information released by the company and probably could not prove reliance. The Basic decision expanded the universe of possible plaintiffs. By discarding a person-by-person test for reliance, class actions were now easier to bring. And once a class action can be brought, the potential for damages rises exponentially. Companies often have no choice but to settle.

The Supreme Court’s reliance on the efficient market hypothesis was also aggressive. Since 1986, the dot-com and credit market bubbles have led many to question the truth of that hypothesis. Reflecting this uncertainty, the Nobel in economic science was awarded this week to Eugene F. Fama, one of the main proponents of the efficient market hypothesis, and Robert J. Shiller, one of its main detractors.

Nonetheless, the Basic case has made possible modern-day securities litigation. Without the presumption held in the Basic case, most ordinary investors would be out of luck. It wouldn’t just be the common investor. Index funds, for example, would never be able to prove reliance, because they buy and sell shares simply to reflect an index.

For those who believe that much of this litigation is frivolous, the ruling in the Basic case is becoming the center of attack.

It’s here that we come to the Halliburton case.

The company has petitioned the Supreme Court to overturn the decision in the Basic case, arguing that its standard should never have been adopted. A group of former commissioners at the Securities and Exchange Commission and law professors represented by the New York law firm Wachtell, Lipton, Rosen & Katz have also taken up the cause. In an amicus brief, the group argues that, in practice, the Basic case has effectively ended the reliance requirement intended by the statute, something that is not justified.

They rely on a forthcoming law review article by an influential professor, Joseph A. Grundfest of Stanford Law School. Professor Grundfest argues that the statute on which most securities fraud is based â€" Section 10(b) of the Exchange Act â€" was intended by Congress to mean actual reliance because the statute is similar to another one in the Exchange Act that does specifically state such reliance is required.

Professor Grundfest’s argument is a novel one and is likely to be disputed by the pro-securities litigation forces, but the question probably comes down to whether there are five justices who want to put a stake through the heart of securities fraud cases.

The opponents of the Basic decision are getting closer. In a case involving the biotechnology company Amgen in 2012, four dissenting justices appeared to support overruling the Basic ruling. The majority, which included Chief Justice John Roberts, supported the ruling, noting that Congress had considered the issue when it reformed securities litigation in 1995 and adopted the Private Securities Litigation Reform Act, the statute that was meant to cut back on securities laws. Congress didn’t discard the Basic decision when it could have.

Still, the foundation of the Basic decision on a financial theory has always been shaky. And the Supreme Court has not been in a pro-litigation mood of late. In the Morrison case decided in 2007, the justices ran a steamroller through foreign cases involving securities fraud, basically ending these cases.

It takes only four justices for the Supreme Court to decide to consider a case. The question now is really whether four justices think the time is right to go after the Basic ruling. The justices are expected to decide whether to do so next month.

Momentum may favor Halliburton, but its time may not have come: the Supreme Court could reject its petition. If so, the company will be looking at a 2014 trial.

Whatever happens to Halliburton, the bigger fight over the ruling in the Basic case will not end for corporate America. For good or bad â€" like so many other issues before the Supreme Court these days â€" the opponents need only one more vote to change everything.

Through Yahoo Earnings, a Window Into Alibaba’s Performance

Want to know how the Alibaba Group is doing, as the Chinese Internet giant moves forward with its potentially giant initial public offering?

Just take a look at Yahoo‘s latest earnings report.

As part of its latest quarterly disclosure, the American Internet company included more information about Alibaba’s performance, including its triple-digit-percentage profit growth. And it disclosed a new pact that will let it hold onto a slightly larger stake in the Chinese e-commerce giant after an I.P.O.

According to a Yahoo earnings presentation, its Chinese partner reported $707 million in profit attributable to ordinary shareholders for the three months ended June 30. That’s up 159 percent from the same time a year ago. And Alibaba’s sales were up 61 percent for the same period, to $1.7 billion.

Yahoo is privy to Alibaba’s financials thanks to its 24 percent stake in the Chinese e-commerce giant. The two companies first joined in 2005 when the American Web pioneer took a 40 percent stake for about $1 billion.

But by the time the two companies reached an agreement last year in which Yahoo agreed to sell its stake over time, Alibaba was valued at $35 billion. Deal-makers expect that when the Chinese Internet company goes public, perhaps as soon as the first half of next year, it will be valued at more than $75 billion.

Alibaba’s eye-popping growth has provided an enormous ballast to Yahoo’s own market value, which stood at about $34 billion as of Tuesday’s close. With that trajectory expected to continue, the American company has sought to hold onto its Chinese partner for a little bit longer: Yahoo also disclosed that a new agreement has reduced the number of shares that it must sell in an Alibaba I.P.O. to 208 million, down from $261.5 million

Thinking the Unthinkable in the City of London

LONDON â€" Like many people, professional investors here do not really think the United States will default on its debt.

But even if it did, what could they do? Many see the outcome as a sort of financial nuclear winter, or at least a cliff, and have little inkling of what’s on the other side.

