Opening Bell

Opening Bell: 05.19.14

Deutsche Bank Plans to Raise $11 Billion (WSJ)
The German lender will issue a total of 360 million new shares, the person said. The Qatari royal family has agreed to buy 60 million of the shares, valued at €1.75 billion, via its investment vehicle Paramount Holdings. The remaining €6.25 billion will be sold to existing investors via a so-called rights offering, the person said.

Former SocGen Trader Returns to France to Face Jail (WSJ)
Former Société Générale trader Jérôme Kerviel ended a monthslong hike through Italy on Sunday by walking across the French border, where police immediately whisked him off to prison to serve a three-year sentence for making billions in unauthorized trades. The final leg of the former trader’s journey capped what he has described as a pilgrimage of “protest against the tyranny” of financial markets. Mr. Kerviel began the trip with a brief meeting with Pope Francis in Vatican City, drawing television cameras and journalists as he made his way up the Italian peninsula with a backpack slung over his shoulder. “I’m respecting the decision of my country,” Mr. Kerviel told a clutch of TV cameras moments before police placed him in an unmarked car and drove off.

Facebook working on video app to take on Snapchat (FT)
Facebook has been working for several months on the app, known internally as Slingshot, with a simple and speedy user interface, said people familiar with its plans. Mark Zuckerberg, Facebook’s chief, has been overseeing the top-secret project after failing to woo Snapchat’s creators Evan Spiegel and Bobby Murphy with a $3 billion takeover offer late last year.

Lesser role for Fannie, Freddie not opposed: Regulator (Reuters)
Watt said last week, in his first public speech since taking office, that he did not want to shrink Fannie and Freddie’s footprint, marking a sharp departure from his predecessor. “It’s not that I’m opposed to it and we will certainly allow it to happen,” he told C-SPAN’s “Newsmakers” program, when asked about the prospect of shrinking the lenders’ activities. “But if the private sector is not ready to step into the space, and you shrink what Fannie and Freddie are doing, you do damage to housing finance in this country and that does damage to the economy and that does damage to the possibility of affordable housing and home ownership.”

How Barry Rosenstein rose from Asher Edelman underling to activist leader (Barron’s)
Rosenstein’s operating style isn’t as in-your-face as some of his peers — at least not publicly. “If Carl Icahn is coming at it with a hammer, Barry has velvet gloves on,” says an executive at a fund-of-funds firm that invests in Jana. Says Rosenstein: “I always say to the CEO, ‘You could take our ideas and make them your own and be the change agent. The alternative is you could fight us, but you’re going to end up in the same place anyway.’ ”

Fed’s Rate-Change System Up for Revamp (WSJ)
The Fed’s old system for moving interest rates up or down looks increasingly unsuited for the postcrisis financial system, so officials are rewriting their strategy for replacing it. But first they need to resolve big questions with implications for $2.6 trillion that banks have parked at the Fed, trillions sitting in money-market mutual funds and trillions more at stake in derivatives contracts.

British man spends $16G to turn spare bedroom into a replica Boeing 737 cockpit (NYDN)
The homemade flight simulator allows Richard Hutchinson to “take-off” from any airport in the world and the middle-aged Brit regularly “visits” exotic locations. He told The Mirror: “The conditions are about 99% realistic. I have never flown a plane before but I think if I needed to, I could land a 737.” Read more »

Opening Bell: 05.16.14

Euro-Zone Economy Shows Weak Expansion (WSJ)
Euro-zone GDP has risen only 1% since the first quarter of 2013, the lowest point of the bloc’s six-year slump, and remains 2.5% below its peak in early 2008. Economists reckon output would have to rise at closer to 2% a year to make a meaningful dent in euro-zone unemployment, currently 11.8% of the workforce.

SAC’s Steinberg loses bid for insider trading acquittal (Reuters)
U.S. District Judge Richard Sullivan in Manhattan rejected various arguments by Steinberg’s lawyers, including that a jury could not have rationally found he knew corporate insiders were receiving benefits to provide illegal tips. “On the facts presented at trial, a rational jury could find that (Steinberg) knew or was willfully blind to the fact that the tippers breached duties of trust and confidence by disclosing material nonpublic information for their personal benefits,” Sullivan wrote.

