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Court Rules Fed Must Reveal Details Of Secret $2 Trillion Bank Loan Program

by on March 19, 2010

March 19 (Bloomberg) — The Federal Reserve Board must disclose documents identifying financial firms that might have collapsed without the largest ever U.S. government bailout, a federal appeals court said. The U.S. Court of Appeals in Manhattan ruled today that the Fed must release records of the unprecedented $2 trillion U.S. loan program launched primarily after the 2008 collapse of Lehman Brothers Holdings Inc.

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Court Rules Fed Must Reveal Details Of Secret $2 Trillion Bank Loan Program

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Dodd’s Revised Financial Rules Ease Exclusion of Swaps From Clearinghouses

by on March 15, 2010

By Matthew Leising March 15 (Bloomberg) — Senator Christopher Dodd ’s draft legislation to regulate the $605 trillion private swaps market makes it easier to exclude trades from being processed by clearinghouses, compared with his plan released in November. Dodd’s bill no longer requires federal regulators to agree that excluding a swap from being cleared “is necessary and appropriate for the reduction of systemic risk.” That stricter requirement was in the draft bill Dodd, a Democrat from Connecticut and chairman of the Senate Banking Committee, released in November . The section released today may be updated by Senators Jack Reed , Democrat of Rhode Island, and Judd Gregg , Republican of New Hampshire, according to the Senate Banking Committee. The new section on derivatives regulation “may be offered at full committee,” according to a summary of the Dodd bill released today. Congress is seeking to regulate the private market for the first time in its 30-year history after derivatives contributed to the financial crisis of 2008. The unregulated market made it difficult for government agencies to know how interconnected banks had become after Lehman Brothers Holdings Inc.’s bankruptcy that September. Credit-default swaps also were used to mimic returns from subprime mortgages that were responsible for the majority of the crisis. Goal of Clearinghouse Clearinghouses , capitalized by their members, help organize markets and are intended to lessen the effects of a bank default by guaranteeing counterparty payment. They collect daily margin to keep accounts current and allow regulators to monitor trading positions. An e-mail to a spokeswoman for the Senate Banking Committee wasn’t immediately returned. The draft bill also defines how swaps could be traded before they are sent to clearinghouses on what is known as an “alternative swap execution facility.” Such a system would create “pre-trade and post-trade transparency” for prices “in which multiple participants have the ability to execute or trade swaps by accepting bids and offers made by other participants.” The other option for trading clearable swaps is on an exchange such as CME Group Inc. Swaps that can’t be cleared because they are too customized must be reported to regulators and face higher capital requirements than cleared swaps, according to the bill. To contact the reporter on this story: Matthew Leising in New York at mleising@bloomberg.net .

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Dick Fuld May Be Haunted by Assurances After Report Finds Hidden Leverage

March 13, 2010

By Joshua Gallu and David Scheer March 13 (Bloomberg) — Lehman Brothers Holdings Inc.’s Richard Fuld exuded confidence as he briefed analysts on June 16, 2008, four days after demoting his firm’s finance chief in the wake of a $2.8 billion quarterly loss. “I am the one who ultimately signs off and I’m comfortable with our valuations at the end of our second quarter,” then- Chief Executive Officer Fuld said on the conference call. “We have always had a rigorous internal process.” The rigor was based on a shaky foundation, according to a 2,200-page report about the firm’s demise by Anton Valukas , the examiner for the bankrupt firm. Lehman Brothers “reverse- engineered” a key measure of stability, masking the firm’s true financial condition , Valukas said. Some asset valuations were also “unreasonable,” he said. Keen to show that it had reduced leverage, a gauge of a company’s ability to withstand losses, Chief Financial Officer Ian Lowitt said on the June 16 call that the firm had shrunk its net leverage ratio to 12 times from 15.4 in the second quarter. It accomplished the feat by reducing net assets by $70 billion, said Lowitt, who had just replaced Erin Callan in his post. “We’re going to operate conservatively,” he said. Unbeknownst to shareholders, the firm was hiding $50 billion in assets through off-balance sheet transactions known as Repo 105s that temporarily removed holdings until days after the quarter closed, according to Valukas. In the first quarter, the firm had used the same strategy to hide $49 billion in assets, he said in the report. ‘Shenanigans’ Lehman Brothers actions amounted to no more than “shenanigans,” said Sanford C. Bernstein & Co. analyst Brad Hintz , a former Lehman chief financial officer. “If all you’re doing is hiding something behind the curtain, the financial strength isn’t there.” The repos helped prop up Lehman’s credit rating, Valukas said. The off-balance dealings required more collateral than if Lehman had opted for ordinary transactions visible to shareholders, he said. “Repos were just one of many ways to hide losses,” said Janet Tavakoli , president of Chicago-based financial consulting firm Tavakoli Structured Finance Inc. “All of the former investment banks used those techniques. All of them borrowed too much money and were overleveraged.” Lehman Brothers bolstered capital by raising about $12 billion from investors during the first half of 2008, a time when Valukas said the New York-based firm’s financial statements were misleading. ‘Grossly Negligent’ Investors included Blackrock Inc., the largest publicly traded fund manager in the U.S., a venture run by former American International Group Inc. CEO Maurice “Hank” Greenberg, and New Jersey government retirees. Fuld, 63, was “at least grossly negligent in causing Lehman Brothers to file misleading periodic reports,” Valukas said. Fuld’s lawyer, Patricia Hynes , disputed the examiner’s conclusions. “Mr. Fuld did not know what those transactions were — he didn’t structure or negotiate them, nor was he aware of their accounting treatment,” Hynes said in a statement. She also said none of Lehman’s senior financial officers, lawyers or outside auditors raised concern about the transactions with Fuld. Robert Cleary , a lawyer for Callan at Proskauer Rose, didn’t return a call seeking comment. Callan, 44, took a personal leave of absence last month from Swiss bank Credit Suisse Group AG, where she had worked since 2008. Real Estate Overvalued Lewis Liman , a lawyer for Lowitt, 46, said in an e-mail that his client did nothing wrong. Lowitt is now chief operating officer at Barclays Wealth Americas, whose parent, Barclays Plc, bought Lehman’s North American brokerage for $1.54 billion. In its final year, Lehman overvalued real-estate holdings, including a stake in U.S. apartment developer Archstone-Smith Trust, Valukas said. Lehman and Tishman Speyer Properties LP completed a joint acquisition of Archstone for $22 billion, including debt, in October 2007. Lehman presented “unreasonable” valuations of its Archstone stake in the first three quarters of 2008, overvaluing the holding by as much as $450 million in the second quarter, the examiner wrote. The bankruptcy case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). To contact the reporters on this story: Joshua Gallu in Washington at jgallu@bloomberg.net ; David Scheer in New York at dscheer@bloomberg.net .

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Barclays’ Lehman Takeover Faced U.K. Regulatory Review of Liquidity Effect

March 12, 2010

By Christopher Scinta March 12 (Bloomberg) — The U.K. financial regulator told Barclays Plc in September 2008 that an acquisition of Lehman Brothers Holdings Inc. might damage the balance sheet of one of the country’s most important banks. The Financial Services Authority told Barclays it would look very closely at the effect any transaction would have on Barclays’ liquidity and capital and “would not countenance” a drop of Tier 1 capital below FSA requirements, according to a statement the regulator gave to Lehman’s bankruptcy examiner in January that was made public today. “As Barclays was (and remains) one of the U.K.’s clearing banks it was important to ensure that Barclays did not expose itself to a level of risk that could weaken it to an extent that it could have wider systemic impact on the U.K. financial system,” the FSA said in the statement. Lehman tumbled into its $639 billion bankruptcy, the biggest in U.S. history, because it didn’t have enough liquidity and lost the confidence of its counterparties, Anton Valukas , the U.S. Trustee-appointed examiner, said in a 2,200-page report . The report said a deal with Barclays collapsed when the banks learned the FSA refused to waive a shareholder vote. FSA Chief Executive Officer Hector Sants and Barclays CEO John Varley agreed that no proposed deal should have put Barclays at risk from the FSA’s point of view, the regulator said. Varley advised Sants that, in light of the guarantee the Federal Reserve Bank of New York was requiring, it wasn’t likely to reach a suitable structure, the FSA said. Paulson Warning Varley was told by then-U.S. Treasury Secretary Henry Paulson on Sept. 12, 2008, that any bid would have to come by the end of the weekend or Lehman would be put into an orderly run off, the FSA said. Lehman filed for bankruptcy on Sept. 15, 2008, and London- based Barclays bought its North American brokerage business and associated real estate days later for $1.54 billion. Lehman and its creditors have sued Barclays for at least $5 billion, saying the bank made a “windfall” on the purchase. Barclays responded that it’s owed $3 billion. A bankruptcy-court trial is set for April 26. Barclays spokesman Michael O’Looney in New York declined to comment. Examiner Report Valukas said of Barclays’s purchase of the brokerage that a “limited amount of assets” belonging to Lehman were “improperly transferred to Barclays.” He added that the value of the assets may not be “material.” The assets improperly transferred to Barclays included equipment with a book value of less than $10 million and customer information of “questionable value” that Barclays didn’t obtain in a “wrongful or unlawful” way, Valukas said. He found “limited colorable claims” against the bank for the transfers. The examiner found no evidence that any securities transferred to Barclays in the sale of the brokerage were owned by Lehman or its affiliates. The U.S. case is In re Lehman Brothers Holdings Inc., 08- 13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). To contact the reporter on this story: Christopher Scinta in London at cscinta@bloomberg.net .

