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DealBook: Empire State Building on Track for I.P.O.

November 29, 2011 by Leave a Comment

The 102-story Empire State Building at Fifth Avenue and 34th Street in Manhattan.Librado Romero/The New York TimesThe 102-story Empire State Building at Fifth Avenue and 34th Street in Manhattan.

Want to buy a piece of the Empire State Building? You might have the chance.

The Malkin family, which controls the famed 102-story tower at Fifth Avenue and 34th Street, plans to create a publicly traded real estate company that will include the skyscraper, according to papers filed Tuesday with the Securities and Exchange Commission.

Two other buildings controlled by Anthony E. Malkin and his father, Peter L. Malkin — 1 Grand Central, a 55-story, 1.3-million-square-foot building across 42nd Street from Grand Central Terminal, and a 26-story building at 250 West 57th Street — are set to be included in the publicly traded real estate company.

The unusual S.E.C. fillings were devoid of specific financial information, but said that more detailed information is expected to disclosed in about three months, which would then set the stage for an initial public offering. Goldman Sachs is expected to be the lead underwriter on the deal, according to a person with direct knowledge of the potential offering who requested anonymity because he was not authorized to discuss it publicly.

A high-profile I.P.O. of a company built with bricks and mortar would stand in stark contrast to the slew of Internet company stock offerings that have dominated headlines. After several tech I.P.O.s this year, including Groupon‘s and LinkedIn‘s, the market is looking to a initial offering by Facebook sometime in 2012.

The I.P.O. would clean up the complex ownership structure of the Empire State Building and the other Malkin family assets. Each of the buildings that will be placed into the real estate company has separate owners with multiple partners, a legacy of the real estate syndication model pioneered Lawrence A. Wein, Peter Malkin’s father-in-law, and Harry B. Helmsley. As a result, the Malkins have to go through the painstaking process of gaining approval for the deal from the various buildings’ investors and then allocating the shares in the new company.

If consummated, the Malkin’s holdings would then be converted into a real estate investment trust, a common form of public ownership for real estate assets.

After gaining control of both the Empire State Building and the land underneath it about five years ago, the Malkins have spent more than half-a-billion dollars renovating the landmark, restoring its lobby to its original Art Deco grandeur and more than doubling the rents. Its 6,514 windows have been replaced, transforming the 1930s-era office tower into one of New York’s most energy-efficient office buildings.

The name of the new company is not known, but a person briefed on the matter said that it will be named in reference to the Empire State Building, a branding move that the owners hope will attract investors hoping to own a stake in one of the world’s most iconic skyscrapers.

It is unclear at this point what color the building’s tower will be lit up on the evening of its I.P.O., if that day should come. But most people expect it to be green, said a person briefed on the deal.

This post has been revised to reflect the following correction:

Correction: November 29, 2011

An earlier version of the story said the Empire State Building was a century old. It was built in the 1930s.

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Berkshire Hathaway Reports Lower 3rd-Quarter Profit

November 6, 2011 by Leave a Comment

That was nearly three times what Berkshire lost on the same instruments a year ago. Buffett has sharply criticized derivatives in general, but has said these particular contracts were safe and would ultimately be lucrative.

But Berkshire was hurt, like many other insurance companies in particular, by sharp declines in a broad range of market values. In a quarterly report to the Securities and Exchange Commission, Berkshire said the indexes covered by the contracts fell 11 to 23 percent in the quarter.

Berkshire reported a net profit of $2.28 billion, or $1,380 for each Class A share, compared with a year-earlier profit of $2.99 billion, or $1,814 a share.

Cash at the end of the quarter was $34.78 billion, down from $47.89 billion at the end of June. During the third quarter, Berkshire financed the purchase of the chemical maker Lubrizol and a $5 billion investment in Bank of America, which accounted for the decline.

Operating income rose across segments, except for the company’s finance business, where it fell slightly.

Profit in the insurance business rose as a rebound in reinsurance results offset sharp declines at the auto insurer Geico.

Earnings were also nearly 10 percent higher at Berkshire’s next-biggest unit, the Burlington Northern railroad, as revenue per car rose by more than 10 percent.