SAC Fund Manager’s Backers Cite Charity Before Sentencing (Bloomberg)
From co-founding a group that’s donated more than $8.7 million for work such as providing clean water and medicine in Africa, to raising money for a friend’s organ transplant with a bake sale, Steinberg has shown he deserves leniency at his sentencing today in Manhattan federal court, his supporters told the judge.

At SALT Conference, Stocks Induce Anxiety (Dealbook)
“There seems to be a general unease that with central bank policy, the only thing it is impacting are financial markets,” said Jim Chanos, president of Kynikos Associates and a well-known short-seller. “It’s not transmitting to the economy, and I think that is a real, real growing concern.” “You sort of get a growing sense that this grand experiment may be quite inconclusive when it comes to monetary policy and financial markets,” Mr. Chanos added, speaking on the sidelines of the conference on Thursday.

Investors Reject Chipotle Chiefs’ Pay Plan (Dealbook)
Investors in Chipotle Mexican Grill voted overwhelmingly on Thursday against the company’s executive compensation plans, sending a strong rebuke to a company that had awarded more than $300 million to its co-chief executives in recent years. More than 75 percent of investors voted against Chipotle’s say-on-pay measure, which asked investors to ratify a compensation plan that would continue such payments to Steve Ells, Chipotle’s founder, and his co-chief, Montgomery F. Moran, over the next few years. That was the highest vote against any say-on-pay measure among the country’s largest 3,000 companies this year.

U.S. Takes a Shot at Latte Art Championship (WSJ)
Latte art has gained steam in recent years. The whimsical, swirly designs, like tulips and hearts, drawn with the steamed milk and foam that is poured over a shot of espresso to make a latte, have tens of thousands of online fans and enthusiasts. But the final stages of the contest are stripped of whimsy. Six finalists each received eight minutes to complete two “free pour” lattes, using just swirling milk and gravity to make four drinks: two lattes and two macchiatos, which are half the size of a latte and therefore considered the most difficult…Donald Morrison says he tries to take his latte art to the dark side. His signature drink featured a winged bat. “I wanted to do something that wasn’t so cute—a little more punk rock,” he said. But it was Mr. Bricker’s twin latte phoenix, whose tail-curls were sharpened with the tip of a golf tee, that earned him the top score at the U.S. competition. He will be up against the world’s best at the championship which ends Sunday. Read more »

Opening Bell: 05.15.14

Nervous Investors Pile Into Bonds (WSJ)
Global bond rates dropped to their lowest levels of the year Wednesday, as central bankers signaled their determination to jolt the world’s largest economies out of their malaise. Investors piled into U.S., German and British government bonds—used to price everything from mortgages to car loans—driving down their yields. The yield on the 10-year U.S. Treasury dropped to as low as 2.523%, its lowest level in more than six months. In Germany, 10-year bund yields fell to their lowest point in a year.

Porsche, Lamborghini, Bentley Bonds Have Investors Hitting the Gas (WSJ)
The worlds of high finance and high-end cars intersected Wednesday, as investors grabbed bonds backed by loans to buyers of Lamborghinis and Bentleys. Investors bought $488.3 million of the bonds sold by Porsche Financial Services GmbH, a unit of sports-car maker Porsche AG. The firm for the first time expanded its bond issuances to include loans tied to the two exotic car makers, in addition to its Porsche models. The market for bonds supported by all types of car loans is accelerating, with sales of $39 billion worth of securities this year, according to J.P. Morgan Chase & Co. Issuance is on pace to exceed last year’s $78.9 billion.

David Tepper on the market: ‘I think it’s nervous time’ (CNBC)
“I’m not saying go short, I’m just saying don’t be too fricking long right now,” the head of Appaloosa Management told a few thousand of his colleagues Wednesday at SkyBridge Capital’s SALT 2014 conference in Las Vegas.

Lunch with Ben Bernanke goes for $70K (TFT)
An anonymous bidder will pay $70,500 for lunch with Ben Bernanke, the former chairman of the Federal Reserve. Bernanke will choose the restaurant, according to the auction listing. The final bid to break bread with Bernanke topped an auction for a lunch for two in New York City with former Treasury Secretary Timothy Geithner, author of the new memoir Stress Test: Reflections on Financial Crisis. The Geithner auction drew a winning bid of $50,000.

