October 26, 2020

Fair Game: S.E.C. Plan for Money Market Funds Takes Some Baby Steps

Given the onslaught of lobbying against Ms. Schapiro’s efforts, it is perhaps not surprising that Ms. White’s proposal is much more incremental than her predecessor’s.

Money market funds need tighter regulation because both individual and institutional investors rely on them as bank-account alternatives. These investors have come to believe that their holdings will never decline in value; $1 in will always be $1 available for redemption. But unlike banks, money funds do not have to set aside capital for either redemptions or losses. Therefore, money funds can be vulnerable to runs when shareholders stampede for the exits.

This is what happened after Lehman Brothers failed in 2008. The Reserve Fund, an enormous, institutionally held money fund that owned some of the brokerage firm’s debt, had to halt redemptions in an investor run. Recognizing that the potential for problems wasn’t limited to that fund, the federal government offered insurance to money funds during the crisis.

To prevent a future run on these funds, the new, nearly 700-page S.E.C. proposal offers two possible regulatory fixes. One would require some funds to abandon the fixed $1-a-share asset price and require the price to float, based on fluctuations in their holdings.

The idea here is to dispel the myth that each share of a money fund is worth precisely $1 at the end of every business day. That fiction has lulled investors into complacency about the funds’ safety and predictability.

But only prime institutional funds — which account for almost 40 percent of the overall market — would have to show floating net asset values under the rule. Money funds that invest mostly in government securities and those aimed at individual investors would be exempt. The S.E.C. said this was because government portfolios and retail funds hadn’t run into redemption problems.

The S.E.C.’s proposal “targets precisely the funds that ran the most in 2008,” said Norm Champ, director of the S.E.C. division of investment management, in an interview. “The S.E.C.’s staff economic study showed that institutional investors redeemed from money market funds at a much higher rate than retail investors during the 2008 financial crisis.”

It’s likely, though, that the panic would have spread to retail funds if the government hadn’t stepped in with its insurance program.

The proposal offers another attempt to prevent a run: a redemption charge. If any fund’s so-called weekly liquid investments fell below 15 percent of its total assets, the fund could impose a 2 percent fee on all redemptions. (Weekly liquid assets are typically cash, United States Treasury securities and instruments that convert into cash within seven days.) Once a fund crossed the 15 percent threshold, its overseers could also halt redemptions for as long as a month, allowing an orderly sale of assets as well as time for panicked investors to cool down.

The fund industry may not like some of this, but it is sure to be delighted about what is absent from the S.E.C.’s proposal. Unlike last year’s version, this one does not require money market funds to set aside capital to protect against mass redemptions.

Setting aside capital is the best way to protect shareholders from funds that take excessive risks, as well as from the perils of a panic, says David S. Scharfstein, a professor of finance and banking at Harvard Business School and an expert on money funds.

“The run doesn’t just come from a fixed net asset value,” he said in an interview last week. “It comes from the underlying assets that are illiquid.” He prefers a capital requirement of between 3 and 4 percent.

The industry, which sees required capital set-asides as anathema because they crimp profits, would have fought such a provision as fiercely as it did the last time. The S.E.C. may have found it preferable to propose a rule that was workable, not dead on arrival.

Another criticism of the rule, Mr. Scharfstein said, is that while it purports to provide investors with a true market value for a fund’s holdings, it offers significant leeway in determining those valuations. It would not require funds to assign prices based on market transactions on securities that come due in 60 days or less. The fund could value those at the cost it paid to buy them, so long as the fund’s directors thought that the prices represented fair value.

But those valuations may not reflect what a fund would really receive in a sale. “Most money market fund assets mature in less than 60 days,” Mr. Scharfstein said. “This could allow them not to mark to market a fairly large fraction of their portfolios.”

The greatest strength of the S.E.C.’s proposed rule is that it would require greater transparency, bringing money funds out of the Dark Ages where disclosures are concerned. It would require funds to divulge material matters, such as when the 15 percent threshold is crossed for liquid assets or a relatively large holding goes into default. And what if a fund gets into trouble and requires the financial support of its parent? Investors would be told.

Finally, under the rule, the funds would have to report their holdings within five days of each month’s end, rather than the two months they can wait now.

“The proposal would require funds to disclose information that investors have never had access to before,” Mr. Champ said. “It will be a major step to increasing investor knowledge and understanding of the product.”

Now that the rule has been proposed, the S.E.C. will field comments for 90 days.

Could the rule be stiffened? Probably not by the S.E.C. Dennis Kelleher, president of Better Markets Inc., a nonprofit advocating effective financial regulation, said regulatory proposals usually weren’t expanded beyond their initial outlines.

