Opening Bell: 08.28.14 - Dealbreaker

Opening Bell: 08.28.14

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Mega-IPO to rekindle the 'bromance' behind Alibaba's rise (Reuters)
Masayoshi Son's nose for an investment has turned a $20 million start-up punt on Alibaba into a stake worth maybe $50 billion or more as the Chinese e-commerce giant co-founded and led by Jack Ma heads to what could be the biggest U.S. tech IPO of all time. Son, CEO of Japanese telecoms firm SoftBank Corp, also put money into a young Yahoo Inc, co-founded by Jerry Yang, in 1995, and Yahoo's subsequent investment in Alibaba saw Ma, Son and Yang build Alibaba Group Holding Ltd [IPO-BABA.N] into one of world's biggest internet companies as China's e-commerce market took off. "It was the look in his eye, it was an 'animal smell'," said Son of his decision to back Ma when they first met in 2000. "It was the same when we invested in Yahoo ... when they were still only 5-6 people. I invested based on my sense of smell," he quipped in a group media interview in May. Under pressure from investors, Yang quit Yahoo in early 2012 and gave up his seat on Alibaba's board. He is now a founding partner of AME Cloud Ventures, a San Francisco venture fund. But next month, the three poster boys for Asian technology entrepreneurship, bound by a shared ambition and a taste for sushi and golf, are set to be reunited on Alibaba's board following the firm's long-awaited New York IPO.

Plan to slow 'Flash Boys' already has some holes (NetNet)
The Securities and Exchange Commission announced the proposal Tuesday in which 1,200 small-cap firms will be divided into three equal-sized groups with different standards governing each. One group—the "control"—essentially would trade the same as before; the second would see stock prices quoted in 5-cent increments, as opposed to the penny increments currently used; and the third also would trade in 5-cent increments but also would follow a "trade-at" requirement in which trading centers couldn't match prices unless they display the best bid or offer. Ostensibly, the program's goal is to "enhance market quality for smaller capitalization stocks for the benefit of investors and issuers," according to the SEC. More practically, the changes are aimed at thwarting high-frequency traders who have used the lightly traded small-caps to skim profits by getting lower prices on purchase and higher prices on sales than their slower competitors...Inside the market, the SEC's effort got points for effort but still raised some worries. "What does concern me is there are a bunch of exceptions thrown in there, particularly on test group three," said Joe Saluzzi, a partner in Themis Trading and outspoken advocate for trading reform. "There may be a need for some, but that to me smells a little bit like some interests are now being put into the rule."

JPMorgan, Four Other Banks Hit by Hackers: U.S. Official (Bloomberg)
Computer hackers targeted JPMorgan Chase & Co. (JPM) and at least four other banks in a coordinated attack on major financial institutions this month, according to a U.S. official. The attack led to the theft of customer data that could be used to drain accounts, according to another person briefed by U.S. law enforcement. The two people, who asked not to be identified because the investigation is continuing, discussed the incident after Bloomberg News reported a breach on banks earlier today. Hackers targeted customer and employee information, said a third person involved in the investigation, who was also briefed by the government. The theft involved gigabytes of data, said several people familiar with the attacks. The scale indicates a potential for significant financial fraud. Most thefts of financial information involve retailers or personal computers of consumers. Stealing data from big banks is rare, because they have elaborate firewalls and security systems.

FBI Examining Whether Russia Is Tied to JPMorgan Hacking (Bloomberg)
The sophistication of the attack and technical indicators extracted from the banks’ computers provide some evidence of a government link. Still, the trail is muddy enough that investigators are considering the possibility that it’s cyber criminals from Russia or elsewhere in Eastern Europe. Other federal agencies, including the National Security Agency, are now aiding the investigation, a third person familiar with the probe said.

Square Said in Talks for Funding at $6 Billion Valuation (Bloomberg)
Square Inc., the mobile-payments startup co-founded by Twitter Inc. Chairman Jack Dorsey, is in talks to raise financing at a $6 billion valuation, according to a person with knowledge of the matter. The San Francisco-based company is seeking about $200 million, with some of the funding coming from the Government of Singapore Investment Corporation, said the person, who asked not to be identified because the matter is private. That would push Square’s valuation up from about $5 billion earlier this year.