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Lehman Misled Investors on Leverage, Fuld Was `Negligent,’ Examiner Says

March 12, 2010

By David Scheer and Joshua Gallu March 12 (Bloomberg) — Lehman Brothers Holdings Inc. used off-balance-sheet transactions to downplay its leverage in late 2007 and 2008, deceiving shareholders about its ability to withstand losses, a bankruptcy examiner’s report said. Then-Chief Executive Officer Richard Fuld was “at least grossly negligent” for letting Lehman file financial reports in which a key gauge of strength was “reverse-engineered” through transactions known as Repo 105s, bankruptcy examiner Anton Valukas said in a report yesterday. Lehman auditor Ernst & Young LLP could be accused of “professional malpractice,” he said. “The balance sheet manipulation was intentional, for deceptive appearances, had a material impact on Lehman’s net leverage ratio” and caused financial reports to be misleading, Valukas wrote of the New York-based company. Higher leverage undermines a firm’s capacity to absorb financial shock. Lehman filed the biggest bankruptcy in U.S. history in September 2008 after mounting losses on mortgage-backed securities spooked investors and creditors. The Wall Street investment bank’s failure helped trigger a freeze of global credit markets, forcing the U.S. government to provide $700 billion in bailout funds. Fuld didn’t know what the Repo 105 transactions were, his lawyer, Patricia Hynes of Allen & Overy LP in New York, said in a statement. He “didn’t structure or negotiate them,” she said. “Nor was he aware of the accounting treatment.” Concern Among Workers The transactions increased just before the end of financial reporting periods, temporarily moving $49 billion to $50 billion of assets off the balance sheet at the end of the first and second quarters of 2008, according to the report. Many employees expressed concern that Lehman was alone among its peers in using such methods, Valukas said. Ernst & Young last audited Lehman for the fiscal year ending Nov. 30, 2007, the accounting firm said in a statement yesterday. “Our opinion indicated that Lehman’s financial statements for that year were fairly presented in accordance with Generally Accepted Accounting Principles,” the firm said. “We remain of that view.” The leverage ratios that were reported in Lehman’s management discussion and analysis “were the responsibility of management, not the auditor,” Ernst & Young said. “They are not part of the audited financial statements.” Valukas, appointed by a federal court in Manhattan last year to probe Lehman’s demise, doesn’t have prosecutorial authority. Instead, the report outlines what claims creditors may bring to recoup losses. Archstone-Smith Trust In its final year, Lehman also overvalued some real-estate holdings, including a stake in U.S. apartment developer Archstone-Smith Trust, Valukas said. Lehman and Tishman Speyer Properties LP completed a joint acquisition of Archstone for $22 billion, including debt, in October 2007. In the first three quarters of 2008, Lehman’s valuations for an equity holding in Archstone “were unreasonable,” the examiner wrote. In the second quarter of 2008, for example, the stake may have been overvalued by as much as $450 million. As Wall Street’s mortgage losses mounted in 2007, banks struggled to win back investor confidence. By at least January 2008, Fuld had become focused on net leverage and reducing Lehman’s balance sheet, Valukas’s report shows. Failing to do so could lead to a ratings downgrade, inflicting “an immediate, tangible monetary impact” on Lehman, the report said. The bank, which had been using the repos since 2001, ramped them up in mid-2007, breaching internal limits, the report shows. Lehman’s former president, Herbert “Bart” McDade , commented on them in an April 2008 e-mail exchange, after he was asked whether he knew about their effect on the balance sheet, Valukas said. “I am very aware,” McDade wrote back. “It is another drug we r on.” Repo Presentation Fuld received a presentation referencing Repo 105s in March 2008, and McDade recalled discussing the transactions with the CEO in June of that year, according to the report. “Fuld knew about the accounting of Repo 105,” McDade said in an interview with Valukas on Jan. 28 this year. “At no time did Lehman’s senior financial officers, legal counsel or Ernst & Young raise any concerns about the use of Repo 105 with Mr. Fuld, who throughout his career faithfully and diligently worked in the interests of Lehman and its stakeholders,” Hynes wrote in her statement. The transactions were done in accordance with an internal accounting policy and supported by legal opinions, she said. In a repo agreement, one party temporarily transfers a security to another as collateral for short-term cash. A Repo 105 transaction requires extra collateral, making it a more costly form of borrowing. Lehman accounted for the Repo 105s as “sales,” as opposed to financing transactions, Valukas said. The bankruptcy case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). To contact the reporters on this story: David Scheer in New York at dscheer@bloomberg.net .

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Japanese Stocks Rise on Economic View Report, Yen Depreciation; JFE Drops

March 10, 2010

By Masaki Kondo March 11 (Bloomberg) — Japanese stocks rose after the Nikkei newspaper reported the government may lift its view on the nation’s economy and the yen depreciated. Sony Corp. , which gets 22 percent of its sales from the U.S., advanced 2.4 percent. Kawasaki Kisen Kaisha Ltd., Japan’s No. 3 shipping line, rose 1.4 percent after the Nikkei said its container-ship business may have a narrower loss. JFE Holdings Inc., the nation’s second-biggest steelmaker, fell 1.9 percent after the Nikkei said Vale SA sought to raise iron-ore prices. “The economy is undoubtedly in the midst of mild recovery,” said Mitsushige Akino , who oversees the equivalent of $450 million at Tokyo-based Ichiyoshi Investment Management Co. “Manufacturers’ earnings are improving thanks to the resilience of emerging economies.” The Nikkei 225 Stock Average climbed 0.7 percent to 10,638.13 as of 9:06 a.m. in Tokyo. The broader Topix index rose 0.7 percent to 928.80 with almost six times as many shares gaining as falling. The Japanese government will probably upgrade its overall assessment on the nation’s economy for the first time since July, the Nikkei said today, without identifying its source of information. The report is expected to say the economy is making a “steady recovery” as rising exports to China drove growth in production, the newspaper said. To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net .

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Asian Stocks Fluctuate as Oil Price, Shipping Rates Drop; Telstra Advances

March 9, 2010

By Shani Raja and Satoshi Kawano March 10 (Bloomberg) — Asian stocks fluctuated as shipping lines declined after a measure of cargo-transport-rates fell, while Australia’s largest telephone company rose on speculation it will avoid a forced break-up. STX Pan Ocean Co., South Korea’s largest bulk-shipping line, dropped 1.9 percent in Seoul, and Kawasaki Kisen Kaisha Ltd., Japan’s third-largest line, fell 1.7 percent in Tokyo after shipping rates fell for the first time in almost two weeks. BHP Billiton Ltd. , Australia’s largest oil producer, lost 0.9 percent as crude oil futures declined for a second day. Telstra Corp. climbed 2.1 percent in Sydney after a newspaper said Australia’s government may fail to force it to split. “We don’t have a strong catalyst, so I’m expecting stocks to drift without a clear direction today,” said Hiroichi Nishi , an equities manager at Nikko Cordial Securities Inc. in Tokyo. The MSCI Asia Pacific Index was little changed at 122.73 as of 10:26 a.m. in Tokyo, with about as many stocks advancing as declining. The index has risen 74 percent since March 9 last year, when it sank to its lowest level since the September 2008 bankruptcy filing of Lehman Brothers Holdings Inc. Japan’s Nikkei 225 Stock Average was little changed at 10,551.54, and no major benchmark in the Asia-Pacific region moved more than 0.6 percent. The MSCI Asia Pacific Index has risen in the past year as governments worldwide bolstered their economies through increased spending. Shares in the gauge trade at 18.6 times estimated earnings on average, compared with 15 times for the Standard & Poor’s 500 Index in the U.S. and 13 times for the Stoxx Europe 600 Index. To contact the reporter for this story: Shani Raja in Sydney at sraja4@bloomberg.net ; Satoshi Kawano in Tokyo skawano1@bloomberg.net .

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AIG to Sell Whole Stake in Reinsurer Transatlantic, Valued at $494 Million

March 5, 2010

By Hugh Son and Jamie McGee March 5 (Bloomberg) — American International Group Inc. , the insurer bailed out by the U.S., said it will sell its remaining stake in Transatlantic Holdings Inc. in a public offering after the reinsurer’s fourth-quarter profit surged. AIG holds about 9.2 million shares, or 14 percent of the reinsurer’s common stock. The stake is valued at about $494 million based on Transatlantic’s closing price yesterday of $53.76 on the New York Stock Exchange. The offering is expected to begin by March 9, New York-based AIG said today in a statement. AIG is selling assets to repay taxpayers after receiving a government bailout valued at $182.3 billion. The insurer has struck deals to divest assets for more than $47 billion, agreeing this week to sell Asian life unit, AIA Group Ltd. Transatlantic is seeking to distance itself from the parent company that sought government aid after making bad bets tied to U.S. mortgages. “We entered 2009 with a lot of uncertainty about our ownership, which challenged our efforts to grow the business,” Transatlantic Chief Executive Officer Robert F. Orlich said last month in a conference call. “We have to move beyond this uncertainty while operating in a less than optimal underwriting environment not to mention the worst global recession in decades.” AIG raised $1.1 billion in June, selling about 30 million Transatlantic shares for about $38 a piece. The reinsurer’s board in December approved the repurchase of $200 million of shares. Transatlantic’s net income in the last three months of 2009 rose to $137 million from $4 million in the year-earlier period. The reinsurer fell $2.24, or 4.2 percent, to $51.52 at 9:55 a.m. in composite trading, the biggest drop since May. New York- based Transatlantic has climbed about 94 percent in the past 12 months. AIG climbed 39 cents to $27.10 To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net ; Jamie McGee in New York at Jmcgee8@bloomberg.net .