Mozzarella arrests made after counterfeit cheese found in Italy (LA Times)
TThe discovery of alleged counterfeit buffalo mozzarella cheese at a factory in Italy has led to the arrests of 13 people, including two public health service veterinarians who allegedly warned the factory of future inspections, reported the Associated Press…The buffalo mozzarella at the factory, near Caserta in the Campania region of southern Italy, is traditionally made with local buffalo milk. Police concluded the buffalo milk was actually being cut with cheaper cow milk. Buffalo mozzarella made in Italy is certified by the European Union with a Denominazione d’Origine Protetta, or DOP seal. The cheese is most commonly used to make Caprese salad (tomato, cheese and basil) in Italy. Seven stores selling cheese from the factory were shut down Monday. Read more »

Opening Bell: 05.12.14

Boom times for bank trading have gone, and may never come back (Reuters)
Even though it’s taken Western economies several years to regain pre-crisis national output levels, many doubt banks will ever revisit the pre-crisis high watermark of their trading activities. Revenues from fixed income, currencies and commodities – the so-called ‘FICC’ universe – continued to tumble for most major U.S. and European banks during the first quarter of 2014, increasing the pressure on them to rethink business models…FICC income at Goldman Sachs last year was 72 percent of the bank’s overall revenue, compared with 82 percent in 2010. Morgan Stanley’s FICC revenue was 70 percent of its total, well down from 82 percent in 2003.

Tracking Brain Waves to Boost Investment Returns (BusinessWeek)
In a quest to improve its trading methods, hedge fund Sang Lucci Partners Capital sent a crew of traders from New York to Los Angeles last month to have their brains tested. As the traders bought and sold options and stocks on a simulated system, computers recorded their brains’ electrical activity. “These guys, their whole profit and loss statement is being determined by their mind, and yet they have no way to analyze it,” says Charlie Bathgate, a Sang Lucci partner who organized the test. “There’s this big gap there. So we’re trying to fill that a little bit.”

Tech Stocks Are Still ‘Too Silly’ for Some (WSJ)
Tesla trades at 89 times next year’s earnings, according to FactSet. That is down from a price-to-earnings multiple of 117 in March, but still about six times more expensive than the S&P 500. Daily-deals site Groupon trades at 35 times next year’s earnings. “We’ve gone from three times silly to two times silly,” said Mitch Rubin, chief investment officer at RiverPark Funds, which has $3.1 billion under management. As investors start focusing more on the fundamentals of these stocks, they could easily fall further, he said. “When the facts start to matter for these stocks, the bottom is a long way off.”

Race for AIG’s Top Job Has Two Favorites (WSJ)
In their search for the next chief executive at AIG, the insurer’s directors have narrowed the field of internal candidates to two executives, Peter Hancock and Jay Wintrob, who work on opposite ends of the U.S. and have different specialties, according to people familiar with the matter. The board hopes to make a selection as soon as September, according to one person with knowledge of the company.

Atherton mansion madness: Homes of the rich and (tech) famous (CNBC)
High-end homes in Atherton are selling like hotcakes, and often over the asking price, and frequently for all cash. That’s saying something when you are talking about $10 million-plus estates… Location is a big reason why Atherton is the perfect place for the super-rich. The town is 45 minutes south of San Francisco, and less than 20 minutes to the headquarters of Facebook, Google and most of the major tech companies in Silicon Valley…investors from China will often pay for a mansion sight unseen.