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DealBook: Judge Rakoff Skeptical of S.E.C. Settlement With Citigroup

October 27, 2011 by Leave a Comment

Judge Jed. S. Rakoff of the Federal District Court in Manhattan.Fred R. Conrad/The New York TimesJudge Jed. S. Rakoff of the Federal District Court in Manhattan.

A federal judge has raised questions about why he should approve the government’s $285 million civil settlement with Citigroup, suggesting that he is skeptical of the pact.

Judge Jed S. Rakoff of the Federal District Court in Manhattan, who has in the past showed hostility toward Securities and Exchange Commission settlements, issued an order on Thursday laying out what he wants the agency and Citigroup to answer at next month’s hearing on the proposed deal.

He posed nine questions to the parties, including how a fraud of this nature and magnitude could be the result simply of negligence. The judge also asked why the court should approve a settlement in a case in which the S.E.C. alleged a serious fraud but the defendant neither admits nor denies wrongdoing.

He also asked why the amount of the penalty assessed against Citigroup was less than one-fifth of the one assessed against Goldman Sachs in a similar case.

Under the federal securities laws, a judge is required to ascertain whether a proposed S.E.C. settlement is “fair, reasonable, adequate, and in the public interest.” And judges have historically rubber-stamped these settlements.

Representatives for the S.E.C. and Citigroup declined to comment on Judge Rakoff’s order.

The S.E.C. accused Citigroup of misleading its customers in selling them toxic mortgage securities as the housing market neared its collapse. The agency also accused Brian Stoker, a junior Citigroup banker, of fraud. Mr. Stoker is fighting the allegations.

Judge Rakoff’s sharp questions in Wednesday’s order hardly come as a surprise to those who follow his jurisprudence.

“This is classic behavior for Judge Rakoff,” said Andrew Stoltman, a securities lawyer in Chicago. “He has been a thorn in the side for the S.E.C. for years, and I can promise you these questions have made the agency very nervous.”

The judge is perhaps best known for scuttling a proposed $33 million settlement in September 2009 between the S.E.C. and Bank of America over the bank’s acquisition of Merrill Lynch. He called it a sweetheart deal that had been done “at the expense, not only of the shareholders, but also of the truth.” The judge later approved a $150 million deal.

Judge Rakoff has also expressed aversion to the agency’s custom of settling cases without forcing the defendant to admit wrongdoing. In an opinion earlier this year, he threatened to reject the next S.E.C. settlement that included such language.

In Wednesday’s order, Judge Rakoff reiterated his displeasure with the boilerplate wording.

“Given the S.E.C.’s statutory mandate to ensure transparency in the financial marketplace, is there an overriding public interest in determining whether the S.E.C.’s charges are true?” the judge asked.

Judge Rakoff raised several other issues and pointedly asked the agency what it did to protect against repeat violations by the defendants with which it settled.

Despite the S.E.C.’s having charged Mr. Stoker, Judge Rakoff also said he wanted to know why the agency penalized Citigroup and its shareholders rather than the bank executives who committed the wrongdoing. And “if the S.E.C. was for the most part unable to identify such alleged offenders, why was this?”

The case against Citigroup is the third brought by the S.E.C. that accuses a large bank of misleading its clients about mortgage securities. Goldman and JPMorgan Chase Company both settled their cases last year.

Other judges have rejected S.E.C. settlements. A federal judge in Washington would not approve a $75 million agreement between the agency and Citigroup over the value of its subprime mortgages until the parties revised certain aspects of the deal.

Though he is one of 40 federal judges in Manhattan, Judge Rakoff has been ubiquitous of late. On Wednesday, he presided over the arraignment of Rajat K. Gupta, the former Goldman Sachs director accused of insider trading. And he is overseeing the dispute between the trustee in the Bernard L. Madoff fraud and the owners of the New York Mets.

Judge Rakoff’s order in S.E.C. v. Citigroup Global Markets

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DealBook: With Gupta’s Arrest, Insider Inquiry Goes Beyond Wall Street

October 27, 2011 by Leave a Comment

Rajat Gupta at his home in Westport, Conn., on Wednesday morning.Douglas Healey for The New York TimesRajat Gupta at his home in Westport, Conn., on Wednesday morning.

