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Risk of Stock Pullback Continues

Wall Street Journal MoneyBeat - 4 hours 59 sec ago
A specialist trader works on the floor of the New York Stock Exchange on April 16.

Investors breathed a sigh of relief last week as major stock indexes recovered almost all their recent losses. Talk of a major downdraft faded.

Many money managers warned clients, however, that the risk of a sharp pullback has been delayed, not eliminated. Stocks still are expensive after last year’s huge gains, making it hard for them to keep rising as the Federal Reserve reduces its support. The S&P 500 stock index last year rose 32% including dividends, its biggest gain since 1997.

“We continue to think we are going to see more volatility than we have in the past,” said Jim McDonald, chief investment strategist at Northern Trust, which manages $915 billion in Chicago.

Markets have been so strong in recent years that major indexes haven’t dropped 10% or more since September 2011. That is twice as long as usual. “Investors need to be positioned for that to happen at some point this year,” Mr. McDonald said.

He is telling clients to keep needed cash in short-term and medium-term bonds, rather than in stocks.

So far, indexes have escaped the declines many money managers expect. The Dow Jones Industrial Average fell 7% in January and early February and the S&P 500 dropped 6%, but both rebounded. Neither fell even 4% in the latest selling.

“I was a little surprised that we bounced back as quickly as we did” this month, said Jim Dunigan, chief investment officer at PNC Wealth Management, which oversees $130 billion.

“I still look at this year as a transition period, from a market that was supported by easy money, by highly accommodative monetary policy, back to one that is based on fundamentals,” he said. “All transitions are challenging but this will be sloppy to get through.”

Because the Fed and other central banks have been holding interest rates low and stocks have been rising for so long, investors have forgotten what a normal market looks like, Mr. Dunigan said. As the Fed slowly allows interest rates to rise to more-normal levels over the next few years, he and others said, markets are likely to see more-normal volatility.

In an average bull market, the S&P 500 falls by 10% or more about once every 16 months, according to Ned Davis Research. It has been 31 months since the last 10% pullback, in September 2011.

The strains are showing. The Dow closed at a record 52 times last year but hasn’t hit any records in 2014. The S&P 500 has hit eight records this year, after 45 last year. At the end of last week, the Dow was down 1% for the year and the S&P was up 0.9%, far from last year’s pace.

Last year, the S&P 500 fell as much as 2% on only two days; it already has done so three times this year, says Mr. McDonald of Northern Trust.

Stock prices are high by historical standards, although not off the charts.

The S&P 500 trades at 16 to 18 times its component companies’ earnings, depending on how the earnings are measured. That is above long-term averages of 15 to 16. At this level, stocks sometimes but not always have suffered declines. But the current price/earnings ratio is nowhere near the 35 to 40 range reached at the height of the 2000 tech-stock bubble.

A much-followed P/E measure maintained by Nobel Prize-winning Yale economist Robert Shiller, based on 10-year average earnings, is now well above its average historical level. But it isn’t quite as high as when markets peaked in 2007 and is far from its 2000 level.

While fears of a decline are widespread, few money managers expect it to be severe or long lasting. One big reason: The Fed is determined to avoid recession and to keep financial markets stable, and investors feel it is foolish to fight the Fed.

Money managers increasingly are adopting a view dubbed “Tina” by Jason Trennert, founder of Strategas Research Partners. Tina stands for “there is no alternative” (to U.S. stocks).

Low interest rates are keeping some people from buying bonds. Although U.S. stocks are more expensive than European ones, many consider the U.S. economy stronger and safer. And with developing economies like China, Brazil and Russia facing problems, many U.S. investors are wary of those stocks.

“Where are you going to put your money, in cash at zero interest? Emerging markets still are suffering from their malaise and U.S. equities are looking kind of like a safe haven,” said Janna Sampson, co-chief investment officer at OakBrook Investments, which oversees $3.3 billion in Lisle, Ill.

Ned Davis Research has been warning for months that stocks could face a pullback in the middle of this year. It says the risks will heighten if stocks keep rising and investors become overly optimistic again. But its analysts, too, forecast that declines will be limited.

“Deeper bear markets generally are due to recessions,” said the firm’s global strategist, Will Geisdorf. Because the Fed is so supportive, “we see little threat of recession until 2016 or 2017.”

Some investors are saying the market might escape a 10% decline this year. Instead it could suffer smaller pullbacks, as it already has been doing. Some term that a “sideways correction,” meaning one where stocks don’t fall heavily but fail to make significant gains for a long period.

One likelihood is that markets won’t do what most analysts expect. Big pullbacks come when investors are overly optimistic and aren’t expecting trouble. They stop hedging, move too heavily into stocks, get caught off guard by a decline and panic. Right now, it would take a sudden, unexpected shock to cause that kind of reaction.

