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Opening Bell: 08.18.14

Credit Suisse Caught Up in Espírito Santo Mess (WSJ)
The Swiss bank was responsible for putting together securities that were issued by offshore investment vehicles and then sold to retail customers of Portugal's Banco Espírito Santo SA. Many customers didn't realize that these vehicles were loaded with debt issued by various Espírito Santo companies and apparently served as a mechanism to finance the family-controlled empire, according to corporate filings and people familiar with Portugal's investigation into the Espírito Santo affair. It is unclear what, if any, direct role Credit Suisse had in selling the securities to bank customers. Now those investment products are at the center of an unfolding scandal. Banco Espírito Santo was bailed out and broken up this month. Other parts of the Espírito Santo group have filed for bankruptcy amid alleged fraud and accounting problems. In addition to sinking the Portuguese stock market, the episode has undermined confidence in the European banking sector, analysts say.

Citibank could lose Argentina banking license (NYP)
If the banking giant obeys a US judge’s order and doesn’t pay out on tens of million of dollars bonds issued in Argentina under the laws of that country, it risks losing its banking license there — and the $2 billion it has in local deposits. But if it follows Argentine law and pays out on the bonds, it risks violating a US federal court order. Citi finds itself in the precarious position on Monday after Manhattan federal court judge Thomas Griesa, who is overseeing the bitter battle between hedge fund mogul Paul Singer and Argentina over $3 billion due on bonds defaulted upon in 2001, ordered the bank not to pay out on some of the country’s locally-issued bonds. Griesa initially exempted Citi’s Argentine law bonds from his sweeping order stopping payouts to exchange bondholders unless Argentina also paid Singer and other holdout bondholders who won the right to receive full payment. But Griesa changed his mind about Citi last month after Singer’s lawyers pointed out that some of the bonds for which Citi is custodian were also exchange bonds. Argentina missed a July 30 deadline to pay the Singer group, throwing it into a technical default on $15 billion of debt. That money is being held by Bank of New York Mellon. Citi has until Sept. 30 to fall in line, and the bank’s appeal was fast-tracked last week. But Citi is feeling pressure from both sides of the legal spat, its lawyers argue.

Dollar General Makes $9.7 Billion Family Dollar Counterbid (Bloomberg)
Dollar General plans to pay $78.50 a share in cash, compared with Dollar Tree’s bid of $74.50 a share in cash and stock, according to a statement today. The deal will generate $550 million to $600 million in cost savings annually three years after its completion, Dollar General said.

Power napping is no sleepy business (NYP)
In the city that never sleeps, there’s big bucks in napping. YeloCab can help you while away the lazy days of August for a metered fare of $1 per minute. And for all those zzzzzs there’s roughly $1 million in revenue for the power nap, day spa company. YeloSpa, home of the YeloCab sleeping cabin, is located in the Columbus Circle area. Each cabin has computer-controlled ambient lighting to lull you into your power nap, and, after the maximum stay of 40 minutes, to gently and naturally wake you, leaving you refreshed and set to resume your activities with more energy.

Hedge funds lusting to cash out of MGM (NYP)
The hedge funds benefiting from the turnaround at Metro-Goldwyn-Mayer still like the movie business, but an increasing number of them like the idea of cashing out even more. “We are definitely in the seventh inning of this investment,” says Steven Azarbad, the Chief Investment Officer at New York based Maglan Capital. “I and many others would really like a transaction.” Odds are they’ll get it — and soon. For one thing, interest in content of the sort created and stockpiled by the legendary studio has never been greater. Upstarts like Netflix and Amazon raised demand for movies and TV shows several notches when their video streaming services took off a few years ago.

