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DealBook: Lloyds Announces Plan to Cut 15,000 Jobs

June 30, 2011 by Leave a Comment

The Lloyds Banking Group said on Thursday that it planned to eliminate 15,000 jobs by the end of 2014 and scale back its overseas operations as part of a larger reorganization aimed at allowing the British government to sell its stake in the lender.

Lloyds, of which the British government owns 41 percent, said it expected to save £1.5 billion ($2.4 billion) annually by the end of 2014. The savings would come from reducing its international presence to fewer than 15 countries from 30, lowering computer systems costs and streamlining middle management.

Shares in Lloyds rose 6.5 percent in early trading in London after the news.

“This bank has lost money and is losing money, and we have to get this bank back on its feet to support the U.K. economy and in order to enable it to repay taxpayers’ money,” the chief executive, António Horta-Osório, said. “This will be a journey, and it will take three to five years.”

Mr. Horta-Osório presented the cost-cutting plan four months after taking over as chief executive of Lloyds with a pledge to turn around the ailing bank. He said he planned to focus on the bank’s British retail business and on lending to small and midsize companies. Lloyds is Britain’s largest mortgage lender.

Lloyds, which received government funds to help it through the global financial crisis, is under pressure from the government to increase lending while also selling some assets to allow for more competition in the banking market.

The bank has already started to repay government aid and said it expected to receive offers for 632 branches it has to sell by the middle of July.

The cost savings announced on Thursday would allow Lloyds to invest £2 billion in its brand and to expand its wealth management unit focused on high-net-worth individuals with links to Britain.

Mr. Horta-Osório said he would focus on the bank’s Halifax retail banking brand and improve customer services by opening some branches on the weekend, for example.

Lloyds swung to a net loss of £2.4 billion in the first quarter on costs to compensate some clients that were improperly sold loan insurance.

Lloyds ran into trouble in 2008 after the government urged it to buy HBOS, a British mortgage lender that was on the verge of collapse. But the combination pushed Lloyds from profits into losses and its stock slumped, leading the government to step in with a rescue package.

Article source: http://feeds.nytimes.com/click.phdo?i=c248298aa58bc397188000e0669448dc

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Greek Parliament Expected to Back Implementation of Austerity Plan

June 30, 2011 by Leave a Comment

Stocks rallied modestly around the world for a second day and the euro neared its highest level in three weeks, after the passage of one of the most radical overhauls of the Greek economy since democracy was restored in 1974.

After several days of sometimes violent demonstrations, central Athens was expected to remain relatively calm Thursday, with no major protests expected.

The changes are deeply unpopular in Greece, where street protests continued, and the Socialist government of Prime Minister George A. Papandreou will need to overcome widespread skepticism that it can carry out the budget cuts, layoffs, tax increases and forced asset sales, beginning with a vote Thursday on putting the measures in effect.

Economists also expressed concern that the austerity program demanded by European and international lenders could end up pushing the Greek economy into a deeper slump, making its debt even harder to pay back. More broadly, critics said they doubted that Europe had done more than postpone a day of reckoning for the euro, with Ireland, Portugal and Spain, as well as Greece, all struggling with slow or negative growth and rising debts.

The passage of the measures, a difficult and possibly debilitating feat for a Socialist Party elected on a social welfare platform, ensures that Greece’s foreign lenders will unlock the next installment of $17 billion in aid that the country needs to meet its debt obligations through August. But analysts in Athens predicted that the existing government might not last much longer than that, suggesting that political and financial uncertainty could continue for some time.

“It’s a giant step in terms of conception,” said Theodore Couloumbis, a vice president of the Hellenic Foundation for European and Foreign Policy, in Athens. “But it’s a baby step in terms of realization or implementation.”

European political leaders have pressed Greece for months to commit to a thorough overhaul of its bloated, state-led economy, and they hailed the vote on Wednesday as offering hope that the debt crisis was manageable.

Chancellor Angela Merkel of Germany welcomed the development as “really good news,” while the president of the European Commission, José Manuel Barroso, and the European Council president, Herman Van Rompuy, said in a joint statement that Greece had taken “a vital step back — from the very grave scenario of default.”

They urged Greek lawmakers to pass the second vote on Thursday on carrying out the measures, adding that “it would also allow for work to proceed rapidly on a second package of financial assistance, enabling the country to move forward and restoring hope to the Greek people.” Officials have promised that they will make more money available to help stimulate growth in Greece if it sticks to its austerity pledges. Europe has much at stake in making the new bailout a success because several other countries that use the euro face similar, if less immediate, problems of high debt, widespread unemployment and little or no growth. Ultimately, many economists say, the sovereign debt of Greece and some other countries will have to be restructured, with their creditors accepting a discount on the debts’ face value. European officials have so far sought to avoid taking that step.

