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Fed Is Said to Criticize Deutsche Bank’s Oversight and Reporting Efforts

New York Times DealBook - 30 min 29 sec ago
A lawyer for a former employee of the bank said the Federal Reserve Bank of New York told the German bank of its findings in December.
Categories: Transactions

Changing Old Antitrust Thinking for a New Gilded Age

New York Times DealBook - 32 min 55 sec ago
Industry-consolidating acquisitions are all the rage, creating huge corporations similar to the trusts of a century ago, but different enough to require policy that considers effects beyond competition.
Categories: Transactions

Offering Small Fees, Banks Cater to Low-Income Customers

New York Times DealBook - 35 min 52 sec ago
The products provide a different kind of payout: good will from regulators and a chance to woo customers who might one day become profitable.
Categories: Transactions

Judge Orders Argentina and Funds to Negotiate

New York Times DealBook - 54 min 28 sec ago
The judge has forbidden Argentina from paying creditors who accepted its long-ago restructuring, if the country has not satisfied the holdouts. Without a deal, the country faces default on July 30.
Categories: Transactions

Morning MoneyBeat Asia: U.S. Stocks Climb as Earnings Heat Up

Wall Street Journal MoneyBeat - 3 hours 28 min ago

Market Snap: At the New York close: S&P 500 up 0.5% at 1983.53. DJIA up 0.4% at 17113.54. Nasdaq Comp up 0.7% at 4456.02. Treasury yields down; 10-year at 2.466%. Nymex crude oil down 0.2% at $104.42. Gold down 0.6% at $1,306.10/ounce.

How We Got Here:  U.S. stocks pushed toward new record highs amid a flood of blue chip earnings, a tame inflation reading and positive existing homes sales data.

Stock trading has been choppy in recent days as investors evaluate corporate earnings reports to gauge whether the market can continue pushing to new highs. The Dow topped 17000 for the first time earlier this month and the S&P 500 is hovering within striking distance of the 2000 level.

Eighty three of the 116 companies in the S&P 500 that reported earnings as of Tuesday’s close have beat expectations, according to FactSet. For the Dow, 11 companies of the 14 that have reported have topped estimates.

There has been “a really healthy earnings picture for U.S. corporations so far,” said Michael Marrale, head of research, sales and trading at brokerage firm ITG.

Apple and Microsoft reported earnings after the bell. Both reported lackluster profits.

Coming Up: Wednesday will be a light day for Asian data releases, but it does bring Australia’s second-quarter inflation figures. Australia had a 2.90% year-over-year inflation rate for the first quarter and is forecast to have a 3.04% change to its Consumer Price Index for the second quarter.

What You Missed Overnight

Dutch Take Over Flight 17 Investigation The Netherlands said Tuesday it would take the lead in the probe of the crash of Malaysia Airlines Flight 17, but accident investigators still hadn’t arrived at the crash site amid raging fighting in the region.

U.S. Bars Flights to Tel Aviv The U.S. barred flights to Tel Aviv for at least 24 hours after a rocket from Gaza landed near Ben Gurion International Airport, angering Israel’s transportation minister who accused U.S. airlines of abetting a Hamas campaign to isolate the Jewish state.

EU Prepares to Step Up Google Investigations European Union antitrust regulators are preparing to step up their investigations into Google on several fronts, including revisiting a proposed settlement over its search-engine practices that has met with unprecedented opposition.

U.S. Stocks Rise on Data, Earnings U.S. stocks rose Tuesday, getting a lift from two economic reports and upbeat corporate earnings.

From The Wall Street Journal Asia

Joko Widodo Wins Indonesia Presidential Election Jakarta Gov. Joko Widodo was declared the winner Tuesday of Indonesia’s presidential election with more than 53% of the vote, ending weeks of uncertainty following a hard-fought contest in the Southeast Asian nation.

Low-Key Najib Labored Behind Scenes to Secure Deal Working quietly behind the scenes, Malaysian Prime Minister Najib Razak solved a seemingly intractable problem that had eluded other world leaders: how to bring home the human remains and data recorders from Malaysia Airlines Flight 17.