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Lehman Brothers Examiner Confronts Wall Street Secrecy to Unseal Report

March 4, 2010

By David Scheer, Joshua Gallu and Linda Sandler March 4 (Bloomberg) — A former federal prosecutor has filed his $38 million, 2,200-page report into the collapse of Lehman Brothers Holdings Inc. The lingering question: whether the public gets an uncensored view. Anton Valukas , hired by the U.S. Trustee’s office to scrutinize the firm’s demise, wants the Federal Reserve, the U.S. government and at least eight financial firms to tell him by today whether they object to publishing records they marked “confidential.” U.S. bankruptcy Judge James Peck in Manhattan has final say on the decision. The findings may offer a definitive look into the frenzied days of September 2008 as Lehman Brothers teetered on the brink of solvency, a drama that has spawned at least a half-dozen books. Valukas’s account is more than four times the combined length of reports issued by Enron Corp. examiner Neal Batson in 2002 and 2003, which gave ammunition to investors seeking to recover losses. Appendixes to Batson’s reports added more than 3,900 pages of evidence and analysis. Valukas, who declined to comment, “is balancing the parties’ need for protection with being able to substantiate what he’s finding,” said Nancy Rapoport , a University of Las Vegas professor who specializes in bankruptcy law. “The real risk is whether the report is going to be credible,” and for that, people need to see the evidence, she said. Refco Redactions Examiners often have trouble persuading interviewees to lift demands for confidentiality. Redacted or partially blacked- out reports were filed by examiners of Northwest Airlines Corp. and Refco Inc. in their bankruptcies. Given the global economic fallout from Lehman’s collapse, banks and the government will probably face public backlash if they seek to block information, said Barbara Roper , director of investor protection at the Consumer Federation of America. “It doesn’t really matter what the nuances of that position may be,” Roper said. “The public is going to respond negatively. A lack of transparency really feeds public distrust, and it also hampers our ability to understand what happened.” Valukas, 66, reached agreements with more than 20 firms and U.S. entities last year allowing them to mark documents “confidential” or “highly confidential.” In a court filing last month, he said his report weaves in so much of those records it would be impractical to black out the references before publication. Releasing the report is in the public’s interest, he said. E&Y, Tishman Speyer Valukas sent letters to at least 14 companies and U.S. entities this year, asking permission to make some of their secret records public, court records show. Recipients including the Fed, Ernst & Young LLP, HSBC Plc, Tishman Speyer Properties LP, the Office of Thrift Supervision and Lazard Ltd. declined to comment. Representatives for the U.S. Treasury, the Federal Reserve Bank of New York, Barclays Plc, JPMorgan Chase & Co. and Citigroup Inc . said they won’t block the full report’s release. Lehman has also waived confidentiality. Valukas told the court last month that he has received a mix of reactions, with some parties waiving confidentiality, some asking for partial disclosure and some refusing to make information public. He didn’t identify any of them. In a memoir published in January, former U.S. Treasury Secretary Henry Paulson wrote that as Lehman sought aid, bankers gathering at the New York Fed concluded the bank had overvalued assets by at least $37 billion. ‘Secret’ Windfall Barclays was sued by Lehman and its creditors in November over an alleged “secret” $5 billion windfall profit made by buying Lehman’s North American brokerage. Barclays said in a Jan. 29 court filing that the chance of making a gain was known and approved by Lehman’s advisers. Barclays, while waiving confidentiality, asked Valukas to keep private information supplied him that is “commercially sensitive” because it involves clients, said Michael O’Looney, a Barclays spokesman in New York. U.S. regulators haven’t accused anyone at Lehman of wrongdoing. The bankruptcy case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). To contact the reporters on this story: David Scheer in New York at dscheer@bloomberg.net ; Joshua Gallu in Washington at jgallu@bloomberg.net ; Linda Sandler in New York at lsandler@bloomberg.net .

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CF Industries Offers $4.73 Billion for Terra to Outbid Yara International

March 2, 2010

By Steven Frank March 2 (Bloomberg) — CF Industries Holdings Inc. offered to acquire rival U.S. fertilizer producer Terra Industries Inc. for about $4.73 billion in a renewed bid to create the largest U.S. maker of nitrogen-based fertilizers. The proposal includes $37.15 in cash and 0.0953 of a CF Industries share for each Terra share, CF said today in a statement. The offer is valued at $47.40 per share based on CF’s closing price on yesterday, CF said. CF’s bid would rival one from Yara International ASA, the world’s largest fertilizer maker, which agreed to buy Terra for $4.1 billion last month. In January, Deerfield, Illinois-based CF Industries dropped a hostile attempt to acquire Sioux City, Iowa-based Terra. CF had sought to buy Terra since January 2009 while fending off a hostile offer from Calgary-based Agrium Inc. At stake was whether Agrium or CF would be the world’s second-largest publicly traded maker of nitrogen-based fertilizers after Oslo- based Yara. CF Industries fell $9.54, or 8.9 percent, to $98 at 7:34 a.m. in trading before the regular open of the New York Stock Exchange. Terra rose $5.15, or 13 percent, to $46.35. To contact the reporter on this story: Steven Frank in Toronto at sfrank9@bloomberg.net .

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Bank of America Hires Barclays’ Oscar Brown for Energy Investment Banking

February 26, 2010

By David Mildenberg Feb. 26 (Bloomberg) — Bank of America Corp. hired former Barclays Capital executive Oscar Brown as a managing director and head of the Houston investment banking office. Brown, 39, will report to Laurie Coben , global head of energy and power investment banking, and Scott Van Bergh , chief of Americas energy investment banking, the Charlotte, North Carolina-based company said in a statement today. Brown worked at Barclays Capital and predecessor Lehman Brothers Holdings Inc. for the past 10 years, most recently as managing director in the energy group. He previously worked at Credit Suisse First Boston. At Barclays, Brown advised on transactions including GlobalSantaFe Corp.’s sale to Transocean Ltd. in 2007 and NATCO Group Inc.’s sale to Cameron International Corp. in November, according to Bank of America spokesman John Yiannacopoulos . The lender’s global banking and markets units reported a profit of $10.2 billion last year, helping offset losses from the company’s home-loan and credit-card businesses. To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net

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Lehman Bankruptcy Advisers Get $641.9 Million in 16 Months, Filings Show

February 21, 2010

By Linda Sandler Feb. 20 (Bloomberg) — Lehman Brothers Holdings Inc. , the investment bank liquidating in bankruptcy, paid its lawyers and other advisers $641.9 million in 16 months since September 2008, according to a regulatory filing. The restructuring firm Alvarez & Marsal LLC, which provided Lehman with its current chief executive officer, Bryan Marsal , led the payments with $233 million in fees for “interim management” through January, according to the filing yesterday with the U.S. Securities and Exchange Commission. Weil Gotshal & Manges LLP of New York collected $149.5 million for acting as the investment bank’s lead bankruptcy law firm. Milbank Tweed Hadley & McCloy LLP got $42.4 million for advising Lehman’s creditors’ committee. Lehman and its affiliates reported cash holdings of $17.6 billion on Jan. 31, an increase from $17.2 billion a month earlier. Lehman, once the world’s fourth-biggest investment bank, is liquidating in bankruptcy to pay creditors. Its payments to advisers haven’t faced major challenges such as those in the case of bankrupt automaker Chrysler LLC, which is using U.S. Treasury loans to wind itself down. Lehman filed the biggest U.S. bankruptcy in September 2008 with assets of $639 billion. Creditors include UBS AG , the New York Giants and Abu Dhabi Investment Authority as well as individuals who hold Lehman bonds. The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net .

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Imperial Capital Shelves IPO, Patriot Risk Delays Offer as Slump Deepens

