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Opening Bell: 04.27.10

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Meet The Real Villain Of The Financial Crisis (NYT)
Bethany McLean: "The transaction at the heart of the S.E.C.’s complaint is a microcosm of the entire credit crisis. That is, there are no good guys here. It’s dishonest and ultimately dangerous to pretend that Goldman is the only bad actor. And the worst actor of all is the one leading the charge against Goldman: our government...Come to think about it, shouldn’t Congress have its turn on the hot seat as well? Seeing Goldman executives get their comeuppance may make us all feel better in the short term. But today’s spectacle shouldn’t provide our government with a convenient way to deflect the blame it so richly deserves."

A Crowd With Pity For Goldman (NYT)
“I don’t want to use the word childish ... but it’s childish.” That’s how Kenneth Griffin described the SEC’s decision to pursue a civil fraud case against Goldman. “I think that the disclosure around one transaction being the justification to vilify Goldman Sachs or to pass regulatory reform is just incredible,” Mr. Griffin said. “I think the Goldman Sachs case has clearly energized the Democrats with respect to passing the regulatory reform.”

Tourre: A Hero in Villain's Garb? (WSJ)
Dennis Berman: "Mr. Tourre, as they say on Wall Street, gets the joke. His job constructing highly structured mortgage products is a farce. And he feels uneasy about it. "[T]he real purpose of my job is to make capital markets more efficient and ultimately provide the US consumer with more efficient ways to leverage and finance himself, so there is a humble, noble and ethical reason for my job :)" he writes to his girlfriend Marine Serres in January 2007. At Goldman's top levels, there is little farce. Instead, there is what the firm proudly touts as "conflict management"—the thorough, technical handling of competing interests inside and outside the firm."

Deutsche Bank profit up 49% on investment-bank strength (MarketWatch)
The Germans reported profit of 1.76 billion euros ($2.34 billion), compared with 1.19 billion euros a year earlier and ahead of the 1.39 billion euro consensus estimate of analysts. "This is a low level by peer group standards and, given regulatory developments, suggests limited dividend progression for 2010," said Nomura analyst Jon Peace in a note to clients.

Deutsche Bank faces U.S. mortgage securities suit (Reuters)
No worries, though, the Krauts aren't sweating the potential U.S. class-action lawsuit over mortgage-related securities.

Roubini: Greece Just Tip of Debt Crisis Iceberg (CNBC)
"The recent problems faced by Greece are only the tip of a sovereign-debt iceberg in many advanced economies,” Roubini told readers of RGE Monitor. “Bond-market vigilantes already have taken aim at Greece, Spain, Portugal, the United Kingdom, Ireland, and Iceland, pushing government bond yields higher.” “Eventually they may take aim at other countries – even Japan and the United States -- where fiscal policy is on an unsustainable path," he wrote.

Finance Bill Hits Impasse In Senate (WSJ)
On a 57-41 vote, Democrats fell short of the 60 votes they needed to begin debate, even losing one of their own.

Nomura Defections Damage Bid to Catch Up With Rivals (Bloomberg)
“The airplane just left the ground last year,” Chief Operating Officer Takumi Shibata said at the event at Tokyo’s Grand Prince Hotel New Takanawa. “It needs to gain more altitude.”

