faceofwallstreet: August 2011

Wednesday, 31 August 2011

When the U.S. Was Big: The Ticker

For the U.S., 1950 was a far more perilous moment than the present. The world was still digging its way out of the most expansive and destructive war in human history. The U.S. confronted a powerful and provocative foe sworn to its destruction and armed with fast-growing nuclear capabilities. The USSR eagerly probed the globe– Greece, Austria, Iran, Turkey, Germany, Korea – for weak points in a western alliance organized and guaranteed solely by U.S. resolve.

Berkshire Says BofA Dividends Will Be Taxed at 14.175% Rate

Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) said dividends on its $5 billion in preferred shares of Bank of America Corp. (BAC) will be taxed at a 14.175 percent rate because the securities will be held in insurance units.

Deutsche Bank AG head of corporate and investment banking Anshu Jain.

Anshu Jain, the head of Deutsche Bank AG (DBK)’s investment-banking division, earned a promotion to co- chief executive officer of Germany’s biggest bank last month by cementing its status as a debt-trading powerhouse.

People walk along a washed out section of Route 12 on Aug. 29, 2011 in Berlin,

With the bridges out in Pittsfield, Vermont, and its 400 residents marooned, Wall Street trader Scott Redler took matters into his own hands: He hired a helicopter and was back home in New Jersey yesterday afternoon.

Exchanges to Shed Sandbags as Irene Passes

U.S. flags fly outside the New York Stock Exchange after a large flag that hangs over the columns was removed in New York.

Goldman Sachs Group Inc. (GS) and Citigroup Inc. (C), whose offices in New York’s evacuation zone for Hurricane Irene escaped major damage, are among Wall Street banks that will resume business today as exchanges open. Employees still face a gauntlet getting there.

The records of oil futures and derivatives trades in the first half of 2008 were compiled by the Commodity Futures Trading Commission and made public Aug. 19 by Senator Bernie Sanders.

Just before crude oil hit its record high in mid-2008, 15 of the world’s largest banks were betting that prices would fall, according to private trading data released by U.S. Senator Bernie Sanders.

The net positions of the banks undermine arguments made by Sanders that speculative trades on Wall Street drove oil prices in 2008, said Craig Pirrong, director of the Global Energy Management Institute at the University of Houston. Retail gasoline reached a record $4.08 a gallon on July 7, 2008, and oil peaked at $147.27 a barrel on July 11 that year.

‘Rockefeller Country’ Real-Estate Values in Maine Making the Rich Richer

The Rockefellers, the Morgans and the Astors, the most powerful Gilded Age families, knew how to pick real estate. The worth of the properties they once owned on Mount Desert Island in Maine has soared during the national real estate bust.

Americans watched their home values tumble an average of 29 percent from the start of the real estate collapse in 2006, according to the Federal Reserve. Mount Desert estates owned by the descendants of oil and industrial barons gained by almost the same amount, according to local records.

While the recession erased more than 8 million jobs and brought the home-construction industry to a grinding halt, billionaire Mitchell Rales bought a $5.5 million estate and tore it down to build a $25 million mansion on Mount Desert in Maine, the U.S. state with the highest proportion of vacation homes, according to new figures from the 2010 U.S. census.

“The upper end has survived the crash better than most,” said Gary Fountain, a broker at Mount Desert Island Real Estate in Bar Harbor. “There are still plenty of Learjets parked at the Bar Harbor airport every weekend.”

Junior investment bankers to Wall Street: Take this job and shove it.

While young bankers said they enjoy their jobs, most are dissatisfied with pay and hope to leave the field, with almost 60 percent saying they want to work in private equity, according to a survey released yesterday by headhunting firm Capstone Partnership.

“It’s been a rough couple of years for them,” Rik Kopelan, managing partner at New York-based Capstone, said in a phone interview. “Fewer and fewer plan on making it a career, because they’re working these long hours and not getting paid as well as they were.”