February 4, 2010

By Michael Tsang, Nikolaj Gammeltoft and Craig Trudell Feb. 4 (Bloomberg) — Imperial Capital Group Inc. postponed the first initial public offering by a U.S. investment bank in two years, while Patriot Risk Management Inc. delayed its share sale as the IPO market’s 2010 slump deepened. Imperial Capital, the Los Angeles-based firm that specializes in high-yield and distressed debt, shelved its $113 million sale yesterday. Patriot Risk , which underwrites workers’ compensation insurance plans, pushed back a $204 million IPO, according to Bloomberg data. A day earlier, Ironwood Pharmaceuticals Inc. cut the size of its deal by 30 percent in the biggest price reduction for a U.S. offering this year. Buyers are extracting concessions on IPOs after two of the first three deals of 2010 fell more than the Standard & Poor’s 500 Index, which slid by the most in a year in January. Imperial Capital was asking investors to pay three times the median so- called tangible book value for investment banks, while Ironwood took a 30 percent discount after trying to sell its shares at 31 percent more than what the company said was its “fair value.” “It is hard for IPOs to carve out a lot of interest in a market that’s been generally frustrating,” said Brian Barish , president of Denver-based Cambiar Investors, which oversees $5.5 billion. “As a portfolio manager, why compound your frustration with these unseasoned offerings? We’ve looked at a couple of IPOs, but we haven’t participated in any meaningful way.” Barish’s $1.07 billion Cambiar Opportunity Fund has beaten 92 percent of rival funds over the past year. 2010 Forecast While Barclays Plc of London estimates that U.S. IPOs will triple this year to $50 billion, Alpharetta, Georgia-based Cellu Tissue Holdings Inc. has lost 13 percent since selling shares at 24 percent less than the price it sought. Chesapeake Lodging Trust in Fairfield, New Jersey, has retreated 5.5 percent since its offering, and Bellevue, Washington-based Symetra Financial Corp.’s deal priced 14 percent below the highest level sought. Terreno Realty Corp. of San Francisco became the first U.S. company to shelve its IPO in 2010 last week as the S&P 500 extended its January slump to 3.7 percent, the biggest monthly drop since the gauge’s 62 percent surge began in March 2009. The biggest U.S. stock-market rally since the 1930s revived deals in the last four months of 2009, with IPOs increasing from the slowest pace on record after the failure of New York-based Lehman Brothers Holdings Inc. froze credit markets. China to Belgium Chinese companies, which accounted for six of the world’s 10 largest IPOs last year, are also accepting lower prices in 2010. China First Heavy Industries Co., a maker of equipment used in the mining and energy industries, yesterday became the first mainland company in at least a year to sell a domestic IPO at less than the highest level sought from investors. Taminco Group NV of Ghent, Belgium, the world’s largest producer of alkylamines, canceled its initial share sale yesterday because of “unfavorable” market conditions. “On the surface, it would appear the market should be working” for IPOs, said Jack Ablin , Chicago-based chief investment officer of Harris Private Bank, which oversees about $55 billion. “Looking under the hood suggests there may be more problems than people realize.” Imperial Capital had estimated in a Feb. 1 filing with the Securities and Exchange Commission that it has a net tangible book value, a measure of shareholder equity that excludes assets that can’t be sold in liquidation, of $3.41 a share. The bank would have been valued at 4.69 times its net tangible assets per share after the offering, assuming an IPO price at $16, the midpoint of the forecast range. That’s more than the median 1.52 times tangible book value of 48 investment banks and brokerages in the U.S., data compiled by Bloomberg show. Patriot Risk, Ironwood Patriot Risk had planned to sell 17 million shares at $10 to $12 each. Net premium revenue at the Fort Lauderdale, Florida-based company fell 12 percent to $28.4 million in the nine months ended Sept. 30, according to its SEC filing. At the midpoint IPO price of $11 a share, Patriot Risk’s existing shareholders stood to make an eightfold profit from the offering, based on the per-share average of $1.31 paid. Ironwood’s common stock had a “fair value” of $12.18 a share, according to models used by the Cambridge, Massachusetts- based drugmaker, its Jan. 20 SEC filing showed. That meant buyers were asked to purchase shares at a premium of 15 percent to 31 percent, Bloomberg data show. The company’s shares gained 3.6 percent to $11.65 yesterday in Nasdaq Stock Market trading. FriendFinder Networks Inc. , the publisher of Penthouse magazine, didn’t announce the pricing of its scheduled $240 million IPO yesterday. The Boca Raton, Florida-based company had planned to sell 20 million shares at $10 to $12 each after delaying its offering last week. The operator of AdultFriendFinder.com has lost money for five straight years. Marc Bell , FriendFinder’s chief executive officer, didn’t respond to e-mail and telephone messages. To contact the reporters on this story: Michael Tsang in New York at mtsang1@bloomberg.net ; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net ; Craig Trudell in New York at ctrudell1@bloomberg.net .

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AIG Names Ex-Lehman Lawyer Russo as General Counsel After Kelly Departure

February 2, 2010

By Hugh Son and Jamie McGee Feb. 2 (Bloomberg) — American International Group Inc. , the insurer bailed out by the U.S., named Thomas Russo , formerly of Lehman Brothers Holdings Inc. , as general counsel after the company’s last lead attorney left over a pay dispute. Russo will fill the post held by Anastasia Kelly , who resigned in December after the U.S. government imposed pay limits following a $182.3 billion rescue of AIG. Russo will work to help AIG resolve regulatory probes and lawsuits from investors, clients and competitors as the insurer seeks to repay the bailout. He will report to Chief Executive Officer Robert Benmosche , AIG said today in a statement. AIG also named Paulette Mullings Bradnock as director of internal audit and Jeffrey J. Hurd as senior vice president of human resources, the insurer said in the statement. Christina Pretto will be senior vice president of communications. Lehman Brothers filed for bankruptcy in September 2008 after concerns about mortgage losses prompted trading partners to cut off credit and the U.S. declined to intervene. The same week, AIG agreed to turn over a majority ownership stake to the government in exchange for a taxpayer rescue when it was swamped by losing bets tied to subprime home loans. In 2007, Lehman’s last full year as a going concern, Russo was paid $5 million in salary and cash bonus. Including restricted stock awards, Russo was given $14 million, according to a company filing . To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net ; Jamie McGee in New York at jmcgee8@bloomberg.net

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UBS Voted Top European Equity Researcher for Ninth Year in Magazine’s Poll

February 2, 2010

By Alexis Xydias Feb. 2 (Bloomberg) — UBS AG was voted Europe’s top brokerage for equity research for a ninth straight year in a poll for Institutional Investor magazine. Nomura Holdings Inc., JPMorgan Chase & Co. and Credit Suisse Group AG tied for second. A total of 28 analyst teams at Zurich-based UBS were voted among the best researchers in the region, the publication said on its Web site today. Nomura, which jumped from eighth place, JPMorgan and Credit Suisse each had 22 favorably ranked teams. The changing positions reflect upheavals in the industry, with banks purchasing rivals and analysts switching employers as bonuses were slashed. Europe’s Dow Jones Stoxx 600 Index surged 61 percent from March 9 to Dec. 31, pushing the gauge to its biggest annual gain in a decade. Tokyo-based Nomura, which bought Lehman Brothers Holdings Inc. ’s European operations after the U.S. bank’s bankruptcy in 2008, lured the largest number of new votes after poaching analysts from brokerages including Dresdner Kleinwort, Citigroup Inc. and Bank of America Corp.’s Merrill Lynch unit. Merrill Lynch fell to fifth place from second in 2009, the magazine said. Deutsche Bank AG , Morgan Stanley and Citigroup were ranked sixth to eighth, respectively. New York-based Citigroup had won third place in 2009. The results were based on responses from more than 1,100 investors at about 500 institutions managing an estimated $5.4 trillion in European equities, Institutional Investor said. To contact the reporters on this story: Alexis Xydias in London at axydias@bloomberg.net .

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JBS Puts Off $2 Billion IPO of U.S. Unit, Citing Deterioration of Market

January 28, 2010

By Lucia Kassai and Rodrigo Orihuela Jan. 28 (Bloomberg) — JBS SA , the world’s biggest beef producer, delayed the $2 billion initial public offering of its U.S. unit amid market conditions that have “deteriorated.” The share sale won’t take place until after fourth-quarter earnings are released and may occur in the first half of the year if conditions improve, Chief Executive Officer Joesley Batista told reporters today at an event in Sao Paulo. JBS had said it would price the IPO this month. “I think it is still possible to put it out in the first half of 2010,” Batista said. “But it really depends on market conditions that have recently deteriorated.” JBS is raising cash through bond and share sales to pay for the takeover of Pilgrim’s Pride Corp. and to fund a $2 billion distribution network. The Sao Paulo-based company now controls about 10 percent of global beef processing following about 30 acquisitions since 1993, including that of Swift & Co. in 2007. Brazilian regulators asked JBS to include the acquisitions of Pilgrim’s Pride and Bertin SA into its fourth-quarter earnings results, which is delaying the process, Batista said. JBS rose 1 percent to 9.24 reais at 3:10 p.m. in Sao Paulo trading. The stock has almost doubled in the past year. Market ‘Not Ideal’ “Investors welcomed the IPO delay because market conditions are not ideal,” Rafael Cintra , an analyst with Link Investimentos in Sao Paulo, who has a “buy” recommendation on the stock, said today in a telephone interview. A bond buyback announced today “signaled they are concerned about improving debt profile,” he said. The meatpacker said today in a regulatory filing that it is buying back $275 million of its 9.375 percent senior notes due in 2011. Poultry producer BRF Brasil Foods SA sold $750 million of 10-year bonds to yield 7.375 percent last week. Last month, JBS concluded a $2 billion bond sale to finance the takeover of Pilgrim’s Pride and Bertin. The IPO delay comes after National Beef Inc., the Kansas City-based meatpacker that accounts for 14 percent of the U.S. federally inspected steer and heifer slaughter, postponed its initial share sale last month. The company cited the “weakness in the IPO market.” National Beef was one of seven American companies that have shelved IPOs since the start of November, data compiled by Bloomberg show. Cellu Tissue Holdings Inc. cut its price by 24 percent last week, while Chesapeake Lodging Trust raised 40 percent less than it originally sought. In Brazil, Metalfrio Solutions SA, the nation’s biggest maker of commercial refrigerators, canceled its planned share sale. M. Dias Branco SA, the biggest maker of cookies and pasta, also postponed an offering in the past week as the Bovespa index fell 8.4 percent since Jan. 6, the worst slump since October. Batista had said Nov. 16 that the company was planning to give presentations to U.S. investors between Jan. 4 and Jan. 8, before setting the price for the sale in the week of Jan. 11. To contact the reporters on this story: Lucia Kassai in Sao Paulo at lkassai@bloomberg.net ;

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Penthouse Publisher FriendFinder Said to Delay Initial Offer to Next Week

