June 25, 2024

Goldman Named in Suit Over Aluminum Supply

Goldman on Wednesday tried to defuse complaints about waiting times and high prices at its metals warehouses across the world by offering immediate access to aluminum for end users holding metal at its Metro International Trade Services unit.

Banks that own commodity assets and trade raw materials have drawn increasing criticism in recent weeks, with federal regulators in the United States taking a look at the metals warehousing industry. Britain’s financial watchdog is also investigating the London Metal Exchange’s warehousing system.

The lawsuit outlines “anticompetitive and monopolistic behavior in the warehousing market in connection with aluminum prices,” Hong Kong Exchanges said in a statement on Sunday.

The lead plaintiff in the lawsuit, filed on Thursday in Federal District Court in Michigan, is Superior Extrusion, an end user of aluminum.

“L.M.E. management’s initial assessment is that the suit is without merit and L.M.E. will contest it vigorously,” Hong Kong Exchanges said in a statement.

Customers and American lawmakers have accused Goldman and other warehouse owners of artificially inflating waiting times to increase rents for warehouse owners and lift metal prices.

“We believe this suit is without merit and we intend to vigorously contest it,” a Goldman Sachs spokesman said. “I would also note that aluminum prices are down 40 percent from their peak in 2006,” he said.

London Metal Exchange aluminum for three-month delivery settled on Friday at $1,809 a ton.

Warehouse owners and the departing chief executive of the London market, Martin Abbott, have contended that complaints over long lines are unjustified, arguing there is no shortage of metal.

Article source: http://www.nytimes.com/2013/08/05/business/global/goldman-named-in-suit-over-aluminum-supply.html?partner=rss&emc=rss

DealBook: Top Witness for the S.E.C. Turns Testy on the Stand at Tourre Trial

Paolo Pellegrini, formerly of Paulson  Company, seemed to disappoint the S.E.C. on the stand.Brendan McDermid/ReutersPaolo Pellegrini, formerly of Paulson Company, seemed to disappoint the S.E.C. on the stand.

Paolo Pellegrini has been lauded as an architect of one of the biggest hedge fund victories in recent memory: Paulson Company’s audacious bet against subprime home loans in 2007.

But in a Manhattan federal courtroom on Tuesday, Mr. Pellegrini professed not to know what one of the basic acronyms of the industry meant.

During questioning by a government lawyer, Mr. Pellegrini said that he was not sure what “C.D.O.” — the type of security, which the hedge fund stalwart helped construct, that is at the heart of the government’s civil lawsuit against a former Goldman Sachs employee — stood for. After several minutes of verbal sparring, he conceded that it might stand for “collateralized debt obligation.”

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Over around two hours of testimony, Mr. Pellegrini, a tall, imposing investment executive, repeatedly paused and claimed he could not remember what he previously said. At one point, he complained that his questioner, Matthew T. Martens of the Securities and Exchange Commission, was being too imprecise in his queries, making them hard to answer. “It’s a bit of a trick question, but I’ll try to answer it,” he said.

The S.E.C. had hoped that Mr. Pellegrini would be one of the top witnesses of the trial. His employer at the time, Paulson Company, profited handsomely from the investment product that Goldman had created, yielding about $1 billion.

Mr. Pellegrini at one point spent about 10 minutes bickering with Mr. Martens over the definition of a “custom C.D.O.”

Later, Mr. Pellegrini sighed, “I am upset about this conversation.”

The testimony represented some of the liveliest moments yet in the trial of Fabrice P. Tourre, 34, whom the government has accused of defrauding investors as part of Goldman’s mortgage desk in 2006 and 2007. The S.E.C.’s lawsuit over Mr. Tourre’s role in the construction of a complex mortgage investment that ultimately failed has made him a prominent face of the government’s investigation into the financial crisis.

Much of Mr. Martens’s questioning sought to show that the financial firms responsible for constructing the mortgage securities were wary of working with hedge funds like Paulson Company that wanted to bet virtually exclusively against the investments’ success.

In 2010, Goldman agreed to settle an S.E.C. lawsuit by paying a $550 million penalty while admitting that it made a “mistake” in not disclosing that “that Paulson’s economic interests were adverse to C.D.O. investors.”

Both Mr. Pellegrini and Sihan Shu, a managing director at Paulson, testified that the firm was interested only in wagering that home loans would falter, wiping out the value of debt instruments built from those mortgages. Mr. Pellegrini acknowledged that the firm raised two funds to carry out its bet against home loans. Mr. Pellegrini is expected to be just the first in a series of prominent witnesses. His cross-examination by Mr. Tourre’s lawyers is scheduled for Wednesday. It will be followed by testimony from two of Mr. Tourre’s former bosses at Goldman.

Jurors sometimes appeared to struggle with the discussions on Tuesday, which were often laden with financial jargon. Lawyers for Mr. Tourre made it a point of explaining some terms at the beginning of the day’s proceedings, including “Q.I.B.’s,” which stands for “qualified institutional buyers,” and “single-tranche C.D.O.’s.” Still other arcana, like “WARF scores” and “Libor,” received minimal explanation.

Though some jurors scribbled diligently in their notepads, others appeared to nod off from time to time.

