March 25, 2023

DealBook: I.S.S. Backs Sprint’s Deal With SoftBank

The biggest of the proxy advisory firms, Institutional Shareholder Services, lent its support to Sprint Nextel‘s proposed sale to SoftBank of Japan late Friday, amid ongoing criticism of the deal by investors and a rival bid by Dish Network.

In its report, I.S.S. found that SoftBank’s offer fairly valued Sprint and provided much-needed capital that would help the wireless provider expand its network and turn around its long-struggling fortunes.

“Given the strategic merits of the SoftBank transaction, the sales and negtiation process overseen by the board, the strength of the valuation relative to precedent transactions, and the market reaction, a vote for the transaction is warranted,” I.S.S. wrote.

The recommendation by I.S.S. may influence many of the institutional investors that own shares in Sprint ahead of a scheduled meeting on June 12. The shareholder vote is considered the last major hurdle for the deal: Sprint and SoftBank received national security clearance for the offer earlier this week, and the Federal Communications Commission is expected to rule within days.

Some shareholders have questioned whether SoftBank’s offer values the cellphone service provider highly enough.

SoftBank is offering $7.30 a share in cash. It already invested $3.1 billion in Sprint last fall, providing capital that helped shore up the American company and financed a separate bid for an affiliated network operator, Clearwire. And if the deal is approved, it will invest an additional $4.9 billion.

If the deal is approved, SoftBank would own 70 percent of Sprint.

All told, I.S.S. values SoftBank’s bid at $6.45 a share, a level the proxy adviser finds reasonable.

By contrast, Dish’s takeover bid is offering $7 a share for Sprint in cash and stock. I.S.S. did not take a position on Dish’s rival $25.5 billion bid, citing the Sprint board’s ongoing discussions with the satellite TV company and the preliminary public details of the offer.

But I.S.S. did pose questions about whether a combined Dish and Sprint, which would carry more debt, would be able to afford the necessary expenses to improve the cellphone service provider’s network.

Shares in Sprint closed on Friday at $7.30 a share, suggesting that investors are expecting a bump from either side.

Article source:

DealBook: JPMorgan Vote Is Said to Favor Dimon Keeping 2 Top Jobs

Jamie Dimon, the chief executive and chairman of JPMorgan Chase.Haraz N. Ghanbari/Associated PressJamie Dimon, the chief executive and chairman of JPMorgan Chase.

12:01 p.m. | Updated

TAMPA, Fla. — Jamie Dimon, the nation’s most powerful banker, can hold onto his title of chairman after JPMorgan Chase’s shareholders decisively defeated a proposal to split the two top jobs.

The vote to split the roles of chairman and chief executive — both of which have been held by Mr. Dimon since 2006 — received only 32.2 percent of shares voted. That is down from a vote of roughly 40 percent in support of a similar proposal last year.

All 11 directors of the bank’s board were also re-elected.

Shares of JPMorgan were up more than 2 percent in midday trading.

The votes were a convincing show of shareholder support for Mr. Dimon and the board even amid persistent questions about the bank’s controls and its dealings with regulators. Those questions have emerged after a multibillion-dollar trading loss in the bank’s chief investment office in London surprised investors last year.

The few notes of disapproval by shareholders came in the weak vote totals for the three directors who serve on the board’s risk policy committee. One of them, Ellen V. Futter, who was the only director not to attend the meeting in Tampa, barely eked out a majority, receiving about 53 percent of voting shares.

The two other directors on the committee did just a little better: James S. Crown received about 57 percent of the vote; David M. Cote got 59 percent.

The three directors had been singled out for criticism by the influential shareholder advisory firm, Institutional Shareholder Services.

In comparison, Mr. Dimon received 98 percent of the vote for the board, while Lee R. Raymond, the lead director on the board, received 95 percent.

The shareholder vote on the proposal for an independent chairman was closely watched and provided some uncomfortable scrutiny of Mr. Dimon’s leadership.

Yet some industry analysts have said that a vote in support of Mr. Dimon was assured by the complexity of JPMorgan Chase. A vote to divest Mr. Dimon of the chairman title might have prompted him to walk away, threatening to disrupt the rosy stream of profits the bank has earned for three years.

