Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Yahoo’s Board Is Said to Weigh Selling Off Core Business
By MICHAEL J. de la MERCED and VINDU GOEL
As chief of Yahoo, Marissa Mayer has stabilized the company but faces thorny challenges.
Elijah Nouvelage/Reuters
As chief of Yahoo, Marissa Mayer has stabilized the company but faces thorny challenges.
The board of Yahoo will consider major changes during meetings this week, people briefed on the plans said, as well as review plans for the sale of its valuable stake in Alibaba.
http://www.nytimes.com/2015/12/02/business/dealbook/yahoos-board-is-said-to-weigh-selling-off-core-business.html?ref=dealbook
Diageo and Heineken Agree to Swap Assets in Beer Businesses
By CHAD BRAY 5:01 AM ET
Diageo will receive $780.5 million in cash and Heineken’s holdings in a Ghanaian brewer, and Heineken will get the distribution rights for Red Stripe in the United States.
http://www.nytimes.com/2015/10/08/business/dealbook/diageo-and-heineken-agree-to-swap-assets-in-beer-businesses.html?ref=dealbook
Anheuser-Busch InBev Raises Bid for SABMiller
By CHAD BRAY 5:28 AM ET
Any merger of the brewing giants Anheuser-Busch InBev and SABMiller would be closely scrutinized by regulators.
Scott Olson/Getty Images
Any merger of the brewing giants Anheuser-Busch InBev and SABMiller would be closely scrutinized by regulators.
Anheuser-Busch InBev said it had offered to pay about $63.97 a share in cash for SABMiller, a 44 percent premium to its closing price in mid-September before speculation on a possible bid.
http://www.nytimes.com/2015/10/08/business/dealbook/anheuser-busch-inbev-sabmiller.html?ref=dealbook
To Get More Out of Workers, Invest More in Them
OCT. 2, 2015
We perform better when our most pressing needs are met. That is common sense, and it is also supported by a raft of research. Even so, it’s far easier to treat people like machines, without worrying about how they’re feeling.
When I ask business leaders whether they believe that their employees perform better when they are happier, healthier and more fulfilled, the answer is always yes. When I then ask if they systematically invest in making their employees happier, healthier and more fulfilled, the answer is almost invariably no.
The truth is that most leaders don’t think much about what the people who work for them are feeling or how meeting their needs influences their productivity.
What fuels people at work is deceptively simple. We want to feel valued and valuable — cared for by our bosses and colleagues and encouraged to develop and express our talents.
We want to matter and we also want the work we do to matter. We hunger to make our own mark and to be a part of a larger community engaged in a mission beyond ourselves.
These needs begin at the earliest stages of our lives. Feeling loved and cared for is critical to our survival and to our sense of security and trust throughout life – something the researcher and psychologist John Bowlby called “a secure base.”
At the same time, we have a need to separate and individuate – to establish our own identities. In a perfect world, our need for individuality would smoothly coexist with our need to be intimately connected with others and part of a larger community.
Instead, our early experiences are more complex, our needs aren’t always met, and they bump up against one another. The consequence is that we grow up with varying degrees of insecurity about ourselves and our relationships.
All this plays out in the workplace. Whether we are conscious of it or not, we transfer our core childhood needs into our adult relationships. It’s no wonder that the highest drivers of employee satisfaction and engagement on the job include “my supervisor genuinely cares about my well-being” and “I have the opportunity to do what I do best at work.” Feeling valued and valuable is the optimal fuel.
No chief executive I have met appreciates and articulates this deeply human drama more clearly than Bob Chapman, who owns and runs a company called Barry-Wehmiller Companies, based in St. Louis. Over the last 40 years, Mr. Chapman has taken a small, failing tool-and-die business founded by his father and built it into a company with an annual revenue of $2 billion. Along the way, Barry-Wehmiller has achieved a 15 percent compounded rate of return to investors.
Mr. Chapman has also become an evangelist for something he calls truly human leadership, which he defines as “sending people home safe, healthy and fulfilled.” I first heard him speak seven months ago at an event sponsored by the organization Conscious Capitalism. Over the last couple of weeks, I read “Everyone Matters: The Extraordinary Power of Caring for Your People Like Family,” a book that Mr. Chapman wrote with Raj Sisodia, a founder of Conscious Capitalism.
The book tells the story of Mr. Chapman’s transformation as a leader and a human being, and how he translated that into his company.
“My business education had ignored the question of how my leadership would impact the lives of other people,” he wrote. “It was mostly about how to use people to further my own financial success. I was taught to view people as functions and objects to be used and manipulated to achieve my own goals rather than as full-fledged human beings with hopes, dreams, fears and aspirations every bit as legitimate as my own.”
Today, the company is built around this guiding principle: “We measure success by the way we touch the lives of people.”
Mr. Chapman explained what that means by saying, “We have seven thousand people, and each and every one of them is somebody’s precious child. Everyone wants to be valued as someone’s precious child, and no adult wants to be treated as a child.”
A turning point in Mr. Chapman’s journey was the day he walked past a locked storeroom containing inventory parts in one of his factories.
“That practice said loudly to our people, ‘We don’t trust you,’” he wrote. “It was humiliating. We began doing away with all such trust-destroying and demeaning practices.”
“It’s a fundamentally optimistic view of people and their possibilities,” said Rhonda Spencer, the company’s head of human resources. “Trust is given here, not earned. It’s our belief that given the opportunity, people want to do a great job and perform and make things better every day.”
During the economic downturn in 2008, the company suffered financially. “We asked ourselves, ‘What would a caring family do in this situation?’” Mr. Chapman said. “Rather than layoffs, we started offering furloughs. People could take them whenever they wanted to, and some took them to help ensure that needier colleagues wouldn’t have to do so. We didn’t have to lay off anyone.”
Days at Barry-Wehmiller factories begin with a 15-minute “touch” meeting for all employees. Rather than focus on weaknesses and shortcomings at these meetings, the emphasis is on recognizing and celebrating people for what they have done right and well.
I’m not in a position to assess how well Mr. Chapman and his leaders live their message, and there are doubtlessly ways they fall short. They don’t pay above-average wages, for example, and except in a couple of factories, they don’t offer employees any form of profit-sharing. At the same time, they offer flexible hours, opportunities to rise rapidly through the ranks, time off to do service in the community, educational assistance and a powerful commitment to treating people as whole human beings.
For too long, the primary value exchange between employees and their employers has been time for money, and not much more. Bob Chapman is suggesting a deeper, richer value exchange: We will invest in you not just as a worker but also as a human being. You’ll get better at both, and so will we.
http://www.nytimes.com/2015/10/03/business/dealbook/to-get-more-out-of-workers-invest-more-in-them.html?partner=rss&emc=rss
Grim Jobs Report Is Likely to Delay a Move by the Fed on Rates
By PATRICIA COHEN
The Labor Department reported a gain of 142,000 jobs in September, and the August figure was revised downward, though unemployment remained at 5.1 percent.
http://www.nytimes.com/2015/10/03/business/economy/jobs-report-hiring-unemployment-wages-fed-rates.html?ref=business
Volkswagen Debacle on Financial Par With BP Oil Spill
By ANTONY CURRIE and OLAF STORBECK
The final bill under the Clean Water Act for BP’s Gulf of Mexico oil spill was $5.5 billion; for Volkswagen, it could be as much as $18 billion.
http://www.nytimes.com/2015/09/23/business/dealbook/volkswagen-debacle-on-financial-par-with-bp-oil-spill.html?ref=dealbook
The Plot Twist: E-Book Sales Slip, and Print Is Far From Dead
By ALEXANDRA ALTER
With readers on a reverse migration to print, the “e-book terror has kind of subsided” for bookstores and publishers.
http://www.nytimes.com/2015/09/23/business/media/the-plot-twist-e-book-sales-slip-and-print-is-far-from-dead.html?ref=business
Strong Salary Increases Expected in 2016 Despite Economic Uncertainty, Aon Survey Reveals
Employers Turn to Variable Pay to Drive Better Performance, Keep Costs in Check
MARKET WIRE 10:00 AM ET 9/21/2015
Symbol Last Price Change
AON 90.22down +0.91 (+1.02%)
QUOTES AS OF 11:48:34 AM ET 09/21/2015
TORONTO, ON -- (Marketwired) -- 09/21/15 --
Aon plc (AON) , the leading global provider of risk management and human resource consulting and outsourcing, today released its annual Canadian Salary Increase Survey, which found that Canadian employees can expect an average total salary increase of 3.0 percent in 2016. That is up from this year's estimated average salary increase of 2.8%, and suggests that employers are expecting an improvement in business conditions in 2016.
Aon surveyed more than 475 organizations across the country on expected salary increases through 2015 and next year, and found that there was wide variation in remuneration among industry and employee groups. For instance, resource-based industries are lagging other sectors this year and anticipate lower increases in 2016. As well, within their organizations, employers are increasingly emphasizing the importance of variable pay versus general increases, with sharp divisions arising between performance levels.
"Given the divergence in the fortunes of different sectors this year, it's not surprising to see that employers are rewarding their workers in response to business conditions," said Suzanne Thomson, Senior Consultant, Global Data Solutions, Aon Hewitt. "On the other hand, our survey shows that employers across sectors remain under immense pressure to keep costs in line while still attracting and retaining top talent. As a result, they are turning to variable pay as a way to recognize and reward performance without growing their fixed costs."
Professional Services, Aerospace to see the highest increases, while resource sector lags
The Canadian economy in 2015 has been a tale of two realities: a decline in energy and other resource-related sectors, spurred by the oil price shock and global weakness in commodities demand; and a strengthening of manufacturing and services-oriented sectors, which benefit from a recovering U.S. economy and a devalued Canadian dollar. Aon's Canadian Salary Increase Survey demonstrates how those two realities are impacting employee pay.
In the Services industry, the sector with the highest expected salary increase next year is Professional Services, which includes Advertising/PR, Accounting, Consulting and Legal Firms. 2016 increases are anticipated to average 3.5 percent in the sector, following a strong 2015 in which increases are averaging 3.7 percent. Also in Services, increases projected for employees in Application Services/Consulting (3.2 percent), IT Enabled Services (3.4 percent) and Retail (3.3 percent) are above the national average.
In Manufacturing, meanwhile, Aerospace leads the way, with anticipated increases of 3.4 percent next year, followed closely by the Consumer Products (3.3 percent) and Pharmaceutical (3.1 percent) sectors.
It is a far different story for resource-related sectors. After being at the top of all industries for the last few years, Oil & Gas reported a 2.5 percent actual total salary increase in 2015 and is projecting 3.0 percent in 2016. Other sectors with the lowest projected increases are Mining (2.7 percent), Forest & Paper Products (2.6 percent) and Metals (2.1 percent).
The challenges in resources are reflected by geographical disparities. For example, Alberta in 2014 led the country in average salary increase, at 3.6 percent. In 2015, however, increases averaged only 2.6 percent, according to the survey. In resource-rich Saskatchewan, meanwhile, salary increases will average just 2.2 percent -- the lowest among all provinces. By contrast, Ontario (3 percent for 2015 and 2016, up from 2.8 in 2014) has seen consistent increases year over year.
"The level of rewards that industries are able to offer employees vary widely and are typically based on competitive pressures and company performance," added Thomson. "With the oil price shock and weakness in commodities, we are seeing a real impact on resource-sector compensation."
Paying more for performance
In general, Canadian employers forecast higher salary growth in 2016 over 2015, largely in expectation of a strengthening economic recovery. According to the Aon survey, however, these increases are unlikely to apply equally to all employees. In fact, employers expect general salary increases across employee groups to average only 1.3 percent in 2016; factoring in the effect of salary freezes and pay cuts, that number falls to 0.8 percent. Both of those general increases are lower than the 2015 levels of 1.5 percent and 0.9 percent, respectively.
In contrast, employers are emphasizing variable pay practices that reward more highly engaged employees with higher salary increases. While overall merit increases are expected to average 2.7% next year, the Aon survey revealed wide variance among different performance tiers. Top performers can clearly expect higher increases in 2015.
According to the survey, the expected variable pay averages across performance tiers for 2016 are:
4.5% for those who Far Exceed Expectations;
3.6% for those who Often Exceed Expectations;
2.5% for those who Meet Expectations.
"Competitive pressures are intense, and we are seeing many companies shifting more of their spending to variable pay," said Aon Hewitt's Thomson. "Pay is a top engagement driver for employees, and as the market continues to improve, organizations will need to differentiate through variable pay programs to attract and retain top talent."
About the Survey
Aon Hewitt's Salary Planning Report -- 2015-2016 represents the 28th annual study focusing on overall changes in employee compensation for the calendar year 2015 and current projections for 2016. Information was collected during June and July. Visit http://www.globalcompensation.net/ for more information.
About Aon
Aon plc (AON) is a leading global provider of risk management, insurance brokerage and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 69,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative risk and people solutions. For further information on our capabilities and to learn how we empower results for clients, please visit: http://aon.mediaroom.com.
Follow Aon on Twitter: @AonHewittCA
Sign up for News Alerts: aon.mediaroom.com
Risk. Reinsurance. Human Resources.
Media Contacts
Rosa Damonte
rosa.damonte@aonhewitt.com
+1.416.227.5718
Alexandre Daudelin
alexandre.daudelin@aonhewitt.com
+1.514.982.4910
Source: Aon Hewitt
Puerto Rico’s Debt Rescue Plan Called Into Question
By MARY WILLIAMS WALSHSEPT. 16, 2015
A week after the governor of Puerto Rico laid out a plan for attacking the island’s heavy debt, analysts are beginning to publicly question the proposals and even the financial assumptions on which they are based.
The doubts suggest that Gov. Alejandro García Padilla’s strategy to persuade bondholders and other investors to voluntarily help the island restructure the debt — and take losses on their investments as a result — is a long shot.
One credit analyst, Ryan Brady of Morgan Stanley, said it appeared that the planners had greatly overstated Puerto Rico’s financial needs over the next five years. As a result, he said in a private presentation to clients, Puerto Rico was hoping to get $14 billion in concessions from its creditors, when in fact it might need as little as $5.7 billion.
And Sergio M. Marxuach, public policy director for the Center for a New Economy, a research institute in San Juan, P.R., said on Wednesday that the five-year plan appeared to be “tilted toward austerity rather than growth,” which could undermine its key goal of reviving the island’s economy.
Mr. Marxuach also questioned whether the Puerto Rican government could carry out the plan, because it relies on an independent control board to enforce politically unpalatable austerity measures. Mr. Marxuach said it was not clear how the board would function.
The Puerto Rican legislature is expected to take up the issue of a control board in the next two weeks, but lawmakers have said other elements of the five-year plan will not be considered until January.
Barbara Morgan, a spokeswoman for Puerto Rico’s Government Development Bank, which arranges the island’s borrowing and liquidity needs, said the bank did not have access to the data underlying the Morgan Stanley assessment. But in an email, she said, “This analysis appears, at best, sloppy and, worse, a disservice to the 3.5 million American citizens of Puerto Rico.”
She added, “It’s incredibly unfortunate that something of such quality was used to inform an investment bank’s clients or the public at large.”
Puerto Rico’s governor warned in June that its debt was “unpayable,” and the only hope was to reduce scheduled payments for a few years while reforming the island’s deeply depressed economy. He assigned a team of government finance specialists to develop a plan, which was released to the public last week.
The planners projected the total cost of providing government services on the island for the next five years, and found that it would be about $28 billion more than the resources available. They then devised a number of austerity measures and tax changes, which they said could whittle the projected five-year shortfall down to $14 billion.
Over the same period, they said, the Puerto Rican government is scheduled to pay about $18 billion to a large group of creditors. The plan calls for withholding about $14 billion of those payments and using the money to fill the gap.
In a slide show that accompanied a client briefing last week, Mr. Brady discussed the assumptions that led the planners to those numbers, saying that a different set of assumptions could produce a much smaller shortfall, just $5.7 billion.
Mr. Brady’s slides suggested that Puerto Rico’s planners had excluded the effects of certain tax changes in arriving at a five-year shortfall of $14 billion. For example, the working group accounted for a sharp increase in sales taxes on the island in a way that increased the five-year shortfall by $5.3 billion, Mr. Brady concluded.