Man Loses License Over 33 Year-Old Ticket (KATU)
A Portland man is trying to figure out how he ended up with an invalid license over a ticket from 1981. Kevin Berry said he was pulled over in Milwaukie at the beginning of August for a possible speeding ticket. He said he did not get a ticket for speeding, but was surprised to hear the officer say his license was not valid as of July 17. He said he checked with the Department of Motor Vehicles and was told that his license had been suspended after a ticket in 1981. "I think it's crazy," said Berry, who said he has been renewing his license faithfully and legally for decades. Berry contacted KATU for help finding answers. "I don't remember anything like that. If my license had been suspended, I definitely would have taken care of that," said Berry. "Sometimes I can be a procrastinator, but I've never procrastinated for 33 years!" The Problem Solvers contacted the DMV. A DMV spokesperson researched the issue and said there was an error back in 1981 and a record was created under the name "Berdy," not "Berry." The "Berdy" record showed the 1981 ticket and a suspension.

Federal Reserve Bets Rate Rise Can Wait (WSJ)
The question looms as officials travel this week to their annual gathering in Jackson Hole, Wyo., where they and the world's leading central bankers discuss economic issues. Fed Chairwoman Janet Yellen and academic papers presented at the meeting will focus on labor markets, which are improving rapidly even though U.S. economic growth has been sluggish and erratic. Ms. Yellen seems likely to acknowledge the improving job market, though she has argued for much of the year that slack and headwinds endure after the 2008-09 financial crisis. A growing number of economists believe slack in labor markets is diminishing, making the economy prone to inflation and financial markets prone to overshooting with short-term interest rates near zero. The unemployment rate fell to 6.2% in July from 7.3% a year ago, a decline far faster than Fed officials expected. "They are making me nervous," Arun Raha, the chief global economist for Cleveland-based Eaton Corp., an industrial manufacturer, said of Fed officials. "Given the strength of the job market, manufacturing and nonresidential construction, it's about time they got rid of their low-rates-for-an-extended-period viewpoint."

Bundesbank Casts Doubt on German Economic Rebound in Second Half (Bloomberg)
“The economic outlook for the German economy has clouded over in the middle of the year in response to unfavorable international news,” the Frankfurt-based central bank said in its monthly report published today. “Expectations for a strengthening of economic momentum in the second half of 2014 underlying the spring projections are called into question by current data.”

Big Investors Snap Up Junk Bonds (WSJ)
Large institutions are snapping up U.S. junk bonds, taking advantage of a price slide triggered by an exodus of individual investors. Many big money managers say they remain bullish on these risky corporate bonds despite concerns that the market is overheated and worries that geopolitical unrest could fuel a rush to safer assets. Their interest stands in contrast to a wave of selling by retail investors, who sucked almost $13 billion out of junk-bond mutual funds and exchange-traded funds in the four weeks ended Aug. 6.

When companies flee U.S. tax system, investors often don't reap big returns (Reuters)
Establishing a tax domicile abroad to avoid U.S. taxes is a hot strategy in corporate America, but many companies that have done such "inversion" deals have failed to produce above-average returns for investors, a Reuters analysis has found. Looking back three decades at 52 completed transactions, the review showed 19 of the companies have subsequently outperformed the Standard & Poor's 500 index, while 19 have underperformed. Another 10 have been bought by rivals, three have gone out of business and one has reincorporated back in the United States.

A Former Top SAC Capital Trader Names New Hedge Fund (Dealbook)
Mr. Plotkin, 35, who is in the process of raising up to $1 billion for his fund, has settled upon the name Melvin Capital L.L.C. The name is a tribute to Mr. Plotkin’s grandfather, Melvin Plotkin, said a person briefed on the matter but not authorized to talk publicly about it. Mr. Plotkin’s grandfather, now deceased, was a small-business owner.

Pirate bartender is bringing Tiki back — one cocktail at a time (NYP)
Bartender Brian Miller calls himself a pirate, and he looks like one too, but he’s not sword-fighting for booty on a deserted island. For years, he’s been crusading for Tiki cocktails. It’s not an easy fight. In recent years, tropical cocktails fell out of fashion, with city Tiki bars like Lani Kai and Painkiller closing. Even Hawaiian mainstays like La Mariana in Oahu often seem to be on the brink of sinking. “Tiki has so many knives in its back,” says Miller, the head bartender at downtown’s exclusive, 12-seat ZZ’s Clam Bar and a fan of the tropical-drink tradition for years. “People say it’s all sweet, it’s all sugary, the drinks aren’t balanced, when actually it’s quite the opposite. These are really complex drinks; you can taste all of the ingredients. I’ve made Tiki drinks with gin, tequila, sake, Jagermeister and white whiskey.”