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Greek Turmoil Raises Euro Risk (WSJ) "The market is really working out what the risks are," said Justin Knight of UBS. "It is a bit of a slow burner, but it is gathering pace." Whether investors are right depends on a messy drama under way in Athens, in which the leading parties have been sidelined in favor of a collection of radicals bent on upsetting the painful measures that are Europe's price for Greece's bailout. On Tuesday, the head of Greece's leading left-wing party, Alexis Tsipras of Syriza, took a turn at trying to form a government. His conservative counterpart, whose party won slightly more votes on Sunday, tried and failed Monday. Mr. Tsipras demanded that Greece renounce the bailout's required Greek budget cuts, saying they were nullified by the "people's verdict" of the election. But Mr. Tsipras's party won just 52 of the 300 seats in parliament, and chances he could form a governing coalition appeared slim. Roubini: Situation In Europe Is A 'Slow Motion Trainwreck' (CNBC) Roubini, who warned last year that a perfect storm was coming for the global economy in 2013, said the euro zone will “eventually break up,” and expects two or three euro zone members to exit the bloc over the next few years. “Europe will be lucky if it ends up in stagnation like Japan for the next 10 years,” he added. German Patience With Greece on the Euro Wears Thin (NYT) “Germans are now predominantly of the opinion that they would be better off if Greece left the euro zone,” said Carsten Hefeker, a professor of economics and an expert on the euro at the University of Siegen. “If the country really is continuing on the path they are taking now, it would be hard to justify keeping them in. How do you deal with a country that says we don’t want to keep any of the commitments we have made?” Chesapeake CEO arranged new $450 million loan from financier (Reuters) In the weeks before Chesapeake Energy CEO Aubrey McClendon was stripped of his chairmanship over his personal financial dealings, he arranged an additional $450 million loan from a longtime backer, according to a person familiar with the transaction. That loan, previously undisclosed, was made by investment-management firm EIG Global Energy Partners, which was at the same time helping arrange a major $1.25 billion round of financing for Chesapeake itself. The new loan brings the energy executive's total financing from EIG since 2010 to $1.33 billion and his current balance due to $1.1 billion, this person said. It was secured by McClendon's personal stakes in wells that have yet to be drilled by Chesapeake - and by his own life-insurance policy. Remaking Yahoo's Board, Again (WSJ) "Mr. Loeb has launched a proxy fight to put himself and three other new directors onto the board. It isn't clear the Loeb team can fix the company. But at this point, shareholders should vote for his slate, given the repeated lapses in judgment by existing company leadership." Hot Dog Hooker ‘relishes’ her return (NYP) Long Island’s Hot Dog Hooker was sprung from jail yesterday, and said she’ll be serving up Sabretts and stripteases from her mobile wiener wagon this morning. “I’ll be out there in my bikini top selling my hot dogs!” Catherine Scalia boasted as she strutted out of a Nassau County jail after a court appearance. Scalia was busted for prostitution last Friday for allegedly agreeing to pleasure an undercover cop for $50 after he purchased a hot dog. Judge Anthony Paradiso sentenced Scalia to seven days in prison and ordered her to undergo a psychiatric evaluation. Green Mountain Roasted (Bloomberg) Green Mountain Coffee Roasters said Robert P. Stiller will no longer serve as chairman after he sold shares to make a margin call. Michael J. Mardy, chairman of the company’s audit and finance committee, will serve as interim chairman. Fannie Mae Won’t Seek Aid After Reporting $2.7 Billion Profit (Bloomberg) FYI. Wells Fargo Says DOJ May Seek Penalties in Fair-Lending Case (SFG) Wells Fargo & Co., the largest U.S. mortgage lender, said federal prosecutors may seek damages and penalties after investigating whether it violated anti- discrimination laws while financing homeowners. “The Department of Justice has advised Wells Fargo that it believes it can bring claims,” the bank said today in a regulatory filing, without elaborating on potential allegations. “We believe such claims should not be brought and continue seeking to demonstrate to the Department of Justice our compliance with fair-lending laws.” U.S. Millionaires Told Go Away as Tax Evasion Rule Looms (Bloomberg) The 2010 law, to be phased in starting Jan. 1, 2013, requires financial institutions based outside the U.S. to obtain and report information about income and interest payments accrued to the accounts of American clients. It means additional compliance costs for banks and fewer investment options and advisers for all U.S. citizens living abroad, which could affect their ability to generate returns.