8:46 p.m. | Updated

Rajat K. Gupta, a former director at Goldman Sachs and Procter Gamble, pleaded not guilty Wednesday to insider trading charges, setting the stage for a courtroom battle that will extend the government’s broad crackdown on Wall Street to the corporate boardroom.

On Wednesday, a federal grand jury in Manhattan charged Mr. Gupta, 62, with one count of conspiracy to commit securities fraud and five counts of securities fraud. He is accused of sharing corporate secrets about Goldman and Procter Gamble with Raj Rajaratnam, the co-founder of the Galleon Group who was sentenced to 11 years in prison earlier this month for insider trading.

The details of the indictment, many of which came out during Mr. Rajaratnam’s trial and a previous action by the Securities and Exchange Commission, could prove explosive; he is the first executive from the upper echelons of corporate America to be implicated in the far-reaching scandal.

“Rajat Gupta was entrusted by some of the premier institutions of American business to sit inside their boardrooms, among their executives and directors, and receive their confidential information so that he could give advice and counsel for the benefit of their shareholders,” Preet Bharara, the United States attorney in Manhattan, said in a statement. “As alleged, he broke that trust and instead became the illegal eyes and ears in the boardroom for his friend and business associate, Raj Rajaratnam, who reaped enormous profits from Mr. Gupta’s breach of duty.”

A stoic Mr. Gupta, wearing a navy blue suit and red tie, pleaded not guilty to all charges. He is set to be released on a $10 million bond, secured by his home in Westport, Conn., and will turn over his passport.

“The facts in this case demonstrate that Mr. Gupta is innocent of any of these charges and that he has always acted with honesty and integrity,” Gary P. Naftalis, a lawyer for Mr. Gupta, said in a statement.

Judge Jed S. Rakoff, a federal judge in Manhattan, has been assigned to the case, set for trial on April 9, 2012. He ruled on a matter between Mr. Gupta and the S.E.C. this summer.

The government has taken aggressive action against insider trading. In the last two years, the government has charged 56 people with swapping illegal tips, including Mr. Gupta; of those, 51 have pleaded guilty or have been convicted.

With Mr. Gupta, the campaign has moved beyond financial professionals. As the head of McKinsey Company, the prominent consulting firm, Mr. Gupta advised some of the world’s most influential people, rubbing elbows with the chief executive of General Electric, Jeffrey R. Immelt, and the former President Bill Clinton.

Mr. Gupta’s case has been tricky for the government. Although his name came up repeatedly at Mr. Rajaratnam’s trial, both in testimony and in secretly recorded phone conversations, the Justice Department never brought charges against him.

The S.E.C. filed an administrative action against Mr. Gupta. In response, he filed a separate lawsuit, asking to move the case to federal court, where it would be heard by a jury.

Judge Rakoff allowed Mr. Gupta’s suit to move forward in July, saying the S.E.C. took a “cavalier approach” in approving the administrative proceeding. The agency later dropped the matter, but reserved the right to refile.

On Wednesday, the S.E.C. filed a civil complaint against Mr. Gupta and Mr. Rajaratnam, claiming an “extensive insider trading scheme.” It mirrored the agency’s earlier action against Mr. Gupta.

“Gupta was honored with the highest trust of leading public companies, and he betrayed that trust by disclosing their most sensitive and valuable secrets to the disadvantage of investors, shareholders, and fellow directors,” Robert S. Khuzami, director of the S.E.C.’s division of enforcement, said in a statement.

According to the indictment, Mr. Gupta gave Mr. Rajaratnam advance word of Warren E. Buffett’s $5 billion investment in Goldman during the financial crisis. After hanging up from a special board meeting in September 2008, Mr. Gupta called Mr. Rajaratnam within 16 seconds, prosecutors said. Moments later, Mr. Rajaratnam purchased shares in Goldman, ultimately netting about $840,000, according to the indictment.

The next month, Mr. Gupta ostensibly informed Mr. Rajaratnam that Goldman would report an unexpected quarterly loss. Acting on the tip the next day, Mr. Rajaratnam, sold off shares in the company, saving millions of dollars, the indictment stated.