Brits do enough cocaine to contaminate their water (NYP)
Experts from the Drinking Water Inspectorate experts found traces of the party drug, in a form that has been passed through the body, in treated tap water — despite intensive water purification treatments. Steve Rolles, from the drug policy think tank Transform, told The Sunday Times that the findings reveal how widely used cocaine is. “We have the near highest level of cocaine use in western Europe,” he said. “It has also been getting cheaper and cheaper at the same time as its use has been going up.” [...] health officials stressed that the traces of drugs found in the water supply were very low and unlikely to represent a danger to the public. “Estimated exposures for most of the detected compounds are at least thousands of times below doses seen to produce adverse effects in animals and hundreds of thousands below human therapeutic doses,” the report said. Read more »

Opening Bell: 05.09.14

As One-Time Gains Fade, Fannie and Freddie Face a Less-Profitable Future (WSJ)
Fannie Mae and Freddie Mac had another blockbuster quarter and will deliver $10.2 billion in dividends to the U.S. Treasury next month, but earnings reports Thursday hinted that their recent run of profitability could soon moderate as a string of one-time gains fades. The mortgage-finance firms, which the government seized in 2008 to prevent a broader market meltdown, notched combined first-quarter net income of $9.3 billion, driven by legal settlements with big banks on lawsuits that were filed by the companies’ regulator. Fannie and Freddie reported $4.1 billion and $4.9 billion, respectively, from those settlements…The companies—which don’t make mortgages but instead buy them from lenders and package them for issuance as securities—warned that profits aren’t likely to remain at such lofty levels, in large part because many of the unusual benefits will run their course. That will leave the firms heavily dependent on the fees they charge banks to guarantee mortgages, especially as they wind down the large mortgage portfolios that have historically been a larger source of core earnings.

Could take 5-8 years to shrink Fed portfolio: Yellen (Reuters)
The U.S. Federal Reserve is in no rush to decide the appropriate size of its balance sheet, but if it ultimately shrinks it to a pre-crisis size, the process could take the better part of a decade, Fed Chair Janet Yellen said on Thursday. Yellen, in testimony to a Senate panel, said no decision had yet been made on the central bank’s portfolio of assets, which has swollen to $4.5 trillion from about $800 billion in 2007. Three rounds of asset purchases meant to stimulate the economy in the wake of the 2007-2009 financial crisis have boosted the balance sheet to this record level. Unsatisfied with the U.S. recovery, the Fed is still adding $45 billion in bonds each month, though the purchases should end later this year. Yellen said the portfolio should start to shrink once the Fed decides to raise near-zero interest rates.

Geithner in Book Says U.S. Considered Nationalizing Banks (Bloomberg)
Geithner disagreed when Lawrence Summers, then head of the White House’s National Economic Council, suggested to President Barack Obama that the administration “pre-emptively nationalize” banks including Citigroup and Bank of America Corp., or try to embarrass them into changing their pay structures, according to the Times. The article includes quotes from the book, “Stress Test: Reflections on Financial Crises,” and interviews with Geithner. Geithner feared “fueling unrealistic expectations about our ability to eradicate extravagance in the financial industry,” he wrote in the book, to be published May 12. “I did not view Wall Street as a cabal of idiots or crooks,” Geithner wrote. “My jobs mostly exposed me to talented senior bankers, and selection bias probably gave me an impression that the U.S. financial sector was more capable and ethical than it really was.”

Bankers risk reprisals if they skip Russian summit (MarketWatch)
Those who decide to attend the May 22-24 St. Petersburg International Economic Forum probably won’t risk much pushback from the Obama administration, which according to media reports is pressuring executives not to participate in the annual event held to showcase the Russian economy, says John C. Coffee Jr., a law professor at Columbia University. But Russia and its president, Vladimir Putin, who faces increasing economic sanctions for the Ukraine crisis, could be a different matter, Coffee says. “Russia has no hesitation about retaliating, because that is way they operate,” he explained. The risks depend on the companies’ stakes in Russia, experts say. JP Morgan recently revealed its exposure to Russia was $4.7 billion at the end of the first-quarter and it is closely monitoring the Ukraine situation. “There is all [kinds of] injuries that could occur from this,” said Coffee. “The most serious is if you had a serious business negotiations going on right now.”

Ex-NFL pro warns rookies: Watch your millions (CNBC)
“Let’s just hope that this year’s rookie class understands the reality behind the numbers and takes measures to save and invest their earnings, keeping in mind that, on average, their career will only last shortly over three years,” said Jack Brewer, a former NFL player who now runs The Brewer Group, an investment company that caters to athletes.

