Debt Plan Includes Spending Cut ’Triggers’ With Long Histories of Failure

As they struggle to reach an agreement over how to extend the nation’s debt limit and trim budget deficits, Republicans and Democrats are turning to an enforcement tool, called a “trigger,” with a history of failure.

S&P Slammed by Wall Street Banks Over Pulled Commercial Mortgage Rating

Wall Street banks including Morgan Stanley and Deutsche Bank AG slammed Standard & Poor’s decision to suspend a rating on a commercial-mortgage bond that had been placed with investors after finding a flaw in the review process.

S&P stopped grading commercial-mortgage bonds as it assesses its criteria for the debt and withdrew rankings it had assigned to a $1.5 billion offering from Goldman Sachs Group Inc. (GS) and Citigroup Inc., according to a July 27 statement from the New York-based ratings company. The banks pulled the sale.

News Corp., Hackings and the Story I Missed: Jonathan Weil

One August afternoon almost six years ago I sat in the office of a small marketing company called Floorgraphics Inc., listening to two of its founders tell how a News Corp. (NWSA) unit had hacked into their computer system.

They were trying to get federal prosecutors interested, they said. The big question in my mind was whether I had a story I could run with. At the time I was a reporter for the Wall Street Journal. (This was before News Corp. (NWS) bought the paper.) Ultimately I decided not to write about the company. And I had largely forgotten about Floorgraphics, until this month.

Treasuries Join Stocks Dropping in Markets Overwhelmed by U.S. Debt Debate

House Speaker John Boehner revised his plan yesterday to raise the debt ceiling as he gained support among fellow Republicans for a proposal Senate Democrats said won’t pass their chamber

Stocks and Treasuries are moving in tandem twice as often as they normally do, a sign investors are growing convinced the U.S. will lose its AAA credit rating and that an impasse among lawmakers may spur losses in both markets.

U.S. Credit Rating Rides on S&P’s London View of Politics on Capitol Hill

David Beers may be the most influential political commentator in the U.S. right now, even though he’s hardly a household name, that isn’t technically his job and he’s only visiting.

As the London-based managing director of sovereign credit ratings at Standard & Poor’s, Beers will help determine whether the U.S. government’s credit rating will be downgraded as a result of the battle over raising the debt limit.

Boehner Fights Internal Strife on Debt Plan

U.S. Speaker of the House John Boehner.

House Speaker John Boehner, battling resistance from within his own party as he intensifies a debt- ceiling standoff with President Barack Obama, worked to salvage his plan to tie the nation’s borrowing power to spending cuts and budget controls.

With less than a week before a possible default, the Republican-led House remained on a collision course with the Senate and White House.

Wall Street Helps Boehner Boost Fundraising as House Speaker

Since January, U.S. House Speaker John Boehner has raised $6.6 million for his campaign committee, six times more than the Ohio Republican received during the same period two years ago when he was the chamber’s minority leader.

Since January, U.S. House Speaker John Boehner has raised $6.6 million for his campaign committee, six times more than the Ohio Republican received during the same period two years ago when he was the chamber’s minority leader

Three of the five biggest sources of Boehner’s campaign cash this year are employees of three Wall Street investment houses, a shift from the 2010 election cycle when such contributors weren’t ranked among his top 10 donors.

Is Obama Wall Street’s Best Friend or Mortal Foe?: Ron Klain

Differences of opinion are the essence of politics; differences in factual analysis are usually less sharp. Yet one of the most interesting divides in public discourse now concerns not a policy dispute, but different perceptions of a “factual” question: How has the administration treated the financial sector: Wall Street, the banks and their executives?

This divide was on display last week, when Politico reporter Mike Allen recounted a private meeting of Wall Street executives in which many “said they were severely disappointed in the president,” and accused him of waging class warfare against them. “They said they didn’t understand what they had done to deserve that,” adding that “a president shouldn’t attack his constituents -- he’s not the president of some people, he’s president of all the people.”

Succeeding Blankfein at Goldman May Prove Hurdle Too High for No. 2 Cohn

Goldman Sachs Group Inc. president and chief operating officer Gary Cohn.

Michael Ovitz, the former Hollywood agent whose company was said to have created enemies “the way a hurricane produces raindrops,” first met Gary Cohn over lunch at Goldman Sachs Group Inc. (GS)’s headquarters in June 2009.

The two men, one the founder of the most powerful talent agency in the entertainment business, the other president of the most profitable securities firm in Wall Street history, have been in daily e-mail contact since, Ovitz said. They talk by phone three or four times a week. During a trip to the Caribbean in December, Ovitz, now an investor, visited Cohn on the Turks and Caicos Islands. Cohn, 50, a silver trader who worked his way up to the No. 2 position at Goldman Sachs, “was always on the phone, off in a corner,” Ovitz said. Cohn later told the former chairman of Creative Artists Agency Inc. he had been working on the deal to sell $1.5 billion of shares in Facebook Inc.

That Tweet Just Doomed Your Wall Street Career: William D. Cohan

As if it weren’t difficult enough to find a job in this still-struggling economy, prospective employees have a new hurdle to overcome: the dreaded -- and highly sophisticated -- social-media background check.

Thanks to an increasingly popular service provided by Social Intelligence Corp., a year-old company in Santa Barbara, California, an applicant’s every faux pas, every bit of perverse logic, every bit of a tongue-in-cheek comment that falls flat -- to say nothing of overt or implied prejudice and lewd personal photographs -- can now be easily scraped off Internet networking sites including Facebook, Tumblr, Twitter and LinkedIn, and compiled in an attractive dossier that can easily be used to zotz you from any potential job.

