Opening Bell: 10.04.11

Author:

To: All Employees From: James Gorman Subject: A Message from James Gorman (Deal Journal)
Over the past few weeks, there has been an enormous amount of confusion and misinformation about Morgan Stanley and others in our peer group. In fragile markets, where fear triumphs over common sense, these things are bound to happen. It is easy to try to respond to the rumor of the day, but that is not usually productive. Instead we should let balanced third parties do their own analysis and let the facts speak. To help you wade through the maze of numbers and information, it might be worth reading two analyst reports that were published this morning. One is from Howard Chen at Credit Suisse that examines Capital, Funding and Liquidity at Morgan Stanley and Goldman Sachs and, in some detail, highlights the dramatic improvement to our financial strength over the last three years. The other is from Matthew Burnell at Wells Fargo, who writes about Eurozone and Derivative exposure for the sector and plainly underscores that our exposure to the Eurozone and France in particular is not a concern. I encourage you to stay focused on your job, remember that we are a client-focused Firm and do what you need to do to help our clients navigate this turbulence. It is in times like these when our professionalism, market wisdom and client focus are truly valued.

Morgan Stanley May Raise $5 Billion In Japanese Bond Sale (BW)
Morgan Stanley said it may raise as much as 385 billion yen ($5 billion) by selling uridashi bonds to Japanese investors sometime in the next two years. The New York-based firm can sell bonds anytime between Oct. 12 this year and Oct. 11, 2013, according to a shelf registration filed to Japan��s Finance Ministry today. Uridashi bonds are debt issued outside of Japan for sale mainly to Japanese retail investors.

Deutsche Bank To Miss Targets (WSJ)
Deutsche Bank said it no longer expects to reach the targeted €10 billion ($13.18 billion) pretax profit from operating businesses this year, as uncertainty caused by the European sovereign-debt crisis ate into volumes and revenue in the third quarter, notably at the investment bank..."Nevertheless, the bank will be profitable in the third quarter and expects a robust earnings level for the full year 2011," Chief Executive Josef Ackermann told an investor conference in London, according to a company announcement.

UBS Sees Profit Despite Trading Scandal (WSJ)
Kweku Adoboli can't hold us down!

Wall Street Protester’s Missed Connection: ‘We Got Arrested On the Brooklyn Bridge’ (Gawker)
Cute anarchist(?) protestor arrested at Occupy Wall Street - m4w - 29 (90th precinct house, Williamsburg): I first spotted you at Zuccotti Park/Liberty Square right before the march started. You're a few years younger than me with short, dark hair and you were wearing all black with leggings and a red handkerchief around your neck. I thought you crushingly attractive but things got moving and I lost track of you before I was able to work up the nerve to say hello. I saw you again a couple hours later when we got arrested on the Brooklyn Bridge, and then we ended up in neighboring cells at the 90th precinct house in Williamsburg. I'm the tall guy with glasses and short, dark hair wearing jeans and a tan t-shirt. I had a gray hoodie with black stripes on the bridge. You made fun of my shoes' tongues falling out because they'd confiscated our shoelaces! Unfortunately you were released in the first group and I in the last, so I couldn't find you by the time I got out. Curses! I'll be looking for you hard the next time I'm down there, and I won't let the opportunity pass by me a 2nd time! But in case I don't see you, know that I'd love to buy you a coffee or tea or what-have-you (it's cold in that park!) and hear what draws you to the demonstration. Say hello!

Hedge Funds Pay Top Dollar For US Intelligence (WSJ)
Information about what's happening in Washington is at a premium on Wall Street these days. Government regulatory changes and economic initiatives following the 2008 financial crisis have affected numerous industries, and even minor shifts in policy can be of interest to hedge-fund managers. When the health-care bill was snaking its way through Congress in 2009, for example, hedge funds wanted to know about every twist and turn. They followed the debt-ceiling showdown over the summer just as closely. Keen for information about what's happening behind the scenes, hedge funds have been drilling ever deeper into the government. Thousands of political insiders are being paid by hedge funds, private-equity firms and other big investors. Former Federal Reserve Chairman Alan Greenspan, for example, is an adviser to Paulson & Co., and former Treasury Secretary John Snow works for Cerberus Capital Management. SAC Capital Advisors and Eton Park Capital Management have hired former congressional staffers.