January 27, 2010

By Michael Tsang and Nikolaj Gammeltoft Jan. 27 (Bloomberg) — FriendFinder Networks Inc., the publisher of Penthouse magazine, has pushed back its initial public offering scheduled for today until next week, according to a person familiar with the situation. FriendFinder, the Boca Raton, Florida-based operator of Web sites from AdultFriendFinder.com to Cams.com, had planned to raise as much as $240 million selling 20 million shares at $10 to $12 each today, according to a Jan. 8 filing with the Securities and Exchange Commission and Bloomberg data. Calls and e-mails to FriendFinder’s office were not immediately returned. The delay comes after Terreno Realty Corp. became the first U.S. company to postpone a 2010 IPO this week, Cellu Tissue Holdings Inc. cut its price by 24 percent and Chesapeake Lodging Trust raised 40 percent less than originally sought, Bloomberg data show. FriendFinder has lost money for five straight years and was in default on its debt covenants until October. “FriendFinder looks like an IPO out of necessity rather than opportunity,” Steven M. Rogé , manager at R.W. Rogé & Co. in Bohemia, New York, which has $200 million in assets, said before the delay. “A lot of companies have an IPO to get cash to grow. Whatever cash FriendFinder can raise is going straight to their creditors.” While U.S. IPOs are forecast to triple according to London based Barclays Plc, 2010’s first offers show buyers are wary of new deals after almost 40 percent of deals in the second half of 2009 left investors with losses. S&P 500 FriendFinder was offering shares after the Standard & Poor’s 500 Index fell the most since October last week. The publisher, which also runs so-called general audience social networking venues from SeniorFriendFinder.com to BigChurch.com, got about 70 percent of its revenue from its adult-themed Web sites in the first nine months of 2009, according to the SEC regulatory filing. The company was selling a 49 percent stake and planned to use the proceeds to pay down debt. After the offering, it would have $5.24 million in cash compared with $286 million in debt. FriendFinder’s sales would have declined 1.5 percent in 2009 from a year ago, based on $244 million in revenue generated in the first nine months of the year. Sales from both its adult- themed and general audience sites fell during the nine-month period from a year ago, while interest expenses exceeded operating profit by 66 percent. ‘Biggest Concern’ “The biggest concern is just the fact that it’s got a lot of debt and really hasn’t grown,” said Nick Einhorn , an analyst at Greenwich, Connecticut-based Renaissance Capital LLC, which has followed IPOs since 1991. The firm isn’t affiliated with FriendFinder’s lead underwriter of the same name. “Companies that have lots of debt and slowed growth have really not been attractive for investors,” he said before the delay. Playboy Enterprises Inc. , the owner of the namesake men’s magazine, had operating income equal to 1.02 times interest expenses of $4.46 million in 2008 as the Chicago-based company posted its biggest annual loss since at least 1987. FriendFinder has also lost about as many fee-paying subscribers from its adult-themed Web sites as it has gained in each of the past four years. It had breached loan agreements in such areas as failing to deliver certified annual financial statements, missing certain sales targets for the films that it produced and distributed and not keeping senior debt below certain levels. Renaissance Capital of Moscow and Ledgemont Capital Group LLC in New York are the lead underwriters for FriendFinder. Neither firm was credited with arranging any U.S. company IPOs last year, according to Bloomberg league tables. To contact the reporters on this story: Michael Tsang in New York at mtsang1@bloomberg.net ; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net .

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Pimco Boosts Holdings of Developed Bonds Outside U.S. to Most Since 2004

January 19, 2010

By Wes Goodman Jan. 20 (Bloomberg) — Bill Gross , who runs the world’s biggest bond fund at Pacific Investment Management Co. , increased holdings of non-dollar developed-market debt last month to the most October 2004. Gross boosted the $201.7 billion Total Return Fund ’s investment in the securities to 16 percent of assets in December from 5 percent in November, according to Pimco’s Web site . The fund cut government-related bonds to 32 percent, the least since July, from 51 percent. Bill Gross, 65, co-chief investment officer at Pimco in Newport Beach, California, began 2010 with a bullish view on German bonds. They are his “favorite” because a constitutional amendment there requires a balanced budget by 2016, Gross said Jan. 6 on Bloomberg Radio. Pimco on Jan. 4 said it is cutting holdings of U.S. and U.K. debt as the two nations increase borrowing to record levels. Under what Pimco has termed the “new normal,” investors will face lower-than-average returns with heightened government regulation, lower consumption, slower growth and a shrinking global role for the U.S. economy. Gross increased cash holdings to 8 percent of the fund’s assets in December, the most since Lehman Brothers Holdings Inc. collapsed in September 2008, from 7 percent. The Total Return Fund gained 13.7 percent in the past year, beating half of its peers, according to data compiled by Bloomberg. The one-month return is 1.1 percent, also outpacing about half of its competitors. Pimco is a unit of Munich-based insurer Allianz SE. To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net .

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NYMET Holdings Announces Newly Appointed Controller

January 19, 2010

NEW YORK, NY–(Marketwire – January 19, 2010) – NYMET Holdings Inc. ( PINKSHEETS : NYMH ), an innovative metals and mining company headquartered in Port Jefferson, N.Y., announced today the election of Ms. Christine Winder, as controller for the company. Management has engaged Ms. Christine Winder as the company’s newly appointed Controller in preparation for an internal audit which is currently scheduled to be completed in late February. Prior to working with NYMET, Ms. Winder served as the Chief Financial Officer of Global Recycling Inc, located in Charlotte, North Carolina for over 10 years. While maintaining that position, she handled day-to-day operational accounting functions, performed administration duties, conducted internal auditing, calculated quarterly accruals, and managed banking and payroll requirements for the company. Prior to that position, Ms. Winder served as the Chief Financial Officer of Rad

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Lehman Liquidator Marsal Breaks Legal Tradition by Making Investment Bets

January 13, 2010

By Linda Sandler Jan. 13 (Bloomberg) — Bryan Marsal , whose Alvarez & Marsal firm has been paid more than $200 million so far to liquidate bankrupt Lehman Brothers Holdings Inc. , is proposing instead to invest in discounted loans on a gamble he can make more money that way for creditors and himself in the next five years. Marsal, acting as Lehman’s chief executive officer, wants to buy $3.5 billion in loans and mortgages, according to court filings. He proposes to pay $1.4 billion for the debt. A bankruptcy judge will review the proposal today in New York. “In most cases, a bankrupt company that is not planning on emerging as a going concern would see its assets liquidated,” Marsal said in an interview. “Had the assets of the Lehman estate been disposed of in a fire-sale liquidation, we would have realized maybe $10 billion to $20 billion.” By taking more time, he might recover $40 billion to $50 billion, he said. The more money Marsal brings in to Lehman’s bankrupt estate, the more its creditors can recover — and the more his New York-based restructuring firm will make in bonuses. The firm’s contract with Lehman entitles it to a bonus of 0.175 percent of all amounts above $15 billion recovered for unsecured creditors. That’s capped at 25 percent of the fees A&M gets for dismantling Lehman, according to court documents. Based on fees collected so far, the bonus cap would be $50 million. Lehman and its affiliates had $16.3 billion in cash on Nov. 30, according to a December filing in U.S. Bankruptcy Court in Manhattan. Creditors currently are claiming as much as $830 billion from the estate, Marsal said. Lehman, once the fourth-largest investment bank, said it foundered because of deteriorating subprime and structured investments. It filed the biggest U.S. bankruptcy in September 2008 with mostly unsecured debts of $613 billion. Goal: $50 Billion Marsal said he is “trying to clean up the errors and duplicates” in creditor claims and aims to raise as much as $50 billion from Lehman’s real estate, banking and other assets in the next three to five years. By buying loan participations and mortgages from Lehman’s German bank affiliate, insolvent Lehman Brothers Bankhaus, Lehman is enhancing its ability to sell the good loans as they recover, and to work out the bad loans, he said. The commercial and real estate participations range from development lending to a Japanese five-year term loan, filings show. Marsal said the investment involved “purchases of parts of the loan” that Lehman earlier shared with the affiliate, not a new venture “from scratch.” ‘Marsal’s job is not to take risks and speculate in a financial casino,” said Lynn LoPucki , a professor of bankruptcy law at the University of California, Los Angeles and Harvard. “That’s the ‘Masters of the Universe’ syndrome that got the country in trouble in the first place. The bankruptcy code doesn’t give him authority to speculate in assets with creditors’ money.” Creditors Support Lehman’s creditors support the purchase proposal, though they had initial misgivings. “It cannot be disputed that the transactions are extraordinary — both in terms of dollar amount and because liquidating debtors-in-possession are seeking authority to acquire assets,” said Lehman’s official committee of creditors in a Dec. 30 court filing. While Marsal is betting on higher prices later, creditors said the loans’ value “remains subject to market risk.” “Prior to conducting its diligence, the committee was dubious of the merits and propriety of the transaction envisioned,” they said in the filing. The bankruptcy judge will decide if the risk is worth taking, given the possible return. Marsal said he has no “crystal ball” to predict the future. “Do I know what tomorrow will bring? No. But the creditors were given the option of a fire sale or longer orderly wind-down of the assets, and they chose the latter because of the superior recovery prospects,” he said. Uranium Precedent Marsal showed his investment instincts earlier by hoarding uranium cake he found on Lehman’s books on a bet that prices for the commodity would rise. At about $40.50 per pound in April 2009, the stockpile of as much as 500,000 pounds was valued at $20 million. Uranium oxide concentrate or yellowcake was $44.50 a pound, Roswell, Georgia-based UxC Consulting Co. said in Jan. 11 report. Lehman has been raising cash at the rate of $1 billion a month by selling assets and aims to increase cash in the coming year by $500 million a month, he said. “Our hope is that the liquidity in the market will continue to improve and we can accelerate the liquidation process, including the Bankhaus loans,” Marsal said. His firm’s maximum 25 percent bonus is unusual for a liquidator, said Seton Hall University School of Law professor Stephen Lubben in Newark, New Jersey. In 2007, Alix Partners had to give up a $5 million success fee it sought on top of $25.6 million in professional charges while winding down futures- trader Refco Inc. Marsal’s company’s bonus has survived court scrutiny so far, although the firm withdrew a request for $2.5 million of it upfront, according to court filings. Fourteen months into the bankruptcy, Lehman had paid its bankruptcy advisers $533.5 million, with $202.4 million going to Alvarez & Marsal from September 2008 through Nov. 30, 2009, according to a December report in bankruptcy court. The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net ;