Amish Beard-Cutting Convictions Reversed (WSJ)
A federal appeals court on Wednesday overturned the criminal convictions of 16 Amish men and women in a series of beard and hair cuttings, finding error in how the jury was instructed on determining whether a hate crime occurred. In a 2-to-1 ruling, the U.S. Court of Appeals for the Sixth Circuit reversed the convictions on federal hate-crime charges and returned the case to the lower court. A spokesman for Steven M. Dettelbach, U.S. Attorney for the northern district of Ohio, said his office disagrees with the ruling and is reviewing its options, which include appealing the ruling, retrying the cases or dismissing the charges. The case against members of the eastern Ohio community of Bergholz involved a series of attacks in which other Amish were physically restrained while their hair and beards were shorn. Prosecutors charged those involved under the federal hate-crime law because the Amish consider the length of their hair a sign of religious devotion and the cuttings were to enforce a particular view of the religion. A jury in September 2012 found the 16 defendants guilty of hate crimes, including Bishop Samuel Mullet Sr., who was sentenced later to 15 years. They all appealed the hate-crime conviction, but Wednesday's ruling doesn't affect the convictions of certain defendants on charges such as concealing evidence.

SEC’s civil case against SAC’s Cohen may get delayed again (NYP)
Manhattan US Attorney Preet Bharara has asked the Securities and Exchange Commission to hold off on its decision about former hedge-fund kingpin Steve Cohen for three more months. Bharara asked SEC chief administrative law judge Brenda Murray to continue the stay of the civil proceedings against the former SAC Capital honcho, who is accused of failing to supervise former employees who were later found guilty of insider trading. The US Attorney had asked for a stay until all the criminal charges are settled. One outstanding issue is the pending appeal of convicted inside traders Anthony Chiasson and Todd Newman. If their case is overturned, it would have implications for the appeal of former SAC money man Michael Steinberg, who was convicted of insider trading last December.

Banks’ $128B settlement tab is twice last year’s profits (NYP)
Bank of America, which bought subprime loan leader Countrywide Financial in 2008, has paid more to regulators for mortgage misdeeds than all the other big banks combined, the latest tally shows. CEO Brian Moynihan’s bank has paid north of $70 billion for credit and mortgage-related settlements since 2010, more than half of the roughly $128 billion collected from the six biggest banks, according to research from SNL Financial released Wednesday. The total tab for all the firms is about twice the $76 billion of profits the big banks made last year, according to data from Bloomberg. BofA’s latest settlement over soured mortgage-backed securities — a $16.7 billion deal with federal and state governments — was the largest Uncle Sam has levied against a single company.

$506 Billion Is Forecast for U.S. Deficit, a Slight Rise (NYT)
The federal government is expected to finish its fiscal year with a relatively modest budget deficit as the gap between revenue and spending continues a sharp decline, the Congressional Budget Office said Wednesday. The improvement in the government’s financial health has shifted political debate in Washington, and arguments on the midterm campaign trail, from the level of federal spending to the uses of that money. It has frustrated economists who argue that the government’s restraint has held back the economic recovery. The budget office said that it now predicted a federal deficit of $506 billion during the fiscal year that runs through the end of September, modestly increasing its April projection that spending would exceed revenue by $492 billion. The change was attributed to lower-than-expected corporate income tax receipts.

Woman On Trial For Allegedly Setting Fire To Ex's Home With Bacon (HP)
A Utah woman accused of using a pound of bacon to start a fire in her ex-boyfriend's house will stand trial on arson charges. Police say Cameo Adawn Crispi, 32, repeatedly called and texted her former flame from his home in March, where she left the bacon over a lit burner. The Deseret News reports the man wasn't home and called police saying he wanted Crispi out of his house. Officers arrived and saw smoke flowing out the front door. Inside, they found hot coals on the floor around an open wood stove and the burned bacon. Charging documents say Crispi's blood-alcohol level was 0.346, four times the legal limit.