But, he said, there is a possibility that the Financial Stability Oversight Council, the regulatory group created under the Dodd-Frank law, may toughen the rule. In November, after the S.E.C. failed to come up with an acceptable proposal, the stability council suggested three money fund reforms. They went beyond the S.E.C.’s rule, proposing either a floating net asset value for all money funds, or capital buffers.

“The F.S.O.C. has the power and authority it needs to address systemic risks,” Mr. Kelleher said. “If the final rule is weak and deficient and leaves a significant systemic risk to the financial system unaddressed, they have the duty to act under the law.”

Whether they will is another issue. Clearly, the battle for safer money funds is far from over.

Article source: http://www.nytimes.com/2013/06/09/business/sec-plan-for-money-market-funds-takes-some-baby-steps.html?partner=rss&emc=rss

As Profit Slips, Apple Looks to Reward Shareholders

On Tuesday, the technology giant announced that it planned to more than double its program to return cash to shareholders through stock buybacks and a higher dividend, spending $100 billion on the effort through the end of 2015. Its share repurchases alone will increase to $60 billion from the $10 billion it committed previously, the largest such plan in history, the company said.

The move to renew investors’ love affair with Apple’s stock came as the company announced its first profit decline in a decade. Apple said its net income fell 18 percent in its fiscal second quarter, as one of the most successful technology franchises in recent years, the iPhone, showed signs of slowing and other, less profitable products began to make up more of its sales.

The rarity of Apple’s profit decline, which was expected, underscores how one of the most remarkable winning streaks in business has come to an end, at least for now. Investors have battered the company’s stock for months, sending its shares down from their peak of more than $700 last year as warning signs began to emerge about its growth prospects.

In regular trading on Tuesday, Apple shares rose nearly 2 percent to close at $406.13, but they fell slightly in after-hours trading as investors digested the quarterly earnings news and Apple’s plan to return cash to shareholders. One thing that spooked investors is that Apple told them to expect little to no sales growth in this quarter.

“People are concerned they can’t return to growth,” said Walter Piecyk, an analyst at BTIG Research, an institutional brokerage firm.

One of the biggest questions facing Apple is whether it can innovate its way out of its funk by delivering a breakthrough new product, perhaps in a category like television, that rekindles growth and investors’ passion.

Timothy D. Cook, the company’s chief executive, said in a conference call with analysts that the decline in the stock price has been “very frustrating to all of us,” but that Apple remains strong. “Our teams are hard at work on some amazing new hardware, software and services that we can’t wait to introduce this fall and throughout 2014,” Mr. Cook said.

Mr. Cook even dropped a hint about “exciting new product categories” that Apple could enter, suggesting the company is preparing a move into a new market.

For its fiscal second quarter, which ended March 30, the company said that its net income dropped 18 percent to $9.55 billion, or $10.09 a share, from $11.62 billion, or $12.30 a share, during the same period a year earlier.

Revenue rose 11 percent to $43.6 billion from $39.19 billion a year before.

Wall Street analysts expected the company to report earnings of $10.07 a share and revenue of $42.59 billion, according to the average of estimates compiled by Thomson Reuters.

Months ago, Apple sought to brace investors by warning that profit could decline about 20 percent in the quarter. At that time, Apple forecast revenue of $41 billion to $43 billion.

Sales of iPhones, the company’s biggest business, grew only 3 percent to $22.96 billion in the second quarter.

The company has warned that new products like the iPad Mini have lower profit margins than older items like its full-size iPad sibling. It is also selling more of its older model smartphones, like the iPhone 4, which have lower margins. That has stirred up worries that Apple’s efforts to cater to more budget-conscious consumers with low-price products could steadily erode its considerable profits.

Apple is widely thought to be preparing a new low-cost version of the iPhone to compete more aggressively with smartphones based on Google’s Android operating system. A cheaper device could hold special appeal in huge markets like India and China where average incomes are far lower than in the West.

Pushing into inexpensive phones could hurt Apple’s admired profit margins, though. Last year, the company garnered almost 70 percent of the profit in the mobile handset business, according to estimates by Canaccord Genuity.

Apple’s gross profit margins, one of the most closely watched measures of how profitable it is, are already declining, falling to 37.5 percent in the second quarter from 47.4 percent a year ago. This is the fourth consecutive quarter of declining gross margins at Apple, the longest stretch of such declines since 1993, according to Bill Moore, director of corporate development for Bloodhound Investment Research, a provider of online investment management tools.

Apple warned that its gross margins would probably continue to fall in the fiscal third quarter, dropping between 36 percent and 37 percent.