Lacker Says Fed's Twist Won't Spur Jobs (Bloomberg)
“I tend to think it would cause higher inflation and have only a transitory or fleeting effect on growth,” Federal Reserve Bank of Richmond President Jeffrey Lacker said yesterday in response to audience questions after a speech in Madison, Wisconsin.

BofA Loses Leverage (NYP)
BofA has retreated in the pitched battle for leveraged loans until it can unload its loan backlog, according to two private-equity managers at different firms. “They’ve unequivocally become more conservative than others,” a PE manager said.

Protests Against Wall Street Spread Across US (AP)
In Manhattan on Monday, hundreds of protesters dressed as corporate zombies in white face paint lurched past the New York Stock Exchange clutching fistfuls of fake money. In Chicago, demonstrators pounded drums in the city's financial district. Others pitched tents or waved protest signs at passing cars in Boston, St. Louis, Kansas City, Mo., and Los Angeles.

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Dubai Debtors Go on Hunger Strike (FT) About 20 jailed foreign businessmen have gone on hunger strike in Dubai to protest against lengthy sentences for writing checks that bounced, a criminal offence in the United Arab Emirates. “I’ve exhausted every avenue that I can see,” Peter Margetts, 48, a former property developer, told the Financial Times from a prison pay phone. “I’ve exhausted the legal system, the lawyers have their hands tied here and they’re not going to rock the boat.” Mr. Margetts is one of three British prisoners who started a hunger strike on Sunday. Other jailed businessmen come from Ireland, Saudi Arabia, Bahrain, Lebanon, India and Pakistan. Many of the hunger strikers fell victim to Dubai’s once-thriving real estate market, struggling to meet their payments when boom turned to bust in 2008. Twelve face sentences of more than 20 years because each bounced check can translate into a jail term of up to three years. Wall Street Promotes Junk Bonds as Europe Erupts (Bloomberg) Morgan Stanley said last week that U.S. high-yield obligations were in a “sweet spot” as borrowers cut their debt loads. JPMorgan said junk yields will fall more than half a percentage point by year-end. Bank of America favors debentures rated in the middle tier of speculative grade. Gains on U.S. high-yield, high-risk bonds, which are little changed since the end of February, are set to accelerate as central banks respond more aggressively to contain Europe’s fiscal imbalances, Morgan Stanley and JPMorgan said. While forecasting the default rate will rise this year, Moody’s Investors Service says the figure will stay below historic averages. Facebook's Growth Slows (WSJ) In what is likely to be the last snapshot of its financial condition before the expected May IPO, Facebook disclosed Monday that its first-quarter profit and revenue declined from the final quarter of 2011...The company's first-quarter revenue was $1.06 billion, down 6% from the December quarter. In a regulatory filing, the company blamed the decline on "seasonal trends" in the advertising business and user growth in markets where Facebook generates less revenue per user. CIT Group Swings To A Loss (WSJ) CIT Group, the business lender that emerged from bankruptcy more than two years ago, posted a wider-than-expected loss of $446.5 million in the first quarter as costs tied to debt repayments weighed on earnings. CIT's lending activity increased, though, and its profit margins on loans improved from a year earlier, a trend that should continue as its efforts to slash debt helps reduce its funding costs in the long run. "We made further progress this quarter positioning CIT for profitability and growth," John Thain, the long-time Wall Street executive who took the helm of CIT in 2010, said in a statement. Harbinger Pays Early (AP) Phil