Mr. Gupta is also accused of tipping Mr. Rajaratnam about Procter Gamble’s quarterly sales projections, which were going to be weaker than predicted. Mr. Rajaratnam promptly bet against the company’s stock, the indictment says.

The government has said that Mr. Gupta was eager to deepen his personal and financial ties with the billionaire hedge fund manager, which predate the alleged tips. From 2003 to 2005, Mr. Gupta had money in at least two of Mr. Rajaratnam’s hedge funds, an investment valued at about $2.5 million by March 2005, according to the indictment.

The two men also started several financial ventures together, including Voyager Capital Partners, financed with $10 million from Mr. Gupta and $40 million from Mr. Rajaratnam. The investment fund allocated some money to Galleon hedge funds, including ones managed by Mr. Rajaratnam.

“There were legitimate reasons for any communications between Mr. Gupta and Mr. Rajaratnam,” Mr. Naftalis, Mr. Gupta’s lawyer, said in a statement. “Mr. Gupta lost his entire investment in the fund at the time of the events in question, negating any motive to deviate from a lifetime of probity and distinguished service.”

In past Galleon-related trials, the government relied heavily on the use of wiretaps and recordings to make its case. But prosecutors may not have the same breadth of evidence this time, since the Goldman discussions between Mr. Rajaratnam and Mr. Gupta were not taped. Instead, the government has conversations between Mr. Rajaratnam and his employees.

In one call played during Mr. Rajaratnam’s trial, the hedge fund manager told someone: “I heard yesterday from somebody who’s on the board of Goldman Sachs that they are going to lose $2 per share.” In a different call, Mr. Rajaratnam said, “I got a call saying something good is going to happen to Goldman.”

That could present a challenge. The judge could disallow the calls as hearsay, meaning they would be deemed too unreliable to pass court muster.


U.S. v. Rajat K. Gupta

Article source: http://dealbook.nytimes.com/2011/10/26/gupta-surrenders-to-authorities-on-insider-trading/?partner=rss&emc=rss

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DealBook: News Corp. Shareholders Slap Down Murdoch’s Sons

October 25, 2011 by Leave a Comment

Rupert Murdoch and his son James appearing before a committee in the British Parliament in July that was investigating the News of the World phone-hacking scandal.Press Association, via European Pressphoto AgencyRupert Murdoch and his son James appearing before a committee in the British Parliament in July that was investigating the News of the World phone-hacking scandal.Lachlan MurdochPaul Hackett/ReutersLachlan Murdoch

The News Corporation’s independent shareholders voted largely against reinstating Rupert Murdoch’s sons James and Lachlan to the company’s board, according to a tally the company filed with the Securities and Exchange Commission on Monday.
 
Although the Murdoch family’s control of a large percentage of voting shares all but guaranteed that all 15 board members would be re-elected after a contentious shareholder meeting on Friday, the detailed tally showed widespread opposition to the roles of James and Lachlan Murdoch.

Investors also voted heavily against Natalie Bancroft, an aspiring opera singer and socialite, and Andrew S. B. Knight, a former News Corporation executive who serves as the head of the board’s compensation committee.


The results of Friday’s vote were not expected to have a significant impact on the company’s leadership since the Murdoch family controls 40 percent of voting shares. And Prince Walid bin Talal of Saudi Arabia controls about 7 percent of voting shares; he has publicly backed the Murdochs and their management.
 
Still, James, the company’s deputy chief operating officer, has come under increased scrutiny in recent months as the News Corporation’s British newspaper unit deals with a phone-hacking scandal at its now shuttered News of the World tabloid. He was re-elected with 433 million votes, or 65 percent of the total.

His brother Lachlan received 440.9 million votes, or approximately 66.3 percent.
 

Ms. Bancroft, who joined the board after the acquisition of her family’s company Dow Jones Company, was re-elected with 66.4 percent of the vote, while Mr. Knight received 67.7 percent.


And while Rupert Murdoch, the company’s chief executive, easily held onto his additional position as chairman, he was re-elected with 84.4 percent of the vote, one of his lowest approval rates in years. Chase Carey, the News Corporation’s chief operating officer and a likely successor to Mr. Murdoch, fared better by having garnered 90.5 percent of the vote.