The presiding judge, Katherine B. Forrest, took an active role in both ensuring that jurors were aware of the various legal proceedings and in keeping the trial on its three-week schedule.

She was also quick to mediate disputes between the government and Mr. Tourre’s lawyers, sometimes rephrasing objected questions to witnesses to speed things along.

Article source: http://dealbook.nytimes.com/2013/07/16/top-witness-for-the-s-e-c-turns-testy-on-the-stand/?partner=rss&emc=rss

DealBook: Battle Heating Up Over German Cable Operator


LONDON – John C. Malone is picking a fight with Vodafone in Europe.

Less than a week after Vodafone of Britain said it had approached the German cable operator Kabel Deutschland over a potential takeover, Mr. Malone’s Liberty Global is now trying to muscle in on the action.

Any deal for Kabel Deutschland, Germany’s largest cable company, would probably exceed $10 billion, and represent one of the largest European acquisitions this year.

The fight for control over Kabel Deutschland, whose shares rose in early morning trading in Frankfurt but gave up the gains by the afternoon, is the latest in a number of deals in Europe’s cable and telecommunications sector over the last 18 months.

Liberty Global, which already owns Germany’s second-largest cable company, bought the British company Virgin Media for $16 billion this year as part of its European expansion.

Others international players, including the Mexican billionaire Carlos Slim Helú, have also been picking up assets, and media reports from Spain claimed on Monday that ATT had been thwarted in a potential $70 billion takeover approach for the Spanish company Telefónica.

Telefónica denied that it had been in contact over a potential deal.

As both Vodafone and Liberty Global vie to acquire Kabel Deutschland, analysts say the winner may have to pay as much as $10.7 billion for the company, which has 8.5 million customers across Germany.

For Vodafone, the move would help to add cable services to its existing cellphone and fixed-line operations in Germany. In contrast, Liberty Global could consolidate its current local cable business, while also challenging competition from the likes of Deutsche Telekom.

“There’s more strategic value for Liberty doing a deal,” Andrew Hogley, a telecommunications analyst with Espírito Santo in London. “Liberty has a stronger appetite for this type of business.”

UBS and Goldman Sachs are advising Vodafone, while Morgan Stanley and Perella Weinberg Partners are advising Kabel Deutschland.

Article source: http://dealbook.nytimes.com/2013/06/18/battle-heating-up-over-german-cable-operator/?partner=rss&emc=rss

DealBook: Former Goldman Sachs Partner Fined for Unauthorized Trades

Glenn HaddenGoldman SachsGlenn Hadden

Goldman Sachs and Glenn Hadden, one of Wall Street’s top traders, have been fined by the CME Group over a Treasury futures trade in 2008.

The CME Group, which runs commodity and futures exchanges, has notified both Goldman and Mr. Hadden, once a trader and partner at Goldman Sachs who now runs the global interest rates desk at Morgan Stanley, that both face fines and other sanctions in connection with the trade, according to a disciplinary action reviewed by The New York Times.

Goldman has been ordered to pay $875,000 and was cited for failure to supervise Mr. Hadden. Mr. Hadden has been ordered to pay $80,000.

He faces a 10-day suspension, starting July 15, from “directly accessing all CME Group Inc. trading floors, and indirect and direct access to all electronic trading and clearing platforms owned or controlled by CME Group Inc.”

Mr. Hadden is one of the highest-paid professionals at Morgan Stanley and has been known throughout his career for aggressive and profitable risk-taking. As The Times reported in December, it is unusual for someone of Mr. Hadden’s stature to be the target of such an investigation.

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Mr. Hadden joined Morgan Stanley in 2011. He was hired after Goldman Sachs, which had concerns about some of his trading activity, put him on leave in 2009. Those concerns included the episode involved in the sanction.

Mr. Hadden, according to the CME disciplinary action, in the last minutes of trading on Dec. 19, 2008, engaged in trading that violated CME rules.

Mr. Hadden, the CME Group said, was trying to cover some market risk associated with a position he had just before the day’s close. He had difficulty with the trade because the market was quite illiquid, and was found to have not unwound the position in an orderly manner. Goldman was fined over failing to supervise Mr. Hadden.

A spokesman from Goldman Sachs said the firm was happy to have the matter resolved. A Morgan Stanley spokesman said “Mr. Hadden is an employee in good standing as the global head of rates at Morgan Stanley.”

James Benjamin, a lawyer for Mr. Hadden, said his client was also glad the matter was settled. “This matter arose from standard risk-management procedures for Treasury note futures contracts. Although Mr. Hadden acted in good faith and attempted to follow a textbook approach, he had difficulty liquidating the futures position in an orderly manner in light of stressed and illiquid market conditions.”

The disciplinary action is likely to increase speculation about Mr. Hadden’s future at Morgan Stanley. Last week his boss, Kenneth M. deRegt, the executive in charge of Morgan Stanley’s fixed income department, announced he was retiring. That set off speculation inside Morgan Stanley that Mr. Hadden might also leave, or see his responsibilities diminished.

However, people close to the firm who spoke on the condition of anonymity because they were not authorized to speak on the record about a personnel matter, say there are no plans to move or sever ties with Mr. Hadden.