“If Europe comes together with an appropriate framework, that will enable a default to be avoided,” said Joseph E. Stiglitz, the Nobel-winning economist. “But there’s every sign that Europe won’t do that, so the likelihood of a problem down the line is very significant.”

Kenneth S. Rogoff, a former chief economist at the International Monetary Fund, who is now a Harvard professor, said the Greek vote and the infusion of aid would only buy a little time.

“It’s certainly kicking the can down the road,” Professor Rogoff said. “Greece is basically being bribed not to default. But as long as Greece doesn’t grow briskly for a sustained period, it’s in hot water.”

Hope is also in short supply among many Greeks, who said that the first round of austerity imposed after Greece’s first bailout last year had worsened rather than improved their plight, and that the second round demanded even deeper cuts in many areas.

“Of course things will get worse,” said Thimios Vilias, 35, who said his two-year contract at an insurance company would run out soon and who came out to protest on Wednesday. “The measures won’t do any good for Greece. We have more debt, more debt, more debt, and we have no work,” Mr. Vilias added.

The measures approved on Wednesday will at least on paper lead to the dismantling of a big part of the economy’s state-run sector. They call for the privatization of 50 billion euros, or about $72 billion, in state assets, including ports, telecommunications concerns, real estate and stakes in the public power corporation.

They also include one billion euros, or about $1.4 billion, in cuts in the defense sector over the next five years; more than two billion euros, or $2.9 billion, in cuts to the health sector through 2015 by reducing regulated prices for drugs; tax increases on heating oil and the self-employed; and a shrinking of permanent and temporary public-sector employment.

They do not, however, provide for changing the Greek Constitution, which states that public-sector workers on permanent contracts have lifetime tenure. Since last year, Greece has cut the wages of its 800,000 public workers — a quarter of the work force — by more than 10 percent.

After days of heated debate, Mr. Papandreou won by a simple majority, 155 to 138, with all but one lawmaker from his Socialist Party voting in favor and only one conservative opposition deputy breaking ranks to support the measure.

Perhaps the greatest challenge for the government will be to modernize the country’s confusing tax code, and to collect the billions of dollars in tax revenue that analysts say is at the heart of the country’s solvency problems.

At his first news conference as newly appointed finance minister after a cabinet reshuffle this month, even Evangelos Venizelos acknowledged that the new changes were emergency measures that did not constitute a new tax plan.

“It is not the new national taxation policy, it is not the modern complete taxation system that takes into consideration everything and that eradicates injustice and contradiction,” Mr. Venizelos said.

Mr. Papandreou is also running low on political capital, having failed to form a coalition government with the center-right opposition after a revolt in the Socialist Party. It is unclear if he can hold onto power long enough to see the austerity plan through.

“This only buys Greece time to get the serious work done,” said Carl Weinberg, chief economist of High Frequency Economics in New York. “But now they have to make the debt situation sustainable beyond August. Much depends on whether the government will stay the course, and when there are new elections, whether a new government decides to stick with the austerity measures this government passed, which is not certain,” Mr. Weinberg added.

Niki Kitsantonis contributed reporting from Athens, and Liz Alderman from Paris.

Article source: http://feeds.nytimes.com/click.phdo?i=2149e0fa8018c45e4e386f690d22d9eb

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Stocks & Bonds: U.S. and European Markets Rise on Optimism Over Greek Vote

June 30, 2011 by Leave a Comment

A relief rally swept the European and American markets after an early Wednesday vote by the Greek Parliament to approve an austerity plan.

The plan was passed, a condition set by international lenders for providing more financing and preventing a default, after weeks of uncertainty in financial markets related to the debt problems in the euro zone.

Investors had been bracing for the Greek Parliament’s decision on the package, which includes unpopular wage cuts, tax increases and privatizations. While investors got some relief with the announcement that it had passed, analysts warned that unresolved fiscal issues remained.

“Today’s vote will certainly give some short-term relief to markets, but concerns about the long-term feasibility of Greece’s fiscal plans still remain in place,” said Diego Iscaro, an IHS Global Insight senior economist, in a research note after the vote.

Protests continued outside the Parliament building in Athens. A second vote was scheduled for Thursday on enabling legislation to set the timing of the privatizations, especially of Greece’s state-owned electric utility.

With so much anticipation before the vote, analysts said that by the time it took place, investors had fixed positions.

“This is classic ‘buy the rumor, sell the news,’ ” said Phil Orlando, chief equity market strategist at Federated Investors. “The equity market was up in anticipation. We priced it in ahead of time.”

Still, the news was enough to lead major indexes higher. The DAX index in Frankfurt closed up 1.7 percent at 7,294.14, while the FTSE 100 in London rose 1.5 percent to 5,855.95.

