China Everbright to Try Again for Public Offering

HONG KONG â€" China Everbright Bank is hoping the third time will be the charm.

On Tuesday, the midsize Chinese state-owned lender began marketing a Hong Kong share sale that is seeking to raise as much as $2.8 billion to help shore up its capital base.

If successful, the deal would be Hong Kong’s biggest initial public offering of the year, overtaking that of China Cinda Asset Management, a state-run ‘‘bad bank’’ that raised $2.5 billion in its share sale last week.

It is Everbright Bank’s third try for a Hong Kong listing. It aborted two previous attempts â€" most recently in August 2012 â€" because of market downturns.

It also comes at a time when the bank’s parent group has been in the news for being one of the Chinese companies whose business dealings with JPMorgan Chase have been the subject of a United States bribery investigation for months.

The United States authorities are investigating whether JPMorgan’s ‘‘Sons and Daughters’’ program of hiring the children of executives at Chinese state companies was directly linked to winning business from those companies. JPMorgan employed the son of the chairman of the China Everbright Group, and a Hong Kong executive at the Wall Street bank highlighted in emails how hiring decisions could affect ‘‘existing and potential business opportunities.’’

Last month, JPMorgan withdrew as one of the underwriters of the Everbright Bank I.P.O., The Wall Street Journal reported at the time. Everbright Bank’s 711-page listing document, published on Tuesday, does not mention JPMorgan or the investigation in the United States.

Everbright Bank plans to sell 5.1 billion new shares at a price range of 3.83 Hong Kong dollars to 4.27 Hong Kong dollars â€" raising 19.5 billion dollars to 21.7 billion dollars, or $2.5 billion to $2.8 billion, it said Tuesday. The deal is expected to price on Friday and trading in the stock to begin on Dec. 20.

Everbright Bank is the third Chinese bank since October to seek a Hong Kong listing. Huishang Bank Corporation, a regional banking group based in eastern Anhui Province, raised about $1.2 billion in a Hong Kong I.P.O. in November, and Bank of Chongqing raised about $540 million in October.

Despite their generally healthy growth in profits, Chinese banks are being compelled to raise money and secure new access to capital markets ahead of what analysts expect could be a rising tide of new bad debt in China, as economic growth slows from the double-digit pace of previous decades.

The banks also need to bolster their capital bases ahead of more stringent capital requirements, which are being phased in by Chinese financial regulators between now and 2018. Everbright Bank’s capital adequacy ratio stood at 9.67 percent as of June, but must reach 10.5 percent in the next five years to comply with the new regulations.

Everbright Bank is no stranger to large-scale fund-raising. In 2007 it received a capital injection worth 20 billion renminbi, or $3.3 billion at the exchange rates of today, from the government. In 2009, the bank sold stakes to eight outside investors, raising 11.5 billion renminbi. And in 2010, it raised 21.7 billion renminbi in a Shanghai I.P.O.

In its listing document, Everbright Bank said it planned to use the proceeds from the Hong Kong offering ‘‘to supplement our core capital base, to increase capital adequacy, to strengthen our ability to resist risks as well as to strengthen our profitability and to support growth of our business.’’

The I.P.O. has received strong support from so-called cornerstone investors, big investment institutions or wealthy individuals who commit in advance to buying large blocks of shares and holding them for six months.

Everbright Bank’s 19 cornerstone investors have pledged to buy shares worth $1.74 billion, or as much as 70 percent of the stock being sold in the I.P.O. depending on the deal’s final pricing. They include China Shipping Group, the Hong Kong property developer Chinese Estates Holdings, Prudential Insurance and the Canadian insurer Sun Life Assurance.

The I.P.O. has 10 underwriters, led by China International Capital Corporation, UBS, Morgan Stanley and China Everbright Securities International.

Cerberus May Offer Divestment in Firearms

Shortly after 1 a.m. on a day nearly a year ago, Cerberus Capital Management announced that it planned to sell its gun manufacturing company, the Freedom Group, after the deadly school shooting in Connecticut four days earlier.

But the efforts to sell the company, which produced the Bushmaster rifle that Adam Lanza used in his assault on Sandy Hook Elementary School in Newtown, Conn., have been hamstrung by the public furor that prompted the auction in the first place.

It is a predicament that Cerberus, a $20 billion private equity and hedge fund investor, could have hardly predicted when it bought Bushmaster Firearms seven years ago. Cerberus, named for the multiheaded beast that guards the Greek underworld, used the company as a platform for other acquisitions like Remington Arms, the country’s oldest gun maker, and Marlin Firearms.

Instead of selling the company, executives from the Freedom Group explained on Monday during a conference call with about 35 creditors that Cerberus was working on a new step: helping its investors who were seeking to distance themselves from the industry sell their interests in the firearms maker.

The decision highlights the rocky sales process that Cerberus began last December. Despite hopes for a quick sale, the potential buyers backed away and some lenders declined to finance bids.

The proposal outlined on Monday, in which a new investor would take a minority stake and provide $200 million in new debt, would be only an interim step in Cerberus’s efforts, people briefed on the matter insist. The firm may still pursue a sale, an initial public offering or some other transaction afterward â€" or instead of â€" the recapitalization.

Coincidentally, the norms of the private equity industry would generally dictate that the Freedom Group be sold around now anyway. Leveraged buyout firms generally hold onto their investments for five to seven years. Indeed, Cerberus tried taking the gun maker public in 2009, but poor stock market conditions forced it first to postpone an initial offering and then call it off altogether two years later.

By the time that Cerberus announced its plans to sell the company last December, protesters were calling for a ban on semiautomatic rifles like the Bushmaster model that Mr. Lanza used, an AR-15 style derived from military models. Shares in other gun manufacturers, including Smith & Wesson and Sturm, Ruger & Company, plummeted amid the prospect of gun control, lowering the potential value of privately held companies like the Freedom Group as well.

“It is apparent that the Sandy Hook tragedy was a watershed event that has raised the national debate on gun control to an unprecedented level,” the firm said in its statement at the time.

“We believe that this decision allows us to meet our obligations to the investors whose interests we are entrusted to protect without being drawn into the national debate that is more properly pursued by those with the formal charter and public responsibility to do so.”

Others moved to act by the Newtown shooting were Cerberus’s own investors. Public pension funds like the California State Teachers’ Retirement System, or Calstrs, and New York State’s comptroller publicly declared that they wanted to sell their holdings in gun makers.

Such investors hold only small stakes in the Freedom Group â€" Calstrs owned about 2.5 percent of the company last year â€" but can exert enormous influence on their money managers.

Still, despite the controversy, Cerberus thought that it could fetch more than $1 billion. The company was profitable for most of the last two years before the shooting, as gun sales rose during the Obama administration. In the quarter before the Newtown shooting, it reported nearly $238 million in sales, while it swung to a $16.1 million gain from a loss in the previous year.

Even after Newtown, the Freedom Group’s sales rose, spurred by customers fearful that tougher new regulations would make buying firearms more difficult. Its sales in the second quarter this year jumped to $353.2 million, its highest level in at least five years.

Yet from the beginning of the latest sales process, Cerberus encountered hurdles in trying to dispose of the company. Some banks declined to take on the assignment, fretting about the potential hit that their reputations may suffer. The firm eventually turned to Terry Savage at Lazard, a senior deal maker who is close to the investment firm and its chief executive, Stephen A. Feinberg.

The absence of big banks like JPMorgan Chase and Credit Suisse, which have rarely advised or lent money to firearms manufacturers, made it difficult not only for Cerberus but also for potential buyers for the business. Rival gun manufacturers like Sturm, Ruger and Smith & Wesson are either the Freedom Group’s size or smaller, requiring them to take on debt to pay for a deal.

Leveraged buyout firms also often require sizable amounts of financing to pay for their transactions. They faced an additional problem. Like Cerberus, some of their own investors were eager to wash their hands of investments in the gun industry, limiting their ability to bid for the company.

The Freedom Group’s owner, which had already earned a profit from its investment through a dividend payment, had been pushing for what some bidders deemed a high valuation of the company. However, some people briefed on the sales process argued that the expected price was based on a multiple of earnings lower than what some of the gun maker’s peers commanded in the public markets.

For much of this year, Cerberus heard from a number of interested suitors, some of whom walked away and others who failed to meet seller expectations, according to people briefed on the process.

Worried that the chances of a sale were fading, Mr. Feinberg himself weighed making a bid for the Freedom Group along with a number of other wealthy individuals. Such a move, one that would have created numerous financial and legal complications, would have at least established a floor for other offers in the auction process.

Ultimately, Mr. Feinberg decided against making an offer.

During that time, Cerberus briefed investors on its efforts. Those limited partners have largely supported the firm in public, even as they professed an eagerness to rid themselves of the business.

“Cerberus really has made an honest effort and tried but it’s been a tough year for them,” Christopher Ailman, the chief investment officer of Calstrs, told Bloomberg Television last week. “It’s a tough sale because the company has baggage.”