Goldman Sachs Model Championed by Blankfein Planted Seeds of Own Distress

Goldman Sachs Group Inc. chairman and chief executive officer Lloyd C. Blankfein.

The window shades were lowered to block out the sunlight soaking lower Manhattan on a Friday afternoon in June as 14 students in Eric H. Kessler’s executive MBA class gathered in a conference room to present their analyses of Goldman Sachs Group Inc. (GS)’s leadership.

The firm’s management shows “resistance to change” and is “doing business in a bubble,” one of the three student teams explained in a PowerPoint presentation. Another recommended creating an “ethics role” within Goldman Sachs’s securities division. Kessler, who teaches management at Pace University’s Lubin School of Business, peppered the students with questions. Could cohesive culture be a weakness as well as a strength?

Georgia Subpoenas, Dodd-Frank, Greek Rescue, Metlife Sale: Compliance

Georgia requested information from UBS AG, Morgan Stanley and Ameriprise Financial Inc. (AMP) in its probe over whether the firms broke the state’s securities laws in sales of structured notes called reverse convertibles.

The Secretary of State’s office sent subpoenas requesting data from each of the firms on how many reverse convertibles they sold in Georgia and the names of the investors, according to a person familiar with the matter, who spoke on condition of anonymity because the investigation is ongoing.

Chiesi Is Sentenced to 30 Months in Prison in Galleon Insider-Trading Case

Danielle Chiesi, the former New Castle Funds LLC analyst who pleaded guilty to passing secret tips to Galleon Group LLC co-founder Raj Rajaratnam, was sentenced to 2 1/2 years in prison.

U.S. District Court Judge Richard Holwell in Manhattan yesterday called her crimes “deplorable” as he imposed the sentence, plus two years of supervised release, on the 45-year- old former beauty queen. “This was not an isolated transgression,” he said.

“The message to Wall Street needs to be loud and clear. If you trade on inside information, you will be caught,” Holwell said. “And if convicted, you will be sentenced to a substantial term in prison.”

Murdoch Gets Major News Corp. Investor’s Vote

Saudi Prince Alwaleed bin Talal.

 

News Corp. Chairman Rupert Murdoch, facing the fallout from alleged phone-hacking at a London newspaper, got a vote of confidence from Saudi Prince Alwaleed bin Talal Al Saud, one of the company’s largest shareholders.

 Alwaleed remains “both supportive and confident in the leadership of Rupert and James Murdoch,” he said in an e-mail yesterday. The statement came a day after Rupert Murdoch and his son James, who is deputy chief operating officer, were questioned by U.K. lawmakers during a three-hour hearing on alleged phone-hacking at News Corp.’s News of the World tabloid.

Senate Debt Deal Praised by Obama Faces Resistance From House Republicans

A bipartisan Senate proposal for a $3.7 trillion debt-cutting plan praised by President Barack Obama faces resistance from House Republicans, as lawmakers intensify efforts for a compromise on government spending less than two weeks before a threatened default.

Obama said he will renew talks at the White House this week with congressional leaders as the Democratic-led Senate and Republican House pursue divergent paths toward ending the stalemate over lifting the nation’s $14.3 trillion debt limit. 

News Corp. Under Fire Finds Defense in Wall Street Journal’s Opinion Pages

While the widening News Corp. (NWSA) phone- hacking scandal sent Rupert Murdoch and son James in front of a U.K. parliamentary committee and unseated senior officials at the company and Metropolitan Police, the media empire found an aggressive defender in the Wall Street Journal’s opinion pages. Among at least five opinion pieces published so far this week supporting the newspaper’s owner were two signed by editorial board members. A third, a 1,000-word lead editorial, said media organizations commonly “pay sources for information” and “skew their coverage” to influence public affairs. The piece, titled “News and Its Critics,” added that it was “up to British authorities to enforce their laws.” 

News Corp. Said to Consider Chase Carey as CEO

News Corp. is considering elevating Chief Operating Officer Chase Carey to chief executive officer to succeed Rupert Murdoch, people with knowledge of the situation said.

A decision hasn’t been made and a move depends in part on Murdoch’s performance before the U.K. Parliament today, said the people, who weren’t authorized to speak publicly. Murdoch would remain chairman, the people said.

News Corp. executives who watched Murdoch, 80, rehearse for his appearance had concerns about how he handled questions, according to three people, who weren’t authorized to speak publicly. Murdoch and his son James are scheduled to discuss the company’s role in the alleged phone hacking of murder victims, members of the royal family and others by the News of the World, which was closed on July 10.

“This will be a heavily reviewed performance,” said Laura Martin, an analyst with Needham & Co. in Pasadena, California. “Who would have thought this could happen two weeks ago?”

News Corp. (NWSA)’s Australia shares rose 2.5 percent to A$14.52 at 12:15 p.m. in Sydney, paring their decline to 15 percent since July 4, when the Guardian newspaper reported that News of the World had hacked into the voicemail of a murdered teenager, Milly Dowler.

Independent Directors

Standard & Poor’s said yesterday it may lower New York- based News Corp.’s corporate debt rating because of “business and reputation risks” created by the phone-hacking scandal.

Independent directors yesterday weighed naming Carey CEO, according to a person close to the board. The independent directors, who didn’t make a decision, discussed whether the stock market and investors would react favorably to a change, the person said.

There was no meeting yesterday to elevate Carey, said a senior News Corp. executive who sought anonymity because the matter is private. Existing succession plans get re-evaluated from time to time, and any suggestion they have been accelerated or implemented are unfounded, the person said.

