fixed income

Small-Business Guide: Sell a Business to Cover Retirement? Don’t Count on It

July 24, 2013 by NewsMaker Leave a Comment

Still, he did not realize just how much of a toll running a business would take on his personal finances. For four years, Mr. Lewis, the founder of eHealthcare Solutions, an online advertising network that is based in Ewing, N.J., and represents health care Web sites, took home about $20,000 a year and had to deplete his retirement savings account.

“It was draining to watch that savings go down,” he said.

But as soon as he was able, he started saving again. Unfortunately, many business owners never reach that point. One study found that 40 percent of business owners had no retirement savings. For many reasons, saving for retirement is difficult for owners, but perhaps the biggest mistake many make is assuming that they do not need to save — that one day they will sell their businesses and live off the proceeds.

Many businesses simply cannot be sold, and others end up being sold for far less than expected, said Randy Gerber, founder of Gerber L.L.C., which helps business owners manage their personal finances. And even if a business can be sold, he said, owners often have an unrealistic notion of how much it might be worth. That is why a potential sale should not be an owner’s only plan for retirement.

PLAY IT SAFE By definition, business owners take a lot of risk in their professional lives because much of their net worth is tied up in one asset, typically as much as 65 to 85 percent, according to Rob Pettit, a high-net-worth planner at TD Wealth.

For this reason, they are often advised to follow two rules with the money they manage to save: invest conservatively and diversify. Following that advice, however, does not come naturally to all business owners. Many are eager to invest in stocks and do not want to consider fixed-income securities.

When Mr. Lewis started investing in the stock market, he bought mostly health care and pharmaceutical companies, industries he is exposed to through his business — a common mistake.

“It seemed to make sense for me to invest in health care because I know it so well,” he said. “Most of my business is tied up in that sector.” He eventually realized that it would be wise to change that approach, and he now owns shares in technology, oil and gas and financial companies.

Mr. Gerber, whose financial management firm is based in Columbus, Ohio, said he believed that assets that are liquid, have low volatility and generate income were generally an entrepreneur’s best bet. Many of his clients own corporate bonds that can either be sold quickly or held to maturity, and mutual funds that invest in equities and pay dividends. He avoids mutual funds that invest in bonds, he said, because when interest rates rise, they lose value.

CUT YOUR OWN PAY? When times get tough, many owners stop saving for retirement. They either forgo salary altogether or reduce their pay. That can be a mistake, said Ellie Byrd, founder and chief executive of ForumSherpa, a business based in Atlanta that offers executive leadership and training courses.

Ms. Byrd used to run a software training company. In 2000, she stopped taking a salary, and a year later, she found herself $500,000 in debt. With no income, she could not contribute to a savings plan — or pay her bills. When a business struggles, deciding not to pay yourself may seem a natural reaction, but it can obscure larger issues.

In retrospect, Ms. Byrd says she believes she should have laid off staff members and made other adjustments before stopping her own pay.

Mr. Gerber said owners should stop saving only if it is clear the business can be turned around. If not, there probably are bigger problems, and stopping saving isn’t going to solve them. “You often have to do some real soul searching to figure out why the business is struggling,” he said.

Of course, there are times when it makes sense to hold off on saving personally to invest more in the company. In these instances, Mr. Gerber said, the business should be running smoothly, and the investment should promise a healthy return. He likes to see an investment, like a new piece of equipment, generate a return that is three times greater than can be gained in stocks or bonds. If it cannot do that, he advises putting the cash in a personal account.

BUY THE BUILDING Although Lenny Verkhoglaz invests in an individual retirement account, he thought he should hold more than just stocks and bonds in his overall portfolio. In 2006, Mr. Verkhoglaz, the founder of Executive Care, which is based in Hackensack, N.J., and provides in-home health care to the elderly, bought the building that holds his offices.

When he retires, he plans to sell his company and the building together. He holds the building in a separate company for rent-related purposes but thinks he will get a better price by selling the two assets together. “If I sell the company without the building,” he said, “the value of the real estate may go down if the company moves out and another tenant doesn’t take its place.”

Even so, Mr. Gerber suggests keeping ownership of the company and the building separate. That makes it possible to sell the company and keep the real estate, collecting rent from a new occupant. A separation can also limit liability, Mr. Gerber said.

There is another advantage to owning your own building: you do not have to deal with a landlord, rising rent of eviction threats. And you have a dream tenant: yourself.

KNOW YOUR BUSINESS’S WORTH If selling your business is any part of your retirement plan, Mr. Gerber said, it is essential to know what your business is worth. And it is important to start tracking its value long before you plan to sell.

Mr. Gerber suggests hiring a professional who can figure out the current value of your company. Then determine how much money you will need to live the lifestyle you want. Most important, think about whether you will be able to increase the value of your business enough to match that retirement number.