Mr. Brady declined to comment on his presentation, a copy of which was reviewed by The New York Times. Disclaimers at the end of the report said it was a “sales and trading commentary,” prepared for institutional clients considering derivatives transactions with the bank. It said it did not necessarily reflect the opinions of Morgan Stanley’s research department.
At the Center for a New Economy, Mr. Marxuach said that he had turned to research on other debt crises by Carmen M. Reinhart and other economists. Their work showed that “kick the can” strategies that pushed debt payments farther into the future did not provide enough change in countries with very protracted sovereign debt crises, he said, adding, “You still have people unwilling to invest in your country because of the huge debt cloud over it.”
In those cases, something more powerful was needed, such as the “Brady bonds” that ultimately resolved a decade-long debt crisis in the 1980s, which engulfed much of Latin America, and parts of Africa and Eastern Europe. That program was named after Nicholas F. Brady, the Treasury secretary who served under Presidents Ronald Reagan and George H. W. Bush. They allowed existing debt owed by Latin American countries to be converted into new bonds that were backed by a special type of United States Treasury bond, which the debtors could buy and pledge as collateral.
Mr. Marxuach said he was closely watching a second report, on Puerto Rico’s available cash, which was issued on the same day as the five-year debt-adjustment plan but has received much less attention. It showed that Puerto Rico’s treasury would exhaust its cash in November, despite taking “extraordinary measures” to conserve cash whenever possible.
In addition, the island’s development bank is expected to exhaust all of its cash at the end of December. That will coincide with a large payment due on the island’s general obligation bonds in early January. Those bonds were sold with an explicit constitutional guarantee, and Mr. Marxuach said that not making the payment on time, from the investor’s perspective, would be “a declaration of war.”
“If you don’t pay, you’re losing any chance of negotiations with the bondholders,” he said.
On the other hand, if Puerto Rico runs out of cash in December, it might have to shut down the government for a time. It did so once before, during a fiscal crisis in 2006, causing an outcry.
“Are you really going to send government workers home in the middle of the Christmas season, without a paycheck? Are you really going to default on January 1?” Mr. Marxuach asked. “Those are really tough decisions, but those are the kind of decisions we may have to make.”
Governor García Padilla may have signaled the answer to that question in a recent speech that was televised in Puerto Rico. He said that if Puerto Rico’s creditors would not negotiate concessions, he would have to execute the five-year plan without them.
http://www.nytimes.com/2015/09/17/business/dealbook/puerto-ricos-debt-rescue-plan-called-into-question.html?ref=dealbook
Why Yellen Blinked on Interest Rates
SEPT. 17, 2015
It has been seven years of zero percent interest rates. What’s another two or three months among friends?
That’s the conclusion that Janet Yellen and her colleagues at the Federal Reserve reached in their policy meeting on Thursday. They left interest rates unchanged at the same near-zero level where they have been lodged since December 2008. For them, the risk of changing course prematurely just seemed higher than another couple of months of zero rates.
Ms. Yellen blinked, which is not to say she made a mistake. Sometimes blinking is a very sensible thing to do.
http://www.nytimes.com/2015/09/18/upshot/yellen-blinks-on-interest-rates.html?ref=business
Dovish Tone of Fed’s Monetary Policy Statement Surprises Economists
By NELSON D. SCHWARTZ
While many on Wall Street expected the Fed to delay raising rates, few expected its language about future moves to be so dovish.
http://www.nytimes.com/2015/09/18/business/economy/feds-hesitance-not-its-decision-surprises-economists.html?ref=business
$900 Million Penalty for G.M.’s Deadly Defect Leaves Many Cold
By DANIELLE IVORY and BILL VLASIC
In a settlement, no individual employees were charged, and the Justice Department agreed to defer prosecution of G.M. for three years.
...“I don’t understand how they can basically buy their way out of it,” said Margie Beskau, whose daughter Amy Rademaker was killed in an October 2006 crash in Wisconsin. She added, “They knew what they were doing and they kept doing it.”
...Mr. Bharara emphasized that individuals could still be charged, but bringing a case against employees faces higher legal hurdles than in some other industries. Two employees in particular were singled out in the complaint as playing a central role in concealing information from regulators, but they were identified only by a vague job description.
...“This outcome fails to require adequate and explicit admission of criminal culpability from G.M. and individual criminal actions,” said Senators Richard Blumenthal of Connecticut and Edward J. Markey of Massachusetts, both Democrats, in a joint statement. “This outcome is extremely disappointing.”
http://www.nytimes.com/2015/09/18/business/gm-to-pay-us-900-million-over-ignition-switch-flaw.html
China’s Response to Stock Plunge Rattles Traders
????????? Read in Chinese
By EDWARD WONG, NEIL GOUGH and ALEXANDRA STEVENSONSEPT. 9, 2015
BEIJING — The police have been dropping in on investment firms and downloading their transaction records. Senior executives at China’s biggest investment bank have been arrested on suspicion of illegal trading. A business journalist has been detained and shown apologizing on national television for writing an article that could have hurt the market.
The Communist Party’s response to China’s monthslong stock market crisis has been swift and forceful. In addition to spending as much as $235 billion to buy shares and bolster prices, the authorities have imposed a range of extraordinary restrictions on the sale of stocks — and backed them with the full weight of a security apparatus usually more focused on political dissent than equity trades.
The strategy appears to have succeeded, at least for now, in softening the impact of the Chinese market’s biggest rout since the global financial crisis of 2008. But the new limits on trading and the efforts by the police and regulators to enforce them have unsettled investors at home and abroad who are unsure exactly what types of transactions are being banned or criminalized.
After decades of watching China make slow but steady progress in building Western-style financial markets, many are now asking whether the party is reversing course — and whether Chinese officials are willing to tolerate the sometimes turbulent waves of selling that are inherent to such markets.
“What’s happening in China is definitively spooking people,” said Dawn Fitzpatrick, the chief investment officer of O’Connor, a $5.6 billion hedge fund owned by UBS. “They’ve set themselves back a couple of years” in terms of attracting investment, she added.
Anxiety in the industry surged last week after Li Yifei, the prominent China chief of the world’s largest publicly traded hedge fund, disappeared and Bloomberg News reported that she had been taken into custody to assist a police inquiry into market volatility. Her employer, the London-based Man Group, did little to dispel fears, declining to comment on her whereabouts.
Ms. Li resurfaced on Sunday and denied that she had been detained, saying that she had been in “an industry meeting” and “meditating” at a Taoist retreat. But many in the finance sector are unconvinced.
“There is, generally, a very nervous atmosphere, as people wait to see the outcome of some of these investigations and how deep the rabbit hole goes,” said Effie Vasilopoulos, a partner at the Hong Kong office of the Sidley Austin law firm who works with hedge funds that invest in mainland China. “How wide a net is the government going to cast in terms of looking at foreign firms and their operations — not just onshore, but also offshore as well?”
The authorities are canvassing industry players in several cities, including Beijing and Shanghai. Police officers under the Chinese Ministry of Public Security specializing in economic crimes have joined agents from the nation’s securities regulator on inspections of investment funds and brokerage firms. The authorities are combing records and questioning transactions that appear to profit from or contribute to a falling market, according to employees of investment firms who, like others who spoke anonymously, said they feared reprisals.
Police officers have downloaded extensive trading data and asked fund managers why they sold shares when the market was going down, prompting discussions about basic investment strategy. Officers have bluntly told some fund managers to just stop selling.
While regulators and law enforcement elsewhere in the world routinely meet with investment companies to monitor trading for potential abuse and illegal activity, they seldom do so with the aim of steering the direction of the markets.
The government has offered few details about the various investigations, contributing to the atmosphere of uncertainty. In late August, it announced the arrests of eight executives at state-owned Citic Securities, the country’s largest brokerage firm and investment bank, including four members of its senior management, on suspicion of insider trading.
At least four other brokerage firms said last month that they were being investigated by regulators for failing to properly identify their clients.
While insider trading is common in China’s relatively opaque markets, the investigations also serve the government’s short-term goal of discouraging sales and stabilizing prices, said Chris Powers, a senior consultant at Z-Ben Advisors, a financial consulting firm in Shanghai. “Is this more about limiting supposed market manipulation, or is it about sending a message to the market as a whole and using these cases as examples?” he asked.
Starting in the middle of last year, China’s markets enjoyed a breathtaking rally driven by record levels of margin financing, or borrowing to invest in stocks, and strong signals of government support, including cheery reports on the bull market in official news outlets like People’s Daily. But the Shanghai composite index has fallen 37 percent since the sell-off began in June, and the government has intervened directly and repeatedly in an attempt to support prices.
The measures include restrictions on short-selling, or betting that stocks will fall. Regulators in the United States took similar action for a month at the height of the 2008 financial crisis, but the Chinese authorities have been vague about what kinds of transactions have been prohibited and for how long. The police have said they are investigating “malicious” short-selling but have not said what that entails.
The crackdown on short-selling and other trading strategies has been particularly disruptive for hedge funds, which depend on such trades to balance risks and limit losses.
“They seem to be harassing anybody that they thought was selling or was short,” said one hedge fund manager in Hong Kong who does not have investments on the mainland. “Hello, it’s a hedge fund — they are long and short — but China is only looking at the short side.”
The government has also suspended initial public offerings and prohibited investors who own more than 5 percent of a company from selling shares.
While central banks in the United States, Europe and Japan have used unconventional monetary policy in recent years to stimulate growth and lift markets, China’s intervention has been more direct, with the government ordering brokerage firms to contribute to a bailout fund. In a report this week, analysts at Goldman Sachs estimated that entities directed by the Chinese government have spent about 1.5 trillion renminbi, or $235 billion, buying shares to support the market.
While opening its wallet, the state is also wielding a cudgel. At the end of August, Wang Xiaolu, a journalist for the respected financial newsmagazine Caijing, was detained by the police and shown on state television apologizing for an article suggesting the government might scale back its bailout of the market. Nearly 200 others have been punished in a special police campaign against “spreading rumors,” including some detained for discussing the stock market.
Censors have ordered the Chinese news media to avoid any reporting that might result in a market sell-off. With the economy growing at its slowest pace in a quarter-century and the party leadership worried about social unrest, discussion of the markets can draw official scrutiny almost as quickly as political speech.
“Like many other bad ideas, the Chinese have finally adopted the Western practice” of discouraging financial critics and banning short-selling when markets turn down, said James S. Chanos, the prominent American short-seller who has bet on a downturn in China for more than five years. “It has never worked here, and does not appear to be working there, either.”
One hedge-fund manager based in Hong Kong said that he was cashing out most of the nearly $500 million he has invested in the mainland because of fears that his money could get tied up by new rules, with no legal recourse. “I’m worried about more systemic risks” and “the witch hunt that is going on,” he said.
Another fund manager, in Singapore, said his colleagues in China were finding ways to take vacations outside of China because of a perception in the industry that the environment was becoming increasingly hostile.
The state news media has stoked the flames in the campaign against short-sellers, hedge funds and other investors, especially foreign ones. In July, the official newspaper of China’s state banks, Financial News, ran an editorial that accused Morgan Stanley, Goldman Sachs and other foreign investment banks of trying to cause a market “stampede” and said that outsiders wanted to prevent China from becoming a strong financial power.
Another article, on the popular Chinese website Sina, criticized Citadel Securities, a Chicago-based investment firm. One of the firm’s accounts in China was among a group of 34 that officials suspended in July and August for suspicious automated trading activity.
Though foreign investors are being singled out, only about 1 percent of China’s $6.4 trillion domestic market value is owned by such investors, according to estimates by UBS, the investment bank.
In recent years, some financial officials and regulators have started developing more sophisticated investment tools for the Chinese stock market, like futures and derivatives. But regulators are unlikely in the current environment to continue with such experiments, analysts said. On Sept. 2, China’s futures exchange, an important platform for hedging, announced new restrictions that quickly led to a severe drop in trading volume.
“Now we’re seeing the regulators trying to stuff the genie back into the bottle,” said Victor Shih, a political economist at the University of California, San Diego, who has worked for a hedge fund.
“For investors, if you can’t hedge, it makes it hard to mitigate any sort of risk,” he added, arguing that would “ultimately limit the wealth of the equities market” in China.
Anne Stevenson-Yang, co-founder of J Capital Research, which analyzes the Chinese economy for investors, said the restrictions on selling had turned the Chinese stock market into “a roach motel for capital.”
“You can enter,” she said, “but if you want to leave, you have to be really fleet about it because you’re mostly not going to get out.”
Edward Wong reported from Beijing, Neil Gough from Hong Kong and Alexandra Stevenson from New York. Mia Li and Kiki Zhao contributed research.
http://www.nytimes.com/2015/09/10/world/asia/in-china-a-forceful-crackdown-in-response-to-stock-market-crisis.html?ref=dealbook
The Margin Debt Time-Bomb
A terrible threat created by terrible decision-making
by Brian Pretti
Friday, September 4, 2015, 9:00 PM
http://www.peakprosperity.com/blog/94263/margin-debt-time-bomb
Fed Report Shows Autos and Housing Fueling US Growth
By THE ASSOCIATED PRESSSEPT. 2, 2015, 4:30 P.M. E.D.T.
WASHINGTON — While U.S. housing and auto sales showed strength over the summer, manufacturers were feeling pressure from China's economic slowdown and the oil industry was squeezed by lower energy prices.
That's the U.S. economic picture that emerges from the Federal Reserve's latest look at business conditions around the country. The Fed said 11 of its 12 regional banks reported that the economy grew at least modestly in July through mid-August. One of the Fed's regions — Cleveland — reported only slight growth.
The Fed report, known as the beige book, will be used for discussion when the central bank meets next on Sept. 16-17. The gathering will be closely watched because of the possibility it will decide to start raising interest rates from record lows near zero.
The recent stock market turbulence, triggered by worries about China's slowdown, has led some analysts to lower the odds for a Fed move in September. But other economists still believe a Fed rate hike this month is likely, especially if markets stabilize and Friday's unemployment report shows strong job gains continued in August.
Jennifer Lee, senior economist at BMO Capital Economics, viewed the overall tone of the survey as "a tad more positive" than the previous report.
"It doesn't appear that economic activity has slowed much since July, at least as of a week ago," she said. "No reason, here at least, for a delay in tightening" Fed interest rates.
The survey was based on information collected before Aug. 24, which means it doesn't reflect the stock market turmoil that occurred at the end of August.
Analysts at TD Economics said in a research that while there was little overlap with the recent wild market swings, the report did show that the strong dollar and Chinese economic slowdown were weighing on activity, particularly in manufacturing.
The beige book revealed a mixed picture for manufacturing, with 10 regions reporting stable or positive growth overall but New York and Kansas City seeing declines.
The Boston, Philadelphia, Cleveland, Richmond and Dallas districts all said that a strong dollar had dampened manufacturing activity. Three districts cited China's deceleration as dragging on some business. The Chinese slowdown hurt demand for wood products in the San Francisco district, chemicals in the Boston area and high-tech goods in the Dallas region.
The survey found that real estate activity improved throughout the country, with home sales and home prices climbing in all 12 districts. Auto sales were also a bright spot in most regions.
"Expectations are generally optimistic that auto sales will improve or continue to be strong through the end of the year," the report said.
Wages were reported to be "relatively stable" in most regions, although several districts noted wages heading higher in some industries. St. Louis said that almost three-fourths of the businesses surveyed reported rising wages in the last three months, while Cleveland reported intensifying wage pressure in construction, retail and transportation sectors. Kansas City and Dallas, both regions hit by layoffs in the oil industry, reported wage growth had either slowed or was flat.
The overall economy expanded at a healthy annual rate of 3.7 percent in the April-June quarter. Most forecasters believe growth has moderated slightly to around 2.5 percent in the current July-September quarter but are looking for an acceleration to around 3 percent growth in the final three months of the year.
http://www.nytimes.com/aponline/2015/09/02/us/politics/ap-us-fed-beige-book.html?ref=business
Fed Officials Say a September Rate Increase Is Still on the Table
By BINYAMIN APPELBAUM
Economic conditions will govern any decision, the officials emphasize, though continued market volatility would make a move less likely.
http://www.nytimes.com/2015/08/29/business/economy/fed-official-fischer-leaves-door-open-for-september-rate-increase.html?ref=business
Salesforce Ventures and Microsoft Join Informatica Buyout
By MICHAEL J. de la MERCEDAUG. 6, 2015
SAN FRANCISCO — As Informatica closes its $5.3 billion sale to private equity on Thursday, the enterprise software maker will count two of its big technology partners as new investors as well.