The News Corporation scored some victories, to be sure. Its two newest directors, the former New York City schools chancellor Joel I. Klein and the venture capitalist James W. Breyer, were elected with more than 96 percent of the vote.

And a floor proposal to prevent Mr. Murdoch from serving as both chairman and chief executive failed spectacularly: Just 0.22 percent of votes cast were in favor of the initiative.

Still, such a significant vote against James and Lachlan Murdoch could eventually impact the future makeup of the company, analysts said. Until The News of the World scandal broke open this summer, James had been seen as a likely candidate to take over for his father.
 
“Shareholders can send a message that the company has to heed,” said Doug Creutz, a senior research analyst at the Cowen Group.

In an interview ahead of the shareholder vote, he pointed to a 2004 campaign by several thousand shareholders to oust Michael Eisner from his chief executive post at the Walt Disney Company. Not long afterward, he was replaced by Robert A. Iger.

Article source: http://feeds.nytimes.com/click.phdo?i=256b11c44dfc1704677035004346ab20

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DealBook: Chinese Stocks Plummet on News of Justice Department Inquiry

September 30, 2011 by Leave a Comment

Shares of some Chinese companies listed on exchanges in the United States tumbled on Thursday after a top American regulator said that the Justice Department was reviewing accounting irregularities at various companies based in China.

Chinese Internet companies were particularly hard hit, including Youku and Tudou, Chinese video posting sites, as well as Baidu, Sohu and Sina, also Internet stocks. The drop in share prices came after Reuters published an interview with Robert Khuzami, the enforcement chief at the Securities and Exchange Commission, who indicated that federal prosecutors were looking into possible accounting frauds.

“There are parts of the Justice Department that are actively engaged in this area,” Mr. Khuzami said, according to Reuters.

The S.E.C. confirmed his comments. The Justice Department declined to comment.

Youku’s American depository receipts closed down 18 percent, Tudou ended down 10 percent, Baidu fell 9 percent, Sohu dropped almost 5 percent and Sina fell nearly 10 percent.

Not all United States-listed Chinese companies suffered — some stocks rose during the session, including LDK Solar’s American depository receipts, which rose more than 1 percent.

An area of particular interest for regulators has been so-called reverse merger companies. These go public by purchasing the shares of defunct public companies and assuming their tickers. In recent months, such companies have been criticized by researchers who claim to have found repeated instances of fraud in their accounting.

The Securities and Exchange Commission has halted trading in more than a dozen such stocks this year, often after auditors have resigned over accounting irregularities. While some Chinese companies have fired auditors, others have restated earnings or owned up to lying about assets. These admissions have cost billions of dollars in market value and harmed other reverse-merger companies that have not been accused of any wrongdoing.

The share prices of a number of reverse merger companies fell sharply on Thursday, including AgFeed Industries and China Auto Logistics.

The steep losses in stocks have also prompted a wave of shareholder lawsuits against companies, auditors and even the banks that ushered these companies to market. One in every four federal securities class-action lawsuits filed this year relates to such firms, according to a study published this summer by the Securities Class Action Clearinghouse at Stanford Law School and Cornerstone Research in Boston.

One recent high profile example is Sino-Forest, whose share price was decimated after Muddy Waters Research charged that it was falsely claiming assets and that it amounted to a Ponzi scheme. China MediaExpress and Duoyuan Global Water are other reverse-merger companies whose stock prices have tumbled this year after accusations of fraud.

Reverse mergers have enabled companies to tap the American capital markets without having to undergo the arduous process of an initial offering.

But as more and more of these companies come under fire from bloggers and investors betting against their share prices, the government has started to take a closer look at them.

The S.E.C. has sent a steady stream of warnings to investors about the risks associated with investing in such companies. Exchanges have delisted the companies that have fallen under scrutiny or failed to file disclosures and statements in a timely manner.

But while the S.E.C. has been vocal about its investigation of these firms, it was unclear until the interview with Mr. Khuzami whether the Justice Department was looking into these allegations as well.