At age 43, one of Mr. Gerber’s clients decided he wanted to retire at 50. To do so, he determined, he would need to build his business to $20 million in revenue from $10 million. Doing that meant finding new channels to sell his products. It is working, Mr. Gerber said, but if not, he would have to think about retiring later. “It’s about the math,” he said. “It needs to be clear.”

Business owners also must be prepared to sell early if their business or their industry starts to slip. Another of Mr. Gerber’s clients was in a sector that was consolidating quickly. She received an offer on her business that was far less than she believed it was worth, but she decided to take it, knowing that it would be tough to compete against the big players beginning to dominate the market. “If you think the number will get worse and not better,” he said, “then get out when the getting’s good.”

Article source: http://www.nytimes.com/2013/07/25/business/smallbusiness/sell-a-business-to-cover-retirement-dont-count-on-it.html?partner=rss&emc=rss

Filed Under: Small Business Tagged With: fixed income, investing in the stock market, net worth

DealBook: Quarterly Profit Doubles at Goldman Sachs

July 16, 2013 by NewsMaker Leave a Comment

Brendan Smialowski/Agence France-Presse — Getty ImagesLloyd Blankfein, chief of Goldman Sachs, at the White House in February.

Goldman Sachs posted second-quarter profit on Tuesday that was twice what it reported in the period a year earlier, fueled by strong trading and investment banking results.

Net income was $1.93 billion, or $3.70 a share, compared with $962 million, or $1.78 a share, in the period a year earlier. It was also well ahead of analysts’ expectations of $2.82 a share, according to Thomson Reuters.

Bucks Blog: One Perspective on the Best Places to Retire

May 8, 2013 by NewsMaker Leave a Comment

Associated Press A woman shovels snow after a spring storm in Fargo, N.D.

When people dream of places where they’d like to retire, chances are that North Dakota is not at the top of the list. Or South Dakota, for that matter.

Not that there’s anything wrong with those states. It’s just that prospective retirees tend to think more about warmer climates. North Dakota, by one measure, is the coldest state in the continental United States. Bismarck, the state’s capital, just had a blizzard in April.

Yet, the state makes a list of the 10 “unexpectedly best” states for retirement, according to Bankrate.com. The top 10 states, in descending order, are Tennessee, Louisiana, South Dakota, Kentucky, Mississippi, Virginia, West Virginia, Alabama, Nebraska and North Dakota.

The financial Web site crunched a variety of data on the cost of living, taxes, health care, crime and climate to come up with the ranking. Access to health care, for instance, was measured by the number of hospital beds per 1,000 people, using data from the Kaiser Family Foundation.

By that measure, North Dakota scores well — it has five beds available for every 1,000 people, which ties it for second place nationally. So “if you can handle the cold,” Bankrate says, it may be a good place to consider.

Other states on the list are notably warmer, like Alabama and Mississippi.

Chris Kahn, a statistics analyst with Bankrate, said any sort of relative ranking was bound to draw criticism because people had different ideas about what they wanted in retirement. But the point of the list, he said, is to have people on fixed incomes — as many retirees are — consider what areas might actually make financial sense.

“Florida is beautiful, and so is Arizona,” he said, naming two states known for their warm climates and retirees. “But if you’re on a fixed income, looking at other factors is a smart thing to do.”

There will always be tradeoffs. Tennessee, for instance, has the second lowest cost of living, an attractive climate and scores well on access to health care, too. The drawback is a relatively high crime rate, Bankrate said.

Some people might prefer California, despite its higher cost of living. The state ranks fourth on Bankrate’s list of “bad” states for retirement. So if you choose to go there, “have your financial house in order before you go,” he said.

You can check Bankrate’s full list to see where your preferred state ranks.

What do you think is the most important factor in choosing a location for your retirement?

Article source: http://bucks.blogs.nytimes.com/2013/05/08/one-perspective-on-the-best-places-to-retire/?partner=rss&emc=rss

Filed Under: Your Money Tagged With: continental united states, fixed income, warm climates

The Boss: Hearing Health Foundation’s Chief, on Never Turning Away

March 16, 2013 by NewsMaker Leave a Comment

Having a family member with a disability was not easy. I saw how hard it was to navigate in a wheelchair, and that people were often condescending. They’d address my father when they had a question for my mother. She’d tell them, “You can speak to me.”

I also see that happening today to those with hearing loss. People sometimes think that someone who can’t hear has trouble processing information, so they address someone else instead.

I majored in religion at Temple University. In my junior year, I studied in Rome. It was one of the best experiences of my life. I remember how my classmates and I would go to an all-night bakery for chocolate croissants that had just come out of the oven.