Related

Opening Bell: 11.26.12

UBS Stung By Adoboli Case (WSJ) Swiss financial market regulator Finma said it will keep a close eye on UBS's investment bank for the foreseeable future and may ask it to raise fresh capital, following an investigation into failures that allowed London-based trader Kweku Adoboli to make unauthorized trades. At the same time, the U.K. Financial Services Authority fined UBS £29.7 million ($47.6 million). Mr. Adoboli was convicted of fraud last week and sentenced to a seven-year prison term. "The measures ordered by Finma include capital restrictions and an acquisition ban on the investment bank, and any new business initiative it plans must be approved by Finma," the regulator said. Finma will also consider "whether UBS must increase capital backing for its operational risks," will appoint a third party to ensure corrective measures are introduced, and will organize an audit to review the steps taken by UBS. Finma declined to say when the auditing review would be completed or when a decision on a capital increase would be made, though a spokesman said this is likely to be within months rather than years. SAC Fund Manager Faces Choice of Trial or Deal (Bloomberg) Martoma, 38, used illegal tips to help SAC make $276 million on shares of pharmaceutical companies Elan Corp. and Wyeth LLC, according to the Justice Department and the Securities and Exchange Commission. Arrested last week, he is to appear today in Manhattan federal court for masterminding what the U.S. calls the most lucrative insider-trading case ever. Flowers Foods Sizes Up Hostess (WSJ) The Thomasville, Ga., company is considered a likely bidder for some of the assets owned by Hostess, which last week was granted permission by a federal bankruptcy-court judge to begin liquidating. The end came after a contentious bankruptcy that began in January and culminated this month in a strike. Goldman Turns Down Southern Europe Banks as Crisis Lingers (Bloomberg) Goldman Sachs, the No. 1 stock underwriter in Europe, turned down roles in offerings by banks in Spain and Italy this year, the only top U.S. securities firm not to take part in the fundraisings by southern European lenders as the region’s debt crisis stretches to a fourth year. The firm declined a role in Banco Popular Espanol SA’s 2.5 billion-euro ($3.2 billion) rights offering this month because it wanted greater protection to avoid potential losses on the sale, two people familiar with the talks said. JPMorgan and Morgan Stanley are helping to guarantee the deal. Goldman also didn’t underwrite this year’s share sales by Italy’s UniCredit SpA and Portugal’s Banco Espirito Santo SA, which drew Bank of America Corp. and Citigroup. Knight Seen Getting Acquisition Bids This Week (Bloomberg) The company with a market value of about $430 million was bailed out by six financial firms in August after losing $457 million in a trading error. Chicago-based Getco LLC, one of the rescuers, and Virtu Financial LLC in New York are among the likely bidders, said the person, who requested anonymity because the negotiations are private. The Wall Street Journal reported Nov. 23 that Knight expected offers for its market-making unit. Woman who rode manatee charged with violating protection act (Sentinel) A 53-year-old Pinellas County woman was arrested Saturday for violating the Florida Manatee Sanctuary Act by riding a sea cow in the waters near St. Petersburg in September. Ana Gloria Garcia Gutierrez of St. Petersburg was arrested at her place of employment — Sears at Tyrone Square Mall in St. Petersburg — on a warrant issued by the State Attorney's Office. The charge is a second-degree misdemeanor. The punishment could be a $500 fine or up to 60 days in jail, the Tampa Bay Times said. Gutierrez stepped forward after the Pinellas County Sheriff's Office released photos of a then-unknown woman riding a manatee near Fort DeSoto Park in Pinellas County on Sept. 30. "Gutierrez admitted to the offense claiming she is new to the area and did not realize it was against the law to touch or