Murdoch has the board’s support, Thomas Perkins, one of the independent directors, told the Associated Press. He said the board isn’t considering elevating Carey, the AP reported.

Board members and executives at News Corp. are concerned about Murdoch’s ability to contain the fallout from the hacking scandal, the people familiar with the matter said. Already, the company has closed the 168-year-old News of the World and abandoned its bid for full ownership of British Sky Broadcasting Plc.

Politicians, Police

News Corp.’s top publishing executive in the U.K., Rebekah Brooks, resigned last week and was arrested on July 17. She is also scheduled to give evidence to Parliament today.

The scandal has touched high-level politicians and police officials in Britain. Metropolitan Police Commissioner Paul Stephenson resigned over suggested police links to News Corp.’s U.K. unit and its hiring of a former journalist at News of the World as a consultant. Prime Minister David Cameron cut short a trip to Africa to prepare for a statement to Parliament on July 20.

A shift in leadership would end Murdoch’s almost six-decade run as CEO of a company that began with a newspaper in Australia and evolved into a media empire that controls Fox television and movie assets, HarperCollins Publishers, and newspapers including the Times of London, The Sun and the Wall Street Journal.

Board Control

Murdoch’s voting power suggests he can influence any board decision about his role and would retain clout even if there were a leadership change.

“Rupert Murdoch controls the votes of the company through the Class B shares,” Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, said this week in an interview. “He can just replace them if he wants. They may do something, but it will be temporary. Maybe he becomes chairman, but this is still his company and he can do what he wants. When he controls the stock, he controls the board.”

Through a family trust, the Murdochs own 306.6 million shares, or 38.4 percent, of News Corp.’s Class B voting stock, according to the company’s proxy statement. Including other family holdings, Rupert Murdoch controls 39.7 percent of the voting power, giving him effective control, filings show.

The value of the family’s holdings has declined by almost $1 billion since the scandal erupted, according to Bloomberg data.

Carey’s Role

Independent directors must protect shareholders and act in their best interest, said Martin, who recommends buying News Corp. shares. Considering succession issues at this moment is “justifiable,” she said.

By installing Carey, 57, as CEO, News Corp. would be relying on a trusted Murdoch deputy to help get past the hacking scandal.

Carey worked for 15 years as a senior News Corp. executive before becoming CEO of DirecTV (DTV) in 2003. He returned in 2009 following the resignation of Peter Chernin as Murdoch’s No. 2.

News Corp.’s independent directors, who hold nine of 16 board seats, have expressed frustration over the quality and quantity of information they’ve received about the scandal and concern about management’s ability to handle the crisis given how slowly the company has responded, a person with knowledge of the situation said earlier.

Negotiating Stance

According to News Corp.’s proxy filing, independent board member Roderick Eddington, the former CEO of British Airways, is the company’s lead director. He has the responsibility to call meetings of the non-executive directors or independent directors and to serve as a liaison between the chairman and the independent board members.

In his first stint at News Corp., Carey served as co-chief operating officer and as an aide to Murdoch for about six years, helping Fox acquire rights to the National Football League, National Hockey League and Major League Baseball.

Carey, who played on the Harvard Business School rugby team while studying for his MBA, led News Corp.’s efforts this year to generate fees from its Fox broadcast affiliates, pressuring them to share more of the so-called retransmission fees that local stations get from cable and satellite operators. 

SOURCE

Congress Bickers as Bond Markets Brace for Total Panic: William D. Cohan

Hold on for just a New York minute now and consider the powerfully serious message the bond market sent last week about the political dithering in Washington and in Europe’s capitals. “Pay attention folks,” as the investor Gifford Combs e-mailed me on Friday. “This is not a drill.”

Here are the facts: The yield on Greek sovereign debt is now at record highs for the euro era. Last week’s state-managed bond auction in Italy almost failed. And, while few seem to have noticed, the overnight repurchase market -- for short-term, secured, corporate debt obligations -- nearly seized up amid what Combs described as “an almost panicky scramble” for less- risky paper.

Indeed, investors’ manic desire for safety last week reached levels not seen since the most acute days of the financial crisis in September and October 2008. Ironically, though, given the pathetic display in Washington and the country’s ongoing fiscal troubles, people turned in droves to the perceived security of the U.S. Treasury market, even though it has never looked shakier.

Remember the days of negative yields on short-term U.S. paper -- when effectively investors paid the government to keep their money safe? Warren Buffett considered that happenstance so rare that two years ago at the Berkshire Hathaway Inc. annual meeting he flashed a slide of a Treasury sale transaction ticket to his legion of followers.

Negative Yields Return

Well, it seems those days are back. U.S. Treasury bills shorter than three months in duration traded at negative yields last week. Three-month bills were trading a yield of 1 basis point. Six-month bills traded to yield 4 basis points and one- year U.S. Treasuries were trading to yield 13 basis points.

In short, demand for the perceived security of the debt obligations of the U.S. government was so intense that “it was virtually impossible to find ANY amount of certain maturities of short duration Treasury bills,” Combs informed me. He ended up buying what he could of the one-year notes and paying big time for the privilege (resulting in that minuscule 13 basis-point yield).

Not everyone, however, seems to have so much faith in the U.S. The Saudis appear to be so concerned that Congress and President Barack Obama will not be able to reach a resolution on increasing the debt-ceiling by Aug. 2 -- pushing the Treasury to possible default on the nation’s obligations for the first time -- that, according to market insiders, last week they Hoovered up euros as a possible hedge. This helps to explain why the European currency has managed to more than hold its own against the dollar despite the continent’s economic woes.