Categories: Transactions

NASAA and the SEC: Presenting a United Front to Protect Investors

Editor's Note: Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at the North American Securities Administrators Association's Annual NASAA/SEC 19(d) Conference; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

I have been NASAA’s liaison since I was asked by NASAA to take on that role early in my tenure at the SEC, and it is truly a pleasure to continue our dialogue with my fifth appearance here at the 19(d) conference. This conference, as required by Section 19(d) of the Securities Act, is held jointly by the North American Securities Administrators Association (“NASAA”) and the U.S. Securities and Exchange Commission (“SEC” or “Commission”).

The annual “19(d) conference” is a great opportunity for representatives of the Commission and NASAA to share ideas and best practices on how best to carry out our shared mission of protecting investors. Cooperation between state and federal regulators is critical to investor protection and to maintaining the integrity of our financial markets, and that has never been more true than it is today.

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Categories: Governance

Segregation of Initial Margin Posted in Connection with Uncleared Swaps

Editor's Note: The following post comes to us from Leigh R. Fraser, partner and co-head of the hedge funds group at Ropes & Gray LLP, and is based on a Ropes & Gray publication by Ms. Fraser, Isabel K.R. Dische, and Molly Moore.

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act and Commodity Futures Trading Commission (“CFTC”) Rules 23.702 and 23.703 thereunder (together, the “Rules”), swap dealers are required to notify their counterparties that they have the right to require segregation with a third-party custodian of any initial margin (also known as “independent amounts”) posted to the swap dealer in connection with uncleared swaps. As a result of these new rules, the International Swaps and Derivatives Association (“ISDA”) recently published a form of notification and a set of frequently asked questions regarding these rules. All buy-side entities that trade in uncleared swaps with swap dealers (including buy-side entities that already post their margin with a third-party custodian, such as registered investment companies, and buy-side entities that do not post initial margin) should receive a copy of the notification from their swap dealer counterparties in the coming weeks or months and should plan to respond promptly to the notification in order to avoid any trading disruptions.

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Categories: Governance

Floating a Few Cents to Investors

Wall Street Journal MoneyBeat - Fri, 04/18/2014 - 19:15
Credit: Christophe Vorlet

Investors who want steady income are used to scrounging around trying to squeeze a little more cash flow out of their securities. Now Uncle Sam is coming to their aid.

In January, the U.S. Treasury began issuing floating-rate notes or FRNs, the first major innovation in U.S. debt since inflation-protected securities were introduced in 1997.

This new investment isn’t a bonanza, but it should enable some investors to earn a little more on their cash. “It’s not quite a free lunch,” says Todd Petzel, chief investment officer at Offit Capital, an investment-advisory firm in New York. “But maybe it’s like a free appetizer.”

The FRNs have a two-year maturity. The interest rate on an FRN consists of two parts: one that floats and one that doesn’t. The floating rate moves in lock step with the most recent three-month Treasury bill, resetting weekly as the government auctions the T-bills every Monday. The fixed rate is a “spread,” or smidgen of extra income above that on the T-bill, that is determined when the FRN is first sold. The spread stays constant until the FRN matures.

This past Monday, the three-month T-bill priced at a 0.035% yield. The FRNs, carrying a spread of 0.045%, thus yielded a total of 0.08%.

FRNs, which you can buy free of brokerage costs at TreasuryDirect.com, offer a rare opportunity. While you are assured of getting back 100 cents on your dollar two years from now, the interest rate you earn can change every week. Your money is safe for up to two years, but locked up for only seven days—until the floating rate resets.

Therefore, you face almost no risk of being hurt if interest rates rise, as you would be in conventional Treasurys.

“Imagine I buy a three-month T-bill today and then the Fed raises short-term rates next week,” Mr. Petzel says. “Then I’m going to feel like a dummy for the next 12 weeks,” since the rate on the conventional T-bill is fixed. But with an FRN, he says, “you get paid a little extra to wait and you don’t have to wait nearly as long.” The next Monday, your rate will float to the latest market level.

Mind you, you won’t get rich this way. Assuming rates stay constant, if you invest $10,000 in a three-month T-bill and reinvest the proceeds, you will earn $3.50 over the next year. Invest $10,000 in an FRN and you will earn $8. Put $10,000 in a two-year Treasury and you will get about $40.

But getting rich isn’t the point. The goal of owning such short-term investments is to keep your money as safe as possible while pocketing a little income at the same time. Mr. Petzel has one wealthy client with a multimillion-dollar cash balance who, he says, is likely to move some of it into FRNs in the coming weeks. “For savers who want ultimate safety,” he says, “even earning a handful of [extra yield] is a help.”