In the Asia-Pacific region on Thursday, the reaction was muted, with the Nikkei 225 flat by the midday break in Tokyo. On Wednesday, the Nikkei had risen 1.5 percent on optimism that the Greek Parliament would pass the austerity measures.

Stocks in South Korea edged up 0.3 percent on Thursday, and Singapore and Taiwan climbed 0.7 percent. In Hong Kong, the Hang Seng index was 1.7 percent higher by midmorning.

In the United States, the Dow Jones industrial average closed up 72.73 points, or 0.60 percent, at 12,261.42. The Dow has now risen every day this week, putting it up 326.84 points, or 2.74 percent, in that period.

The Standard Poor’s 500-stock index was up 10.74 points, or 0.83 percent, at 1,307.41 and the Nasdaq composite index was up 11.18 points, or 0.41 percent, at 2,740.49.

The Treasury’s 10-year note fell 24/32, to 100 1/32. The yield rose to 3.12 percent, from 3.03 percent late Tuesday.

Bank stocks helped lift the Dow, and Bank of America was the most actively traded in the broader markets’ financial sector, which rose more than 2 percent. Bank of America, which said it would set aside $14 billion to pay investors who bought securities it assembled from mortgages that later soured, rose nearly 3 percent to $11.14. The company said it expected the agreement to lead to a second-quarter loss of $8.6 billion to $9.1 billion.

Citigroup was up more than 3 percent at $41.50. Morgan Stanley rose 4.75 percent to $23.39.

Other sectors that forged ahead were materials and energy, which each closed more than 1 percent higher. Oil closed up $1.88 at $94.77.

Yields on benchmark 10-year Spanish, Portuguese and Greek bonds declined, while those in safer equivalents issued by Germany and France rose, indicating investors were willing to switch back into riskier securities.

 The euro ended the day at $1.4431, up slightly from $1.4370 Tuesday.

The agreement by Greek lawmakers on the austerity measures was a crucial step in the international rescue of the crippled economy, and the relatively muted market reaction to the vote showed that investors knew that the country’s financial troubles were far from over.

“What’s really important is not the vote itself,” said George Magnus, senior economic adviser at UBS in London, “but the implementation of what they’re voting on, and that’s where the programs will come unstuck.”

The vote was critical to unlocking near-term financing, specifically the disbursement of the fifth installment of the original 110 billion euro bailout for Athens (roughly $140 billion when agreed to last year).

That installment would be worth 12 billion euros and would enable Greece to meet obligations like bond coupon payments in July, while paving the way for a new international lending program to provide financing through 2014.

Euro area ministers are expected to provide details of the program on July 3.

In a research report released Tuesday, Citigroup analysts said: “Despite the aid package, eventual Greek haircuts may be inevitable, with estimated private sector haircuts of 65 to 77 percent,” referring to the write-downs that bond holders will be required to accept.

“In other words, a bailout package addresses the liquidity issue much more than the solvency issue,” Citigroup said.

Two Commerzbank analysts, Benjamin Schröder and Peggy Jäger, said early Wednesday that “even if the bills are passed, worries could still linger on for longer, if no broader consensus across Greek political parties forms.”

Bettina Wassener contributed reporting from Hong Kong.

Article source: http://feeds.nytimes.com/click.phdo?i=e87656d09a002edd4e1dc496c875f276

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DealBook: Derivatives Industry Awaits Rules, and a Timeline

June 30, 2011 by Leave a Comment

With or without new rules, the derivatives industry is gearing up for big changes.

Three years ago, the complex securities wreaked havoc on Wall Street, prompting Congress to overhaul the long-unregulated market. The Dodd-Frank financial regulatory law requires companies to trade credit-default swaps and many other derivatives contracts through regulated exchanges or on a new invention known as swap execution facilities, or S.E.F.’s.

Now, even as regulators miss deadlines to complete the rules, some industry players say they are well prepared for the looming changes.

“Banks, hedge funds, insurers and other sophisticated entities are very eager and ready to begin trading on S.E.F.’s,” Ben Macdonald, global head of fixed income for Bloomberg, told the Senate Banking Committee on Wednesday. The infrastructure needed to set up the new trading platforms “certainly exists,” he added.

Regulators have estimated that 30 to 40 firms — ranging from big names like Bloomberg to growing online marketplaces like Tradeweb — will line up to become swap execution facilities, a term coined under Dodd-Frank.

Wall Street, however, is waiting for Washington to catch up. Amid internal wrangling and a broader political divide over the derivatives rules, regulators have fallen behind on several crucial issues.

The Federal Reserve announced last week that it would allow the public two additional weeks to comment on some derivatives proposals. Earlier this month, the Commodity Futures Trading Commission announced a six-month delay for many of its new derivatives regulations, including the proposal that will spell out rules for the trading facilities.