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Federal Reserve, Bloomberg Lawsuit: Bank Fights To Keep Details Of $2 Trillion Bailout Program Secret

January 11, 2010

Jan. 11 (Bloomberg) — The Federal Reserve will ask a U.S. appeals court to block a ruling that for the first time would force the central bank to reveal secret identities of financial firms that might have collapsed without the largest government bailout in U.S. history. The U.S. Court of Appeals in Manhattan, after hearing arguments in the case today, will decide whether the Fed must release records of the unprecedented $2 trillion U.S. loan program launched after the 2008 collapse of Lehman Brothers Holdings Inc. In August, a federal judge ordered that the information be released, responding to a request by Bloomberg LP, the parent of Bloomberg News. Bloomberg argues that the public has the right to know basic information

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Fighter Jets Escort California-Bound AirTran Plane Over Unruly Passenger

January 8, 2010

By Mary Jane Credeur Jan. 8 (Bloomberg) — Two U.S. F-16 fighter jets escorted an AirTran Holdings Inc. plane that was diverted after a passenger verbally abused a flight attendant and locked himself in the lavatory, the carrier and the military said. The Federal Bureau of Investigation said the man was being interviewed, without identifying him. Flight 39 landed in Colorado Springs, Colorado, at about noon local time while en route to San Francisco from Atlanta, said Tad Hutcheson , an AirTran spokesman. The captain of the Boeing Co. 737 jet chose to divert and “work the problem on the ground rather than in the air,” Hutcheson said. No injuries were reported on the plane, which was carrying 132 passengers and 5 crew members. The North American Aerospace Defense Command launched two F-16 jets after it “became aware of a disturbance on the plane,” said John Cornelio, a spokesman. Hutcheson said the attendant reported that “a male passenger was disruptive and failing to obey instructions, he was behaving as though he was intoxicated.” The plane was checked with police dogs and was slated to depart for San Francisco, he said. No determination has been immediately made about whether to file charges, said Kathleen Wright, a spokeswoman for the FBI in Denver. The person was “disruptive” and may have “placed hands on one of the flight attendants,” Wright said. AirTran, which is based in Orlando, Florida, is the ninth- largest U.S. carrier and has its biggest hub in Atlanta. Missile-equipped F-16s were on “hot alert” in October when Flight 188 by Delta Air Lines Inc.’s Northwest unit overshot the Minneapolis airport after the pilots became distracted while using their laptop computers to discuss crew scheduling procedures. To contact the reporter on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net

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Nicklaus’s Clubmaker Don White Joins Scratch Golf After Sale of MacGregor

January 5, 2010

By Michael Buteau Jan. 5 (Bloomberg) — Don White, who hand-made golf clubs for Jack Nicklaus , Arnold Palmer and 12 other major-tournament winners, is returning to the custom-club business. White, 58, joined Chattanooga, Tennessee-based Scratch Golf Co. and will start hand-grinding clubs for the company, where U.S. PGA Tour player Ryan Moore recently became a part-owner. During 38 years at MacGregor, which began making clubs in 1897, White forged irons for players including Nicklaus, Arnold Palmer , Greg Norman , Jose Maria Olazabal and Ben Crenshaw . While receiving offers from other companies after MacGregor was sold in May, White said he chose Scratch because it was the only place that said he could personally make each set of clubs. “No one does the type of work I like doing,” White said in a telephone interview. “I like to hand-make golf clubs. Everybody else likes to do stuff in quantity. I like to have a challenge with every club. This is what I believe in.” A set of eight Scratch irons custom made by White will cost as much as $2,500, said company President Ari Techner. A typical set of top-of-the-line irons made by Callaway Golf Co. or Adidas AG’s TaylorMade costs about $1,000, according to the companies’ Web sites. Techner, who co-founded closely held Scratch in 2003 in Eugene, Oregon, met White in 1998 when he traveled to MacGregor’s former headquarters in Albany, Georgia, to have a set of irons made. MacGregor was sold to Austin, Texas-based retail chain Golfsmith International Holdings Inc. ‘Artist’ When Techner, 30, spoke this year with White, a 2001 inductee into the Professional Clubmakers Society Hall of Fame, he said White recalled his exact club specifications. “He remembers pretty much every club he grinds,” Techner said. “He considers himself an artist and a craftsman, not a guy on an assembly line.” At Scratch, which makes only eight to 10 clubs a day, White will work alongside company co-founder Jeff McCoy, who hand-made Moore’s current clubs. Moore switched to Scratch soon after using a set of Ping irons made by Karsten Manufacturing Co. to win the U.S. PGA Tour’s Wyndham Championship in August. Moore, the 2004 U.S. Amateur champion, ended the 2009 season with three consecutive top-10 finishes, including third place at the HSBC Champions tournament in China in November. The first set of White-made clubs from Scratch will be available this month, Techner said. To contact the reporter on this story: Michael Buteau in Atlanta at mbuteau@bloomberg.net .

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UBS Said to Search New York Area Office Market for Space as Prices Decline

December 29, 2009

By David M. Levitt Dec. 29 (Bloomberg) — UBS AG, Switzerland’s biggest bank, is searching for as much as 800,000 square feet of New York-area office space, making it the biggest tenant shopping the market as rents fall, two people familiar with the plans said. The bank has about 5 million square feet in New York City, suburban New Jersey and Connecticut and is considering offices either in Manhattan or outlying areas as its existing leases expire, New York-based spokesman Kris Kagel said in an e-mail response to questions. “We have a number of leases that come up in 2013, so we have started to look at various options including new buildings, existing building, etc.,” Kagel said. “A decision probably won’t be reached for several months.” UBS already requested proposals from landlords, according to two people who spoke on condition of anonymity because the talks are private. The search could spark competition between commercial property owners in New York, where vacant office space has risen 57 percent since Lehman Brothers Holdings Inc. filed for bankruptcy in September of 2008, the beginning of a wave of labor cuts. A building at 11 Times Square, a new 40-story skyscraper with 1.1 million square feet of offices, is completely unrented. Boston Properties Inc. postponed plans for another 1 million- square-foot tower in February after a law firm that had planned to take space there canceled. Rents for so-called Class A offices in Midtown fell 25 percent to an average of $66.75 a square foot in the 12 months ending in November, according to New York-based property brokerage Colliers ABR Inc. New Skyscraper? UBS’s options include becoming the anchor tenant of a new Manhattan skyscraper, or building or leasing existing space, said the people familiar with the bank’s search. The company has been in contact with “various” landlords in New York City and the New Jersey and Connecticut suburbs, Kagel said. “It would definitely be a boon to the landlord that lands them,” Robert Sammons , research director at Colliers, said in an e-mail. “ Manhattan rents are at or near their low point. It remains an ideal market for the tenant.” UBS’s biggest Manhattan offices are at 299 Park Ave. and 1285 Avenue of the Americas, both in midtown Manhattan. The bank also has wealth management offices at Lincoln Harbor in Weehawken, New Jersey. Kagel declined to say which leases are expiring first. UBS also occupies a trading complex in Stamford, Connecticut, which the bank says is the world’s largest trading floor at 103,000 square feet. The Stamford and Manhattan offices together house UBS’s U.S. investment-banking headquarters, Kagel said. To contact the reporter on this story: David M. Levitt in New York at dlevitt@bloomberg.net

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OSI, Maker of Airport Scanners, Climbs After Christmas Day Terror Attempt

December 28, 2009

By Angela Greiling Keane Dec. 28 (Bloomberg) — OSI Systems Inc ., a maker of scanning equipment for airport-security checkpoints, rose the most in 11 months in Nasdaq trading after U.S. officials said a passenger tried to blow up a plane on a Christmas Day flight. OSI jumped $2.27, or 10 percent, to $24.29 at 11:23 a.m. New York time in Nasdaq Stock Market trading . The shares climbed by as much as 13 percent, the most since Jan. 29. OSI’s Rapiscan unit makes machines that can detect liquids and other potential explosives beneath passengers’ clothing. The U.S. Transportation Security Administration placed an order valued at $25 million for Rapiscan’s imaging equipment, the Hawthorne, California-based company said in October. “We are starting to implement and put them in at TSA’s direction at U.S. airports,” Peter Kant, an executive vice president for Rapiscan, said today in an interview. “We’ve been on the phone a lot with TSA about how to expedite delivery.” The company has delivered about 40 so far to the security agency, he said. U.S. officials charged Umar Farouk Abdulmutallab, a 23- year-old Nigerian man, with trying to blow up Northwest Flight 253 as it prepared to land in Detroit on Christmas Day. The flight, carrying 278 passengers, was en route from Amsterdam when Abdulmutallab mixed explosive substances under a blanket on his lap, the U.S. Department of Justice said in a statement. Passengers subdued and restrained him until the plane landed safely. Other companies that make security equipment include L-3 Communications Holdings Inc., which rose $1.56, or 1.8 percent, to $87.19 in New York Stock Exchange composite trading. Earlier the shares touched $87.25, the highest level since October 2008. To contact the reporter on this story: Angela Greiling Keane in Washington at agreilingkea@bloomberg.net

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Airline Passengers Can Exit Stuck Planes After Three Hours Under U.S. Rule