On the other hand, if interest rates take a sudden jump, the FRNs will begin paying higher yields. Meanwhile, the rate on the conventional two-year Treasury note will remain fixed, although its price will drop. Even though the conventional note offers the higher starting yield, you still could come out ahead buying and holding the FRN instead, if rising interest rates eventually push the FRN’s yield above that of the conventional note. (Falling or constant rates, however, will definitely leave the FRN holder behind.)

“If the Fed raises rates quickly or significantly before maturity, there’s definitely value there” in the FRN, says Vikram Rai, a fixed-income strategist at Citigroup in New York.

The FRNs are probably most suitable for investors who are “trying to get a better interest rate over a specific time period,” says Frank Fabozzi, a bond expert who teaches finance at EDHEC Business School in Paris and Princeton University. If you know you will need a sizable amount of cash in two years and are worried that interest rates might rise in the interim, the FRNs could make good sense.

Investors willing to lock up their money longer might be better off in bank certificates of deposit. A three-month CD from UmbrellaBank.com, an online division of Beal Bank of Plano, Texas, paid 0.51% annually this week, the highest rate available nationwide, according to Ken Tumin, editor of DepositAccounts.com, a website that researches interest rates on offerings from banks.

As financial planner Allan Roth of Wealth Logic, an investment-advisory firm in Colorado Springs, Colo., points out, CDs are ultimately backed by the federal government, just as Treasury securities are, since bank deposits (generally up to $250,000) are insured by the Federal Deposit Insurance Corp. So they offer comparable safety to that of Treasurys, but a higher yield.

Buy a five-year CD from Barclays at its recent 2.25% annual yield, pull your money out after two years and you will still earn an effective interest rate of 1.69% even after accounting for the bank’s penalty for early withdrawal, according to Mr. Tumin.

There isn’t any way of getting around one fact: In a world of low interest rates, investors have to work harder and be more resourceful to wring out more yield without sacrificing safety.

Categories: Transactions

5 Questions on the State of Mortgage Lending

Wall Street Journal MoneyBeat - Fri, 04/18/2014 - 18:55

Anyone who’s tried to get a mortgage in recent years knows that it hasn’t been easy. But there are growing signs that lenders are becoming less picky amid a rebound in home prices and a drop-off in mortgage refinancing. Here are five things to know:

#1: Is low-down-payment lending coming back?

Yes. To be sure, it never really went away after the housing bust hit because the Federal Housing Administration, which requires just a 3.5% down payment, continued to do business after the housing bust deepened in 2008. The FHA doesn’t make loans but insures loans made by lenders that meet its standards.

Here’s what is changing: banks are making more loans with down payments of 5% or 10% outside of the FHA. The share of loans with down payments of less than 10% rose to a five year high last year, according to data from Black Knight Financial Services. This largely reflects the increased appetite from private mortgage insurers to insure loans.

Many of these loans are sold to Fannie Mae and Freddie Mac, which will accept down payments as low as 5% as long as the loans have private mortgage insurance. Because the FHA has sharply increased its fees over the past two years, doing a low-down-payment mortgage with private insurance is often a cheaper way to go for borrowers with good credit. Borrowers will still have to pay more than they would if they had a 20% down payment.

Down payment standards are also declining for “jumbo” loans that are too large for government backing. More banks will do jumbo loans with 15% or even 10% down payments, down from 20% a few years ago.

In addition to having great credit, borrowers need to be able to thoroughly document their incomes and the source of those down payment funds. Some loans—such as condominiums—can still be harder to do. If you’re running into hurdles, check out a smaller community lender and credit unions, which tend to keep these banks on their books and might have more flexibility.

#2: What about no-money-down mortgages?

These still exist, too, though they are much harder to get than before the housing bubble. Veterans can apply for 100% financing on loans insured by the Veterans Administration, and the U.S. Department of Agriculture has several loan programs that will provide no-money-down loans in certain rural areas. Navy Federal Credit Union, the nation’s largest credit union, offers no-money-down mortgages to qualified members, which are typically members of the military.

Another alternative: Find out if you can use a down-payment gift from a family member, employer, or state agency. Some states offer down-payment assistance through their housing-finance agencies, while some lenders will allow borrowers to use gifts from family members for a down payment. In most cases, these need to truly be gifts and not loans that must be repaid. TD Bank’s “Right Start” mortgage product allows borrowers to make 3% down payments, and the funds can be gifted from a relative, nonprofit group, or state agency.

#3: Didn’t low-down-payment mortgages cause the housing bubble?