Interest in Riskier Currency Bonds Stirred, Not Shaken Investors are rushing into emerging-market debt denominated in local currencies amid signs of political and economic stability in some regions, even as tensions heat up in Ukraine and the Middle East.

Japan Trims Economic Growth Forecast The Japanese government trimmed its economic-growth forecast for the current fiscal year ending in March but said that it won’t give up on its long battle to bring its debt issuance under control.

From MoneyBeat

Would Hitting Russia With Iran-Style Sanctions Work? How bad could things get for Russia if the West ratcheted up its sanctions? There are possible parallels in another oil rich economy subject to crippling economic punishment: Iran.

Mom and Pop Want Yield From Their IPOs, Too When most people think of retail traders playing in the IPO market, they think of hot Internet stocks. But bankers and brokers say that more often, what retail investors really want are dividend-payers.

Ackman’s ‘Death Blow’ Fails to Knock Out Herbalife Shares of Herbalife rallied more than 20% after hedge-fund manager Mr. Ackman’s latest presentation on why he’s betting on shares of the nutritional-supplement maker to fall.

Dow Earnings: Is It the Big Mac, or the Little Wallet? Six of the index’s 30 members report earnings (five before the bell, one after market close), providing an unusually good “tell” on the state of the consumer both here in the U.S. and globally.

Categories: Transactions

BitBeat: Bitcoin Price – Curiously – Gets No Boost From Dell News

Wall Street Journal MoneyBeat - 3 hours 45 min ago
Megan Miller

Welcome to BitBeat, your daily dose of crypto-current events, written by Paul Vigna and Michael J. Casey.

Bitcoin Latest Price: $619.89, down 0.02% (via CoinDesk)

Crossing Our Desk:

After last week’s news that Dell would start taking bitcoin as payment on its website, bitcoins prices did…nothing. This was surprising to a few folks, us included, seeing as adoption by major retailers has been one of the big signposts of mainstream acceptance. Even the Misesians over at CoinBrief contend that big news is the biggest mover of the price. “The most influential actions have large impacts on the bitcoin price, so the most important pieces of news are those that cover major players in the bitcoin community or cover breakthroughs—or setbacks—in mainstream adoption.”

But we’ve noticed with quite a few of these kinds of stories this year – Dell, Expedia , Dish Networks – that the price actually hasn’t responded to any of them. Why would that be? Part of it may be that there’s a difference between retailers adopting bitcoin and consumers adopting bitcoin. It’s good for Overstock and CheapAir that both have done more than $1 million in bitcoin business, but it seems that more people are still hoarding their bitcoins than spending them.

“We need to see real transaction volume happen,” Fred Wilson, a prominent bitcoin VC, said in a speech last week in the city. “Right now, most people who get bitcoin hold it, they don’t transact with it.”

We’ve noticed over the past few months that hash rates have been rising. While they’ve been rising throughout bitcoin’s existence, it seemed to spike the past few months, from a rate 90 million hashes a second, to a rate as high as 140 million hashes per second. That indicates there is increased activity somewhere, and if it’s not turning into more spending in the general economy, then maybe Mr. Wilson’s right; maybe people are hoarding it, in anticipation of higher prices down the road.

If that’s so, it’s creating a sort of Catch 22. Hoarding precludes spending, but spending is the sign that bitcoin’s becoming a more regular feature of people’s daily lives, and that is what would really drive up the price.

In other words, somebody’s got to go out and buy a pizza or something. (Paul Vigna)

- Volabit, a Mexican bitcoin exchange, received a $250,000 investment from Barry Silbert’s Bitcoin Opportunity Corp., which it will use to help establish itself in the nascent market for digital currencies.

The site launched in February under the name Coincove, and was a beta product until May. It is the creation of Hannah Kim and Tomas Melis, who met while students at Carnegie Mellon and recently came through the Boost VC accelerator program in Silicon Valley.

Mr. Melis, who hails from Mexico, said he got the idea for Volabit from another endeavor of his, a “social startup” that was working to install solar panels in poor Mexican neighborhoods. One of the biggest problems, he realized, was simply the payments, as many locals lacked access to banking. “When I found out about bitcoin in 2011,” he said, “I thought this could have a big effect.”