One investment banker who participated in the survey described a breach of the “tacit understanding” that he or she would be well compensated. Considering “the sacrifice I make in my personal life (100-hour work weeks, canceled vacations, etc.), this business has to be more rewarding,” the person said, according to Capstone.

Strauss-Kahn, Spitzer, Motorola, Bank of America in Court News

Prosecutors asked a judge to dismiss all criminal charges against Dominique Strauss-Kahn, the former International Monetary Fund chief accused of sexual assaulting a hotel maid who lied to authorities about some details of her life and the case.

“The nature and number of the complainant’s falsehoods leave us unable to credit her version of events beyond a reasonable doubt whatever the truth may be about the encounter between the complainant and the defendant,” the office of Manhattan District Attorney Cyrus Vance Jr. said in a filing yesterday in Manhattan. “If we do not believe her beyond a reasonable doubt, we cannot ask a jury to do so.”

U.S. prosecutors won a victory in their crackdown on offshore tax evasion when a federal appeals court said a former UBS AG (UBSN) client must turn over his bank records to a U.S. grand jury.

The client, identified only as M.H., must produce records sought by a federal grand jury in San Diego, according to the U.S. Ninth Circuit Court of Appeals. A three-judge panel rejected M.H.’s constitutional argument that the Fifth Amendment right against self-incrimination should cover records on foreign bank accounts.

Analyst Estimates 10 Times Higher Than GDP

Traders work on the floor of the New York Stock Exchange in New York, U.S.

At a time when U.S. equities have lost $2.9 trillion in market value, stock analysts are twice as bullish as they’ve been over the past 56 years when compared with economists.

Euro-Bonds, Nuclear Regulations, CFTC, Moodys-S&P MBS Ratings: Compliance

European Union regulators may push for joint bond sales by euro-area nations to help contain the debt crisis, putting pressure on Germany to drop its opposition.

The European Commission said it may present draft legislation on euro bonds when completing a report on the feasibility of common debt sales. The commission, the EU’s regulatory arm in Brussels, earlier this year opposed such a step because of German-led objections.

News Corp. Holds Talks On Governance Concerns

News Corp. (NWSA) Chief Operating Officer Chase Carey, reacting to the scandal over phone hacking at the News of the World tabloid, is holding discussions with some large investors over governance and other concerns.

The California State Teachers’ Retirement System, which held 3.86 million News Corp. Class A shares as of June 30, is among those participating, said Ricardo Duran, a spokesman.

“Calstrs is involved in the engagement process, which includes sending letters, holding conference calls and meetings, with News Corp. management,” Duran said in an e-mail. “Because this is delicate, we cannot say anything further about our efforts.”

The Federal Reserve Bank of Philadelphia sent a signal about renewed recession risks just one day after its president said the U.S. economy is growing and doesn’t need exceptional measures.

Philadelphia Fed President Charles Plosser said two days ago his policy-making colleagues at the central bank painted a picture that was “more negative than justified” last week. Yesterday, Plosser’s regional bank said its manufacturing index plunged to the lowest level in 2 1/2 years, helping to push stocks down as much as 5 percent.

“He did say business leaders he talked to were pessimistic on growth, although he thought the economy would continue to expand,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, referring to Plosser. “But he didn’t realize his index the next day would signal recession? That’s the irony here.”

The mixed messages from Philadelphia provide one more dose of uncertainty to markets already dealing with Europe’s debt crisis and the aftermath of Standard & Poor’s downgrade of the U.S. credit rating. Fed policy makers said Aug. 9 they expect a “somewhat slower pace of recovery” than they foresaw previously.

Gold rose to a record above $1,860 an ounce, poised for the longest run of weekly gains since April 2007, as escalating concern the global economy is slowing drove equities lower and spurred demand for a haven.

The metal is set for a seventh weekly advance as worse- than-expected U.S. economic data and Europe’s debt crisis boost speculation growth will falter. Asian stocks extended a global rout today after a Philadelphia-area manufacturing index sank to the lowest level since 2009, U.S. jobless claims rose and existing home sales fell. Morgan Stanley and Deutsche Bank AG this week cut forecasts for China’s growth.