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Opening Bell: 10.24.12

Hedge Funds Belt Few Home Runs (WSJ) They are the few. The proud. The hedge-fund managers making a killing this year. David Tepper's firm was up about 25% through Friday, partly from a bet Europe will avoid a meltdown. Steve Mandel's firm gained nearly as much from soaring consumer and technology stocks. Pine River Capital Management rose 30% thanks in part to subprime mortgages, as did Josh Birnbaum's Tilden Park. And the Barnegat Fund has climbed over 39% with a debt strategy that the manager concedes isn't for the faint of heart. The big gains, as reported by fund investors and people familiar with the firms, come as most hedge funds struggle for the fourth year a row, the longest period of underperformance since 1995 to 1998. Hedge funds on average gained 4.7% through September, according to industry tracker HFR, while stock-trading funds were up on average 5.5%. By comparison, the Standard & Poor's 500 index scored gains of 14%, including dividends, through Friday. Bond Investors Put Faith In A More Stable Africa (WSJ) Last month, Zambia raised $750 million with a 10-year global bond in an auction that drew offers worth more than 15 times that amount. Nigeria in September sold 30 million naira ($192,000) in five-year bonds, to demand twice as high. Spurred by the heavy interest, Rwanda wants to issue a global bond by June and Kenya is planning one as early as next year. Investors' willingness to step up to buy African bonds is another sign of their thirst for yield. Efforts by the Federal Reserve and other major central banks to push down interest rates and buy developed-market bonds have driven investors further and further afield. Africa, a continent of more than 50 countries, is considered one of the last investing frontiers—many of its nations have been isolated from international markets, in part due to a history of default by some countries. Sir Mervyn King: no recovery until banks recapitalise (Telegraph) Raising the prospect of rights issues or even another taxpayer bail-out for the state-backed lenders Royal Bank of Scotland and Lloyds Banking Group, Sir Mervyn King said UK banks have “insufficient capital” to protect against undeclared losses on their books. FDIC Gets Windfall In Bank-Failure Settlement (WSJ) International Paper Co has agreed to pay the FDIC to settle a year-old lawsuit stemming from the 2009 collapse of Guaranty Financial Group, an Austin, Texas, company that ranks as the fifth-biggest U.S. bank failure. As part of the agreement, the failed bank's creditors will get an added $38 million, bringing the total settlement to $80 million. Although International Paper, Memphis, Tenn., didn't have any direct connection until this year to the banking industry or to the failed Texas bank, its involvement in the case demonstrates the long tentacles of the financial crisis. International Paper was pulled into the case in February when it bought packaging firm Temple-Inland Inc., which had owned Guaranty for nearly two decades before spinning it off into an independent company in 2007. Guaranty failed less than two years later, weighed down by toxic securities that were backed by adjustable-rate mortgages. It had 162 branches and $13.5 billion in assets. The bank's deteriorating securities portfolio was the subject of a page-one article in The Wall Street Journal just before it failed. The failure cost the FDIC's deposit-insurance fund $1.29 billion, according to an estimate published on the agency's website. RBS Settles Over Loans In Nevada (NYT) The Royal Bank of Scotland agreed to pay $42.5 million late Tuesday in a settlement with the Nevada attorney general that ends an 18-month investigation into the deep ties between the bank and two mortgage lenders during the housing boom. Most of the money paid by R.B.S. — $36 million — will be used to help distressed borrowers throughout Nevada. In addition, R.B.S. agreed to finance or purchase subprime loans in the future only if they comply with state laws and are not deceptive. The settlement between the bank and Catherine Cortez Masto, Nevada’s attorney general, relates to conduct at Greenwich Capital, the R.B.S. unit that bundled mortgages into securities and sold them to investors. Nevada found that R.B.S. worked closely with Countrywide Financial and Option One, two of the most aggressive lenders during the boom. Aurora Bird Hoarder: ‘I Was Obsessed’ (CBS) Outside of his west suburban Aurora townhome Monday, Dave