As the auction process stalled, Cerberus began working on other moves that could solve investors’ issues. What has emerged so far is what the Freedom Group executives presented to their creditors on Wednesday.

An unidentified financial firm has provisionally committed to providing about $200 million in debt financing and buying a minority stake in the firearm producer. Proceeds from that investment would be used to buy out the stakes held by Cerberus limited partners eager to sell.

During the call â€" hosted by Bank of America, which serves as the administrative agent for the Freedom Group’s publicly traded debt â€" a number of participants asked questions about the plan, according to a person briefed on the matter. None publicly expressed opposition to the move.

For the proposal to move forward, creditors must approve the Freedom Group taking on the additional debt. Should they assent, a deal with the third-party investor could be approved quickly.

Then Cerberus would have slightly more flexibility in its options for the gun maker, including a potentially longer time frame for an outright sale or some other transaction. It may also decide to scrap the current investment plan altogether if a more compelling opportunity arises.

How Mandela Shifted Views on Freedom of Markets

When you think about Nelson Mandela, you probably think about freedom â€" free people, free country, free speech. What may be overshadowed by Mr. Mandela’s extraordinary legacy was his complicated journey to support free markets and a free economy.

When Mr. Mandela was released from prison in 1990, he told his followers in the African National Congress that he believed in the nationalization of South Africa’s main businesses. “The nationalization of the mines, banks and monopoly industries is the policy of the A.N.C., and a change or modification of our views in this regard is inconceivable,” he said at the time.

Two years later, however, Mr. Mandela changed his mind, embracing capitalism, and charted a new economic course for his country.

The story of Mr. Mandela’s evolving economic view is eye-opening: It happened in January 1992 during a trip to Davos, Switzerland, for the annual meeting of the World Economic Forum. Mr. Mandela was persuaded to support an economic framework for South Africa based on capitalism and globalization after a series of conversations with other world leaders.

“They changed my views altogether,” Mr. Mandela told Anthony Sampson, his friend and the author of “Mandela: The Authorized Biography.” “I came home to say: ‘Chaps, we have to choose. We either keep nationalization and get no investment, or we modify our own attitude and get investment.”

Inside South Africa, Mr. Mandela’s quick reversal was viewed with skepticism, and questions have long persisted about whether he was somehow pressured by the West to open up the country’s economy.

However, according to Tito Mboweni, a former governor of the South African Reserve Bank, who accompanied Mr. Mandela to Davos, Mr. Mandela’s change of heart was genuine.

When they arrived in Davos, where Mr. Mandela was scheduled to speak, “We were presented with a speech, prepared by some well-meaning folks at the A.N.C. office” in Johannesburg that focused on “nationalization as A.N.C. policy,” Mr. Mboweni recounted in a letter to the Sunday Independent newspaper in South Africa late last year. “We discussed this at some length and decided that the content was inappropriate for a Davos audience.”

“So I drafted a short message for the audience,” he added. “That message was about how the A.N.C. intended to achieve social justice for the majority black people: decent housing, health care, decent education, public transport, access to clean water, sanitation and access to what I called ‘the means of production,’ that is, the creation of a black business class. That is all. No capitulation.”

But as the five-day conference of high-level speed-dating wore on, Mr. Mandela soon decided he needed to reconsider his long-held views: “Madiba then had some very interesting meetings with the leaders of the Communist Parties of China and Vietnam,” Mr. Mboweni wrote, using Mr. Mandela’s clan name. “They told him frankly as follows: ‘We are currently striving to privatize state enterprises and invite private enterprise into our economies. We are Communist Party governments, and you are a leader of a national liberation movement. Why are you talking about nationalization?’ ”

“It was those decisive moments which made him think about the need for our movement to seriously rethink the issue,” Mr. Mboweni said.

Mr. Mandela’s push toward free markets opened up his country to become the fastest growing in Africa and eventually brought in billions of dollars of investment from large companies outside the country. Barclays, for example, acquired Absa, South Africa’s largest consumer bank, in 2005. Iscor, the country’s largest steel maker, was sold to Lakshmi Mittal’s LNM in 2004. Industrial and Commercial Bank of China bought a big stake in Standard Bank, South Africa’s largest financial services company, in 2008. And Massmart, a South African supermarket chain, sold a majority stake to Walmart in 2011.

Mr. Mandela himself also embraced the big money charity that can only be delivered by billionaire capitalists. He became a friend of Bill and Melinda Gates, who have donated hundreds of millions of dollars to the region; Theodore J. Forstmann, the buyout executive and philanthropist; and Richard Branson, the entrepreneur, among others.

But for all of Mr. Mandela’s embrace of capitalism and free markets, as demonstrated though his policy called GEAR (Growth, Employment and Redistribution), the results raise more questions than answers about its success.

South Africa has certainly grown, but at an annual 3.2 percent clip from 1993 to 2012, far below other emerging countries like China and India. And the gap between the haves and have-nots is now higher than it was when Mr. Mandela became president. Inequality in South Africa is a real and growing issue.

South Africa’s National Planning Commission has said that in 1995, the proportion of its citizens living below the poverty line of $2 a day was about 53 percent; the figure has gone as high as 58 percent and as low as only 48 percent.

The official unemployment rate hovers at about 25 percent and may, in truth, be much higher. According to Bloomberg News, the average white household earns six times what a black one does. Among young black men, unemployment is close to 50 percent. Whites still hold nearly three-quarters of all management jobs.

“There is still a war between capital and labor,” Irvin Jim, the general secretary of the National Union of Metalworkers of South Africa, said on the South African Broadcasting Corporation’s The Big Debate program in September, according to The Africa Report magazine. “Nothing has changed. During the struggle, workers fought for a living wage, but the apartheid wage gap is still there.” The average white wage is 19,000 rand ($1,900) a month, he said, but for blacks it is just 2,500 rand. “What does that buy? Inferior squatter camps, inferior goods, inferior everything.”

Mr. Mandela may have ended apartheid and years of awful violence, but his dream of creating a country that, as he said, is “a democratic and free society in which all persons live together in harmony and with equal opportunities” may still remain a dream that capitalism and free markets have yet to solve.

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

Regulators Set to Approve Tougher Volcker Rule

Federal regulators are poised to approve a tougher-than-expected version of the so-called Volcker Rule, adopting a harder line in recent weeks against Wall Street risk-taking, according to a copy of the rule reviewed by The New York Times.

The rule, which comes to a vote on Tuesday, is a symbol of the Obama administration’s post-financial-crisis crackdown on Wall Street. In particular, it bans banks from trading for their own gain, a practice known as proprietary trading.

In doing so, the Volcker Rule takes aim at the sort of risk-taking responsible for a $6 billion trading blowup last year at JPMorgan Chase. The bank claimed it was trading to hedge its broader risks, but instead built a position that racked up large profits before spinning out of control.

To prevent such blowups, the rule will require banks to deploy “independent testing designed to ensure that the positions, techniques and strategies that may be used for hedging may reasonably be expected to demonstrably reduce” the risks, according to the version reviewed by The Times. And the risks, the rule says, must be “specific, identifiable” rather than theoretical and broad.

When five federal agencies initially proposed the rule in October 2011, those requirements were softer. But even in the last two weeks, the regulators continued to adopt harsher language, people briefed on the matter said.

For example, the rule requires banks to conduct an “ongoing recalibration of the hedging activity by the banking entity to ensure” that the activity is “not prohibited proprietary trading.” The idea is to further banks from masking proprietary trading as a hedge.

The Volcker Rule, a centerpiece of the Dodd-Frank Act of 2010, also imposes requirements on top executives. In part, chief executives must attest that they have established compliance programs for the rule.

“The C.E.O. of the banking entity must, annually, attest” to regulators that a bank “has in place processes to establish, maintain, enforce, review, test and modify the compliance program.”

In an October 2011 version of the rule, regulators did not include such a mandate, in contrast with the tougher tone of the final version.

The five agencies writing the rule - the Federal Reserve, the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation and the Comptroller of the Currency - were divided over how tough to make the final version. While some officials at the Federal Reserve and the S.E.C. have wanted to give banks significant flexibility to carry out trading that is considered important for their health and the functioning of markets, the commodity commisson and Kara M. Stein, a Democratic commissioner at the S.E.C., sought to extract additional restrictions.

The votes on Tuesday, which are being taken more than a year after Congress required the agencies to complete the Volcker Rule, offer Wall Street a degree of clarity that once seemed remote. Until recent days, regulators appeared unlikely to meet the recommendation of Treasury Secretary Jacob J. Lew, who urged the agencies to complete the rule in 2013.

The passage of the regulation would represent a turning point in financial reform. Although it counted as only one of 400 rules under Dodd-Frank â€" with nearly two-thirds of the regulations remaining unfinished - the Volcker Rule became synonymous with Dodd-Frank itself and a litmus test for the overall strength of the law.

Credit Suisse Moves Star Analyst to Investment Banking Side

For 12 years, Howard Chen analyzed the world of investment banking at Credit Suisse. Now the well-respected analyst is moving across the bank to become an investment banker.