It’s true that increasing leverage fueled the housing bubble during the past decade. But many of the biggest problems stemmed from either poorly designed products—adjustable-rate mortgages with teaser rates, for example, that reset to sharply higher payments—and loans that were given out to borrowers without verifying their incomes. Those products aren’t coming back right now.

New consumer protection regulations that took effect in January are likely to block or slow their reintroduction because they impose stiff potential penalties on lenders that don’t verify a borrower’s ability to repay a mortgage. “Reaching for clients is still inconceivable to most lenders,” said Lou Barnes, a mortgage banker in Boulder, Colo., who says credit standards over the last five years have been tighter than any in his 36-year career.

To the extent lenders ease standards, they’re also unlikely to do it by expanding product offerings, said Michael Fratantoni, chief economist of the Mortgage Bankers Association. J.P. Morgan Chase & Co, for example, said earlier this year it would offer just 15 different mortgage products or programs by the end of this year, down from 25 today and 37 one year ago. “We just want to make sure for the customer’s benefit…we offer simplified products that they clearly understand,” said Kevin Watters, chief executive of the bank’s mortgage unit.

#4: In what ways are credit standards still stringent?

Borrowers with weak credit are largely on the outs. Some 28% of purchase loans last year went to borrowers with credit scores above 780, compared to less than 12% in 2001, before the housing bubble began inflating, according to a recent report from Goldman Sachs. Meanwhile, less than 0.2% of borrowers had credit scores below 620 last year, compared to more than 13% in 2001.

“One can fairly say that credit is relaxing. The question we’re still trying to sort out: ‘Is it still too tight?’” said Mark Fleming, chief economist at research firm CoreLogic Inc.

To the extent lending standards are tight, economists say it’s because lenders have instituted so-called “overlays” that restrict lending beyond the requirements of Fannie, Freddie or federal agencies in order to minimize the risk they’ll have to repurchase defaulted loans. Banks are also scrutinizing anything that could be used to justify a put-back, from appraisals to the sources of a borrower’s down payment to the borrower’s bank statement and incomes.

Some banks have begun to roll back some overlays. The share of FHA borrowers with credit scores below 650 rose to 20% at the end of last year, from less than 15% in August.

But it could remain harder sledding for borrowers who can’t easily document their incomes, including those who are self-employed or have uneven incomes. Borrowers that have gone through a bankruptcy have to wait as long as seven years to get a mortgage.

#5: What does this mean for the U.S. economy?

Some economists—together with policymakers at the White House and the Federal Reserve—have raised concerns that the mortgage-credit pendulum, after swinging too far to one extreme during the bubble, has today gotten stuck too far in the other direction. The worry is that entry-level buyers and others that suffered job loss or an income shock during the recession could be shut out of the housing rebound.

All-cash buyers have accounted for roughly one third of sales of previously-owned homes in recent years. “Goodness sakes—it shouldn’t be that high,” said Matt Vernon, a top lending executive at Bank of America, at an industry conference last fall. The high share of cash buyers is a sign that “a lot of folks are avoiding the hassle of our industry,” he said.

Research by analysts at the Urban Institute, a think tank in Washington, found that if credit standards in 2012 had returned to pre-bubble levels, around 200,000 more mortgages would have been made that year.

A separate report from economists at Goldman Sachs estimated that new home sales should rise to 800,000 units in 2017, from 430,000 last year, based on traditional drivers such as job growth and household formation. But if lending standards remained at their current level, new home sales would rise to just 600,000 units.

– AnnaMaria Andriotis contributed to this post.

Categories: Transactions

Airbnb Said to Close Fund-Raising Deal With Group Led by TPG

New York Times DealBook - Fri, 04/18/2014 - 17:54
Airbnb has closed a new round of financing from a group led by TPG Growth that values the home-sharing company at about $10 billion, people briefed on the matter said.
Categories: Transactions

The Book That Isn’t On Jamie Dimon’s Nightstand

Wall Street Journal MoneyBeat - Fri, 04/18/2014 - 15:12

For someone who professes not to have read Michael Lewis’s new book, J.P. Morgan Chase chief James Dimon is pretty familiar with its particulars.

Asked on the bank’s recent earnings call about what adjustments J.P. Morgan might have to make if regulators crack down on high-frequency trading, Mr. Dimon gave an anodyne answer: “We are firmly supportive of having proper and good markets for everybody.” He then revealed a very particular bit of knowledge about “Flash Boys.” “I should point out in Michael Lewis’ book– which I did not read–on page 231 they’ve referred to us as one of the good guys,” Mr. Dimon said.

A review of the book reveals two things. First, it has no index to make for easy look-up of a bank name. Second, Mr. Dimon had the page exactly right. This is perfectly apt for a banker: the ability to communicate precise knowledge without actual exposure to the underlying material.