After graduating in 2000, I worked at a synagogue for a year as the executive assistant to the clergy, then moved to New York University as special events manager and coordinator for the dean of the College of Arts and Science. While at N.Y.U., I enrolled for a master’s in education. I learned from the dean that the way to be a fund-raiser was to find out what was meaningful to people invested in our community and to get them more involved. Asking for money goes only so far.

In 2006, I went to work for Bear Stearns as a fixed-income corporate marketing and events manager for a year. I wanted to work for a nonprofit group, and in 2007 I was offered the position of chief operating officer at the Hearing Health Foundation. I was promoted to executive director in 2010.

Until September 2011, we were known as the Deafness Research Foundation. But we wanted our name to cover the full range of hearing loss, as opposed to how people thought of deafness years ago. Most of our constituents would probably say that they have hearing loss or hearing impairment but would not say that they’re deaf.

We fund hearing research. Our emerging research grants program pays for research at a junior level. We hope that two years after receiving our help and collecting their data, researchers will receive funding from the National Institute on Deafness and Other Communication Disorders. We also hope to encourage scientists to enter the field of hearing research.

My grandmother had terrible difficulty hearing but refused to get a hearing aid. When talking to her, everyone in the family yelled, trying to be heard. I remember holiday dinners when she’d deliberately look down and stare at her hands.

Once I tried to start a conversation with her, but she said, “Honey, it’s just too hard for me to hear with all this going on.” I realized that she avoided making eye contact so that no one would try to engage her in conversation. It broke my heart. I hear such examples again and again when I talk to people with hearing loss.

In the 1960s, we funded some of the initial studies on cochlear implants, and last year we started the Hearing Restoration Project, in which researchers are working on a cure for hearing loss. We’ve learned that chickens can recover their ability to hear and that mice can recover partial hearing. We believe that scientists can achieve the same results for people.

As told to Patricia R. Olsen.

Article source: http://www.nytimes.com/2013/03/17/jobs/hearing-health-foundations-chief-on-never-turning-away.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: classmates, fixed income, new york university

DealBook: Deep Cuts Raise Questions About Morgan Stanley

January 10, 2013 by NewsMaker Leave a Comment

Shannon Stapleton/ReutersMorgan Stanley‘s headquarters in Manhattan. The bank plans to cut 6 percent of its institutional securities unit staff.

When Morgan Stanley’s top executives gathered in mid-September at the Gramercy Park Hotel in Manhattan to discuss strategy, some participants complained that the room was too small.

Apparently, that was the point: James P. Gorman, Morgan Stanley’s chief executive, chose the cramped quarters to force discussion among the executives, said people briefed on his decision but not authorized to speak on the record.

These days, it is the Wall Street firm that is finding itself a bit boxed in.

Regulatory demands, weak markets and lower credit ratings have weighed on all banks, but perhaps more so on Morgan Stanley, the smallest of the big Wall Street firms. In the three years that Mr. Gorman, 54, has been at the helm, the bank has been progressively shrinking its business of trading bonds, commodities and other investments and expanding into wealth management.

Now the storied company — whose take-no-prisoners trading desks have at times been rivaled only by firms like Goldman Sachs — is cutting even deeper, raising questions among some on Wall Street about whether it should spin off or ditch much of its trading business as its Swiss rival UBS has, a suggestion the firm eschews.

Morgan Stanley is planning another deep round of cuts: 1,600 jobs, accounting for 6 percent of its support work force, and, more telling, 6 percent of institutional securities, which includes its once vaunted trading business.

The planned cuts come just a week ahead of the release of fourth-quarter earnings, which are expected to show the gains the firm has made since the financial crisis in areas like stock trading, banking and wealth management but still will be weighed down by the diminished earnings power of its fixed income business.

Whether the company can avoid shrinking further — and a number of analysts say that additional cuts will be needed — and revive the fixed-income trading business will have significant ripple effects in the financial world.

While the strategy of cutting in some places and building out wealth management may lead to a more stable company, the retreat also means that the fixed-income trading business over all is becoming increasingly dominated by two Wall Street banks — JPMorgan Chase and Goldman — as well as by hedge funds and other investment firms that are more lightly regulated than banks like Morgan Stanley.

Before the financial crisis, the fixed income division at Morgan Stanley, which was created by J. P. Morgan partners when Depression-era laws forced them to split banking from trading, was one of the firm’s biggest moneymakers. Now, it is a drain on operations, producing just 20 percent of its revenue but tying up roughly half of its capital.

In recent years, the fixed-income department has not been able to make enough money to cover the cost to Morgan Stanley of this capital, according to people briefed on the matter but not authorized to speak on the record.