Money-Market Worries

At the same time, it’s an open secret on Wall Street that the Federal Reserve Bank of New York has become increasingly concerned about the state of U.S. money-market funds. With as little fanfare as possible -- understandably, so as not to cause a panic -- the New York Fed has been urging domestic money- market funds to reduce their exposure to European banks, where the funds have turned to increase yields not available in the U.S. because of rock-bottom interest rates.

The Fed is said to be terribly worried that -- because of provisions in the Dodd-Frank law -- it will no longer be able to rescue a money-market fund if it “breaks the buck,” as the Fed did famously the day after Lehman Brothers Holdings Inc. filed for bankruptcy.

Threat of Downgrades

As if all this were not enough, last week both Moody’s and Standard & Poor’s put the U.S. itself on credit watch, with negative implications about a possible downgrade. S&P said that while it expected an agreement regarding the debt ceiling, it was worried that the country’s fiscal house will remain in disarray.

“Despite months of negotiations, the two sides remain at odds on fundamental fiscal policy issues,” it stated in its Bastille Day note. “Consequently, we believe there is an increasing risk of a substantial policy stalemate enduring beyond any near-term agreement to raise the debt ceiling.”

Additionally, on Friday, S&P put the six AAA-rated insurers -- including New York Life Insurance Co. and Northwestern Mutual Life Insurance Co. -- on the watch list for a possible downgrade because of their significant holdings of U.S. Treasury and agency securities. None of this is even remotely good news.

Charade in Washington

What is the bond market telling us? Combs, a founder of Dalton Investments LLC in Los Angeles, likens the panic in the bond market to the unambiguous message the stock market sent on Sept. 29, 2008 -- when the Dow Jones Industrial Average dropped 780 points, the largest one-day point drop ever -- after Congress voted down the first version of the TARP bill. That’s how concerned the bond market is now about the charade going on in Washington.

Combs worries, though, because of how inherently more difficult it is for people to understand the machinations of the bond market than those of the stock market, that the message this time is not getting through to the politicians in Washington, who seem intent on taking a nonchalant approach to the potential Aug. 2 deadline for raising the debt ceiling. (Some politicians -- hello, Michele Bachmann -- have actually claimed that defaulting on our obligations would be good for the country.)

Politicians Don’t Understand

His concern is that politicians don’t understand how intimately tied transactions are on a worldwide basis to U.S. Treasury securities, and that if Treasuries were no longer accepted as collateral, the resulting market turmoil would make the “collapse of Lehman Brothers look like a walk in the park.”

Combs said he believes a default on U.S. Treasuries would set off “an unholy scramble” for what constitutes “good and valid” collateral, creating a huge problem in the worldwide payments system: “It’s a situation no one has ever faced before -- that people stop accepting Treasury bills as collateral.”

Even though, incredibly, the politicians in Washington took the weekend off from their negotiations, a bunch of them still found the time to appear on the Sunday morning political talk shows to make the case that a compromise will be found before Aug. 2. We’ll see if they are correct -- but bond traders are going to be increasingly less likely to bet on it. 

SOURCE

Credit Suisse, News Corp., Airport Scanners, Wells Fargo in Court News

Credit Suisse Group AG (CSGN), the second- biggest Swiss bank, is a target of an investigation by the Department of Justice over former cross-border private banking services to U.S. customers.

“Subject to our Swiss legal obligations, we will continue to cooperate with the U.S. authorities in an effort to resolve these matters,” the Zurich-based bank said in an e-mailed statement July 15. The bank, which was informed of the probe July 14, has already been responding to requests for information, including subpoenas, from the Department of Justice, it said.

Four bankers who worked at Credit Suisse were charged with conspiring to help clients in the U.S. evade taxes through secret bank accounts, according to an indictment from earlier this year. In the fall of 2008, when the bank began closing its cross-border business with U.S. clients, it had “thousands” of accounts with $3 billion in assets not declared to the U.S. Internal Revenue Service, according to the indictment. 

Credit Suisse said July 15 “it has been reported that the U.S. authorities are conducting a broader industry inquiry.” The Swiss government is in talks with authorities in the U.S. to resolve the issue of untaxed assets held by U.S. citizens in Swiss bank accounts, a government official said last month.

“Currently it is difficult to say whether this will lead to a legal case and a fine against Credit Suisse,” Teresa Nielsen, an analyst at Vontobel with a “hold” rating said in a note. “We expect Switzerland and the U.S. to continue negotiations.” Daniel Saameli, a spokesman for Switzerland’s finance ministry, said the government “acknowledges the developments,” while declining to comment further. News Corp. (NWSA) Phone-Hacking Accusations Probed by the FBI News Corp. Chief Executive Officer Rupert Murdoch defended his handling of the phone-hacking crisis as the FBI began a probe whether employees tried to hack into the phones of victims of the Sept. 11 terrorist attacks. 

“We’re aware of certain allegations pertaining to a possible hacking by News Corp. personnel and we’re looking into those charges,” Jim Margolin, a spokesman for the Federal Bureau of Investigation’s New York office, said in a phone interview July 14.

Murdoch, in an interview with the News Corp.-owned Wall Street Journal, said an independent committee led by a “distinguished non-employee” will investigate the phone- hacking allegations. The company has handled the crisis “extremely well,” while there were “minor mistakes,” he said.

The scandal led News Corp. to abandon its $12.6 billion (7.8 billion-pound) bid for full control of British Sky Broadcasting Group Plc. (BSY) It closed the 168-year-old News of the World tabloid, whose employees are accused of hacking voice- mails, including those of murder victims, and bribing police for stories.