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U.S. Weighs Doubling Leverage Standard for Biggest Banks (Bloomberg) The standard would increase the amount of capital the lenders must hold to 6 percent of total assets, regardless of their risk, according to four people with knowledge of the talks. That’s twice the level set by global banking supervisors. ... "The 3 percent was clearly inadequate, nothing really,” said Simon Johnson, an economics professor at the Massachusetts Institute of Technology and a former chief economist for the International Monetary Fund. “Going up to five or six will make the rule be worth something. Having a lot of capital is crucial for banks to be sound. The leverage ratio is a good safety tool because risk-weighting can be gamed by banks so easily.” China steps back from severe cash crunch (FT) China pulled back from the brink of a severe cash crunch on Friday, with money rates falling after reports that the People’s Bank of China, the central bank, had acted to alleviate market stresses. Nevertheless, interbank conditions remained tight and analysts said the PBoC would continue its hard line of recent days to compel financial institutions to pare back their leverage. Sprint Beats Dish’s Latest Bid for Clearwire (DealBook) Sprint Nextel raised its bid for Clearwire to $5 a share on Thursday, hoping to knock out a rival offer from Dish Network. The new offer, which values Clearwire at about $14 billion, is 47 percent higher than Sprint’s last proposal. It is also higher than Dish’s most recent bid of $4.40 a share. Banks Race to Increase Salaries to Beat EU Bonus Caps (IBT) Banks are racing to overhaul their remuneration structures by bumping up fixed salaries ahead of European Union-imposed bonus caps in 2015. According to a prominent employment partner at law firm Pinsent Masons, banks are stuck between having to overhaul remuneration procedures by a certain deadline but without concrete rules, which is likely to result in across-the-board increases in salary. FAA to Relax Rules for Gadgets in Flight (WSJ) The Federal Aviation Administration is expected to relax the ban on using some types of personal-electronic devices at low altitudes, allowing passengers leeway during taxiing and even takeoffs and landings, according to industry officials and draft recommendations prepared by a high-level advisory panel to the agency. For fliers, the new rules would likely mean an end to familiar admonitions to turn off and stow all electronic devices. Cellphone calls are expected to remain off limits, however. War of words erupts after wedding guests gift bride 'cheap and embarrassing' food hamper containing marshmallow fluff and croutons Kathy Mason from Hamilton, Ontario, and her boyfriend, who wished to remain anonymous, decided to create a food hamper for their friends' same-sex marriage and packed it with a mix of 'fun' treats including pasta, olive oil, croutons, biscuits, Marshmallow Fluff and Sour Patch Kids. They attached a carefully worded card to the parcel which read: 'Enjoy . . . Life is delicious.' However, the European newlyweds were less than impressed with the gesture and contacted the couple the next day via text message to ask if they had the receipt so they could get the money back instead. ... 'You ate steak, chicken, booze, and a beautiful venue . . . If anything you should be embarrassed for being so cheap and embarrassing,' the brides said in one message. Creeping mistrust stops euro zone banks lending to peers across bloc (Reuters) In a trend that could reignite fears about the euro and its banks, European Central Bank data shows the share of interbank funding that crosses borders within the euro zone dropped by a third, to just 22.5 percent in April from 34.5 percent at the beginning of 2008. Banks are now lending to other banks across euro zone borders at only about the same rate as when the single currency was first launched, 15 years ago. Greek markets rattled by political disarray (FT) The benchmark 10-year bond yield of Greece rose 75 basis points to 11.6 per cent by late morning in London, while the Athens stock exchange index fell 2.9 per cent to its lowest level since early April. ... Investor sentiment towards Greece is not helped by uncertainty