Luke Bartholomew, an investment analyst at Aberdeen Asset Management, summed up the sentiment.

“We haven’t done anything to hedge our global government bond fund portfolio for an explicit default because: a) we think the chances of default are still small; and b) the consequences would probably be so systemic and devastating it would be very difficult to hedge,” he said.

His views largely reflected those shared by a number of money managers interviewed over the past week in London, Europe’s financial nerve center. As the city contemplates the abyss that it hopes will never come, heads shake at what they see as the Americans’ inability to operate a government. The prevailing belief seems to be that crisis will be averted and that the politicians will come to their senses at the 11th hour. The alternative is simply too dire to contemplate.

“Like most people on this side of the pond, we watch with incredulity, really, at the positions they have painted themselves into and the unnecessary stress and damage,” said Tim Haywood, the head of the fixed income unit at the London office of GAM, an asset management firm based in Zurich. He said his firm had considered pursuing a complex hedging strategy, but came to view it as unworkable.

“Most of us put down the chance of an unresolved default of U.S. Treasuries at below 1 percent,” he said. “However, even with such a low percentage, the ramifications of unresolved default would be so serious that clearly we have to check everything to ensure that we survive and our customers’ capital is preserved.”

He said his firm was not heavily invested in the U.S. dollar and had a cash allocation that was more focused in Europe. But they were holding “a small number of Treasury calls,” or options contracts that give them the right to buy U.S. Treasury bonds, which, he conceded, “sounds completely counterintuitive.”

“It may be that the risk-free asset does re-emerge as being U.S. Treasuries after a calamity,” he said.

For Johannes Müller, the chief economist at Deutsche Asset & Wealth Management, a unit of Deutsche Bank, “The possibility of a default is seen as very, very low, so we thought about a risk case, and formulated a risk scenario, but the probability is a symbolic one.” He added, “I don’t think by and large the market is anticipating a technical default.”

What would happen if the United States defaulted on its debt?

“Oof,” said Oliver Gregson, an executive at the wealth management division of Barclays. “Honestly, wouldn’t want to go there. You would be talking about an event similar to ’08, you really would.”

Many, like Mr. Gregson, do not see the nominal debt ceiling deadline of Oct. 17 as the default doomsday.

“The U.S. is the world’s largest economy and they have a lot of things they could do to avoid that,” Mr. Gregson said. “You have talk about a superbond, or minting a trillion-dollar coin, or Social Security or Medicaid payments might be impacted. We can get past the 17th, there are all sorts of things they could do.

“I would say we’re tactically cautious and strategically optimistic,” Mr. Gregson said. “We are mindful of the tail risk from the debt ceiling debate and possible default. Clearly those tail risks are substantial, but the reality of that actually happening is limited. The vested interested of both sides, Republican and Democrat, is substantial enough that we think sense will prevail.”

Citigroup’s Meager Returns

Citigroup, under Mike Corbat, has taken a step backward. The bank’s chief executive ends his first year in charge with third-quarter earnings below estimates and a meager 6.4 percent return on equity. Granted, markets over the summer were hardly amenable. But the breaks Citi got elsewhere make the bank’s overall performance look that much worse.

First of all, Citi Holdings is no longer a major drag on earnings. The unit, which houses the bank’s toxic and unwanted assets, lost just $104 million in the three months through September. That compares with $3.5 billion in the same period last year and $500 million in the second quarter this year.

Meanwhile, expenses are falling, thanks to Mr. Corbat’s move early on to speed up the cost-cutting plans of the previous boss, Vikram Pandit. At almost $11.7 billion, running Citigroup is now some $570 million cheaper than it was in each of the first two quarters of this year.

Then factor in the effect of a much lower tax rate this time around. Citi had to hand over just 25 percent to various governments around the world, compared with 28.5 percent in the first quarter and 33.7 percent in the three months to June. That boosted the bottom line by as much as $400 million.

Some deterioration in the core businesses was to be expected, considering the spike in interest rates earlier in the summer and dashed expectations that the Federal Reserve would trim the amount of securities it purchases. So a fall in both the mortgage lending and fixed-income trading businesses should be no surprise.

The sharp decline in the fixed-income business, though, looks a tad worrying. The 26 percent drop from the same period last year is way more than the 8 percent JPMorgan reported last week. If that ends up being the worst among Citi’s peers, it’ll suggest the bank is not on as strong a path as first-half results implied â€" though equities trading was up a solid 36 percent. Mr. Corbat needs to demonstrate that the overall disappointing third-quarter showing is a one-off.

Antony Currie is an associate editor at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

Citigroup’s Meager Returns

Citigroup, under Mike Corbat, has taken a step backward. The bank’s chief executive ends his first year in charge with third-quarter earnings below estimates and a meager 6.4 percent return on equity. Granted, markets over the summer were hardly amenable. But the breaks Citi got elsewhere make the bank’s overall performance look that much worse.