Former News of the World editor Rebekah Brooks resigned July 15 from her post as chief executive officer of News International, which publishes News Corp. newspapers in the U.K.

Murdoch, 80, and his son James Murdoch, the company’s deputy chief operating officer, are scheduled to testify about the phone-hacking scandal before the U.K. Parliament on July 19. Brooks too is to testify.

U.S. Representative Peter King, the Republican chairman of the House Committee on Homeland Security, asked FBI Director Robert Mueller in a July 13 letter to investigate whether employees of News Corp.’s News of the World tried to access voice mails belonging to victims of the 2001 terrorist attacks through bribery and illegal wiretapping.

Julie Henderson, a News Corp. spokeswoman, didn’t return a voice-mail message seeking comment July 14.

Lawsuits/Pretrial

Swiss Banks Said to Be Near Settlement in German Tax Dispute

Swiss banks may initially pay at least 4 billion Swiss francs ($4.9 billion) to settle a dispute over tax evasion by wealthy German clients, two people familiar with the matter said.

The payment would be part of a larger sum covering the failure by customers to disclose undeclared money over the past 10 years, said the people, who declined to be identified because the negotiations between Switzerland and Germany are private and no final agreement has been reached.

The outlay for the past is part of Swiss talks with Germany and the U.K. over a proposed withholding tax on clients with offshore bank accounts. While part, or all, of the amount would later be “reimbursed” to the banks from taxes paid by their clients, according to the Swiss finance ministry, the settlement may trigger outflows by Europeans who question the value of cross-border accounts as secrecy crumbles. 

“I expect major withdrawals by clients from Germany and the U.K. as they are disgruntled by the retroactive effect of the agreement,” said Daniel Fischer, the founder of Zurich- based AFP Fischer & Partner, which specializes in banking law. “Clients are so angry that Swiss banks may not be able to recoup the full upfront payment.”

While the size of the initial payment and the formula used to determine back taxes owed by German and British clients haven’t been disclosed, Switzerland has reached a solution on a “political level,” Finance Minister Eveline Widmer-Schlumpf told NZZ am Sonntag on July 3.

The agreement may be announced after the Swiss government’s summer recess, said Mario Tuor, a spokesman for Switzerland’s State Secretariat for International Financial Matters. Germany’s finance ministry declined to comment because the negotiations are still continuing.

UBS AG (UBSN), Switzerland’s largest bank, will analyze the treaty when it’s announced, said spokesman Dominique Gerster.

Julius Baer Group Ltd. (BAER), which agreed in April to pay German authorities 50 million euros ($71 million) to end a separate investigation over undeclared client assets, declined to comment. Marc Dosch, spokesman for Credit Suisse Group AG, Switzerland’s second-biggest bank, also declined to comment.

New Suits

Apollo’s Trilegiant Unit Sued Over Charges for Consumer Clubs

Apollo Global Management LLC’s Trilegiant unit was sued by an Arizona man over claims it conspired to defraud consumers with charges for product loyalty services and membership clubs.

Juan M. Restrepo said in a complaint in federal court in Tucson, Arizona, that he was unaware that Trilegiant charged $10.99 to his Chase MasterCard account each month from May 2007 through to May 2011. Restrepo noticed the monthly charges in April and claims he never authorized the charges, according to the complaint filed July 13. 

“The charges were virtually unnoticeable because it was embedded in all other ordinary charges that normally escape close scrutiny of the ordinary consumer,” according to the complaint, which seeks to represent other customers in a class action, or group lawsuit. Chase Bank USA is also a defendant in the case.

The companies are accused in the lawsuit of racketeering, violating electronic communications privacy laws, violating unfair trade laws and unjustly enriching themselves. Restrepo is seeking a court order barring the companies from continuing the alleged scheme plus unspecified damages.

Mike Bush, a spokesman for Trilegiant, didn’t return a call seeking comment after regular business hours July 14. 

Tom Kelly, a spokesman for JPMorgan Chase & Co. (JPM), declined to comment. New York-based JPMorgan is the parent of Chase Bank USA.

The case is Restrepo v. Chase Bank USA NA, 11-cv-00423, U.S. District Court, District of Arizona (Tucson).

For the latest new suits news, click here. For copies of recent civil complaints, click here.

Verdicts/Settlement

UBS Data Disclosure on 255 U.S. Clients Was Legal, Court Says

UBS AG’s disclosure of account data on 255 clients to the U.S. authorities, ordered by the Swiss financial regulator in 2009, was “lawful,” the Swiss Federal Supreme Court ruled.

The Swiss Financial Market Supervisory Authority, or Finma, “proceeded on the assumption that if this data hadn’t been disclosed, the U.S. Department of Justice would have filed an indictment against UBS, which would arguably have caused the bank’s ruin and consequently have had serious repercussions for the Swiss economy,” the Lausanne-based court said July 15 in an e-mailed statement. 

The court reversed a ruling in January 2010 by the Federal Administrative Court, which handled a complaint from UBS clients. The administrative court ruled that the regulator exceeded its authority in telling UBS, Switzerland’s biggest bank, to hand over data to the U.S. as part of a deferred prosecution agreement. The Department of Justice accused UBS of conspiring to defraud the U.S. by helping Americans hide accounts from the Internal Revenue Service.

While the emergency-action provisions in the Swiss Banking Act don’t provide “sufficient legal grounds for encroaching on banking secrecy,” government authorities, including Finma, may take steps to “avert serious imminent risks” even in the absence of a specific legal foundation, the court said.

