March 25, 2023

DealBook: F.B.I. Arrests Madoff’s Brother

Peter Madoff was driven to Federal District Court in Manhattan on Friday to plead guilty to criminal charges.Andrew Gombert/European Pressphoto AgencyPeter Madoff was driven to Federal District Court in Manhattan on Friday to plead guilty to criminal charges.

1:00 p.m. | Updated

Peter B. Madoff, who was arrested early Friday, pleaded guilty to criminal actions that enabled his brother, Bernard L. Madoff, to carry out the largest Ponzi scheme in history.

While Peter Madoff, 66, acknowledged wrongdoing, he said in the hearing at the Federal District Court in Manhattan that he did not know of the fraud that wiped out about $65 billion in paper wealth.

The formal charges against Peter Madoff, 66, included falsifying documents, filing false tax returns and lying to regulators. Prosecutors said that from 1998 to 2009, Peter Madoff, who served as the senior legal and compliance officer for his brother’s firm, received $40 million from the firm, on which he didn’t pay taxes. He avoided government detection by disguising those payments as loans or backdated stock trades, according to prosecutors.

“I am deeply ashamed of my actions. I want to apologize to anyone who I harmed and to my family,” Peter Madoff said, choking back tears, at the hearing. “I’m here today to take responsibility for my conduct.”

Earlier on Friday, the Federal Bureau of Investigation arrested Peter Madoff at his lawyer’s office in Manhattan, according to a spokesman for the agency. At the federal court, he was unaccompanied by family members. No victims in the Madoff scheme spoke at the hearing.

As part of his guilty plea, Peter Madoff has agreed to a 10-year prison term. He has also agreed to forfeit $143 billion, a penalty that is based on the size of the fraud rather than his ability to pay. The sum is an indication that the government will seize all of his money.

There had been some speculation that Peter Madoff’s deal with the government included a promise by prosecutors to not bring any charges against his daughter, Shana Madoff Swanson, who also served as a lawyer and compliance officer at the firm. But his plea agreement does not protect anyone else from potential criminal charges, according to people briefed on the matter.

Bernard Madoff has served three years of a 150-year prison term at a federal prison in North Carolina after confessing to running the Ponzi scheme.


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DealBook: At Bank of America, an $8.8 Billion Loss

A Bank of America branch in Times Square.Andrew Gombert/European Pressphoto AgencyA Bank of America branch in Times Square.

8:34 a.m. | Updated Bank of America reported a loss of $8.8 billion in the second quarter as it doled out huge payments to settle legal claims related to its troubled mortgage division.

The loss, which amounted to 90 cents a share, was steep, but it was fully baked into expectations. Analysts predicted the bank would lose 90 cents a share, compared with a profit of $3.1 billion, or 27 cents a share, in the period a year earlier.

The mortgage problems also ate into revenue, which fell about 55 percent, to $13.2 billion. The drop came as the bank reported a large decline in noninterest income, the result of swelling mortgage provisions.

With the second quarter nearing a close, the bank agreed in June to pay $8.5 billion to a group of more than 20 big investors who bought billions of dollars’ worth of soured mortgage investments. The deal, which is still awaiting a judge’s approval, represents the single biggest settlement tied to the subprime mortgage crisis.

The bank also earmarked $5.5 billion in the second quarter to cover future claims linked to troubled loans and an additional $6.4 billion for a series of other charges, leading to an overall pretax mortgage-related hit of about $20 billion.

Excluding mortgage-related items, the bank would have earned $3.7 billion for the quarter, up slightly from the period a year earlier.

The results were in line with Bank of America’s own preliminary projections. After the mortgage settlement was announced in June, the bank offered an early peek at its results, indicating that it would have earned up to $3.7 billion, or 33 cents a share, absent its mortgage charges. The bank met the expectations, in part, thanks to its decision to release $2.4 billion from its reserves.

Brian T. Moynihan, chief of Bank of America.Jeff Kowalsky/Bloomberg NewsBrian T. Moynihan, chief of Bank of America.

“Obviously, the solid performance in our underlying businesses continues to be clouded by the costs we are absorbing from our legacy mortgage issues,” Brian T. Moynihan, the bank’s chief executive, said in a statement.

In some ways, the results painted two disparate pictures of the bank, with several divisions showing signs of digging out from the depths of the financial crisis.

On average, deposit balances rose 4 percent from the period a year earlier. Investment banking fees increased 28 percent, to $1.6 billion. And the bank’s global wealth management group, which includes Merrill Lynch, produced another strong showing, with asset management fees up 14 percent.

While revenue from sales and trading was down from the previous quarter, the business saw an improvement of $666 million from the second quarter of 2010.

Even the mortgage business showed signs of life, as the bank said the quality of loans improved.

“All signs point to continued improvement from here,” said Jason Goldberg, an analyst at Barclays Capital.

But the mortgage-related legal woes remained a serious burden. Many of the problems stem from the bank’s ill-fated acquisition of Countrywide Financial, the former subprime lending giant that came to represent the excesses of the housing boom.

Bank of America acquired Countrywide for $4 billion during the height of the crisis. The costs have been piling up ever since.

A range of institutional investors, along with Fannie Mae and Freddie Mac, want Bank of America to repurchase bad Countrywide mortgages, which they say failed to meet underwriting standards. The bank reached an $8.5 billion settlement with the likes of BlackRock, the world’s largest asset manager, and the Federal Reserve Bank of New York.