Mr. Hadden was a big hire for Morgan Stanley, and was brought in just as the firm was working to rehabilitate its fixed income department. That unit, where Mr. Hadden now works, was badly bruised during the 2008 financial crisis.

Article source: http://dealbook.nytimes.com/2013/05/31/cme-group-sanctions-goldman-sachs-and-top-wall-street-trader/?partner=rss&emc=rss

Political Economy: The Quest for a More Perfect Union

When Mario Draghi was appointed president of the European Central Bank, the German tabloid Bild gave him a Prussian helmet because it admired his Teutonic anti-inflation credentials. The Sun, Bild’s British equivalent, should give him keys to the City of London because of his pro-market credentials.

Mr. Draghi likes London. The Italian still has an apartment in the city, kept from his time as a Goldman Sachs banker. He is a man with a natural affinity for the markets.

Last week Mr. Draghi was in London, the scene of his July 2012 promise to “do whatever it takes to preserve the euro.” His message this time was that Europe needs a more European Britain as much as Britain needs a more British Europe.

He was careful not to wade directly into the British political swamp and say, for example, that Britain would be crazy to quit the European Union. He confined himself to listing the ways in which Britain’s economy, and the City in particular, are entwined with the euro zone. But it seems clear that he would prefer Britain to get stuck into Europe than stay on the sidelines — where it has been since Britain decided not to join the euro — let alone quit entirely.

Mr. Draghi didn’t say what he meant by a more British Europe. But it is interesting to speculate what the euro zone would be like if Britain had decided to join the single currency. For a start, the zone’s monetary policy would probably have been less German-dominated — and, hence, less obsessed with fighting inflation to the exclusion of other economic objectives.

The E.C.B. has, of course, still managed to innovate — in particular, with a bond-buying plan that has taken some of the sting out of the crisis. But it always has to watch its back, given criticism from Germany’s central bank and challenges in that country’s constitutional court.

A more British Europe might also now find it easier to adopt a sensible “macroprudential” policy for managing the flow of credit around the financial system. One of the zone’s little-noticed potential design flaws is a Germanic insistence on Chinese Walls between bank supervision and the conduct of monetary policy, even though both will come under the E.C.B.’s aegis.

While such separation makes sense insofar as the supervision of individual banks is concerned, it could be problematic for macroprudential supervision. Take the current situation. With inflation low, the E.C.B. should be pushing interest rates into negative territory or buying government bonds. The snag is that, while such a monetary policy would be right for the euro zone on average, it would be too loose for Germany.

The sensible approach would be to counterbalance such one-size-fits-all monetary policy with tight credit policy focused on Germany, implemented via extra-high bank capital requirements there. Maybe the E.C.B. will eventually get around to such a rational policy mix. But it would be easier if it could operate like the Bank of England, which doesn’t have Chinese Walls.

The zone’s banking system would also, arguably, be in a better shape if it was more British. This is not to deny Britain’s massive banking crisis. The point, rather, is that Britain has done a fairly good job of cleaning up the mess, while the zone has tended to sweep problems under the carpet — which has debilitated parts of the European economy.

The E.C.B. does have a chance to remedy this error. It has already insisted on a rigorous review of bank loan books and a stress test of their solvency before it takes responsibility for supervising them next year. It now needs to get governments to agree to wind down or recapitalize any banks that fail the test.

Another area where a more British Europe might have been beneficial would have been in shooting down the planned Financial Transactions Tax — which will gum up the markets, in the process disrupting the E.C.B.’s monetary policy. Maybe the tax will prove stillborn, anyway, given the lukewarm support from Germany. But this is not guaranteed.

The same goes for the management of the Cyprus crisis, where the somewhat anti-market European Commission insisted on imposing capital controls against the E.C.B.’s advice. Again, it may not be too late to mitigate the damage. The controls could, and should, be lifted when the resolution of the country’s two big banks is finished. But it would have been better not to have imposed them in the first place.

To some extent, such speculations are academic. Britain hasn’t joined the euro and won’t for a long time, if ever. But there are still two main ways in which a more engaged Britain could advance not only its economic interests in Europe, but Europe’s too.

First, the push by the British prime minister, David Cameron, for more competitive markets — principally by extending the single market to services and by signing free-trade agreements with the United States and Japan — could play a role in solving the euro crisis.

Second, Britain could campaign for an enhanced role for London’s capital markets in Europe. The European Union’s “bankcentricity” — under which finance is mostly routed through a semibroken banking system rather than the markets — will be a drag on growth.

Mr. Cameron and Mr. Draghi should make common cause on such an agenda. That’s a practical way to make Britain more European and Europe more British.

Hugo Dixon is editor at large of Reuters News.

Article source: http://www.nytimes.com/2013/05/27/business/global/27iht-dixon27.html?partner=rss&emc=rss

DealBook: Fallen Goldman Director Appeals for a New Trial

Rajat Gupta, center, a former Goldman Sachs director, was sentenced to two years in prison last year in an insider trading case.Spencer Platt/Getty ImagesRajat Gupta, center, a former Goldman Sachs director, was sentenced to two years in prison last year in an insider trading case.