The fallout can be seen in compensation: a year ago, 110 of the roughly 500 managing directors in sales and trading did not get a bonus, and that number is expected to grow next week when bonuses are handed out.

Still, Mr. Gorman has received high marks from some on Wall Street for playing a difficult hand in the wake of the financial crisis. On Wednesday, he received a big vote of confidence when Daniel S. Loeb’s hedge fund told investors that it was taking a stake, saying that Morgan Stanley was “in the early innings of a turnaround.”

Still, hobbled by the new realities on Wall Street, that turnaround has so far proved to be a Sisyphean task.

The stock, said the shareholder Christopher Grisanti, has “languished.” Mr. Grisanti is the owner and co-founder of Grisanti Capital Management, which owns 690,000 shares of Morgan Stanley, valued at $13.5 million.

While the stock has risen since Mr. Grisanti bought it, it is down almost 40 percent since Mr. Gorman took over in January 2010, and big shareholders like the Bank of Tokyo-Mitsubishi UFJ of Japan, which holds a 22 percent stake valued at $8.5 billion, have had little in the way of returns. Morgan Stanley’s return on equity, Wall Street’s main benchmark of profitability, is 6 percent, down from 23.8 percent in 2006.

Morgan Stanley’s board, said people briefed on the matter, has discussed closing its fixed-income department. Instead, the firm is shrinking the unit, arguing that it is important to offer its customers those trading services. By cutting jobs and costs and exiting lines like structured products and other complex financial investments and focusing on less risky, less capital-intensive businesses like the trading of interest rates, executives contended that the division can generate a healthy return.

“We are not going to pull a UBS,” the senior executive Colm Kelleher told a private dinner of Morgan Stanley shareholders at Oceana restaurant in Midtown Manhattan.

A Morgan Stanley spokesman, Wesley McDade, said the firm was optimistic about its prospects.

“In 2013, we expect to benefit from the many strategic decisions we have taken, including an aggressive move into wealth management, a further strengthening of our pre-eminent equities and investment banking franchises, and the repositioning of our fixed income business to meet the realities of the new world,” he said.

Morgan Stanley wants to achieve a return on equity of 10 percent in the near term, and it is making progress as it continues to shed both employees and risky assets. Longer term, Morgan Stanley is shooting for a return on equity in the middle teens, according to people briefed on the matter but not authorized to speak on the record.

Critics said Morgan Stanley executives initially moved too slowly to cut business lines, and set unrealistic revenue goals for the division that were never met.

Recently, Mr. Gorman tapped one of his bankers, John Pruzan, to be his eyes and ears in meetings about the revamping of the department. Even that move was not without controversy, though. Some executives in that department, including the fixed income chief Kenneth deRegt, felt it added an unnecessary layer of management.

At the same time, while trying to squeeze risk out, it has taken some surprising ones, hiring for instance a powerful and controversial trader to run its rates desk, a primary center of growth for the fixed-income department. That trader, Glenn Hadden, is under investigation by a key regulator for his trading in Treasury futures. In 2009, he was put on leave at Goldman because of a separate trading incident.

Through Mr. McDade, the Morgan Stanley spokesman, Mr. Hadden declined to comment. A lawyer for Mr. Hadden also declined to comment, but has said that his client did not engage in manipulative activity.

The firm Mr. Gorman runs bears little resemblance to the one that existed before the financial crisis. Mr. Gorman’s predecessor, John J. Mack, pushed risk-taking, leading to a $9 billion loss in 2007, one of the largest single trading losses in history, as well as billions of dollars in additional losses because of exposure to bond insurers.

These events nearly crippled the firm, and Morgan Stanley was forced to sell a piece of itself to Mitsubishi, which injected $9 billion into the firm. Not long after, in January 2009, Morgan Stanley made another important strategic investment, combining its wealth management operations with Citigroup in a joint venture that gave Morgan Stanley control.

Still, just weeks after taking over as chief, Mr. Gorman took the stage at a Hilton in Midtown Manhattan on a cold winter day to assure a standing-room-only crowd of investors that maintaining the firm’s position as one of Wall Street’s most powerful investment banks was a top priority for him.

Even in early 2010, however, it was clear to many inside the firm that he would have his work cut out for him.

Every Wednesday, executives from various corners of the bank who belonged to what was known as the asset liability committee would meet at noon to examine the cost to the firm of everything from looming credit-rating downgrades to regulatory changes.

“It was the most depressing meeting ever,” said one attendee who spoke on the condition of anonymity. “It was very clear the Morgan Stanley we knew was never coming back.”