Volabit is one of a burgeoning crop of bitcoin exchanges and money-processing services cropping up in emerging markets. In Mexico alone there is Bitso, MexBT, as well as the LocalBitcoins marketplace. They join BitPagos in Argentina, BitPesa in Kenya, and others that are trying to open up the vast developing world and the billions of so-called “unbanked,” which could turn out to be a bigger market for cryptocurrencies than the developed world. (Paul Vigna)

Contacts: paul.vigna@wsj.com, @paulvigna / michael.casey@wsj.com, @mikejcasey

Categories: Transactions

5 Reasons the New York Fed Isn’t Happy With Deutsche Bank

Wall Street Journal MoneyBeat - 3 hours 59 min ago
The Federal Reserve Bank of New York has given Deutsche Bank a talking-to over a range of problems the regulator says compromise the bank’s ability to meet toughening reporting standards. Here are five points that Daniel Muccia, the senior bank supervisor with oversight over Deutsche Bank, made to the bank’s executives.
Categories: Transactions

LinkedIn Does Another Deal, Buying Bizo

New York Times DealBook - 4 hours 25 min ago
LinkedIn is paying about $175 million for Bizo, a firm that lets marketers identify new business prospects and target them with relevant content.
Categories: Transactions

Apple Earnings: Mortal Profits Disappoint Street

Wall Street Journal MoneyBeat - 4 hours 42 min ago
Paul Vigna/Wall Street Journal

Apple shares were down in late trading after the technology giant reported fiscal third-quarter earnings that edged above Street views, but sales that were a hair under consensus, and iPhone sales that also disappointed.

For the quarter, Apple earned $7.7 billion, or $1.28 a share, on sales of $37.4 billion. The EPS figure was above Street consensus of $1.23, but sales were slightly below the $38 billion forecast, according to FactSet. A year ago, the company earned $1.07 on sales of $35.3 billion.

Apple shares were volatile in late trading, amid heavy volume, most recently down 0.9% at $94.14.

“Looks decent,” ISI’s Brian Marshall wrote, “guidance bit light.”

For the fiscal fourth quarter, the company projected revenue between $37-$40 billion and gross margin between 37-38%. Street consensus for sales is $37.4 billion, according to FactSet. Mr. Marshall calculated that works out to EPS of about $1.20, below his EPS forecast of $1.38 on sales of $40.9 billion.

The earnings report was strong for almost any other company; after all, clearing $7.7 billion is nothing to sneeze at. But this is Apple, a company that used to not only beat Street estimates on a regular basis, but used to make the forecasts look silly. Mortal profits – mortal by Apple standards – don’t excite the fanboys.

The company also reported that iPhone sales were up nearly 13%, to 35.2 million units. That number was a hair shy of Street estimates of 35.9 million units. IPad volume was down 9%; it sold 13.3 million units, compared to 14.6 million a year ago. Mac sales rose 18%, to 4.4 million units from 3.8 million a year ago.

The company is hosting a conference call at 5 p.m. New York time. Our colleagues at Digits will be live-blogging it.

Categories: Transactions

UBS Poaches Power Bankers from Morgan Stanley

Wall Street Journal MoneyBeat - 5 hours 17 min ago

UBS AG has poached two managing directors from Morgan Stanley, according to an internal memo obtained by The Wall Street Journal.

Reuters

New York-based Craig Edgar will join UBS as head of power investment banking in the Americas, according to the memo from Steve Cummings, UBS’s head of corporate client solutions in the Americas. Mr. Edgar spent 13 years at Morgan Stanley advising electric-and-gas utilities, independent power producers and retail energy providers, among other clients.

David Whitcher, who will also be based in New York, spent nine years at Morgan Stanley where he advised private-equity investors, waste companies, transmission companies and infrastructure funds, among other clients.

Both Mr. Edgar and Mr. Whitcher will in October join a UBS team that advises power companies on transactions including M&A, asset acquisitions and divestitures, rating agency strategies and debt-and-equity offerings.

The Swiss bank has been selectively hiring aggressively in the Americas. In recent months, UBS hired senior banker Ros Stephenson from Barclays PLC, retail banker Jerry Marcus from Bank of America Corp., health-care banker Ross Hammerman from Citigroup Inc., private-equity banker John Souza from J.P. Morgan Chase & Co., financial institutions banker Neil Carragher from Credit Suisse Group AG.