Notably, both Goldman Sachs and Morgan Stanley are also mentioned as “good guys” on page 321. Their executives, however, failed to mention this on their quarterly earnings calls.

Categories: Transactions

Dealpolitik: How Jos. A. Bank’s Chairman Spun Straw Into Golden Handshake

Wall Street Journal MoneyBeat - Fri, 04/18/2014 - 14:14
Getty Images

How did Jos. A. Bank Clothiers Inc. Chairman Robert Wildrick trade in a $1.5 million termination payment under a long-standing $825,000 per year consulting agreement for a new agreement providing for aggregate payments to Mr. Wildrick of up to $7.3 million?

How the Jos. A. Bank compensation committee and Mr. Wildrick fought for the extra money as they agreed last month to sell the company to Men’s Wearhouse was in a regulatory filing last week. The document reveals unusual levels of detail about the sausage-making over Mr. Wildrick’s package that occurred in the days before the Jos. A. Bank board gave final approval to the M&A deal last month and after the purchase price had been negotiated, according to the filing.

The process began with Mr. Wildrick talking to the Jos. A. Bank compensation committee and Men’s two days before the Men’s deal was signed about a retention plan for key employees of the company. Mr. Wildrick then left the call, and the discussion turned to a retention arrangement for Mr. Wildrick, the filing said.

The chairman of the Jos. A. Bank compensation committee pitched a “retention arrangement” to Men’s for which he said Mr. Wildrick would give up his consulting agreement termination payment and claims for additional compensation arising because he put in more than the 40 hours a month required by the consulting agreement. A person close to Jos. A. Bank said that long before this, the compensation committee had determined that Mr. Wildrick was entitled to be compensated for large amounts of time he put in on the Men’s and other transactions.

Men’s countered with a package that included retaining Mr. Wildrick as a consultant for a year. But Mr. Wildrick didn’t seem keen on sticking around beyond consummation of the merger with Men’s; he rejected such a consulting agreement.

So much for justifying more money with the idea of more work after the deal closes, although the person close to the company said the compensation committee believed the final package would accomplish the objectives of keeping Mr. Wildrick involved through the transition period.

Men’s also proposed giving Mr. Wildrick $3.5 million of deferred stock units vesting monthly in return for a two-year non-compete. What was behind the need for a non-compete isn’t clear. Men’s had not conditioned its tender offer on obtaining a non-compete from Mr. Wildrick or otherwise asked for one prior to this discussion, at least insofar as the regulatory filings indicate. Plus, there was a good argument that Mr. Wildrick already had a non-compete that extended through January of 2016 under his old consulting agreement, although the wording of the new non-compete is somewhat different.

Mr. Wildrick countered by asking for $5 million in cash up front for the non-compete. Men’s said no to Mr. Wildrick’s request for $5 million for the non-compete; it came back with $3.5 million in cash payable over the term, and in an apparent olive branch, offered to agree to let Jos. A. Bank pay Mr. Wildrick up to $500,000 for additional consulting services between the signing of the merger agreement and the closing of the merger.

Men’s also said it was “supportive” of Mr. Wildrick receiving additional compensation for his work beyond the requirements of his consulting agreement to date. That amount ended up being $1.8 million.

Mr. Wildrick took Men’s deal, which gave him his original $1.5 million termination payment, the $3.5 million non-compete payments (all in cash with $1 million due upfront at the closing of the tender offer), $1.8 million for the extra work under the consulting agreement to date and up to another $500,000 for extra work that may occur before the tender closing.

The bottom line is that it adds up to $7.3 million, and Mr. Wildrick will earn up to $5.8 million more than the payments provided for in his long-standing consulting agreement. In the world of golden parachutes, it is not an extraordinarily large payment. The person close to the situation said the compensation committee firmly believed Mr. Wildrick deserves what he is receiving for his extraordinarily hard work and the highly favorable outcome for the Jos. A. Bank shareholders.

What is unusual is the public disclosure of the detailed back and forth, which in my experience would have been done in response to an SEC comment on the deal’s regulatory filing.

The Jos. A. Bank compensation committee also approved a $7 million retention plan for key employees with five other executives of Jos. A. Bank receiving payments aggregating $3.8 million. Those executives need to stay with the company for 90 days after the Men’s tender offer closes. And the largest amount payable under it is $1.5 million.

Send questions, comments or story ideas to Dealpolitik@gmail.com and follow Ron on Twitter: @Dealpolitik.