On Wednesday, the Securities and Exchange Commission finally proposed a series of new ethics standards for the derivatives industry. The proposal came more than six months after the commodities commission introduced a similar plan.

The S.E.C.’s proposed code of conduct would for the first time require banks, hedge funds and other firms that trade the opaque products to bolster their compliance departments and act in the best interests of the pension plans and local governments that use derivatives to hedge risk. Under the rules, the firms would also need to disclose a battery of information, including potential conflicts of interest and risks posed by derivatives deals.

“The standards we propose today are intended to establish a framework that protects investors and also promotes efficiency, competition and capital formation,” Mary L. Schapiro, the agency’s chairman, said at a public meeting in Washington on Wednesday.

The S.E.C. previously outlined proposals that, if enacted, would mandate how derivatives trading platforms operated.

But the pressing question is when the rules will take effect.

“We are ready to go,” Chris Bury, co-head of rates sales and trading for Jefferies Company, told the Senate committee. “The market needs the certainty of when the rules will become applicable.”

Some of the holdup stems from Wall Street’s own attacks on the rules. Industry lobbyists and Republican lawmakers led the push to delay the swap regulations. Bloomberg and other trading firms are asking regulators to tread lightly with the new rules.

“Sophisticated market participants do not really need or want federal regulators micromanaging execution protocols,” Mr. Macdonald told the banking committee.

But some advocates of regulation say delays are jeopardizing the safety of the financial system.

Before the crisis, investors bought billions of dollars’ worth of derivatives as insurance on risky mortgage-backed securities. When the underlying mortgages soured, the American International Group and other firms that sold the deals failed to honor their obligations. The government ultimately rescued A.I.G. with a $180 billion bailout.

“The biggest threat is that every day we don’t have financial reform rules in place is a day that the American taxpayers’ pockets are at risk,” said Dennis M. Kelleher, the president of Better Markets, an advocacy group.

Article source: http://feeds.nytimes.com/click.phdo?i=a667bc588254b826b6e69be35d528386

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DealBook: S.E.C. Delays Rajat Gupta’s Trial for Six Months

June 30, 2011 by Leave a Comment

Rajat K. GuptaAlessandro Della Bella/Keystone, via Associated PressRajat K. Gupta.

8:17 p.m. | Updated

The curious case of Rajat K. Gupta just got curiouser.

Mr. Gupta, the former Goldman Sachs director and onetime head of McKinsey Company, was scheduled to stand trial on July 18 on civil charges that he had leaked corporate secrets to Raj Rajaratnam, the billionaire hedge fund manager convicted of insider trading last month.

But the trial has been delayed for at least six months, according to two people familiar with the case who would discuss it only on the condition of anonymity.

The lengthy postponement in the case, brought by the Securities and Exchange Commission, raises questions about the fate of Mr. Gupta, the most prominent business executive ensnared by the government’s insider-trading crackdown.

The United States attorney’s office in Manhattan, which has been investigating Mr. Gupta’s role in the case for at least three years, named Mr. Gupta a co-conspirator of Mr. Rajaratnam’s but has not charged him criminally.

Just a week before Mr. Rajaratnam’s trial began, the S.E.C. brought an unusual civil administrative proceeding against Mr. Gupta, accusing him of tipping Mr. Rajaratnam about confidential results at Goldman and Procter Gamble, where he also served as a director. Among the tips was news that Berkshire Hathaway, run by Warren E. Buffett, had agreed to invest $5 billion in Goldman at the peak of the financial crisis, the S.E.C. said.

Gary P. Naftalis, a lawyer for Mr. Gupta, has called the S.E.C.’s case “totally baseless.”

Mr. Gupta played a starring role at Mr. Rajaratnam’s trial. Although he did not take the witness stand, the jury heard Mr. Gupta’s name throughout the testimony. They listened to a wiretap in which Mr. Gupta told Mr. Rajaratnam about secret Goldman board discussions. They also heard a recording of Mr. Rajaratnam telling a colleague that a Goldman director had leaked the bank’s earnings to him.

It is unclear why federal prosecutors have not charged Mr. Gupta, but the government appears to have a weaker criminal case against him than it did against some of Mr. Rajaratnam’s other co-conspirators.

Certain evidentiary rules could prohibit prosecutors from using two incriminating wiretaps on which Mr. Rajaratnam told colleagues about tips he had received about Goldman. Without those tapes, the government would be forced to rely on more circumstantial evidence at trial — like phone bills and trading records — to establish Mr. Gupta’s guilt.