Article source: http://dealbook.nytimes.com/2013/01/09/deep-cuts-raise-questions-about-morgan-stanley/?partner=rss&emc=rss

Filed Under: Economy News Tagged With: fixed income, gorman, shannon stapleton

DealBook: For Wall Street, Real Pain When the Fed Fails to Act

August 3, 2012 by NewsMaker Leave a Comment

Karen Bleier/Agence France-Presse — Getty ImagesBen Bernanke, chairman of the Federal Reserve.

Looks like the central bankers just destroyed Wall Street’s 2012 bonus season.

Both the Federal Reserve and the European Central Bank decided this week to hold off on any big new initiatives to stimulate markets and the sluggish economies of the United States and Europe. The lack of action may have a direct and painful impact on the chief source of revenue at investment banks on both sides of the Atlantic. Since the 2008 financial crisis, banks’ bond trading profits have soared when the Fed and the European Central Bank have announced, and then executed, radical moves to revive economic conditions. As that stimulus wanes, that trading income drops off.

The link between Fed stimulus and Wall Street earnings became apparent soon after the financial crisis of 2008. Faced with jittery markets and an economy that was not responding well to meeker modes of stimulus, the Fed bought $1.25 trillion of mortgage-backed bonds, mostly in 2009. In that year, Wall Street bond trading operations, which provide the bulk of profits at such firms, produced some of their strongest results ever. The five biggest trading banks in America together reported $78 billion of bond trading revenue in 2009, the year of “quantitative easing,” the term used for the Fed’s bond buying spree. Goldman Sachs’ fixed-income division reported revenue of $21.9 billion in 2009, up from $9.3 billion in 2008. But in 2010, as the Fed magic wore off, Goldman Sachs’ fixed income revenue fell to $13.7 billion.

Big trading banks are particularly well positioned to profit when central banks act aggressively. The firms help make markets in bonds and derivatives. When the banks’ clients see the Fed take bold steps, they feel encouraged and come off the sidelines to buy more bonds. This increases the amount of business that flows through Wall Street, but it also lifts the prices of the bonds the banks hold, creating profits for the traders. The banks also deliberately increase the size of their bond holdings when they are convinced that central bank actions will lift markets.

Since 2009, the Fed has carried out two additional, but lesser, monetary initiatives. The next time central bank stimulus appeared to have a strong impact on trading profits was in the first quarter of this year. To help European banks fund themselves, the European Central Bank provided cheap, emergency credit to the Continent’s lenders, first in December 2011 and then in February of this year. Investor sentiment rebounded, bonds rallied, and, on cue, fixed-income traders were soon racking up big profits.

Hannelore Foerster/Bloomberg NewsMario Draghi, president of the European Central Bank.

Deutsche Bank’s fixed-income revenue was $3.4 billion in the first quarter of 2012, up 225 percent from the fourth quarter’s $1 billion. Société Générale’s jumped 150 percent over the same period. In the United States, Morgan Stanley did particularly well in the first quarter. But soon the markets decided the European Central Bank had not done enough. Bonds sagged, and banks’ fixed-income revenue flagged. Morgan Stanley’s second-quarter fixed-income revenue was down 70 percent from the first quarter, while Société Générale’s halved.

Still, the central banks may yet act with force this year. Both the Fed and the European Central Bank made it clear this week that more forceful initiatives could happen later if economic and market stresses worsen. Many on Wall Street will be hanging on those assurances.

Article source: http://dealbook.nytimes.com/2012/08/02/for-wall-street-real-pain-when-the-fed-fails-to-act/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: bold steps, bond trading, fixed income

Fed Runs Risk of Doing Less Than Expected

September 19, 2011 by NewsMaker Leave a Comment

The central bank is often described as facing the choice of whether to do more to improve the economy. But the anticipatory behavior of investors means the Fed really faces a slightly different choice, one it has confronted often in recent years: whether to risk doing less than expected.

The overriding argument for action is the persistent weakness of the American economy, which has left more than 25 million Americans unable to find full-time work.

The Federal Reserve chairman, Ben S. Bernanke, who has made a series of unusual efforts to revive growth, has not discouraged speculation that he is ready to try again.

“I think the Fed has no choice but to act,” said Krishna Memani, director of fixed income at Oppenheimer Funds. “If the Fed were not to do anything having built market expectations to a pretty decent level, I think the markets would react quite negatively to that.”

But the Fed also faces mounting pressure against additional action, including strident criticism from Republican presidential candidates and divisions in the policy-making committee. Moreover, the options available to the central bank have less power to generate growth, a greater chance of negative consequences, or both, than those it has already tried.

Some close watchers of the central bank say investors’ behavior could let the Fed offer a token gesture now, postponing any larger move at least until its next meeting in November. After all, the Fed is reaping the benefits of action without the costs.

“There is no reason for the Fed to rush,” Lou Crandall, chief economist at Wrightson/ICAP, wrote in a recent note to clients predicting such an outcome. “It is in the Fed’s interest to milk the anticipation effect as long as possible.”