“Investors would love some sense of when gross margins will stabilize, and unfortunately Apple didn’t give us that,” said Rob Cihra, an analyst at Evercore Partners.

As Apple’s holdings of cash and cash equivalents have swelled — the figure is now over $140 billion — investors have clamored loudly for the company to step up its efforts to buy back shares or issue a bigger dividend.

The company said on Tuesday that its board had approved a 15 percent increase in its quarterly dividend. It declared a dividend of $3.05 a common share, which will be paid to shareholders on May 16.

Apple said it planned to borrow cash as part of its plan to return cash to shareholders. Even though Apple has far more capital than it needs in its coffers, much of it is held overseas and would be subject to taxes if the company were to bring it back to the United States. Apple can also help increase its earnings per share by lowering its outstanding share count through stock purchases.

“We believe so strongly that repurchasing our shares represents an attractive use of our capital that we have dedicated the vast majority of the increase in our capital return program to share repurchases,” Mr. Cook said in a statement.

Article source: http://www.nytimes.com/2013/04/24/technology/as-profit-slips-apple-increases-efforts-to-reward-shareholders.html?partner=rss&emc=rss

DealBook: Trustee in MF Global Case Delays Suit Against Its Chief

Louis Freeh, the trustee overseeing MF Global's bankruptcy case, at a Senate panel last year.Gary Cameron/ReutersLouis Freeh, the trustee overseeing MF Global’s bankruptcy case, at a Senate panel last year.

Even while accusing Jon S. Corzine and other former MF Global executives of “negligent conduct” that may have fueled the brokerage firm’s collapse, a bankruptcy trustee has agreed to postpone a lawsuit against them.

Instead, Mr. Corzine’s lawyers will enter mediation next week with the trustee, Louis J. Freeh, according to people briefed on the talks who were not authorized to speak publicly.

The development is an encouraging sign for Mr. Corzine, a former senator and New Jersey governor who underwent a humbling ouster when MF Global collapsed in October 2011. Lawyers for Mr. Corzine are also in negotiations with another MF Global trustee and some of the firm’s investors who filed a separate suit against him in 2011, the people briefed on the talks said.

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Yet some lawyers involved are skeptical that the talks will yield a settlement. And while the mediation offers promise for Mr. Corzine, he remains caught in a thicket of litigation.

MF Global investors continue to circle Mr. Corzine, blaming him for their losses when the firm collapsed. And even as Mr. Freeh agreed to mediation in recent weeks, his lawyers drafted a lawsuit against Mr. Corzine, just in case.

Mr. Freeh, the trustee for MF Global’s parent company and a former director of the F.B.I., hinted at the suit in a report filed on Thursday. The filing, echoing similar reports issued last year by Congressional investigators and the other bankruptcy trustee, blamed MF Global executives for engineering a “risky business strategy” and ignoring “glaring deficiencies” in internal controls.

The findings, according to the people who were briefed, laid the groundwork for the potential lawsuit to claim that executives had breached their fiduciary duty to the firm.

In reply, a spokesman for Mr. Corzine argued that “there simply is no basis for the suggestion that Mr. Corzine breached his fiduciary duties or was negligent.” The spokesman, Steven Goldberg, added that “the trustee’s report, with its allegations of negligent conduct, is a clear case of Monday morning quarterbacking.”

Mr. Corzine, he noted, inherited a firm in 2010 that lost money in each of the previous three years. “Mr. Corzine worked tirelessly and in good faith to turn the business around,” Mr. Goldberg said.

The potential lawsuit, which could help Mr. Freeh recover money for MF Global’s creditors, would hinge on what Mr. Corzine knew about the firm’s mounting problems. Mr. Freeh’s report argued that he knew enough to be concerned.

At a May 2010 board meeting, the report said, Mr. Corzine learned that MF Global’s internal controls were “flawed.” He and other managers received documents detailing dozens of gaps between the firm’s written policies regarding risk and its actual practices.

Despite knowing the firm’s precarious position, Mr. Freeh said, Mr. Corzine increased a risky bet on European debt. While the bonds were not by themselves to blame for the fall of MF Global, the bet unnerved the firm’s investors and ratings agencies.

Some employees, balking at the risk taking, planned to create a risk system to forecast potential losses. But, according to Mr. Freeh, Mr. Corzine “stalled” the effort because he considered it unduly expensive.

The warning signs continued over the next year. In June 2011, MF Global’s internal auditors foreshadowed potential problems with customer money.