Credit Suisse announced Monday in a memo that Mr. Chen would join the investment banking department as global head of financial technology and financial strategies. He will start immediately.

As part of his new role, Mr. Chen will advise clients including financial exchanges, retail brokers and institutional securities firms, entities which he followed as a senior analyst in the equity research department at Credit Suisse. He will work with David Goldstein and Brian Gudofsky.

Mr. Chen will also lead a new strategy at the investment bank to help clients find opportunities amid sweeping new regulation, according to the memo. In this role, Mr. Chen will work with private equity and hedge funds.

Frequently quoted in the mainstream press, Mr. Chen has won awards sponsored by Bloomberg, The Financial Times and The Wall Street Journal. He was also ranked the top analyst in his sector by Institutional Investor.

In his new role Mr. Chen will report to Craig Stine, co-head of the financial institutions group for the Americas region.

The memo from Credit Suisse about his appointment:

Howard Chen to Join IBD as Global Head of Financial Technology and Financial Strategies

We are pleased to announce that Howard Chen will join the Investment Banking Department as Managing Director and Global Head of Financial Technology and Financial Strategies, effective immediately. Howard will transfer from his current role as a Senior Analyst in the Equity Research Department. In IBD, he will be a member of the Financial Institutions Group and report to Craig Stine.

Howard will be responsible for the Financial Institutions Group’s Global Financial Technology business and provide strategic advice to clients including financial exchanges, retail brokers, institutional securities firms, trust and custodial banks and providers of trading technology. Howard will partner with David Goldstein and Brian Gudofsky, who together lead the Global Technology Services efforts in the Technology Group and focus on payment processing, mobile payments and financial software.

In addition, Howard will lead a new initiative in IBD focused on clients including alternative asset managers. Drawing on expertise from across the Investment Banking Division, this initiative will help our clients identify and capitalize on opportunities to grow and diversify their businesses and funding profiles, as new regulations and tighter capital requirements reshape the global financial services landscape.

Howard is ideally suited for this role. As the top-ranked analyst by Institutional Investor in the Brokers, Asset Managers and Exchanges sector over successive years, he led our research coverage of the U.S. Capital Markets industry including investment banks, alternative asset managers, trust banks, retail brokerage firms and financial exchanges. Howard has been consistently recognized in other industry surveys including the Bloomberg/Greenwich Associates “Analysts of the Year” (2013), Financial Times/Starmine Survey “#7 Overall U.S. Market Stock Picker” (2008) and The Wall Street Journal “Best on the Street” analyst surveys (2008 and 2010).

Howard joined Credit Suisse in 2001 as an Associate on the Multinational Bank and Brokerage team. He holds a B.A. from Yale University.

Please join us in congratulating Howard and wishing him every success in his new role.

Jim Amine, Alejandro Przygoda, Ewen Stevenson

With the Volcker Rule, the More Regulators the Merrier

David Zaring is assistant professor of legal studies at the Wharton School of Business at the University of Pennsylvania.

The Volcker Rule is the latest version of a phenomenon unique to American financial regulation. Issued by five agencies, more or less at the same time, it is one rule with many masters.

In other countries most financial regulation is done by one, or perhaps, two, agencies. Yet there are some positive outcomes with the American approach of having so many different regulators doing the same thing.

Certainly, this hodge-podge of agencies suggests that problems will occur. At its best, it can create a market for laws, with investors and financial institutions flocking to the agency that provides the most sensible regulations. On the flip side, this duplication in the system results in fail-safes and fallbacks: when one agency fails to do its job, another can step in in its place.

None of this means that the creation of our architecture of financial regulation was done with much forethought. Of the five agencies behind the Volcker Rule, the three bank regulators - the Office of the Comptroller of the Currency, the Federal Reserve and the Federal Deposit Insurance Corporation - were each created at different times for different purposes. The Office of the Comptroller of the Currency was a product of the Civil War. It was created to charter national banks, which could hold dollars issued by the federal government, and thereby help the government manage its war debts.

The Federal Reserve was meant to be a central bank. It was created in 1913, and was eventually given powers to regulate bank holding companies or corporate structures that owned banks. The Federal Deposit Insurance Corporation was created in the Great Depression to provide assurance to retail customers that their bank deposits would be safe; because insurance companies do not like to insure risky ventures, they were given some supervisory powers over almost all banks - powers that increase as banks get into more trouble.

The trading components of the Volcker Rule are meant to be overseen by both the Commodity Futures and Trading Commission and the Securities and Exchange Commission. Industry analysts and economists have long scratched their heads over the need to have two capital markets regulators overseeing debt and equity securities in one place and futures and derivatives securities on the other, particularly considering that many futures and derivatives traded today reference debt and equity securities. The S.E.C. and C.F.T.C. are supervised by different congressional committees - finance services and agriculture. Both senators and representatives are likely to be loath to give up their oversight of agencies that regulate financial firms, which are a generous source of campaign donations.

No other country has created such a patchwork of agencies to deal with financial oversight. The former Treasury Secretary Henry Paulson called for a rationalization of financial regulation before the financial crisis in 2008. You wouldn’t dream up a world where a rule on proprietary trading by banks has to be administered five agencies, if it is going to work at all.

Nonetheless, even historical accidents have their merits. Cass Sunstein, the former White House regulatory czar, has long argued that group dynamics â€" whether they involve multiple judges looking at the same issue, or multiple agencies thinking about the same regulation â€" can moderate the extremes, and, perhaps, reflect the more careful deliberation that a give-and-take among decision makers should produce.

Moreover, if those regulators, in the end, decide to do things differently, we might expect the benefits of experiment, followed by market discipline, as investors flock to those financial institutions subject to the regulations most likely to keep them profitable and solvent. This “market for law” is one of the reasons we tolerate a world in which any company can incorporate in any state. Such a structure permits the company to choose its own rules, and encouraging states to either copy the best rules, or to try out innovations in the hope of obtaining more corporate charters.

The existence of an efficient market for law, to be sure, is a subject of heated debate in academic circles. If companies can choose their own regulators, won’t they pick the softest touch, rather than the best one? It seems plausible, but when Dain Donelson of the University of Texas and I looked at how banks subject to different regulators - some of whom occasionally changed supervisors - performed during the financial crisis, we found no evidence of outperformance, regardless of the regulator chosen. In other words, perhaps regulatory competition leads to a level playing field of supervision rather than lax enforcement.

The final upside of the multiple regulator model might lie in its redundancy. If some regulators are asleep at the switch, other regulators remain vigilant. The New York Times Op-Ed columnist Joe Nocera speculated that the implementation of the Dodd-Frank Act has benefited from the aggressiveness of the C.F.T.C., which has been timely with its rule-making, stern in its enforcement, and quite successful in its litigation. With one agency working so hard, it might not be so bad that another agency - the S.E.C. - has fallen so behind on its rule-making.

These are all plausible advantages, and reasons why I do not despair over our patchwork regulatory system. But while they sound promising when considered individually, it is less clear which predominate when examined together.

Do multiple regulators create value through consensus, or competition? Do they promote efficiency through specialization, or valuable inefficiency through redundancy? These are questions that are difficult to untangle. But if we really wanted to be able to predict how the implementation of multi-agency rules like the Volcker Rule will work, we would do well to figure them out.

SAC Reaches Deal to Sell Reinsurance Firm

The billionaire trader Steven A. Cohen is one step closer to converting his onetime $15 billion hedge fund into a family office after a tentative deal to sell a reinsurance firm he formed in 2012.

Hamilton Reinsurance Group â€" a privately held firm led by the former insurance executive Brian Duperreault and Two Sigma Investments â€" will be buying the firm, known as SAC Re Ltd., for an undisclosed amount.

The move was not unexpected and comes just weeks after the hedge fund Mr. Cohen founded, SAC Capital Advisors, pleaded guilty to securities fraud charges as part of a long-running federal investigation into allegations of insider trading at the firm. In its plea deal, SAC Capital agreed to pay $1.2 billion penalty to federal authorities and said it would stop managing money for outside investors.

The firm’s guilty plea effectively forced Mr. Cohen to find a buyer for SAC Re. His hedge fund has managed the reinsurer’s approximately $550 million in assets and was its largest investor. SAC Capital has been returning billions in outside money to investors all year.

Mr. Cohen began shopping SAC Re even before the hedge fund agreed to plead guilty in preparation for the transition to a lightly regulated family office, which will manage much of Mr. Cohen’s reported $9 billion in personal wealth. Two Sigma had been widely seen as the leading bidder for SAC Re.

“We are proud of our role in founding SAC Re, but we are now focusing on our transition to a family office and our core investing business,” said Jonathan Gasthalter, an SAC Capital spokesman.

Two Sigma will become the sole investment manager for the reinsurer, which will be renamed Hamilton Re after the deal closes. Other investors in the deal include Performance Equity Management and Capital Z Partners, which was an investor in SAC Re, according to a person briefed with the matter.