harass manatees,'' the Pinellas County Sheriff's Office said in a statement. Escrowyou too, judge! (NYP) Argentina, bruised and battered after a 10-year battle to sidestep billions of dollars in bond payments, is lashing out at US courts and a Manhattan federal court judge. A high-ranking member of Argentina President Cristina Kirchner’s administration terms “judicial imperialism” the Thanksgiving eve ruling by Judge Thomas Griesa that ordered the South American country to place a $1.3 billion bond payment in escrow pending the end of the legal tussle. Kirchner has repeatedly said she would not pay up. Griesa, frustrated with Argentina’s repeated attempts to stall the legal proceedings, sided with New York hedge fund billionaire Paul Singer, whose Elliott Management owns Argentine bonds that were defaulted on back in 2002. 'Cliff' Threatens Holiday Spending (WSJ) The White House warned in a new report that going off the so-called "fiscal cliff" could slow the growth of real gross domestic product by 1.4% and limit consumer spending during the holiday season. The report comes as lawmakers are returning to Washington with just weeks left to find an agreement to prevent taxes from going up on millions and spending cuts from kicking in. It will likely provide fodder for both political parties as they seek to find a compromise. At Some Firms, Cutting Corporate Rates May Cost Billions (WSJ) President Barack Obama has said, most recently during last month's presidential debates, that the 35% U.S. corporate tax rate should be cut. That would mean lower tax bills for many companies. But it also could prompt large write-downs by Citigroup, AIG, Ford and other companies that hold piles of "deferred tax assets," or DTAs...Citigroup, for instance, acknowledged during its recent third-quarter earnings conference call that a cut in the tax rate could lead to a DTA-related charge of $4 billion to $5 billion against earnings. Cohen's General Counsel Gives SAC Boss Cover (NYP) The sharks of the US Attorney’s office have SAC Capital Advisors surrounded — and owner Steven Cohen is looking a lot like chum. Good thing the billionaire hedgie has a large supply of shark repellent. That would be Peter Nussbaum, SAC’s longtime general counsel who, over his 12 years at the Stamford, Conn., firm, has built up an impressive 30-person compliance department — not including an additional tech compliance team. “Nussbaum is the most respected person at SAC,” said a hedge fund executive not at SAC. “He is going to do what he thinks is best for the firm and not be cowed by anyone.” Nussbaum’s huge compliance department, observers said, was built, in large part, because of the perception that the government was determined to bust Cohen. Confidential Police Docs Found in Macy's Parade Confetti (WPIX) Confidential personal information is what some paradegoers found among confetti tossed during the world's most famous parade. That information included social security numbers and banking information for police employees, some of whom are undercover officers. Ethan Finkelstein, who was home from college on Thanksgiving break, was watching the parade at 65th Street and Central Park West, when he and a friend noticed a strip of confetti stuck onto her coat. "It landed on her shoulder," Finkelstein told PIX11 News, "and it says 'SSN' and it's written like a social security number, and we're like, 'That's really bizarre.' It made the Tufts University freshman concerned, so he and his friends picked up more of the confetti that had fallen around them. "There are phone numbers, addresses, more social security numbers, license plate numbers and then we find all these incident reports from police." One confetti strip indicates that it's from an arrest record, and other strips offer more detail. "This is really shocking," Finkelstein said. "It says, 'At 4:30 A.M. a pipe bomb was thrown at a house in the Kings Grant' area." A closer look shows that the documents are from the Nassau County Police Department. The papers were shredded, but clearly not well enough.