MF Global, the auditors cautioned, placed “unnecessarily high reliance on key employees” to manage the firm’s liquidity reporting, including a single employee in Chicago, Edith O’Brien. In the aftermath of the bankruptcy, Ms. O’Brien emerged as a crucial figure, as e-mails suggested that she had accidentally transferred $175 million in customer money to an account at JPMorgan Chase. Ultimately, more than $1 billion in customer money vanished from MF Global.

Despite knowing the risks of relying on Ms. O’Brien, according to Mr. Freeh, MF Global’s management looked the other way. “The business accepts this risk and a formal action plan will not be tracked,” MF Global employees wrote at the time, Mr. Freeh’s report said.

Federal authorities continue to investigate the misuse of customers’ money. Mr. Corzine has not been accused of any wrongdoing, and internal e-mails suggest he was not aware that the money sent to JPMorgan belonged to customers.

Mr. Goldberg, the spokesman for Mr. Corzine, said that firms like JPMorgan improperly pocketed customers’ money when MF Global entered a tailspin. He said Mr. Freeh’s report “intentionally ignores the failure of counterparties to fulfill their commercially contracted obligations to MF Global and the profound impact this failure had on MF Global’s customers and other stakeholders.”

The back-and-forth is an inauspicious start for the mediation.

Yet Mr. Freeh, according to a footnote on the last line of the 124-page report, agreed to postpone the lawsuit, “pending the completion of the mediation.” And on Friday, Mr. Freeh will ask a bankruptcy court judge to approve a liquidation plan for MF Global, a deal that would shift power from the trustee to a panel of creditors who could continue the mediation with Mr. Corzine. His talks with James W. Giddens, the MF Global trustee responsible for returning money to customers, will also continue.

Those talks could gain momentum as Mr. Giddens’s efforts for customers proceed. Last month, Mr. Giddens in effect secured $500 million for customers from JPMorgan Chase. The deal, if approved by a judge, would pave the way for MF Global’s customers to recover nearly all the money that disappeared when the brokerage firm imploded.

Article source: http://dealbook.nytimes.com/2013/04/04/report-hints-at-possible-mf-global-suit/?partner=rss&emc=rss

Capital Goods Orders Jump in January

The Commerce Department said on Wednesday that orders for so-called core capital goods, which include industrial machinery, construction equipment and computers, rose 6.3 percent in January from December. A sharp drop in demand for commercial aircraft caused overall orders for durable goods, items expected to last at least three years, to fall 5.2 percent, the first decline since August.

Orders for commercial aircraft are volatile from month to month and can cause large swings in the overall figure. Boeing reported orders for only two planes in January, down from 183 in December. Orders for military equipment also plummeted by the most in more than 12 years.

The increase in core capital goods suggests companies are willing to expand their production capacities despite worries that automatic government spending cuts will slow the economy in the coming months.

“The fact remains that capital spending appears to be holding up very well,” said Dan Greenhaus, chief global strategist at BTIG, a brokerage firm. “In fact, it appears to be accelerating.”

Still, the jump in orders was not broad based and occurred mostly in machinery and manufactured metal products. Orders for computers and communications equipment both fell, and orders for autos and auto parts were unchanged.

And even with the increase, orders have mostly just recovered last year’s losses. Total core capital goods orders reached $67.7 billion in January, just above December 2011’s level.

Several economists warned that orders were likely to fall in the coming months after such a big gain.

“We don’t expect businesses suddenly to throw caution to the wind,” Paul Ashworth, an economist at Capital Economics, said in a note to clients.

About $85 billion in spending cuts are scheduled to begin on Friday, and there is little sign that the White House and Congress will reach a deal to avoid them. Defense Department officials may have slowed purchases in January in anticipation of the cutbacks.

Business investment plans have held up in recent months despite the uncertainty surrounding tax and spending policies. Core capital goods orders dipped 0.3 percent in December but posted strong gains of 3.3 percent in November and 3 percent in October.

Separately, a measure of the number of Americans who signed contracts to buy homes rose in January from December to the highest level in more than two and a half years. The increase suggests sales of previously occupied homes will continue rising in the coming months.

The National Association of Realtors said on Wednesday that its seasonally adjusted index for pending home sales rose 4.5 percent last month to 105.9 — the highest level since April 2010, when a homebuyer’s tax credit was about to expire.

There is generally a one- to two-month lag between a signed contract and a completed sale.

Pending home sales rose in all regions, but just barely ticked up in the West, where a limited supply of available homes was holding sales back.

The increase was the latest positive report for the housing market, which began recovering last year after a deep, six-year slump.