Categories: Transactions

Poison Pill’s Relevance in the Age of Shareholder Activism

New York Times DealBook - Fri, 04/18/2014 - 13:31
Sotheby's adopted a poison pill to defend itself against an attempt by Daniel S. Loeb's Third Point hedge fund to replace three of Sotheby's directors. But the poison pill was invented in the 1980s to fight off hostile raiders, and Mr. Loeb is not trying to take over the company.
Categories: Transactions

Van’s Natural Foods on the Block

Wall Street Journal MoneyBeat - Fri, 04/18/2014 - 11:52

Waffle and cereal maker Van’s Natural Foods is on the auction block, according to people familiar with the matter.

Private-equity firm Catterton Partners has hired an investment bank to sell Van’s according to the people. Catterton bought Van’s in 2006, and a sale of the company could fetch around $160 million, said one of the people.

Based in Vernon, Calif., Van’s makes breakfast foods and snacks. It has a range of products including frozen waffles, cereals, french toast sticks and crackers. The brand is sold in a wide range of retail and grocery stores, including Wal-Mart Stores Inc., Target Corp. and ShopRite.

Mergermarket earlier reported on the sale efforts.

A sale of the company would follow another change in hands in the breakfast food space, which has been grappling with changes in consumer eating habits. Thursday, Post Holdings Inc. confirmed that it had agreed to acquire Michael Foods Inc. for $2.45 billion. Purchasing Michael will help Post diversify away from grains and into protein-based breakfasts such as eggs and dairy goods.

Categories: Transactions

Avenue, Fortress Execs are the Latest to Join the NBA

Wall Street Journal MoneyBeat - Fri, 04/18/2014 - 11:41
Associated Press/Chris Young

Move over Jay-Z. Wesley Edens and Marc Lasry are the newest big ballers.

As new owners of the Milwaukee Bucks, Mr. Lasry, chairman and chief executive of Avenue Capital Management, and Mr. Edens, co-founder and chairman of the board of Fortress Investment Group, are joining the growing list of private equity executives with ties to National Basketball Association teams.

The duo acquired the Milwaukee Bucks for $550 million earlier this week from long-time owner Herb Kohl, who likely saw a nice return on the sale. The former U.S. Senator acquired the team in 1985 for $18 million.

This is the most positive news Bucks’ fans have heard after an abysmal season with just 15 wins.

The Bucks, who are sitting in last place of not just the Eastern Conference but the entire league, were valued in January at $405 million, according to Forbes.

The franchise will remain in Milwaukee, and may end up with a new, much-needed arena soon. Mr. Kohl, who will end his majority ownership, even said he would pitch in $100 million towards the development of the new arena, according to the NBA news release.

Other ballers in the private equity world?

Write to Lillian Rizzo at lillian.rizzo@wsj.com

Categories: Transactions

Asset Management Units Give Banks a Boost

Wall Street Journal MoneyBeat - Fri, 04/18/2014 - 10:49

A volatile first quarter led to mixed fortunes for the trading and investment banking businesses at the largest U.S. banks, but one consistent bright spot emerged at each: asset management.

Bank of America Corp., Goldman Sachs Group Inc., J.P. Morgan Chase & Co., Morgan Stanley, Citigroup Inc. and Wells Fargo & Co. reported year-on-year increases in revenues at their asset and wealth management units during the first quarter, helping cushion lower banking and trading revenues.

Fund management and wealth businesses, which are less capital intensive than investment banking activities such as trading, have become an area of increased focus for banks since the financial crisis. The units help diversify earnings, provide the opportunity for banks to cross-sell between units and often involve investors prepared to commit funds over a longer time period.

Each bank’s fund management businesses are slightly different; for example, Bank of America has a global wealth and investment management unit, while Morgan Stanley has separate units for those activities. Citi’s private-banking business sits within its institutional clients group.

Goldman Sachs, which has made growing its investment management business a strategic priority in recent years, said the unit posted a 20% year-on-year rise in revenues to $1.57 billion during the quarter.

On Goldman’s earnings call Thursday, one analyst noted that while the bank’s investment management business has had relatively stable assets under management and revenues since 2008, it was starting to see significant inflows and revenues.

“What’s happening there?” the Oppenheimer & Co. analyst asked.

Wealth management revenues at Morgan Stanley climbed to $3.6 billion in the first three months of the year from $3.5 billion during the first quarter of last year. Meanwhile, the bank’s investment management unit saw revenues rise to $740 million in the first quarter, from $645 million during the same period in 2013.

Analysts at Jefferies Group Inc. noted that the pace of progress within Morgan Stanley’s wealth management business had “slowed somewhat but is continuing.”

At Bank of America’s global wealth and investment management unit, first quarter revenues reached a record $4.5 billion, a 3% increase on the same quarter a year earlier. Chief executive Brian Moynihan said on a call with analysts that the bank was also seeing increased demand from its wealth clients for other banking products.

J.P. Morgan Asset Management revenues rose 5% year-on-year to $2.8 billion on the back of strong U.S. and European client flows and market performance.

