Opening Bell: 10.03.14

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Secret Goldman Sachs Tapes Put Pressure on New York Fed (Dealbook)
Lawmakers are scrutinizing allegations that the Federal Reserve Bank of New York went easy on one of the most prominent banks under its watch, Goldman Sachs, despite concerns voiced by those inside the Fed that a deal Goldman was pursuing was “legal, but shady.” Now committees in the Senate and House of Representatives are looking at whether to hold hearings or conduct more extensive investigations into the Fed’s oversight of Goldman and other banks. The renewed interest in the Fed’s role came after the release of secret recordings detailing interactions between employees of the New York Fed and Goldman, which were made public by the investigative news organization ProPublica and the radio program “This American Life.” The former Fed employee, Carmen M. Segarra, who made the recordings had previously sued the New York Fed, arguing that she had been fired for being too hard on Goldman. While Ms. Segarra’s suit was dismissed, the newly released recordings suggest that her supervisor at the New York Fed went easy on Goldman, even after saying he wanted “to put a big shot across their bow” on a deal in which Goldman was suspected of helping make Banco Santander look financially stronger than it was.

Activist Funds Aren’t Sharing the Ties They Have to Advisers (WSJ)
Some activist investors have agreed to share trading profits with small-fry players who bring them stock ideas—but they aren’t always disclosing these financial ties. Consider the activist campaign involving Cliffs Natural Resources Inc., an iron-ore miner. Activist consultant Michael McNamara last year pitched the idea of launching a Cliffs campaign to Casablanca Capital LP, according to people familiar with the matter. Casablanca is an activist hedge fund co-run by Donald Drapkin, a former lawyer of high-profile investor Ronald Perelman. Casablanca built a stake of about 5.2% it disclosed in January. In exchange for his idea, Casablanca agreed to pay Mr. McNamara’s firm as much as one-third of the hedge fund’s profits on the stake, according to people familiar with the matter and a regulatory filing by Mr. McNamara’s firm. Casablanca didn’t disclose these ties in the Cliffs case, according to a review of its regulatory filings. A regulatory rule requires investors that acquire a stake of 5% or more in a company to describe any arrangement with another party that includes guarantees of profits, divisions of profits or losses, or other understandings related to the company’s securities.

Pimco CEO says ‘our DNA is fundamentally unchanged’ after Gross (Reuters)
Pimco CEO Doug Hodge played defense on Thursday, reiterating that Bill Gross’s departure has not affected the way the U.S. bond giant functions. “With Bill’s recent decision to resign, the perception has been that there has been a dramatic shift at Pimco,” Hodge said in a letter to clients on Pimco's website. “However, the reality is that while Pimco has evolved into a globally diversified investment company, our DNA is fundamentally unchanged.”

You Know It’s a Tough Market When Ben Bernanke Can’t Refinance (Bloomberg)
Ben S. Bernanke said the mortgage market is so tight that even he is having a hard time refinancing his own home loan. The former Federal Reserve chairman, speaking at a conference in Chicago yesterday, told moderator Mark Zandi of Moody’s Analytics Inc. -- “just between the two of us” -- that “I recently tried to refinance my mortgage and I was unsuccessful in doing so.” When the audience laughed, Bernanke said, “I’m not making that up.” “I think it’s entirely possible” that lenders “may have gone a little bit too far on mortgage credit conditions,” he said.

French court to begin Airbus insider trading trial (Reuters)
A long-awaited French corporate trial involving allegations of insider trading in the shares of Airbus Group gets under way on Friday, marking the climax of an eight-year investigation. Seven current and former managers at Europe's largest aerospace group, and two former industrial shareholders, are accused of trying to profit from inside knowledge of problems with two jet developments and a deteriorating financial outlook when they sold shares in what was then EADS in 2006. All deny the charges and are expected to argue that the trial should not be taking place because they have already been cleared by the French stock market regulator, highlighting a growing debate about "double jeopardy" rules.