Article source: http://www.nytimes.com/2013/02/28/business/economy/capital-goods-orders-jump-in-january.html?partner=rss&emc=rss

Your Money: Signs That It’s Time for a New Broker

And so it is with the tale of Philip David Horn, the Wells Fargo broker who recently pleaded guilty to trading in clients’ accounts, canceling the trades and helping himself to the profits. He may very well end up in jail, just as soon as the federal judge can figure out how much money is at stake and how to make those clients whole.

All the juicy stuff is here, as my colleagues Jessica Silver-Greenberg and Susanne Craig laid out in a front-page article last month. There are the country club solicitations (and confrontations), the brokerage firm that finally figured out what was going on after more than two years and the chastened Mr. Horn putting 800 hours into volunteer work and begging the judge to keep him out of prison.

But on the other side of those trades were sophisticated clients, including a lawyer and retired pharmaceutical and aerospace executives. They didn’t notice what was going on, something that Wells Fargo’s lawyer pointed out four times in just a few minutes at a hearing last month in Los Angeles.

So should Mr. Horn’s clients have seen this coming? Perhaps not. But could they have? In hindsight, there were four signs that things weren’t quite right.

BROKER BRAGGING Mr. Horn reportedly bragged on the Braemar Country Club golf course in Tarzana, Calif., about his trades and then pulled paper records out of the trunk of his car in the country club parking lot to back up his boasts.

This is objectively odd behavior. Pitches should take place in an office or at a meeting spot of a potential client’s choosing, over a sober deck of PowerPoint slides perhaps.

And if financial advisers are going to toot their own horns about the good they’ve done for others, you should be hearing about how they persuaded clients not to sell all of their stocks in the first quarter of 2009 when stocks were at their nadir, even though they desperately wanted to. Or you should be hearing that the adviser regularly informs clients of perfectly legal tax-saving maneuvers that they never even knew about. And you should be looking for an emotionally intelligent counselor who can negotiate a truce between you and your spouse over spending disputes.

If brokers want to brag about past performance, however, ask them this: Can you show me audited, long-term results across every part of all of your clients’ portfolios? And can you guarantee that your good calls were related to skill and not luck?

BROKER TRADING The couple who suffered the most losses had multiple accounts with Mr. Horn, and their monthly statements, in aggregate, often ran more than 300 pages. Mr. Horn hid his in-and-out trading among all that verbiage.

Like it or not, if you’re putting your money in somebody else’s hands, you have the responsibility to read every line of your statements every month. People like Mr. Horn, who was a friend to many of his clients until he wasn’t, count on the fact that you won’t.

“I think the victims were picked because they weren’t paying attention to their accounts, because each and every trade was documented,” said Stephen Young, Wells Fargo’s outside counsel in this case, according to a court transcript of a sentencing hearing in January.

Then if there is a lot of trading going on, you have the right to ask why. In a 1999 paper in the American Economic Review titled “Do Investors Trade Too Much?” Terrance Odean, now a professor the Haas School of Business at the University of California, Berkeley, answered in the affirmative.

His 1999 research, which examined a group of discount brokerage customers, found that on average the things investors buy actually underperform the things they held in the first place. Their returns are reduced through trading.

In a 2009 paper that Mr. Odean wrote with three others, the group tried to figure out exactly how much individual investors lose by trading. Using data from Taiwanese investors, they determined that the answer was a whopping 3.8 percentage point penalty annually on overall portfolio performance. In an e-mail this week, Mr. Odean said that he believed that these conclusions could be extended to brokers trading actively for their clients, though he has never studied this explicitly.

Twitter: @ronlieber

Article source: http://www.nytimes.com/2013/02/02/your-money/four-signs-that-its-time-to-find-a-new-broker.html?partner=rss&emc=rss

DealBook: S.E.C. Moves Against Day-Trading Broker

SHANGHAI — The Securities and Exchange Commission has revoked the license of a Canadian brokerage firm over failing to prevent overseas day traders that used its system from manipulating stocks in the United states.

The firm, the Biremis Corporation, worked with more than 5,000 day traders in 30 countries, including China, Nigeria and Uzbekistan, allowing them to trade stocks in the United States and other markets. Biremis, which is affiliated with Swift Trade of Canada, lost its license in the United States and its two owners were barred from the securities industry.

Most of Biremis’s trading operations are based in China, where there are few regulations covering overseas trading.

The S.E.C. said on Tuesday that from 2007 to 2010, day traders working with Biremis engaged in manipulative practices known as “layering,” “gaming” or “spoofing,” which involved entering trades with no intention of executing them, simply to trick other buyers and sellers into trading at unfavorable prices. The S.E.C. said Biremis and its owners ignored red flags and warnings about manipulative trading and did not act to stop it.