JPMorgan’s Trading Loss

Tuesday’s meeting caps an exceptionally tumultuous year that saw Mr. Dimon and his top executives working to contain the damage from the botched credit bet.

JPMorgan first announced the losses from a soured bet made by traders in the bank’s chief investment office in London last May. Since then, Ina R. Drew, who headed the unit, resigned, JPMorgan’s board clawed back more than $100 million in compensation from the traders at the center of the botched bets and
Mr. Dimon testified before Congress to account for the mishap.

The trading loss and a series of run-ins with regulators fueled a campaign to have an independent chairman to bolster oversight of the bank’s controls and to provide a strong counterweight to Mr. Dimon.

Adding to the momentum to split the roles, some shareholders said, was the fear that Mr. Dimon, known for his forceful personality, did not have enough people at the bank that could rein him in. Mr. Dimon’s confidantes who helped him navigate through the financial crisis have left the bank, including James E. Staley, a former head of the investment bank. Those who remain at the bank are mostly younger executives, many of whom are in their 40s.

The shareholder vote is a setback for investor groups who have long argued that by separating the role of chairman and chief executive, investors are better served in the boardroom. The move, shareholders argue, is aimed at creating stronger, independent boards, to keep management in check. Amid rising shareholder clout, some companies have been moving to split the role of chairman and chief executive.

JPMorgan and board members had run an unusually proactive campaign to avert the split. To help bolster its credibility, JPMorgan’s board, led by Mr. Raymond, a former chief executive of Exxon Mobil, reduced Mr. Dimon’s pay by more than 50 percent in January, to $11.5 million.

In March, the directors redoubled their support for Mr. Dimon, indicating in a proxy filing that he should keep the chairman and C.E.O. titles, and urging shareholders to vote against the proposal to split them. “The board has determined that the most effective leadership model for the firm currently is that Mr. Dimon serves as both,” the board said in the proxy filing.

The strategy helped to head off a showdown in Tampa. Still, a number of Wall Street insiders have suggested the board could have undercut the momentum to split the roles by giving more power to Mr. Raymond, the board’s lead director, while shaking up the board’s risk policy committee, which has been criticized for a lack of oversight. Instead, the board continued to support the risk policy members even over cries from shareholders to oust some directors.

JPMorgan, some industry observers argue, could have taken a page from Goldman Sachs’s playbook, which successfully scuttled a similar proposal this year by working behind the scenes to reach a deal with certain shareholders.

Under the agreement, Goldman enhanced the powers of James J. Schiro, its lead director. Mr. Schiro will set the agenda for the board, instead of merely approving it, and he will write his own letter to shareholders in the proxy statement.

In addition, Goldman’s board will increase the number of meetings of the independent directors. Those meetings would exclude Goldman’s chief executive, Lloyd C. Blankfein, and other firm executives.

As the vote fast approached, Mr. Dimon told some shareholders that he would consider leaving the bank, according to various attendees who spoke on the condition of anonymity. That admission was a central factor in some investors’ decision since it raised the possibility that the bank would reel in Mr. Dimon’s absence.

Now newly reaffirmed at the helm of JPMorgan Chase, Mr. Dimon faces a range of challenges. The bank’s relationships with regulators, once the best on Wall Street, have frayed amid concerns about faulty risk controls and oversight. At least eight federal agencies are investigating the bank.

In the latest salvo, the Federal Energy Regulatory Commission is weighing a crackdown against the bank for its energy trading activities, according to company filings.

Article source:

DealBook: Familiar With Controversy, Blankfein Offers Advice to Dimon

Lloyd C. Blankfein, left, with Jamie Dimon in 2009.Michael Reynolds/European Pressphoto AgencyLloyd C. Blankfein, left, with Jamie Dimon in 2009.

Jamie Dimon has consulted lawyers, public relation experts and bankers as JPMorgan Chase wrestles with the fallout from a multibillion-dollar trading loss. But the bank chief has received advice from an unexpected corner: Lloyd C. Blankfein of rival Goldman Sachs.