In the S.E.C.’s civil proceeding, which is tried not before a jury but an S.E.C. administrative law judge in Washington, the agency has a lower burden of proof than federal prosecutors would have in a criminal case. The S.E.C. also would not be subject to the rules of evidence that in a criminal trial could make the case against Mr. Gupta more difficult.

Lawyers for Mr. Gupta have sued the S.E.C. to get his case moved to federal court, contending that the agency violated his right to jury trial by bringing the administrative proceeding. That lawsuit, which is before Judge Jed S. Rakoff in Federal District Court in Manhattan, is not the reason for the suspension of Mr. Gupta’s S.E.C. trial, according to people familiar with the case.

So what is the cause for the long delay? No one will say. Mr. Naftalis, Mr. Gupta’s lawyer, declined to comment, as did spokesmen for the S.E.C. and the United States attorney’s office.

Behind-the-scenes dickering between the Justice Department and the S.E.C. could be behind the postponement, legal experts say. The United States attorney’s office in Manhattan had tried unsuccessfully to get the S.E.C. to delay bringing its civil action against Mr. Gupta until the conclusion of Mr. Rajaratnam’s trial, according to court filings. Now, if federal prosecutors are still weighing charges against Mr. Gupta, they could again be asking the S.E.C. to hold off.

“The timing of civil and criminal proceedings is never preordained, but typically a matter of negotiations between the S.E.C. and federal prosecutors,” said Eli J. Richardson, a white-collar defense lawyer at Bass, Berry Sims and a former prosecutor. “The substantial delay in Gupta’s trial without public explanation suggests that’s what’s likely going on here.”

Article source: http://feeds.nytimes.com/click.phdo?i=cdbbcc5e32b16c8dff35941dd0867e1c

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Panel Advises F.D.A. to Narrow Its Approval for Avastin

June 30, 2011 by Leave a Comment

In a series of 6-0 votes, an advisory committee to the Food and Drug Administration endorsed the agency’s proposal to revoke the approval of the drug for use against advanced breast cancer.

The committee members voted that the drug was neither safe nor effective. It also unanimously rejected a proposed compromise offered by the drug’s manufacturer, Genentech, that the approval remain in place while the company conducts another clinical trial to try to confirm that the drug works.

The votes came at the end of an emotional two-day hearing at which about a dozen women, many of whom said the drug was saving their lives, and some cancer support group advocates, pleaded with the F.D.A. and the advisory committee to keep the drug available.

“A panel of six, none of which specialize in metastatic breast cancer, decided that we are statistically insignificant,” Crystal Hanna, one of the patients who testified, said in an e-mail after the vote. “How do I explain that to my 4-year-old and 7-year-old?”

But the members of the advisory committee said the results from clinical trials suggested Avastin was not helping women, though it was exposing them to potentially serious side effects like high blood pressure, gastrointestinal perforations and hemorrhaging.

“The agency has to look at protecting a larger number of patients,” said one committee member, Dr. Ralph Freedman, a gynecologic oncologist at the M. D. Anderson Cancer Center in Houston. “Sometimes they have to make a decision that doesn’t favor individual patients, but it’s on the basis of the whole.”

Avastin received so-called accelerated approval for metastatic breast cancer in 2008 under a program that allows drugs for serious diseases to reach the market quickly, subject to further study.

The F.D.A. said in December that these later studies had not confirmed the initial findings that Avastin was effective, so the agency proposed to revoke the approval. The hearing this week, which took place on the F.D.A. campus in Silver Spring, Md., was to hear Genentech’s appeal.

The final decision will be made by the commissioner of the F.D.A., Dr. Margaret A. Hamburg. She is not obligated to follow the advice of the committee.

Genentech, a subsidiary of Roche, and some patient groups are trying to bring Congressional pressure to bear on the F.D.A. At a time of controversy over the federal health care legislation, the Obama administration might not want to provoke renewed accusations of rationing care, which had been leveled during earlier stages of the agency’s deliberations over revocation.

Edward Lang Jr., a spokesman for Genentech, said the company would propose some middle grounds to the F.D.A., like restricting use of the drug to aggressive cancers or changing the drug’s label.

Genentech might also challenge an unfavorable decision in court.

Even if the breast cancer approval is withdrawn, Avastin will remain on the market as a treatment for several other types of cancer, so doctors could use it off label to treat breast cancer. But insurers might be less likely to pay, which would put Avastin, which costs about $88,000 a year, out of reach for most patients.

Even that is not certain. Medicare is supposed to pay for off-label uses of cancer drugs listed in references called compendia. One such compendium, published by the National Comprehensive Cancer Network, reaffirmed support for Avastin last year.

Still an explicit rejection of the drug by the F.D.A. might prompt the compendia to re-evaluate the drug or prompt insurers to ignore the compendia.