First of all, Citi Holdings is no longer a major drag on earnings. The unit, which houses the bank’s toxic and unwanted assets, lost just $104 million in the three months through September. That compares with $3.5 billion in the same period last year and $500 million in the second quarter this year.

Meanwhile, expenses are falling, thanks to Mr. Corbat’s move early on to speed up the cost-cutting plans of the previous boss, Vikram Pandit. At almost $11.7 billion, running Citigroup is now some $570 million cheaper than it was in each of the first two quarters of this year.

Then factor in the effect of a much lower tax rate this time around. Citi had to hand over just 25 percent to various governments around the world, compared with 28.5 percent in the first quarter and 33.7 percent in the three months to June. That boosted the bottom line by as much as $400 million.

Some deterioration in the core businesses was to be expected, considering the spike in interest rates earlier in the summer and dashed expectations that the Federal Reserve would trim the amount of securities it purchases. So a fall in both the mortgage lending and fixed-income trading businesses should be no surprise.

The sharp decline in the fixed-income business, though, looks a tad worrying. The 26 percent drop from the same period last year is way more than the 8 percent JPMorgan reported last week. If that ends up being the worst among Citi’s peers, it’ll suggest the bank is not on as strong a path as first-half results implied â€" though equities trading was up a solid 36 percent. Mr. Corbat needs to demonstrate that the overall disappointing third-quarter showing is a one-off.

Antony Currie is an associate editor at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

Negative Initial Market Reaction to Changes at Top of Burberry

Burberry’s executive makeover leaves the British trench coat maker with plenty to prove. Angela Ahrendts, chief executive of the $11 billion fashion house, is leaving next year to run Apple’s retail operation. News of her departure lopped 4.5 percent off Burberry shares on Tuesday morning.

No wonder: her tenure was good for investors. Worse, Burberry is flirting with a risky concentration of power. It is replacing Ms. Ahrendts with the company’s creative director, Christopher Bailey. But he will keep his current job.

It is easy to see what drew the technology savvy Ms. Ahrendts to California. She’ll no longer be the leader. But she will oversee both Apple Stores and online sales. Apple is also a more prestigious berth than Burberry, at least in business circles, and is much bigger, too. Pay and perks will probably reflect this. Last year, Ms. Ahrendts got 3.3 million pounds ($5.2 million) from Burberry. Contrast that with the terms that John Browett, the former Dixons boss, got when he went to Appe. Last year, he was, briefly, given a narrower retail role there. That did not work out. But if it had, he would have pocketed $56 million of stock.

There are three obvious reasons for the negative Burberry market reaction. First, simply, investors hate surprises, especially in a glitzy, high-growth company whose shares enjoy correspondingly lofty valuations.

Second, the company’s owners are losing a good steward of the business. Since Ms. Ahrendts became the chief executive in 2006, Burberry shareholders have enjoyed a handsome 340 percent total return. The FTSE 100 only managed 46 percent. Louis Vuitton’s parent LVMH has returned 109 percent.

The third reason is Burberry’s unusual response. It has elevated its star designer, Mr. Bailey, to chief executive. Alongside Ms. Ahrendts, Mr. Bailey, the former Gucci womens wear boss, has been central to Burberry’s renaissance. Yet creative types rarely make successful bosses of big public companies. He will also be paired with an inexperienced chief financial officer, Carol Fairweather, whose predecessor, Stacey Cartwright, left in February. A veteran chairman and a recently hired operating chief mitigate this somewhat.

Still, Mr. Bailey may be stretched uncomfortably across the two roles. Burberry sells a $325 check flat cap and a $650 felted wool number. Both are fine bits of headgear, but no one would wear the two together. Likewise, FTSE 100 chief executives look best wearing just the one hat.

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

Escalating War of Words in Tire Deal

Apollo Tyres still wants to acquire Cooper Tire and Rubber. It just wants to have a little chat about the agreed upon $2.5 billion price.

Cooper filed a complaint in a Delaware court earlier this month, alleging that Apollo, based in India, was dragging its feet in closing a deal that would create the world’s seventh-largest tire company. Responding to that complaint on Tuesday, Apollo said it had tried to complete the merger on time, but that Cooper had not held up its end of the merger agreement.

Specifically, Apollo said Cooper has not provided it with required information about the business and access to its books and records. Apollo also said it was unable to close the deal because of ongoing labor negotiations with the United Steelworkers. Finally, Apollo alleged that Cooper has essentially lost control of an important part of its business in China, making it impossible to know what it is really buying.

Taken together, Apollo claims these disruptions mean that Cooper has not satisfied the terms of the merger agreement and that it cannot try and force the deal to close at the current $35 a share price.

“This is not a case of buyer’s remorse,” Apollo said in its response to Cooper’s complaint. “Apollo has long seen the strength of the strategic fit between Apollo and Cooper. It still sees that fit, and it is committed to acquiring Cooper.”