Airport Body Scanners Improperly Adopted by U.S., Court Says

Airport body scanners using advanced imaging technology were improperly adopted by the U.S. as a primary passenger- screening tool, a federal appeals court ruled, while allowing their use to continue.

The U.S. Transportation Security Administration should have sought public comment before deciding that the scanners, first deployed in 2007, would be used “everywhere for primary screening,” the court said July 15.

“Due to the obvious need for the TSA to continue its airport security operations without interruption, we remand the rule to the TSA but do not vacate it,” the court said in its ruling.

By the end of 2010, the TSA was operating 486 scanners in 78 airports with plans to add 500 more scanners by the end of this year, according to the court.

Greg Soule, a spokesman for the TSA, didn’t return a phone message seeking comment.

The case is Electronic Privacy Information Center v. U.S. Department of Homeland Security, 10-1157, U.S. Court of Appeals for the District of Columbia (Washington).

For the latest verdict and settlement news, click here.

Court Filings

Wells Fargo $125 Million Settlement Makes Docket Most Popular

Wells Fargo & Co. (WFC), which agreed July 6 to pay $125 million to settle accusations by investors that the bank misled them about the risks of mortgage-backed securities it sold, had the most-read litigation docket on the Bloomberg Law system last week.

The plaintiffs in the consolidated group case, or class action, include the General Retirement System of Detroit, New Orleans Employees’ Retirement System and other public pensions, according to the proposed settlement filed in federal court in San Jose, California.

Wells Fargo, the largest U.S. home lender, and several investment banks that underwrote the securities were sued in 2009 over alleged violations of securities laws in connection with sales of $36 billion in mortgage pass-through certificates in 2005 and 2006.

The bank and the underwriters deny wrongdoing, according to the proposed accord, which is subject to a judge’s approval.

“The proposed settlement agreement is a negotiated resolution as to all named defendants and is intended to avoid the distraction and expense of litigation,” Ancel Martinez, a Wells Fargo spokesman, said in a telephone interview. The bank still faces claims in state courts in California, Illinois and Indiana filed by individual investors and federal home loan banks seeking to rescind billions of dollars of mortgage-backed securities purchases. “It’s a very favorable outcome and will be significant for investors,” David Stickney, a lawyer for the plaintiffs, said in a phone interview.

The case is In re Wells Fargo Mortgage-Backed Certificates Litigation, 09-1376, U.S. District Court, Northern District of California (San Jose). 

SOURCE

News Corp. at 50% Discount Shows Diminishing Murdoch

What’s News Corp. (NWSA) really worth? At least 50 percent more without Rupert Murdoch.

The company, which owns the Fox TV networks and the Wall Street Journal, has fallen 13 percent since allegations surfaced that one of Murdoch’s tabloid newspapers hacked into the voicemail of a murdered schoolgirl, wiping out $6 billion from News Corp. (NWS)’s market capitalization in less than two weeks. The $41 billion company now sells for less versus earnings than any of its closest rivals.

By valuing each of News Corp.’s businesses separately, the New York-based media conglomerate would be worth $62 billion to $79 billion, estimates from Barclays Plc and Gabelli & Co. show, indicating News Corp. trades at an almost 50 percent discount to its units. Murdoch, 80, is facing increasing scrutiny over his management of News Corp. after the phone-hacking revelations forced him to abandon a takeover of British Sky Broadcasting Group Plc (BSY) and deepened a slump that’s left shareholders with a 16 percent loss in the past five years even as its rivals gained. 

“There’s just sort of this generic Murdoch discount, which encompasses the concern that he will make decisions that are not consistent with other shareholder interests,” said Michael Morris, an analyst at Davenport & Co. in Richmond, Virginia. “The sum of the parts on News Corp. is huge compared with where the stock trades.”

Based on Morris’s own sum-of-the-parts analysis, News Corp. is worth about $25 a share, 60 percent higher than the company’s closing price of $15.64 last week.

Murdered Schoolgirl

News Corp. dropped 0.8 percent to the equivalent of $15.10 at 10:03 a.m. in German trading. Its Australian shares fell 4.1 percent to A$14.16, closing at a two-year low in Sydney and bringing their losses to 17 percent since July 4, when the Guardian newspaper reported that employees of the News of the World tabloid had intercepted the voice mail of Milly Dowler, a schoolgirl who was later found murdered. 

News Corp.’s spokeswoman Julie Henderson in Los Angeles declined to comment. Alice Macandrew, a spokeswoman for News Corp. in London, also declined to comment.

Bloomberg LP, the parent of Bloomberg News, competes with News Corp. units in providing financial news and information.

Murdoch and his son James were summoned last week to appear before U.K. lawmakers to answer questions about employees paying police for stories and the FBI began examining whether News Corp. employees tried to hack into phones of Sept. 11 victims.

Resignations

Les Hinton, chairman of News International, the U.K. publishing unit that included News of the World when the alleged hacking occurred, stepped down as head of the Dow Jones division on July 15. That came hours after the exit of News International Chief Executive Officer Rebekah Brooks, who was then arrested by U.K. police yesterday.

Brooks was editor of News of the World, which closed this month as a result of the scandal, from 2000 to 2003. 

The spotlight will shift back to Murdoch and his son James tomorrow as they testify before the U.K. Parliament.

Ed Miliband, leader of the U.K.’s opposition Labour Party, called yesterday for Murdoch’s media company to be broken up. Miliband told the Observer newspaper that the breadth of Murdoch’s ownership is “unhealthy because that amount of power in one person’s hands has clearly led to abuses of power within his organization.”