December 21, 2009

By John Hughes Dec. 21 (Bloomberg) — U.S. airlines would have to let passengers off planes stuck on airport tarmacs after three hours, under a new federal rule prompted by consumer complaints. The rule, which takes effect in April, exempts airlines from the limit for safety or security, or if air-traffic controllers say returning to the gate would disrupt airport operations, the Transportation Department said today in a statement. The rule applies to domestic flights; airlines flying International routes would set separate limits. “Airline passengers have rights, and these new rules will require airlines to live up to their obligation,” Transportation Secretary Ray LaHood said today in a written statement. Carriers, including Delta Air Lines Inc . and AMR Corp .’s American Airlines, have been trying to fend off a limit since flights that waited for as long as 10 1/2 hours in late 2006 and early 2007 put tarmac delays in the national spotlight. Continental Airlines Inc. and two regional carriers were fined $175,000 last month for stranding passengers all night on a grounded plane in August, the first time carriers have been punished for extended tarmac delays. Traveler groups including FlyersRights.org of Napa, California, and the Business Travel Coalition of Radnor, Pennsylvania, back a deadline for airlines to release passengers and have said it should be set at three hours. Crandall Endorses Rules Former American Airlines chief Robert Crandall also endorsed such a rule, saying in September that the government should initially require that passengers be allowed off after four hours and narrow that standard to three hours in 2011. There were 1,096 flights stuck on tarmacs for three hours or more in the year ended Sept. 30, according to government data. About 6.5 million flights were scheduled in that period. Carriers say operators should decide when to release passengers in delays due to weather or heavy traffic. The airlines have been under pressure from Congress to cut the number of such incidents. In August, 47 passengers on an ExpressJet Holdings Inc. 50- seat plane were stuck on the ground in Rochester, Minnesota, for 5 1/2 hours. Continental, which hired ExpressJet to make the flight, was fined $50,000 by LaHood’s department. ExpressJet was fined $50,000, and Mesaba Airlines, a unit of Atlanta-based Delta, was assessed $75,000 for its role in giving faulty information to the stranded crew. The Senate Commerce, Science and Transportation Committee approved legislation on July 21 that includes a three-hour rule. That legislation, part of a $34.6 billion proposal to fund the Federal Aviation Administration for two years, is still pending before a separate Senate panel. To contact the reporter on this story: John Hughes in Washington at jhughes5@bloomberg.net .

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Airline Passengers Will Be Allowed to Exit Stranded Planes Under U.S. Rule

December 21, 2009

By John Hughes Dec. 21 (Bloomberg) — U.S. airlines would have to let passengers off planes stuck on airport tarmacs after three hours, under a new federal rule prompted by consumer complaints. The rule, which takes effect in April, exempts airlines from the limit for safety or security, or if air-traffic controllers say returning to the gate would disrupt airport operations, the Transportation Department said today in a statement. The rule applies to domestic flights; airlines flying International routes would set separate limits. “Airline passengers have rights, and these new rules will require airlines to live up to their obligation,” Transportation Secretary Ray LaHood said today in a written statement. Carriers, including Delta Air Lines Inc . and AMR Corp .’s American Airlines, have been trying to fend off a limit since flights that waited for as long as 10 1/2 hours in late 2006 and early 2007 put tarmac delays in the national spotlight. Continental Airlines Inc. and two regional carriers were fined $175,000 last month for stranding passengers all night on a grounded plane in August, the first time carriers have been punished for extended tarmac delays. Traveler groups including FlyersRights.org of Napa, California, and the Business Travel Coalition of Radnor, Pennsylvania, back a deadline for airlines to release passengers and have said it should be set at three hours. Crandall Endorses Rules Former American Airlines chief Robert Crandall also endorsed such a rule, saying in September that the government should initially require that passengers be allowed off after four hours and narrow that standard to three hours in 2011. There were 1,096 flights stuck on tarmacs for three hours or more in the year ended Sept. 30, according to government data. About 6.5 million flights were scheduled in that period. Carriers say operators should decide when to release passengers in delays due to weather or heavy traffic. The airlines have been under pressure from Congress to cut the number of such incidents. In August, 47 passengers on an ExpressJet Holdings Inc. 50- seat plane were stuck on the ground in Rochester, Minnesota, for 5 1/2 hours. Continental, which hired ExpressJet to make the flight, was fined $50,000 by LaHood’s department. ExpressJet was fined $50,000, and Mesaba Airlines, a unit of Atlanta-based Delta, was assessed $75,000 for its role in giving faulty information to the stranded crew. The Senate Commerce, Science and Transportation Committee approved legislation on July 21 that includes a three-hour rule. That legislation, part of a $34.6 billion proposal to fund the Federal Aviation Administration for two years, is still pending before a separate Senate panel. To contact the reporter on this story: John Hughes in Washington at jhughes5@bloomberg.net .

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NYSE Volume Jumps to Record 3.15 Billion Shares on Options, S&P 500 Change

December 19, 2009

By Jeff Kearns and Elizabeth Stanton Dec. 19 (Bloomberg) — New York Stock Exchange trading surged to a record 3.15 billion shares as derivatives expiration and changes to the Standard & Poor’s 500 Index lifted volume to more than double this year’s average. Yesterday was the last day of trading for December futures and options on U.S. indexes and stocks. The expiration, a quarterly event known as “quadruple witching,” boosts volume because investors and dealers must buy and sell stocks and derivatives to move positions into future months and make corresponding trades to hedge, or cancel out, their risk of loss. Visa Inc. was among five companies that joined the S&P 500 yesterday, forcing funds that track the index to buy shares. U.S. trading has slowed as the S&P 500 rebounded from a 12- year low in March, with average monthly volume falling 36 percent. Fewer than 7.87 billion shares changed hands each day on U.S. exchanges during November, the lowest month average since August 2008, Bloomberg data show. Analysts including Mary Ann Bartels at Bank of America Corp. say the slowdown in volume was a bearish sign following the S&P 500’s 63 percent surge. “There’s been a lot of inactivity on the part of mutual fund investor and that’s translated into low volume,” said David Goerz , who oversees $17.5 billion as chief investment officer at Highmark Capital Management in San Francisco. “What they’re waiting for is some evidence that the economy is recovering, and that evidence is clear at this point.” Lehman’s Collapse Trading at the NYSE, the world’s biggest stock exchange, beat the previous record of almost 3 billion shares on Sept. 19, 2008, a quadruple witching day at the end of the week when New York-based Lehman Brothers Holdings Inc. filed for the biggest- ever bankruptcy. NYSE volume this year has averaged 1.39 billion shares a day. Visa, Mead Johnson Nutrition Co., Ross Stores Inc., Cliffs Natural Resources Inc. and SAIC Inc. joined the S&P 500 yesterday. MBIA Corp., Ciena Corp., Dynegy Inc., KB Home Inc. and Convergys Corp. were removed. The S&P 500 changes require investors that mimic the index to trade 1.02 percent of the value of their portfolios, compared with 0.3 percent to 0.4 percent in a normal rebalancing, said Charles Behette , a director in portfolio trading at New York- based Investment Technology Group Inc. The value of shares being added to the index exceeds the value of shares being removed by about $6 billion, Behette said. The discrepancy may prompt selling of companies whose index weights aren’t changing and limit gains in those whose weights are increasing, he said. Futures are agreements to buy or sell a specific amount of a commodity or security at a specific price and time. Options give the right though not the obligation to buy or sell a security at a set price and date. Investors use options to guard against fluctuations in the price of securities they own, speculate on share-price moves or bet that volatility , or stock swings, will increase or decrease. To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net .

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Morgan Stanley Chief Mack Tells Employees He Won’t Take a Bonus for 2009

December 18, 2009

By Michael J. Moore and Christine Harper Dec. 18 (Bloomberg) — Morgan Stanley Chairman and Chief Executive Officer John Mack won’t accept a bonus for 2009, which may be the first year in which the firm reports an annual per- share loss as a public company. Mack, who will hand off his CEO job to James Gorman at the end of the year, discussed his bonus in a memo to employees today that was confirmed by spokesman Mark Lake. Mack also gave up his bonus in 2007 after the firm posted its first quarterly loss and last year, when Morgan Stanley accepted a government bailout. Year-end bonuses are under scrutiny this year after the government stepped in to prop up firms following the collapse of Lehman Brothers Holdings Inc. last year. Bank of America Corp. CEO Kenneth Lewis announced in October that he won’t receive a salary or bonus for 2009. “We recognize the environment in which we are operating and the economic challenges facing so many countries,” Mack wrote in the memo. “Given this unprecedented environment and the extraordinary financial support governments provided to our industry, as the leader of this firm I recommended to the compensation committee of the board last week that I receive no year-end bonus.” To contact the reporters on this story: Michael J. Moore in New York at mmoore55@bloomberg.net ; Christine Harper in New York at charper@bloomberg.net .

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Lehman’s $50M Bonus Package For Employees Unwinding Derivatives Contracts Approved By Bankruptcy Judge

December 18, 2009

NEW YORK–A judge on Wednesday said Lehman Brothers Holdings Inc. could pay $50 million in bonuses to employees still grappling with a huge derivatives portfolio 15 months after Lehman’s collapse.