Joining Permira and the Canada Pension Plan Investment Board in buying Informatica are Microsoft and Salesforce Ventures.
The two will join the biggest leveraged buyout of the year to date, taking ownership stakes in the company, whose products combine and analyze customers’ data.
Under the terms of the transaction, Informatica shareholders will receive $48.75 a share in cash.
According to Brian Ruder, the co-head of Permira’s technology investment team, his firm had been in talks with both Microsoft and Salesforce Ventures, the latter of which is the investment arm of Salesforce.com, even before striking the leveraged buyout in April.
Part of the rationale behind bringing them on board were the relationships that each had with Informatica. The company had established a relationship with Salesforce years ago and is a regular participant in the big Dreamforce conference every year, while it also makes use of Microsoft’s cloud offerings.
“We’ve had great relationships investing alongside technology giants for a long time,” Mr. Ruder said in a telephone interview. “The key motivation was around aligning the companies with our strategy.”
Already, Permira and its co-investors have helped push for change at Informatica. The chairman and chief executive at the time the deal was struck, Sohaib Abbasi, will drop his chief executive title. Picking it up on an interim basis is Anil Chakravarthy, currently the company’s chief product officer.
Under private ownership, Informatica will continue to focus on its main product areas, including cloud services, data security and “big data” analysis. But the company, with the support of its new backers, will also search for potential takeover targets as part of an effort to be a consolidator.
“In going private, it gives us a great opportunity to plan for the long term,” Mr. Chakravarthy said. “It lets us invest in products that can really shape our future.”
In a statement, Microsoft said, “Informatica has been a strong part of Microsoft’s partner ecosystem as a data integration leader and we are excited to support Informatica in this new stage of growth as a private company.”
http://www.nytimes.com/2015/08/07/business/dealbook/salesforce-ventures-and-microsoft-join-informatica-buyout.html?ref=dealbook
Puerto Rico Defaults on Bond Payment
By MARY WILLIAMS WALSH
The Government Development Bank for Puerto Rico did not make a $58 million bond payment, saying it lacked the funds to meet the amount due.
http://www.nytimes.com/2015/08/04/business/dealbook/puerto-rico-decides-to-skip-bond-payment.html?ref=dealbook
Pimco May Face S.E.C. Action Over a Fund
By MATTHEW GOLDSTEIN
The asset manager said it had received a Wells notice from the regulator over potential trading infractions concerning an exchange-traded fund in 2012.
http://www.nytimes.com/2015/08/04/business/dealbook/pimco-may-face-sec-action-over-a-fund.html?ref=business
Exor Triumphs in Battle for Bermuda Insurer PartnerRe
The Italian investment company will pay $6.9 billion in cash after wresting the Bermuda insurer away from Axis Capital Holdings.
http://www.nytimes.com/2015/08/04/business/dealbook/exor-triumphs-in-battle-for-bermuda-insurer-partnerre.html
Aon Reports Second Quarter 2015 Results
Second Quarter Key Metrics
- Total revenue was $2.8 billion with organic revenue growth of 2%
- Operating margin was 9.9%, and operating margin, adjusted for certain items, increased 80 basis points to 19.0%
- EPS was $0.62, and EPS, adjusted for certain items, increased 5% to $1.31
- For the first six months of 2015, cash flow from operations increased 10% to $365 million, and free cash flow increased 2% to $223 million
Second Quarter Highlights
- Repurchased 3.0 million Class A Ordinary Shares for approximately $300 million
- Announced a 20% increase to the quarterly cash dividend
https://finance.yahoo.com/news/aon-reports-second-quarter-2015-103000114.html
Ford easily tops expectations on 2nd-qtr profit
Reuters
49 minutes ago
By Bernie Woodall
DETROIT, July 28 (Reuters) - Ford Motor Co on Tuesday reported second-quarter earnings that handily beat expectations, based on the continued strength of North American sales, led by its popular F-150 pickup truck.
Ford posted net quarterly profit of $1.89 billion, or 47 cents per share. Analysts estimated profit of 37 cents per share, according to Thomson Reuters I/B/E/S.
Ford shares were up 2.7 percent to $14.95 before the market opened.
Operating profit totaled nearly $2.6 billion in North America, a company record for any quarter, and was linked to better pricing on new product launches, said Bob Shanks, Ford's chief financial officer.
Ford maintained its full-year 2015 forecast of an operating profit of between $8.5 billion and $9.5 billion.
Ford also maintained a forecast of North American profit margin between 8.5 percent and 9.5 percent. Shanks said he now expects the margin to end the year at the high end of that range.
Operating profit in Asia Pacific rose 21 percent to $192 million despite a dip in industry sales in China, the world's biggest auto market.
"As this has been happening, we have been adjusting our production all along" due to the lower demand, said Shanks.
Ford lowered its 2015 forecast for industry sales in China to 23 million to 24 million vehicles, from 24.5 million to 26.5 million at the start of the year. Sales in China in 2014 were about 24 million. Shanks said Ford sees China sales of 30 million by the end of the decade.
Ford's quarterly revenue of $37.3 billion beat expectations of $35.34 billion.
Shanks said the company also achieved stronger pricing in North America because of the rollout of new versions of several models, including the F-150 truck and the Edge and Explorer SUVs.
(Editing by Jeremy Gaunt and Jeffrey Benkoe)
https://finance.yahoo.com/news/ford-easily-tops-expectations-2nd-120704579.html
?
?
?
?
.
Hillary Clinton Eyes Corporations in Proposals for Economy
By MAGGIE HABERMANJULY 24, 2015
Hillary Rodham Clinton made a case on Friday for weaning Wall Street from an addiction to profits, calling for a change to capital gains taxes for the highest earners and a string of measures to adjust the balance of power between corporate titans and their employees.
She also supported raising the minimum wage for fast-food workers to $15 an hour in New York, where a wage board this week suggested such an increase, but she also insisted that such a rise was not a one-size-fits-all approach for the whole country.
Amid pressure from the left to take a more aggressive approach toward the financial industry, Mrs. Clinton presented her proposals in a speech at New York University, the second major address of her campaign that focused on economic issues. The approach — suggesting, among other things, increasing transparency involving stock buybacks and executive compensation — is her first effort to take on Wall Street, without the gate-rattling that some more liberal elements of the Democratic Party have called for.
While the speech had a Wall Street overlay, it was more broadly about changes to corporate culture. Mrs. Clinton’s aides say she plans to give a speech specific to Wall Street in the coming weeks.
Her plans won praise from a key centrist think tank but came under criticism from anti-tax groups and some liberal analysts, who were skeptical about how much change would result.
Among the splashiest ideas was a call to overhaul capital gains taxes imposed on those in the highest income bracket, families making more than $465,000 a year, so that people would hold on to stocks for longer, reducing corporate obsession with quarterly profits. That would encourage companies to focus more on investing in long-term growth and their work forces.
The new rate, along a sliding scale over six years of holding an equity, would increase from 20 percent to nearly 40 percent for investments that taxpayers maintain for one to two years, and would gradually decrease after that, back to 20 percent. The top rate would be the same as the highest tax rate for normal income.
“The current definition of a long-term holding period, just one year, is woefully inadequate,” Mrs. Clinton said in the speech, without mentioning the specifics of the plan. “That may count as long-term for my baby granddaughter, but not for the American economy.”
She added that businesses needed “to break free from the tyranny of today’s earnings report so they can do what they do best: innovate, invest and build tomorrow’s prosperity.”
Mrs. Clinton’s proposal to change capital gains rates for the highest earners is a plan that many of her Wall Street supporters endorse.
But at least some critics on the left raised questions about her overall approach. Len Berman of the Tax Policy Center described himself as “skeptical” about whether it would encourage companies to do more to treat workers as assets.
“The purpose seems to be to encourage companies to make longer-term investments,” he said. “I don’t know that it’ll really accomplish that goal.”
Others praised the plan.
“It was a thoughtful approach to reform that would actually help people, help the middle class, instead of a symbolic thing that might make people feel better but wouldn’t have any impact on people’s lives,” said Matt Bennett, head of the center-left think tank Third Way.
“I think this is a very good-faith effort to find every possible opportunity for government to improve the system, and sometimes that’s going to be marginal, sometimes that’s going to be substantial, but they’re doing their best.”
Mrs. Clinton strongly criticized “quarterly capitalism” and the focus on generating profits for short-term earnings reports.
“A survey of corporate executives found that more than half would hold off making a successful long-term investment if it meant missing a target in the next quarterly earnings report,” Mrs. Clinton said.
“Large public companies now return eight or nine out of every 10 dollars they earn directly back to shareholders, either in the form of dividends or stock buybacks, which can temporarily boost share prices,” she said. “Last year, the total reached a record $900 billion. That doesn’t leave much money to build a new factory or a research lab, or to train workers, or to give them a raise.”
She cited a report that said some Standard & Poor’s companies in the last decade had doubled “the share of cash flow they spent on dividends and stock buybacks” and “actually cut capital expenditures on things like new plants and equipment.”
Dominic Barton, the global managing director of McKinsey & Company, who coined the term “quarterly capitalism,” praised Mrs. Clinton for focusing on “more long-term capitalism, more investment.” But he did not endorse any of her specific prescriptions, and suggested that caution was important in terms of how changes to buybacks and dividends would be addressed.
http://www.nytimes.com/2015/07/25/us/politics/hillary-clinton-offers-plans-for-changes-on-wall-street.html?&moduleDetail=section-news-4&action=click&contentCollection=DealBook®ion=Footer&module=MoreInSection&version=WhatsNext&contentID=WhatsNext&pgtype=article
In Connecticut, the Twilight of a Trading Hub
By NATHANIEL POPPERJULY 23, 2015
The UBS building near the Stamford train station once boasted the world’s largest trading floor. Credit Bryan Thomas for The New York Times
Stamford had the bad luck of housing the American headquarters of two European banks, which are facing particular challenges as the Continent has struggled to cope with several debt crises. RBS, or Royal Bank of Scotland, which is now controlled by the British government, has fewer than half the 225,000 employees worldwide that it had at its peak in 2007, when it was constructing its Connecticut campus. It recently announced plans to reduce its work force in Connecticut, which was once 2,400 people, to fewer than a thousand, making its gleaming building far too large a home. The number of UBS employees in Stamford fell to 2,000 last year, from 4,400 before the crisis, and more cuts are likely. HSBC and Deutsche Bank are the most recent banks to announce major global overhauls.
http://www.nytimes.com/2015/07/26/business/dealbook/wall-street-pulls-in-its-horns-in-connecticut.html?ref=business
Amazon Reports Unexpected Profit, and Stock Soars
By DAVID STREITFELD
A reason for the company’s success has been its cloud computing division, Amazon Web Services, which generated $1.82 billion in revenue last quarter.
http://www.nytimes.com/2015/07/24/technology/amazon-earnings-q2.html?ref=business
Anthem to Buy Cigna in Deal Valued at $54.2 Billion
By CHAD BRAY
6:43 AM ET
A combined Anthem-Cigna would have estimated revenue of about $115 billion and serve more than 53 million people with medical
coverage.
http://www.nytimes.com/2015/07/25/business/dealbook/anthem-cigna-health-insurance-deal.html?ref=business
A $7 Billion Charge at Microsoft Leads to Its Largest Loss Ever
By NICK WINGFIELDJULY 21, 2015
http://www.nytimes.com/2015/07/22/technology/microsoft-earnings-q4.html?ref=business
Wells Fargo’s Earnings Slip in Second Quarter
By MICHAEL CORKERYJULY 14, 2015
Wells Fargo, a bank known for its machine-like ability to increase its profits and beat Wall Street expectations, reported mixed results on Tuesday.
The San Francisco-based bank said its second-quarter profit fell to $5.72 billion from $5.73 billion a year earlier.
On an earnings per share basis, the bank’s profits rose to $1.03 up from $1.01 a year ago. That was in line with a consensus of analysts’ estimates of $1.03 a share, according to Thomson Reuters.
But Wells’ revenue of $21.3 billion came in 1.8 percent lower than the $21.7 billion that analysts had expected.
The middling results from Wells reflect the challenges facing big banks today.
Long gone are the days when mortgage losses and other problems from the financial crisis posed a threat to their balance sheets.
Today’s challenges are more mundane: Large consumer banks are trying to keep their expenses under control while grappling with low interest rates.
At Wells Fargo, some of these challenge were highlighted by the decline in the bank’s net interest margin, which in the second quarter fell to 2.97 percent from 3.15 percent a year earlier.
Net interest margin is the difference between what the bank makes on lending and what it pays to customers with deposits.
The bank said it was able to lower expenses from the first quarter, but some of the decline was offset by increases in legal costs and higher salaries and advertising expenses. The bank’s efficiency ratio, a key measure of the bank’s expenses control measures, rose to 58.5 percent from 57.9 percent a year earlier.
There were other signs that Wells Fargo’s profitability was slipping. The bank’s return on assets and return on equity both fell in the second quarter from a year ago.
In a statement, Wells Fargo’s chief executive and chairman, John Stumpf, said, “Wells Fargo’s second-quarter results reflected continued strength in the fundamental drivers of long term growth. Compared with a year ago, we grew loans, deposits and capital, and our balance sheet remained strong.”
Earlier on Tuesday, JPMorgan Chase reported earnings that were stronger than expected.
Bank of America’s Earnings Surge in Quarter
By MICHAEL CORKERYJULY 15, 2015
Bank of America, seeking to move on from its legal and mortgage troubles and get on with the business of banking, said on Wednesday that its second-quarter profit more than doubled from a year ago, easily surpassing analysts’ expectations.
The bank earned $5.3 billion in the quarter, up from $2.3 billion in the quarter a year ago. On an earnings-per-share basis, the bank earned 45 cents a share in the second quarter, up from 19 cents a share from a year ago. Those results far exceeded analysts expectations of 36 cents at a time when many critics had begun questioning the bank’s stagnant share price and recent history of lackluster performance.
Its revenue also increased 2 percent, to $22.3 billion from a year ago. Analysts had been expecting revenue of $21.3 billion, according to a survey by Thomson Reuters.
Plagued for years by soaring litigation costs related to its mortgage problems, the bank reported a broad decline in expenses. Excluding litigation costs in the second quarter, Bank of America said its expenses declined 6 percent from a year ago, while the costs of servicing its troubled mortgage portfolio dropped 37 percent. Investors have been clamoring to see the bank make more progress in cutting expenses in recent quarters to offset the impact of low interest rates.
After years of working to bring down expenses, particularly in its legacy mortgage unit, bank executives said the fruits of that effort were finally paying off.
“We think it was a giant step forward this quarter for the company,” Bruce R. Thompson, Bank of America’s chief financial officer, said in a conference call with reporters on Wednesday morning.
The bank’s chief executive, Brian T. Moynihan, said in a statement: “Solid core loan growth, higher mortgage originations and the lowest expenses since 2008 contributed to our strongest earnings in several years, as we continued to build broader and deeper relationships with our customers and clients.”
The bank was also helped by an increase in long-term interest rates in the quarter, which bolstered the value of its vast holding of Treasury and other debt securities. Bank of America uses a mark-to-market valuation for its debt securities holdings, which can cause their value to swing more immediately than other big banks.
The impact of the interest rate move generated $669 million, or 4 cents a share, in income in the second quarter. A year ago, the impact of rates at the time on the bank’s debt portfolio related in negative adjustments of $175 million.
The move in the bank’s debt securities holding foreshadowed that boon that Bank of America and other large banks could receive if the Federal Reserve raises rates in the next few months. Many bank investors have been patiently waiting out the struggles at banks like Bank of America in hopes that the companies’ share prices would increase as interest rates rise from historic lows.
In premarket trading, shares of Bank of America were up about 2 percent.
http://www.nytimes.com/2015/07/16/business/dealbook/bank-of-americas-earnings-surge-in-quarter.html?ref=business
European and Asian Markets Fall After Greek Referendum
By DAVID JOLLY and KEITH BRADSHERJULY 5, 2015
PARIS — European and Asian stock markets dropped on Monday but did not plunge, as investors reacted with muted dismay to the results of the Greek referendum and showed nervousness about steep declines in China’s stock market over the past three weeks.