over how to plug a funding gap in the country’s bailout programme. The FT reported on Thursday that the International Monetary Fund might suspend aid to Greece next month unless the eurozone stepped in. Losses loom for investors enmeshed in U.S. mortgage chaos (Reuters) A review of loan documents, property records and the monthly reports made available to investors show that mortgage servicers are reporting individual houses are still in foreclosure long after they have been sold to new buyers or the underlying mortgages have been paid off. ... In one case, Reuters found that Bank of America Corp had been collecting a monthlyservicing fee of $50.73 from investors on a loan that had been paid off nearly two years ago, investor reports show. Bank of America filed a document at a local county office on July 22, 2011 showing that the $162,400 loan on a cream-colored duplex in Greenacres, Florida, owned by a drywall hanger named Roman Pino, had been satisfied and "cancelled." But investors in Pino's loan and more than 6,700 other similar mortgages that are bundled together in a subprime mortgage bond still have not been informed that the loan no longer exists, according to the last investor report in May. Good and Evil Battle Volatility on Summer Solstice (CNBC) "Summer Solstice is upon us: the longest day of the year in the northern hemisphere where some religions in the western world believe the sun defeats the forces of evil." Also it's triple witching. Oracle to Leave Nasdaq for the Big Board (DealBook) Oracle, one of the most prominent technology companies listed on the Nasdaq, is defecting to a rival exchange. The company, which has been traded on the Nasdaq since 1986, has applied to be listed on the New York Stock Exchange, it said in a filing on Thursday. The transfer, among the largest ever between the exchanges, represents a significant gain for the Big Board, which has been trying to bolster its technology credentials. FINRA beefs up policing of arbitrators (Reuters) The Financial Industry Regulatory Authority's policy change comes after Reuters asked questions about the background of Demetrio Timban, a Medford, New Jersey-based arbitrator who has become a central figure in a lawsuit between Goldman Sachs Group Inc and a wealthy investor. Timban was indicted by the state of New Jersey for practicing law without a license, although charges were later dropped under a state program to deal with non-violent offences. He was also reprimanded by a Michigan regulator for the New Jersey incident and passing $18,000 in bad checks. Timban said in an interview he had closed his New Jersey office and the check-writing incident was "accidental," as a family member was supposed to wire funds to cover the check. But FINRA said it did not learn of the New Jersey indictment for five months and that Timban failed to tell it about the Michigan problems altogether, while he arbitrated the Goldman case. Brooklyn framer accuses former boss of firing him for being too fat (NYP) The owner of a picture-framing shop in Brooklyn fired a worker because he was too fat to fit in the aisles, a lawsuit claims. Seth Bogadanove, 52, of Bath Beach, is suing Frame It In Brooklyn, in Sunset Park, and owner Jerry Greenberg, claiming he was canned after gaining weight because of medication. “Oh, my God! What happened to you? You got so fat!” the suit says Greenberg told Bogadanove after he returned from a leave. ... But Greenberg told The Post he never hired Bogadanove back, only gave him an opportunity to work from home. He called Bogadonove’s story “ridiculous.” “He was sweating, and he couldn’t make it up stairs,” Greenberg recalled. “But that would never come out of my mouth in my wildest dreams.” Video shows woman tossing perceived rival off cliff (CBS) Surveillance video caught a brutal fight between a woman and her perceived romantic rival in Arequipa, Peru, but it's pretty one-sided. A woman caught her husband walking with a younger woman while they were out on a stroll by a cliff back in January. She is seen grabbing the younger woman by the hair and dragging her off a cliff, where she reportedly plunged about 20 feet. She is okay after the fall - she only sustained some cuts and bruises, was treated at a hospital and released.