“My own guess is that third-party payers, including Medicare and Medicaid, would look at the F.D.A. decision and say this is a special circumstance,” said Dr. Harold J. Burstein of the Dana-Farber Cancer Institute in Boston. Dr. Burstein, who is on the cancer network’s breast cancer guidelines committee, said he did not know if the committee would re-examine Avastin at its annual meeting next month.

Avastin is the world’s best-selling cancer drug, with sales last year of roughly $7 billion. Analysts have estimated that loss of the breast cancer indication could cost Roche as much as $1 billion a year.

Sales of Avastin have already started dropping as doctors use it less. Mr. Lang, the Genentech spokesman, said that only 20 percent to 25 percent of eligible breast cancer patients in the United States were now receiving the drug, down from 60 percent a year ago. There are about 29,000 new cases a year of the type of breast cancer for which Avastin is approved, he said.

The committee’s votes on Wednesday were not surprising given that five of the six members voted the same way last July, when the committee initially recommended the approval be revoked.

The trial that led to approval indicated that Avastin, when combined with the chemotherapy drug paclitaxel, delayed the median time before tumors got worse by 5.5 months compared with paclitaxel alone.

But in two subsequent studies, Avastin delayed tumor progression by only 1 to 3 months. And none of the studies, including the original one, showed Avastin prolonged women’s lives or improved the quality of their lives.

“We’ve tried to slice this pie in a lot of different ways to try to find some kind of benefit for this drug,” said one committee member, Dr. Mikkael Sekeres of the Cleveland Clinic. “All we’re left with are crumbs.”

Genentech argued that subsequent trials might not have shown as large a benefit because Avastin had been combined with different chemotherapy drugs. It said the approval should remain in place while it conducted another study in which Avastin would be combined with paclitaxel, as in the original study.

“The law provides this flexibility and this middle course best meets the purposes of accelerated approval to facilitate needed treatment options,” Michael S. Labson, a lawyer representing Genentech, told the committee.

But the trial would take several years. Committee members suggested that the F.D.A. had to act to maintain the integrity of the accelerated approval program.

“We have a standard,” said Dr. Wyndham Wilson of the National Cancer Institute, a committee member, “and we shouldn’t be changing that standard unless we have a very good reason.”

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Media Decoder: With Sale Of MySpace, Some Relief

June 30, 2011 by Leave a Comment

DESCRIPTIONJin Lee/Bloomberg

8:14 p.m. | Updated MySpace, the long-suffering Web site that the News Corporation bought six years ago for $580 million, was sold Wednesday to the advertising network Specific Media for roughly $35 million.

The News Corporation, which is controlled by Rupert Murdoch, had been trying since last winter to rid itself of the unprofitable unit, which was a casualty of changing tastes and may be a cautionary tale for social companies like Zynga and LinkedIn that are currently enjoying sky-high valuations.

Relief over the sale was palpable on Wednesday, and not just at the News Corporation. Wall Street “just wanted it done, because it’s been a real drag on growth,” said Michael Nathanson, a media sector analyst for Nomura Securities.

Terms of the deal were not disclosed, but the News Corporation said that it would retain a minority stake. Specific Media said it had brought on board the artist Justin Timberlake as a part owner and an active player in MySpace’s future, but said little else about how the site would change.

The sale closes a complex chapter in the history of the Internet and of the News Corporation, which was widely envied by other media companies when it acquired MySpace in 2005. At that time, MySpace was the world’s fastest-growing social network, with 20 million unique visitors each month in the United States. That figure soon soared to 70 million, but the network could not keep pace with Facebook, which overtook MySpace two years ago.

As users fled MySpace, so, too, did advertisers. The market research firm eMarketer estimates that the site will earn about $183 million in worldwide ad revenue this year, down from $605 million at its peak, when the site introduced many Web users and many advertisers to the concept of social networking.

“It’s a shame that MySpace’s value has diminished so severely since the acquisition; MySpace’s pioneering of social networking (now referred to as social media) will always be revered as igniting a new medium,” Richard Rosenblatt, the chairman of MySpace at the time of the sale to the News Corporation, said in an e-mail.

Instead of envy, the News Corporation’s bet on MySpace now provokes punch lines. Tom Freston, who was fired as the chief executive of Viacom in part for failing to buy MySpace, joked in an interview with CNBC earlier this year that “I’m still waiting for a thank-you note” from the Viacom chairman, Sumner M. Redstone.

Mr. Freston, who was in Iceland on Wednesday and said he was smiling at the news of an impending MySpace sale, declined to comment.

News Corporation executives declined interview requests on Wednesday.

It is not clear whether MySpace itself was profitable for the company. The division that houses MySpace and other digital properties has turned a profit only once in the last six years. An advertising deal with Google helped the company to recoup what it spent on MySpace in the first place, but the site became a burden on the company’s earnings; by last year executives were calling the losses unacceptable. Mr. Nathanson called the site a “headache.”

