Opening Bell: 09.30.14 - Dealbreaker

Opening Bell: 09.30.14

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Trial in $40 Billion Lawsuit Against AIG Bailout Begins (WSJ)
A $40 billion lawsuit against the U.S. government for its crisis-era bailout of American International Group Inc. AIG -0.64% got under way in federal court Monday, with a lawyer for the insurer's shareholders accusing the government of unlawfully seizing a majority stake in the insurer. Litigator David Boies called the deal a "grab" of a 79.9% equity stake at an "extortion interest rate" in an unlawful attempt to punish AIG's shareholders. Government lawyer Kenneth Dintzer responded in his opening statement that American taxpayers had extended "an enormous benefit" to AIG shareholders in the ultimately successful effort to stabilize AIG, one they weren't automatically entitled to and which they apparently "do not appreciate."

Pimco staff 'frantic and sad' in wake of Bill Gross sudden exit (Reuters)
As executives worked at damage control and to promote the new faces behind investment decision-making at the $2 trillion asset manager, some employees were struggling to cope with the tsunami that swamped their world on Friday. "I couldn't believe it on Friday, and I still can't believe it now," one employee who was not authorized to speak publicly told Reuters. "We lost Mohamed El-Erian in January and now Bill Gross. It's been confusing, frantic and sad."

Pimco Is in a Race to Keep Investors After Bill Gross Exits (WSJ)
Pimco executives, among them Chief Executive Douglas Hodge and the firm's new portfolio-management team, hosted a string of calls with financial advisers at Wall Street firms, including Merrill Lynch and Morgan Stanley, to explain why the firm will thrive despite Mr. Gross's exit, according to people familiar with the matter. "We're energized, we're prepared and we're strong," Mr. Hodge said to a group of Morgan Stanley financial advisers Monday afternoon on a teleconference, according to a person familiar with the matter.

Bill Gross is NOT crazy (CNBC)
"Let me say flatly, Bill Gross is NOT crazy. There was a palace coup in which disgruntled underlings gave an ultimatum to Pimco's parent company, Allianz, complaining that the "Bond King" had become difficult to work with and erratic. Five managers said it was "us or him," and Gross reportedly quit the day before he was set to be fired. Some have said Gross's investment letters to shareholders were indicative of a delusional mind. Gross is well-known for his colorful, contemplative and, often, offbeat, market commentary. But so what? That does not make him a lunatic who deserves to be locked up, or a wild man, hell-bent on self-destruction. That is how you get your work to stand out from the pack when you're trying to make the bond market interesting to investors who might otherwise never read his missives. Was he a demanding boss? I suspect so. Was he dismissive of other's ideas? Perhaps — and it wouldn't be the first time that would be true of a highly driven and successful money manager. Legendary hedge-fund managers from Michael Steinhardt to Julian Robertson to Stan Druckenmiller to my old boss, Steve Cohen were, or are, reputed to be impossibly difficult to work with. I know all of them quite well. Michael Steinhardt, who is extraordinarily gracious in social setting, would admit that, in his day, his voice would thunder so loud that the walls shook when he berated an underling. Steve Cohen, who says he has mellowed in recent years, would also acknowledge rattling a few cages in his younger years, which, I suspect, would be a mild way of describing those interactions with SAC employees. Socially, almost all of these folks are amiable and surprisingly gentle outside the office. But like highly skilled athletes, they are animals when they get on the field."

PayPal co-founder rounds on European tech entrepreneurs and regulators (FT)
“If you’re a slacker with low expectations, those low expectations are likely to be met,” Peter Thiel said. “I don’t think optimism always works. There is a form of pessimism, such as in China where people work really hard because they are scared that they will be old while they are still poor. “Pessimism in China motivates hard work. Pessimism in Europe has a more demotivating effect. When you’re pessimistic and unmotivated, it has as self-fulfilling character.”