Citigroup’s private banking revenue rose 6% from the year earlier period, while revenue at Wells Fargo’s wealth, brokerage and retirement businesses increased 9% year-on-year.


Categories: Transactions

Online P2P Lending Raises Its Profile

Wall Street Journal MoneyBeat - Fri, 04/18/2014 - 10:41

With online peer-to-peer lender LendingClub raising money, doing M&A deals, and looking an IPO, attention is turning to this growing industry.

Peter Renton, co-founder of the Lendit Conference and CEO of Lend Academy, joined the MoneyBeat show this morning to explain what’s happening in this industry, and where it may be headed.

Categories: Transactions

Spring Cleaning for Your Record-Keeping

Wall Street Journal MoneyBeat - Fri, 04/18/2014 - 10:35

With spring finally making a lasting appearance and tax season over, it not only is a good time to clean out the house but to clean out your financial house as well. MarketWatch’s Chuck Jaffe joined the MoneyBeat show this morning to talk about how to handle all the paperwork that attended tax season, and what to do for the years to come.

Categories: Transactions

Italian Bank Increases Planned Share Sale to $6.9 Billion

New York Times DealBook - Fri, 04/18/2014 - 10:28
Monte dei Paschi di Siena is fighting to avoid nationalization and bracing for stress tests of its balance sheet by European regulators.
Categories: Transactions

Once-In-A-Decade Surge In Oil Inventories Chalked Up As ‘Anomaly’

Wall Street Journal MoneyBeat - Fri, 04/18/2014 - 09:13
Workers prepare the Orion Drilling Co.’s Polaris oil and gas drilling rig to have the mast lifted upright for the first time at the company’s assembly and integration facility in Corpus Christi, Texas.
Bloomberg News

A once-in-a-decade surge in U.S. oil inventories had traders scratching their heads this week.

U.S. crude-oil supplies rose by 10 million barrels last week, the biggest one-week gain since 2001, according to the U.S. Energy Information Administration. But much of the increase happened on the West Coast, far from the gushing wells in North Dakota and Texas.

ClipperData, which tracks oil imports, says the massive jump in oil stockpiles comes down to a big coincidence. Four tankers delivered Colombian crude to West Coast refineries last week, leading to a 1.5-million-barrel boost in Colombian exports to the region, which stretches from Arizona to Alaska, according to ClipperData.

“I think it’s an anomaly week, which is not unusual on the west coast,” said Abudi Zein, ClipperData’s chief operating officer. “It’s a very volatile region in terms of imports.”

ClipperData tracks U.S. oil and petroleum-product imports and domestic shipments using customs data and ship tracking.

Oil prices didn’t move much in response to the eye-popping inventory data. After the EIA release on Wednesday, prices settled up a penny at $103.76 a barrel on the New York Mercantile Exchange.

The muted reaction comes down to the West Coast’s isolation from the rest of the market. The region isn’t connected by pipeline to Midwestern oil production or refineries, which play a lead role in setting the price of Nymex crude futures. Traders therefore focused on the six-million-barrel rise for inventories outside the West Coast – a large but not unusual gain, said Stephen Schork, editor of energy trade publication The Schork Report.

By Thursday, market participants had shifted their focus from the overall stockpile rise to falling supplies at a key storage hub in Oklahoma where the benchmark U.S. contract is priced. Futures rose to $104.30 a barrel, a six-week high.

Categories: Transactions

Deals of the Day: ‘Flash Boys’ Fallout for Virtu, GE Still Pruning

Wall Street Journal MoneyBeat - Fri, 04/18/2014 - 08:27

Deals of the Day is your one-stop-shop for the morning’s biggest news from the finance beat, including M&A, IPOs, banks, hedge funds and private equity. Here’s what’s happening today:

Mergers & Acquisitions
Jeff Immelt

GE still pruning. General Electric Co. CEO Jeff Immelt is planning to sell more pieces of the sprawling conglomerate this year to improve its profitability. [WSJ]

Captive audience. American Securities is putting prison-phone operator  Global Tel*Link Corp. on the block after regulators decided to cap rates on interstate inmate calls. [WSJ]

All about attach rates. Marc Andreessen took to Twitter on Thursday to explain how to value tech companies. [NYT]



Flash Boys fallout. High-frequency trading firm Virtu Financial Inc. has pulled the plug on its initial-public-offering plans for now because of market turbulence and controversy around the release of “Flash Boys,” a book criticizing its industry. [WSJ]

Weibo soars. Shares of Weibo Corp. jumped 19% in their trading debut Thursday, a sharp reversal from the lackluster initial pricing for China’s version of Twitter Inc. [WSJ]