“It certainly is a big step in putting the problems behind them,” said Mr. Goldberg. But he noted that “it’s not done.”

The bank still has exposure to lawsuits by mortgage insurers and other claims from private mortgage investors.

Meanwhile, the uncertainty continues to stall the bank’s long-awaited revival and weigh on its stock price.

The bank’s shares have dropped 28 percent this year. On Monday, the stock dipped below $10, in sharp contrast with competitors like JPMogran Chase, whose stock is trading at nearly $40.

Last week, JPMorgan far surpassed the consensus estimate of analysts, posting a profit of $5.4 billion, or $1.27 a share. Even Citigroup, which has struggled to shake off the legacy of the crisis, said its earnings rose 24 percent in the second quarter.

So why does Bank of America continue to struggle?

“The others don’t have Countrywide,” Mr. Goldberg said.

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DealBook: NYSE Euronext Rejects Bid by Nasdaq and ICE

A trader on the floor of the New York Stock Exchange.Andrew Gombert/European Pressphoto Agency A trader on the floor of the New York Stock Exchange.

2:50 p.m. | Updated

The board of NYSE Euronext announced on Sunday that it would reject an unsolicited takeover bid by its rival, the Nasdaq OMX Group, and the IntercontinentalExchange, and stick with its agreement to merge with Deutsche Börse.

The long-expected decision is likely to set off a potential battle over the Big Board operator, as the two bidding groups try to convince NYSE Euronext shareholders of the merits of their respective offers.

Under the proposal by Nasdaq and ICE, announced more than a week ago, the two would split up NYSE Euronext into its two main businesses. Nasdaq would take over the New York Stock Exchange, creating the single biggest stock market in the United States, while ICE would buy NYSE Euronext’s derivatives operations.

Nasdaq and ICE’s cash-and-stock bid for NYSE Euronext is currently worth about $43.13 a share at Friday’s closing prices, or $11.3 billion. Deutsche Börse’s all-stock offer is worth about $36.98 a share, or $9.7 billion.

But in a statement on Sunday, NYSE Euronext’s board outlined several concerns about the Nasdaq offer. Chief among these is the possibility that the Nasdaq bid might not survive review by antitrust regulators.

Nasdaq and ICE expect about $740 million in cost savings three years after the deal closes, a figure driven by cutting jobs and eliminating duplicate back-end systems. Some lawmakers, like Senator Charles E. Schumer of New York, have mentioned the potential job losses in New York City as a hurdle to winning approval.

In its statement, NYSE Euronext also professed concern about the amount of debt Nasdaq would borrow to finance its offer.

NYSE Euronext’s chairman, Jan-Michiel Hessels, instead highlighted the benefits of the company’s existing agreement to merge with Deutsche Börse, which would create a trans-Atlantic powerhouse in stock, options and derivatives trading.

“With Deutsche Börse, we are committed to creating the world’s premier exchange group — a geographically diverse business, with strengths in multiple asset classes across the spectrum of capital markets services,” Mr. Hessels said in a statement.

Representatives for Nasdaq and ICE were not immediately available for comment.

Deutsche Börse said in a statement that it and NYSE Euronext had already made “significant progress on integration planning.”

The proposed merger of NYSE Euronext and Deutsche Börse has been two years in the making, aimed at improving profit by increasing scale. Both the New York Stock Exchange and Nasdaq have lost some ground to upstart electronic markets like BATS and Direct Edge.

Several exchange operators have already proposed mergers that would create new international operators in recent months. But several of those proposals have run into political interference, as national regulators fear diminishing their countries’ standings as global financial capitals.

Last week, Australia formally rejected the Australian Securities Exchange’s plan to merge with the Singapore Exchange, saying the deal “would not be in the national interest” in its current form. And Canadian lawmakers are closely scrutinizing the Toronto Stock Exchange’s proposed merger with the London Stock Exchange.

Nasdaq’s offer is being pitched as creating a new national champion, one based in New York and able to draw new stock listings that might otherwise head to foreign markets.

Deutsche Börse and NYSE Euronext plan to keep dual headquarters in Frankfurt and New York. Reto Francioni of Deutsche Börse would become chairman of the combined company, while Duncan Niederauer of NYSE Euronext would become its chief executive. Deutsche Börse shareholders would own 60 percent of the merged company, though both exchange operators have argued that the deal is a “merger of equals.”

Nasdaq has said that the combined company would be called Nasdaq NYSE Euronext, a move aimed at alleviating concerns among those like Mr. Schumer, who has insisted on retaining the NYSE name as part of any deal. Deutsche Börse and NYSE Euronext have yet to agree upon a name for their merged operations.

NYSE Euronext is being advised by Perella Weinberg Partners, BNP Paribas, Goldman Sachs and Morgan Stanley. Its legal advisers are Wachtell, Lipton, Rosen Katz; Stibbe; and Milbank, Tweed, Hadley McCloy.

Deutsche Börse is being advised by Deutsche Bank, JPMorgan and the law firm Linklaters.

Nasdaq is being advised by Bank of America Merrill Lynch, Evercore Partners and the law firm Shearman Sterling. ICE is being advised by Lazard, Broadhaven Capital Partners, BMO Capital Markets and the law firm Sullivan Cromwell.

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