But while Apollo still wants to do the deal, it also wants to revisit the price. Because the cost of a new contract with the steelworkers may be substantial, and because Cooper has limited control of its Chinese operations, Apollo said it was entitled to renegotiate the terms of what would be the largest ever Indian acquisition of a United States company. Apollo has pushed for new talks on price in previous statements, and reaffirmed that position in its response on Tuesday. What’s more, Apollo claims Cooper’s North American business is eroding at a surprising rate, adding further uncertainty to the price it is paying for the company.

For its part, Cooper says that Apollo knew there were risks to the deal, and that it is still obliged to go through with the deal. It noted that the material adverse change clause in the original merger agreement stated that any developments that were the result of the deal announcement could not be used as cause for Apollo to walk away. And in its recent complaint, Cooper sought to force the merger to close despite the complications. Apollo disputed Cooper’s interpretation of the clause.

What happens next is up to Vice Chancellor Sam Glasscock, the Delaware judge assigned to the case. Agreeing to fast track the case last week, Mr. Glasscock appeared sympathetic to Cooper’s complaint and set a trial for early November.

On Tuesday, Cooper said it was looking forward to seeing Apollo, its suitor, in court.

Lawyer Leaves Williams & Connolly to Start New Sports Firm

Jim Tanner, a lawyer at Williams & Connolly whose N.B.A. clients include Tim Duncan, Jeremy Lin and Shane Battier, has left the Washington law firm to form his own sports management company.

The new company, Tandem Sports & Entertainment, has opened for business in Arlington, Va., Tandem announced on Tuesday.

A Williams & Connolly lawyer, Helen Dooley, has also joined him. Ms. Dooley and Mr. Tanner left their previous firm on Friday.

Tandem also already has a splashy new Web site, featuring photos and biographical sketches of its clients, which, in addition to basketball stars, includes Candy Crowley, the CNN correspondent, and Paul Rabil, described as “the LeBron James of lacrosse.”

“Jim is a superb attorney who is following his dream,” his former Williams & Connolly partner, Robert Barnett, said. “Everyone at the firm wishes him and we’ll continue to work them and they’ll continue to be part of our family.”

Mr. Tanner spent 16 years at Williams & Connolly, a firm started in 1967 by the legendary trial lawyer Edward Bennett Williams. The 250-lawyer firm is perhaps best known for its role in several high-profile Washington political scandals, including its representation of Oliver North in the Iran-Contra scandal and President Bill Clinton during his impeachment trial.

Williams & Connolly has also established a lucrative and somewhat unorthodox practice representing talent in the entertainment, sports and media industries.

Mr. Barnett, for instance, is a prominent figure in the publishing business, representing authors in their contract negotiations. He has established himself as the go-to literary agent for Washington officials and journalists, negotiating book deals for President Obama and President George W. Bush and President Clinton, among many others.

Two other partners, Michael F. O’Connor and Deneen C. Howell, also handle individual contractual negotiations, including employment agreements for political officials entering the private sector.

Mr. Tanner has carved out a niche representing professional basketball players. He joined Williams & Connolly in 1997 after starting his career as a corporate lawyer at Skadden, Arps, Slate, Meagher & Flom. His mentor at Williams & Connolly, Lon Babby, left in 2010 to become president of the Phoenix Suns. Mr. Tanner did not return a telephone call and e-mail seeking comment.

Typically, agencies like William Morris Endeavor or International Management Group represents talent, charging as much as 15 percent of their clients’ salaries and endorsement deals as a fee. Mr. Tanner instead bills by the hour, an arrangement that often can be less expensive for the athlete or writer. Unlike agents, lawyers are also bound by the bar’s ethics rules.

Tandem would not be the first basketball-focused sports management firm to rise to prominence in the Washington area. David B. Falk, the Washington-based sports agent, represented Michael Jordan during his N.B.A. career, along with dozens of other players, first at ProServ and then at his own company, FAME.

Bond Traders Shift Bets With Political Wind

Bond traders are scaling back their bets that the government will default in the next few weeks but increasing their bets that there will be more problems next year.

Markets were responding to the emerging deal in Congress, which is looking to raise the debt ceiling until next February, at which point politicians will have to come to a new agreement.

The deal has led to a reversal in the recent price declines in Treasury bills set to pay out in November and December. Investors had been selling those bills in recent weeks out of fear that the government might not make its payments on time if Congress did not agree to raise the debt ceiling before Thursday.

But the deal is not reviving optimism in all corners of the Treasury debt markets. On Tuesday morning, investors were selling nearly all short-term bills set to pay out after February, suggesting some concern that we will be going through the same battles again. Normally, as the due date for a bond comes closer, the bonds become more expensive. Until today, that had been happening to next year’s bills.

“The news flow out of Washington, D.C. suggests a punt of government shutdown/debt ceiling risk to the January/February time frame,” Michael Purves, the chief global strategist at Weeden & Company.

The fall has been particularly notable for bills dated Feb. 13 and 20, but even bills due in July are falling out of favor. The span is notable because it suggests some concern that the debt worries could extend through next year.