South Daytona man charged with molesting vending machine (UPI, related)
Daytona Beach police have arrested a man they say is a suspect in several cases related to the robbery of coin-operated machines. On Wednesday, Daytona Beach police officers responded to Crystal's Car Wash on South Nova Road to investigate a theft and vandalism. Video surveillance captured parts of the crime, and left police with enough evidence to pursue a suspect. On the video, the suspect was seen using a sledge hammer and ax to force open the coin-operated vending machines. After reviewing the footage, detectives identified Jason Joslyn as the suspect. Joslyn was arrested four months ago for similar crimes police say he committed at Melissa's Car Wash on Beville Road. On Friday, detectives located and arrested Joslyn. He's now facing charges of felony criminal mischief, and molesting a vending machine.

Bullard says Fed 'far behind' schedule for interest rate hike (Reuters)
The Federal Reserve's third round of bond buying had a better than expected impact on the U.S. labor market, a Fed official said on Thursday, making it all the more necessary for the central bank to move faster with hiking interest rates. St. Louis Fed President James Bullard pointed out that the economy has exceeded the economic forecasts the Fed presented in September 2012, when the central bank's latest bond buying program - known formally as Quantitative Easing (QE) - was launched.

Citigroup Hopes to Finally Close Chapter on Subprime-Lending Venture (WSJ)
Citigroup's plans to get rid of its U.S. subprime-lending unit, OneMain Financial, will close one of the most complicated and volatile chapters in the bank's history. The business of charging high interest rates to low-income customers, who often couldn't get loans elsewhere, was once hailed as a core part of the financial supermarket assembled by former Chief Executive Sanford Weill. But during the financial crisis, it became a money-losing albatross. The current holder of Mr. Weill's old job, Michael Corbat, calls OneMain "a terrific business." But it doesn't fit "the Citi model," he says.

JPMorgan Says Data Breach Affected 76 Million Households (Bloomberg)
JPMorgan Chase & Co., the biggest U.S. bank, said a previously disclosed data breach affected 76 million households and 7 million small businesses. Customer names, addresses, phone numbers and e-mail addresses were taken, the New York-based bank said today in a regulatory filing. Hackers also obtained internal data identifying customers by category, such as whether they are clients of the private-bank, mortgage, auto or credit-card divisions, said a person briefed on the matter.

'An Airplane S*** On Us,' New Zealand Woman Claims (HP)
Karen Bass said she went out into her yard Sept. 28 and something smelled terrible. She said there was waste splattered all over her yard, her house, and her car. "The first thing when I walked out of my door this morning and I saw it, I thought an airplane s*** on us. You open the door and it smells like s***," she told the Herald on Sunday. "I'm absolutely disgusted at the moment. The amount of crap everywhere is horrendous." Bass' home lies directly along an Auckland International Airport flight path. She's convinced that the excrement isn't from birds or other animals, and has sent a sample of the mess to be independently tested. Other residents told the newspaper that they'd been dumped on in the past as well, but the government's Civil Aviation Authority denied it, blaming migrating ducks. "I fought it hard, we got tests done that proved it was human matter and even at that point the CAA still kicked their heels in, they wouldn't have a bar of it," a dumping victim, who did not want to be named, told the paper. Airplane waste has caused serious problems before. Last year, a British woman said a frozen chunk of mess crashed through the roof of her home and put a hole in the floor. Experts told SWNS that the frozen waste was likely caused by a leak on the plane. The U.S.'s Federal Aviation Administration has its own term for frozen airplane waste. They call it "blue ice," after the chemical that's added to toilet water to help deodorize and break down waste.

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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."