The two executives have talked privately a number of times in recent months about the challenges that Mr. Dimon is facing, people with knowledge of the relationship but not authorized to speak on the matter, have said.

JPMorgan is battling a shareholder vote on whether to separate Mr. Dimon’s positions as chief executive and chairman, and is also dealing with a number of regulatory investigations. The vote is coming to a head. Within the last week shareholders have been casting their ballots, but at least a handful of major shareholders have yet to vote, according to others briefed on the matter but not authorized to speak on the record.

The conversations between Wall Street’s two most powerful chieftains represent a reversal of roles. It is now Mr. Dimon who is in a harsh public spotlight, seemingly at odds with regulators. It was not long ago that Mr. Blankfein was being questioned by Congress over accusations that Goldman had misled investors during the financial crisis over the sale of mortgage-backed securities.

Now, with Goldman cleared of crisis-era investigations and its profits rising, Mr. Blankfein is enjoying something of a renaissance as an elder statesman of Wall Street.

“I would call them foul weather friends,” said one person with knowledge of the relationship who was not authorized to speak on the record.

JPMorgan’s Trading Loss

Mr. Dimon, left, who is facing scrutiny, and Mr. Blankfein after a White House meeting on the economy in 2009.Kevin Lamarque/ReutersMr. Dimon, left, who is facing scrutiny, and Mr. Blankfein after a White House meeting on the economy in 2009.

Foxhole buddies might be a better metaphor. Both executives steered their firms through the tumult and panic of the financial crisis.

Yet while the JPMorgan chieftain emerged from the crisis hailed as Washington’s favorite banker, Goldman’s chief was cast by many as a villain.

Having survived that trial by fire, Mr. Blankfein is advising Mr. Dimon that the current storm will eventually pass, just as it appears to have done so for Goldman, the people with knowledge of the relationship said.

Goldman’s experiences does offer lessons. At a recent meeting of top financial services industry executives, Mr. Dimon asked a small group of people, which included a top-ranking Goldman executive but not Mr. Blankfein, how Goldman managed to avoid having to put forward to shareholders a vote on whether to split the job of chairman and chief executive, according to one attendee and others briefed on the conversation.

Goldman, one person explained to Mr. Dimon, worked hard behind the scenes with its shareholders to head off such a vote, persuading them that the firm had a strong, independent lead director on its board.

While the consultations may be recent, the two men — both native New Yorkers — have long had a cordial relationship. Both are members of the Financial Services Roundtable and they have crossed paths at Manhattan fund-raisers, like the annual dinner of the Robin Hood Foundation, which raises money to fight poverty in New York City.

When together, they often try to outwit each other, said one person who has seen the two in action. At a meeting a few years ago, the person recalled, Mr. Dimon responded to a comment by Mr. Blankfein by asking, “Lloyd, are you still trying to do God’s work?” a reference to an oft-quoted remark the Goldman chief executive made to a reporter in 2009.

People close to Mr. Blankfein, who turns 59 in September, and Mr. Dimon, who is 57, emphasize that when the executives talk it is typically on a variety of issues, and it would be unusual for a call to be focused solely on Mr. Dimon’s current situation.

The shareholder vote and questions about Mr. Dimon’s leadership have come about even as the bank has generated a string of record quarterly profits. On Tuesday, a JPMorgan executive told a conference that trading revenue was running 10 to 15 percent higher this quarter, compared with the second quarter a year ago.

Yet the bank continues to be haunted by the trading losses at its chief investment office in London more than a year ago. JPMorgan has moved to put the problem behind it, firing traders at the center of the disastrous bet, seeking to regain millions of dollars in compensation and reshuffling its executive ranks.

But investigations and a Senate report and hearing that accused the bank of misleading investors and regulators have kept the spotlight on the bank. Other investigations have raised questions about the bank’s controls and relations with regulators.

Paul A. Argenti, a professor of corporate communications at Dartmouth’s Tuck School of Business, said that while JPMorgan did an excellent public relations job handling the trading losses, the bank’s public relations strategy is not enough to tackle the broader issues.