Commodities dropped, heading for a fourth weekly loss, as oil and grains tumbled on concern slower economic growth will curb demand. Gold advanced to a record for the second day as investors sought a haven.

The Japanese yen and Swiss franc advanced against most of their major counterparts on demand for the safest assets, as stocks extended a worldwide rout amid speculation European banks lack sufficient capital.

U.S. Senator Charles Grassley asked the Securities and Exchange Commission to answer allegations that the agency destroyed files from initial investigations of firms including Goldman Sachs Group Inc. (GS), SAC Capital Advisors LP and Bernard Madoff Investment Securities LLC.

Grassley, the top Republican on the Senate Judiciary Committee, made the request in a letter to SEC Chairman Mary Schapiro dated Aug. 17, citing claims by an agency employee that more than 9,000 such files have been purged. The Iowa lawmaker asked Schapiro to explain whether the SEC routinely destroys documents related to so-called matters under investigation that don’t progress beyond the initial phase.

Wall Street Sweats Stress in 106-Degree Yoga That Soothed Nixon

Corina Cotenescu teaches the 40-year-old branch of the ancient discipline conducted in heat and humidity that has found a niche on Wall Street and Hollywood and grown into a $365 million-a-year business, based on the practice's own figures.

The night before the Standard & Poor’s 500 Index took its biggest drop in two years, futures trader Corina Cotenescu said she sensed something coming. So she spent 1 1/2 hours in a muggy, 106-degree room, stretching and contorting her body.

Fortress, Cerberus Said to Raise Property Funds as Fees Squeezed

Fortress Investment Group LLC (FIG), Colony Capital LLC and Starwood Capital Group LLC are among a record number of private-equity firms raising real estate funds, according to people familiar with the process, driving down fees in a business reeling from earlier losses.

Los Angeles Mayor Antonio Villaraigosa proposed dismantling California’s Proposition 13, which helped begin a nationwide anti-tax movement, in favor of a “grand bargain” that would boost levies on business property.

Founded in 1987 by David Rubenstein, seen here, William Conway and Daniel D’Aniello, Carlyle is planning the largest IPO by a private-equity manager since Blackstone raised $4.75 billion in 2007.

Carlyle Group, pressing ahead with plans for an initial public offering, is meeting privately with analysts to convince them the buyout firm is worth at least as much as its most richly valued competitor, Blackstone Group LP. (BX)

PMorgan Proves Bond Deal Death in Jefferson County No Bar to New Business

A man exits the JPMorgan Chase & Co. headquarters building in New York, U.S..

JPMorgan Chase & Co. (JPM)’s Charles LeCroy said the key to landing bond deals in Jefferson County, Alabama, was finding out who to pay off. In one example, that meant a $2.6 million payment to Bill Blount, a local banker and longtime friend of County Commissioner Larry Langford.

Traders work on the floor of the New York Stock Exchange in New York, U.S..

Volatile moves in the equity and fixed-income markets have analysts wondering whether this month’s trading will lead to profits or pain for Wall Street’s biggest banks.

Volume and volatility may help third-quarter results in a seasonally weak period, Barclays analysts led by Roger Freeman said in a note this week, cautioning that bank trading positions will determine the overall result. Glenn Schorr, a Nomura Holdings Inc. analyst, wrote that the sell-off is likely to cause “market-making pain” and lower investors’ risk appetites.

Morgan Stanley’s Wood Using Wall Street Drive as Golf Coach at Manhattan

Jerry Wood, golf coach at Manhattan College.

Jerry Wood is relying on skills that helped him recruit and develop top talent at Morgan Stanley (MS) in his latest endeavor: coaching the men’s golf team at Manhattan College.

Wood, 57, has spent 30 years at Morgan Stanley, where he’s a senior adviser after holding managerial roles including global head of sales for fixed income and equities.