8:28 p.m. | Updated It was perhaps the most critical piece of evidence in the trial of Rajat Gupta, the former Goldman Sachs director found guilty last year of leaking the bank’s boardroom discussions to his hedge fund friend.

“I heard yesterday from somebody who’s on the board of Goldman Sachs that they are going to lose $2 per share,” his friend, the money manager Raj Rajaratnam, told a colleague during an October 2008 conversation that federal investigators secretly recorded.

On Tuesday, a lawyer for Mr. Gupta argued that a federal appeals court should overturn his client’s conviction and grant a new trial because the verdict was tainted by the erroneous admission of that statement and other wiretapped conversations.

“The wiretaps should never have been admitted,” said Mr. Gupta’s lawyer, Seth P. Waxman, during the argument at the United States Court of Appeals for the Second Circuit in Manhattan.

Last June, a jury convicted Mr. Gupta, 64, of sharing Goldman’s confidential information with Mr. Rajaratnam. The presiding trial court judge, Jed S. Rakoff, sentenced Mr. Gupta to two years in prison. A year earlier, Mr. Rajaratnam was found guilty at trial and given an 11-year sentence. His appeal is also pending.

The men, who came to this country from South Asia as university students and rose to the highest ranks of business, are two of the most prominent figures caught up in the government’s crackdown on illegal conduct on Wall Street trading floors. Since 2009, the United States attorney in Manhattan has charged 81 individuals; of those, 73 have either pleaded guilty or been convicted.

With his freedom hanging in the balance, Mr. Gupta attended Tuesday’s hearing, accompanied by his wife, his four daughters and about a dozen friends. He was once one of the world’s most admired executives, having served for a decade as the global chairman of the management consultancy McKinsey Company. Mr. Gupta, who lives in Westport, Conn., is free on bail pending the outcome of his appeal.

The hearing, in a cramped courtroom in the stately old federal courthouse building on Foley Square, was packed with spectators. About two dozen summer law school interns from Mr. Waxman’s firm, WilmerHale, came to watch, as did a class of curious high school students from the Beacon School on the Upper West Side. The youth-filled courtroom pushed several members of Mr. Gupta’s large legal team and a group of senior government prosecutors into a crowded anteroom, where they watched a televised simulcast of the proceeding.

Mr. Waxman tried to convince the three-judge panel — Jon O. Newman, Amalya L. Kearse and Rosemary S. Pooler — that the lower court had made a series of incorrect rulings at trial. Much of the discussion centered on a ruling by Judge Rakoff that curtailed the testimony of Mr. Gupta’s daughter Geetanjali Gupta. She had planned to testify that at the time of the tips cited by prosecutors, her father told her that he believed Mr. Rajaratnam had stolen money from him.

Judge Rakoff curbed her testimony, allowing her to say only that her father was upset with Mr. Rajaratnam. If the jury had heard that Mr. Rajaratnam might have cheated Mr. Gupta, “that testimony would have powerfully refuted the government’s theory of motive,” Mr. Waxman argued.

Judge Newman appeared skeptical that the daughter’s testimony would have swayed the jury given the substantial circumstantial evidence of Mr. Gupta’s guilt.

“You’re telling me that if the jury had heard that statement it would have disregarded all the other evidence in the case?” Judge Newman asked. “How realistic is that?”

Later in the argument, Judge Newman recounted damning evidence from the trial — phone logs and trading records indicating that less than one minute after hanging up from a Goldman board call, Mr. Gupta phoned Mr. Rajaratnam, who quickly bought about $35 million worth of Goldman stock.

“Are you telling us that that’s a coincidence?” Judge Newman asked.

Mr. Waxman tried to avoid answering the question, but Judge Newman persisted. “O.K., I embrace it — it’s a coincidence,” said Mr. Waxman, a former solicitor general of the United States who is considered one of the country’s top appellate lawyers.

Richard C. Tarlowe, the federal prosecutor who argued the appeal for the government, seized upon Judge Newman’s incredulity when he rose to speak. “The argument” — that the phone calls and trades were coincidental — “was made to the jury, and it was rejected because of its absurdity,” he said.

For Mr. Gupta to have his conviction reversed, the appeals court does not have to believe in his innocence. Rather, he can win a new trial if the judges decide that Judge Rakoff improperly admitted the wiretapped conversations between Mr. Rajaratnam and his colleagues suggesting that he had an inside source at Goldman, or made other faulty rulings.

“The court’s decidedly asymmetrical interpretation of the rules of evidence left the jury with a distorted picture, in which Gupta was accused by the self-serving hearsay of a known fabulist,” Mr. Gupta’s legal team wrote in court papers.

During the argument, Mr. Waxman characterized Mr. Rajaratnam’s statements as unreliable, and described him as a braggart who “lied about his sources to impress his subordinates.”

A ruling by the appeals court is expected in the coming months. One party closely watching for a decision is Goldman Sachs, which had a lawyer attend Tuesday’s hearing. In February, a judge ordered Mr. Gupta to pay Goldman more than $6.2 million to reimburse the bank for legal expenses related to an internal investigation and other costs. But because the bank’s bylaws require it to cover legal fees for top officers and directors, Goldman is paying for Mr. Gupta’s costly defense, which has reached at least $35 million.