The firm helped manage one of the world’s largest groups of day traders — people who speculate on stocks by buying and selling on the same day.

In recent years, United States and Canadian trading firms like Swift, Hold Brothers and Title Trading had been recruiting young people in China to use the companies’ software and capital that they supplied to make money on securities listed in the United States and other markets.

Exactly how the day traders could make money trading in overseas markets was a mystery to many trading experts, since there is fierce competition and trading fees could mount.

Biremis traders had access to about $2.4 billion in buying power in 2009, according to the S.E.C. But the broker had been sanctioned by regulators in several countries, including Canada and Britain.

Peter Beck, 57, and Charles Kim, 40, the owners of Biremis, were fined $250,000 each and barred from the industry. Mr. Beck also helped found Swift Trade.

Mr. Beck and Mr. Kim could not be reached for comment early Wednesday.

Article source: http://dealbook.nytimes.com/2012/12/19/s-e-c-moves-against-day-trading-broker/?partner=rss&emc=rss

DealBook: Nomura Seeks to Save $1 Billion by Scaling Back Mainly in Europe

Nomura also eliminated 1,000 jobs last year as part of a cost-cutting.Simon Dawson/Bloomberg NewsNomura also eliminated 1,000 jobs last year as part of a cost-cutting.

8:38 p.m. | Updated

TOKYO — Nomura Holdings, the scandal-hit Japanese investment bank, outlined a broad reorganization plan on Thursday that would pare back its business to a shadow of what it held after acquiring parts of Lehman Brothers in 2008.

Most of the $1 billion in cuts, initially announced last week, will be made abroad. They are driven by a grim outlook for the global economy, Koji Nagai, Nomura’s new chief executive, told analysts and investors at the company’s headquarters in Tokyo.

Nomura’s operations in Europe, which will account for 45 percent of the cost savings, and the Americas, which will account for 21 percent, will take the brunt of the cutbacks, the bank said.

Though Mr. Nagai declined to specify the number of jobs Nomura would eliminate, the company said it would shave $450 million from personnel expenses. Other cuts would come from savings made by optimizing spending on information technology, the bank said.

“We will take stock of the company from the roots upward and rebuild,” Mr. Nagai said.

It has been a swift and striking fall for Nomura. For a nominal sum, it bought the Asian and European operations of Lehman Brothers, the American brokerage firm that failed in 2008, and set out to build a global investment franchise.

But that acquisition saddled Nomura with huge personnel costs, and the task of marrying two vastly different corporate cultures undermined efforts to capitalize on Lehman’s talent pool.

Many top Lehman executives left Nomura, and it was forced to cut costs and try to end the hemorrhaging of money in its wholesale operations, which include equities, fixed income and investment banking. Nomura’s foreign operations have lost money for nine consecutive quarters.

One of the last Lehman executives at Nomura, William Vereker, stepped down this week as joint head of investment banking. He is widely expected to leave the company soon.

Compounding the problems, an insider trading scandal in Japan this year led Nomura to replace its chief executive, Kenichi Watanabe, who had handled the bank’s takeover of Lehman and had pushed for global expansion. His successor, Mr. Nagai, had been head of the Japanese domestic securities unit.

Under Mr. Nagai, the bank is narrowing its global aspirations and will focus closer to home in Asia, where it can better leverage its dominant position in Japan, senior executives said.

“When the global economy comes back, the recovery will start in Asia,” Atsushi Yoshikawa, Nomura’s new chief operations officer, said, “so we place great weight on Asia. But we have no plans to make aggressive investments like the kind we’ve made in America over the past three years. We intend to make good with what we have.”

The latest retrenchment comes on top of a $1.2 billion cost-cutting Nomura struggled through last year. That effort eliminated 1,000 jobs.

The company plans to scrutinize sectors or businesses that perform poorly for two years in a row. Nomura’s electronic brokerage unit Instinet, which it bought in 2006, will handle most equities execution outside Japan.


Hisako Ueno contributed reporting.

A version of this article appeared in print on 09/07/2012, on page B5 of the NewYork edition with the headline: Nomura Seeks to Save $1 Billion By Scaling Back Mainly in Europe.

Article source: http://dealbook.nytimes.com/2012/09/06/nomura-outlines-1-billion-restructuring/?partner=rss&emc=rss

DealBook: Nomura Details a $1 Billion Restructuring

The London headquarters of Nomura Asset Management. The Japanese investment bank's operations in Europe will take the brunt of cutbacks.Simon Dawson/Bloomberg NewsThe London headquarters of Nomura Asset Management.