Categories: Transactions

Train Reading: A Word Crime in ‘Word Crimes’

Wall Street Journal MoneyBeat - 5 hours 34 min ago

Dutch take over lead of Flight 17 investigation – WSJ

Everybody can win in the market…and then lose – Reformed Broker

Ackman’s ‘death blow’ fails to knock out Herbalife – MoneyBeat

Inflation, still no problem for the Fed – Calculated Risk

Authors groups working on long-term strategy for dealing with Amazon – Melville House

A musical interlude: Patsy Cline; Walkin’ After MidnightYouTube

Maybe consumer behavior isn’t changing so much after all – The Ad Contrarian

Weird Al’s word crime in his song “Word Crimes” – Language Log

Categories: Transactions

Do Activist Hedge Funds Really Create Long Term Value?

Editor's Note: Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton and Steven A. Rosenblum that replies to the recently-issued empirical study by Lucian Bebchuk, Alon Brav, and Wei Jiang on the long-term effects of hedge fund activism. The study is available here, and its results are summarized in a Forum post and in a Wall Street Journal op-ed article.

About a year ago, Professor Lucian Bebchuk took to the pages of the Wall Street Journal to declare that he had conducted a study that he claimed proved that activist hedge funds are good for companies and the economy. Not being statisticians or econometricians, we did not respond by trying to conduct a study proving the opposite. Instead, we pointed out some of the more obvious methodological flaws in Professor Bebchuk’s study, as well as some observations from our years of real-world experience that lead us to believe that the short-term influence of activist hedge funds has been, and continues to be, profoundly destructive to the long-term health of companies and the American economy.

Click here to read the complete post...

Categories: Governance

Herbalife on Ackman’s Presentation: ‘Over-Promised, Under-Delivered’

Wall Street Journal MoneyBeat - 5 hours 57 min ago
Bloomberg News

Herbalife Ltd. wasn’t impressed by the latest round of allegations lobbed against it by hedge-fund manager Bill Ackman.

“Once again, Bill Ackman has over-promised and under-delivered on his $1 billion bet against our company,” Herbalife said in a statement. “After spending $50 million, two years and tens of thousands of man-hours, Bill Ackman further demonstrated today that the facts are on our side.”

Mr. Ackman of Pershing Square Capital Management took aim at Herbalife’s nutrition clubs, called the company a “criminal enterprise” and labeled Herbalife’s chief executive officer “a predator.”  After employing hundreds of investigators  to examine 240 nutrition clubs, he said Tuesday he’d reached a conclusion: “It’s time to shut this company down.”

The message didn’t seem to resonate with Wall Street. Shares rallied more than 25% on heavy trading volume Tuesday afternoon.

“We will continue to focus on our mission of bringing good nutrition and economic opportunities to communities across the globe,” Herbalife said. “We recognize that he is running out of time to make good on his bad bet against Herbalife, with the equivalent of 25.7 million shares in put options that expire on January 17, 2015. Today is evidence that Bill Ackman will not succeed.”

Earlier in the day, Mr. Ackman scoffed at the notion that he would fail.

“I’m an extremely, extremely persistent person. Extremely,” he said at the presentation. “When I believe I am right and it is important, I will go to the end of the earth.”

The statement did not address allegations from Mr. Ackman that Herbalife has been timing its stock buyback program to boost its share price.

Categories: Transactions

Ackman’s ‘Death Blow’ to Herbalife Falls Short of Its Billing

New York Times DealBook - 5 hours 58 min ago
The hedge fund billionaire William A. Ackman spent more than three hours trying to convince everyone who would listen that Herbalife is a fraud. Its stock rose more than 25 percent.
Categories: Transactions

Excerpts from New York Fed’s Letter to Deutsche Bank

Wall Street Journal MoneyBeat - 6 hours 7 min ago
Late last year, the Federal Reserve Bank of New York wrote a letter to Deutsche Bank’s U.S. executives outlining their concerns about the financial data, governance, auditing and technology systems in the bank’s U.S. units.
Categories: Transactions

Dealpolitik: Time Warner Buys Time–Or Does It?