The sale of SAC Re will mean a return to the insurance business for Mr. Duperreault, who most recently was chief executive of Marsh & McLennan Companies and before that was the chief executive of ACE Ltd. Mr. Duperreault left Marsh in December 2012 after a five-year stint at the company’s helm.

The SAC Re deal is expected to close by year’s end.

U.S. Sells Remaining Stake in GM

WASHINGTON â€" The Treasury Department announced on Monday that the government had sold its remaining shares of General Motors stock.

Taxpayers recouped about $39 billion on the investment, the Treasury Department said, having spent about $50 billion bailing out the automaker.

All in all, the taxpayer has ended up in the black on the crisis-related bailouts, Treasury said: It has recovered $433 billion from the Troubled Asset Relief Program after initially investing about $422 billion.

“The president’s leadership in responding to the financial crisis helped stabilize the auto industry and prevent another Great Depression,” Treasury Secretary Jacob J. Lew said in a statement. “With the final sale of GM stock, this important chapter in our nation’s history is now closed.”

The Obama administration has argued that it could not have let the Detroit automakers fail during the worst downturn since the Great Depression and that the costs of the public investment outweighed the risks of letting the firms collapse.

Labor Lauds Erstwhile Foe, for One Deal at Least

PHILADELPHIA â€" The grizzled labor leaders in the audience had scarcely seen anything like it.

A top private equity executive, David M. Marchick, leaned in and planted a kiss on the cheek of Nancy Minor, the vice president of Local 10-1 of the United Steelworkers. The union was so pleased with a deal done by Mr. Marchick’s firm, the Carlyle Group, that it was giving him an award.

“This is a celebration of strange bedfellows,” Mr. Marchick, Carlyle’s global head of external affairs, said before posing for a photograph with a group that included Leo W. Gerard, the union’s incendiary international president.

The worlds of labor and private equity, habitually on opposite sides of the bargaining table, sat together around dinner tables on Saturday for an awards ceremony at a union hall here. The event, honoring a selection of union officials and outsiders, offered a chance for blue-collar leaders â€" amid a few wisecracks and raised eyebrows â€" to tip their hats to the moneymen who they said had saved their workers’ jobs.

The celebration was the result of Carlyle’s deal last year to take control of a big oil refinery in town that its previous owner, Sunoco, had threatened to close. In an agreement brokered with help from the White House, Carlyle took a majority stake in a new joint venture with Sunoco, investing about $250 million to refurbish the refinery and build a railyard. The refinery processes 330,000 barrels of crude oil a day and employs more than 1,000 workers.

Carlyle, which entered the labor talks in a position of strength, impressed the union members by leaving their wages and benefits largely intact. The concessions the workers did have to make were relatively minor, including a reduction of overtime pay in certain cases, union leaders said.

“Carlyle just essentially took the labor agreement,” said Thomas M. Conway, the steelworkers’ international vice president for administration, who participated in the negotiations. “In all fairness, people would have listened to almost any idea if it meant keeping the refinery open.”

Fifteen months after the deal closed, the union was handing out plaques not only to Mr. Marchick but also to Philip L. Rinaldi, the chief executive of the joint venture, Philadelphia Energy Solutions, who was hired by Carlyle.

But the decision to toast the executives did not sit well with the entire rank and file. Some of the refinery workers grumbled about “taking the C.E.O. out to dinner,” said Jim Savage, the president of Local 10-1, who said it was his idea to honor the two executives.

“It was like, ‘Hey are we going too far with this “Kumbaya” stuff? We’re giving an award to a C.E.O. and a private equity guy,’” Mr. Savage said.

The image of private equity in popular culture, at least in the eyes of labor, has been one of sharp cutbacks with little regard for workers. It was magnified last year after Mitt Romney’s presidential bid put an uncomfortable spotlight on Bain Capital. But Carlyle and the steelworkers have shown a willingness to cooperate in the past.

With the United States steel industry struggling in the early 2000s, the private equity titan Wilbur L. Ross recognized a buying opportunity, cobbling together a multibillion-dollar steel company. His deal-making, in addition to proving lucrative, won him accolades from Mr. Gerard, the president of the steelworkers’ union, who credited Mr. Ross with helping to save the industry.

Carlyle, too, has made big bets on American manufacturing. In 2007, the firm bought almost all of the engineered products division of Goodyear Tire and Rubber, where many of the employees belonged to the United Steelworkers.

Two years later, Mr. Gerard co-wrote an opinion essay on manufacturing with David M. Rubenstein, one of Carlyle’s founders. Mr. Gerard has also testified before the Senate alongside Mr. Marchick of Carlyle.

“The steelworkers’ union has been more willing to experiment with this kind of thing than other unions because their industry has been under more stress,” said Alex Colvin, a professor at the Cornell School of Industrial and Labor Relations. “They haven’t had the option from the 1980s onward of being complacent.”

In the refinery deal, Carlyle’s decision not to antagonize the union boiled down to a matter of strategy.

Labor costs were already similar to those at comparable facilities, said Rodney S. Cohen, the Carlyle executive who led the deal. In that context, keeping the workers happy was deemed more valuable than obtaining any big concessions.

The interested parties extended beyond the labor union.

Gene B. Sperling, the chief White House economic adviser, played an active role in the talks in March 2012, telling the head of Sunoco that the Obama administration wanted to see the refinery stay open. A report by the Energy Information Administration had determined that a shutdown of the Philadelphia plant could cause energy prices to rise.

Brian P. McDonald, Sunoco’s chief executive at the time, subsequently called Mr. Cohen of Carlyle, leaving a voice mail message on his cellphone. The private equity firm, which is based in Washington and has longstanding connections there, was brought in to do the deal.
With clouds of steam rising at dusk on Saturday, the vast refinery on the Schuylkill traced an industrial skyline, its towers shimmering with so many lights.

Across town, the union leaders praising Carlyle sought to show that they had not lost their bark. “Let the capitalist get the drink,” Mr. Gerard bellowed as Mr. Marchick stood at the bar. “Throw 10 bucks in the basket.”

One labor figure in the audience, Jim Moran, the retired director of the Philadelphia Area Project on Occupational Safety and Health, said he had never before seen a union bestow such an honor on a private equity executive. Mr. Marchick, in town for the night with his wife, Pamela Kurland, took home a “special recognition and appreciation” award.

As the band struck up a swing tune, Mr. Moran, 74, said he had taken Mr. Savage, the president of Local 10-1, aside for a word this fall.

“It all sounds great for now,” Mr. Moran said he told Mr. Savage. “But I’d keep my hand on my gun anyway.”

Abercrombie Renews Chief’s Contract and Revamps His Pay

Abercrombie & Fitch, the teen fashion brand known for its provocative advertisements of nearly naked men and scantily clad women, has signed a new contract with its chairman and chief executive, Michael S. Jeffries, and has linked his pay more with the company’s performance.

The move comes a week after one of the company’s investors, the hedge fund Engaged Capital, began a public campaign to oust Mr. Jeffries, accusing the company of “many years of mismanagement.”

Mr. Jeffries, 69, joined the company in the 1980s and was once credited with making Abercrombie & Fitch among the most valuable brands in the teen apparel industry. But he has come under fire from investors since the company’s performance began a steady decline in recent years. Mr. Jeffries’s contract expires in February.

On Monday, the company said Mr. Jeffries would continue to serve as chairman and chief executive but that his contact had been revised. Mr. Jeffries annual base salary will remain at $1.5 million and he will still be eligible for an annual bonus, subject to review every year, according to the company’s filing with the Securities Exchange Commission.

Also under the new terms, Mr. Jeffries’s incentive plan has been restructured and his semiannual equity grants will be replaced with long-term incentive awards each year worth $6 million. This will be reviewed annually by the company’s compensation committee.

Shares in Abercrombie & Fitch, which have lost more than 21 percent over the past 12 months, fell 2.6 percent to $33.95 on Monday.

Craig Stapleton, a director, attributed the change to “an extensive review by the board and detailed discussion with shareholders over several months, and the specific terms of Mike’s new contract reflect direct feedback from those discussion.”

But the gesture appears unlikely to appease the demands of some investors. Within hours of the announcement, Glenn W. Welling, the chief investment officer of Engaged Capital, said the board’s decision had been made “without any substantive discussion with shareholders - a rushed response, less than one week after receiving our letter.”

“We consider this an outright dereliction of the board’s fiduciary duties,” Mr. Welling said in an emailed statement. “In light of the board’s troubling actions, Engaged Capital is considering all options available to it as shareholders in order to hold the board accountable for its decisions.”

One of the options presented by the hedge fund includes pressuring the company to put itself up for sale. However, it is unclear how much weight Engaged Capital would have in such a battle. The hedge fund owns only a 0.5 percent stake in the company.