Opening Bell: 04.22.13

Bill Gross Attacks UK and Euro Zone Austerity (FT) Bill Gross, manager of the world's largest bond fund for Pimco, has launched a stinging attack on efforts by Britain and much of the euro zone to cut debt rapidly with severe austerity measures, warning that such action risks stifling recovery. "The U.K. and almost all of Europe have erred in terms of believing that austerity, fiscal austerity in the short term, is the way to produce real growth. It is not," Mr Gross told the Financial Times. "You've got to spend money." Argentina's New Debt Offer Rejected by Holdout Creditors (WSJ) Holdout creditors on Friday rejected Argentina's proposal to pay them about 20 cents on every U.S. dollar of bonds they own, leaving a U.S. appeals court to decide how to enforce a ruling that may push Argentina into a new default. "Not only are the details of Argentina's proposal unacceptable and unresponsive; Argentina fails even to provide this court with meaningful 'assurances' that it will actually comply with its own proposal," said Theodore Olson, a lawyer for the holdouts, in a brief filed Friday. Argentina's own math values the offer at $210 million, less than 15% of the $1.47 billion that holdouts were owed on their defaulted bonds as of March 1, according to the brief. Hedge Fund Stars Suit Up At Yankee Stadium To Attract Investors (NYP) Hedge-fund mogul Stevie Cohen will be pitching at Yankee Stadium tomorrow. No, the 56-year-old billionaire is not suiting up for the Bronx Bombers — but he will be hoping the magic of the House that Ruth Built will yield some investment cash. Cohen, whose SAC Capital faces a loss of $1.7 billion from investors who want out of his $15 billion hedge fund, is one of about 70 hedge fund managers who’ll be at the Stadium tomorrow making a pitch to prospective new investors at a day-long event sponsored by Goldman Sachs. Singapore Will Replace Switzerland As Wealth Capital (CNBC) Switzerland has $2.8 trillion in assets under management, with $2.1 trillion of that coming from offshore wealth. Switzerland accounts for 34 percent of the $8.15 trillion in total global wealth. Yet the report said Singapore could overtake Switzerland in offshore assets under management by 2020. It said Swiss offshore assets could fall below $2 trillion by 2016, while Singapore's assets could more than quadruple by then. Somali Banking Starts From Ground Up (WSJ) Abdusalam Omer is a central bank governor without much to govern. The Central Bank of Somalia doesn't hold reserves in the country's currency, the shilling. There are no functioning commercial banks in the strife-torn country for it to regulate. The 75-strong staff that still turns up for work after two decades of civil war is a motley crew of money men and handymen. "I don't know why the central bank employs painters," says the 58-year-old who was named the country's top banker in January. Eventbrite Funding Slows Its IPO Chase (WSJ) Eventbrite Inc., an event ticketing company, has raised $60 million from two investors, making it the latest example of a startup to raise significant private late-stage funding that puts off an initial public offering. San Francisco-based Eventbrite had sparked expectations of an imminent IPO when it said earlier this month that it hired a chief financial officer, Mark Rubash, who previously worked at Yahoo Inc. and eBay Inc. Instead, it joins a growing number of companies that have found plentiful funding in the private markets rather than going public at an early stage. The company has raised the new cash from mutual-fund firm T. Rowe Price Group Inc. and Tiger Global Management LLC, an investment-management firm, said Kevin Hartz, co-founder and chief executive. That brings its total private fundraising to some $135 million since its inception in 2006. "This gives us flexibility in setting the timeline for a later IPO, on our schedule," said Mr. Hartz. Deutsche Bank Margin Call on Vik Sparks $2.5 Billion Dispute (Bloomberg) Alexander Vik went to Deutsche Bank AG’s London office in October 2008 to meet account managers who congratulated the Norwegian entrepreneur on how well his Sebastian Holdings Inc. investment fund was doing. Within a month, as global markets tumbled into crisis, the same bankers demanded about $530 million against the fund’s currency bets and began to liquidate its positions. Vik, 58, will argue at a 12-week trial starting in London today that the bank’s actions resulted in losses and missed profits totaling about $2.5 billion. A judge will have to decide whether Sebastian’s calculation of lost trading gains is accurate, said John Day, a lawyer at London-based litigation firm DaySparkes. Zimbabwe Prepares Law to Seize Company Stakes Without Paying (Bloomberg) Zimbabwe’s government is preparing a law that would allow it to seize controlling stakes in companies without compensation, according to a draft of the legislation obtained by Bloomberg News. The law would be an amendment to a 2007 act that compels foreign and white-owned companies such as Rio Tinto Group, Sinosteel Corp. and Impala Platinum Holding Ltd. to sell or cede 51 percent of their shares to black nationalsor state-approved agencies.