Independent directors of News Corp. have begun questioning the company’s response to the crisis and whether a leadership change is needed, said two people with direct knowledge of the situation who wouldn’t speak publicly.

Murdoch’s Job

Some people close to the Murdoch family and News Corp.’s directors said last week they thought it would make sense for Murdoch to relinquish his job as chief executive officer and stay on as chairman.

“Rupert should go because it’s in the best interest of everybody,” said Terry Smith, chief executive officer of London-based inter-dealer broker Tullett Prebon Plc. (TLPR) “The phone-hacking scandal is symptomatic of his business judgment.” 

“When a large number of your staff have been involved in criminal activities, normal CEOs of public companies who have to answer to outside shareholders and capital providers are less inclined to sweep it under the carpet,” he said.

If the position of the Murdoch family weakens further, Chief Operating Officer Chase Carey may be named as interim CEO, one person close to the family and board of directors said last week. In a statement last week announcing Hinton’s departure, Murdoch downplayed his own importance to the company he built from two inherited Australian newspapers.

Murdoch Discount

“News Corp. is not Rupert Murdoch,” he said. “It is the collective creativity and effort of many thousands of people around the world.”

Yacktman Asset Management Co.’s Don Yacktman, whose biggest holding is News Corp., said that while Murdoch is in charge the company may remain undervalued versus its rivals.

“Mr. Murdoch is going to do what Mr. Murdoch chooses to do, unless he is forced to do something else,” said Yacktman, whose $5.4 billion Yacktman Fund (YACKX) has beaten 99 percent of like funds in the past five years. “If he stepped down, yeah, probably the stock price would go up, because there’s a Murdoch discount.”

“There are other people on the management team than Murdoch,” Yacktman said, citing Chase Carey. Still, “You have to have some admiration for Murdoch, even those who despise him, for his financial acumen because he’s been successful. Murdoch has shown kingdom building skills.”

Attachment to Newspapers

The crisis at News of the World has for now thwarted News Corp.’s strategy to leverage pay-television provider BSkyB into new digital businesses.

Full ownership of Isleworth, England-based BSkyB, which has 10 million subscribers, would have facilitated the bundling of print and pay-TV subscriptions by spreading content over different media platforms, making News Corp. less susceptible to advertising sales at its newspapers.

Murdoch’s attachment to newspapers, which has contributed to a 28 percent decline in operating income at News Corp.’s newspapers and information services unit in the past five years, has cost News Corp.’s shareholders billions of dollars.

The company’s market value has shrunk by $31 billion since it offered to pay a 70 percent premium for New York-based Dow Jones & Co., publisher of the Wall Street Journal, in May 2007.

News Corp. wrote down the value of the $5.1 billion deal by $2.8 billion in the second quarter of fiscal 2009, according to a filing with the Securities and Exchange Commission.

Myspace, Shine Group

Since completing the deal in December 2007, News Corp. has lost 21 percent, including dividends, while media companies in the Standard & Poor’s 500 Index gained 20 percent. New York- based Time Warner Inc. (TWX), owner of HBO and TNT, returned 12 percent in that span, and Walt Disney Co. (DIS), the Burbank, California-based owner of the ABC network, rose 24 percent.

News Corp. also exited its 41 percent stake in Gemstar-TV Guide International Inc. in December 2007 after $6 billion in writedowns, and agreed last month to unload MySpace for $35 million, a fraction of the $580 million it spent six years ago.

Murdoch’s purchase of his daughter’s TV production company, Shine Group Ltd., caused shareholder Amalgamated Bank of New York to sue News Corp.’s directors in March and accuse Murdoch of nepotism.

News Corp. now trades at 12.7 times its reported profit, versus an average of 16.5 times for media companies in the S&P 500. Time Warner has a multiple of 14.7, while Disney trades at 17.1 times profit, data compiled by Bloomberg show.

Sum of Parts

“You’ve got a lot of headlines about News Corp. that you just don’t see about other media companies,” said Barton Crockett, a analyst at Lazard Capital Markets in New York. “You’ve got phone hacks, purchases of companies run by relatives and big acquisitions of newspaper companies. Investors don’t necessarily like Murdoch spending on these things.”

The missteps have left News Corp. trading at a discount to the value of its parts, even without its newspaper business.

By applying market multiples to each of News Corp.’s units, Brett Harriss, analyst at Gabelli in Rye, New York, says the company may be worth a total of $79 billion.

News Corp.’s cable business, which Harriss estimates commands a valuation of 9 times its estimated earnings of $3.93 billion before interest, taxes, depreciation and amortization next fiscal year, would be worth $35 billion including net debt.

The company’s film, TV and satellite units together would sell for almost $20 billion, and News Corp. also has about $13 billion in investments, based on his projections.

Empire Building

Adjusting for News Corp.’s estimated net cash next fiscal year, the company’s equity value without the newspaper unit would still exceed $70 billion, the data show.

On a per-share basis, Harriss estimates that all the media conglomerate’s pieces would add up to almost $29.87, an increase of more than 90 percent from its current share price.

Barclays projects that the value of News Corp.’s businesses may equal about $25.77, excluding its so-called conglomerate discount and after accounting for share buybacks. Last week, the company almost tripled its repurchase program to $5 billion.

While News Corp. languishes at a discount to the sum of its parts, Stewart Capital’s Malcolm Polley says Murdoch is unlikely to consider a sale or break up after spending decades to build up his global media empire.

‘Very Large Shareholder’

Even if Murdoch were to step down as CEO, he and his family would still control management decisions at News Corp. through its 38 percent stake in the Class B voting shares, Polley said.