Nerds Want Muscles Too; Workouts For Comic-Con Goers (WSJ)
Fitness programs and gyms are popping up around the country, catering to people who have spent much of their lives on the sofa playing games, reading comic books or acting out fantasies of superhero stardom. These new fitness regimens use characters and storylines from those media to spur people to move their bodies in real life—not just as avatars. "They stumble across Nerd Fitness and they can truly be themselves," says Mr. Kamb, who attributes the interest in nerd-centric fitness to the rise of movies based on muscular Marvel Comics characters such as Captain America, and the expanding definition of a nerd. "They can talk about squats and deadlifts and vegetables, and Harry Potter and Lord of the Rings, and be accepted for it." [...] Earlier this month Nerd Fitness held its first large public gathering, a four-day summer camp for adults at a retreat center in Clayton, Ga. Michelle Grimaldi, 23, of Warminster, Pa. attended and met like-minded exercisers. She did "Game of Thrones" combat training with PVC-pipe swords and attended a lecture on making your kitchen and home healthier called "Building Your Batcave." Campers came from as far as Australia, did ropes courses, lifted weights and danced dressed as fictional characters such as the Mario Bros. of video-game fame.

As SEC Enforcement Cases Rise, Big Actions Are Sparse (WSJ)
Mary Jo White will end her first full fiscal year running the Securities and Exchange Commission able to claim an increase in its annual tally of cases, the first year-over-year rise since 2011, according to people close to the agency. It is an important benchmark for the SEC chairman, a former federal prosecutor who promised "aggressive and creative" enforcement soon after taking office last year. But some SEC watchers said the heightened activity masks a scarcity of the blockbuster actions that should be a feature of an effective Wall Street cop. "When the chairman testifies before Congress…she will have nice numbers to cite," said Thomas Gorman, a partner at law firm Dorsey & Whitney LLP. "But she's not going to have the really good cases that the SEC made its reputation on."

IPO Markets Don’t Need Alibaba for Best Third Quarter Since 2010 (Bloomberg)
Alibaba Group Holding Ltd. raised a record-breaking $25 billion in the U.S. this month. Leave it out of the total raised, though, and the three months through September were still the busiest for IPOs in four years. From German online retailer Zalando SE to WH Group Ltd. (288), the world’s largest pork producer, companies raised $41.8 billion through yesterday, data compiled by Bloomberg show. In the U.S., it was the busiest third quarter in more than a decade -- also without Alibaba included.

Caesars ‘loyalty’ ruling a win for Leon Black’s Apollo (NYP)
In one of the most heated battles in Atlantic City, Black’s Apollo Global Management won a major victory over David Tepper — getting the okay from state regulators to transfer control of the highly valued player loyalty rewards program from its money-losing Caesars Entertainment into a new sister company. The transfer, to Caesars Enterprise Services, takes it outside the reach of Tepper’s Appaloosa Management — a move Tepper fought long and hard to prevent. Appaloosa is a junior creditor of Caesars Entertainment, which owns Bally’s Atlantic City and Caesars Atlantic City, two down-on-their-heels casinos. If Apollo put Bally’s and Caesars into Chapter 11 reorganization, the loyalty program could have given Appaloosa and other junior creditors some leverage. Without it, the junior creditors are likely to get little return, sources close to the situation said. The decision by New Jersey gaming regulators to allow the transfer — released Sept. 26 — increases the likelihood of a bankruptcy filing by the two casinos, sources said.

BYU Students Protest School's Ban On Beards (AP)
About 50 students, some donning paper beards, biked, skateboarded or rollerbladed their way from the Provo City Library to campus during the "Bike for Beards" protest on Friday night. "I love BYU. I love being a student here," protest organizer Shane Pittson said. "But the rule on beards I find particularly outdated." The 23-year-old international studies major and other students have launched a petition drive to get the school to lift the ban. University spokeswoman Carri Jenkins said students agree to its grooming standards before their first day of class and the beard ban was set in place by students. "It's nothing against beards. It's just how we choose to represent ourselves at the university," she told The Salt Lake Tribune...The BYU Honor Code, created in the 1940s, states that "men are expected to be clean-shaven" and beards are not acceptable.