Wall Street Journal MoneyBeat - 6 hours 43 min ago
Time Warner CEO Jeff Bewkes
AP

On Monday, the Time Warner Inc. board stuck its finger in the dike of its leaky takeover defenses. It amended its bylaws to take away the right of the holders of 15% of its shares to call a special meeting of shareholders.

The amendment means that the company should be able to hold off any hostile bid by 21st Century Fox Inc. at least until next year’s annual meeting. The next step to ensure that delay would involve Time Warner adopting a poison pill, which would prevent Fox from completing a hostile bid without board approval. If Fox does make a hostile bid, putting in a pill would be a standard defensive move.

As I have previously written, the key to being able to complete a hostile bid over the directors’ objections is the ability to have shareholders replace a majority of the board. Now that Time Warner has nixed shareholders’ ability to call a special meeting, Fox will now have to wait until the 2015 annual meeting to have shareholders vote out the board.

But in making that change to the bylaws, the board has waded into an area of Delaware corporate law that has not been definitively resolved by the Delaware courts. Under Delaware law, shareholders always have the authority to amend the bylaws. And the board can also amend the bylaws if the charter permits it, which Time Warner’s does. But if a bylaw is adopted by shareholders, can directors either immediately or years later repeal that bylaw?

The bylaw the Time Warner directors repealed Monday has a long and tortured history involving an unusual amount of shareholder voting. Prior to 2007, Time Warner shareholders had no right to call a special meeting. At the 2007 annual meeting, an owner of 1500 shares utilized the shareholder proposal process established by the Securities and Exchange Commission to propose that shareholders “ask” the directors to amend the by-laws “to give holders of 10% to 25%” of Time Warner shares the power to call a special meeting of shareholders. The board recommended that shareholders reject the proposal, but it passed by a vote of 65% of the shares voting. In December of 2007 the board adopted a by-law that permitted holders of 25% of the shares to call a meeting.

At the 2009 annual meeting, a shareholder used that same shareholder proposal process to propose a resolution to ask the board to lower the threshold to 10%. The board again opposed the proposal. Shareholders approved the proposal by a vote of 56% of the shares voting. So far the actions the shareholders had taken were not binding on the board, just recommendations.

But then the board took the action which could complicate its position in taking away the shareholders’ right to call a special meeting. At the 2010 annual meeting, it put a proposal to shareholders to formally amend the bylaws to permit holders of at least 15% of the shares to call a special meeting. It passed by a vote by 95% of the shares voted.

Monday’s elimination of the shareholders’ right to call a special meeting raises the question whether a bylaw provision approved by an overwhelming vote of shareholders can be repealed or changed without shareholder approval. Here is what then Vice Chancellor and now Chief Justice Leo Strine said about that issue in a 1999 opinion: “The question of whether a stockholder-approved bylaw may be repealed by a board of directors…has not clearly been answered by a Delaware Court. However [a Delaware Supreme Court decision and a commentator] suggest that the affirmative answer may be the correct one.”

So the odds seem to be in Time Warner’s favor, and people familiar with the company’s thinking say they believe that the bylaw change is legally valid. Still, a challenge by Fox or a group of shareholders could have a chance.

The unusual twists and turns for this bylaw aren’t over. Time Warner says that at the time of its annual meeting next year, its board intends to amend the bylaws to reinstate the ability of shareholders to call a special shareholders’ meeting. Of course, that presumes that Time Warner can stay out of the clutches of Fox until then. And of course, the board could always further amend the bylaws after that.

21st Century Fox and News Corp, owner of The Wall Street Journal, were until mid-2013 part of the same company.

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

Categories: Transactions

Skepticism From Insurer on Herbalife

Wall Street Journal MoneyBeat - 6 hours 46 min ago

It’s not just Bill Ackman who’s skeptical about the business model at Herbalife Inc.

William Kelly Jr., a vice president at Hartford Financial Services Group Inc., said in an interview with MoneyBeat Tuesday that Herbalife had approached his company for several years to buy so-called directors-and-officers polices, a type of insurance that covers the legal costs of board members and senior executives if they get sued.