Chastening the Giant Banks

From the Gordon Gekko 1980s until the mortgage meltdown in 2007-8, the financial industry came to dominate the world economy. On this extraordinary and sometimes terrifying ride, banks reaped incredible profits while management and staff received generous salaries and lush bonuses.

And then everything fell apart. Eventually governments had to step in to bail out or shut many financial institutions.

Five years after the crisis, some participants and close observers of the world of finance see a generational humbling of the big banks under way. For the first time in nearly 30 years, they say, finance is starting to look a bit more like a normal industry.

“The future’s going to be different,” said Richard W. Fisher, president of the Federal Reserve Bank of Dallas and a former Wall Street banker and hedge fund manager. Though he thinks some financial institutions are still too large, he believes important progress has been made since the crisis. “The big, complex banks have been chastened,” he said. “There will be more hitting of singles and less swinging for the fences.”

The extent to which banks have been constrained is open to debate, especially in the view of regulators and of critics who continue to see the industry as creating risks to the economy even as it reaps the benefits of a recovery that has done little for most working people.

Most banks are profitable, and profits have been rising steadily since the crisis. In fact, for the second quarter of this year, banks in the United States reported total earnings of more than $42 billion, a record. Few criminal charges have been brought against the architects of the 2008 disasters. And governments have left the largest financial institutions intact, leaving the controversial notion of “too big to fail,” and the systemic risk that it brings, alive and well.

A wave of consolidation in the United States has concentrated financial assets in the hands of a small number of big institutions, critics say, and in Europe, little has been done to meaningfully shrink the region’s largest banks.

“It’s too early to say how one judges the last five years of reform,” said John Vickers, an Oxford professor of economics who headed Britain’s commission on overhauling banks. “Much depends on the next five.”

The shift can be hard to track because it involves the intricate ways in which banks make money. But the numbers show that measures introduced since the crisis are steadily depriving banks of some financial and political advantages that fueled their growth for years.

The importance of the political dimension is hard to overstate. During finance’s most powerful period, the industry exercised far-reaching influence on governments and regulators.

These days, however, the politics appear to be shifting, with more elected officials backing measures that restrain the financial industry. In the United States, for instance, Republicans and Democrats have in recent months jointly sponsored bills in Congress that would make the banking overhaul stricter. How they will fare in the face of intense lobbying remains to be seen.

In this debate, in the United States and Europe, banks are no longer seen as companies whose demands must be met to generate prosperity. Instead, they are increasingly viewed as entities that benefit from a range of subsidies and often engage in activities that can harm economic growth.

Philippe Lamberts, a member of the European Parliament, led efforts to pass a law this year to cap bankers’ bonuses. He was elected in 2009, representing Ecolo, a Belgian green party, after a 22-year career at I.B.M. He said he had changed his views on finance in the past decade after deciding that it was having a negative influence on the wider economy.

“Everything that can be done to bring the financial industry back to what it’s supposed to do, should be done,” Mr. Lamberts said.

A version of this special report appears in print on October 15, 2013, in The International New York Times.

Barclays’ Compliance Chief to Take Leave of Absence

LONDON - Barclays said Tuesday that Hector W. Sants, the bank’s compliance chief and a former head of Britain’s financial regulator, will take a leave of absence after suffering from exhaustion and stress.

Mr. Sants, who joined Barclays in January to help repair the bank’s image after a rate-rigging scandal, plans to return to his job at the end of the year. Mr. Sants’s responsibilities will be split among colleagues during his absence.

Before joining Barclays, Mr. Sants was chief executive of the Financial Services Authority, Britain’s main financial regulator, for five years. Under his leadership, the regulator came under increasing criticism because of the failure of the British mortgage lender Northern Rock in 2008. Mr. Sants acknowledged that mistakes were made leading up to the financial crisis.

During the financial crisis, Mr. Sants, a former Credit Suisse banker, was also part of the talks with Barclays that prevented it from buying some European assets from the collapsing Lehman Brothers.

Mr. Sants said in 2010 that he would retire from the financial regulator, but the government announced a few months later that he would stay on to help with a far-reaching change of the British regulatory system.

At Barclays, Mr. Sants started to review the bank’s risk-taking activities and helped chief executive Antony P. Jenkins tighten compliance after a fine of more than $450 million by regulators last year for its role in the manipulation of the benchmark interest rate known as Libor.

Mr. Sants is not the only senior executive in London’s financial industry to take a leave because of stress. António Horta-Osório, the chief executive of the Lloyds Banking Group, returned to the bank in January last year after taking a two-month medical leave for exhaustion at the end of 2011.

Morning Agenda: No Consensus on JPMorgan’s Chief

As JPMorgan Chase’s legal woes have mounted, some in the pundit class have called for Jamie Dimon, the bank’s chief executive and chairman, to pay with his job. “Yet there is an almost bizarre disconnect between the headlines and what the people who matter â€" the investors, analysts, board members and, yes, even regulators â€" are seeking. None of them want him fired,” Andrew Ross Sorkin writes in the DealBook column.