In its letter to Abercrombie & Fitch last week, Engaged Capital raised concerns about succession planning on the company’s board. Abercrombie & Fitch responded in Monday’s statement by saying it had hired the executive search firm Herbert Mines Associates to help it recruit new brand presidents to oversee the Abercrombie & Fitch, abercrombie kids and the Hollister brands.

“These new leadership positions will provide fresh perspectives on brand development as well as deepen our bench of talent at this critical time,” Mr. Stapleton said.

Big Savings Promised in Food Merger

Sysco’s acquisition of US Foods shows how investors are eating up synergies. The $3.5 billion purchase, revealed on Monday, received a rapturous reception, with the buyer’s market valuation surging by as much as a quarter - or $5 billion - before giving up some gains. Hefty cost cuts help the merger math.

Sysco says the deal will result in $600 million of annual savings. The present value of these, after taxes, is more than $4 billion. No wonder investors reacted positively, as they have to similarly attractive deals this year. Cost savings in Gannett’s $2.2 billion deal for Belo nearly covered the transaction price, sending the media group’s stock rocketing. And Endo Health’s cost cuts and tax savings from acquiring Paladin Labs and reincorporating in Ireland nearly paid for the entire $1.6 billion purchase price.

Indeed, shares of acquiring companies have risen in about six out of every 10 deals in the United States this year, according to data from Thomson Reuters. In contrast, the majority of buyers experienced a share price decline from 2008 to 2012 - an understandable reaction in many cases, because the control premium required in acquisitions often hands substantial value to the target company’s shareholders at the expense of the buyer’s.

Investors are, however, still discriminating. The financial equation matters, with big cost cuts and tax savings a feature of many of the best-received transactions. Yet, the very existence of duplication that can be excised raises the danger level. Mergers of companies whose businesses overlap, like Sysco and US Foods, can attract scrutiny from antitrust watchdogs. Bill DeLaney, Sysco’s chief executive, admitted he might have to sell assets to ease approval of the deal. On the tax front, lawmakers are studying tightening rules governing combinations that involve reincorporation in low-tax jurisdictions.

Such caveats don’t seem to have bothered investors in Sysco much. And with this sort of reaction, other acquirers’ animal spirits won’t remain suppressed for long. For now, though, the fact that deals often seem to be paying for themselves suggests company boards are appropriately cautious - and only pursuing sensible mergers.

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

Airline Merger Is Complete

American Airlines logo. (PRNewsFoto/AMR Corporation)

FORT WORTH, Texas, Dec. 9, 2013 /PRNewswire/ -- AMR Corporation and US Airways Group, Inc. today announced the completion of their merger to officially form American Airlines Group Inc. (NASDAQ: AAL) and begin building the new American Airlines.

(Logo: http://photos.prnewswire.com/prnh/20130208/DA56847LOGO)

The new American has a robust global network with nearly 6,700 daily flights to more than 330 destinations in more than 50 countries and more than 100,000 employees worldwide.  The combined airline has the scale, breadth and capabilities to compete more effectively and profitably in the global marketplace. Customers will soon enjoy access to more benefits and increased service across the combined company's larger worldwide network and through an enhanced oneworld® Alliance. US Airways will exit Star Alliance on March 30, 2014 and will immediately enter oneworld on March 31, 2014. With an expanded global network and a strong financial foundation, American will deliver significant benefits to consumers, communities, employees and stakeholders./p>

"Our people, our customers and the communities we serve around the world have been anticipating the arrival of the new American," said Doug Parker, CEO of American Airlines.  "We are taking the best of both US Airways and American Airlines to create a formidable competitor, better positioned to deliver for all of our stakeholders.  We look forward to integrating our companies quickly and efficiently so the significant benefits of the merger can be realized."

Customers to Enjoy More Benefits and an Enhanced Global Network Over Time; No Immediate Changes to Operations

Although American and US Airways have come together as one company, the process to achieve a Single Operating Certificate is expected to take approximately 18 to 24 months. In the meantime, customers should continue to do business with the airline from which travel was purchased just as they did before the merger.  In short, it is "business as usual."  The airlines' separate websites, aa.com and usairways.com, as well as the two airlines' reservations systems and loyalty programs, will continue to operate separately until further in the integration process.

Customer benefits of the transaction to be rolled out over time include:

• A codeshare agreement between American and US Airways, creating more convenient access to the combined company's global network
• More choices and connectivity, with nine hub airports across the U.S.
• Global access to a stronger oneworld alliance - including joint businesses with British Airways, Iberia and Finnair across the Atlantic and with Japan Airlines and Qantas across the Pacific - creating more options for travel and benefits both domestically and internationally
• Reciprocal American Admirals Club and US Airways Club benefits and reciprocal elite recognition
• Upgrade reciprocity
• Consolidation of loyalty programs and expanded opportunities to earn and redeem miles across the combined network
• Full integration of policies, websites, kiosks and customer-facing technology to ensure a consistent worldwide travel experience
• Co-location of ticket counters and gates in key markets
• With firm orders for more than 600 new mainline aircraft, American will have one of the most modern and efficient fleets in the industry, and a solid foundation for continued investment in technology, products, and services

Customers will begin to see enhancements to their experience in early January, including the ability to earn and redeem miles when traveling on either American Airlines or US Airways, reciprocal American Admirals Club and US Airways Club benefits, and reciprocal elite recognition.  The combined airline expects to share more details around these key customer benefits early next year.

As the integration process is underway, American's new Find Your Way site, aa.com/findyourway, will connect customers to key information throughout the merger integration process.  Additionally, customers should visit aa.com and usairways.com, which will continue to be regularly updated with news on any fee, policy and procedure changes.

Significant Benefits for Employees

Employees of the new American will benefit from being part of a company with a more competitive and stronger financial foundation, which will create greater career opportunities over the long term.  The completed merger also provides the path to improved compensation and benefits for employees.

Alignment of pay, benefits, work rules and other guidelines for employees of both airlines will be phased in over time so that all changes can be carefully considered.  Represented employees will continue to work under their respective Collective Bargaining Agreements, with the modifications provided under the negotiated Memoranda of Understanding for certain groups.  American's non-represented Agents, Representatives and Planners will operate under their current terms and conditions of employment with merger-related adjustments.

Superior Value for Stakeholders

The combination is expected to deliver enhanced value to American Airlines' stakeholders and US Airways' investors.  The transaction is expected to generate more than $1 billion in annual net synergies by 2015. 

The common and preferred stock of American Airlines Group will trade on the NASDAQ Global Select Market under the symbols "AAL" and "AALCP," respectively.

Advisors

Rothschild is serving as financial advisor to American Airlines, and Weil, Gotshal & Manges LLP, Jones Day, Paul Hastings, Debevoise & Plimpton LLP and K&L Gates LLP are serving as legal counsel.  Barclays and Millstein & Co. are serving as financial advisors to US Airways, and Latham & Watkins LLP, O'Melveny & Myers LLP, Dechert LLP and Cadwalader, Wickersham & Taft LLP are serving as legal counsel to US Airways. Moelis & Company and Mesirow Financial are serving as financial advisors to the Unsecured Creditors Committee. Skadden, Arps, Slate, Meagher & Flom LLP and Togut, Segal & Segal LLP are serving as the Unsecured Creditors Committee's legal counsel.

About American Airlines Group

American Airlines Group (NASDAQ: AAL) is the holding company for American Airlines and US Airways. Together with American Eagle and US Airways Express, the airlines operate an average of nearly 6,700 flights per day to more than 330 destinations in 54 countries from its hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix and Washington, D.C. American's AAdvantage and US Airways Dividend Miles programs allow members to earn and redeem miles for travel and everyday purchases as well as flight upgrades, vacation packages, car rentals, hotel stays and other retail products. A founding member of the oneworld alliance, American  Airlines and its members and members-elect, serve nearly 1,000 destinations with 14,250 daily flights to more than 150 coutries. Connect with American on Twitter @AmericanAir or Facebook.com/AmericanAirlines and follow US Airways on Twitter @USAirways and on Facebook.com/USAirways.