The Euro Stoxx 50 index, which groups big blue-chip shares from across the eurozone, was down 1.4 percent in early afternoon trading, after falling more than 2 percent at the opening. In London, the benchmark FTSE 100 index had dipped by only 0.4 percent at midday.
The euro currency slipped 0.6 percent to $1.1081.
In Asia on Monday, the Shanghai market jumped sharply in early trading as the Chinese government poured money into brokerage firms to help them and their customers buy shares. The market leapt 7.8 percent at the start, but it surrendered half of those gains in the first 10 minutes of trading and closed 2.4 percent higher. The smaller Shenzhen stock market also started strongly but fell 2.7 percent by the end of trading.
Trading in Standard & Poor’s 500 index futures indicated that stocks would fall slightly at the opening in New York.
Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels, said the relatively subdued reaction showed “the market has gotten used to the strange things that have been going on with Greece.”
He said it also reflected investors’ confidence that Mario Draghi, the president of the European Central Bank, would take whatever action was necessary to soothe tensions at a moment of crisis.
“That’s preventing markets from going down too much,” Mr. Gijsels added.
That sentiment was reflected in the bond market’s muted response. Bonds in Italy, Portugal and Spain, seen as the most exposed to any potential contagion from the Greek crisis, all fell, with their yields, which move in the opposition direction of prices, spiking higher — indicating that those governments’ borrowing costs could rise.
In contrast, yields on British, German and United States government bonds fell, as investors turned toward assets they considered safer.
The major exception was in yields on Greek bonds, which have been little traded since the country’s financial markets were closed last week. The price of the Greek two-year crashed, to leave an astonishingly high yield of 48 percent — almost 15 percentage points higher than on Friday. That is in stark contrast to a yield of less than 1 percent for comparable German debt.
The Greek bonds’ movement has little practical effect on the government’s borrowing costs, as the country has been shut out of the capital markets and has issued no new bonds lately. But their plummeting value further undermines the Greek banks, which are the biggest private holders of the country’s sovereign debt.
And because the Greek banks use their government’s bonds as collateral against loans from the European Central Bank, the plunge could make it even more difficult for the central bank to agree to continue lending to the banks.
The European Central Bank was to discuss its response to the latest developments later on Monday.
Addressing the possibility that the central bank might force Greece’s hand before European political leaders had been able to formulate their own response, the French finance minister, Michel Sapin, on Monday told Europe 1 radio that the European Central Bank “must not cut” its support for Greek banks.
Oil prices fell as much as 3.2 percent early Monday, as traders placed bets that recent events could lead to slower global economic activity and weaker demand. Brent crude, a benchmark, fell below $60 a barrel for the first time since mid-April.
Bond prices rallied in Australia, and gold and silver prices climbed, as investors sought safety in response to uncertainty about whether Greece would stop using the euro and about whether mainland China’s economy would slow after investors there lost $2.7 trillion in the stock market over the past three weeks.
The Nikkei 225-share index in Japan closed 2.1 percent lower, and the Kospi in South Korea dropped 2.5 percent. The stock market in Australia, where mining companies are heavily dependent on Chinese demand, finished down 1.1 percent.
Kymberly Martin, a currency strategist at the Bank of New Zealand, said that the Greek vote and China’s stock market decline both tended to have similar effects on currencies and stock markets.
“It’s very difficult to disentangle what proportion is the eurozone and what proportion is China,” she said. “Probably both factors are affecting the market in the same direction.”
But other economists saw the events in Greece as more influential.
“It’s more Greece, but those China concerns are also there,” said Richard Grace, a currency and fixed-income strategist at the Commonwealth Bank of Australia.
He also questioned whether the sharp gains for Australian bonds would endure, saying that those bonds often jump in value in response to overseas events that prompt investors to seek safety. But the jumps are often transitory, he noted, and recede after European and American markets begin trading.
E. William Stone, the executive vice president and chief investment strategist at the PNC Asset Management Group in Philadelphia, said that most investors had been expecting a yes vote on the Greek referendum. Instead, with more than 90 percent of the vote tallied, more than 60 percent of the voters had chosen no.
“I won’t be surprised if we get some larger sell-offs” as the day progresses, he said.
Unlike Ms. Martin, he said that Greece would be the dominant influence on markets, particularly in Europe and the United States. While the Shanghai stock market has lost more than a quarter of its value since June 12, it is still up nearly 80 percent from a year ago.
“It almost seems like the Chinese authorities are overreacting,” he said.
On Monday, China’s state-run news media issued a volley of commentaries declaring faith in the government’s ability to restore confidence to the stock market.
“After the storm, comes the rainbow,” said a commentary in People’s Daily, the Communist Party’s leading newspaper. Investors were mistaken to worry about the level of debt behind the rise in stock prices, it said.
“What the broad numbers of investors need at this instant is confidence, not panic,” it said.
In Hong Kong, where shares closed 3.2 percent lower, investors appeared to be paying considerably more attention to China than Greece.
“The Greek referendum should not influence too much the Asian stocks — the actions of China, with its huge economy, will have more impact,” said Roger Lam, a 63-year-old retired office worker, as he watched computer monitors at a downtown brokerage. “Anyone who says China does not have the ability to hold up the stock markets in China is a fool. They have just not seen the mighty power of the Chinese government.”
http://www.nytimes.com/2015/07/07/business/daily-stock-market-activity.html
Towers Watson Shareholders Are Getting A Bad Deal In $18 Billion Willis Merger
It’s being pitched as a strategic tie-up that combines two highly complementary businesses, but shareholders in Arlington, Virginia-based consultancy Towers Watson, which closed Friday trading at a near $9.8 billion market cap, may be wondering what’s so great about the company’s $18 billion all-stock “merger of equals” with London-based re-insurance and property and casualty broker Willis Group.
After all, Towers Watson shareholders appear to own the better business, but they are only getting a 49.9% stake in the combined company, a global broking giant that’s diversifying into professional services, consulting, risk management and IT services through the merger. A look at the structure and timing of Tuesday’s deal indicates that Towers Watson shareholders may be leaving a lot on the table, and entering a transaction with significant strategic risks, all for the benefit of revenue synergies and the tax savings that would come from shifting its corporate tax headquarters to London, where Willis is based.
Prior to Tuesday, Towers Watson shares had surged 25% over the past 12-months, as revenue rose to $3.5 billion and profits surged 13% to $357 million during 2014. Analysts polled by Bloomberg expect Towers Watson’s revenue to rise 4% to $3.7 billion this year, while profits are expected to accelerate nearly 20% to $425 million, as the company’s corporate benefits, healthcare exchange, and financial services-based operations expand. With Obamacare upheld by the Supreme Court, a major uncertainty’s been removed from one of Towers Watson’s largest and fastest-growing business lines.
Those figures contrast with Willis Group’s falling profits and relatively stagnant share price over the year.
As a broker, Willis faces headwinds from rising interest rates, and the company has seen its premiums punished by a litany of new entrants in the marketplace, including hedge funds. Operating income at Willis Group fell 3% in 2014 to $647 million. In the first quarter, Willis reported falling revenue and a 10% drop in operating profits. Analysts polled by Bloomberg expect only a modest rebound in profitability through the course of 2015.
Since the beginning of 2012, Towers Watson stock has more than tripled the total return of Willis shares, making it a questionable time to dramatically shift corporate strategy via a merger of equals. The combined company will more closely resemble AON, which acquired consultancy Hewitt in 2010, and Marsh & McLennan MMC +0.92%, the parent of Mercer and Oliver Wyman, but such a transformation is a long way off. Both companies forecast $125 million in annual cost savings within three years of a deal’s close, and that figure is exclusive of potential tax savings.*
However, the most obvious benefit of Tuesday’s deal – tax savings – may actually get in the way of a fair price. (Towers Watson characterizes tax savings as ‘a nice consequence’ the deal, but says it is driven by business purposes). As the deal’s presently structured, Towers Watson will move its tax headquarters to Ireland where Willis Group enjoys a tax rate of just over 20%. That rate compares favorably to Towers Watson’s 34% corporate tax rate. The combined company’s tax rate is expected to be in the mid-20% range.
To maintain tax savings in a deal, Towers Watson shareholders have to own less than 60% of the combined company. However, it had a $9.7 billion market cap as of the close on Friday, while Willis had a market cap of roughly $8.4 billion. Tuesday’s deal comes with a $4.87 a share special cash dividend for Towers Watson shareholders. That payment, in addition to expected pro forma tax synergies, appear to be the upside for Towers Watson shareholders.
When challenged by analysts on how the price of Tuesday’s deal was set, Roger Millay, CFO of Towers Watson, said on a conference call both companies began working on a deal in April when their market caps were roughly the same, and the exchange ratio was then set in May.
“At the end of May, if we took a 60-[day] moving average of the two companies, market caps, and we adjusted for the dividend of $4.87 that we had there, that’s how we came to the 50.1-49.9 split. This is a deal that we believe was struck on a market-value basis. It wasn’t done on the spot price at a single day, but it was done on a two-month moving average,” Millay said.
But, given Towers Watson’s growth rates and diversification into markets with a healthy outlook, the company should command a premium to be combine with Willis Group. But an appropriate premium - for instance a 60% stake in the combined company – would trigger the U.S. Treasury’s anti-inversion rules. Willis also may be hamstrung from issuing significant new debt for a higher cash bid given its ratings-reliant operations.
One other issue with Tuesday’s merger: It is a fully taxable transaction for Towers Watson shareholders, according to independent tax expert Robert Willens. Towers Watson, the acquired company, was trading lower by 3.5% in early Monday trading, while shares in the acquirer Willis Group were rising nearly 6%.
Towers Watson CEO John Haley said Willis’ global distribution network and reinsurance broking business will bolster the company’s organic growth rates domestically and abroad, and highlighted a benefit to its Exchange Solutions division. ”This is a tremendous combination of two highly compatible companies with complementary strategic priorities, product and service offerings, and geographies that we expect to deliver significant value for both sets of shareholders,” Haley said in a statement.
To be seen is whether shareholders agree. ValueAct Capital, a 10% stakeholder in Willis Group will vote its shares in favor of the $18 billion merger, and over 50% of Towers Watson stockholders will also have to vote in favor of a deal.
While Tuesday’s $18 billion mega merger has a now commonplace benefit to the acquiring company, the same may not hold true for the target.
http://www.forbes.com/sites/antoinegara/2015/06/30/towers-watson-shareholders-are-getting-a-bad-deal-in-18-billion-willis-merger/?utm_campaign=yahootix&partner=yahootix
Puerto Rico’s Governor Says Island’s Debts Are ‘Not Payable’
By MICHAEL CORKERY and MARY WILLIAMS WALSHJUNE 28, 2015
Puerto Rico’s governor, saying he needs to pull the island out of a “death spiral,” has concluded that the commonwealth cannot pay its roughly $72 billion in debts, an admission that will probably have wide-reaching financial repercussions.
The governor, Alejandro García Padilla, and senior members of his staff said in an interview last week that they would probably seek significant concessions from as many as all of the island’s creditors, which could include deferring some debt payments for as long as five years or extending the timetable for repayment.
“The debt is not payable,” Mr. García Padilla said. “There is no other option. I would love to have an easier option. This is not politics, this is math.”
It is a startling admission from the governor of an island of 3.6 million people, which has piled on more municipal bond debt per capita than any American state.
“People before the debt” proclaimed a Spanish-language sign at a protest last week in San Juan. Proposals to help Puerto Rico manage its debt, like a fuel tax, have angered some island residents.
A broad restructuring by Puerto Rico sets the stage for an unprecedented test of the United States municipal bond market, which cities and states rely on to pay for their most basic needs, like road construction and public hospitals.
That market has already been shaken by municipal bankruptcies in Detroit; Stockton, Calif.; and elsewhere, which undercut assumptions that local governments in the United States would always pay back their debt.
Puerto Rico’s bonds have a face value roughly eight times that of Detroit’s bonds. Its call for debt relief on such a vast scale could raise borrowing costs for other local governments as investors become more wary of lending.
Perhaps more important, much of Puerto Rico’s debt is widely held by individual investors on the United States mainland, in mutual funds or other investment accounts, and they may not be aware of it.
Puerto Rico, as a commonwealth, does not have the option of bankruptcy. A default on its debts would most likely leave the island, its creditors and its residents in a legal and financial limbo that, like the debt crisis in Greece, could take years to sort out.
Still, Mr. García Padilla said that his government could not continue to borrow money to address budget deficits while asking its residents, already struggling with high rates of poverty and crime, to shoulder most of the burden through tax increases and pension cuts.
He said creditors must now “share the sacrifices” that he has imposed on the island’s residents.
“If they don’t come to the table, it will be bad for them,” said Mr. García Padilla, who plans to speak about the fiscal crisis in a televised address to Puerto Rico residents on Monday evening. “What will happen is that our economy will get into a worse situation and we’ll have less money to pay them. They will be shooting themselves in the foot.”
With some creditors, the restructuring process is already underway. Late last week, Puerto Rico officials and creditors of the island’s electric power authority were close to a deal that would avoid a default on a $416 million payment due on Wednesday.
With other payment deadlines looming, Mr. García Padilla and his staff said they would begin looking for possible concessions on all forms of government debt.
The central government must set aside about $93 million each month to pay its general obligation bonds — a crucial action in Puerto Rico because its constitution requires such bonds to be paid before any other expense. No American state has restructured its general obligation debt in living memory.
The government’s Public Finance Corporation, which has issued bonds to finance budget deficits in the past, owes $94 million on July 15. The Government Development Bank — the commonwealth’s fiscal agent — must repay $140 million of bond principal by Aug. 1.
“My administration is doing everything not to default,” Mr. García Padilla said. “But we have to make the economy grow,” he added. “If not, we will be in a death spiral.”
A proposed debt exchange, where creditors would replace their current debt with new bonds with terms more favorable to Puerto Rico, signals a significant shift for Mr. García Padilla, a member of the Popular Democratic Party, who was elected in 2012. His party is aligned with the Democrats on the mainland and favors maintaining the island’s legal status as a commonwealth.
He said that when he took office, he tried to balance the fiscal situation through austerity measures and fresh borrowing. But he saw that the island was caught in a vicious circle where it borrowed to balance the budget, raised the debt and had an even bigger budget deficit the next year.
Residents began leaving for the mainland in droves, and Puerto Rico’s credit was downgraded to junk, making borrowing extremely expensive.
Only a few months ago, the administration was considering borrowing as much as an additional $2.9 billion, which would be paid for by a fuel tax.
But recently, Mr. García Padilla’s team has been laying the groundwork for more drastic action. The governor commissioned a study of the financial situation by former officials at the International Monetary Fund and the World Bank. Concluding that the debt load is unsustainable, the report suggests a bond exchange, with the new bonds carrying “a longer/lower debt service profile,” according to a confidential copy reviewed by The New York Times. The García Padilla administration made the report public on Monday.
“There is no U.S. precedent for anything of this scale or scope,” according to the report, one of whose writers was Anne O. Krueger, a former chief economist at the World Bank and currently a research professor at the School of Advanced International Studies at Johns Hopkins University.
The “Krueger Report,” as it is being called, also seems aimed at the Obama administration and Congress, both of which have taken a largely hands-off approach to Puerto Rico’s fiscal problems. United States Treasury officials, however, have been advising the island’s government in recent months amid the worsening fiscal situation.
In June, Puerto Rico hired Steven W. Rhodes, the retired federal judge who oversaw Detroit’s bankruptcy case, as an adviser. The government is also consulting with a group of bankers from Citigroup who advised Detroit on a $1.5 billion debt exchange with certain creditors.
In Washington, the García Padilla administration has been pushing for a bill that would allow the island’s public corporations, like its electrical power authority and water agency, to declare bankruptcy. Of Puerto Rico’s $72 billion in bonds, roughly $25 billion were issued by the public corporations.
Some officials and advisers say Congress needs to go further and permit Puerto Rico’s central government to file for bankruptcy — or risk chaos.
“There are way too many creditors and way too many kinds of debt,” Mr. Rhodes said in an interview. “They need Chapter 9 for the whole commonwealth.”