Marvin C. Schwartz, a managing director at Neuberger Berman and a longtime investor in JPMorgan, said: “Jamie Dimon is one of the best C.E.O.’s of any company in the world.” He continued, “It doesn’t mean you can’t have an accident. It’s totally unfair to say he inflicted this upon himself.” Daniel S. Loeb, the activist investor who has made a career out of targeting troubled companies and ousting their chief executives, also sided with Mr. Dimon, saying he was “being used as a scapegoat and piñata to satisfy some kind of bloodlust.” Laban P. Jackson, the head of the audit committee of JPMorgan’s board, said at a conference last week, “He’s the best manager I’ve ever seen.”

“JPMorgan’s legal troubles stem from a series of problems,” Mr. Sorkin writes. “But many problems stemmed not from bad behavior at JPMorgan but at Bear Stearns and Washington Mutual, two firms that the government encouraged JPMorgan to acquire in 2008 to help avert a market panic.”

SENATORS NEAR FISCAL DEAL  | 
With the possibility of an American default looming this week, Senate leaders on Monday neared the completion of a bipartisan deal to raise the debt ceiling and end the government shutdown, Michael D. Shear and Jeremy W. Peters report in The New York Times. Yet it was clear that the most conservative members of the House were not going to go along quietly with a plan that does not dismantle the president’s health care law.

“Negotiators talked into the evening as senators from both parties coalesced around a plan that would lift the debt limit through Feb. 7, pass a resolution to finance the government through Jan. 15 and conclude formal discussions on a long-term tax and spending plan no later than Dec. 13, according to one Senate aide briefed on the plan,” The Times reports.

Wall Street and the Obama administration have long thought that the prospect of hitting the debt ceiling and going into default would be so horrifying that it would lead to a resolution of the budget impasse, Bruce Bartlett writes on the Economix blog of The Times. “What I don’t think they understand is that there has been a movement under way for some years among right-wing economists and activists not merely to default on the debt, but even to repudiate it.”

BUYOUT FIRMS HUNTING FOR CASH  | “Across the country, nearly 2,000 private-equity firms are making pitches to state retirement systems, corporate pension funds and wealthy investors in the hope of raising nearly three-quarters of a trillion dollars for their next, new funds â€" more than what was raised over the last two years combined,” Julie Creswell reports in DealBook.

“The push is part of the life cycle of the private-equity industry, which raises investment pools from large institutions and others that typically last about 10 years,” Ms. Creswell writes. “For some, raising new, even bigger funds will prove extremely easy. Others, however, will walk away empty-handed or with a much smaller amount than they wanted.”

ON THE AGENDA  | 
Citigroup reports third-quarter results at 8 a.m., with a conference call at 11 a.m. Yahoo and Intel report earnings after the market closes. Joseph J. Lhota, the Republican nominee for mayor of New York, is on Bloomberg TV at 11:30 a.m.

CHASTENING THE BIG BANKS  | From the 1980s until the mortgage mess in 2007-8, finance came to dominate the world economy. But now, five years after the crisis, some participants and close observers see a generational humbling of the big banks under way, Peter Eavis writes in The International New York Times. Finance may be starting to look more like a normal industry.

“The future’s going to be different,” said Richard W. Fisher, president of the Federal Reserve Bank of Dallas and a former Wall Street banker and hedge fund manager. Though he contends some financial institutions are still too large, he says important progress has been made since the crisis. “The big, complex banks have been chastened,” he said. “There will be more hitting of singles and less swinging for the fences.”

Mergers & Acquisitions »

SoftBank Buys 51% of Finnish Game maker for $1.5 Billion  |  By acquiring a stake in the Finnish company Supercell, SoftBank is positioning itself to take advantage of an increase in mobile game play that has been spurred by rising smartphone use and high-speed data connections. DealBook »

BlackBerry Seeks to Reassure Customers  |  “We have one important message for you: You can continue to count on BlackBerry,” the struggling smartphone maker wrote in an open letter to its customers. ALLTHINGSD

Retaining Executives in a Post-Buffett Berkshire  |  Some investors and analysts are wondering whether the successor to Warren E. Buffett at Berkshire Hathaway will be able to retain the senior executives that Mr. Buffett has attracted over the years, The Wall Street Journal writes. WALL STREET JOURNAL

Peugeot Shares Fall on Possibility of Deal to Raise Capital  |  Shares of PSA Peugeot Citroën tumbled on Monday as investors anticipated that the struggling French automaker was closing in on a deal to raise fresh capital that would dilute the value of its stock, David Jolly writes in The New York Times. NEW YORK TIMES

A Way Out of the Cooper Tire-Apollo Tyres Mess  |  The Indian tire company’s $35-a-share takeover offer for its American rival is in doubt. Yet there are plenty of avenues for a compromise, Una Galani and Peter Thal Larsen of Reuters Breakingviews write. REUTERS BREAKINGVIEWS

INVESTMENT BANKING »