The move markets are anticipating is a new effort to reduce long-term interest rates, which would allow businesses and consumers to borrow more cheaply. Yields on the benchmark 10-year Treasury note fell to a record low of 1.88 percent at the start of last week, reflecting the Fed’s earlier efforts to lower rates and investors’ pessimism about the economy.

The hope is that an additional reduction in rates will provide a little more encouragement for companies to build factories and hire workers and for consumers to buy cars and dishwashers.

The Fed has held short-term rates near zero since December 2008, by increasing the supply of money.

To further reduce long-term rates, the Fed bought more than $2 trillion in government debt and mortgage-backed securities, reducing the supply available to investors and thereby forcing them to pay higher prices — that is, to accept lower interest rates.

The Fed could seek to amplify that effect by adjusting the composition of its portfolio, selling short-term securities and using the proceeds to buy long-term securities, which it predicts would further reduce rates.

An analysis by the forecasting firm Macroeconomic Advisers estimated that such an effort by the Fed could raise gross domestic product by 0.4 of a percentage point over the next two years, and create about 350,000 jobs. That is comparable to estimates of the impact of the central bank’s most recent aid campaign, the QE2, or quantitative easing, purchases of $600 billion in Treasury securities, which concluded in June.

Mr. Bernanke announced in August that the Federal Open Market Committee, the policy-making board, would meet for two days, extending its scheduled one-day meeting this week, to consider that and other options.

The Fed could take smaller steps, like promising to maintain current efforts longer. It may also consider options that could deliver a more powerful jolt to the economy, like increasing the size of its investment portfolio again. But more aggressive measures have little internal support.

The Fed, Mr. Bernanke said, is “prepared to employ these tools as appropriate to promote a stronger economic recovery in a context of price stability.”

He still commands a solid majority of his 10-member board despite the emergence of the largest bloc of internal dissent in two decades. Three members voted against the decision last month to declare an intention to hold short-term interest rates near zero for at least two more years, replacing a stated intention to maintain the policy for an “extended period.”

Jackie Calmes contributed reporting from Washington, and Eric Dash from New York.

Article source: http://feeds.nytimes.com/click.phdo?i=349bd1e505ec64b039b387b5e69e7cc7

Filed Under: Business News Tagged With: bernanke, federal reserve, fixed income

DealBook: Gundlach Found Liable for Trade Secret Theft, but Gets Back Pay

September 16, 2011 by NewsMaker Leave a Comment

Jessica Rinaldi/ReutersJeffrey Gundlach received a mixed verdict in his fight with TCW.

2:23 p.m. | Updated

A bitter corporate feud came to an end on Friday, as a jury found Jeffrey E. Gundlach, a star fixed-income manager, liable for breaching his fiduciary duty and stealing trade secrets at his former firm, Trust Company of the West.

But the jury delivered a mixed verdict as it also awarded Mr. Gundlach $66.7 million as the result of a counterclaim that he was owed fees from the funds he oversaw.

Jurors deliberated for just two days before finding Mr. Gundlach and three co-defendants liable for taking trade secrets from TCW, as Trust Company of the West is known, and breaching his fiduciary duty to investors. They awarded no damages to TCW on the breach claim.

The judge in the case will determine the damages in the trade secret claim.

The verdict, announced in Los Angeles County Superior Court, capped a trial that lasted nearly two months and captivated the mutual fund world. TCW had claimed that Mr. Gundlach and his associates took client information and proprietary trading systems in order to set up a competing firm, DoubleLine Capital, after he was fired in December 2009. The jury found that Mr. Gundlach had misappropriated that data, but found that he had not acted maliciously in doing so.

TCW gained an important symbolic win in the jury’s finding that Mr. Gundlach and his co-defendants were liable.

“We came in here focused on basic principles and wrongful conduct. We brought three claims, and the jury found liability on all three claims,” said Susan Estrich, a lawyer for TCW.

However, Mr. Gundlach’s lawyers pointed to the $66.7 million award as a victory.

“We are pleased that the jury agreed with us that neither Jeffrey Gundlach nor any of our clients did anything that resulted in monetary harm to TCW. We’re equally pleased that the jury awarded Mr. Gundlach and our other clients the wages that were owed to them,” said Brad Brian, a lawyer for Mr. Gundlach.

Mr. Gundlach, dressed in a pinstripe suit with a bright orange tie, was seated next to one of his co-defendants, Barbara VanEvery, as the verdict was read.

Although lawyers for both sides claimed victory after the verdict, some industry watchers said that the lack of damages for TCW’s claims meant the verdict had favored Mr. Gundlach slightly, although neither side had landed a knockout blow.