Goldman Sachs Group Inc. Chairman and CEO Lloyd C. Blankfein.

Lloyd C. Blankfein, chairman and chief executive officer of Goldman Sachs Group Inc. (GS), lost about $52 million of his personal wealth this month -- more than the combined losses of four other Wall Street CEOs.

Goldman Sachs, Point Blank, H&R Block, Citigroup, Munis, FSA: Compliance

The National Credit Union Administration has sued Goldman Sachs Group Inc. (GS), accusing the Wall Street firm of violating federal and state laws in the sale of securities to now-failed corporate credit unions.

NCUA is seeking damages in excess of $491 million from Goldman Sachs in the lawsuit filed yesterday in California. The suit is the fourth in a series aimed at recovering almost $2 billion from “sellers and underwriters of questionable securities,” NCUA said in a statement yesterday announcing the suit.

Stephen Cohen, a spokesman for New York-based Goldman Sachs, declined to comment on the NCUA lawsuit.

A sign advertising property for lease hangs on a building in Bethesda, Maryland. Reduced federal spending may boost commercial real estate vacancies as tenants lose sales from one of their biggest customers: the U.S. government.

The nascent recovery in U.S. commercial real estate may be cut short as Europe’s debt crisis and Standard & Poor’s credit downgrade of Treasuries send borrowing costs to their highest in more than a year.

News Corp. May Increase Quarterly Dividend

News Corp. headquarters in New York.

News Corp. (NWSA), trying to rebuild investor confidence after a phone-hacking scandal, may raise its quarterly dividend by 20 percent when the company reports earnings tomorrow.

The payout probably will rise to 9 cents a share from 7.5 cents, according to projections. News Corp. (NWS) may instead hasten share purchases under a $5 billion buyback, said Brett Harriss, an analyst at Gabelli & Co., which owns voting and nonvoting stock of the New York-based company. News Corp.’s board meets today and earnings are set for tomorrow after markets close.

Maine Treasurer Bruce Poliquin. Source: Office of the State Treasurer

“I don’t eat at Wendy’s,” Robert Lenna, the Maine Municipal Bond Bank’s executive director, said when asked why he and three other officials had dinners costing almost $4,000 with Wall Street bankers selling the state’s debt.

Lenna’s declaration, made at an April 8 public meeting, has laid bare a fight over whether Maine, where 12.6 percent of residents live below the poverty line, should try to save taxpayers’ money by holding open bond auctions in place of the privately negotiated debt sales it has relied on for decades.

Maine Treasurer Bruce Poliquin, who was endorsed for the post last year by Tea Party-backed Governor Paul LePage, leaves no doubt that the way the state borrows money for public works must change.

Strategists See 17% S&P 500 Rally on Earnings

Wall Street has never been more sure that the Standard & Poor’s 500 Index will rally in 2011, even after speculation the U.S. economy is heading for a recession prompted the biggest plunge since the bull market began.

Chief strategists at 13 banks from Barclays Plc (BARC) to UBS AG (UBSN) see the benchmark measure of American equity surging 17 percent through Dec. 31, the average estimate in a Bloomberg survey. Their projection that the index will reach 1,401 hasn’t budged in four weeks, while mounting concern U.S. growth is slowing drove the S&P 500 down 11 percent since July 22, including yesterday’s 4.8 percent tumble.

For years, Morgan Keegan & Co. Inc. trader Charles Macintosh tortured his body in triathlons, searching for victory and personal fulfillment.

On Sunday, the mortgage-backed securities trader will do it for sport and to raise money for the Robin Hood Foundation’s Endurance Team at the Nautica New York City Triathlon. His goal is to raise $10,000, which includes $2,500 of his own money and the rest coming from friends and supporters.

“The triathlon fulfills a combination of my interests,” Macintosh, 33, a veteran of more than 100 triathlons around the world, said in a phone interview. “It allows me to do what I love athletically, and the other is to make a charitable contribution. So it was an easy decision to do this.”