“You’ve got a company where a very large shareholder controls what’s going on,” said Polley, who oversees $1 billion as chief investment officer at Stewart Capital in Indiana, Pennsylvania. “There are things that might make sense to do that in a normal situation shareholders might agitate to get done, such as having him step down or selling off businesses, but you really can’t here.”

Still, Tullett Prebon’s Smith says the phone-hacking allegations and the resignations of two of the company’s senior executives will embolden more shareholders to question Murdoch and his role at News Corp. 

“We’ll see more pressure on Murdoch now,” Smith said. “One of the things that’s kept people away is that he has a powerful media presence, and people are fearful of crossing swords with him. Much of that fear is gone now.” 

SOURCE

US debt standoff threatens to turn crisis into catastrophe

President Barack Obama with Republican and Democrat leaders including Mitch McConnell, the Republican leader in the Senate (second from right) to discuss the debt ceiling. Photograph: Charles Dharapak/AP

• Republicans insist on spending cuts without raising taxes
• Obama sets 22 July deadline for action
• JP Morgan chief warns of severe damage to global economy if US defaults

 

The US faces the prospect of a "catastrophe" as President Barack Obama stands firm against Republican demands for deep spending cuts without any tax increases as the condition for raising the country's borrowing limit and avoiding a debt default.
With Washington gripped by a growing sense that it may be too late to avert a crisis, the president has said he will give the increasingly rancorous negotiations until the end of next week to reach agreement on the terms for raising the US's $14.3 trillion (£8.9tn) debt ceiling.
The White House has said that if there is no agreement by 22 July, then discussion about budget cuts and taxes should be abandoned in favour of legislation dealing solely with raising the debt ceiling before the borrowing limit is reached on 2 August. But the Republicans have rejected legislation without agreement on budget cuts.
With European leaders also facing a potentially ruinous debt crisis, a leading Wall Street figure described the prospect of a US default as catastrophic.
Jamie Dimon, chief executive of JP Morgan, one of Wall Street's biggest banks, said: "No one can tell me with certainty that a US default wouldn't cause catastrophe and wouldn't severely damage the US or global economy. And it would be irresponsible to take that chance."
On Wednesday, Ben Bernanke, the chairman of the Federal Reserve, warned of a "huge financial calamity" if a political agreement is not reached. He told Congress a default would "send shockwaves through the entire financial system".
Hours later, the credit ratings agency Moody's warned that it may downgrade the US's AAA credit rating, saying there is a "rising possibility" that no deal will be reached by next month's deadline.
On Thursday, Moody's threatened to downgrade the AAA ratings of government lenders Fannie Mae, Freddie Mac, Federal Home Loan Banks and Federal Farm Credit Banks, illustrating the vulnerability of the already depressed housing market to a government default.
Talks continued on Thursday but failed to make progress. Obama told congressional leaders that unless a framework deal is agreed on Friday then negotiations will continue through the weekend.
China, the US's biggest creditor, added to the pressure on Thursday by publicly urging Washington to protect investors' interests. The dollar continued its fall as investors shifted to other assets such as gold, which hit a record high on Thursday.
At the heart of the political wrangling is a determination by each side to blame the other for a stagnant economy, with unemployment remaining stubbornly high at above 9%. The latest economic figures showed only a 0.1% increase in retail sales and a minor drop in the number of new jobless claims – by 22,000 to 405,000 last week – suggesting the rate at which companies are laying off workers is falling.
If the debt ceiling is not raised by 2 August, Obama will be forced to decide which parts of the government to shut down and which to keep going using continuing tax revenues, as well as how much of those revenues to direct to meeting payments to foreign holders of US bonds.
The president would have to decide whether to cut off unemployment benefits for those out of work and pension payments to the elderly. He might freeze the military payroll, a large expense but a move bound to bring stinging attacks from the Republicans. Many, if not all, government offices would close.
"You would have to make heinous choices about which bills you would pay," said the White House press secretary, Jay Carney.
The Republicans propose $2.4tn in immediate spending cuts with no tax increases. Obama says the scale of those cuts demanded by Republicans can be reached, but only in several stages, and that tax increases are essential to reduce the deficit.
But the Republicans won control of the House of Representatives in November's election on a platform of promising no new taxes. Newly elected members fear compromise will cost them voter support.
Concern that agreement will not be reached has been reinforced by Republican claims that Obama stormed out of a meeting on Wednesday evening.
Eric Cantor, the House majority leader, said the president "got very agitated, seemingly" and quoted him as saying: "Eric, don't call my bluff. I'm going to the American people with this." Democrats disputed the account.
Prospects for a deal are further undermined by divisions within the Republican party. House Republican leaders believe much of the country will blame Obama for any economic consequences of a default on the debt. But the party's Senate leadership is more sceptical.
The Republican leader in the Senate, Mitch McConnell, fears his party will share the blame if the US defaults on its debt and the economy suffers. "I refuse to help Barack Obama get re-elected by marching Republicans into a position where we have co-ownership of a bad economy," he told a radio show.
McConnell noted that a shutdown of the government in 1995 helped re-elect Bill Clinton as president the following year after voters blamed Republican leaders in Congress. He has attempted to buy the Republicans a way out by proposing Congress hand over power to raise the debt ceiling to Obama without first approving spending cuts. That would shift responsibility for increased spending to the president and allow the Republicans to say they worked to keep to their commitment.
But McConnell's proposal was rejected by his own leadership in the House of Representatives, which fears anything short of substantial spending cuts will be viewed as betrayal by Republican voters.

 SOURCE