Hedge funds holding billions of dollars of the island’s bonds at steep discounts are frustrated that the government has not seemed willing to reach a deal to borrow more money from them.
“We want to be a part of the solution to the commonwealth’s fiscal challenges,” a group of investment firms, including Centerbridge Partners and Monarch Alternative Capital, wrote in a letter last week.
An aide to the governor said the hedge funds’ debt proposal was too onerous. And the deal would only postpone Puerto Rico’s inevitable reckoning.
“It will kick the can,” Mr. García Padilla said. “I am not kicking the can.”
http://www.nytimes.com/2015/06/29/business/dealbook/puerto-ricos-governor-says-islands-debts-are-not-payable.html
Loads of Debt: A Global Ailment With Few Cures
By PETER EAVISJUNE 29, 2015
There are some problems that not even $10 trillion can solve.
That gargantuan sum of money is what central banks around the world have spent in recent years as they have tried to stimulate their economies and fight financial crises. The tidal wave of cheap money has played a huge role in generating growth in many countries, cutting unemployment and preventing panic.
But it has not been able to do away with days like Monday, when fear again coursed through global financial markets. The main causes of the steep declines in stock and bond markets were announcements out of Greece and Puerto Rico.
And in China, the precipitous declines in its stock market were also a sobering reminder that stubborn problems lurked in the global economy.
Stifling debt loads, for instance, continue to weigh on governments around the world. Greece’s government has repeatedly called for relief from some of its debt obligations, and Puerto Rico’s governor said on Sunday that its debt was “not payable.” Both borrowers are extreme cases, but high borrowing, either by corporations or governments, is also bogging down the globally significant economies of Brazil, Turkey, Italy and China. And economists say that central banks and their whirring printing presses can do only so much to alleviate the burden.
“Monetary policy can only be a palliative,” said Diana Choyleva, chief economist at Lombard Street Research. “It cannot be a cure.”
On Monday, the closing of banks in Greece ignited worries of a messy exit from the euro, and stock markets around the world fell sharply. Adding to the turmoil were expectations that the Greek government would not make a debt repayment to the International Monetary Fund that is due on Tuesday. The Dow Jones industrial average sank 350.33 points, or 1.95 percent, while the benchmark index for investors, the Standard & Poor’s 500-stock index tumbled 2.09 percent, erasing its gain for the year. It was also the first decline of more than 2 percent since October last year.
Wall Street’s avidly watched fear gauge, known as the Vix, spiked to its highest level in months, suggesting more turbulence ahead.
The market turmoil was greater in Europe. The stock markets of Italy and Portugal fell more than 5 percent, while Spain’s was down 4.6 percent. Ominously, each country’s government bonds also sold off, pushing up their yields, which move in the opposite direction of their prices.
In China, stocks fell again on Monday, leaving them down more than 20 percent from their recent peak, in bear market territory.
Investors sought the comparative safety of United States government bonds. Treasury prices rallied, pushing the yield on the benchmark 10-year note down to 2.33 percent.
The return of nervous selling on stock markets raises important questions about the health of the global economy. As central banks like the Federal Reserve and the European Central Bank have printed trillions of dollars and euros, markets in stocks and bonds, as well as other types of assets, have responded optimistically, sometimes reaching highs that were unthinkable seven years ago in the depths of the financial crisis.
Still, when everything is going well, it is easy to forget that there are limits to the power of the central banks, analysts say.
“Basically, they haven’t got as much bang for the buck, or bang per euro, or bang per yen, as they were expecting,” said Ed Yardeni of Yardeni Research.
Central banks can make debt less expensive by pushing down interest rates. Crucially, though, they cannot slash debt levels to bring much quicker relief to borrowers. In fact, lower interest rates can persuade some borrowers to take on more debt.
“Rather than just reflecting the current weakness, low rates may in part have contributed to it by fueling costly financial booms and busts,” the Bank for International Settlements, an organization whose members are the world’s central banks, wrote in a recent analysis of the global economy.
Many countries are now in a position where their governments and companies live in fear of an increase in interest rates. A further rise in the government bond yields of Spain and Italy could cause a contraction in the fiscal policy of those countries, noted Alberto Gallo, head of macro credit research at the Royal Bank of Scotland.
“This ‘involuntary tightening’ is what the E.C.B. does not want,” he wrote in an email, referring to the European Central Bank.
Even faster-growing economies are also vulnerable. Debt in China has soared since the financial crisis of 2008, in part the result of government stimulus efforts. Yet the Chinese economy is growing much more slowly than it was, say, 10 years ago. This has prompted the Chinese government to pursue policies that expose more of the economy to market forces.
“They have realized that they cannot continue like this — and that monetary policy doesn’t solve all problems,” Ms. Choyleva said.
Countries with high-seeming debt totals are not necessarily fragile. The United States government borrowed heavily after the financial crisis. But as the economy recovered, the debt proved to be manageable — and some economists contend that it helped stoke the economic comeback. Japan’s gross debt is equivalent to 234 percent of its gross domestic product. Yet it has had no problems finding buyers for its government bonds over the years, defying gloomy predictions of some Western investors.
And some analysts contend that Europe’s debt problems are particularly acute because of the euro. Unlike Japan and the United States, countries in the common currency cannot unilaterally loosen monetary policy and let their currencies fall to try and generate the growth that would then make it easier to pay off debts.
“Greece needs far easier money than the rest of Europe and it can’t get it because it is locked in with the rest of Europe,” said Joseph E. Gagnon, a senior fellow at the Peterson Institute for International Economics.
Forgiving debts is another way to lighten the dead weight on economies. Writing off debt can hurt banks, but defaults can also clear the system of doubtful loans and accelerate a recovery. Some analysts contend that extinguishing the mortgage debt of households bolstered the United States recovery. But lenders are not always willing to give big breaks to borrowers. Greece’s creditors have so far denied the country’s most recent requests for debt relief.
And, in one of the most stressed countries in Europe, a grim standoff over debt is taking place. Ukraine is moving closer to default after creditors continued lending to the country despite zero growth and a corrupt and opaque political and economic system. Now, some of those creditors, including Franklin Templeton, an American investment firm, have resisted Ukraine’s demand they take a loss on their principal investment, preferring instead to extend the repayment period.
But last week, Ukraine’s finance minister, Natalie Jaresko, said that a default was “theoretically possible.”
http://www.nytimes.com/2015/06/30/business/dealbook/trillions-spent-but-crises-like-greeces-persist.html?ref=dealbook
Willis and Towers Watson Aim to Merge in $18 Billion All-Share Deal
By CHAD BRAYJUNE 30, 2015
LONDON — The insurance broker and risk management advisory firm Willis Group Holdings said on Tuesday that it had agreed to an $18 billion all-share merger with the professional services firm Towers Watson.
The deal would create a professional services, risk management and insurance brokerage firm with more than $8 billion in annual revenue and about 39,000 employees in more than 120 countries, the companies said.
The combined company would operate under the Willis Towers Watson brand. The transaction is subject to approval by regulators and by the shareholders of both companies. It is expected to close by the end of the year.
“This is a tremendous combination of two highly compatible companies with complementary strategic priorities, product and service offerings, and geographies that we expect to deliver significant value for both sets of shareholders,” John Haley, the chairman and chief executive of Towers Watson, said in a news release. “We see numerous opportunities to enhance our growth profile.”
Mr. Haley will serve as chief executive of the combined company. James F. McCann, the Willis chairman, will serve as chairman of the combined company and Dominic Casserley, the Willis chief executive, will serve as president and deputy chief executive.
The boards of directors of both companies have approved the deal. The combined company will be based in Ireland.
Following the deal, Willis shareholders will own about 50.1 percent of the combined company, while the remainder will be owned by Towers Watson shareholders, the statement announcing the agreement said.
Under the terms of the deal, Towers Watson shareholders will receive 2.649 Willis shares for each share of Towers Watson they own. They also will receive a cash dividend of $4.87 a share.
Willis said it expected to engage in a reverse stock split, subject to approval by its shareholders. Willis shareholders would receive 0.3775 share in the combined company for each share they owned, while Towers Watson shareholders would receive shares in the combined company on a one-for-one basis.
The merger is not conditional on Willis shareholders’ approval of the reverse stock split.
The companies expect to make $100 million to $125 million in annual cost savings after the deal.
Founded in 1828, Willis is legally based in Ireland and maintains its executive headquarters in London. It offers risk management, insurance and reinsurance brokerage services. The company posted revenue of $3.8 billion for 2014 and employs more than 22,500 people worldwide.
The Sears Tower in Chicago, one of the tallest buildings in the world, was renamed the Willis Tower in 2009 after the company signed a long-term lease for space in the building.
Towers Watson is based in Arlington, Va. The company was formed in 2010 by the merger of Towers, Perrin, Forster & Crosby and Watson Wyatt Worldwide, but it traces its roots to 1865. It provides a variety of professional services, including human resources management, risk consulting and compensation advisory services.
Towers Watson posted revenue of $3.5 billion for 2014 and employs about 16,000 people.
Perella Weinberg Partners and the law firm Weil, Gotshal & Manges advised Willis, while Towers Watson was advised by Bank of America Merrill Lynch and the law firm Gibson, Dunn & Crutcher.
http://www.nytimes.com/2015/07/01/business/dealbook/willis-and-towers-watson-aim-to-merge-in-18-billion-all-share-deal.html?ref=dealbook
Greece’s Debt Crisis Sends Stocks Falling Around Globe
By DAVID JOLLY and KEITH BRADSHERJUNE 29, 2015
PARIS — Stocks fell sharply in Europe and Asia on Monday, and markets in New York appeared headed for a slump at the opening, as Greece’s financial difficulties spread worries about possible broader harm to the global financial system, and Chinese investors endured another topsy-turvy session.
The Euro Stoxx 50 index of eurozone blue chips were down 3.9 percent in afternoon trading, having fallen about 5 percent at the opening. The FTSE 100 index in London was down 1.8 percent.
In Greece, banks and markets are closed until July 6, after Prime Minister Alexis Tsipras interrupted last-ditch debt negotiations early Saturday with the announcement that he was calling a referendum for July 5 on whether to accept the tough terms offered by international creditors.
http://www.nytimes.com/2015/06/30/business/international/daily-stock-market-activity.html?hp&action=click&pgtype=Homepage&module=a-lede-package-region®ion=top-news&WT.nav=top-news&_r=0
Greek Debt Crisis Intensifies as Extension Request Is Denied
By JAMES KANTER and JIM YARDLEYJUNE 27, 2015
BRUSSELS — Europe’s long standoff over Greece’s debt moved into an unpredictable stage on Sunday, with tensions reaching their highest levels yet and the risk growing rapidly that Greece could crash out of the European currency.
On Saturday, eurozone finance ministers meeting in Brussels rejected Greece’s request to extend its existing bailout program past a Tuesday deadline. Greece wanted the extension so it could hold a national referendum on July 5 to let voters decide whether the country should accept bailout aid under terms that the government of Prime Minister Alexis Tsipras bitterly opposes.
Then, early Sunday morning, lawmakers in Athens voted to go forward with the referendum, after a day on which many Greeks lined up at cash machines to withdraw money from banks out of concern that a fresh financial crisis could be at hand.
Addressing Parliament before the vote, Mr. Tsipras defended his decision to call a plebiscite, saying it would “honor the sovereignty of our people,” and called on Greeks to say a “big ‘no’ to the ultimatum,” referring to the creditors’ proposal for a deal. He added that his government would “respect the outcome, whatever it is.”
After five months of grinding negotiations, Mr. Tsipras’s surprise referendum gambit — announced early Saturday morning on national television while many ordinary citizens were asleep — left unclear whether he was seeking a final bit of leverage for a last-minute deal or was essentially calling an end to the negotiations.
Negotiators in Brussels had been racing the clock — with five emergency meetings in the last 10 days — to reach a deal by the end of the day Tuesday, when the European part of the current bailout program for Greece expires.
At the conclusion of the meeting on Saturday, the so-called Eurogroup, in a statement, said the end of the current program “will require measures by the Greek authorities” to “safeguard stability of the Greek financial system” in what amounted to a thinly veiled reference to the need for Athens to plan imposing capital controls to stem the flight of deposits.
Greece is rapidly running out of money and has been negotiating over a remaining installment of 7.2 billion euros, or about $8 billion, so that Athens can avoid defaulting on some of its debt, including a payment of €1.6 billion due on Tuesday to the International Monetary Fund.
Greece’s creditors have been demanding cuts in pension payments and new taxes to give them assurance that Athens will be able to repay its debts in the long run. They have grown increasingly skeptical that Mr. Tsipras is willing to make the hard decisions they feel are necessary to put his government on more stable financial footing.
Mr. Tsipras, who was elected this year on a platform of challenging the austerity policies that have defined the European response to seven years of economic trouble, has resisted some of the demands for additional cuts and accused the creditors — the eurozone countries, the European Central Bank and the International Monetary Fund — of humiliating the Greek people and imposing excessive hardship.
Uncertainties now abound in Brussels, Athens and the other European capitals, where leaders were weighing the costs of making last-minute concessions to Greece or possibly risk Greece becoming the first country to abandon the euro currency.
Among the most pressing issues is the health of the Greek banking system — and in particular whether the European Central Bank will continue to prop it up in the face of huge withdrawals.
The E.C.B. said in a statement that its governing council would meet to discuss Greece “in due course.” The central bank has tried to avoid taking any steps that would push Greece out of the eurozone. But the bank’s rules would make it more difficult for it to continue to support Greek banks without the prospect of an agreement with creditors.
Mario Draghi, head of the central bank, met to plot strategy on Saturday night with finance ministers and the head of the International Monetary Fund, Christine Lagarde. Some analysts predicted that Greek officials might be forced to introduce capital controls as soon as Monday.
“We are in a pretty big mess right now,” said Guntram Wolff, director of Bruegel, a research institute in Brussels.
Mr. Tsipras spoke on Saturday afternoon with Chancellor Angela Merkel of Germany and President François Hollande of France. According to a text message a Greek government official sent to journalists, Mr. Tsipras told the other leaders that the “Greek people will have oxygen next week, they will survive!” He also said that “democracy is the paramount value in Greece.”
For weeks, European finance ministers — the Eurogroup — had been assembling to take stock of negotiations. But the dynamics shifted dramatically after Mr. Tsipras announced the referendum, with each side blaming the other for the risk of an irrevocable breakdown.
“The Greek government has broken off the process,” the leader of the Eurogroup of finance ministers, Jeroen Dijsselbloem, said at a news conference. “Let me just say that I am very negatively surprised by today’s decisions by the Greek government. That is a sad decision for Greece because it has closed the door on further talks, where the door was still open in my mind.”
Since the Greek economy imploded five years ago, the creditors have committed loans to Greece worth more than €240 billion.
An expiration of the European part of the current bailout program would leave Greece unable to tap the €7.2 billion remaining in the rescue package. And it would almost certainly guarantee that Greece would default on the coming I.M.F. payment.
On the streets of Athens on Saturday, despite the lines at cash machines, there was no sign of any panic. Several people said they feared that the government might impose capital controls on Monday, restricting how much money they could withdraw from their bank accounts and leaving them unable to meet expenses.
Costas Mentis, a 52-year-old plumber, was among about 40 people lined up at a bank A.T.M. in the Athens neighborhood of Pangrati early on Saturday afternoon. He said he was “worried, not panicked,” and wanted to be certain he had enough cash in case Greece imposed capital controls next week.
Advertisement
Continue reading the main story
“We don’t know what the next day will bring, so we’ve got to be prepared,” he said, adding that he had “filled the car up with gas too, just to be safe,” amid reports of lines forming at gas stations.
“After five years of crisis, you don’t really panic anymore, but that doesn’t mean that things aren’t bad,” he said. “They’re really bad, and it looks like they’re going to get a whole lot worse, but we need to be calm and deal with it.”
In Parliament, lawmakers huddled with colleagues in hallways or sat in the main chamber during an afternoon of speeches. Even government ministers were lined up at an A.T.M. near the chamber.
The leader of Greece’s junior coalition partner Independent Greeks, Panos Kammenos, described the creditors’ behavior toward Greece as “absolute fascism,” saying their aim was to subjugate the Greek people.
“They are asking us to annihilate Greece,” he said in a speech interrupted by sobs.