Falcone’s Harbinger Capital Partners made a $48 million payment on its $190 million loan from Jefferies Group, avoiding a forced sale of assets of his hedge fund, according to a person familiar with the fund. The payment was made a week early and a half million dollars more than what’s due on April 30. Falcone raised money for the loan by selling some investments, said the person. Father And Son Ran 'Brothel On Wheels' (NYP) A father and son from Queens ran a lucrative — and cruel — brothel on wheels for two decades, using six livery drivers to deliver hookers to hotels and apartments, Manhattan prosecutors said today in announcing the ring’s breakup...Johns on the go could purchase and enjoy a sex act without ever leaving the back seat, officials said of the operation, quoting the price scale at $200 to $500 per customer. Business was good — one woman alone allegedly earned half-a-million dollars for the father and son last year, and the Georges employed five women at the time of the bust, officials said. But as nice as they were to customers, the alleged father and son pimps were nasty to their prostitutes, threatening them, giving them little money so as to keep them helpless and even branding them with tattoos — including a bar code on one woman’s neck, according to officials. At least one of the women had a heart tattoo on her breast with the word “Vee,” which is the dad’s nickname. At least three of the women had tattoos featuring the son’s nickname, “King Koby.” Calpers Scalpers (NYP) The former head of the nation’s biggest pension defrauded funds run by private-equity titan Leon Black’s Apollo Global Management to pay a pal’s placement agencies $20 million, a lawsuit filed yesterday charged. Federico Buenrostro, the CEO of the $235 billion California Public Employees’ Retirement System from 2002 to 2008, teamed up with buddy Alfred Villalobos’ Arvco Capital Research on a scheme to pocket the boatload of fees from Apollo, the Securities and Exchange Commission charged in a civil suit filed in a Nevada federal court. Villalobos was the deputy mayor of Los Angeles in 1993. It is charged that the two ginned up fake “disclosure letters” and sent them to Apollo, making it appear that Calpers OK’d the payment when, in fact, it had not. The two used the fake letters four times, the suit alleges. Judge: DA Can Subpoena Occupy Protester Tweets (NBC) A judge says an Occupy Wall Street protester can't stop prosecutors from getting his tweets as part of a case surrounding his arrest at a demonstration. A Manhattan criminal court judge ruled Friday there are reasonable grounds to believe the information is relevant. The judge also says Malcolm Harris can't legally challenge the subpoena sent to Twitter Inc., not him. Harris was among more than 700 demonstrators arrested Oct. 1 on the Brooklyn Bridge. Wal-Mart Said To Be Subject Of US Criminal Probe (Bloomberg) The Justice Department is investigating potential criminal charges under the U.S. Foreign Corrupt Practices Act, according to the person familiar with the probe who wasn’t authorized to speak publicly about it. Wal-Mart is conducting its own review of allegations that its representatives paid local officials in Mexico to get stores opened faster in the early 2000s. Chris Christie Not Happy With NJ Nets Move To Brooklyn (NYDN) As the Nets were preparing their farewell, the Governor of New Jersey was kicking them out the door. “I’m not going to the Nets game tonight and my message to the Nets is ‘Goodbye,’ ” Christie said. “If you don’t want to stay, we don’t want you. Seriously, I’m not going to be in the business of begging people to stay here. That’s one of the most beautiful arenas in America that they’ve had a chance to play in. It’s in one of the country’s most vibrant cities. “They want to leave here and go to Brooklyn? Good riddance. See you later.”