Mr. Gupta agreed to reimburse the bank for his legal bills if a jury convicted him, but Goldman must continue to pay them until the final outcome of his appeal.

This post has been revised to reflect the following correction:

Correction: May 22, 2013

An earlier version of this article misstated the timing of Rajat Gupta’s conviction. It was in June 2012, not May 2012.

Article source: http://dealbook.nytimes.com/2013/05/21/court-hears-appeal-of-ex-director-of-goldman/?partner=rss&emc=rss

DealBook: In Hong Kong, Firms Bulk Up on Bankers to Bolster I.P.O.’s

Top officers of Sinopec Engineering on Monday. The company is seeking to raise as much as $2.24 billion in its Hong Kong offering.Bobby Yip/ReutersTop officers of Sinopec Engineering on Monday. The company is seeking to raise as much as $2.24 billion in its Hong Kong offering.

HONG KONG — After a lackluster 2012 and slow start this year, Hong Kong’s financiers are hoping to revive interest in initial public offerings. To test investor appetite, many companies are hiring armies of investment bankers in their efforts to market new shares.

In the three years through the end of 2011, Hong Kong had ranked as the world’s biggest I.P.O. market by the amount of money raised. Yet so far this year, new share sales have declined 14.3 percent, to $1.12 billion, from the same period a year earlier, according to Thomson Reuters data. Companies seem to believe that the answer to turn fortunes around is to employ large numbers of stock underwriters.

On Monday, the China Galaxy Securities Company, a midsize state-owned brokerage firm that is aiming to raise about $1.4 billion in its Hong Kong offering, hired 21 banks to help execute its deal. Those included big Wall Street firms like JPMorgan Chase and Goldman Sachs as well as the small Hong Kong brokerage units of mainland Chinese banks, according to a person with direct knowledge of the offering.

Sinopec Engineering, a spinoff from China Petrochemical, also started to promote an offering on Monday. It has 13 banks working on its deal, which seeks to raise as much as 17.4 billion Hong Kong dollars, or $2.24 billion.

The number of listed underwriters stands in contrast to big offerings in the United States. For instance, Facebook’s $16 billion listing, the biggest I.P.O. of 2012, involved 11 investment banks to help get the deal done.

Chinese companies appear to be making such moves as a way to price their deals as high as possible despite the risk that doing so could lead the shares to slump once trading begins.

“You’ve got a lousy market, and companies who don’t want to leave anything to chance to get their deals done, because they’ve seen so many deals go sideways,” said one capital markets lawyer in Hong Kong who declined to be identified, citing his relationships with banks. “The mentality is, why not just keep adding banks? It gives them more comfort.”

Just a few years ago, only a handful of banks were involved in large deals. From 2003 to 2009, a period defined by blockbuster Chinese privatizations, Hong Kong I.P.O.’s worth $1 billion or more usually involved two to four banks acting as underwriters, according to figures from Dealogic. That rose to an average of five to six banks on such deals in 2010 and 2011.

Last year, the figure soared to an average of 14 banks a deal — including the $3.6 billion offering in November by the People’s Insurance Company of China, which had 17 banks working on it.

Investment banks, however, worry that the trend toward more firms is making the market less profitable for new listings. Having so many competitors involved in a deal decreases everyone’s share of a fee pool that is fixed, sometimes to the point that helping sell an I.P.O. is no longer profitable.

“It’s not a very sophisticated way of doing things, and it ties up the whole street,” said one person with direct knowledge of the Galaxy offering, who spoke on the condition of anonymity because the details were not public. “As an industry, we should probably boycott these kind of deals, but when you’re talking about big, state-related Chinese issuers, it’s going to take a brave man to say no.”

China Galaxy Securities, for instance, is selling 1.57 billion shares at 4.99 Hong Kong dollars to 6.77 Hong Kong dollars apiece, according to a term sheet. The joint global coordinators of the deal are JPMorgan, Goldman Sachs, China Galaxy International, ABCI Securities and Nomura, with 16 other banks acting as underwriters. Representatives of the company could not be reached for comment. The deal is expected to price on May 15 and begin trading on May 22.

Sinopec Engineering is aiming to sell 1.328 billion shares at a price of 9.80 Hong Kong dollars to 13.10 Hong Kong dollars apiece, a separate term sheet showed. JPMorgan, Citic Securities, UBS and Goldman Sachs are joint global coordinators of the I.P.O., and an additional nine banks are acting as underwriters. It is scheduled to price on May 16 and begin trading on May 23.

The trend toward adding underwriters can lead to a host of problems, both for the banks that bring deals to market and for the people who invest in the regular part of the offerings.

Chinese companies are also relying increasingly on so-called cornerstone investors, who commit to buy a large part of an I.P.O. in advance. In Hong Kong, such investors agree to hold shares for a fixed period, usually six months. But sometimes more than half the total offering is being set aside for cornerstone investors, decreasing the liquidity, or the volume of shares available for trading.

