Opening Bell: 06.11.13

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ECB Case Pits Market Stability Against Democracy, Court Told (Bloomberg)
Germany’s top court must halt the European Central Bank’s bond-buying plan to preserve the principles of democracy, even if it causes “uproar” in financial markets, a lawyer that opposes the plan said. The ECB’s Outright Monetary Transactions program violates European laws and the constitutional principle of democracy, Dietrich Murswiek, a lawyer for lawmaker Peter Gauweiler, told the Federal Constitutional Court in Karlsruhe today. The court is reviewing seven cases filed over the OMT and the European Stability Mechanism at a two-day hearing. ... “This hearing is a historic moment,” Murswiek said in opening statements. “The ruling the judges have to make in this case could turn out to be the most significant in decades. Nothing less than the principle of democracy is at stake.”

Bank of Japan raises assessment of Japanese economy (FT)
The Bank of Japan raised its assessment of the Japanese economy for the sixth straight month on Tuesday, noting a “pick-up” in exports and industrial production and continued “resilience” in private consumption. The central bank kept its main monetary policy settings on hold, saying it would keep buying enough assets to expand Japan’s monetary base at an annual pace of Y60tn ($612bn) to Y70tn to help achieve an inflation target of 2 per cent.

SoftBank Raises Bid for Sprint to $21.6 Billion (DealBook)
SoftBank of Japan agreed late on Monday to sweeten its takeover bid for Sprint Nextel to $21.6 billion, seeking to block a rival bid by Dish Network. Under the revised terms of the complex transaction, SoftBank agreed to shift over about $1.5 billion earmarked for Sprint itself to the company’s shareholders instead. ... All told, the new offer is valued at about $7.48 a share, up almost 19 percent from the original bid. SoftBank would own about 78 percent of Sprint if the deal is approved.

Dole CEO offers $12 per share to buy rest of company (Reuters)
Fruit and fresh vegetable distributor Dole Food Co Inc received an unsolicited buyout offer from Chief Executive David Murdock valuing the company at just over $1 billion. The $12 per share offer from Murdock, who already owns about 40 percent of the company, represents a premium of about 18 percent to the stock's close on Monday. ... Dole shares were up about 16 percent at $11.85 in light trading before the bell on Tuesday. They closed at $10.20 on Monday on the New York Stock Exchange.

SEC Nets Win in 'Naked Short' Case (WSJ)
A Securities and Exchange Commission judge ruled that a former Maryland banker perpetrated a short-selling fraud aided by one of the biggest stock-options brokers in the U.S. Jonathan Feldman, who was accused by the SEC of trading billions of dollars of stock and options in ways that misled other investors, was found by the judge to have engaged in a practice regulators say has grown more prevalent in recent years: "naked short selling." ... An SEC administrative law judge—an independent judicial officer who rules on SEC allegations of securities-law violations—late Friday ordered Mr. Feldman to disgorge $2.7 million in profits from his alleged trading scheme and to pay a $2 million civil fine. The judge also ordered optionsXpress Inc., a brokerage firm owned by Charles Schwab Corp., to disgorge $1.6 million and to pay a $2 million civil fine for allegedly violating laws prohibiting naked short selling.

French prosecutor recommends dropping Strauss-Kahn sex investigation (NBC)
French public prosecutor recommended on Tuesday closing an investigation into alleged sex offences in which former IMF chief Dominique Strauss-Kahn risks trial on a charge of "aggravated pimping." It is now up to judges investigating the case to decide whether to drop the prosecution, the last legal proceedings the former Socialist presidential hopeful faces over his sexual conduct. ... A charge of gang rape was dropped after a prostitute withdrew her accusation, but the probe continued on the grounds that Strauss-Kahn's involvement in sex parties attended by prostitutes could be construed as pimping -- an argument defense lawyers said was invalid.

Meet the ‘sober minders’ charged with making sure New York’s CEOs stay off drugs and booze 24/7 (NYP)
Last month, for example, a 50-something venture capitalist was permitted to attend an important meeting in Miami five days into his rehab, with sober minder Peter Downing passed off as his driver. After the obligatory emptying out of the minibar, Downing slept in the same hotel room as the client and subjected him to random drug tests. He escorted his VIP everywhere, stationing himself at the restaurant bar during one meeting to literally block the way if the client felt the urge to drink. But things don’t always go so smoothly: Once, when Downing was minding a preppy 35-year-old real-estate mogul in the Hamptons, the man disappeared from his home in his Lexus sports car in the dead of night. He returned after a two-day bender, and slumped onto the bed. Next up was a knock at the door by a bunch of hookers and a dealer. “They demanded to know where the money was,” says Downing. “I told them to scram.”

Jim O’Neill Says Get Used to U.S. Bond Yields Nearer 4% Than 2% (Bloomberg)
Investors should get used to U.S. Treasury yields rising toward 4 percent as the 30-year bull market in bonds comes to an end, according to Jim O’Neill, former chairman of Goldman Sachs Asset Management. “It’s all part of this big normalization that’s going to happen,” O��Neill said in an interview in London today. “In the process, there could be quite ugly days.”

Citigroup Facing $7 Billion Currency Hit on Dollar, Peabody Says (Bloomberg)
Citigroup Inc. could lose as much as $7 billion on currency swings if Charles Peabody is right, putting the analyst at odds with peers who say the stock will be the best performer among big U.S. banks in the year ahead. Peabody, who leads research at Portales Partners LLC, is among only four analysts out of 34 tracked by Bloomberg who recommend investors sell Citigroup shares. He estimates the bank may lose $5 billion to $7 billion in regulatory capital this year if the dollar gains against the yen, euro and currencies in emerging markets, which provide about half the firm’s profit. That would be its worst translation loss in five years, exceeding the $3.5 billion deficit in 2011.

Banks Seen as Aid in Fraud Against Older Consumers (NYT)
The Times reviewed hundreds of filings in connection with civil lawsuits brought by federal authorities and a consumer law firm against Zions and another regional bank that has drawn even more scrutiny, First Bank of Delaware. Last November, First Delaware reached a $15 million settlement with the Justice Department after the bank was accused of allowing merchants to illegally debit accounts more than two million times and siphon more than $100 million. The documents, as well as interviews with state and federal officials, paint a troubling picture. They outline how banks profit handsomely by collecting fees while ignoring warnings of potential fraud and, in some instances, enabling dubious merchants to prey on consumers.

Regulators Turn Up Heat Over Bank Fees (WSJ)
The Consumer Financial Protection Bureau, in a report set for release Tuesday, plans to criticize the U.S. banking industry for practices that it says range from confusing rules on overdraft fees to increasing the likelihood of multiple fees being charged to the same customer. The agency, created by the Dodd-Frank financial-overhaul law in 2010 to be a powerful voice for consumers, said it has no immediate plans to issue or recommend new overdraft-fee rules. But the report is the strongest signal yet that the CFPB is burrowing into the controversial fees, which generated about $32 billion in revenue in the U.S. last year, according to research firm Moebs Services Inc.

S&P's Lack of Sway on Display in U.S. Move (WSJ)
Monday's moves highlight an open secret in the financial world: Few investors care what large rating companies say about the debt of developed countries these days. The transparency of rich-country economic accounts and the prominence of global macroeconomic factors in driving bond prices have eroded the influence that S&P and its competitors once held, analysts and fund managers say.

Insider Probe Hits Congress (WSJ)
The Federal Bureau of Investigation has shifted the focus of a broadening insider-trading investigation to Congress, seeking information to determine whether one of Sen. Charles Grassley's aides may have been involved in sharing information about an important government decision with Wall Street this spring, said a person familiar with the matter. ... Legal specialists said the investigation appears to be one of the first involving the burgeoning political-intelligence industry. "This is all fairly uncharted territory in this context," said John C. Coffee, a securities-law specialist at Columbia University in New York.

French homeless seek refuge in offices (Reuters)
The squat at Number 2 rue de Valenciennes is both a political battleground and a symbol of France's dysfunctional housing market. Activists helped the families move in to draw attention to how Europe's second biggest economy, which prides itself on its welfare system, is struggling to provide basic shelter for many of its 65 million citizens. ... The housing shortage is further fueled by long-standing policies to protect tenants that discourage many owners from putting properties up for rent. Housing experts say as many as 7 percent of all apartments in Paris are vacant.

Teen arrested after stripping off at former Catholic high school in 'revenge' for being bullied because she wanted to be a porn star (DM)
A teenage girl has been arrested for baring all at a Catholic school to take revenge on the bullies who were 'mean' to her there. Valerie Dodds, 19, decided she wanted to pursue a career in adult entertainment but was mocked by former classmates at St Pius X High School in Nebraska. 'It looked like something that I just kind of wanted to try, I guess,' she said.

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JPMorgan Bosses Hit By Bank Regulator (WSJ) JP Morgan was downgraded in a confidential government scorecard over concerns about the company's management and its board, a blow to a firm that has long been considered one of the best-run on Wall Street. The New York company's management rating from the Office of the Comptroller of the Currency fell one notch last July to a level that signifies oversight "needs improvement," following the revelation of what are known as the "London whale" trading losses, said people familiar with the regulatory assessment. Grading is on a scale of 1 to 5, with 5 being worst. J.P. Morgan had been at level 2, indicating "satisfactory management." The people said the downgrade to level 3 wasn't solely related to a London employee's large trades—in indexes tracking the health of a group of companies—that led to losses exceeding $6 billion. BlackRock’s CEO Fink Says Cyprus Is Not a Major Problem (Bloomberg) Laurence D. Fink, chief executive officer of BlackRock, the world’s largest asset manager, said Cyprus is not a major problem and U.S. equities will rise 20 percent this year as the economy rebounds. “It has some symbolism impact on Europe, but it’s not a really major economic issue,” Fink said of Cyprus in a Bloomberg Television interview in Hong Kong today. “It’s a $10 billion issue. It does remind us of the frailty of Europe. It does remind us that the European fix will be multiple years.” Freddie Mac Sues Big Banks (WSJ) sued more than a dozen of the world's biggest banks for alleged manipulation of interest rates, in the first government-backed private litigation over the rate-rigging scandal. The lawsuit, filed in U.S. District Court for the Eastern District of Virginia, by the mortgage-finance giant joins scores of other suits piling up in U.S. courts, seeking billions of dollars in damages from banks that allegedly manipulated the London interbank offered rate and other crucial financial benchmarks. Freddie Mac sued the British Bankers' Association alongside the banks, putting the private association of large British banks for the first time in the cross hairs of a Libor lawsuit. A probe by U.S. and U.K. regulators has uncovered evidence of widespread rate rigging by some traders. Three banks have agreed to pay penalties totaling about $2.5 billion, and about a dozen companies remain under investigation. The BBA has agreed to transfer its responsibility for overseeing Libor to a new operator. Litigation Forces Deutsche Bank to Restate Profits (Reuters) Deutsche Bank cut its previously reported 2012 pretax profit by 600 million euros ($773 million) on Wednesday, hit by new charges related to mortgage-related lawsuits and other regulatory investigations. Europe's biggest bank by assets declined to say why it had increased litigation provisions to 2.4 billion euros, forcing it to correct its Jan. 31 earnings report which already showed the worst quarterly loss in four years. Yoga-Pants Supplier Says Lululemon Stretches Truth (WSJ) A Taiwanese supplier to Lululemon Athletica was bent out of shape on Tuesday after the yoga-clothes retailer blamed it for producing a shipment of pants that were unacceptably see-through. The supplier, Eclat Textile Co. of Taiwan, hit back at Lululemon, saying the clothes it shipped weren't "problematic." "All shipments to Lululemon went through a certification process which Lululemon had approved," Eclat Chief Financial Officer Roger Lo said in an interview. "All the pants were manufactured according to the requirements set out in the contract with Lululemon." Bernanke Seen Keeping Up Pace of QE Until Fourth Quarter (Bloomberg) The Fed chief will probably halt the unprecedented easing in the first half of next year after expanding central bank assets to a record of about $4 trillion, according to median estimates by 46 economists surveyed March 13-18 before a two-day meeting of policy makers ending today. Unemployment will have fallen to 7.3 percent from its current 7.7 percent when the Fed starts to pull back on its buying, the economists said. Supreme Court Sacks Goldman (NYP) The Supreme Court yesterday refused to hear the bank’s appeal of a federal court ruling in a lawsuit alleging it misled investors about dicey mortgage-backed securities. SEC Digging Into Fund Fees (WSJ) The Securities and Exchange Commission is closely scrutinizing the fees and expenses, including travel and entertainment, that hedge funds and private-equity firms charge to their investors. As part of the Dodd-Frank financial law, the SEC now oversees more than 1,500 additional such advisers that were required to register with the agency. In that capacity, the SEC is checking to ensure they are charging their investors reasonable expenses. "Exotic" expenses like travel, entertainment and consulting arrangements are more likely to attract the agency's attention than routine charges like legal and accounting fees, say compliance consultants who advise funds on registration and reporting requirements. A Volatile Investor Buys Into a Softer Approach (WSJ) It has been a long slog for Mr. Hohn, whose fund bets big on a small number of out-of-favor stocks and often holds on for several years. It lost 43% in 2008, among the worst losses by a hedge-fund that year, according to industry-tracker HFR. Hedge funds on average lost 19% that year. Even the Standard & Poor's 500-stock index, which plunged as the economy descended into the worst financial crisis in decades, did better. But with a 30% return in 2012 and a 14% gain this year, TCI has crossed its high-water mark, or the point at which investment gains make up for losses and managers can begin collecting performance fees again, according to clients. "A lot of people wrote me off," Mr. Hohn said in an interview last month. "A lot of people fired us, a few people stuck by us, and we've worked and worked and made it all back for them." JPMorgan, MF Global Trustee Reach $546 Million Settlement (Reuters) As part of a settlement reached with James Giddens, the trustee who is tasked with liquidating MF Global Inc, JPMorgan will pay $100 million that will be made available for distribution to former MF Global customers. JPMorgan will also return more than $29 million of the brokerage's funds held by the bank, while releasing claims on$417 million that was previously returned to Giddens. Man, 18, forbidden from saying 'bingo' for 6 months (NKY) As part of 18-year-old Austin Whaley’s punishment, Kenton District Judge Douglas Grothaus recently ordered the Covington man not to say the word “bingo” for six months. “Just like you can’t run into a theater and yell ‘fire’ when it’s not on fire, you can’t run into a crowded bingo hall and yell ‘bingo’ when there isn’t one,” said Park Hills Police Sgt. Richard Webster, the officer who cited Whaley. On Feb. 9, Webster was working an off-duty security detail at a Covington bingo hall on West Pike Street when Whaley entered the hall with several other youths and yelled “bingo,” Webster said. “This caused the hall to quit operating since they thought someone had won,” Webster wrote on his citation. “This delayed the game by several minutes and caused alarm to patrons.” Webster said the crowd of mostly elderly women did not take kindly to Whaley’s bingo call. “At first, everybody started moaning and groaning when they thought they’d lost,” Webster said. “When they realized it wasn’t a real bingo, they started hooting and hollering and yelling and cussing. People take their bingo very seriously.” Had Whaley apologized for his actions, Webster said he probably would have sent him on his way with a warning. “But he refused to say he was sorry,” Webster said...WhenWhaley appeared in Kenton District Court last week, the judge ordered Whaley: “Do not say the word ‘bingo’ for six months.” The youthful defendant could have faced up to 90 days in a jail and a $250 fine on the misdemeanor charge. So long as Whaley, who had no prior criminal record, doesn’t get into any more trouble within six months, though, the charge will be dismissed.