Article source: http://feeds.nytimes.com/click.phdo?i=dda59170c58426f5ef576840127cbd0e

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Outsize Severance Continues for Executives, Even After Failed Tenures

September 30, 2011 by Leave a Comment

Just last week, Léo Apotheker was shown the door after a tumultuous 11-month run atop Hewlett-Packard. His reward? $13.2 million in cash and stock severance, in addition to a sign-on package worth about $10 million, according to a corporate filing on Thursday.

At the end of August, Robert P. Kelly was handed severance worth $17.2 million in cash and stock when he was ousted as chief executive of Bank of New York Mellon after clashing with board members and senior managers. A few days later, Carol A. Bartz took home nearly $10 million from Yahoo after being fired from the troubled search giant.

A hallmark of the gilded era of just a few short years ago, the eye-popping severance package continues to thrive in spite of the measures put in place in the wake of the financial crisis to crack down on excessive pay.

Critics have long complained about outsize compensation packages that dwarf ordinary workers’ paychecks, but they voice particular ire over pay-for-failure. Much of Wall Street and corporate America has shifted a bigger portion of pay into longer-term stock awards and established policies to claw back bonuses. And while fuller disclosure of exit packages several years ago has helped ratchet down the size of the biggest severance deals, efforts by shareholders and regulators to further restrict payouts have had less success.

“We repeatedly see companies’ assets go out the door to reward failure,” said Scott Zdrazil, the director of corporate governance for Amalgamated Bank’s $11 billion Longview Fund, a labor-affiliated investment fund that sought to tighten the restrictions on severance plans at three oil companies last year. “Investors are frustrated that boards haven’t prevented such windfalls.”

Several years ago, the Securities and Exchange Commission turned a brighter spotlight on severance deals by requiring companies to disclose the values of the contracts in regulatory filings. More recently, the Dodd-Frank financial reforms required that public companies include “say on pay” votes for shareholders to express opinions about compensation — including a separate vote for golden parachutes initiated by a merger or sale.

Yet so far, few investors have gone to battle. Only 38 of the largest 3,000 companies had their executive pay plans voted down, according to Institutional Shareholder Services. Even then, the votes are nonbinding.

Severance policies typically call for a lump-sum cash payment, the ability to cash out stock awards and options immediately instead of having to potentially wait for years. And that’s not counting the retirement benefits and additional company stock that executives accumulate, which can increase the total value of their exit package by millions of dollars.

Some critics believe investors have become inured to the hefty payouts. In addition, the continuing financial crises in Europe and the United States have pushed compensation into the backseat on the shareholder agenda.

“People are preoccupied with the bigger issues,” said Frederick Rowe Jr., a hedge fund manager and president of Investors for Director Accountability which has sought to curb excessive pay.

The Obama administration, meanwhile, seemed to lose its bully pulpit for compensation reform after most of the nation’s biggest financial companies repaid their government loans — and Kenneth R. Feinberg, its tough-talking pay overseer, moved on to tackle other issues.

Federal Reserve officials flagged golden parachutes as a concern when they began a compensation review almost two years ago, but their inquiry was limited to large banks — not all large companies. The findings of the review are expected to be made public in the next few weeks.

Over the last year, regulators have been pressing corporate boards to draft policies denying huge severance payouts to senior executives if the firm teeters on collapse. That still leaves wiggle room for managers to score big if they merely perform poorly.

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After Hurricane Irene, Markets Plan Business as Usual

August 29, 2011 by Leave a Comment

The nation’s stock exchanges, after consulting with the Securities and Exchange Commission, said Sunday that they planned to open as usual on Monday morning. Wall Street banks said they, too, would be open for business as usual, and the Securities Industry and Financial Markets Association said bond markets were on schedule as well.

The New York Stock Exchange, in a statement, said the decision to open on schedule followed a detailed review with New York City officials “of the operational readiness of metro area safety, power, water and transportation systems, in addition to a readiness assessment of our own trading and data center facilities.”

With negligible physical damage from Hurricane Irene, the question for Wall Street was whether mass transit would be able to get people onto the trading floors in Manhattan.

But even without subways and buses, the New York Stock Exchange and the companies that employ the traders on the floor of the exchange have contingency plans to help them function with minimal staff. Many of their employees live in Manhattan or expect to drive into the city, while others were put up in hotels over the weekend.