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White House Steps Up Push To Toughen Rules On Banks (WSJ) White House officials have intensified their talks with the Treasury Department in the days since J.P. Morgan's losses came to light, these people say—representing the first tangible political impact from a trading mess that has cost one of the nation's most prominent banks more than $2 billion...White House and Treasury officials are still determining whether the Volcker rule would have prevented the losses at J.P. Morgan, people familiar with the discussions said. Some of the president's political advisers are concerned that the J.P. Morgan trades, even if determined to violate the spirit of the rule, might slip through the regulatory net. From 'Caveman' To 'Whale' (WSJ) Even after Dynegy's holding company filed for bankruptcy protection on Nov. 7, the trade seemed like it still would be a loser for Mr. Iksil and J.P. Morgan. Only about six weeks remained until the trade was set to expire, and another company needed to default for J.P. Morgan to make money and the bullish hedge funds to lose out. Some traders took to calling Mr. Iksil a "caveman" for stubbornly pursing the trade. Mr. Iksil continued to bet against the index, however, and it soon weakened, causing a buzz among unhappy rivals, these traders say. "We called the trade the 'pain trade' and the 'widow maker'; it kept going down for no reason," said a trader at another firm, who called his broker and says he was told it was Mr. Iksil who was doing all the bearish trading. "It felt like Bruno was trying to wipe everyone out." Then on Nov. 29, in something of a shock, AMR Corp., American Airlines' parent company and one of the companies in the index, filed for bankruptcy protection. "People freaked out," recalls a hedge-fund trader. The index weakened significantly, allowing J.P. Morgan to rack up about $450 million in total profits from the trade, according to traders. Rival firms suffered similar-size losses. It capped a successful year for Mr. Iksil and his group, though the profits would be more than offset this year when they shifted to a more bullish tack on corporate credit, losing $2 billion-plus in the process. Goldman to Cash Out $1 Billion of Facebook Holding in IPO (Bloomberg) The investment bank and its funds will sell 28.7 million of the 65.9 million shares they own, more than twice the amount initially planned, Menlo Park, California-based Facebook said yesterday in a filing. The shares are being offered in a range of $34 to $38 apiece, meaning the stock being sold in this week’s IPO is valued between $975 million and $1.09 billion. SEC Probes Roles Of Hedge Fund In CDOs (WSJ) U.S. securities regulators are investigating hedge-fund firm Magnetar Capital LLC, which bet on several mortgage-bond deals that wound up imploding during the financial crisis, according to people familiar with the matter. While Magnetar has faced scrutiny over its role in various collateralized debt obligations, or CDOs, the Illinois firm itself now is a target of an investigation by the Securities and Exchange Commission, these people said. ECB Bars Access to Four Greek Banks (FT) The move raises the pressure on Greece to stick to its international bailout by highlighting the risk that eurozone central bankers could pull the plug on its financial system. It reflected ECB fears that a planned recapitalisation of Greece’s banks could be delayed. Greek Euro Exit Would Risk Asia Crisis-Style Rout, Zeti Says (Bloomberg) A Greek exit from the euro could cause contagion comparable to the Asian financial crisis, according to Malaysia’s central bank Governor Zeti Akhtar Aziz, who had first-hand experience of that turmoil. “The worst-case scenario is what we saw in Asia,” Zeti, 64, said in an interview with Bloomberg Television in Istanbul yesterday. “When one economy collapses, then the market usually moves on to focus on the next one, then there will be a contagion that will affect different countries that probably don’t deserve those kinds of consequences.” Strippers in Paris Go on Strike, Say Wages 'Miserable' (Reuters) The Crazy Horse, one of the most popular establishments of its kind in the world, said it was forced to cancel performances this week for the first time since the cabaret was created in 1951. The night club, which declined to give details on salary demands or current wages, said in a statement that it had always taken the wellbeing of its artists very seriously and that talks were continuing to resolve the dispute. "It's an exceptional place which has the specialty of presenting a fully naked show," Suzanne, one of the dancers, told RTL radio. "What's wrong is that we are asked to work 24 days per month for a pay that is worse than miserable," she said. JPMorgan’s Trading Loss Is Said to Rise at Least 50% (NYT) The trading losses suffered by JPMorgan Chase have surged in recent days, surpassing the bank’s initial $2 billion estimate by at least $1 billion, according to people with knowledge of the losses. When Jamie Dimon, JPMorgan’s chief executive, announced the losses last Thursday, he indicated they could double within the next few quarters. But that process has been compressed into four trading days as hedge funds and other investors take advantage of JPMorgan’s distress, fueling faster deterioration in the underlying credit market positions held by the bank. A spokeswoman for the bank declined to comment, although Mr. Dimon has said the total paper trading losses will be volatile depending on day-to-day market fluctuations. Several on FOMC Said Easing May Be Needed on Faltering (Bloomberg) The Federal Reserve signaled further monetary easing remains an option to protect the U.S. economy from the danger that lawmakers will fail to reach agreement on the budget or Europe’s debt woes worsen. Several members of the Federal Open Market Committee said new actions could be necessary if the economy loses momentum or “downside risks to the forecast became great enough,” according to minutes of the Federal Open Market Committee’s April meeting released yesterday in Washington. Judge Denies Gupta's Wiretap Motion (NYP) Ex-Goldman Sachs director Rajat Gupta lost his bid to get three key wiretaps tossed as evidence in his upcoming insider-trading trial. Manhattan federal judge Jed Rakoff gave tentative approval yesterday for the jury to hear the wiretaps, which are crucial to the government’s case against Gupta. A former head of McKinsey & Co., who also sat on Procter & Gamble’s board, Gupta is accused of feeding tips to ex-hedge funder Raj Rajaratnam, who began an 11-year prison term last October for insider trading. The taped conversations between Rajaratnam and his traders have him talking about tips from a unnamed leaker on Goldman’s board. Man protests restaurant's all-you-can-eat policy (TMJ4) A disturbance at a local restaurant when one man got upset that an all-you-can-eat fish fry didn't live up to its name. At 6'6" and 350 lbs, Bill Wisth admits he's a big guy who can pack it away more than most. And he wants one restaurant to make all-you-can-eat, all he can eat too. "It's false advertising," said Wisth to TODAY'S TMJ4. He was there Friday when the restaurant cut him off after he ate a dozen pieces. "Well, we asked for more fish and they refused to give us any more fish," recalled Wisth. The restaurant says it was running out of fish and patience; arguing Bill has been a problem customer before. They sent him on his way with another eight pieces, but that still wasn't enough. He was so fired up, he called the police. "I think that people have to stand up for consumers," said Wisth. Elizabeth Roeming is a waitress there and says they've tried to work with Bill over the years -- like letting him have a tab he still hasn't paid off. Bill isn't backing down, saying his fish fry fight isn't over. But in the end, even he had something nice to say. "They do have like some of the best pizza in town if you like deep dish pizza," said Wisth. He says he will picket every Sunday until the restaurant rethinks what happened.

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