Prize Highlights Clashing Theories on Financial Markets  |  The economist Eugene F. Fama, one of three recipients of this year’s Nobel in economic science, has developed the theory that asset prices perfectly reflect all available information, while the economist Robert J. Shiller, another recipient of the prize, is perhaps Mr. Fama’s most influential critic, having assembled evidence of irrational, inefficient behavior, Binyamin Appelbaum reports in The New York Times. NEW YORK TIMES

Credit Suisse’s Painful Transformation  |  The strategy of Credit Suisse, which has cut back its fixed-income, currency and commodities trading business in the aftermath of the financial crisis, “could be a template for other European and U.S. banks that are under increasing pressure from regulators to cut risk-taking, bank executives said,” Reuters writes. REUTERS

A Comeback for Commercial Property Lending  |  “From office buildings to shopping centers to warehouses to apartments, lending to developers and owners of such properties is on the rebound because of rising real-estate values and improved credit quality,” The Wall Street Journal writes. WALL STREET JOURNAL

PRIVATE EQUITY »

Creditors Fail to Agree on Reworking Texas Utility  |  Among the issues dividing creditors of Energy Future Holdings, which was taken private in the largest leveraged buyout in history, is the value of a company owned by a subsidiary of the giant utility, The Wall Street Journal reports. WALL STREET JOURNAL

Private Equity Owners Commit More Cash to First Data  |  The private equity firm K.K.R. and its co-investors are making a new $300 million investment in First Data, a big payment processing company, to help it refinance its debt. REUTERS

HEDGE FUNDS »

Hedge Funds See Promise in Puerto Rico Debt  |  The Financial Times reports: “Hedge funds and managers of distressed assets have been buying debt sold by Puerto Rico, as traditional municipal bond investors shun the securities amid worries about the island’s finances.” FINANCIAL TIMES

A Closely Watched Analyst Predicts Doom  |  “The market’s going to have one more rally, then once we get above that high, I think it’s going to be more treacherous,” said the stock market analyst Tom DeMark, who is a special adviser to Steven A. Cohen of SAC Capital Advisors, Bloomberg Businessweek reports. BLOOMBERG BUSINESSWEEK

I.P.O./OFFERINGS »

Moncler Files to Go Public on Milan’s Stock Market  |  The cold-weather apparel maker Moncler said it had applied to go public on the Milan Stock Exchange, becoming the latest fashion company to pursue a stock listing. DealBook »

VENTURE CAPITAL »

Solar Industry Puts Robots to Work  |  A start-up called Alion Energy is among the solar panel companies betting that automating the installation and maintenance of large-scale solar farms will be an effective way to cut costs, The New York Times writes. NEW YORK TIMES

LEGAL/REGULATORY »

Britain Aims to Ease Way for Chinese Banks in London  |  Britain plans to begin talks with China about making it easier for Chinese banks to do business in London as part of an expanded effort to make the city a global center for investing and trading China’s currency. DEALBOOK

Former R.B.S. Trader Under Scrutiny in Britain  |  Bloomberg News reports that Richard Usher, JPMorgan Chase’s chief dealer in London, wrote instant messages while he was at Royal Bank of Scotland that British regulators “are scrutinizing as part of their investigation of alleged currency manipulation, two people with knowledge of the matter said.” BLOOMBERG NEWS

Implications for Banks as Madoff Litigation Grinds On  |  If the Madoff trustee is successful in being able to sue major banks for ignoring warning signs, the potential liability of financial firms could be enormous in future cases, Peter J. Henning writes in the White Collar Watch column. DealBook »

Rival Denounces Rescue Plan for Italian Airline  |  Reuters reports that the International Airlines Group, which owns British Airways and Spain’s Iberia, “urged the European Commission to intervene over the Italian government’s attempts to stitch together a bailout for Alitalia.” REUTERS

Citi’s Quarterly Profit Misses Estimates

Citigroup, grappling with a tepid mortgage market and a broad slowdown in its fixed-income business, reported disappointing third-quarter earnings growth on Tuesday.

Citigroup, the nation’s third-largest bank by assets, said profit rose to $3.23 billion, or $1 a share, from $468 million, or 15 cents a share, in the period a year earlier.

Adjusted for one-time items, Citi’s earnings were slightly higher, at $3.26 billion, $1.02 a share.

Revenue swelled 30 percent, to $17.88 billion, from $13.7 billion in the period a year earlier. But Citigroup’s results were undercut by weakness in the fixed-income unit and fell short of analysts’ expectations of $3.16 billion, or $1.04 a share.

Excluding one-time items, Citi reported revenue of $18.2 billion, compared with $19.2 billion in the year-ago quarter and short of the analyst estimate of $18.74 billion.

“We performed relatively well in this challenging, uneven macro environment,” Michael Corbat, the chief executive of Citigroup, said in a statement.

For Mr. Corbat, the bank’s third-quarter earnings report comes at a critical moment: his one-year anniversary atop the bank. It was almost a year ago that Mr. Corbat took over the reins after Vikram Pandit was forced out in a boardroom coup led by Citi’s chairman, Michael O’Neill, who maneuvered behind the scenes for months to orchestrate the management change.