“This has ceased to be about the ‘Whale’ and it’s become about whether you can trust this institution and this executive again,” he said. Now, Mr. Dimon is bracing for the outcome of a looming vote that could threaten his position as JPMorgan’s chairman and chief executive, dual roles he has held since 2006. The nonbinding vote, which will be announced on May 21 at JPMorgan’s annual meeting in Tampa, Fla., is expected to be close. In 2012, 40 percent of shareholders voted to split the two roles.

Still, JPMorgan says despite the travails of the last year, surveys show customers are still happy with the bank. JPMorgan ranked No. 4 in the nation for customer service, in J.D. Power’s latest tally, and top among the nation’s largest banks.

And the bank may take comfort in Mr. Blankfein’s counsel that Mr. Dimon will cycle out of the headlines.

Mr. Blankfein has had a public image makeover, thanks in part to initiatives by Goldman. After the financial crisis, Goldman announced new charitable efforts, started an advertising campaign and showed an increased willingness to engage with the media.

Then, earlier in 2012, it hired Richard Siewert Jr., a former White House spokesman and counselor to former Treasury Secretary Timothy Geithner.

Article source:

DealBook: Bank of America to Pay $2.43 Billion to Settle Suit Over Merrill Deal

11:23 a.m. | Updated
Seeking to unload one of its heaviest burdens from the financial crisis, Bank of America announced on Friday that it would pay $2.43 billion to settle litigation that had accused the bank of deceiving investors in the acquisition of Merrill Lynch.

The legal woes from that deal and the bank’s acquisition of the mortgage lender Countrywide Financial earlier in the financial crisis have dogged Bank of America as it tries to turn itself around.

For a federal securities class action, the size of the Merrill settlement is surpassed only by the those of Enron, WorldCom, Tyco and Cendant settlements, according to Joseph Grundfest, a professor specializing in securities litigation at Stanford University Law School.

Bank of America said that the settlement would hurt its results for the quarter, with it and other legal expenses costing it $1.6 billion. It also agreed to adopt a “say on pay” shareholder vote, an independent compensation committee of the board and policies for committees focused on acquisitions, among other corporate governance changes.

Bank of America announced a deal to buy Merrill Lynch for $50 billion in September 2008 as Lehman Brothers was preparing to file for bankruptcy. At the time, the two firms crowed about creating a financial giant unrivaled “in its breadth of financial services and global reach.” Bank of America executives emphasized Merrill’s “great global franchise” and its extensive network of financial advisers. The company said the deal would bolster earnings by 2010.

But by the time the deal closed in January 2009, Merrill Lynch’s health had deteriorated precipitously. The class action accused Bank of America of providing false and misleading statements that disguised huge losses at the Wall Street firm before shareholder votes to approve the merger.

Bank of America denied the allegations, but said it agreed to settle in order to put the cost litigation behind it. Under the proposed settlement, Bank of America has also agreed to beef up its corporate governance policies.

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

“Resolving this litigation removes uncertainty and risk and is in the best interests of our shareholders,” Brian T. Moynihan, the bank’s chief executive, said in a statement. “As we work to put these long-standing issues behind us, our primary focus is on the future and serving our customers and clients.”

During the early years of the financial crisis, Bank of America appeared to be in better shape than its rivals because it had more ample coffers to acquire struggling lenders. Bank of America swooped in to buy two troubled firms. In 2008, Bank of America bought Countrywide Financial, the subprime mortgage lender. Later that year, Bank of America agreed to purchase Merrill.

But both deals have haunted the bank.

Since it acquired teetering Countrywide in 2008 just as the housing market was cratering, the deal has cost Bank of America more than $40 billion in losses on real-estate, legal costs and settlements, according to several people close to the bank. Within the bank, the purchase of the mortgage lender, has unleashed turmoil and regret. Mr. Moynihan, Bank of America’s chief executive, has publicly expressed regret, specifically about the timing of Countrywide’s purchase.

More than the timing, though, Bank of America has had to grapple with loans made by Countrywide. Founded 43 years ago, Countrywide promoted the virtues of owning a home for every American and made mortgages which have turned out to be some of the most troubled. The purchase of the lender effectively saddled Bank of America with hundreds of thousands of homeowners struggling to keep up with their mortgage payments.