TOKYO — Nomura Holdings, the scandal-hit Japanese investment bank, outlined a broad restructuring plan on Thursday that would pare back its business to a shadow of what it held after acquiring parts of Lehman Brothers in 2008.

Most of the $1 billion in cuts, initially announced last week, will be made abroad, and they are driven by a grim outlook for the global economy, Koji Nagai, Nomura’s new chief executive, told analysts and investors at the firm’s headquarters in Tokyo.

Taking the brunt of the cutbacks will be Nomura’s operations in Europe, which will account for 45 percent of the cost savings, and the Americas, which will account for 21 percent, the firm said.

Though Mr. Nagai declined to say how many jobs Nomura would eliminate, the company said it would shave $450 million from personnel expenses. Other cuts would come from savings made by optimizing spending on information technology, according to the bank.

“We will take stock of the company from the roots upward and rebuild,” Mr. Nagai said.

It has been a swift and striking fall for Nomura. For a nominal sum, it snapped up the Asian and European operations of Lehman Brothers, the American brokerage firm that failed in 2008, and set out to build a global investment franchise.

But that acquisition saddled Nomura with huge personnel costs, and the daunting task of marrying two vastly different corporate cultures undermined efforts to capitalize on Lehman’s talent pool.

Many top Lehman executives left Nomura, and the firm was forced to cut costs and try to end the hemorrhaging of money in its wholesale operations, which include equities, fixed income and investment banking. Nomura’s foreign operations have lost money for nine consecutive quarters.

One of the last Lehman executives at Nomura, the top deal maker William Vereker, stepped down this week as joint head of investment banking, He is widely expected to leave the company soon.

Compounding the problems, an insider trading scandal in Japan this year led Nomura to replace its chief executive, Kenichi Watanabe, who had handled the bank’s takeover of Lehman and had pushed for global expansion. His successor, Mr. Nagai, had been head of the Japanese domestic securities unit.

Under Mr. Nagai, the bank is narrowing its global aspirations and will focus closer to home in Asia, where it can better leverage its dominant position in Japan, senior executives said.

“When the global economy comes back, the recovery will start in Asia,” Atsushi Yoshikawa, Nomura’s new chief operations officer, said, “so we place great weight on Asia. But we have no plans to make aggressive investments like the kind we’ve made in America over the past three years. We intend to make good with what we have.”

The latest retrenchment comes on top of a $1.2 billion cost-cutting effort Nomura struggled through last year. That effort eliminated 1,000 jobs.

Mr. Yoshikawa said Nomura would bolster the profitability of its wholesale banking business and look to fixed income to drive its business. Nomura will also streamline its investment banking operations and focus on deals in sectors where the firm retains some traction, like finance and retail.

The company plans to scrutinize sectors or businesses that perform poorly for two years in a row. Nomura’s electronic brokerage unit Instinet, which it bought in 2006, will handle most equities execution outside Japan.

Nomura will wrap up the latest restructuring effort by March 2014, it said, and will aim for pretax profit of 250 billion yen ($3.2 billion) in the fiscal year that ends in March 2016. Of that amount, 75 billion yen would come from its domestic wholesale division and 50 billion yen from wholesale operations overseas.


Hisako Ueno contributed reporting.

Article source: http://dealbook.nytimes.com/2012/09/06/nomura-outlines-1-billion-restructuring/?partner=rss&emc=rss

You’re the Boss: Pitching a Brokerage Service for Canceled Weddings

Make Your Pitch

Film your business plan and send it to us.

In my last post, I reviewed an organic cigarette company that wanted to appeal to socially conscious hipster smokers. This week, I review a pitch from a woman with an unusual take on the bridal market — a broker of canceled weddings.

You can view the original video pitch and my review of the pitch below.

Here’s the original:

And here’s my review:


First, I want to say that I am thrilled to have a pitch from a female entrepreneur. While women are starting more businesses, the majority of those businesses are small in scope and don’t rise to the level that would warrant significant investment. Women are less likely to seek financing of any sort, which means that their businesses typically end up being a fraction of the size of businesses started by men (both in revenue and profits).

In this case, Lauren Byrne gives a short and focused pitch about the money left on the table from canceled weddings and the opportunity for a brokerage firm to grab some of it. She notes some critical numbers in the pitch, including a $40 billion wedding industry with 250,000 canceled weddings every year. In these situations, the brides- and grooms-to-be lose some or all of their wedding-related deposits — even though, she argues, there are value-driven and hurried individuals who would love to buy someone else’s wedding plans at a discount.