Nikkei 225 Index Rises as Government Sells Yen; Hitachi Advances

Japan’s Nikkei 225 Stock Average advanced for the first time in three days after the government sold yen, boosting prospects for exporters’ earnings. Mining and energy companies slipped.

Canon Inc. (7751), which gets 80 percent of its sales abroad, climbed 1 percent. Hitachi Ltd. rose 1.7 percent after a person familiar with the matter said its in talks with Mitsubishi Heavy Industries Ltd. (7011) to merge some businesses, following a Nikkei newspaper report on the possible deal. Inpex Corp. (1605), Japan’s largest energy exploration company, declined 2.1 percent after crude oil prices dropped.

The Nikkei 225 rose 0.2 percent to 9,659.18 at the 3 p.m. market close in Tokyo. The broader Topix index fell for a third day, ending 0.1 percent lower at 826.36 after advancing as much as 1.1 percent. The indexes pared gains as oil prices slipped.

Wall Street banks setting up bond sales for U.S. states and cities would be required to tell public officials about potentially costly risks and conflicts of interest in the deals under proposed rules.

The Municipal Securities Rulemaking Board, which writes regulations for banks that work in the tax-exempt debt market, said yesterday that it asked the U.S. Securities and Exchange Commission to approve the proposed rules placing greater disclosure requirements on bond underwriters.

The move is part of an effort to reshape regulation of the $2.9 trillion municipal-securities market after the 2008 financial crisis. Since then, state and local taxpayers have been stuck with billions of dollars in unexpected costs because complex bond deals, pitched as money-savers, backfired.

Goldman, Morgan Stanley Trading Would Suffer in U.S. Downgrade, Hintz Says

Goldman Sachs Group Inc. (GS) and Morgan Stanley’s fixed-income trading revenue would likely be crimped if the U.S. credit rating is downgraded, according to Brad Hintz, a Sanford C. Bernstein & Co. analyst.

A downgrade will bring a “never before experienced” environment with changing rates, currency-market volatility and widening credit spreads, Hintz wrote in a note to investors today. “This environment will negatively impact trading revenue, repo financing and debt capital markets activity,” he said. Both firms have liquidity and capital “to navigate challenging market conditions successfully.”

(Corrects market-size data in sixth paragraph of story published July 22.)

Auction-rate securities holders seeking to win back part of the $330 billion they’ve invested, may get help from a U.S. Securities and Exchange Commission legal brief supporting claims that Merrill Lynch & Co. rigged the moribund market, a lawyer involved in the case said.

Merrill Lynch, now part of Bank of America Corp. (BAC), failed to adequately inform investors of its alleged role in “propping up” auctions, the SEC said in the brief, filed in the U.S. Court of Appeals for the Second Circuit in New York.

“We think the SEC has come down on the side of investors,” Jonathan Levine, a lawyer with Girard Gibbs in San Francisco, said in a telephone interview. His firm represents investors in the appeal.

Wall Street Can Save the Government With ‘Reverse TARP’: William D. Cohan

Anyone on Wall Street who has spent time restructuring the debt of bankrupt companies knows exactly why the politicians in Washington have proved so inept in their attempts to get a comprehensive deal to cut government spending, raise taxes and increase the debt ceiling.

What Congress and the White House have been trying to do -- essentially an out-of-court restructuring among creditors in serious denial -- is generally considered to be one of the most difficult and complex maneuvers in Wall Street sport. It is the equivalent of a 309B from the three-meter board in springboard diving: a reverse four-and-one-half in the pike position, which has a degree of difficulty of 4.8. Even the top restructuring professionals rarely pull it off.

President Barack Obama’s supporters are accustomed to trouncing opponents in every race for campaign cash -- until now.

Republican primary contender Mitt Romney’s supporters have donated more than twice as much money to an outside committee dedicated to boosting his campaign than Obama’s backers did for his outside groups.

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