The New York Federal Reserve also was unaffected by the storm and was expecting employees to make transportation arrangements or to work remotely Monday if mass transit was still disrupted.

Exchanges like the N.Y.S.E. and Nasdaq, BATS Trading and Direct Edge, the nation’s big electronic exchanges, have their computer centers based in New Jersey, where they also have robust backup centers that survived the storm.

Nasdaq said it had moved some staff members to alternative sites ahead of the storm but was now ready to open its market as usual Monday. Rather than force employees to commute into Manhattan, however, it would start by operating its exchange from one of its parallel centers in an undisclosed location.

The New York Stock Exchange was last closed for a weather-related reason in 1996 because of a snow storm. It was also closed for a day in 1985 during Hurricane Gloria.

Before the weekend, Wall Street’s banks were putting in place contingency plans, talking to regulators and asking employees to check systems they could use for trading from home. Many have offices around the country and said they were prepared to switch more of their operations there if necessary.

Many of New York’s largest investment banks have their headquarters in Midtown Manhattan and thus fell outside the city’s designated evacuation zones. They were planning on opening for business as normal on Monday, although some were still looking at ways to transport staff into New York if mass transit was not functioning.

The banks reported no damage to their facilities, including Goldman Sachs, whose Battery Park City headquarters was included in Mayor Bloomberg’s evacuation order. A Goldman spokesman added that “people who need to work from home will be able to.”

After closing some of its operations over the weekend, American Express, based in the World Financial Center, said its office would be closed Monday and was asking people to work from home.

Credit Suisse said it was ready to open on Monday because of its contingency planning, including “the provision of accommodations and transportation for essential New York staff.” Citigroup also said it was looking at alternative transportation to help staff.

A spokesman from Deutsche Bank said that the bank would decide later Sunday whether employees would work from its 60 Wall Street headquarters or an alternate facility, depending on the state of mass transit.

Article source: http://feeds.nytimes.com/click.phdo?i=364c92e5a126099399c185acf849dc62

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Economix Blog: A Sales Tax on Wall Street Transactions

August 23, 2011 by Leave a Comment

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Nancy Folbre is an economics professor at the University of Massachusetts Amherst.

Most of us pay state and local sales taxes on most things we buy, and most casino gambling is subject to state taxes ranging from up to 6.75 percent in Nevada to 55 percent on slot machines in Pennsylvania.

Today’s Economist

Perspectives from expert contributors.

But speculative purchases of stocks, bonds and other financial instruments in the United States go untaxed but for a tiny fee (less than a half-cent) on stock trades that helps finance the Securities and Exchange Commission.

In Britain, by contrast, a 0.5 percent tax on stock transactions raises about $40 billion a year. President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany recently announced plans to introduce a similar tax in the 27 nations of the European Community.

It is variously called a “transactions tax,” a “financial transactions tax,” a “security transaction excise tax” or a Tobin tax (after the Nobel Prize-winning economist James Tobin, who famously argued for its application to foreign exchange purchases in the late 1970s).

By any name, Wall Street hates it, because it would cut into trading profits. But proponents like Dean Baker, co-director of the Center for Economic and Policy Research assert that it would primarily affect short-term “noise traders” and discourage speculation rather than productive investment.

Less speculation could lead to less volatility in prices, encouraging long-term investors.

Further, a sales tax on Wall Street of 0.5 percent could raise up to $175 billion in tax revenue a year, even if, by discouraging frequent trades, it cuts the total number of transactions in half.

A small financial transaction tax proposed by Representative Peter DiFazio, Democrat of Oregon, and supported by Senator Tom Harkin, Democrat of Iowa, the Let Wall Street Pay for the Restoration of Main Street Act (with specific details of a co-sponsored bill still being negotiated) is likely to raise less revenue.

Plenty of highly respected economists support the basic concept, and plenty disagree. In a recent review of the literature, Neil McCulloch and Grazia Pacillo of the Institute of Development Studies in Britain conclude that it is unlikely to reduce speculation but nonetheless represents a relatively good source of tax revenue. A recent report by Thornton Matheson, published by the International Monetary Fund, expresses negative views.