Cautionary Statement Regarding Forward-Looking Statements

This document includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by words such as "may," "will," "expect," "intend," "anticipate," "believe," "estimate," "plan," "project," "could," "should," "would," "continue," "seek," "target," "guidance," "outlook," "forecast" and other similar words. Such statements include, but are not limited to, statements about the benefits of the business combination transaction involving the Company (formerly named AMR Corporation) and US Airways Group, Inc. ("US Airways"), including future financial and operating results, the Company's plans, objectives, expectations and intentions, and other statements that are not historical facts. These forward-looking statements are based on the Company's current objectives, beliefs and expectations, and they are subject to significant risks and ucertainties that may cause actual results and financial position and timing of certain events to differ materially from the information in the forward-looking statements. The following factors, among others, could cause actual results and financial position and timing of certain events to differ materially from those described in the forward-looking statements: the challenges and costs of integrating operations and achieving anticipated synergies; the effects of divestitures pursuant to the settlement with the Department of Justice and certain states; the price of, market for and potential market price volatility of the Company's common stock and preferred stock; the Company's significant liquidity requirements and substantial levels of indebtedness; potential limitations on the Company's use of certain tax attributes; the impact of significant operating losses in the future; downturns in economic conditions that adversely affect our business; the impact of the price and availability of fuel and sign! ificant disruptions in the supply of aircraft fuel; competitive practices in the industry, including the impact of industry consolidation; increased costs of financing, a reduction in the availability of financing and fluctuations in interest rates; the Company's high level of fixed obligations and ability to fund general corporate requirements, obtain additional financing and respond to competitive developments; any failure to comply with the liquidity covenants contained in financing arrangements; provisions in credit card processing and other commercial agreements that may affect the Company's liquidity; the impact of union disputes, employee strikes and other labor-related disruptions; the inability to maintain labor costs at competitive levels; interruptions or disruptions in service at one or more of the Company's hub airports; regulatory changes affecting the allocation of slots; the Company's reliance on third-party regional operators or third-party service providers; the Company's reliance on and csts, rights and functionality of third-party distribution channels, including those provided by global distribution systems, conventional travel agents and online travel agents; the impact of extensive government regulation; the impact of heavy taxation; the impact of changes to the Company's business model; the loss of key personnel or inability to attract and retain qualified personnel; the impact of conflicts overseas or terrorist attacks, and the impact of ongoing security concerns; the Company's ability to operate and grow its route network; the impact of environmental regulation; the Company's reliance on technology and automated systems and the impact of any failure or disruption of, or delay in, these technologies or systems; costs of ongoing data security compliance requirements and the impact of any significant data security breach; the impact of any accident involving the Company's aircraft or the aircraft of its regional operators; delays in scheduled aircraft deliveries or other loss of ! anticipat! ed fleet capacity; the Company's dependence on a limited number of suppliers for aircraft, aircraft engines and parts; the impact of changing economic and other conditions and seasonality of the Company's business; the impact of possible future increases in insurance costs or reductions in available insurance coverage; the impact of global events that affect travel behavior, such as an outbreak of a contagious disease; the impact of foreign currency exchange rate fluctuations; the Company's ability to use NOLs and certain other tax attributes; and other economic, business, competitive, and/or regulatory factors affecting the Company's business, including those set forth in the filings of US Airways and the Company with the SEC, especially in the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of their respective annual reports on Form 10-K and quarterly reports on Form 10-Q, current reports on Form 8-K and other SEC filings. Any forward-looing statements speak only as of the date hereof or as of the dates indicated in the statements. The Company does not assume any obligation to publicly update or supplement any forward-looking statement to reflect actual results, changes in assumptions or changes in other factors affecting these forward-looking statements except as required by law.

SOURCE American Airlines

For Bitcoin, Square Peg Meets Round Hole Under the Law

The advent of a new medium to conduct business inevitably means avenues for criminals to swoop in to take advantage. The development of Bitcoin, the virtual currency that is not issued by any government, presents challenges for the authorities to use laws that were not designed for the digital world to combat illegal conduct.

DealBook reported on “fraud, hacking and outright theft that have become an increasingly regular part of the virtual currency world.” Bitcoin itself is neither good nor bad, just a new means to conduct business, but virtual currency operates in ways that make it harder to prosecute violations.

The value of the Bitcoins available now is quite small, totaling approximately $12 billion. Yet the perception that growing acceptance of virtual currencies will change the way business operates means governments will have to figure out how to deal with new forms of crime.

There is a Wild West quality to Bitcoin, created out of a libertarian bent that connotes a world beyond government regulation. Like any currency, it carries with it a degree of anonymity, much as the phrase “cash is an orphan” signals that money can be largely untraceable once put into circulation. More than ordinary cash, though, Bitcoin operates largely outside the current banking system, making it even more difficult to trace transactions.

Reports of Bitcoins being stolen from the “wallets” of users looks much like any other type of theft. Under the traditional common law of larceny, however, stealing virtual currency would not be the subject of a prosecution because the law applies only to the removal of physical items.

Modern theft statutes allow for prosecution for the taking of intangible property, so the greater challenge is pursuing thefts that occur in cyberspace. State authorities often do not have the resources to pursue crimes on the Internet nor the ability to coordinate investigations with foreign governments when the misconduct occurred outside the United States.

The Justice Department is often better equipped to pursue global crimes, but the statutes available to pursue the theft of Bitcoins are more limited. Unlike the states, there is no general federal theft statute, so prosecutors have to be more creative in pursing misconduct.

There is a federal law used to prosecute the interstate transportation of stolen property, but it applies only to cases involving “goods, wares and merchandise.” In Dowling v. United States, the Supreme Court limited the reach of this law to the theft of physical items and not intangible property like virtual currency. The statute also covers transporting “money,” but that would not appear to cover a virtual currency sponsored by private issuers.

Another law that could be used is a provision in the Computer Fraud and Abuse Act, which makes it a crime to use a computer with the intent to defraud in obtaining anything of value from the victim. Whether stealing Bitcoins from an owner’s account would constitute fraud is unclear.

If there is a scheme to mislead an owner of Bitcoins to part with them, then the broad federal wire fraud statute can be easier to use because it does not require proving misuse of a computer. And unlike the stolen property provision, this law covers both tangible and intangible property, so virtual currency would fit comfortably within it.

A greater challenge to law enforcement is the lack of transparency in Bitcoin transactions, which can allow virtual currency to facilitate money laundering. Federal prosecutors convicted the administrator of the website Silk Road, which was used to distribute narcotics bought with virtual currency. The government seized nearly 175,000 Bitcoins, so clearly virtual currency can be used to buy drugs as if it were cash on a street corner.

One potential challenge to pursuing money-laundering charges involving Bitcoin is the definition of the transactions subject to prosecution.
The statute applies to a “financial transaction” involving a “monetary instrument,” which includes “coin or currency of the United States or of any other country.” That definition would appear to exclude Bitcoin because it does not have any connection to a government.

Another provision applies to transactions in which a “financial institution” is involved, which includes banks and brokerage firms along with money services businesses that transmit money. Transactions in virtual currency take place largely outside typical financial firms, so trading may fall beyond the reach of the money-laundering laws unless providers qualify as a money services business.

To extend the scope of the financial disclosure laws, the Financial Crimes Enforcement Network, a bureau of the Treasury Department, issued guidance in March requiring administrators and exchangers of virtual currencies to report transactions, including the identity of Bitcoin traders. That means those involved in “mining” Bitcoins for sale or operating a trading venue are considered a money transmitter, which could qualify them as a “financial institution” for purposes of the money-laundering laws.

Currency, even the virtual type, is usually not understood to be a security or a commodity subject to regulation by the Securities and Exchange Commission or the Commodity Futures Trading Commission. But when packaged for investors, Bitcoins could fall under the jurisdiction of those agencies.

Whenever something rises substantially in value, like Bitcoin’s increase of nearly 1,000 percent over the last month, investment offers will crop up to tap into the potential riches. The S.E.C. filed a lawsuit in July accusing a Texas man of engaging in a Ponzi scheme by offering Bitcoin-denominated investments.

The definition of a security [link below] includes an “investment contract,” which can be almost anything as long as it involves a commitment of money to others to generate profits from their efforts. The Supreme Court has found that investments in orange groves and pay telephones can qualify as a security subject to the S.E.C.’s jurisdiction, so investments in virtual currency could fall under the agency’s purview.

Packaging Bitcoins together for future delivery could also qualify as a commodity subject to regulation by the C.F.T.C. As The New York Times reported, the People’s Bank of China and four other Chinese agencies issued a notice that Bitcoin is a “virtual commodity that does not share the same legal status of a currency.”

As Bitcoin gains wider acceptance, the tax collector will most likely seek the government’s cut of the transactions. For those paid in virtual currency, the federal tax law provides that “gross income means all income from whatever source derived,” about as broad a definition as possible. For those who mine Bitcoins, they can be considered a capital asset generating capital gains when sold that must be reported. Any failure to pay taxes can bring about both civil and criminal penalties, which are not yet payable in Bitcoin.

The rise of virtual currencies may have started out as an effort to avoid government scrutiny. But with greater acceptance comes increased regulation, including the application of criminal laws to this new medium for conducting business.

Why Federal Reserve Support Is Really a Bailout

It has become something of an article of faith in the financial world that government support like discount-window liquidity  does not count as a bailout. Namely, the argument is that if a financial institution needs to borrow some money on a short-term basis from the government, but the institution is otherwise solvent, that lending is not a bailout.

But is that right?

Other debtors don’t get a special government-provided backstop lender. If a consumer finds herself a bit short some month, and the credit card company won’t lend anymore, there is no office of the government one can go to and take out a short-term payday loan on reasonable terms.

If a corporation faces a liquidity crunch, and can’t find a debtor-in-possesion lender who is willing to fund a reorganization, the Fed does not provide a special government loan. Well, with two notable exceptions that is - but I doubt anyone would deny that the cases of General Motors and Chrysler were not bailouts.