Since taking over, Mr. Corbat, a veteran of Citigroup who was spearheading much of the bank’s international business, has grappled with some of the same problems that dogged Mr. Pandit, including how to slough off unprofitable assets.

And like Mr. Pandit, Mr. Corbat has assiduously tried to slash costs and slim down business units at the sprawling bank. As part of that push, Citibank has sold its remaining stake in a brokerage joint venture with Morgan Stanley.
But Citi, like its rivals, is challenged by a tough environment â€" a lackluster American economy and slowing demand for loans.

Bedeviled by weak mortgage growth at home, Citi has pinned some of its hopes for growth on its international footprint. More than 50 percent of Citi’s revenue comes from outside of North America.

Britain Aims to Ease Way for Chinese Banks in London

LONDON - The British government announced a plan on Tuesday that was intended to make it easier for Chinese banks to do business in London as part of an expanded effort to make the city a global center for investing and trading China’s currency.

On a five-day trade mission to China, Chancellor George Osborne of Britain said the country’s Prudential Regulation Authority would shortly begin discussions to allow Chinese banks to open wholesale branches, rather than subsidiaries, for this first time in Britain.

By opening branches, a Chinese bank will be able to use its parent company’s capital to meet British rules for reserves and other financial requirements. British officials hope it will spur Chinese investment here.

The five largest banks in China already have subsidiaries in Britain.

Mr. Osborne also announced that investors in London would now be able to apply for a license to invest directly in Chinese shares and bonds in the Chinese currency, the renminbi. It will be the first Western country to have such an agreement, the British government said.

In the past, investors had to go through a counterparty in Hong Kong to invest in Chinese stocks and bonds, which could carry a higher cost. The initial quota for London trades will be set at 80 billion renminbi ($13.1 billion).

“Today we agreed the next big step in making London - already the global center for finance - a major global center for trading and now investing the Chinese currency too,” Mr. Osborne said. “More trade and more investment, means more business and more jobs for Britain.”

Vice Premier Ma Kai, who was China’s counterpart to Mr. Osborne in the economic talks in Beijing on Tuesday, told him that China wanted to “deepen cooperation in the financial sphere and enhance coordination in major international financial matters,” the China News Service reported.

Prior agreements between the countries paved the way for London to become a Western hub for trading of the renminbi.

Britain now accounts for 62 percent of global renminbi trading outside of China and Hong Kong and 28 percent of all international renminbi payments, according to the British government.

Christopher Buckley contributed reporting from China.

SoftBank Buys 51% of Finnish Gaming Firm for $1.5 Billion

LONDON â€" The Japanese telecommunications giant SoftBank agreed on Tuesday to buy a 51 percent stake in the Finnish online gaming company Supercell for around $1.5 billion.

The deal signifies the meteoric rise of Supercell, whose games include Clash of Clans and Hay Day. The company was founded in 2010 in Helsinki and has focused on creating games for the growing number of tablet computers worldwide.

In a blog post on Tuesday, Ilkka Paananen, Supercell’s founder and chief executive, said the investment would help the company expand into more international markets, particularly in Asian countries like Japan and South Korea.

As part of the deal, the Japanese gaming company GungHo Online Entertainment, which is part owned by SoftBank and already collaborates with Supercell on a number of games, will invest 20 percent, or $300 million, of the total $1.5 billion, while SoftBank will buy the remaining stake in the Finnish company.

“The combination of tablets, mobile and the free-to-play business model has created a new market for games,” Mr. Paananen said in his blog post. “The strategic investment from SoftBank helps us to accelerate towards our goal.

By acquiring a stake in Supercell, SoftBank is positioning itself to take advantage of an increase in mobile gaming that has been fueled by rising smartphone use and high-speed data connections.

The Japanese telecommunications company is looking to expand its presence in the United States after buying Sprint Nextel for $21.6 billion earlier this year.

On Tuesday, SoftBank’s chief executive, Masayoshi Son, said the deal to acquire a controlling stake in Supercell would help the Japanese company to expand its presence in the growing mobile gaming sector.

“In our quest to become the number 1 mobile Internet company, we scour the globe in search of interesting opportunities,” he said in a statement. “Right now some of the most exciting companies and innovations are coming out of Finland.”

The deal comes just over a month after Nokia - the quintessential Finnish technology company that has struggled to keep pace with rivals like Apple and Samsung - agreed to sell its handset and services business to Microsoft for $7.2 billion.

While Microsoft will retain a large presence in Finland, many in the Finnish tech industry have questioned what the sale of Nokia’s handset division, which once dominated the global smartphone market, will mean for their country’s broader technology industry.

In his blog post, Mr. Paananen of Supercell, which is reported to be making around $2.4 million a day from its online games, directly connected the deal with SoftBank with the issues facing Nokia.

“Our operations remain in Finland, our management team remains in Finland and in San Francisco, and we continue to pay taxes in Finland,” said the Supercell founder. “I think more and more people in this country are realizing that there is life after Nokia.”