Cornerstone investors have committed about $280 million to the China Galaxy Securities I.P.O., and $350 million to the Sinopec Engineering deal.

For Wall Street banks, being a small part of such deals can be a matter of keeping their names in front of investors and corporations, even at the expense of the bottom line. Participating in big offerings, in particular, helps banks raise their rankings among their peers, the so-called league tables used in part to evaluate bankers’ performance.

One person with direct knowledge of the two coming offerings cited previous deals in which fee income for banks went as low as $50,000. At such a level, the person said, the fee becomes meaningless, but participation still “gets you on the league tables.”

Article source: http://dealbook.nytimes.com/2013/05/06/in-hong-kong-firms-bulk-up-on-bankers-to-bolster-i-p-o-s/?partner=rss&emc=rss

DealBook Column: A Bank Levy in Cyprus, and Why Not to Worry

There have been no people lined up around banks in Italy or Spain.Petros Karadjias/Associated PressDespite doomsday predictions, there have been no people lined up around banks in Italy or Spain.

Never mind.

The last 72 hours have been filled with breathless proclamations of impending disaster after the European Union and International Monetary Fund indicated that they planned to take money directly from depositors with bank accounts in Cyprus as part of a bailout of that country.

Analysts and politicians compared the bailout plan, the first to include a levy on deposits that were considered to be insured, to government-sponsored larceny, and said it would cause a run on banks across Europe, if not a full-fledged global crisis.

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“The very nature of banking has been shaken to its roots with this decision, for banking depends upon trust,” Dennis Gartman, the investor, wrote in a note to his clients. “Trust that has now been shattered; torn asunder, broken … destroyed.”

Jim O’Neill, chairman of Goldman Sachs Asset Management, called the decision an “astonishing move” with “little thought of contagion to the rest of the euro zone, and indeed perhaps the world.”

Mark J. Grant, a market commentator who has been predicting an economic apocalypse in Europe for years, went so far as to compare the terms of the bailout with “rape.” He said: “Pay attention please. The European Union and the European Central Bank and the I.M.F. have just advocated the confiscation of private property for their own indulgence.”

Even President Vladimir Putin of Russia got into the debate, given that much of the deposits in Cypriot banks are Russian. “Mr. Putin said that such a decision, if adopted, would be unfair, unprofessional and dangerous,” a spokesman said.

And yet here we are. And, well, nothing bad has happened.

There have been no re-enactments of “It’s a Wonderful Life,” with people lined up around banks in Italy or Spain — considered the next dominoes, if you believe the doomsayers. The stock markets in Europe dropped less than 1 percent. In the United States, investors shrugged their shoulders, too.


While the bailout of Cyprus is a fascinating case study and raises interesting theoretical questions about moral hazard for policy wonks and talking heads, here is the reality: It is largely irrelevant to the global economy. Cyprus is tiny; its economy is smaller than Vermont’s. And the bailout is worth a paltry $13 billion, the equivalent of pocket lint for those in the bailout game.

Even the larger issue about bailing out a country by taking money from depositors — which quickly created outrage around the world — seems overblown.

The worry is that the European Union and I.M.F. have created a dangerous precedent by making depositors share in the pain of the bailout. Historically, the goal of bailouts has been to raise confidence in banks so depositors don’t flee. The approach in Cyprus is at odds with that notion, raising questions about whether future bailouts in countries like Spain and Italy — if they are needed — could affect depositors.

The alarmist thinking is that depositors will move their money from troubled banks, creating a death spiral.

Even in the United States, some commentators used the Cyprus bailout as a scare tactic about what they speculated could eventually happen here.

“An executive order issued by the president to debit taxpayer bank accounts during a future financial emergency is entirely possible,” Andrew Gause, author of “The Secret World of Money,” said in a news release.

But, in truth, the smart money knows that the bailout of Cyprus says very little about future actions.

“I would assume that anyone in Spain, Portugal or elsewhere who knows about the taxation of Cypriot depositors also would know that the Cypriot banking system is a very different animal than anywhere else in the euro zone,” Erik Nielsen, chief economist at UniCredit, wrote in a note to clients.

Mr. O’Neill of Goldman also acknowledged: “I am sure it will not set a precedent.”

Cyprus is unique. Besides being tiny, its banking system looks different from those in most other countries. Much of the big money deposited in its banks is from foreign investors, including Russians who have long been suspected of money laundering. Those investors had fair warning that Cypriot banks were troubled. The issue has been simmering for six months. But those investors left their money in the bank, in part because they were gambling that the banks would be bailed out at no cost to them. If the current plan is approved, depositors will have lost that bet.

Worse, the strategy employed in the bailout of Greece — in which bondholders of its sovereign debt were paid less than face value — will not work in Cyprus. Cyprus’s banks own much of the country’s debt, so any effort to reduce that debt by forcing debt holders to accept less would only make the banks more troubled.

Given the brutal history between Russia and so much of Europe — and speculation that so much of the money is ill gotten — it is clear why it would be so politically unpalatable to countries in the euro zone, Germany in particular, to bail out Russian depositors. And even if the move were to create a run on the banks in Cyprus, the contagion would be limited.