Now there are good policy reasons to provide a large financial institution with short-term lending if they are solvent but suddenly illiquid. Among other things, doing so prevents a good deal of collateral damage to the broader economy.

Indeed, that’s also the reason it probably made sense to make D.I.P. loans to G.M. and Chrysler, too.

But good policy is not necessarily consistent with a pledge of “no more bailouts.” And if we are running the risk of more bailouts, that provides a much stronger justification for preventative regulation.

Hence the problem.

And hence the reason the financial industry really wants to say this is not a bailout. The trick is to not simply accept that argument at face value.

Stephen J. Lubben is the Harvey Washington Wiley Chair in corporate governance and business ethics at Seton Hall Law School and an expert on bankruptcy.

Robert Diamond to Make Banking Comeback - in Africa

LONDON - Robert E. Diamond Jr., who was ousted as chief executive of Barclays nearly 18 months ago amid a rate-fixing scandal, is planning a banking comeback.

Mr. Diamond, 62, is raising money for a $250 million vehicle that would invest in the banking business in Africa. The corporate shell, known as Atlas Mara, would list in the coming weeks on the London Stock Exchange, according to people briefed on the matter.

The American executive is teaming up with Ashish J. Thakkar, a 32-year-old entrepreneur whose Mara Group conglomerate has technology, manufacturing and real estate operations and interests in 19 African countries. Mr. Thakkar began his career by setting up a technology business in Uganda at age 15. (The name of the cash-shell vehicle reflects the conglomerate and Atlas Merchant Capital, a merchant bank Mr. Diamond has founded.

Citigroup is acting as the sole adviser to Atlas Mara and the capital raising could happen as early as late next week, the people briefed on the matter said.

A spokesman for Mr. Diamond and Citigroup declined to comment on Monday.

The Financial Times reported the deal on Sunday.

In June 2012, Barclays admitted wrongdoing and agreed to pay $450 million to British and American authorities to settle allegations that it manipulated a global interest rate benchmark, the London interbank offered rate, or Libor. Facing pressure from government regulators, Mr. Diamond resigned from the bank in Juiy that year.

It was an stunning fall for the once high-flying Wall Street executive. A former bond trader at Morgan Stanley, he worked at Credit Suisse and BZW, which became the foundation of what became Barclays’ investment business, Barclays Capital. Mr. Diamond built that business into a global giant and became chief executive of the parent company Barclays in January 2011.

Sysco to Buy US Foods for $3.5 Billion

Sysco agreed on Monday to buy US Foods for about $3.5 billion in stock and cash, uniting two of the biggest food distributors in the country.

Under the terms of the deal, Sysco will pay $3 billion in stock and $500 million in cash. The transaction will give US Foods’ current owners, the investment firms Clayton, Dubilier & Rice and Kohlberg Kravis Roberts, a roughly 13 percent stake in the combined company.

Including the assumption of US Foods’ debt, the transaction is valued at $8.2 billion.

By buying one of its largest rivals, Sysco will solidify its position as the reigning giant of food distribution. The company, whose trucks move millions of pounds of frozen food and kitchen supplies around the country, expects its annual sales to grow by 46 percent, to $65 billion.

The deal will also give US Foods’ owners a path to exit their investment. Clayton Dubilier and K.K.R. bought the company from Royal Ahold, the Dutch grocery store company, in 2007 for about $7.1 billion, which included debt.

The company continued to grow its sales after its leveraged buyout, reporting $21.7 billion in revenue last year.

Sysco expects to reap some $600 million in cost savings from the transaction about three to four years after closing, including by cutting duplicative merchandising and backend office systems.

“Sysco and US Foods have highly complementary core strengths including a broad product portfolio and passionate food people deeply committed to customer service, quality-assured products and safety,” Bill DeLaney, Sysco’s chief executive, said in a statement.

The transaction is expected to close by the third quarter next year, pending antitrust approval.

Sysco was advised by Goldman Sachs and the law firms Wachtell, Lipton, Rosen & Katz and Arnall, Golden & Gregory. US Foods was counseled by Simpson Thacher & Bartlett and Debevoise & Plimpton.

Verizon to Buy Content Delivery Network Start-Up.

Verizon announced on Monday that it had agreed to acquire EdgeCast, a fast-growing content delivery network start-up.

The terms of the transaction were not disclosed, but TechCrunch reported on Friday that the two companies were near a deal worth more than $350 million.

Edgecast, founded in 2006, has more than 6,000 accounts and serves sites like Twitter, Pinterest, Tumblr and Hulu. “We deliver more than four trillion digital items a month to almost every Internet user in the world,” Alex Kazerani, EdgeCast’s chairman and chief executive, said in July. At that time, the company had secured $54 million in new financing in a round led by the Performance Equity Management, with its existing investors, Menlo Ventures and Steamboat Ventures, which is the venture capital arm of the Walt Disney Company, also participating.

“The combination of EdgeCast and Verizon Digital Media Services will allow us to fully exploit and accelerate growth in Internet media consumption and online business performance,” Bob Toohey, president of Verizon Digital Media Services, said in a statement on Monday. “EdgeCast’s industry-leading technology and strategically placed assets, combined with Verizon Digital Media Services’ video solutions, improves our ability to deliver the rich, reliable and quality digital media services that our customers have come to expect.”

Last month, Verizon acquired the assets and operations of upLynk, a technology and television cloud company.

The boards of both Verizon and Edgecast have approved the transaction, which is expected to close early next year. LionTree Advisors, a boutique investment bank founded by former UBS bankers last year, served as Verizon’s financial adviser.

Morning Agenda: Fresh Attacks on the Volcker Rule

Five regulatory agencies are preparing to vote on Tuesday on a final draft of the Volcker Rule, the regulation that seeks to rein in risk-taking on Wall Street. But lawyers and lobbyists are gearing up for another round of attacks against it, Matthew Goldstein and Ben Protess report in DealBook.

“In recent letters and meetings with financial regulators, lobbyists for Wall Street banks and business trade groups issued thinly veiled threats about challenging the Volcker Rule in court, people briefed on the matter said. The groups, including the United States Chamber of Commerce, are hinting that they could use litigation to either undercut or clarify the rule, which is intended to bar banks from trading for their own gain and limit their ability to invest in hedge funds,” Mr. Goldstein and Mr. Protess write.

The agencies drafting the Volcker Rule have overcome internal squabbling over the past few months to draft identical versions of the rule before a year-end deadline imposed in July by Treasury Secretary Jacob J. Lew, according to the people briefed on the matter who were not authorized to speak publicly. The agencies wrote a tougher-than-expected final text despite two years of prodding from Wall Street lobbyists to water down an October 2011 draft version.

In a Dec. 4 letter to the heads of the five agencies, the Chamber of Commerce, the Business Roundtable and three other business trade groups wrote, “It is more important to get the Volcker Rule right than meet an artificially imposed deadline.” But the chamber is not expected to rush to court. The Federal Reserve will delay the effective date of the rule to July 2015, the people briefed on the matter said, a move that will probably stave off any litigation for several months as bank lawyers study the rule’s nuances.

JPMORGAN TRACKED BUSINESS LINKED TO CHINA HIRING  | “Federal authorities have obtained confidential documents that shed new light on JPMorgan Chase’s decision to hire the children of China’s ruling elite, securing emails that show how the bank linked one prominent hire to ‘existing and potential business opportunities’ from a Chinese government-run company,” Ben Protess and Jessica Silver-Greenberg report in DealBook.

“The documents, which also include spreadsheets that list the bank’s ‘track record’ for converting hires into business deals, offer the most detailed account yet of JPMorgan’s ‘Sons and Daughters’ hiring program, which has been at the center of a federal bribery investigation for months. The spreadsheets and emails â€" recently submitted by JPMorgan to authorities â€" illuminate how the bank created the program to prevent questionable hiring practices but ultimately viewed it as a gateway to doing business with state-owned companies in China, which commonly issue stock with the help of Wall Street banks.

“The hiring practices seemed to have been an open secret at the bank’s headquarters in Hong Kong, according to the documents, copies of which were reviewed by The New York Times.”

OWNER OF GUN MAKER TO OFFER INVESTORS A WAY OUT  | Cerberus Capital Management, the owner of the Freedom Group, is planning to give other investors in the company a way to cash out as an attempt to sell it has stalled, DealBook’s Michael J. de la Merced reports. Cerberus plans to unveil the proposal on Monday, a person briefed on the matter said on Sunday. The plan comes after a prolonged effort to sell the gun manufacturer, whose Bushmaster rifle was used in a deadly Connecticut school shooting nearly a year ago.

Cerberus is making an interim step, Mr. de la Merced writes: “Let investors in its funds â€" including those eager to wash their hands of the firearm industry â€" sell their holdings. Among the most vocal of these have been public pension funds like the California State Teachers’ Retirement System, or Calstrs, and New York State’s comptroller, Thomas P. DiNapoli.”