Happy birthday, Cronut! A look back at the pastry’s first year (NYP)
May 10, 2013: Pastry chef Dominique Ansel debuts the Cronut, a doughnut-croissant hybrid, at his eponymous Soho bakery. Mid-May, 2013: Cronut mania strikes the city full-on. People line up for hours before the bakery opens. Ansel reports customers crying and insulting staff when they run out of Cronuts, which they are only making a few hundred of each day. June 2013: Ansel institutes a two-Cronut-per-customer limit in an attempt to crack down on scalpers, who are reselling the $5 pastry for as much as $100 a pop. “Waiting in line for two Cronuts isn’t a very profitable business,” Ansel says of his scalper crackdown. April 4, 2014: The NYC Health Department shuts down Dominique Ansel Bakery over a “severe” mice infestation. “The pastries are delicious, so I can’t blame the mice,” quips a customer. April 8, 2014: The bakery reopens after passing a 2 ¹/₂ hour health department inspection. Read more »

Opening Bell: 05.08.14

World Economy Stabilizes in Great Moderation 2.0 (Bloomberg)
Volatility in growth among the main industrial countries is the lowest since 2007 and half that of the 20 years starting in 1987, according to Bloomberg calculations based on International Monetary Fund data. Investors also are becalmed, with a risk measure that uses options to forecast fluctuations in equities, currencies, commodities and bonds around the weakest level in almost seven years.

Hedge Funds Extend Their Slide (WSJ)
Big stumbles by some star managers drove hedge funds to back-to-back monthly declines for the first time in two years, according to researcher HFR Inc. The lackluster showing—the average hedge fund trailed benchmarks for both stocks and bonds in April—was a blow for an industry that charges more than other fund managers but pitches steady returns in both good times and bad. Hedge funds on average dropped 0.17% in April, HFR said Wednesday, following a 0.33% decline in March. Funds hadn’t turned in two consecutive losing months since April and May of 2012, HFR said.

Son Makes $58 Billion on Alibaba With Buffett-Type Return (Bloomberg)
With Alibaba Group Holding Ltd. filing to go public, the biggest winner won’t be founder Jack Ma or his fellow executives or even venture capital backers like Silver Lake Management LLC. It’ll be Japan’s Masayoshi Son. Fourteen years ago, Son’s SoftBank Corp. (9984) started with a $20 million bet on a then-unknown Web portal connecting Chinese manufacturers with overseas buyers. That site evolved into China’s biggest Internet shopping mall and SoftBank’s stake is now estimated to be worth about $58 billion, an exceptional return even by Silicon Valley’s standards. The IPO burnishes Son’s reputation as one of the world’s savviest investors and provides more capital to a man on the hunt for deals. After taking control of the U.S. carrier Sprint Corp. last July, Son made no secret of his interest in T-Mobile US Inc. (TMUS) Analysts say he may also pursue European wireless operators or take another look at music labels, after his $8.5 billion bid for Vivendi SA’s Universal Music Group was rebuffed.

Meet the eccentric founder of Alibaba (NYP)
Ma has been described as an eccentric and a “scrappy fighter” who practices kung fu and other Chinese martial arts. Last year, he opened a tai chi school with Jet Li, the Hong Kong star who starred in “Hero” and other martial arts classics…Ma indicated that he is fretting the trap doors that lie within the US capital markets, and not the other way around. In a letter to employees on Tuesday, Ma warned of “unparalleled ruthlessness … lying behind the massive allure of the capital market.” To combat it, he reminded his employees’ to stick to the company’s principle of “customer first, employee second, shareholder third.”

Seeking Tough Justice, but Settling for Empty Promises (Dealbook)
The Justice Department is talking tough. In an unusually frank video statement, Attorney General Eric H. Holder Jr. proclaimed that he was personally overseeing major financial investigations and that his department was poised to bring charges against several large institutions. The United States attorney in Manhattan, Preet Bharara, gave a rousing speech several weeks ago, declaring that the era of “too big to jail” is over…Despite Mr. Holder’s tough-sounding video appearance, it is clear that prosecutors are twisting themselves into awkward yoga poses to minimize the damage any charges against companies might inflict on the larger economy. That’s prudent, of course, but it also suggests that the companies still have considerable leverage in preserving their essential profit centers.