What doomed the site? Lee Brenner, the former director of MySpace’s Impact section who is now the publisher of HyperVocal, wrote in a blog post Tuesday, “I’m sure most employees (former or current) will argue that it was poor management, or a need to hit revenue targets once News Corp. took over, or a bottleneck in the technology department, or lack of resources given to their division, or a poor public relations effort, etc., that set the course of MySpace’s downfall.

“Any number of these could be true,” he continued. “I suppose we’ll never know for sure. It is most likely a combination of these factors, along with a ‘low attention span’ public. It probably didn’t help to be doing business, and trying to grow, along with all of these issues, in the midst of a global economic crisis.”

MySpace has tried to reboot itself several times, most recently as a social destination for music, movies and other media. It has not been abandoned altogether: it still has 35 million visitors a month in the United States, according to the measurement company comScore. Facebook has 157 million visitors a month in the United States.

“It’s still one of the biggest pockets of traffic on the Internet, for the price,” said a former MySpace executive who insisted on anonymity to maintain friendships and business relationships with the News Corporation.

Mr. Timberlake said in a statement about the sale that MySpace still had the potential to be the place on the Web where “fans can go to interact with their favorite entertainers, listen to music, watch videos, share and discover cool stuff and just connect.”

Many of the current and former MySpace users who reacted to Wednesday’s sale thought differently. Many compared MySpace to Friendster, a social network that was left for dead years ago.

In preparation for the change in ownership, many of MySpace’s roughly 400 employees were dismissed on Wednesday. Mike Jones, the Web site’s chief executive, said in an internal memorandum that he would depart in the next two months.

“Today should be a day,” Sean Percival, a vice president at MySpace, wrote on Twitter Wednesday morning, before the sale announcement.

He followed up later in the day, telling his online followers that Wednesday would be his last day at the company. Seemingly referring to the site’s rise and fall, he wrote: “It was a unique moment in time and an impossible problem to solve. Was proud to be a part of it.”

Article source: http://feeds.nytimes.com/click.phdo?i=111d5a2194791b1872769652fe7ff9d7

Filed Under: Business News Tagged With: , ,

Bank of America Settles Claims Stemming From Mortgage Crisis

June 30, 2011 by Leave a Comment

Bank of America announced Wednesday that it would take a whopping $20 billion hit to put the fallout from the subprime bust behind it and satisfy claims from angry investors. But for its peers, the settlements may just be starting.

Heavyweight investors that forced Bank of America to hand over billions to cover the cost of home loans that later defaulted are now setting their sights on companies like JPMorgan Chase, Citigroup and Wells Fargo, raising the prospect of more multibillion-dollar deals.

“Bank of America has charted a path that our clients expect other banks will follow,” said Kathy D. Patrick, the lawyer who represented BlackRock, Pimco, the Federal Reserve Bank of New York and 19 other investors who hold the soured mortgage securities assembled by the Bank of America.

Ms. Patrick’s clients are seeking $8.5 billion from Bank of America — a settlement that needs a judge’s approval and could still face objections from investors seeking a better deal. A date to review the blueprint has been set for Nov. 17 with Justice Barbara R. Kapnick in New York Supreme Court.

All told, analysts say the financial services industry faces potential losses of tens of billions from future claims — real money even by the eye-popping standards of the nation’s biggest banks. Indeed, even that $20 billion announced Wednesday will not be enough to completely stanch the bleeding at Bank of America — it says litigation over troubled mortgages could cost it another $5 billion in the future.

The proposed settlement is more than just another financial blow to a company staggering from the collapse of the mortgage bubble. It also represents a major acknowledgment of just how flawed the mortgage process became in the giddy years leading up to the financial crisis of 2008, typified by the excesses at Countrywide Financial, the subprime mortgage lender Bank of America acquired in 2008.

Ms. Patrick and her clients claim that Countrywide created securities from mortgages originated with little, if any, proof of assets or income. Then, they argue, Bank of America did not properly service these mortgages, failed to heed pleas for help from homeowners teetering on the brink of foreclosure and frequently misplaced documents.

Most of the loans in the pools covered by the settlement were underwritten at the height of the mortgage mania: in 2005, 2006 and 2007. But with borrowers soon unable to meet their monthly payments, defaults soared.

For the banking industry, the reckoning could not come at a worse time. On Wall Street, trading revenue has been devastated by the economic uncertainty in Europe, the anemic recovery in the United States, and the stock market swoon of the last two months.

What’s more, new regulations have already taken a big bite out of profits. Despite a modest amount of relief on Wednesday, when the Federal Reserve completed new rules governing debit card swipe fees, the banks stand to lose billions when the regulations take effect next month.