“This divorce has been messy, and it’s a good thing that the investment teams can now go back to managing portfolios without this distraction hanging over them,” said Miriam Sjoblom, a bond fund analyst with Morningstar. “To the extent DoubleLine shareholders were worried about damages from this suit impacting the resources of the firm, this verdict should assuage those fears.”

Mr. Gundlach was known as “the bond king” at TCW, where he worked for 24 years and was named fixed-income manager of the year in 2006 by Morningstar for his fund specializing in mortgage-backed securities.

As his star rose, former colleagues say Mr. Gundlach’s ego grew as well. Witnesses in the trial described him as a “cultural cancer” who berated colleagues and disparaged his bosses, Marc I. Stern and Robert A. Day, calling them “dumb and dumber.” In closing arguments, lawyers for TCW queued up a slideshow of some of Mr. Gundlach’s greatest hits, including e-mails in which he referred to himself as “the Pope” and referred to Philip A. Barach, his co-manager, as “the B team.”

After being fired from TCW in December 2009, Mr. Gundlach got DoubleLine up and running quickly, bringing more than 40 members of his fixed-income team over to the new firm. It has grown quickly, amassing $15 billion in assets in less than two years.

TCW, a unit of the French bank Société Générale, struggled in the immediate wake of Mr. Gundlach’s departure. The firm lost $25 billion in assets after Mr. Gundlach left, even though it acquired a competitor, Metropolitan West, to replace his team.

Today, TCW is on the mend. It has about 600 employees, and the firm’s assets under management have grown to $120 billion. In a fact sheet distributed to reporters during the trial, the firm claimed that it has gained “a more collegial, collaborative workplace culture” since firing Mr. Gundlach.

Mr. Gundlach, a math prodigy who has claimed he only does The New York Times crossword puzzle on Saturdays and Sundays because the other days are too easy, said in an interview last month that undergoing an ugly legal battle with his longtime firm had damaged his view of human nature.

“I didn’t realize how twisted people were,” he said.

The trial, which began in July, resembled a white-collar divorce case. Lawyers for TCW accused Mr. Gundlach of conspiring to sabotage his firm, comparing him to Gordon Gekko, the fictional buyout villain played by Michael Douglas in Wall Street. Mr. Gundlach’s lawyers, in return, asserted that TCW had plotted to fire him for months, and that it wanted to save money on the lucrative fees it owed him.

After the verdict was read, Judge Carl J. West thanked jurors for serving in the trial, which included long slogs through arcane financial terminology.

“It is an imposition, and you are to be commended for your service,” Judge West said, according to a live feed provided by CourtroomView.

TCW was represented in the case by the Los Angeles law firm Quinn Emanuel Urquhart Sullivan. Mr. Gundlach and his co-defendants were represented by Munger, Tolles Olson.

Article source: http://feeds.nytimes.com/click.phdo?i=cce63ff952043cef7a02a2ef4fc0d9df

Filed Under: Business News Tagged With: fixed income, jessica rinaldi, proprietary trading

Stocks Close Down Sharply Over Anxiety on Economy

August 18, 2011 by NewsMaker Leave a Comment

After declines in Asian and European markets, stocks in the United States opened sharply lower and continued to slide. The Standard Poor’s 500-stock index closed 53.24 points, or 4.5 percent, lower at 1,140.65. The Dow Jones industrial average fell 419.63 points, or 3.68 percent, to 10,990.58, and the Nasdaq composite was down more 131.05 points, or 5.2 percent, at 2,380.43.

The yield on the Treasury’s 10-year note fell below 2 percent for much of the day, the lowest level on record, as investors turned to the safety of fixed-income securities. Gold rose. Oil fell as markets lowered their expectations of global economic growth.

Financial stocks were down more than 5 percent as were other crucial sectors like energy stocks, materials and industrials.

Bank of America and Citigroup both closed more than 6 percent lower.

Investors have been anxious in recent weeks over the euro zone sovereign debt crisis and the pace of the global economy. On Tuesday, markets shed some of the gains that they had recovered in previous trading session that had propelled them to recover from steep losses the week before in the wake of the Standard Poor’s Aug. 5 downgrade of America’s long-term credit rating. Wednesday the market ended mostly flat.

But analysts have been under no impression that the underlying problems causing the volatility in the markets have receded, with some renewing the debate on an emerging recession.

And on Thursday the skittishness of investors was evident.

Investors were alarmed when a single bank, out of nearly 8,000 in the euro area, took advantage of a European Central Bank program that ensures institutions have ample access to dollars. The bank, which was not identified, borrowed $500 million on Wednesday from the central bank, a relatively modest sum. But it was the first time any bank had tapped the dollar pipeline since February.