Skeberdis admitted right away: “I am a hoarder.” “I did let the birds multiply. I admit, I was obsessed,” he said. “But I’m a regular person.” Skeberdis, 57, estimated that there are 200 birds of varying species inside his townhome in the 200 block of Shadybrook Lane. He returned to the home Monday to feed the birds. “It’s condemned, but they can’t stop me from going into the house,” he said. “I don’t really want to lose them, but this is too many birds.” On Monday, Skeberdis, who is employed in the information technology field, said he can now understand that his bird collecting is out of control. He said he is from a family of hoarders. “I think it’s time for a change in my life,” Skeberdis said...Skeberdis, who is not married, acquired his first bird seven years ago, he said, on April 15, 2005. While working in computer support at United Airlines, he “rescued” a parakeet, and later named the bird “Doc.” “I saved his life, and he saved mine,” Skeberdis said. Over time, he bought and adopted more birds. Those birds include a Chinese Quail named “Demon,” blind bird “Longstreet” and scalped bird “Liz Cojack,” and a white baby parakeet he hand-fed and once carried to work with him in a briefcase. Appeal In Insider Trading Case Centers On Wiretaps (Dealbook) In March 2008, the Justice Department made an extraordinary request: It asked a judge for permission to record secretly the phone conversations of Raj Rajaratnam, a billionaire hedge fund manager. The request, which was granted, was the first time the government had asked for a wiretap to investigate insider trading. Federal agents eavesdropped on Mr. Rajaratnam for nine months, leading to his indictment — along with charges against 22 others — and the biggest insider trading case in a generation. On Thursday, lawyers for Mr. Rajaratnam, who is serving an 11-year prison term after being found guilty at trial, will ask a federal appeals court to reverse his conviction. They contend that the government improperly obtained a wiretap in violation of Mr. Rajaratnam’s constitutional privacy rights and federal laws governing electronic surveillance...Such a ruling is considered a long shot, but a reversal would have broad implications. Not only would it upend Mr. Rajaratnam’s conviction but also affect the prosecution of Rajat K. Gupta, the former Goldman Sachs director who was convicted of leaking boardroom secrets to Mr. Rajaratnam...A decision curbing the use of wiretaps would also affect the government’s ability to police Wall Street trading floors, as insider trading cases and other securities fraud crimes are notoriously difficult to build without direct evidence like incriminating telephone conversations. Ex-Goldman Director Gupta Awaits Sentence In Insider Trading Case (Reuters) Gupta's lawyers have requested that he be spared prison, citing his work with groups such as the Bill & Melinda Gates Foundation on fighting disease in developing countries. Bill Gates, Microsoft Corp's co-founder, and former United Nations Secretary-General Kofi Annan are among the luminaries who have urged Rakoff to be lenient. As one alternative to prison, the defense proposed "a less orthodox" plan in which Gupta would live and work with Rwandan government officials to help fight HIV/AIDS and malaria in rural districts, court papers said. Federal prosecutors, however, argue that Gupta should serve eight to 10 years in prison. Companies Are Sitting On More Cash Than Ever Before (CNBC) Amid a lackluster earning season that has featured many companies missing sales expectations, cash balances have swelled 14 percent and are on track toward $1.5 trillion for the Standard & Poor's 500, according to JPMorgan. Both levels would be historic highs. Denny's heads to Middle-earth with 'Hobbit'-inspired menu (LA Times) It’s Bilbo Baggins time down at Denny’s, which is rolling out a menu and marketing campaign based on the upcoming film “The Hobbit: An Unexpected Journey.” The 11 new menu items are enough to satisfy the diminutive creatures’ six-meal-a-day habit, with options such as Shire Sausage, Bilbo’s Berry Smoothies, Build Your Own Hobbit Slam and Radagast’s Red Velvet Pancake Puppies. The film, based on the novel by “Lord of the Rings” author J.R.R. Tolkien, opens Dec. 14. The limited Denny’s offer will run from Nov. 6 through January, according to the chain.

Opening Bell: 2.3.16

Argentina attempting to settle with hedge funds; Parmesan bonds; Horse Owner Complains Man Took Prize-Winning Selfie Without 'Consent'; and more.