There is very little chance that politicians would ever choose to use the model they developed in Cyprus in a country like Italy or Spain, where a run on the banks would have such profound implications. By the way, if you’re wondering why investors left so much money in troubled Cypriot banks, here’s a trivia question: Would you have been better off leaving your money in a bank in the United States or in Cyprus over the last five years?

The answer: You would have been better off in Cyprus, even after the bailout, when your money was “confiscated.” If you had 100,000 euros in a Cypriot bank account over the last five years, where the interest rate has averaged about 5 percent, you would have about 127,600 euros today. Even after the bailout, which would require you to give up 10 percent of your deposit — 12,760 euros — you would be left with 114,840 euros. The American bank? The $100,000 you deposited at Bank of America five years ago is about $105,100, at the going rate of about 1 percent interest a year.

Article source: http://dealbook.nytimes.com/2013/03/18/a-bank-levy-in-cyprus-and-why/?partner=rss&emc=rss

Dow Ends 10-Day Climb as JPMorgan Leads Dip

A decline in shares of JPMorgan Chase after the bank was hit by a one-two punch of bad news weighed on the market.

The Dow snapped its 10-day winning streak, when it racked up a series of nominal highs, which are unadjusted for inflation. Stocks have rallied since the start of the year on signs of an improving economy and support for the recovery from the Federal Reserve.

On Thursday, the S. P. 500 ended within 2 points of the closing price of 1,565.15 it hit in October 2007. On Friday, the benchmark index ended the session about 5 points away. For the week, the S. P. 500 rose 0.6 percent. It is up 9.43 percent this year.

Investors could use the pause to consolidate bets before pushing the market higher again, said Clayton M. Albright III, director of asset allocation at Wilmington Trust Investment Advisors in Wilmington, Del.

“I don’t think that one or two days’ movement is really going to change the underlying momentum of this market, which I still think is pretty strong at this point,” Mr. Albright said.

JPMorgan Chase was the biggest drag on the S. P. 500 and one of the biggest weights on the Dow, falling 98 cents, or 1.92 percent, to $50.02.

The Fed told JPMorgan and Goldman Sachs that they must fix flaws in how they determine capital payouts to shareholders, though the central bank still approved their plans for share buybacks and dividends.

A Senate report made public Thursday after the markets had closed also contended that JPMorgan had ignored risks, misled investors, fought with regulators and tried to work around rules as it dealt with mushrooming losses in a derivatives portfolio. A former top JPMorgan official told lawmakers on Friday that she was not to blame for the losses.

Goldman shares, however, recovered from early weakness to gain 82 cents, or 0.53 percent, to $154.84. Shares of rival Bank of America rose 3.8 percent, to $12.57.

The Dow Jones industrial average slipped 25.03 points, or 0.17 percent, to 14,514.11. The S. P. 500 lost 2.53 points, or 0.16 percent, to 1,560.70. The Nasdaq composite index dropped 9.86 points, or 0.30 percent, to 3,249.07.

For the week, the Dow rose 0.8 percent and the Nasdaq gained 0.14 percent. The Dow is up 10.76 percent this year and the Nasdaq is up 7.6 percent.

Supporting the Nasdaq, shares of Apple rose 2.58 percent, to $443.66.

Data from the Lipper service of Thomson Reuters showed investors poured $11.26 billion of new cash into stock funds in the latest week, the most since January.

The benchmark 10-year Treasury note rose 13/32, to 100 3/32, and its yield fell to 1.99 percent, from 2.04 percent late Thursday.

Article source: http://www.nytimes.com/2013/03/16/business/daily-stock-market-activity.html?partner=rss&emc=rss

Today’s Economist: Simon Johnson: Big Banks Have a Big Problem


Simon Johnson, former chief economist of the International Monetary Fund, is the Ronald A. Kurtz Professor of Entrepreneurship at the M.I.T. Sloan School of Management and co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.”

The largest banks in the United States face a serious political problem. There has been an outbreak of clear thinking among officials and politicians who increasingly agree that too-big-to-fail is not a good arrangement for the financial sector.

Today’s Economist

Perspectives from expert contributors.

Six banks face the prospect of meaningful constraints on their size: JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley. They are fighting back with lobbying dollars in the usual fashion – but in the last electoral cycle they went heavily for Mitt Romney (not elected) and against Elizabeth Warren and Sherrod Brown for the Senate (both elected), so this element of their strategy is hardly prospering.

What the megabanks really need are some arguments that make sense. There are three positions that attract them: the Old Wall Street View, the New View and the New New View. But none of these holds water; the intellectual case for global megabanks at their current scale is crumbling.

The Old Wall Street view is that there is nothing to see – big banks know what they are doing and pose no threat to the economy. This position was in complete ascendancy before 2007 but is seldom heard today. In part, of course, the financial crisis made this view seem more than a little hard to defend.

And any attempt to resurrect this position was completely sunk by the “London Whale” losses suffered by JPMorgan Chase last year. We’ll learn more in the hearing on Friday called by Senator Carl Levin of Michigan, although the chief executive, Jamie Dimon, was not asked to testify. Senator Levin’s Permanent Subcommittee on Investigations is also expected to issue a report.