Speaking at the sidelines of Mr. Ackman’s latest presentation about Herbalife, Mr. Kelly said he had been wary about providing the coverage because of his skepticism about how Herbalife generated its revenue.

“I’ve never gotten comfortable with the business model,” he said. Mr. Ackman’s latest presentation, he said, validated his doubts about Herbalife. “Ackman was certainly successful today in creating more doubts about how Herbalife makes money.”

A Herbalife spokesperson didn’t respond to a request for a comment about the firm’s insurance coverage.

You can read more about Mr. Ackman’s case against Herbalife and the company’s response here and here.

–Steven Russolillo and Erik Holm contributed to this article.

Categories: Transactions

BATS President William O’Brien Departs

New York Times DealBook - 6 hours 47 min ago
Mr. O'Brien had been in the spotlight earlier this year after he sparred on CNBC with the author Michael Lewis and Brad Katsuyama of IEX about high-speed trading.
Categories: Transactions

Dow Earnings: Is It the Big Mac, or the Little Wallet?

Wall Street Journal MoneyBeat - 6 hours 57 min ago
Getty Images

“Oh, to be back in the land of Coca-Cola ,” Bob Dylan once sang, and the lyric popped in our head this morning, because the news crossing the Tape on Tuesday – big, blue-chip earnings reports and key consumer data – provides a pretty good look at how things are in the land of Coca-Cola.

Tuesday is a big day for Dow components. Six of the index’s 30 members report earnings (five before the bell, one after market close), providing an unusually good “tell” on the state of the consumer both here in the U.S. and globally.

Coca-Cola, McDonald's , DuPont, United Technologies and Verizon all reported earnings before the bell. Microsoft reports after the market closes. The Street was not impressed. Of the five that reported, only Verizon is higher in midday trading; the others are all in the red, with Coke down 3%. That’s on a day when the Dow itself is up about 70 points.

Revenue growth tells you why. Verizon’s revenue rose 7.5% to $21.5 billion from the year prior period. United Technology saw revenue up 7.4% to $17.2 billion. McDonald’s rose 1% to $7.2 billion. For Coke, it was down 1% to $12.6 billion. DuPont’s also slipped to $9.7 billion from $9.8 billion.  None of those are particularly strong numbers.

Of that group, Coke, McDonald’s and Verizon probably give the cleanest read of the consumer. The first two saw familiar struggles, and the latter’s nifty increase came with an asterisk.

Verizon found itself getting a big boost from tablet sales, which helped it draw in about 50% more customers than it did a year ago. “Tablets are extremely good for the industry, not just for Verizon,” CFO Fran Shammo said. The rub? That growth came amid heavy promotions, some of which included giving customers a free tablet with existing accounts.

McDonald’s same-store sales were down 1.5%, which the company attributed to “negative comparable guest traffic amid ongoing broad-based challenges.” In other words, the company is saying that the problem isn’t the quality of the Big Mac but the quantity of spare cash in their customers’ wallets.

For the S&P 500 companies as a whole, this is looking like another lackluster earnings season. With about a quarter of the companies having reported, Thomson Reuters is pegging second-quarter earnings growth at 5.1% overall, and that once again is a disappointment; on July 1, growth was pegged at 6.2%, the firm said. On Jan. 1, the estimate was for 9.7%.  Revenue growth is now expected to be a modest 3.4%.

The question is: Do these corporate reports speak to broader issues? Coke, for example, saw flat soda volume in North America. Is that about consumer purchasing power, or changing tastes?

This morning’s reports on consumer prices and wages help provide an answer. Consumer prices, including food and energy and not seasonally adjusted, were up about 2.1% from a year ago. Adjusting for that inflation, average hourly wages were actually down 0.1% in June from a year ago.

In other words, even that relatively mild amount of inflation is more than consumer wages can compensate for, which explains the weak revenue growth, and consequently implies that McDonald’s problems are more about their customers’ wallets than the Big Macs.

Categories: Transactions

Renaissance Hedge Fund Chief Defends Use of ‘Basket Options’

New York Times DealBook - 7 hours 15 min ago
Peter Brown, co-chief executive of Renaissance Technologies, denies that the complicated financial instruments were used with the primary objective of skirting higher tax rates.
Categories: Transactions

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