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Spain Prepares More Austerity, Protesters Battle Police (Reuters) Protesters clashed with police in Spain's capital on Tuesday as the government prepared a new round of unpopular austerity measures for the 2013 budget to be announced on Thursday. Thousands gathered in Neptune plaza, a few metres from El Prado museum in central Madrid, where they formed a human chain around parliament, surrounded by barricades, police trucks and more than 1,500 police in riot gear. Police fired rubber bullets and beat protesters with truncheons, first as protesters were trying to tear down barriers and later to clear the square. The police said at least 22 people had been arrested and at least 32 injured, including four policemen. Facebook's Next Fight: Suits And More Suits (WSJ) About 50 lawsuits have been filed against Facebook, Nasdaq OMX Group Inc. and underwriters of Facebook's May IPO, according to lawyers involved in the cases. In addition, securities lawyers who represent Facebook investors say they expect hundreds of arbitration claims to be launched against brokers and securities firms that pitched the company's shares. Credit Suisse Said to Consider Merging Its Asset-Management Unit (Bloomberg) The bank is considering combining its asset-management unit with the private and investment banking divisions, a person familiar with the matter said. SAC Capital Fund Manager Said To Be Uncharged Conspirator (Bloomberg) The role allegedly played by Michael Steinberg emerged in court papers filed by the U.S. in the securities-fraud case of Jon Horvath, a former technology analyst at Cohen’s $14 billion hedge fund who Steinberg supervised. Steinberg, who hasn’t been charged with a crime, is the fifth person to be tied to insider trading while employed at SAC. Horvath faces trial Oct. 29 in Manhattan federal court along with two other portfolio managers for his part in what Manhattan U.S. Attorney Preet Bharara called a “criminal club:” a conspiracy of hedge fund managers, co-workers and company insiders who reaped millions of dollars on illegal tips about Dell Inc. and Nvidia Corp. “The government added four additional co-conspirators,” prosecutors wrote in a Sept. 6 letter filed with the court, with the names blacked out. One of them, the U.S. said, is “the portfolio manager to whom Jon Horvath reported at his hedge fund.” That person was Steinberg, said the people, who declined to be identified because the matter isn’t public. UK Group To Give Up Libor Oversight (WSJ) The council of the BBA, a private trade association, voted earlier this month to give up management of Libor, according to people familiar with the matter. The move clears the way for what is likely to be the biggest change in Libor's 26-year history, and introduces the possibility that British or international regulators could be in charge of overseeing the rate, which is tied to trillions of dollars of financial contracts. Rent-a-reptile: Florida company adds alligators to kids’ pool parties (NYDN) Bob Barrett gives Florida kids pool parties they’ll never forget — because they get to swim with real live alligators. Jump houses? Pizza parties? Boring, says Barrett. “You jump for a while and that’s it, we’ve had that party before,” he told the Daily News. “Clown party, Chuck E. Cheese party, they’ve all been done.” Barrett,who runs Alligator Attractions in Madeira Beach — where visitors get to hold gators — was already bringing his reptiles around to birthday parties when he was inspired to take the next step. “We would do [an alligator demonstration] at someone’s house and they would have a pool,” he explained. “And I said, you know, ‘Hey, let’s put ‘em in the pool.’” Hedge Fund Skeptics Warn on ‘QE Infinity’ (FT) “A man’s got to know his limitations,” says “Dirty Harry” Callahan, the gun-toting, rule book-ignoring cop immortalized by Clint Eastwood in “Magnum Force.” It is a principle the U.S. Federal Reserve – which earlier this month embarked upon its own, third bout of “unorthodox” enforcement, “QE3” – could learn from, according to Stephen Jen, the former Morgan Stanley foreign-exchange guru turned hedge fund manager. “The Fed officials are some of the smartest economists around,” he wrote in his most recent note to clients. The trouble is, said Mr. Jen, “they know everything except their own limitations.” Irish Bank Offers Properties For 70% Less Than 2007 Value (Bloomberg) RBS's Irish unit offered to sell properties, including 640 apartments and a hotel, for about 70 percent less than their value at the market’s 2007 peak, according to the broker managing the sale. The Gemini portfolio, containing buildings in the Irish cities of Dublin and Cork, has an asking price of 75 million euros ($97 million), according to Domhnaill O’Sullivan, a director at Savills Plc (SVS)’s Dublin office. MIT Miscounts Its New B-School Students (WSJ) After realizing they had a student surplus, school officials emailed the incoming class on Aug. 7, offering "guaranteed admission to the class of 2015 for the first 20 admitted students who request it." The school gave them until Aug. 13 to respond, according to one student's copy of the letter, which was reviewed by The Wall Street Journal. But it didn't get enough takers. So, like an airline offering vouchers to travelers willing to hop off oversold flights, the school put money on the table, offering students who expressed an interest a $15,000 scholarship to be applied to next year's tuition. Students still balked, and on Aug. 21, a day after pre-term refresher courses began, Sloan raised the offer to $20,000 for the first 10 respondents. (Tuition for the 2012-2013 academic year is $58,200, with total expenses—including books, housing and food—estimated at just under $89,000.) NFL replacement referee who blew touchdown call in Green Bay Packers-Seattle Seahawks game is a full-time banker (NYDN) ...fans, particular those in Wisconsin, said the 52-year-old southern California banker with no previous professional or major college refereeing experience should have never left his desk to become a replacement during the NFL’s lockout of unionized refs. Even the Lingerie Football League piled on, revealing that some of the scab refs weren’t qualified to work its games. “Due to several on-field occurrences of incompetent officiating, we chose to part ways with a crew which apparently is now officiating in the NFL,” said Mitch Mortaza, commissioner of the female bra-and-panty league. “We have a lot of respect for our officials, but we felt the officiating was not in line with our expectations.”

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