A shortage of dollars for European banks was one of the features of the 2008 financial crisis.

Fears were inflamed further when The Wall Street Journal, citing people it did not name, reported on Thursday that United States regulators were scrutinizing whether European banks would be able to continue financing themselves.

“Currently many banks cannot access term-funding markets at reasonable rates,” analysts at Morgan Stanley said in a note. “As a result, commercial banks continue to tighten their credit conditions, albeit marginally, to both their corporate and retail clients. If these term-funding stresses continue well into the fall, the risks are rising that a lack of credit availability could dent domestic demand growth further.”

Some analysts counseled calm, saying that while there is clearly stress in the market it is still far from 2008 levels. “There is undoubtedly some tension around,” said Jon Peace, a banking analyst at Nomura in London. But he added, “I think the market is still overreacting to this funding issue.”

Bank funding rates in the United States have remained contained, but in Europe some stresses are appearing.

Interbank lending rates — a measure of banks’ willingness to lend to one another — have increased, though they are still below levels reached in 2008.

On Thursday, the Vix, a measure of stock market volatility, jumped sharply. It rose to 44.78 by the end of the day. The measure is sometimes called the fear index; Vix values above 30 are associated with high levels of market uncertainty and anxiety. The index rose during the turmoil last week but had eased over the last few days to just above 30 points.

The sharp drop in the equities market comes amid a period of high volatility that has been accentuated by low trading volumes, concerns over the euro zone sovereign debt and its potential impact on the banking sector, and recent data that has economists lowering their outlooks for global economic growth.

Another measure of funding stress, swap rates in foreign exchange markets where banks swap euros for dollars, now stand at around 82 basis points — double where they stood a few months ago, though still less than half of their levels in the depths of the 2008 crisis.

“It is a sign of risk aversion,” said Eric Green, an economist at TD Bank. “There is a lot of stress there.”

David Jolly, Graham Bowley and Jack Ewing contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=52b1689c25ff61f1e425969dfd069496

Filed Under: Business News Tagged With: energy stocks, fixed income, global economy

Jobless Claims Dip Lower, But Show Less Momentum

June 5, 2011 by NewsMaker Leave a Comment

The tepid fall in jobless claims signals companies may also be looking to limit hiring, raising the expectation that employment data due Friday will show that payroll gains moderated in May. Slowing job growth may cause households to further curb spending, which accounts for about 70 percent of the American economy.

“The job market has clearly lost momentum,” said John Herrmann, a senior fixed-income strategist at State Street Global Markets in Boston. “Jobless claims remain elevated, and payrolls growth for May could come in at a level that’s worrisome. The gains in confidence may be short-lived. From here on, confidence surveys may begin to reflect the broader sense of uncertainty in the economy, the labor market and the stock market.”

Stocks fell on concern the economic recovery was slowing. The forecast for jobless claims was based on a survey of 50 economists. Estimates ranged from 400,000 to 440,000. The Labor Department revised the previous week’s figure to 428,000 from the 424,000 initially reported.

Among the economists surveyed by Bloomberg, the median forecast was that payrolls grew by 170,000 workers in May. Payrolls increased by 244,000 in April.

A report released Wednesday from ADP Employer Services showed companies added 38,000 workers last month, the fewest since September and less than the median estimate in a Bloomberg survey.

“The labor market is a little less robust than it was,” said Michael Feroli, chief United States economist at JPMorgan Chase in New York. “This is the eighth consecutive week of claims above 400,000, so it doesn’t look like the move up was an aberration.”

Robert Brusca, president of Fact Opinion Economics in New York, said, “There is nothing in this weekly survey that gives us any confidence things are getting better. There is really not much improvement in the economy.”

Other reports from Thursday showed worker productivity slowed in the first quarter and orders to factories dropped in April.

The measure of employee output per hour increased at a revised 1.8 percent annual rate after a 2.9 percent gain in the prior three months, the Labor Department said. Labor costs climbed at a 0.7 percent rate after dropping 2.8 percent the prior quarter.

Demand for manufactured goods dropped 1.2 percent in April, the most since May 2010, after climbing 3.8 percent the prior month, figures from the Commerce Department showed.

Initial jobless claims reflect weekly firings and tend to rise as job growth — measured by the monthly nonfarm payrolls report — decelerates.

Lower gasoline prices may be giving households some relief. The average price of a gallon of regular gasoline nationally dropped to $3.79 on May 29, down from $3.84 a week earlier, according to AAA, the nation’s largest auto club. It reached $3.99 on May 4, the highest since July 2008.

Article source: http://feeds.nytimes.com/click.phdo?i=cbd4c6c0ae3759e7e39e70a06227cb1a

Filed Under: Economy News Tagged With: american economy, fixed income, stock market