Bigger share sale. The board of troubled Italian lender Banca Monte dei Paschi di Siena SpA on Friday decided to raise the amount of a coming share sale to €5 billion ($6.91 billion), from €3 billion previously planned. [WSJ]

IPO for Monier. Braas Monier Building Group, a supplier of building materials for roofs, is planning an initial public offering in Frankfurt to raise about 500 million euros ($690 million). [Bloomberg]

LendingClub infusion. Online peer-to-peer financing company LendingClub Corp. has raised a fresh round of money valuing it at $3.8 billion, as it completes a major acquisition and moves closer to a potential initial public offering. [WSJ]

Heard on the Street. A stumbling initial-public-offering market should worry tech investors about what else may be coming down the pipe. [WSJ]


Bankruptcy & Distressed Investing

Detroit developments. A federal bankruptcy judge dismissed objections from unions, banks and bond insurers Thursday, largely clearing the way for a vote by creditors on Detroit’s debt-reduction plan in the nation’s largest municipal bankruptcy. [WSJ]



Blackstone expects more deals. Blackstone Group LP notched its most profitable first quarter ever, and the private-equity firm’s top executives shrugged off concerns that recent stock-market volatility could interfere with its ability to continue cashing out of deals. [WSJ]

Categories: Transactions

Bank Executive Used TARP Money for Luxury Condo

Wall Street Journal MoneyBeat - Fri, 04/18/2014 - 08:15

Regulators have banned a financial executive from working in banks after he used his firm’s bailout money to buy a luxury condo.

Agence France-Presse/Getty Images
The U.S. Federal Reserve building in Washington, D.C.

Darryl Woods, former chairman of Calvert Financial Corp., used $381,487 that his Ashland, Missouri, bank had received through the Troubled Asset Relief Program to buy a luxury condominium in Florida, the U.S. Federal Reserve said in an order today. And when investigators looked into the bank’s use of the funds, Mr. Woods covered up the purchase, regulators said.

The government created the emergency bailout program during the economic crisis to prevent a banking collapse.

Mr. Woods faces a near-complete expulsion from the banking sector for the indefinite future. The ban, which includes “participating in any manner” in banks, can only be lifted by special permission from the Fed.

Mr. Woods pleaded guilty last year to making a false statement to regulators, in connection to the purchase, and is serving two years probation, his attorney James R. Hobbs said. Mr. Woods maintains that the apartment was purchased for bank business to house clients and potential investors, according to his attorney. Mr. Woods hasn’t been charged with misuse of the money.

At the time of the TARP payments, rules and regulations about how the money must be used “were virtually non-existent,” Mr. Hobbs said.

Write to Joel Schectman at joel.schectman@wsj.com 

Categories: Transactions

The Robust Use of Civil and Criminal Actions to Police the Markets

Editor's Note: Mary Jo White is Chair of the U.S. Securities and Exchange Commission. This post is based on Chair White’s remarks to the Securities Industry and Financial Markets Association (SIFMA) 2014 Compliance & Legal Society Annual Seminar; the full text, including footnotes, is available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

I have participated in this event for many years and have always considered this conference to be all about the compliance and legal issues that are most important to the integrity of our securities markets. Now, as Chair of the SEC, I would like to thank you for the work you do day in and day out to protect investors and keep our markets robust and safe.

In about a week, I will have completed my first year at the SEC. It has been quite a year. We have made very good progress in accomplishing the initial goals I set to achieve significant traction on our rulemaking agenda arising from the Dodd Frank and JOBS Acts, intensify our review of the structure of our equity markets, and enhance our already strong enforcement program.

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Categories: Governance

Equity Overvaluation and Short Selling

Editor's Note: The following post comes to us from Messod Daniel Beneish, Professor of Accounting at Indiana University, Bloomington; Charles M. Lee, Professor of Accounting at Stanford University; and Craig Nichols, Assistant Professor of Accounting at Syracuse University.

In our paper, In Short Supply: Equity Overvaluation and Short Selling, which was recently made publicly available on SSRN, we use detailed equity lending data to examine the role of constraints on equity prices. We find that constrained stocks underperform, the short interest ratio (SIR) has a nonlinear association with constraints, constrained stocks have negative returns regardless of short interest ratio, high short interest yet unconstrained stocks do not underperform, yet low short interest unconstrained stocks outperform. Moreover, we show that limited supply is a key feature distinguishing constrained and unconstrained stocks, and that among constrained stocks, those with the lowest supply have the strongest negative returns. Our findings confirm that supply varies across firms (in contrast to SIR, which assumes supply is 100 percent of outstanding shares for all stocks) and short supply in the equity lending market has implications for the informational efficiency of equity prices.

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Categories: Governance


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