All these details about the London Whale will reinforce the view that even one of our supposedly great risk managers, Mr. Dimon, can lose control of what is happening in his business – on a scale that can matter for overall profits and, potentially, for the economy.

The largest banks have become too complex to manage. And when they fail, the consequences are huge for all of us. This point is completely nailed by Anat Admati and Martin Hellwig’s new book, “The Bankers’ New Clothes.”

The New Wall Street view is that there is no too-big-to-fail subsidy. Or perhaps there is a subsidy but no one can measure it. Or perhaps someone can measure it, but not the people who have done so. If the first view ended in tragedy – the crisis and huge job losses of 2008 – this New View is simple comedy.

My colleagues at Bloomberg View have written a series of devastating editorials explaining for a broad audience the nature and likely scale of subsidies that very large banks receive. You should read the series, starting with the latest contribution this week, which includes useful links to previous salvos on both sides.

The reaction of the industry is running roughly parallel to how church officials originally responded to Galileo’s work. No doubt the bankers in question would like to compel Bloomberg View to renounce its opinions.

Fortunately, we have come a long way since 1633.

And the banks’ lobbyists are making an uncharacteristic mistake by digging in with this extreme and indefensible view. Ask people in the credit markets if they think lenders to the biggest banks have some degree of downside protection afforded by the government (including the Federal Reserve). I have never heard any reasonable investor deny this reality in private.

The big banks are well down the road to acknowledging that there may be a subsidy and the question is how to measure it – and how to assess all the available evidence.

All data are complex. The Federal Reserve changes monetary policy on the basis of numbers that are hard to know precisely. What exactly is “core inflation” or the “natural rate of unemployment” at this moment?

And whenever people try to bedazzle you with econometrics, go back to the simple numbers and see a powerful story: megabanks have a funding advantage, if you think about it properly and compare apples to apples. See, for example, this column by David Reilly in The Wall Street Journal this week. (Mr. Reilly endorses a position similar to one I have advanced with Sheila Bair and other colleagues.)

The New New Wall Street view is that too-big-to-fail exists but that Dodd-Frank will bring it under control. This argument remains the best hope for global megabanks, but even this perspective is now under severe pressure.

This position has some powerful adherents, including Ben Bernanke, chairman of the Federal Reserve, and Jerome Powell, a member of its Board of Governors. (I wrote about Mr. Powell’s views in this space last week and about Mr. Bernanke the week before).

The problem is that Mr. Bernanke clearly articulated, during the Dodd-Frank debate, that the big financial companies would be pressed to become smaller of their accord.

Three years later, there is no sign of actually happening.

And now come Richard Fisher and Harvey Rosenblum, knocking hard on the gates of Washington with an op-ed article in The Wall Street Journal on Monday, “How to Shrink the ‘Too-Big-to-Fail’ Banks.”

Mr. Fisher is a successful private-sector investor who now heads the Federal Reserve Bank of Dallas, where Mr. Rosenblum is also a senior official.

From the heart of the Federal Reserve System – and deeply steeped in private-sector experience – comes a clear statement that too-big-to-fail exists and Dodd-Frank did not end it.

Attorney General Eric Holder’s testimony to Congress last week also confirmed the latter point: some banks are so big that the Department of Justice is afraid to bring legal charges against them, for fear of how that would affect the economy. Senator Warren of Massachusetts continues to press this issue relentlessly and very effectively.

You should also listen to this Bloomberg radio interview with Arthur Levitt, who acknowledges “too big to jail” about two-thirds of the way through. Mr. Levitt, a former chairman of the Securities and Exchange Commission, is currently an adviser to Goldman Sachs, so I expect he’ll have to walk this statement back.

Most worrying for the big banks, Mr. Fisher is more broadly on the right of the political spectrum. On Friday, he will address the Conservative Political Action Conference. I’m not sure a senior Fed official has ever done this before.

Mr. Fisher is not only entirely correct. He is also on a completely convergent path with Senator Brown of Ohio. In fascinating new development on Wednesday, Bloomberg News reported more details on the Fisher-Rosenblum push for a hard size cap on big banks, which would force JPMorgan and Bank of America, for example, to become significantly smaller.

The executives who live well on subsidies at big banks should be very afraid.

The Fed cannot long resist the pressure to measure and assess too-big-to-fail subsidies. The Government Accountability Office is in the process of doing exactly this, at the request of Senators Brown and David Vitter, Republican of Louisiana. As Senator Vitter put it, “Despite the claims made by the paid cheerleaders of the megabanks, Too Big To Fail is alive and well, and the banks receive taxpayer subsidies.”

He went on to say: “Chairman Bernanke knows it, the market knows it, and the taxpayers know it,” adding that he thought the G.A.O. study would “get to the bottom of” the facts.

We’ll get a range of reasonable estimates. And they will all suggest the continuing presence of subsidies for financial companies that are perceived as too big to fail.

And then Mr. Fisher, Senator Brown and other sensible people can help us move toward policies that will impose binding size constraints on our largest financial institutions.

Article source: http://economix.blogs.nytimes.com/2013/03/14/big-banks-have-a-big-problem/?partner=rss&emc=rss