Olga Kefalogianni, a lawmaker with the opposition New Democracy Party, said staging a referendum on such short notice made little sense, especially since many voters had not yet been able to examine the specifics of the creditors’ last proposal.
Now the question is whether Mr. Tsipras and other European leaders can still negotiate as the clocks tick despite the deep distrust that has developed.
Yanis Varoufakis, the Greek finance minister, attended the initial Eurogroup meeting on Saturday, but the Eurogroup leader, Mr. Dijsselbloem, said a second session “will be without the Greek colleague,” declining to even use his name. Mr. Dijsselbloem said at a later news conference that Mr. Varoufakis left “on his own account” before the meeting had ended.
In his own news conference, Mr. Varoufakis insisted that the Athens government was still seeking some form of accommodation with creditors.
But Mr. Dijsselbloem suggested only minutes earlier that further talks would be fruitless because the credibility of the Greek government had collapsed.
In a later news conference, Mr. Dijsselbloem said the “door is open” to further talks.
James Kanter reported from Brussels and Jim Yardley from Athens. Niki Kitsantonis and Dimitris Bounias contributed from Athens and Jack Ewing from New York.
http://www.nytimes.com/2015/06/28/world/europe/for-eurozone-a-day-of-dueling-agendas-on-greek-debt.html?ref=business
Chinese Stock Indexes Plunge
By DAVID BARBOZAJUNE 26, 2015
SHANGHAI — Share prices in China plunged on Friday in one of the sharpest sell-offs in years, accelerating a downturn this past week in what has been, for much of this year, the world’s best-performing stock market.
China’s two major market indexes fell in tandem. The Shanghai composite fell 7.4 percent on Friday. The Shenzhen composite fell even more, dropping 7.9 percent. Share prices in Hong Kong, which is regulated separately, also weakened, dropping 1.8 percent.
Analysts had been warning for months about the risks of a stock market bubble in China, where giddy investors have driven up stock prices by purchasing shares on margin, or with money borrowed from brokers.
China’s market has been an anomaly. Even though the broader Chinese economy has been relatively weak, which is typically bad for corporate profits, share prices of many Chinese-listed companies have skyrocketed during the past year. Many traded at record valuations, often 80, 90 or 100 times their projected earnings.
The high valuations have been a boon for listed companies and their major shareholders. The market boom has also helped encourage a wave of Chinese companies that had listed in the United States to arrange stock buyouts and delist with the intention of eventually relisting in China, where stock valuations are much higher.
In the past few months, some well-known Chinese companies have announced plans to buy back shares and delist from the Nasdaq and the New York Stock Exchange, including Wuxi Pharma Tech, HomeInn Hotels and Qihoo 360, the Internet services provider, whose management is offering $9 billion to complete the buyout.
But China’s roaring stock market showed this past week how volatile prices can be, with Shenzhen’s main index falling the previous week, then rising early this past week, then tumbling again.
The latest downturn comes as the authorities move to tighten rules on buying stock with borrowed money, which is believed to be one of the key drivers of a stock market rally that has sent share prices to seven-year highs.
The regulators are also trying to crack down on financing that comes from unregulated sources, what analysts refer to as over-the-counter stock margin financing.
"This is what triggered the correction,” said Steven Sun, a Hong Kong-based analyst for HSBC. “Also, there have been controlling shareholders, significant shareholders and corporate management trying to cash out. They had been selling massively into the rally. And these are people in a better position to know the performance of their company.”
Many analysts say that the government props up the stock market as a policy move aimed at helping debt-burdened state-owned companies repair their balance sheets. A strong market also improves the financing of private entrepreneurs, which could help spur innovation.
But the government has been careful to warn about some of the risks, including the use of borrowed money, knowing that a sharp decline could hurt smaller investors.
Analysts at some major banks, including HSBC and Morgan Stanley, have been cautioning investors about the risks of the market, particularly after a big sell-off last month. Although stock prices are still up significantly from a year ago, with the Shanghai composite reaching 5,166.35, up as much as 160 percent in the past two years, there are signs that some of the most sought-after stocks are now in the doldrums.
The Shanghai composite is down about 18 percent from its June high. But in Shenzhen, the so-called ChiNext, a kind of Nasdaq-style board on the Shenzhen Stock Exchange for growth stocks, has dropped about 30 percent during the past several weeks, meaning it is already technically in a bear market.
On Friday, European markets shrugged in early trading, opening slightly down or unchanged.
Chi Lo, a senior economist covering greater China for BNP Paribas Investment Partners, said the Chinese government had promoted the growth of the stock market as a tool for financial reform, like reducing the economy’s reliance on bank lending. But he said the government grew concerned about margin lending, and that, combined with a steady stream of new companies listing their shares on the market had led to a correction in share prices.
“This is not a bad thing,” Mr. Lo said. “This is an opportunity for long-term investors to go back in. Many investors weren’t comfortable with those sky-high valuations.”
http://www.nytimes.com/2015/06/27/business/international/chinese-stock-indexes-plunge.html?ref=business
Ahold Deal Would Create One of the Largest U.S. Grocery Chains
By CHAD BRAYJUNE 24, 2015
The Dutch supermarket operator Ahold and the Delhaize Group of Belgium said on Wednesday that they had agreed to an all-share merger that would create one of the largest supermarket chains in the United States.
The deal would combine Delhaize, the owner of the American supermarket chains Food Lion and Hannaford, with Ahold, which owns the Stop & Shop and Giant stores in the United States, amid increasing competition in the grocery sector.
The combined company would be called Ahold Delhaize and would be worth about 26.2 billion euros, or about $29.5 billion, based on market capitalization. It would have more than 6,500 stores and 375,000 employees in the United States and Europe, and sales of €54.1 billion.
The companies, while based in Europe, generate more than half their sales in the United States. The deal is expected to allow them to compete better with the likes of Walmart Stores, the world’s largest retailer, and with discount grocers such as the German companies Aldi and Lidl, and Costco in the United States.
Middle tier grocers in the United States, like Hannaford and Stop & Shop, have been forced to absorb higher costs from suppliers to keep prices low. Some shoppers turned to discounters that sell in bulk, such as Costco, during the financial crisis and have not returned, while others have moved some or all of their purchases to online grocers, such as Fresh Direct and AmazonFresh.
Grocers also face pressure from larger retailers that have greater pricing power and have made grocery sales a larger mix of their business in recent years, such as Walmart and Target.
In the first quarter, pricing pressure cut into Ahold’s margins in the United States, with net sales dropping about 2 percent, to €7 billion.
Ahold and Delhaize said they anticipated about €500 million in annual cost savings by the third year after the transaction. They said they expected the combined company to book about €350 million in one-time costs after the merger to achieve its annual cost savings.
Delhaize shareholders would receive 4.75 shares of Ahold for each share of Delhaize they own. Ahold shareholders would own 61 percent of the combined company, while Delhaize shareholders would own the remaining 39 percent.
Ahold said it would terminate its continuing share buyback program, return about €1 billion to shareholders and conduct a reverse stock split before the deal’s closing.
Shares of Ahold fell about 1.3 percent to €18.70 in trading in Amsterdam on Wednesday, while shares of Delhaize declined about 5 percent to €83.42 in trading in Brussels.
The merger requires shareholder and regulatory approval and is expected to close in mid-2016. The boards of both companies have unanimously recommended that shareholders support the deal.
The companies first announced they were in preliminary talks to merge in May.
“This is a true merger of equals, combining two highly complementary businesses to create a world-leading food retailer,” Jan Hommen, the Ahold chairman, and Mats Jansson, the Delhaize chairman, said in a news release.
If the merger is completed, Mr. Jansson, the Delhaize chairman, would serve as chairman of Ahold Delhaize, and Dick Boer, the Ahold chief executive, would continue in that role at the combined company.
Mr. Hommen, the Ahold chairman, and Jacques de Vaucleroy, a Delhaize director, would serve as vice chairmen.
Frans Muller, the Delhaize chief executive, would serve as deputy chief executive and chief integration officer.
The merged company would be based in the Netherlands, with its European head office in Brussels.
In a research note on Wednesday, Bruno Monteyne, an analyst at Sanford C. Bernstein, said the potential cost savings were “sensible” but expressed concerns about the potential execution risk because similar large-scale mergers in the food sector have not succeeded.
“On initial inspection the deal looks good for Ahold shareholders, they are getting €1 billion in cash and paying only a 27% premium for Delhaize, well below some of the initial estimates,” Mr. Monteyne wrote.
Ahold, which is based in Zaandam, the Netherlands, operates about 3,200 stores in Europe and the United States and employs 227,000 people. It posted sales of €32.8 billion in 2014. The company’s brands include Albert Heijn in Belgium, Germany and the Netherlands; Etos in the Netherlands; and Albert in the Czech Republic.
Delhaize, which is based in Brussels, operates about 3,400 stores in the United States, Europe and Asia and employs 150,000 people. The company posted sales of €21.4 billion in 2014. The company’s brands include Tempo in southeastern Europe and Super Indo in Indonesia.
Ahold was advised by Goldman Sachs and JPMorgan Chase and by the law firms Allen & Overy and Simpson Thacher & Bartlett. Delhaize was advised by Bank of America Merrill Lynch, Deutsche Bank and Lazard, and by the law firms Cravath, Swaine & Moore and Linklaters.
http://www.nytimes.com/2015/06/25/business/dealbook/supermarkets-ahold-delhaize.html?ref=business
Cigna Rejects an Overture From Anthem
By MICHAEL J. de la MERCED and REED ABELSONJUNE 21, 2015
The world of American health insurance may soon become even smaller, with the biggest companies seeking to become even bigger.
A scramble has broken out within the industry as various providers jockey for position and make overtures to rivals. Anthem made the first public move, unveiling a $47 billion takeover bid for Cigna on Saturday after months of negotiations had stalled. On Sunday, Cigna fired back, rejecting the bid as “inadequate and not in the best interest of Cigna’s shareholders.”
But others have been quietly maneuvering as well. UnitedHealth Group, the biggest American health insurer by revenue, recently made a preliminary approach to Aetna, a person briefed on the matter said.
And a number of companies have indicated their interest in buying Humana, one of the smaller major insurers but one with a valuable Medicare franchise. Among those companies that had expressed interest is Anthem, though the bigger insurance provider is currently focused on combining with Cigna, people briefed on the company’s plans said. Another is Cigna.
The Affordable Care Act has been driving the flurry of merger discussions. Passage of the law in 2010 transformed the health insurance industry by expanding the government Medicaid program for low-income people in many states and giving insurers access to millions of additional customers through state marketplaces.
Other parts of the health care industry, from drug manufacturers to device makers, have seen enormous amounts of merger activity. But the insurance sector has lain relatively dormant for the past three years, after a brief flurry of deals by the big insurers.
Government programs like Medicare and Medicaid are increasingly turning to private health plans to offer coverage, and insurers view these markets as potential growth areas.
“There’s a huge revenue opportunity,” said Ana Gupte, an analyst who follows the industry for Leerink Partners.
But as insurers shift to these new markets, they are under more pressure to reduce their costs. Consumers who buy individual coverage through the marketplaces are extremely sensitive to price, and government programs like Medicare and Medicaid are heavily regulated. These markets tend to be less profitable.
Continue reading the main story
Related Coverage
Anthem's headquarters in Indianapolis. In another attempt to merge with a rival insurer, Cigna, it has raised its bid to $47 billion.
Anthem Makes $47 Billion Offer for Rival CignaJUNE 20, 2015
Shares of Humana jumped in afternoon trading on Friday.
Humana Is Said to Consider Sale of CompanyMAY 29, 2015
The combinations offer insurers the ability to reduce their administrative costs as well as to strike better deals with health systems, Ms. Gupte said. By having more customers in a specific geographic market, the insurer is better able to negotiate with local hospitals and doctors. “They need more market share locally to do that,” she said.
Photo
David Cordani, Cigna’s chief, and the company’s chairman said they were “deeply disappointed” Anthem made its offer public. Credit Gary Cameron/Reuters
Playing with the strongest hand in terms of resources is UnitedHealth, whose market capitalization as of Friday stood at $114.5 billion and which reported $130 billion in revenue last year. Both Anthem and Aetna carried market values of roughly $43 billion, though Anthem collected more in sales last year with $73.9 billion versus Aetna’s $58 billion. Humana was the smallest in terms of market capitalization at $30 billion.
Advertisement
Continue reading the main story
It is unclear how long it will take for the potential frenzy of consolidation to come to fruition. Humana is in the midst of weighing its deal options, aided by the investment bank Goldman Sachs, and is not expected to come to a decision for some time, according to people briefed on the insurer’s intentions.
Anthem has offered $184 a share for Cigna — about 18 percent above Cigna’s closing price Friday of $155.26 — with about 31 percent in stock and nearly 69 percent in cash.
Considerations other than price tags may hamper potential deals. Cigna has balked at Anthem’s takeover approaches in large part because of corporate governance issues, and, in particular, who would run the combined insurer. In a statement published on Saturday, Anthem said that Cigna had pushed for its chief executive, David Cordani, to lead the merged company immediately, even though the smaller insurer would effectively be acquired in the contemplated deal.
“We were stunned that the Cigna board continues to insist on a guaranteed C.E.O. position for Mr. Cordani over choosing to allow its stockholders to realize the significant premium being offered,” Joseph R. Swedish, Anthem’s chief executive, wrote in a public letter to Cigna’s board.
Cigna responded forcefully on Sunday, citing numerous reasons for ending its dialogue with Anthem. In addition to raising concerns about Mr. Swedish’s future role, the company said it was worried about a “lack of a growth strategy,” possible regulatory hurdles and the data breach Anthem experienced earlier this year.
In a letter written by Cigna’s board chairman, Isaiah Harris Jr., and Mr. Cordani, the two described themselves as “deeply disappointed” in Anthem’s decision to make its offer public and accused its executives of choosing “to delay and avoid an open and transparent dialogue.”
Investors are likely to support the brewing round of consolidation, with many shareholders owning stock in several of these insurers.
A chief issue facing these companies is which transactions will be viewed most favorably by government regulators, which have not hesitated to block deals in other industries. Since many of these insurers are already large companies, competing with regional or local nonprofit organizations, the Obama administration is likely to look askance at any deal in which the number of sizable players in a specific market is reduced to only two companies, said Ms. Gupte of Leerink Partners.
Photo
Joseph Swedish, Anthem’s chief, said “we were stunned” that the Cigna board insisted on a C.E.O. role for David Cordani. Credit A J Mast for The New York Times
UnitedHealth, for example, is a major presence in the Medicare Advantage market, offering private plans as an alternative to standard Medicare. It would most likely face significant regulatory hurdles if it combines with Humana, another larger player in the Medicare market.
The Federal Trade Commission would most likely scrutinize the deals to make sure that there was not too much concentration in a given geographic market. At an extreme, regulators could block a deal, but it may be more likely that they would insist that one of the companies sell specific businesses.
Advertisement
Continue reading the main story
Advertisement
Continue reading the main story
Advertisement
Continue reading the main story
But some are less sanguine that regulators will approve these combinations. “These deals are going to face headwinds,” said David A. Balto, an antitrust lawyer and former regulator. Consumers could suffer, and large employers, which may not be able to turn to a state-based or regional insurer, could have their choices significantly limited by mergers, he said.
Moving too late to secure a merger partner could cost any of these insurers the chance to become bigger.
The deal overtures by Anthem, UnitedHealth and others represent attempts by the insurers to diversify their businesses. In the case of Anthem, which operates Blue Cross plans in 14 states, the acquisition of Cigna would build upon its presence in the individual and small-business markets by adding expertise in handling insurance for large national employers that self-insure but rely on an outside entity to pay claims and contract with hospitals and doctors.
Aetna, which acquired Coventry Health Care in 2013 as a way to offer more coverage to lower-income people, has become a major presence in the marketplaces. Acquiring Humana would allow Aetna to build on Humana’s strong presence in the Medicare Advantage market.
But the prospect of larger, more powerful insurance companies is not welcome to the hospitals and doctors negotiating with them over price and possible partnerships.
“Bigger insurance companies mean increased leverage and unfair power over negotiating rates with hospitals and physicians,” Dr. Reid B. Blackwelder, the chairman of the American Academy of Family Physicians, said in a statement this month. The academy also raised concerns over whether the mergers would lead to higher costs as a result of less competition in the market.