Across the United States, Bank of America has had to spend billions of dollars to defend lawsuits related to Countrywide’s mortgage business. In the second quarter of 2011, for example, the bank reported an $8.8 billion loss, mainly related to a settlement with mortgage investors.

Earlier this year, Bank of America and four other banks agreed to a $26 billion settlement related to their foreclosure practices. That deal evolved from an investigation into the mortgage-servicing practices by all the 50 state attorneys general begun 2010 amid mounting fury over revelations that banks evicted homeowners from their homes with false or incomplete documentation.

Alone, the acquisition of Countrywide would have been enough to hobble growth at Bank of America, but coupled with the problematic purchase of Merrill Lynch, it has nearly crippled the institution. Mr. Moynihan has had to shutter bank branches, sell over billions in assets and slash tens of thousands of employees.

The marriage with Merrill began amid the financial turmoil of 2008. John Thain, the chief executive of Merrill, privately sought out Ken Lewis, the head of Bank of America, during a break in a crisis meeting at the Federal Reserve Bank of New York in lower Manhattan. Mr. Thain had realized that his firm was in critical condition and might not survive past the weekend. It was a shotgun wedding, and the two executives announced Sunday night that their firms were merging.

Bebeto Matthews/Associated PressKen Lewis, former chief executive of Bank of America

The union was rocky from the start. While the deal gave Merrill a much-needed lifeline, the brokerage firm was still hemorrhaging money. Internal calculations showed Merrill, which was saddled with billions of dollars in souring mortgage assets, had a staggering pretax loss of more than $10 billion for October and November, and December was looking even worse.

At the same time, Bank of America and Merrill were pushing forward to close the deal by January 2009. On Dec. 5, at separate meetings in Charlotte, N.C., and New York, shareholders of each company voted to approve the deal. Just days before the shareholder meetings, bank executive expected Merrill to have a fourth-quarter loss of at least $16 billion, according to the shareholder lawsuit. But there was no public disclosure of that internal forecast.

In court documents, lawyers for Mr. Lewis have said that the executive was aware of the mounting losses heading into the shareholder meetings, but following discussions with lawyers he concluded that an interim disclosure was not necessary because the key regulatory filing in support of the merger didn’t contain projections on Merrill’s fourth-quarter results.

“The losses, though large, were not out of line with losses Merrill had experienced in prior quarters; and investors were well aware that banks were sustaining significant losses as the economy deteriorated,” according to a court filing filed by his lawyers in June 2013.

As the losses inside Merrill continued to build, some executives inside Bank of America considered abandoning the deal altogether. But regulators urged executives at Bank of America to continue, arguing that any reneged deal would surely cause further turmoil in the already roiling financial system. Instead, Bank of America received a fresh injection of capital to buffer against the Merrill losses.

On Jan. 16, weeks after the deal had closed, the bailout was announced along with Merrill’s fourth-quarter net loss of $15.31 billion. Shareholders, unaware of the severity of the losses in late 2008, were furious.

Neither Mr. Thain nor Mr. Lewis survived long after debacle. A week after the bailout was announced, Mr. Lewis flew to New York from Charlotte to see Mr. Thain, telling him the board blamed him for the losses. Mr. Thain has previously said he viewed this meeting as a firing.

In April 2009, Bank of America shareholders stripped Mr. Lewis of the title of chairman. By this time, lawsuits related to the merger were mounting and the Securities and Exchange Commission was investigating. Mr. Lewis announced his retirement from the bank a month later.

The bank later paid $150 million to settle an S.E.C. lawsuit that alleged the bank did not tell its shareholders about big bonus payments Merrill had approved before the merger clolsed.

Friday’s settlement won’t be the only black mark on the bank’s financials this quarter. The bank also said that profit would be hurt by a $1.9 billion adjustment related to the value of its debt. It also faces an $800 million charge related to a income tax expense.

In all, Bank of America said earnings would be cut by 28 cents a share. The company is set to report earnings on Oct. 17.

Article source: