Opening Bell: 08.15.13

Author:
Dealbreaker
Updated:
Jan 14, 2019
Original:
Aug 15, 2013

To His Collection of Steinways, Hedge Fund Titan Adds Their Maker (DealBook)
John A. Paulson, the hedge fund billionaire, already owns three Steinway & Sons pianos; the medium model M grand, the larger model O and the nearly seven-foot-long model B, together worth tens of thousands of dollars. But Mr. Paulson, in investing parlance, was looking to increase his exposure. On Wednesday, his firm, Paulson & Company, agreed to buy the company that makes the pianos, Steinway Musical Instruments, for $512 million. ... Though Mr. Paulson is not a pianist, he played the drums, clarinet and saxophone when he was a teenager and into his 20s, eventually setting them aside when he could not keep up the necessary commitment.

Airlines Preview Merger Defense (WSJ)
The Justice Department's suit ignored several benefits the merger would offer consumers, including more flights to more destinations, the airlines' lawyers said. The deal would reduce the airlines' costs and allow them to offer lower prices and better service, they said. They also said it would be good for the airlines' employees and creditors. "They got this one very wrong," Washington lawyer Richard Parker, of O'Melveny & Myers LLP, who is representing US Airways, said of the lawsuit.

JPMorgan Said to Expect Multiple Fines for Whale Loss (Bloomberg)
JPMorgan Chase & Co. expects to be fined by authorities in the U.S. and U.K. over last year’s $6.2 billion trading loss, which led to criminal charges against two former employees, said a person familiar with the matter. The Securities and Exchange Commission signaled in a complaint filed yesterday against Javier Martin-Artajo, 49, and Julien Grout, 35, that the New York-based bank will be held accountable for providing inaccurate information to investors after the two men “fraudulently” mismarked their trades to conceal losses. ... The bank also expects to be fined by the Department of Justice, the Commodity Futures Trading Commission and the U.K.’s Financial Conduct Authority, said the person, who asked not to be named because the discussions are private.

Ex-bosses at JPMorgan unlikely to face charges in 'Whale' scandal (Reuters)
The JPMorgan Chase & Co executives who supervised the traders at the center of the "London Whale" scandal are unlikely to face any charges over a trading debacle that cost the largest U.S. bank more than $6.2 billion, people familiar with the probe said. Neither Ina Drew, the bank's former chief investment officer, nor Achilles Macris, a former top Chief Investment Office executive, are mentioned by name in the complaints filed in New York. ... There is no allegation in the complaints that either Drew or Macris did anything wrong or encouraged Martin-Artajo and Grout to conceal the losses, which first began to be publicly disclosed in May 2012.

Henkel pulls toilet freshener after Ukraine takes offence (Reuters)
German consumer goods company Henkel has pulled a toilet freshener from the eastern European market after Ukrainians complained it looked like the former Soviet republic's flag. A television advertisement for the Bref Duo Stick freshener run in Russia caught the attention of Ukrainians - many of whom watch Russian television - last week. In the ad, the yellow-and-blue freshener which is shaped like a small flag is put under the toilet rim. ... Misuse of state symbols became a sensitive issue in Ukraine earlier this month, when the authorities found that Jared Hasselhoff, a bassist for American rock band Bloodhound Gang, had urinated on the Ukrainian flag during a gig in Kiev.

Confident Consumers Step Up Their Borrowing (WSJ)
Auto lending increased by $20 billion in the second quarter from the previous quarter, the largest gain in seven years, Federal Reserve Bank of New York figures showed Wednesday. Americans also increased their credit-card balances, reversing a first-quarter decline, and took out more mortgages. At the same time, total consumer debt declined by $78 billion last quarter to $11.15 trillion, putting it 12% lower than its peak in the fall of 2008 during the recession and at its lowest level since 2006.

Below-target inflation poses QE tapering risks for Fed (FT)
A decision by the Federal Reserve to start scaling back its asset purchases next month is heavily dependent on confidence among US central bankers that inflation will gradually pick up and move closer to 2 per cent. But data released on Wednesday by the labour department offered no such assurance. The producer price index (PPI), which measures inflation for businesses excluding volatile food and energy costs, edged up by only 0.1 per cent in July, and has increased by a modest 1.2 per cent over the past year – well below the Fed’s target.

Chinese Banks Feel Strains After Long Credit Binge (WSJ)
Chinese banks now are trying to strengthen their balance sheets ahead of an expected rise in bad loans coupled with slower earnings growth. Raising capital will likely be expensive for the banks because investors, who have sold off shares of banks, are worried about their deteriorating health and China's slowing growth. "The problem [banks] face is that market sentiment is very bad," says Mark Mobius, executive chairman of Templeton Emerging Markets Group, a part of Franklin Templeton Investments, who manages more than $50 billion of emerging-market equities.

Demand for physical gold jumps 53% in second quarter (CNBC)
Consumers around the world bought 53 percent more bullion in the second quarter from the year ago period, bringing total purchases of gold jewelry, bar and coins to 1,083.2 metric tons, according to WGC's quarterly report on demand trends. Of this, India accounted for the biggest share at 310 metric tons, which is a 71 percent rise from the same period a year earlier, followed by China at 275.7 metric tons, marking an 87 percent increase.

Morgan Stanley Leads in Cutting Credit Correlation Risk (Bloomberg)
Morgan Stanley cut risk in its credit-correlation portfolio by 69 percent from this year’s peak as U.S. banks seek to reduce the capital tied to derivatives businesses built up before the financial crisis. The firm’s comprehensive-risk measure, which seeks to estimate potential losses in correlation positions over one year with 99.9 percent certainty, fell to $362 million at June 30, from a high of $1.16 billion in the first quarter, according to a regulatory filing by the New York-based company released this week. The risk-weighted assets tied to that business dropped $4.85 billion to $19.3 billion.

Buffett's Berkshire Hathaway cuts Coca-Cola stake, buys more GM (Reuters)
Happy 13F day!

The Obama Rodeo Clown Is Becoming a Right-Wing Hero (NYM)
After a rodeo clown in Missouri donned an Obama mask for a routine whose core concept was that a bull ought to trample the president, the Missouri State Fair banned the clown for life for his "unconscionable stunt," saying it was "inappropriate and not in keeping with the Fair's standards." In doing so, it created a great victim for some conservative, theatrical types to rally around. ... Unsurprisingly, Glenn Beck is at the forefront of this, declaring on his radio show Wednesday, "today I officially declare myself a rodeo clown. Today I officially declare that we are all rodeo clowns."

Opening Bell

Wall Street Is Leaderless In Fight Over Rules As Dimon Star Fades (Bloomberg) “What you’re seeing in the financial-services industry is a lack of any kind of credible statesmen,” said Rakesh Khurana, a management professor at Harvard Business School in Boston. Dimon’s diminished ability to defend the industry publicly “basically leaves a vacuum,” he said. That means the industry is without an advocate to resist the most vigorous onslaught of regulations since Congress separated investment and commercial banking with the Glass- Steagall Act in 1933. Buffett's Move Raises A Red Flag (WSJ) The Omaha, Neb., company recently terminated credit-default swaps insuring $8.25 billion of municipal debt. The termination, disclosed in a quarterly filing with regulators this month, ended five years early a bullish bet that Mr. Buffett made before the financial crisis that more than a dozen U.S. states would keep paying their bills on time, according to a person familiar with the transaction. Thiel Sells Large Facebook Stake (WSJ) In a filing Monday, Mr. Thiel disclosed that he sold 20.1 million Facebook shares, and distributed another 2.2 million shares to investors, as part of a selling plan known as a 10b5-1 plan that he agreed to in May. The sales leave him with about 5.6 million shares. Mr. Thiel sold the most recent tranche of Facebook stock for an average of $19.73 a share late last week, netting him about $395.8 million. Had he sold the 20.1 million shares at the time of the IPO—when the stock price was $38—it would have been valued at $762 million. Secret Libor Committee Clings To Anonymity After Rigging Scandal (Bloomberg) Every two months, representatives from the world’s largest banks meet at an undisclosed location to review the London interbank offered rate. Who sits on the British Bankers’ Association’s Foreign Exchange and Money Markets Committee, the body that governs the benchmark for more than $300 trillion of securities worldwide, is a secret. No minutes are published. The BBA won’t identify any members, saying it wants to protect them from being lobbied, and declined to make the chairman available for interview. Man wielding sword in Dairy Queen dies after being shot by employee (LVJR via Eater) A masked man wielding a sword tried to rob a central valley Dairy Queen on Sunday afternoon but was shot and killed by an employee, Las Vegas police said. Homicide Lt. Ray Steiber said that although rare, robbery attempts with swords have occurred in the Las Vegas Valley. "I've seen it before," Steiber said. "It's a deadly weapon in the right hands, and preliminarily, it appears he was using it as a deadly weapon." A second police official, Lt. Les Lane, described the sword as "full size" and more than "3 feet." Swiss Bankers Fume Over Privacy (WSJ) Since this spring, Swiss banks have provided U.S. officials with the names of thousands of their employees, as they seek to fend off any criminal prosecution over allegations that they helped Americans evade taxes. The handover, which initially didn't attract much attention in Switzerland, has become a major controversy over employees' personal privacy, undermining morale at Credit Suisse Group and the private-banking unit of HSBC Holdings, among others. Many of the employees whose names were sent to Washington aren't suspected of having helped Americans evade taxes. In addition, many were never told that their names were being turned over; in other cases, they were told but not allowed to review the documents sent that contained their names. UBS Seeing Moat Of Secrecy Run Dry Vows Results (Bloomberg) Chief Investment Officer Alexander Friedman, 41, aims to build an investment management business that’s “better than any other” for the $1.58 trillion of assets that wealthy clients entrusted UBS, he said in an interview at the bank’s headquarters in Zurich. Investment performance is “a deep moat -- that’s a sustainable moat if you build it right,” he said. Deustche Bank Warns Of Australian Recession (WSJ) FYI. Soros Takes A Piece Of Manchester United (AP) Soros disclosed in a regulatory filing on Monday that he owns 7.85 percent of Manchester United's Class A shares. The filing with the U.S. Securities and Exchange Commission was made by Soros' hedge fund, Soros Fund Management LLC. Scientists dispel 'Miserable Monday' myth (BBC) We may say we hate Mondays, but research suggests Tuesdays, Wednesdays and Thursdays are equally loathed. US investigators who looked at a poll of 340,000 people found moods were no worse on Mondays than other working days, bar Friday.

Opening Bell

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.

Opening Bell