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Greek Bond Swap Deal Rests on Knife Edge (FT) People close to some bondholders warned other investors to take seriously threats by policymakers that if the deal fails Greece will default on its debt. “Some investors seem to think they will be rescued. That just isn’t the case,” one said. People involved in the deal denied that there was any nervousness about the outcome but nobody was willing to guess how high the participation rate would be. Slim Beats Gates in First Daily Billionaire Ranking (Bloomberg) If you like obsessively measuring your penis you'll love this: Carlos Slim, the telecommunications tycoon who controls Mexico’s America Movil SAB, is the richest person on Earth, according to the Bloomberg Billionaires Index, a daily ranking of the world’s 20 wealthiest individuals...The Bloomberg Billionaires Index takes measure of the world’s wealthiest people based on market and economic changes and Bloomberg News reporting. Each net worth figure is updated every business day at 5:30 p.m. in New York. The valuations are listed in U.S. dollars. Zuckerberg Doesn’t Rank on Billionaire Index (Bloomberg) Sad trombone: At the time of the offering, Zuckerberg is likely to sell about $1.75 billion of Facebook stock to pay off the tax obligation he will incur when he exercises options to buy 120 million shares. The combined transactions will dilute Zuckerberg’s stake from 28.4 percent to about 21 percent. If the company maintains its projected $100 billion valuation, that would make Zuckerberg worth about $21 billion, less than the $28.4 billion implied by his stated ownership. At that net worth, Zuckerberg isn’t rich enough to qualify for the Bloomberg Billionaires Index, a new daily ranking of the world’s 20 richest people. The 20th spot is currently occupied by L’Oreal heiress Liliane Bettencourt. AIG to Sell $6 Billion In Asian Insurer's Stock (WSJ) American International Group Inc. kicked off a $6 billion sale of shares in Asian life insurer AIA Group Ltd. on Monday morning in Hong Kong, moving forward with plans to repay another chunk of its 2008 U.S. bailout. AIG said the shares will be placed with institutional investors and expects them to be priced by Tuesday. The 1.7 billion shares up for sale represent around 14% of AIA, less than half the 32.9% stake AIG holds, according to a term sheet. Proceeds from this week's sale have been earmarked to repay the U.S. government, which rescued AIG from near collapse during the financial crisis with a record $182.3 billion bailout that has been partially repaid. The Treasury Department still has to recoup about $50 billion in taxpayer funds, and about $8.4 billion of that amount will be repaid when AIG sells the AIA shares and other assets, including its airplane-leasing subsidiary. The rest of the money—roughly $42 billion—is supposed to come from the government's sale of its 77% stake in AIG. Lenders Stress Over Test Results (WSJ) The 19 biggest U.S. banks in January submitted reams of data in response to regulators' questions, outlining how they would perform in a severe downturn. Now, citing competitive concerns, bankers are pressing the Fed to limit its release of information—expected as early as next week—to what was published after the first test of big banks in 2009. JFK Airport search of drug mule who said she was three months pregnant reveals she carried $20,000 worth of heroin (NYDN) Awoyemi, coming off an Air France flight from Paris to New York and wearing a “loose-fitting dress” was asked whether she was pregnant, and the woman replied that she was three months along, Homeland Security special agent John Moloney stated in a complaint filed in Brooklyn Federal Court. The customs inspector noted that Awoyemi appeared nervous, so she was selected for a pat-down search. After feeling a “bulge” in Awoyemi’s groin area, the situation escalated to a partial strip-search, according to the complaint. When she dropped her drawers, Awoyemi’s scheme fell apart. Pellets containing brown powder began dropping from her groin area — and the substance tested positive for heroin. Awoyemi was taken to a medical facility at the airport, where the federal cops administered a pregnancy test that came back negative. An X-ray showed more pellets in her intestinal tract, and by the end of the day she had passed about 25 pellets of heroin in a special