Dog driving car one of a few odd calls for Alamance law enforcement (NR)
Burlington police issued a BOLO, or “be on the lookout,” for a black vehicle apparently being driven by a canine Tuesday afternoon. “There was a car in the area of Cum Park Plaza driving recklessly, and it appeared a dog was driving the vehicle,” Long said. A description of the dog was unavailable, and as of late Tuesday afternoon, police had not located the vehicle. “We have not been able to confirm that the dog was not driving,” Long said. Read more »

Opening Bell: 05.07.14

Fat-Destroying Machine Doubted by Stock Traders (Bloomberg)
The way Shimon Eckhouse sees it, his company’s fat-busting technology gives him a direct line into what he calls one of the holy grails of beauty treatment. Everyone, he says, is worried about being overweight. So when Syneron Medical Ltd. (ELOS), the Israeli company Eckhouse co-founded in 2000, failed to rally in the stock market after the U.S. approved the ultrasound device on April 14, he was surprised. “I expected to see much more of a jump in the stock,” Eckhouse, Syneron’s chairman, said in a May 2 phone interview. There is “huge potential” in the business, he said…Now that the Food and Drug Administration has approved the device, Syneron will begin selling UltraShape machines to a limited group of doctors in the second quarter of 2014 to test its model of revenue sharing, Eckhouse said. The company plans to apply the model to Syneron’s other products, which include devices for skin whitening, wrinkle treatment, and hair-removal. The UltraShape machine painlessly destroys fat cells by heating them with ultrasound waves that penetrate 1.5 centimeters (0.6 inch) below the skin, according to a company presentation.

Regulators Step Up Probe Into Bank Hiring Overseas (WSJ)
The Securities and Exchange Commission in early March sent letters to a group of companies including Credit Suisse Group AG , Goldman Sachs, Morgan Stanley, Citigroup, and UBS AG seeking more information about their hiring in Asia, according to the people. It is examining whether the banks or their employees violated antibribery laws by hiring relatives of well-connected officials.

UBS, Barclays Contrast Shows How Slimmed-Down Investment Banking Bolsters Bottom Line (WSJ)
At Zurich-based UBS, which significantly curbed its trading operations after the financial crisis, first-quarter earnings beat analysts’ expectations. The bank’s shares gained 1.2% By contrast, Barclays, which is still to shrink its securities unit, missed forecasts amid a collapse in operating profit at its investment bank. London-based Barclays’s shares fell 5.2%. Since the start of the year, investors have sent UBS stock up by about 9% while Barclays’s has fallen by a similar amount. The contrast reflects different approaches at the two banks since the financial crisis. UBS, laid low by the crisis in 2008, bit the bullet of a major revamp. The bank has undergone years of restructuring that curbed its presence in investment banking, particularly in the costly and relatively high-risk debt-trading business, and refocused its efforts on wealth management and private banking.

As Lockup Expires, Twitter Holders Fly the Coop (WSJ)
The expiration of the six-month “lockup” imposed by the securities firms that sold the Twitter initial public offering freed holders of 83% of shares outstanding to sell for the first time. Tuesday’s decline, Twitter’s second-biggest one-day percentage drop, marked the worst performance for a technology stock on its lockup-expiration day since at least the start of 2013, according to data provider Dealogic.

Insight: Pimco’s bad bets on emerging markets add to firm’s troubles (Reuters)
In particular, it has made made some ill-timed bets in the Brazilian, Mexican and Russian debt markets. It made substantial investments in some companies that have gone belly-up, such as Brazilian oil company OGX Petróleo e Gás Participações SA, which was controlled by Eike Batista, who only two years ago was estimated to be the world’s seventh-richest man but whose business empire has now largely crumbled.

World’s largest legal pot facility to open (NYP)
CEN Biotech — a nutrition company best known for an amino acid supplement — is working on opening the “largest and most advanced” legal marijuana production facility in the world. The Ontario site will be able to grow 1.3 million pounds of pot from 50,000 plants — an operation that could produce $5 billion in sales per year when it starts producing in a few weeks after it passes government inspections. No more hiding grow lamps in closets: This $20 million facility will churn out pot like other factories churn out aspirin. And it has plans to expand to the US. Read more »