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Citigroup Leads Wall Street Banks In Moody’s Downgrade Dismissal (Bloomberg) Moody’s two-grade cut of Citigroup’s ratings was unwarranted, arbitrary and failed to recognize the lender’s financial strength, the New York-based bank said in a statement. Investors shouldn’t rely on “opaque” credit ratings, it said. “Moody’s approach is backward-looking and fails to recognize Citi’s transformation over the past several years,” said the bank. “Citi believes that investors and clients have become much more sophisticated in their credit analysis over the past few years, and that few rely on ratings alone -- particularly from a single agency -- to make their credit decisions.” Moody's Downgrade of Banks ‘Absurd,’ Says Dick Bove (CNBC) “This is one of the most absurd things that Moody’s has ever done perhaps in the history of the company,” said Dick Bove, Vice President of Equity Research in the Financial Sector at Connecticut-based Rochdale Securities. JPMorgan Trading Loss Drove Three-Level Standalone Cut (Bloomberg) “It illustrates the challenges of monitoring and managing risk in a complex global organization and highlights the opacity of such risks,” Moody’s said. Ratings Downgrade Cuts Deeply At Morgan Stanley (NYT) In an e-mail sent to staff members after the downgrade was announced, Mr. Gorman tried to reassure employees about the bank’s future. “While we do not believe that this outcome reflects all of the transformative changes we have made to the firm, there is an acknowledgment in Moody’s decision today that real progress has been made at Morgan Stanley, in what is an extremely difficult environment for our industry,” he wrote. Hedge Funds Mask Identities (WSJ) It is the latest in-vogue accessory among hedge-fund managers: a "masked fund." Bridgewater Associates has "ZQPGGAV00000," John Paulson has "Paulson Fund 1" while Cliff Asness's AQR Capital Management prefers "805-1355888867." The cryptic monikers, more product barcodes than real handles, enable the hedge-fund managers to shield the identities of their funds from the prying eyes of regulators and outsiders in forms filed with the Securities and Exchange Commission...The practice, allowed under a new SEC instruction that lets firms preserve the anonymity of their clients in certain cases, has irked some investors and their advisers. They argue that hiding funds' identities in regulatory filings undermines Washington's efforts to make the reticent world of hedge funds more transparent and hinders investors' efforts to keep tabs on the firms that manage their assets. Emails Ties Goldman Manager, Rajaratnam (WSJ) A current Goldman managing director exchanged emails with Galleon founder Raj Rajaratnam ahead of a daily "morning meeting" at Galleon, according to previously undisclosed emails and wiretapped phone call transcripts reviewed by The Wall Street Journal. In the emails, the Goldman manager offered what he called "tiddie biddies" about some top technology firms, including Apple and Intel Corp. Anderson Cooper Berates Photo-Snapping Airplane Passenger (LAT) "Normally I would just be like, 'We're not going to win this one,' but I've lately become emboldened," Cooper said in an interview. "I grabbed the guy on the shoulder and I said something to the effect of, 'Bitch, what ... are you doing?'" Pimco’s Gross Warns Of Risk Assets (Bloomberg) Gross, who manages $261 billion for the Pimco Total Return Fund (PTTRX), said in a Twitter post that risk markets are vulnerable as the “monetary bag of tricks empties.” Spanish Plan Is Flawed, Says IMF (WSJ) The euro zone needs to quickly set up a mechanism that allows it to directly recapitalize weak banks, "in order to break the negative feedback loop that we have between banks and sovereigns," IMF Managing Director Christine Lagarde said after a meeting with the bloc's finance ministers in Luxembourg. Ms. Lagarde also called for "creative and inventive" measures from the European Central Bank, suggesting that the bank could restart its bond-buying program to keep struggling countries' funding costs in check or further cut already-low interest rates. Einhorn Enters $1 Million Buy-In Poker Tournament For Charity (Bloomberg) Einhorn, who finished 18th in the World Series of Poker’s main event in 2006, is among at least 42 entrants for the July 1-3 charity event in Las Vegas, known as the Big One for One Drop. Angry Moms Take On Nutella (Bloomberg) Laura Rude-Barbato, a coffee shop owner in Imperial Beach, California, used to feed her children Nutella several times a week [because she for some reason didn't realize that a chocolate spread might be filled with sugar]. It was easy to identify with the advertising that depicted a frenzied mom serving up the chocolate-hazelnut spread with the tagline “breakfast never tasted this good,” said Rude-Barbato. Then she noticed the 10.5 grams of sugar per tablespoon. “I had no idea,” she says. “I might as well have been giving my kids a brownie for breakfast.” Rude-Barbato kicked the Nutella habit, then joined a class action lawsuit in a federal court in California that claimed Ferrero SpA’s U.S. unit misled consumers via labeling and marketing into thinking Nutella was healthy.