commode that Customs officials have dubbed the “Drug Loo.” The high-tech toilet sanitizes the incriminating evidence. More On The Morgan Stanley Executive Charged in Cab Hate Crime Attack (Bloomberg) Jennings left a bank holiday party sometime before 11 p.m. and headed to the street, where he was supposed to be met by a car service, Jennings said. He hailed Ammar’s cab after the livery car didn’t appear, according to the report. Ammar said Jennings agreed on the fare and told him he would pay cash. Jennings fell asleep during the trip, the driver said. Once at the destination, though, Jennings said “he did not feel like paying” because he was already home, Ammar told police...When Ammar threatened to call the local police, Jennings said they wouldn’t do anything to help because he pays $10,000 in taxes, according to a report by the Darien police department...The Morgan Stanley executive told police he was afraid to come forward after the incident because the cab driver knew where he lived. He then went on vacation to Florida, police said. Jennings told officers he subsequently called his lawyer after a friend told him police were looking for a suspect in the stabbing incident, according to the report. JPMorgan Star To Launch Own Hedge Fund (FT) London-based Mike Stewart, JPMorgan’s global head of proprietary trading, and former head of emerging markets, is set to start his own new hedge fund, Whard Stewart, in the second quarter, people familiar with his plans said. Mr Stewart’s emerging markets trading team at the bank is expected to join him. The departures come despite word last week that US regulators will probably delay implementation of the so-called “Volcker rule” , under which banks are in effect banned from proprietary trading. Friends With Benefits (NYP) Unlike his fallen pal Raj Rajaratnam, former Goldman Sachs director Rajat Gupta appears to have no shortage of character witnesses willing to testify at his upcoming insider trading trial. Indeed, dozens of well-heeled supporters are already putting their names on the line for the former consulting titan, including world-renowned speaker Deepak Chopra and Mukesh Ambani, the ninth-richest man in the world. “I have never seen him ask for anything for himself, always for the greater good,” Ambani, the chairman of Reliance Industries, said recently on a little-noticed website called friendsofrajat.com. Cigarettes: The Most Stable International Currency (BusinessWeek) Cartons of Good Cat brand cigarettes are selling for as much as RMB5,600 (US$890) per carton in the city of Xi’an, in Shaanxi Province. The suspicion, according to reports this week, is that they are being used to bribe officials. Election Year Poses Challenge For Stocks (WSJ) The Dow is off to its best start to a year since 1998. But if history is a guide, this exuberance soon could give way to the first pangs of electoral anxiety. In a typical presidential-election year, stocks start well but slip into a funk by spring, according to Ned Davis Research, which has measured election-year trends back to 1900. At least in part, the slump reflects the electoral unknowns, Ned Davis has concluded. In a good year, investors deal with their jitters by late summer or early autumn and stocks recover. People get more comfortable with the November election outlook and put money back into stocks. This year, with the Dow Jones Industrial Average up 6.2% in just over two months, many investors and analysts expect a pullback soon. The looming election adds to ambient uncertainty about European debt and U.S. and Chinese growth prospects. Tony Welch, an analyst at Ned Davis Research, says the Dow could pull back 5% or 6% in the coming weeks. "We think the election-year trend could be strong this year," Mr. Welch says. "The market prefers certainty. It doesn't like unknowns." Ochocinco was urinated on by a lion and lived to tweet the tale (YS) The New England Patriots receiver was at a charity event in Miami on Saturday night when he ran into the caged animal. According to Ochocinco's Twitter account, the king of the jungle proceeded to become the urine sprayer at the party. Tweets included: "Swear to lil 10 pound bearded baby Jesus I just got peed on by a real "Lion" I'm not lying either. And y'all wonder why I don't go out!!!!!," "It's not funny i have on my good church clothes," and "I wasn't that close, he sprayed like a water gun."