Hospitals and doctors are also worried about how the mergers would affect the development of so-called narrow networks, where insurers offer plans that limit consumers’ choices to a smaller group of hospitals and doctors.
With a smaller number of larger insurers, hospitals and doctors fear they would have little choice but to join these networks.
IMF Warns Fed Should Delay Rate Hike Until 2016
By REUTERSJUNE 4, 2015, 9:37 A.M. E.D.T.
WASHINGTON — The U.S. Federal Reserve should delay a rate hike until the first half of 2016 until there are signs of a pickup in wages and inflation, the International Monetary Fund said in its annual assessment of the economy on Thursday.
The fund's report comes amid signs that some rate setters at the U.S. central bank are also pushing for rate hikes to be delayed until there are clearer signs of a sustained recovery. U.S. data has been mixed and the economy shrank 0.7 percent in the first quarter.
"Based on the mission’s macroeconomic forecast, and barring upside surprises to growth and inflation, this would put lift-off into the first half of 2016," the fund said.
Fed chair Janet Yellen has insisted the economy remains on track and that a rate rise this year is on the cards, although others including Fed governor Lael Brainard, viewed as a centrist on the rate-setting committee, have raised concerns over growth.
The fund forecast that the Fed's favored measure of inflation, the personal consumption expenditures (PCE) reading, would hit the central bank's 2 percent target only in mid-2017.
"A later lift-off could imply a faster pace of rate increases following lift-off and may create a modest overshooting of inflation above the Fed’s medium-term goal (perhaps up toward 2.5 percent)," the Fund said.
"However, deferring rate increases would provide valuable insurance against the risk of disinflation, policy reversal, and ending back at zero policy rates."
The prolonged period of zero interest rates has prompted a hunt for yield in U.S. assets, although the IMF said that at present this had created "pockets of vulnerabilities" rather than "broad-based excesses".
It warned that a migration of financial intermediation to non-banks which are more lightly regulated and the potential for insufficient liquidity in a range of fixed income markets could lead to "abrupt" moves in market pricing.
It called on all the agencies involved in the Financial Stability Oversight Committee, a grouping of regulators, the central bank and government agencies, to have specific financial stability mandates.
"While coordination between agencies has clearly improved, there is a need for greater clarity on the roles and responsibilities for system-wide crisis preparedness and management under the FSOC umbrella."
(Reporting by David Chance; Editing by Chizu Nomiyama)
http://www.nytimes.com/reuters/2015/06/04/business/04reuters-usa-imf.html?src=busln
Ross Ulbricht, Creator of Silk Road Website, Is Sentenced to Life in Prison
By BENJAMIN WEISERMAY 29, 2015
Ross W. Ulbricht in an image from his LinkedIn page.
Ross W. Ulbricht, the founder of Silk Road, a notorious online marketplace for the sale of heroin, cocaine, LSD and other illegal drugs, was sentenced to life in prison on Friday in Federal District Court in Manhattan.
Mr. Ulbricht, 31, was sentenced by the judge, Katherine B. Forrest, for his role as what prosecutors described as “the kingpin of a worldwide digital drug-trafficking enterprise.”
He faced a mandatory minimum 20-year sentence on one of the counts for which he was convicted.
Mr. Ulbricht’s high-tech drug bazaar was novel and full of intrigue, operating in a hidden part of the Internet known as the dark web, which allowed deals to be made anonymously and out of the reach of law enforcement. In Silk Road’s nearly three years of operation, over 1.5 million transactions were carried out on the website involving several thousand seller accounts and more than 100,000 buyer accounts, the authorities have said.
Transactions were paid for using the virtual currency Bitcoin, and Mr. Ulbricht, operating under the pseudonym Dread Pirate Roberts, took in millions of dollars in commissions, prosecutors said. They said his conviction was “the first of its kind, and his sentencing is being closely watched.”
“He developed a blueprint for a new way to use the Internet to undermine the law and facilitate criminal transactions,” the office of Preet Bharara, the United States attorney for the Southern District of New York, said in a sentencing memorandum this week.
“Using that blueprint,” the office said, “others have followed in Ulbricht’s footsteps, establishing new ‘dark markets’ in the mold of Silk Road, some selling an even broader range of illicit goods and services.”
Mr. Ulbricht, in a letter to the judge, said he had created the site not for financial gain but because he had believed “people should have the right to buy and sell whatever they wanted so long as they weren’t hurting anyone else.”
His lawyer, Joshua L. Dratel, in submissions to the judge, argued that the website’s “harm reduction” ethos made it safer than traditional drug dealing on the street.
But prosecutors, in their memo, argued that praising Silk Road for “harm reduction measures” was “akin to applauding a heroin dealer for handing out a clean needle with every dime bag: The point is that he has no business dealing drugs in the first place.”
The government said Silk Road had “dramatically lowered the barriers to obtaining illegal drugs,” and had “provided a one-stop online shopping mall where the supply of drugs was virtually limitless.”
As a result, prosecutors said, “The site enabled thousands of drug dealers to expand their markets from the sidewalk to cyberspace, and thereby reach countless customers whom they never could have found on the street.”
Mr. Ulbricht was convicted in February on charges that included engaging in a continuing criminal enterprise and distributing narcotics on the Internet, each of which carried potential life terms. Prosecutors also alleged that Mr. Ulbricht solicited the murders of people he saw as threats to his operation and that at least six deaths were attributable to drugs bought on the site. The government recommended a sentence “substantially above” the 20-year minimum.
The site was shut down by the Federal Bureau of Investigation after Mr. Ulbricht was arrested in 2013.
www.nytimes.com/2015/05/30/nyregion/ross-ulbricht-creator-of-silk-road-website-is-sentenced-to-life-in-prison.html?partner=rss&emc=rss&_r=0
Why the New York Fed Should Not Be Reined In
MAY 8, 2015
Another View
By DAVID ZARING
David Zaring is associate professor of legal studies at the Wharton School at the University of Pennsylvania.
Should the Federal Reserve Bank of New York lose its automatic place on the Federal Open Market Committee, the committee that sets monetary policy for the government?
A proposal that it do so has met with sympathy across the political spectrum. Liberals don’t like big banks, and they think the New York Fed is too close to them. Community bankers feel the same way, and Congress listens to them. And libertarians don’t like the Fed itself, and think that this sort of punishment could rein in the agency and remind it that Congress is watching.
So the prospects for an amendment to the Fed’s governing statute to reduce the role of the New York Fed are real. Is it a good idea? I have my doubts about any legislation that threatens the central bank’s independence, but would evaluate it by looking to three of my pet axioms of financial regulation.
The first is that procedural reorganizations almost never matter – an axiom that counsels indifference about the change. The second is that the New York Fed has always been special – an axiom that cuts the other way. And the third, given that Congress comprises legislators who need to be re-elected, is to consider the short-term as well as the long-term functions of the change.
When I apply these axioms, I conclude that the New York Fed should not lose its vote. The short-term benefits are unclear, making the change look like a symbolic effort to shift the long-term focus of the Fed away from Wall Street. But Wall Street is important, and deserves its focus. There’s no reason to believe that the New York Fed will do a better or different job on Wall Street if it loses its automatic vote.
Procedural reorganizations happen in financial change, and they often underwhelm. Dodd-Frank, for example, handled the problem of the next financial crisis by creating a supercommittee of agencies to plan for it — the Financial Stability Oversight Committee. It is a committee with a few powers – the power to designate very large financial institutions as systemically important and a limited power to review the work of its member agencies, for example – but not an effort to upend the way we do financial regulation in America.
Nor would removing the automatic place the New York Fed has on the F.O.M.C. change too much. The New York Fed president could still attend every committee meeting – all regional Fed presidents do that. Moreover, dissents on the F.O.M.C. are more rare than dissents in the Supreme Court, or even in a financial regulator like the Securities and Exchange Commission. So the New York Fed’s voice would remain, and its vote almost always has plenty of company.
My second principle turns on the specialness of the New York Fed. Until the Great Depression, the New York Fed was the agency that took the lead on monetary policy; the other regional reserve banks functionally did not, and the Fed’s board of governors in Washington was structured to have little control over its member banks. Then and now, the New York bank housed the Fed’s open market operations desk, which put into effect the directions of the F.O.M.C. and churned out the profits that fund the Fed, and that keep it out of the congressional budget process.
At the beginning of the financial crisis, Timothy F. Geitner was the head of the New York Fed, and no one doubts his importance in crafting the government’s response to that crisis.
In this sense, the New York Fed matters. Its traditionally central role in monetary policy and banking supervision would make a removal of its automatic place on the F.O.M.C. symbolically powerful.
My first two principles cut against each other. I generally find procedural reorganizations to be inconsequential, but a procedural reorganization that explicitly removes voting power from a powerful component of the Fed looks different.
Are there short-term consequences posed by the removal of the Fed’s automatic vote? Congress cares about immediate impacts, which might be a good reason for it to act.
But I see little indication that the proposal would change near-term monetary policy one way or the other. The president of the New York Fed is serving as vice chairman of the F.O.M.C., and there is no indication that his views on monetary policy differ from those of the chairman.
Congress would instead be expressing a mood. It would be suggesting, even if modestly, that the component of the Fed closest to Wall Street should play less of a role in setting monetary policy and organizing bank supervision. That might impel the Fed into some sort of regulatory action to forestall the limitation and prove that it is tough, but it is unlikely to do something drastic to the large banks.
The consequences of this change are more likely to be realized in the long term. Members of the F.O.M.C. might eventually treat input from the New York Fed like that of any other regional bank, given that it would vote at the same rate as the rest of them.
But I doubt it. F.O.M.C. members will not forget that the New York Fed regulates the biggest banks, and stays in touch with those banks through its open market operations, which requires trades with those banks. It is close to Wall Street, but it is unclear to me how a regulator would make sure that Wall Street is not close to crisis without plenty of contact.
There is something to be said for letting Congress express dissatisfaction with an agency on occasion. But in this case, the sanction would be unlikely to work, and at most might distract a regulator who should probably be paying more attention to Wall Street’s financial stability, not less.
http://www.nytimes.com/2015/05/09/business/dealbook/why-the-new-york-fed-should-not-be-reined-in.html?ref=dealbook
Apple Won’t Always Rule. Just Look at IBM.
APRIL 25, 2015
Apple can’t grow like this forever. No company can.
In a few short years, Apple has become the biggest company on the planet by market value — so big that it dwarfs every other one on the stock market. It dominates the Standard & Poor’s 500-stock index as no other company has in 30 years.
Apple’s market capitalization — the value of all of the shares of its stock — is more than $758 billion, greater than any other company’s. Yet the Wall Street consensus is that Apple is still having a growth spurt. In fact, if Apple’s watches, phones, laptops and other gadgets and services keep generating favorable publicity — and if its quarterly earnings report on Monday is as strong as the market expects it to be — there’s a reasonable chance that Apple’s value will keep swelling. Not far down the road, it might even reach the $1 trillion level that some hedge funds predict.
But even if Apple still has some room to run, there are some early warning signs. After all, the company has already crossed a significant threshold. In February, it grew to twice the size of the next biggest company in the S.&P. 500, a rare feat of financial dominance, and one that hasn’t happened since Ronald Reagan was president.
I checked the numbers with Howard Silverblatt, senior index analyst at S.&P. Dow Jones Indices. He found that the last market colossus to tower over its competitors by a two-to-one ratio was IBM, which did it in three successive years: 1983, 1984 and 1985. “That was when PCs were new,” he said, “and just about everyone thought IBM would rule the world.”
Now it’s Apple’s world. Apple is the most widely held stock in American mutual fund portfolios. IBM, the former undisputed heavyweight champion, isn’t even in the running anymore. It ranks 62nd, according to a Morningstar analysis performed at my request. IBM is still an important company, but it is struggling. Investors judge it to be worth less than one-quarter of Apple’s market value today. What happened to IBM — how it became this small, in comparison with Apple — is worth remembering.
I had forgotten how imposing IBM once was. By some measures, it was vastly more important than Apple is today. Measured by market cap, for example, IBM accounted for a staggering 6.4 percent of the S.&.P. 500 in 1985, IBM’s peak year — making it 2.35 times the size of the second-biggest company of its day, Exxon. Now Microsoft is the second biggest and Exxon Mobil is third, both roughly one-half the size of Apple. Exxon Mobil is followed in market cap by Google and Johnson & Johnson. (On this 45th anniversary year of Earth Day, the staying power of Exxon, from its Standard Oil days to the present, is also worth remembering.)
Apple has an outsize influence today: After the market close on Friday, its share of the S.&.P. 500 was 4.1 percent, a formidable percentage and a huge increase from Dec. 31, when it was 3.35 percent. But its weight in the market is nothing like IBM’s in the 1980s, when IBM finished seven calendar years with a market weight above 4 percent — a showing that Apple has not yet met, the data shows. At IBM’s 1985 peak, its share of the S.&P. 500 was more than one and half times the size of Apple’s today.
IBM operated in a different league than Apple does now. A business machine company at its roots, IBM never aspired to pop-culture coolness, but its prestige was extraordinary. You can’t measure prestige easily with numbers, but consider that in 1987, two IBM scientists based in Zurich won the Nobel Prize in Physics for a breakthrough in superconductivity. It was the second consecutive year that IBM scientists won the prize; in 1986, two of them won it for inventing an instrument known as the scanning tunneling electron microscope. All of those scientists did deep, basic research of which IBM was justly proud. Apple’s research today is impressive, but it has generally been product-driven, not the kind of fundamental work that IBM did.
With hindsight, it’s clear that IBM’s Olympian status was part of its problem. In the 1980s, at the height of its powers, it continued to come up with scientific breakthroughs and ultrafast computers, but its focus on its own product lines and customer service flagged. IBM “naïvely” handed over crucial parts of the computer business to companies like Microsoft and Intel, while its own profit margins began to erode, D. Quinn Mills, a professor at the Harvard Business School, has written.
For the most part, investors minimized those problems, if they were even aware of them. In those days of hulking mainframes, IBM was the quintessential computer company and its hegemony in the stock market seemed unstoppable.
It’s no wonder that a young Steve Jobs, the co-founder of the upstart Apple Computer company, took direct aim at IBM in a speech in San Francisco in the fall of 1983, deriding IBM as arrogant and shortsighted and predicting that it would soon be humbled. At that meeting, he unveiled a remarkable ad that would run on television during the 1984 Super Bowl. Created by the director of “Blade Runner,” Ridley Scott, it showed a young hammer-wielding athlete running through a vast grim room populated by serfs. She hurled her hammer at a screen on which an Orwellian Big Brother was intoning propaganda and shattered it.
A man read the words on-screen: “On January 24th, Apple Computer will introduce Macintosh. And you’ll see why 1984 won’t be like ‘1984.’ ” Apple didn’t mention IBM, but its target was clear. And soon after the Super Bowl, when Jobs actually introduced the first Macintosh to a rapt audience, the little personal computer continued the assault on IBM. In a cute synthesized voice, it spoke these words, which also appeared on its diminutive screen: “Unaccustomed as I am to public speaking, I’d like share with you a maxim I thought of the first time I met an IBM mainframe: NEVER TRUST A COMPUTER YOU CAN’T LIFT.”
IBM thrived for years afterward, but just as Jobs had predicted, it turned out to be vulnerable to disruptive change, as all big companies are. For decades now, IBM has engaged in a sometimes painful transition, and as it revealed in its quarterly earnings report last week, it is still hurting: Its revenues have declined and it has endured wrenching business shifts. My colleague Steve Lohr wrote last week that IBM has been getting out of slow-growing old businesses, like personal computers, disk drives, low-end server computers and chip manufacturing — but its new initiatives in fields like data analytics, cloud computing and mobile apps for corporate customers haven’t entirely succeeded yet.
In a turnabout, IBM’s mobile app strategy relies on a partnership with the current giant, its old nemesis Apple. IBM is leveraging its prowess with supercomputers and artificial intelligence with a new initiative, Watson Health, that includes Apple. That alliance could help both companies grow — in Apple’s case, by ensuring that its products work more seamlessly in corporate environments where IBM is deeply entrenched.