While I give Ms. Byrne credit for addressing some of the issues upfront, I am not sure the opportunity is large enough to attract an investor. If there are 250,000 canceled weddings a year, what percentage could she realistically capture? And how much could a broker make per wedding? If you capture 2 percent of 250,000 weddings, that would be 5,000 weddings a year. Even if the broker makes $500 a wedding, on average, that’s only $2.5 million in revenue. And how do we know the supply doesn’t exceed demand?

I also have questions about scalability. There are thousands of wedding planners throughout the United States who work with brides and grooms. This opportunity might be better served through local brokers (including planners), who have relationships and local knowledge, rather than through a nationwide platform.

I also wonder how many weddings are canceled far enough in advance to find a seller (as opposed to those brides and grooms who get cold feet within a week of heading to the altar)? Plus, how much leg work would go into trying to sell weddings that wouldn’t ultimately find buyers?

And if Ms. Byrne is committed to the platform, how is she going to market it to reach the brides and grooms? That is one of several details lacking in the pitch. There is little information about the team, Ms. Byrne’s background or any connections that would make her entry and position in this market more successful.

Sometimes, when something doesn’t exist, it’s because there is no market for it (or a limited one at best). It is often a less risky proposition to tweak a business model that does exist than to try to create a new opportunity that requires spending time educating the market, which can be expensive.

I also want to call out an issue in the pitch that in my experience seems to plague women in particular — and that is the offering of a caveat. Ms. Byrne says in her pitch that the idea “may seem strange, but …” As an entrepreneur, it’s your job to sell, not to apologize. If there is an objection to overcome, rephrase it, but never call your idea strange, weird, small, uninteresting or any other negative — even if you are going to explain why that’s really not the case. When making a pitch, take a position of strength.

Ultimately, I would not take a second meeting on this concept, but I do think Ms. Byrne could bolster the pitch and remove a lot of risk by proving the concept. It shouldn’t take a lot of capital to get this going on a small scale, which would produce a track record and could change the dialogue entirely. However, I have a more important question for Ms. Byrne, which is, “Is this opportunity big enough to be worth it?”

If you are going to spend your money, time and effort on a business, does this one have enough upside? If not, you might want to cancel your attachment to this idea and find a different opportunity to marry.

What do you think?

Carol Roth is a business strategist who has helped clients raise more than $1 billion in capital. You can follow her on Twitter.

Article source: http://boss.blogs.nytimes.com/2012/09/05/pitching-a-brokerage-service-for-canceled-weddings/?partner=rss&emc=rss

CME Curtails Charitable Giving After MF Global Collapse

Investigators are still searching for hundreds of millions of dollars of customer money that CME says was improperly siphoned off in the brokerage firm’s final days to meet its escalating liquidity needs.

Last month, the CME Group said it would give former MF Global customers the entire $50 million held by the CME Trust, which was originally intended to help traders caught out by a broker default but which in recent years has been a mainstay of the CME’s charitable giving.

“CME Group will continue to honor some previous trust commitments going forward, even after the $50 million is paid out,” said a CME spokeswoman, Laurie Bischel. “Though the CME Trust will be used to help customers of MF Global, CME Group remains committed to our communities and will continue to provide support to charitable organizations as possible through our other programs and corporate foundations.”

She declined to specify the level of future grants, and it was unclear if other programs could partly or fully make up the loss of the trust’s contributions. The firm’s charitable giving has gone up and down through the years.

The CME Trust was established in 1969 to provide financial assistance to customers if a brokerage became insolvent.

Federal rules requiring brokers to keep client money separate from their own made the prospect of customers actually losing money in a broker default seem so remote that in 2005 the CME’s board voted to turn the trust into a charitable foundation.

In 2008, after giving millions of dollars to local institutions, the trust began the CME Group Foundation with a $16 million grant, and pledged to make annual donations to support grant-making. The foundation has become the CME’s biggest charitable giver, contributing more than $6 million last year alone.

But on Oct. 31, the day MF Global filed for bankruptcy, the firm’s executives made what regulators have since said was a shocking disclosure: that money had been moved from customer accounts to MF Global’s accounts, and was now missing. In mid-November, the CME board voted to turn the CME Trust back to its original purpose.

The CME Group operates the Chicago Board of Trade, the Chicago Mercantile Exchange and the New York Mercantile Exchange, and only its own customers will be eligible for reimbursements.

Money is to be paid out only after the bankruptcy trustee determines that client money is really gone. The CME’s executive chairman, Terrence A. Duffy, this month estimated the shortfall at $700 million to $900 million.

Article source: http://feeds.nytimes.com/click.phdo?i=e1688dacc55ffc162c4e543caf46d5b4