An engaging summary of the pros and cons can be found in a videotaped debate sponsored by the Center for the Study of Responsive Law on July 8 as part of its “Debating Taboos” series.

My University of Massachusetts colleague Robert Pollin argues in favor, while James Angel of Georgetown argues against.

Professor Angel insists that short-term traders are not primarily speculators and describes them as a healthy part of the financial ecosystem that might be killed off. Professor Pollin’s view, with which I agree, is that short-term trading has increased enormously in recent years, with no positive impacts on economic efficiency. In any case, I don’t think a 0.5 percent tax on transactions will cause serious fatalities.

Professor Angel also points out that a tax on financial transactions will be passed on, at least in part, to all investors, with negative consequences for retirement savings. But all taxes are passed on, at least in part, to consumers. I agree with Professor Pollin when he argues that the effect of a financial transactions tax on most people would be very small compared with other sales taxes.

Economists point out that sales taxes discourage consumption, which is better than discouraging investments that can pay off in the future. But many consumption decisions that ordinary people make have important consequences for future productivity.

As Professor Pollin points out, current sales taxes bite those who buy materials to increase energy conservation in their homes or purchase a more fuel-efficient car.

My own research emphasizes that parental expenditures on children, as well as public spending on health and education, represent a form of investment in human capital.

Most state and local sales taxes are very regressive, with low-income families paying more as a percentage of their income. A proposed national sales tax, or a value-added tax, would have an even more negative impact on families at the bottom.

Our current tax policies favor speculative investment in financial instruments over productive investments in human capabilities. This imbalance helps explain why nurses’ unions in the United States have been particularly outspoken advocates of a financial transactions tax.

As they put it: “Heal America. Tax Wall Street.”

Article source: http://feeds.nytimes.com/click.phdo?i=b0a9254e024845297c7e072d032a1fc1

Filed Under: Economy News Tagged With: , ,

Economix Blog: The Director Congressman

August 19, 2011 by Leave a Comment

FLOYD NORRIS

FLOYD NORRIS

Notions on high and low finance.

My column this week discusses a company founded by Representative Darrell Issa, Republican of California, who remained on its board until it was acquired by a private equity firm a few weeks ago. About the same time that the company decided to look for a buyer, it forced small investors to sell for a fraction of what larger shareholders would soon receive.

It is the second time this week that The New York Times has run an article centered on Mr. Issa. On Monday, Eric Lichtblau reported on the “overlap between his private and business lives, with at least some of the congressman’s government actions helping to make a rich man even richer and raising the potential for conflicts.”

It is reasonable to ask why the two articles appeared in such a brief time.

The answer is that I was intrigued by references to the company in the article that appeared Monday. After reading it, I looked up the company, DEI Holdings, and was interested in what I found. It had cost its investors millions, and it had taken steps that ended up treating some investors worse than others. Had I noticed the company, I would have been tempted to write about it even if it did not have a well-known director. The involvement of Mr. Issa, who has often criticized the Securities and Exchange Commission, made it all the more interesting.

I called Mr. Issa’s spokesman on Tuesday, asking for an interview to discuss both his views on securities laws and his experience at the company. I told the spokesman of specific issues at the company that interested me. He did not call back. A spokesman for the company did return my call, but did not provide information on what I think is an important question: Had the company decided to seek a buyer before the small investors were forced out?

At the hearing Representative Issa conducted, which I link to in the column, he stated the S.E.C. had a “dual mandate.” One is to protect the public. The other is capital formation. At that hearing, at least, he was more interested in the latter. He said he believed that a loosening of S.E.C. rules would lead more companies to seek capital, and thus promote economic growth.

I think the two mandates are intimately related. Perhaps the most important aspect of our capital-raising system is the belief that investors can get a fair shake when they are in no position to closely monitor what is happening at the companies where they invest their money. If that belief were to vanish because the S.E.C. did a bad job on the first mandate, the commission would have no chance to fulfill the second one.

Article source: http://feeds.nytimes.com/click.phdo?i=df344c6f9bfab34ad2de2759975d4b68

Filed Under: Economy News Tagged With: , ,
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