If all this were not enough, further weakness in the housing and job markets has reduced lending by the banks to businesses and consumers alike, cutting yet one more source of profits.

Nevertheless, investors appeared to endorse the proposed settlement, with Bank of America shares rising nearly 3 percent, to $11.14, a move mirrored by shares of other big financials.

Some experts said the settlement could prove good news for consumers and the broader economy, speeding the foreclosure process for hundreds of thousands of homeowners while potentially making it easier to obtain modifications of existing mortgages.

By providing a template for cleaning up past claims and setting standards for future practices, the settlement could make it easier for banks to bundle and sell mortgages again, a business that has been all but dead since the financial crisis.

“That is important for providing funding for people to buy homes, grow their businesses and create jobs,” said Michael S. Barr, a former assistant Treasury secretary who now teaches law at the University of Michigan.

The accord does not resolve an investigation by all 50 state attorneys general into allegations of mortgage service abuses by Bank of America and other major lenders that could ultimately cost the industry billions more in fines and penalties. Nor does it cover liability from soured home equity loans or bonds the bank created with mortgages from lenders other than Countrywide.

Gretchen Morgenson contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=191b3cb0fc65f09932a69666c8bf44e9

Filed Under: Business News Tagged With: , ,

Bucks: Latest in Dog Safety: Car Seat Belts

June 30, 2011 by Leave a Comment

Planning to bring the dog along in the car as you head out for your summer road trip? There’s a growing consensus that dogs should be restrained while traveling in automobiles, just like people.

Many Americans can’t bear to be parted from their pets. But dogs loose in cars can be hazardous, if they distract the driver. Unrestrained dogs can be injured in car accidents, too.

The American Veterinary Medical Association is also promoting doggie seat belts in a campaign dubbed “Please Show Some Restraint.”www.avma.orgThe American Veterinary Medical Association is promoting dog seat belts.

A third of dog owners admit to being distracted by their pets while driving, according to a “doggie distractions” fact sheet based on a study from the American Automobile Association and Kurgo, a maker of canine harnesses. That’s risky, since “distracted driving” is a significant factor in auto accidents, according to the National Highway Traffic Safety Administration.

The American Veterinary Medical Association is promoting  seat belts for dogs, too, in a campaign called “Please Show Some Restraint.” And a Web site, Paws to Click, explains how to install a harness from the manufacturer Bergan and how to fit it on your dog.

The harnesses typically fit around the pet’s body and attach to seat belts or car seat anchors. Some manufacturers make booster seats that attach to automobile seats and work for smaller dogs, or offer lines that attach to the interior of the car so dogs can move around.

Restraints can be found at most pet stores and online.

If your dog doesn’t like being restrained, you might want to pack his favorite chew toy and stock up on some dog treats, especially for long trips.

Do you restrain your dog when he is traveling in your car? How does your pet handle being buckled in?

Article source: http://feeds.nytimes.com/click.phdo?i=0b27d28978ed40f9d8f95fd81efffcc3

Filed Under: Your Money Tagged With: , ,

Bucks: For Consumers, Little to Cheer in New Cap on Debit Fees

June 30, 2011 by Leave a Comment

The Federal Reserve on Wednesday issued its long-awaited rule on the cap on “swipe” fees that banks charge retailers for processing debit card purchases. And it appears that all the banks’ complaints about the proposed cap paid off.

The Fed had originally proposed limiting the fees to 12 cents a transaction, a steep drop from the current average swipe fee of about 44 cents. But the Fed said Wednesday that it would set the base cap at 21 cents. Plus, banks can add extra cents, based on the amount of the transaction, to cover fraud costs.

David French, senior vice president of government relations at the National Retail Federation, said the rule was “a lot closer to what the banks would have received if they’d written the rules themselves.” He predicted that “consumers will benefit, but not as much as Congress intended.”

The Retail Industry Leaders Association quickly criticized the new rule as an “about face” from the Fed’s earlier proposal. “The announcement today from the Federal Reserve is a disappointment to merchants and consumers who face unfair and excessive fees imposed by big banks and credit card companies,” Sandy Kennedy, the association’s president, said in a prepared statement.

The real question, as we here at Bucks have said before, is whether consumers will actually see any savings from lower swipe fees. Consumers have been skeptical that they’ll benefit at the cash register. Perhaps the best that shoppers can hope for is that retailers’ costs won’t go up as quickly as they might have without the cap — although it may be impossible to truly know if that occurs.

Banks have until Oct. 1 to comply with the new rules.

Do you think the base cap of 21 cents goes far enough?

Article source: http://feeds.nytimes.com/click.phdo?i=0d61447aa3715b73103525092e9c10ce

Filed Under: Your Money Tagged With: , ,
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