ON THE AGENDA  | Three regional Federal Reserve presidents â€" James Bullard of St. Louis, Jeffrey Lacker of Richmond and Richard Fisher of Dallas â€" are scheduled to give separate speeches on the economy and banking trends. Vail Resorts reports earnings after the market closes. John C. Bogle, the founder of Vanguard, is on CNBC at 3:10 p.m.

COMCAST HIRES JPMORGAN FOR POSSIBLE TIME WARNER CABLE BID  | Comcast, the nation’s largest cable operator by subscribers, has hired JPMorgan Chase, the country’s biggest bank, to advise it on a possible bid for Time Warner Cable, people briefed on the matter tell DealBook’s David Gelles.

“Securing JPMorgan as its adviser gives Comcast access to the biggest balance sheet on Wall Street, potentially smoothing the way for a deal that would probably top $40 billion,” Mr. Gelles writes. “It also suggests that Comcast is taking seriously Time Warner Cable’s invitation to consider a combination, an overture Time Warner made last month after heightened speculation it could be the target of an unsolicited bid.”

Mergers & Acquisitions »

Covidien to Acquire Medical Technology Company in $860 Million Deal  |  Covidien has agreed to acquire the Israel medical technology company Given Imaging for $30 a share, valuing the company at about $860 million and expanding the scope of Covidien’s diagnostic testing operations. DealBook »

Alibaba Invests $360 Million in Logistics Deal with Haier  |  The Chinese e-commerce giant Alibaba Group announced a plan Monday to invest in the new venture with Haier Group, a manufacturer and distributor of household appliances in China. DealBook »

A Tricky Airline Merger Has Labor’s Blessing  |  “Airline mergers are notoriously difficult to pull off, but when the deal between American Airlines and US Airways closes on Monday, the giant carrier can at least count on having employees on its side,” Jad Mouawad writes in The New York Times. NEW YORK TIMES

Men’s Wearhouse Founder Speaks Out on Firing  |  George Zimmer, the founder of Men’s Wearhouse, tells Fortune about the circumstances of his ouster in June: “I got an email about 10 days earlier, which was extremely harsh and mean-spirited. It said that my job status and compensation would remain the same ‘at this time.’ Then they basically began throwing me out of my office, and that was as traumatic as when I was actually terminated because, at that point, it was pretty clear what was happening.” FORTUNE

EADS Is Said to Plan Job Cuts  |  The European aerospace and defense group EADS plans to cut 5,000 to 6,000 jobs and sell its headquarters in Paris, the Le Figaro newspaper reported, according to Reuters. REUTERS

Nestlé Selling Stake in Swiss Fragrance Company  |  The sale of the stake in Givaudan, valued at more than $1 billion, is the latest in a series of divestitures aimed at streamlining Nestlé’s offerings. DealBook »

INVESTMENT BANKING »

Former Barclays Chief Returns to Banking â€" in Africa  |  Robert E. Diamond Jr., the former chief executive of Barclays, is “launching a vehicle with Africa’s youngest billionaire that hopes to raise millions of dollars to invest in African banking,” The Financial Times reports. FINANCIAL TIMES

Wall Street Mothers, Stay-Home Fathers  |  For growing numbers of women on Wall Street, stay-at-home husbands are enabling them to compete at work with new intensity, Jodi Kantor and Jessica Silver-Greenberg report for The New York Times. DealBook »

Whiskers Unlimited? Not on Wall Street  |  Beards are back as a fashion statement, but many bankers have yet to get the memo. NEW YORK TIMES

Behind the Record Prices, a Tepid Market for Fine Art  |  “Despite the headlines and the hyperbolic enthusiasm of many auctioneers and dealers, the broad market for fine art is in the doldrums, according to experts who track sales data. Many works are selling near or below their low estimates or failing to sell at all,” James B. Stewart writes in the Common Sense column in The New York Times. NEW YORK TIMES

A Commodity Business in Name and Prospects  |  Deutsche Bank’s decision to withdraw from trading in most raw materials markets underscores the contraction in the commodities business and the tough prospects for making money, Antony Currie of Reuters Breakingviews writes. REUTERS BREAKINGVIEWS

Credit Suisse Highlights Its Break Dancer  |  An article in the bank’s magazine notes a more unusual employee achievement. DealBook »

PRIVATE EQUITY »

Buyout Firms Circle Tyco Unit in South Korea  |  Reuters reports: “K.K.R. & Co. and Bain Capital are among suitors which have placed initial bids for Tyco International Inc.’s South Korean security systems unit, a business valued at about $1.6 billion, people familiar with the matter said.” REUTERS

Carlyle to Invest in Chinese Funeral Company  |  Reuters reports: “Carlyle Group, the hedge fund firm Farallon Investors and China Cinda have agreed to buy $45 million worth of shares in Fu Shou Yuan International Group as China’s largest provider of death-care services seeks up to $215 million in a Hong Kong I.P.O.” REUTERS

HEDGE FUNDS »

Former SAC Trader Seeks to Use Cohen Testimony  |  To fight insider trading charges, Mathew Martoma wants to use testimony that Steven A. Cohen gave the Securities and Exchange Commission in May 2012. DealBook »

Activist Investor Plans to Increase Pressure on Bob Evans  |  Sandell Asset Management intends to announce that it will move for change at Bob Evans, possibly including replacing its directors, people briefed on the matter said. DealBook »

I.P.O./OFFERINGS »

HSBC Is Said to Weigh Spinoff of British Unit  |  HSBC “has in recent weeks asked investors whether they would support the sale of a sizable stake” in the British business, The Financial Times reports. The move “would realize value from its high street banking business and address regulatory pressures.” FINANCIAL TIMES

Chinese Bank Is Said to Seek Up to $2.8 Billion in I.P.O.  |  China Everbright Bank “is seeking as much as $2.8 billion in Hong Kong’s biggest first-time share sale this year, three people with knowledge of the matter said,” Bloomberg News reports. BLOOMBERG NEWS

VENTURE CAPITAL »

Airbnb Seeks to Woo de Blasio  |  Airbnb, which lets people rent out their rooms, has faced opposition from authorities in New York. But the start-up has released a new video aimed at Mayor-elect Bill de Blasio, with hosts making the company’s case. (Hat tip to Capital New York.) YOUTUBE

Tech Giants Call for Limits on Government Surveillance  |  The New York Times reports: “Eight prominent technology companies, bruised by revelations of government spying on their customers’ data and scrambling to repair the damage to their reputations, are mounting a public campaign to urge President Obama and Congress to set new limits on government surveillance.” NEW YORK TIMES

LEGAL/REGULATORY »

The Lawyer Who Must Now Revive Detroit  |  Kevyn D. Orr “holds power even more concentrated than that of the emergency control board that intervened when New York City was teetering near bankruptcy, an unelected lawyer chiefly responsible for the reinvention of a major American city in decay,” Monica Davey and Bill Vlasic report in The New York Times. NEW YORK TIMES

Madoff Victims, Five Years Later  |  “In recent interviews, a sample of Madoff investors cited some common lessons that emerged from their differing struggles: Diversify your savings. Focus on what really matters. And don’t give up, or give in to rage or frustration,” Diana B. Henriques writes in The New York Times. NEW YORK TIMES

Former Goldman Trader Sentenced to 9 Months in Prison  |  Matthew Taylor was accused of covering up an $8 billion unauthorized trade at Goldman Sachs to protect his year-end bonus. DealBook »

Fed Is Not Expected to Taper Stimulus Until Next Year  |  “Federal Reserve officials are in no hurry to retreat from their bond-buying campaign to stimulate the economy and are likely to postpone any cuts to the program until next year, according to public statements by Fed officials and interviews with some of them,” Binyamin Appelbaum reports in The New York Times. NEW YORK TIMES

Drop in Jobless Rates Raises Odds of a Fed Move  |  “The stock market rose by more than 1 percent after the jobs report, as traders concluded that the prospect of higher employment and faster economic growth outweighed the increased likelihood that the Federal Reserve would soon begin easing back on its stimulus efforts,” Nelson D. Schwartz writes in The New York Times. “While there is a chance that policy makers will act when they meet later this month, most experts say they believe that Fed officials want to see a little more consistency to the data before they begin tapering, probably early in 2014.” NEW YORK TIMES

Why We Need Higher Unemployment  |  The unemployment rate “basically tells us how many people are looking for work. It falls when people get jobs, which is good. But it also falls when people stop looking for work, which of course is not so good,” Binyamin Appelbaum writes in the Economix blog. NEW YORK TIMES ECONOMIX

For Municipal Bond Investors, a Problem of Disclosure  |  “Securities laws require issuers of municipal debt to provide the information investors need to make informed decisions when buying or selling these instruments. But lax disclosure practices remain, making it hard to spot signs of problems like those hobbling some states and cities. Disclosures about the soundness of public pensions, for example, can be essential to weighing the health of municipal bond issuers that are responsible for funding them,” Gretchen Morgenson writes in the Fair Game column in The New York Times. NEW YORK TIMES