Rapid growth, after all, isn’t a sure thing, especially when you’re already the biggest company in the world. IBM has proved that. Sooner or later, Apple investors will have to take that lesson to heart.
http://www.nytimes.com/2015/04/26/your-money/now-its-apples-world-once-it-was-ibms.html?contentCollection=technology&action=click&module=NextInCollection®ion=Footer&pgtype=article
JPMorgan Chase Profit Rises 12% on Strong Trading
By NATHANIEL POPPERAPRIL 14, 2015
JPMorgan Chase delivered stronger-than-expected first-quarter results on Tuesday thanks to a rebound in some of the big businesses that had been lagging and fueling criticism of the company.
JPMorgan, the nation’s largest bank by assets, announced that profits rose 12 percent, to $5.9 billion, or $1.45 a share, compared with $5.27 billion, or $1.28 a share, in the period a year earlier. Analysts had expected first-quarter earnings of $1.38 a share.
The earnings gain was not achieved by simply cutting costs, as has happened at several of the big banks recently. Instead, JPMorgan increased revenue 4 percent, to $24.8 billion from $23.9 billion in the quarter a year earlier.
http://www.nytimes.com/2015/04/15/business/dealbook/jpmorgan-chase-profit-rises-12-on-strong-trading.html?ref=dealbook
Wells Fargo Profit Falls as Expenses Rise
By REUTERSAPRIL 14, 2015, 8:16 A.M. E.D.T.
(Reuters) - Wells Fargo & Co, the largest U.S. mortgage lender, reported a 2.6 percent fall in quarterly profit on Tuesday as expenses rose and the bank set aside more money to cover bad loans.
Net income applicable to Wells Fargo's common shareholders rose to $5.46 billion, or $1.04 per share, in the first quarter ended March 31 from $5.61 billion, or $1.05 per share, a year earlier.
BACK STORY Good Friday
Today is quite the holy day — Good Friday for Christians and Passover for Jews at sundown — but it is not a federal holiday.
So why are American stock markets closed?
Wall Street doesn’t take off for anything small. World wars and presidential assassinations can do it, but rarely a blizzard or a widespread power failure.
In this case, tradition reigns. The New York Stock Exchange has been closing on Good Friday as a religious observance as far back as 1864. It was made an official market holiday in 1973. (There was trading on this day in 1898, 1906 and 1907, for reasons lost to history.)
This year, the Good Friday blackout is especially untimely.
It coincides with “Jobs Day,” when the all-important monthly employment report comes out. Alas, we won’t know how the markets feel about the numbers until trading resumes on Monday.
Well, we’ll get a hint.
Traders have 45 minutes after the 8:30 a.m. Eastern announcement to bet on futures linked to the major indexes. Bonds also trade today (until noon) and currencies trade around the clock.
Victoria Shannon contributed reporting.
Our iPhones and their digital brethren have made computerization look easy, which makes our experience with health care technology doubly disappointing. An important step is admitting that there is a problem, toning down the hype, and welcoming thoughtful criticism, rather than branding critics as Luddites.
Maybe it's time to give Apple or IBM the job then throwing money at every start up that comes along.
I won't begin to bore you w/ experiences just last week -----
thus, the PM question!
Suffice to say.......one big electronic cluster %#&@!
Why Health Care Tech Is Still So Bad
By ROBERT M. WACHTERMARCH 21, 2015
LAST year, I saw an ad recruiting physicians to a Phoenix-area hospital. It promoted state-of-the-art operating rooms, dazzling radiology equipment and a lovely suburban location. But only one line was printed in bold: “No E.M.R.”
In today’s digital era, a modern hospital deemed the absence of an electronic medical record system to be a premier selling point.
That hospital is not alone. A 2013 RAND survey of physicians found mixed reactions to electronic health record systems, including widespread dissatisfaction. Many respondents cited poor usability, time-consuming data entry, needless alerts and poor work flows.
If the only negative effect of health care computerization were grumpy doctors, we could muddle through. But there’s more. A friend of mine, a physician in his late 60s, recently described a visit to his primary care doctor. “I had seen him a few years ago and I liked him,” he told me. “But this time was different.” A computer had entered the exam room. “He asks me a question, and as soon as I begin to answer, his head is down in his laptop. Tap-tap-tap-tap-tap. He looks up at me to ask another question. As soon as I speak, again it’s tap-tap-tap-tap.”
“What did you do?” I asked.
“I found another doctor.”
Even in preventing medical mistakes — a central rationale for computerization — technology has let us down. A recent study of more than one million medication errors reported to a national database between 2003 and 2010 found that 6 percent were related to the computerized prescribing system.
At my own hospital, in 2013 we gave a teenager a 39-fold overdose of a common antibiotic. The initial glitch was innocent enough: A doctor failed to recognize that a screen was set on “milligrams per kilogram” rather than just “milligrams.” But the jaw-dropping part of the error involved alerts that were ignored by both physician and pharmacist. The error caused a grand mal seizure that sent the boy to the I.C.U. and nearly killed him.
How could they do such a thing? It’s because providers receive tens of thousands of such alerts each month, a vast majority of them false alarms. In one month, the electronic monitors in our five intensive care units, which track things like heart rate and oxygen level, produced more than 2.5 million alerts. It’s little wonder that health care providers have grown numb to them.
The unanticipated consequences of health information technology are of particular interest today. In the past five years about $30 billion of federal incentive payments have succeeded in rapidly raising the adoption rate of electronic health records. This computerization of health care has been like a car whose spinning tires have finally gained purchase. We were so accustomed to staying still that we were utterly unprepared for that first lurch forward.
Whopping errors and maddening changes in work flow have even led some physicians to argue that we should exhume our three-ring binders and return to a world of pen and paper.
This argument is utterly unpersuasive. Health care, our most information-intensive industry, is plagued by demonstrably spotty quality, millions of errors and backbreaking costs. We will never make fundamental improvements in our system without the thoughtful use of technology. Even today, despite the problems, the evidence shows that care is better and safer with computers than without them.
Moreover, the digitization of health care promises, eventually, to be transformative. Patients who today sit in hospital beds will one day receive telemedicine-enabled care in their homes and workplaces. Big-data techniques will guide the treatment of individual patients, as well as the best ways to organize our systems of care. (Of course, we need to keep such data out of the hands of hackers, a problem that we have clearly not yet licked.) New apps will make it easier for patients to choose the best hospitals and doctors for specific problems — and even help them decide whether they need to see a doctor at all.
Some improvements will come with refinement of the software. Today’s health care technology has that Version 1.0 feel, and it is sure to get better.
But it’s more than the code that needs to improve. In the 1990s, Erik Brynjolfsson, a management professor at M.I.T., described “the productivity paradox” of information technology, the lag between the adoption of technology and the realization of productivity gains. Unleashing the power of computerization depends on two keys, like a safe-deposit box: the technology itself, but also changes in the work force and culture.
In health care, changes in the way we organize our work will most likely be the key to improvement. This means training students and physicians to focus on the patient despite the demands of the computers. It means creating new ways to build teamwork once doctors and nurses are no longer yoked to the nurse’s station by a single paper record. It means federal policies that promote the seamless sharing of data between different systems in different settings.
We also need far better collaboration between academic researchers and software developers to weed out bugs and reimagine how our work can be accomplished in a digital environment.
I interviewed Boeing’s top cockpit designers, who wouldn’t dream of green-lighting a new plane until they had spent thousands of hours watching pilots in simulators and on test flights. This principle of user-centered design is part of aviation’s DNA, yet has been woefully lacking in health care software design.
Our iPhones and their digital brethren have made computerization look easy, which makes our experience with health care technology doubly disappointing. An important step is admitting that there is a problem, toning down the hype, and welcoming thoughtful criticism, rather than branding critics as Luddites.
In my research, I found humility in a surprising place: the headquarters of I.B.M.’s Watson team, the people who built the computer that trounced the “Jeopardy!” champions. I asked the lead engineer of Watson’s health team, Eric Brown, what the equivalent of the “Jeopardy!” victory would be in medicine. I expected him to describe some kind of holographic physician, like the doctor on “Star Trek Voyager,” with Watson serving as the cognitive engine. His answer, however, reflected his deep respect for the unique challenges of health care. “It’ll be when we have a technology that physicians suddenly can’t live without,” he said.
And that was it. Just an essential tool. Nothing more, and nothing less.
Robert M. Wachter is a professor of medicine at the University of California, San Francisco, and the author of “The Digital Doctor: Hope, Hype, and Harm at the Dawn of Medicine’s Computer Age.”
http://www.nytimes.com/2015/03/22/opinion/sunday/why-health-care-tech-is-still-so-bad.html?ref=opinion
Richard Fisher, Often Wrong but Seldom Boring, Leaves the Fed
By BINYAMIN APPELBAUMMARCH 20, 2015
DALLAS — In a decade as president of the Federal Reserve Bank of Dallas, Richard W. Fisher was frequently mistaken in his economic predictions but seldom boring.
The departure of Mr. Fisher, who stepped down on Thursday, means that the Fed is losing one of the most outspoken internal opponents of its stimulus campaign just as it is winding down. Mr. Fisher argued right up to his retirement that the central bank was increasing economic inequality, destabilizing financial markets and might yet unleash higher inflation. But he is best known not so much for what he said as for the way he said it.
He spoke more often and more colorfully than any of his colleagues at the Federal Reserve, larding his speeches with quotes, anecdotes and metaphors. Among the most memorable was his 2012 description of his breeding bull, Too Big to Fail, as full of liquidity but unable to reach the pretty cows on the other side of the fence.
“His speeches have regularly been the most eloquent — a true joy to read his somewhat excessive Texas exuberance in explaining both the successes and the possible excesses of monetary policy,” the former Fed chairman Paul A. Volcker, a mentor to Mr. Fisher, said in a recent introduction.
Noting that Mr. Fisher was the rare non-economist among senior Fed officials, Mr. Volcker continued: “In an era in which economists claim a natural right to central banking leadership, Dick has brought a healthy sense of reality, sound judgment, business background and leadership.”
But Mr. Fisher also has angered those who think the Fed can and should do more to help unemployed workers.
“He was wrong at the beginning, and he’s still wrong now,” said Danny Cendejas of the Texas Organizing Project, a nonprofit group that advocates for lower-income Texans. “He’s ignoring the reality of what’s happening, particularly in the Latino community and in communities of color.”
At the Fed, Mr. Fisher was set apart by his views and his style. He kept a list of roughly 50 executives at corporations ranging from Walmart to American Airlines to “the Bud distributor in North Texas,” and he called several dozen before each Fed meeting. He insisted that those anecdotal reports offered a more accurate and timely window onto the economy than government data and the Fed’s elaborate models.
“My local dry cleaner, I would say that if you took him and put him against the whole Fed staff in terms of forecasting, he’s been far more accurate,” Mr. Fisher said.
Mr. Fisher now worries that the Fed is waiting too long to raise rates and that its efforts to assist the recovery instead will cause another downturn. He said the consequences of the Fed’s stimulus campaign would not be clear for some time.
“How long?” he said, repeating a question. “No idea. And I hope my concerns, which are only expressed as uncertainties, prove to be sleep lost and nothing more.”
These warnings have made Mr. Fisher a popular figure among the Fed’s Republican critics, who also insist that the Fed’s attempts to expand employment are doing more harm than good. So did a February speech in which Mr. Fisher told a New York audience that the Fed should change its governance structure to limit the outsize role of the New York Fed.
But Mr. Fisher has spoken sharply against calls from Republican lawmakers for new restrictions on the Fed’s authority. He said he wanted the Fed itself to make better decisions.
Mr. Fisher rose in Horatio Alger style from childhood poverty to marry the daughter of a prominent congressman and build a fortune of more than $20 million as an investor. He worked his way through Harvard as a cook and a crew member on the yacht of a wealthy alumnus, and by renting his dorm room to amorous couples. Now he sits on Harvard’s Board of Overseers.
He was born in Los Angeles in 1949 to a Norwegian mother and an Australian father who met in South Africa and conceived Mr. Fisher in Shanghai before moving to California. A few years later, propelled by poverty, the family moved to Mexico City, where Mr. Fisher learned to speak Spanish fluently.
After returning to California, he won a scholarship to attend Admiral Farragut Academy, a preparatory school for the United States Naval Academy. After two years at Annapolis, a teacher encouraged him to transfer to Harvard.
He ended up in Dallas after marrying the daughter of a Texas congressman, James Collins. The young couple lived in New York at first, where Mr. Fisher worked as an assistant to the banker Robert Roosa. But Mr. Fisher says that one day, while on a ferry returning from the Statue of Liberty with his infant son, he looked across the water at the New York skyline and decided to leave.
“I thought, ‘This place is already made,’” he recalled. “Things were moving my way, but I just thought, ‘This has already been built. I need to go someplace new.’”
He made a fortune investing in distressed assets during the rocky years of the Texas economy in the late 1980s and early 1990s. After two failed runs for the United States Senate, he signed on with the Clinton administration as a deputy trade representative in 1997. He remained in Washington until 2005, when he got a call asking him if he’d like to come back to Texas to run the Dallas Fed.
The Fed’s 12 regional branches together oversee the banking system, operate payments infrastructure and conduct economic research. Their presidents also participate in setting monetary policy. And the Dallas Fed has a longstanding preference for outspoken leaders.
Mr. Fisher’s predecessor, Robert D. McTeer, was known for reciting cowboy poetry and for his disagreements with the Fed chairman, Alan Greenspan. When Mr. Fisher took the job, he changed the hold music on the Dallas Fed’s phone system from country and western to classical.
The Dallas Fed’s board has yet to select Mr. Fisher’s successor, but Diane Swonk, chief economist at Mesirow Financial in Chicago, said it was a good bet they would pick someone with a strong voice. “They like to have people who are cowboys,” she said.
He was one of the first Fed officials to raise concerns about the health of the housing market. Yet he was also among the last to understand the depth of the resulting financial crisis. He warned throughout most of 2008 that inflation was the primary danger to the economy — a threat that has still not materialized — and that the bleak pronouncements of other Fed officials were fueling an unwarranted sense of panic.
In August, as the financial system teetered on the brink of collapse, he voted to raise interest rates, which would have made the situation even worse.
In December that year, when the Fed reduced its benchmark interest rate nearly to zero in a move to spur a recovery, Mr. Fisher cast the only dissenting vote. After the meeting, he decided the moment required solidarity and went to Ben S. Bernanke, the chairman, to change his vote.
But Mr. Fisher said in the interview here that he had not changed his mind. He said the Fed should never have pushed interest rates below 2 percent, nor bought so many bonds.
Like many of the Fed’s critics on the left, Mr. Fisher emphasizes that he is deeply concerned about the damage caused by the Great Recession. He says he simply does not believe the Fed is helping. He says holding down interest rates has mostly enriched the rich, like his own family.
The middle class is being squeezed, he said, “but the Fed can’t fix that.”
The Fed’s current chairwoman, Janet L. Yellen, sometimes uses the metaphor of a car to talk about monetary policy. Mr. Fisher said he had frequently argued for the substitution of a ship “because there are no brakes.”
He told of serving as a student at the Naval Academy on the U.S.S. Truckee, a tanker, as it collided with an aircraft carrier, the U.S.S. Wasp, in June 1968.
“The scariest thing was watching all the other ships pull over the horizon,” he said, and then draws the metaphor: The Fed’s portfolio, which has swelled to more than $4 trillion, is “an enormous amount of explosive fuel” and the danger is “an explosion of inflation.”
“My successors,” he said, “are going to have to be very careful in steering that ship.”
http://www.nytimes.com/2015/03/21/business/economy/richard-fisher-leave-the-fed.html?ref=dealbook
Followers
|
16
|
Posters
|
|
Posts (Today)
|
0
|
Posts (Total)
|
1118
|
Created
|
08/16/08
|
Type
|
Free
|
Moderator BullNBear52 | |||
Assistants |
Welcome...... ( currently under construction, please have patience )
NYSE ONLY Please .....Thank you .... (save the Kool-Aid and pumping for those pinksheet lovers)
( Please do not post any PInksheets, or OTC BB's stocks or charts , THEY WILL BE DELETED ) NYSE or Nasdaq in a pinch only.
Finally if you have something political to say find another board. TIA
Volume | |
Day Range: | |
Bid Price | |
Ask Price | |
Last Trade Time: |