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Home-Mortgage `Cram-Down’ Bankruptcy Amendment Is Voted Down in U.S. House

December 11, 2009

By Dawn Kopecki Dec. 11 (Bloomberg) — Republican lawmakers defeated a mortgage “cram-down” amendment that would have given federal judges the power to lengthen mortgage terms, cut interest rates and reduce loan balances for homeowners in bankruptcy court. The U.S. House of Representatives voted 241-188 today, stripping the amendment from a broader package of proposed laws to rein in excess on Wall Street. The cram-down provision was identical to legislation that passed the House in March and then failed in the Senate amid opposition from the banking industry. Banks and broker-dealers told House leaders in a Dec. 8 letter that the legislation would increase bankruptcy filings, lead to abuses of the court system and undermine efforts to stabilize the housing market. Bankruptcy judges have had the authority to alter loan terms on vacation homes or investment properties, not primary residences as today’s amendment would have allowed. Representative Dan Lungren , a California Republican, argued against the amendment, saying it would increase mortgage insurance premiums for borrowers “and deny help to those we seek to help.” “This is a prime example of good intentions creating bad policy,” he said. The House is debating broad legislation that primarily imposes stricter oversight of the financial services industry in response to last year’s upheaval of U.S. credit and mortgage markets and the failure of dozens of hedge funds, lenders and financial companies including Lehman Brothers Holdings Inc. A final vote on the full legislation is scheduled for as early as today. The House bill is H.R. 4173, the Wall Street Reform and Consumer Protection Act of 2009. The Senate has yet to begin formal debate on its version on the bill. To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net .

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China’s Industrial Output Jumps, Export Drop Eases as Recovery Strengthens

December 10, 2009

By Bloomberg News Dec. 11 (Bloomberg) — China’s industrial production grew more than economists estimated in November and exports fell by the least in 13 months, strengthening the recovery of the world’s third-biggest economy. Factory output climbed 19.2 percent from a year earlier, the statistics bureau said in Beijing. That was more than the 18.2 percent median estimate in a Bloomberg News survey of 25 economists. Exports slid 1.2 percent. Consumer prices rose 0.6 percent, the first increase in 10 months. New loans topped forecasts and money supply expanded by a record, extending a credit boom that may fuel asset bubbles and inflation and has prompted plans by lenders including Bank of China Ltd. to replenish capital. The government this week adjusted its stimulus policies to curb property speculation, while extending subsidies for rural purchases of consumer goods and pledging a “moderately loose” monetary policy in 2010. “Industrial output, money supply growth and fixed-asset investment are not only restored to pre-crisis levels but are approaching overheating territory,” said Isaac Meng , a senior economist at BNP Paribas SA in Beijing. The central bank may raise lenders’ reserve requirements in the first quarter of 2010 “to mitigate the inflation and bubble risk,” he said. The production number was boosted by the low base in November 2008, after the collapse of Lehman Brothers Holdings Inc. intensified the global financial crisis. Steel product output reached a record and power production rose by the most in five years. Stocks Rise The Shanghai Composite Index rose 0.4 percent as of 1:13 p.m. local time. Yuan forwards fell. Urban fixed-asset investment gained 32.1 percent in the January-to-November period from a year earlier after climbing 33.1 percent through October, today’s data showed. China’s growth accelerated to 8.9 percent in the third quarter on the record lending and a $586 billion, two-year stimulus package, helping Asia to lead the recovery from the global economic slump. Today’s figures showed Southeast Asia’s demand aiding exports. Shipments to the region jumped 20.8 percent as those to the U.S. and Europe fell at a slower pace. Imports climbed 26.7 percent, the most in 16 months, because of rising commodity prices, the boost to domestic demand from stimulus policies and the low base in November 2008. The trade surplus narrowed to $19.1 billion. Twelve-month non-deliverable yuan forwards slipped 0.2 percent to 6.6666 per dollar as of 12:12 p.m. in Hong Kong after the improvement in exports was smaller than economists forecast. Retail Sales Retail sales climbed 15.8 percent in November from a year earlier, compared with 16.2 percent in October, according to the statistics bureau. Producer prices fell 2.1 percent. New loans were 294.8 billion yuan. M2 money supply grew 29.7 percent. The State Council said this week that the government will re-impose a sales tax on homes sold within five years after cutting the period to two years in January. It also extended subsidies for rural consumer purchases, while scaling back tax breaks for some car buyers. “Beijing’s fine-tuning of stimulus measures shows that it’s getting more comfortable with the economy’s recovery,” said Lu Ting , an economist at Bank of America-Merrill Lynch in Hong Kong. “The government may start to exit stimulus via curbing investment and loans from April.” China’s banking regulator plans to slow new lending to between 7 trillion yuan and 8 trillion yuan next year, a person familiar with the matter said this week. In the first 11 months of this year, loans reached 9.21 trillion yuan. The government is wrestling with overcapacity and excess production in some industries, such as steel, where an oversupply is depressing profits for mills including Baoshan Iron & Steel Co. — Li Yanping , Kevin Hamlin , Zhang Dingmin. Editors: Paul Panckhurst , Russell Ward . To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net

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Citadel’s Head of Institutional Markets Peter Santoro Said to Leave Firm

December 9, 2009

By Saijel Kishan and Katherine Burton Dec. 9 (Bloomberg) — Peter Santoro , head of institutional markets at Citadel Investment Group LLC, left the firm, the second executive to depart from Ken Griffin’s securities business since October, according to two people familiar with the situation. Santoro, 37, left the Chicago-based firm yesterday, said the people, who asked not to be named because the information is confidential. Chris Boas , 37, who was head of structured credit within Citadel’s hedge funds, will become global head of credit markets at the securities unit, the people said. Santoro’s departure comes less than two months after Citadel announced that Rohit D’Souza , who headed Citadel Securities, was leaving a year after joining the firm. D’Souza was replaced by Patrik Edsparr , who was global head of fixed income for Citadel’s hedge fund. Katie Spring , a spokeswoman for the Chicago-based firm, declined to comment. Santoro didn’t immediately return a message seeking comment. Santoro joined Citadel last year from Citigroup Inc., where he was global head of trading. He was previously the chief executive officer of Knight Financial Products, a brokerage firm that was sold to Citigroup in 2004. Boas is replaced by David Hensle and Becket Wolf , who work in Citadel’s credit business. Ravi Mattu , who worked in fixed income research within Citadel’s hedge funds, will become global head of research and strategy reporting to Edsparr. Mattu, 56, previously was head of research at Lehman Brothers Holdings Inc. To contact the reporter on this story: Saijel Kishan in New York at skishan@bloomberg.net ; Katherine Burton in New York at kburton@bloomberg.net ;

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Lagarde Says EU Ministers Agree on Bank Rules After French-British Clash

December 2, 2009

By Mark Deen and Emma Ross-Thomas Dec. 2 (Bloomberg) — European Union finance ministers reached a compromise on overhauling Europe’s financial supervision with a new set of regulators, French Finance Minister Christine Lagarde said. “It was a laborious process; not everyone was on same wavelength,” Lagarde told reporters in Brussels today. “We’ve found a compromise. We’re in the process of creating a real European authority.” The EU is aiming to overhaul its system of financial supervision a year after the bankruptcy of Lehman Brothers Holdings Inc. exacerbated a global financial crisis that forced European governments to spend, lend or guarantee more than $5 trillion to support banks. A proposal by the European Commission would create an economic-risk watchdog led by central bankers, as well as new EU agencies to oversee banks, insurers and investment firms. Finance ministers had clashed over how much power the new supervisors should have. France had wanted member states to need majority backing to overturn decisions by a European council of supervisors on when member states should bail out banks, a U.K. official said. The U.K. wanted the burden to be on the council to seek a majority to force a country to use public funds for a bailout, he said. Under the compromise, a simple majority will be needed to reverse emergency decisions, Lagarde said. Regulatory System The new regulatory system, including a European Systemic Risk Board of central bankers and national regulators, would ensure EU market laws are implemented the same in every country and strengthen supervision across the 27-nation bloc. The board is designed to issue warnings and recommendations, flagging problems such as the build-up of investments in U.S. subprime mortgages. Three new European Supervisory Authorities would oversee banking, securities and insurance and pensions, according to the commission’s proposal. The debate in Brussels comes amid U.K. concern that the appointment last week of Michel Barnier , an ally of French President Nicolas Sarkozy , as EU commissioner for internal markets will see London face a tougher regulatory environment during his five-year term. “It’s the first time in 50 years that France has had this role,” Sarkozy said in an interview with Le Monde published on Nov. 28. “The English are the big losers in this business.” To contact the reporters on this story: Emma Ross-Thomas in Brussels at erossthomas@bloomberg.net ; Mark Deen in Brussels at mdeen@bloomberg.net .

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U.S. Corporate Bond Sales Climb to Record $1.17 Trillion as Economy Grows

November 23, 2009

By Gabrielle Coppola and Nikolaj Gammeltoft Nov. 23 (Bloomberg) — Borrowers have sold a record $1.171 trillion in U.S. corporate bonds in 2009, surpassing the amount sold in 2007, according to data compiled by Bloomberg. Sales of investment-grade and high-yield, high-risk debt compare with the more than $1.167 trillion that companies sold in all of 2007, a record year for corporate bond issuance, Bloomberg data show. Issuance soared as companies that couldn’t sell debt following the collapse of Lehman Brothers Holdings Inc. in September 2008 grabbed at opportunities to tap the market as it opened this year, according to Brian Yelvington , director of fixed-income research and strategy at Knight Libertas LLC in Greenwich, Connecticut. “Many corporations were forced to rethink dependence on short-term funding markets,” he said. Treasurers “locked up financing when they could.” Borrowing costs also were low by historical standards, Yelvington said. The Federal Reserve last year cut its target for overnight loans among banks to a range of zero percent to 0.25 percent as the government created programs to free up credit amid the worst financial crisis since the Great Depression. Yields on corporate bonds fell relative to benchmark rates to 3.24 percentage points as of Nov. 20, from 8.04 percentage points at the end of last year, according to Merrill Lynch & Co.’s U.S. Corporate & High Yield Master index. To contact the reporters on this story: Gabrielle Coppola in New York at gcoppola@bloomberg.net ; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

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FAA Resolves Computer Breakdown That Canceled, Delayed Flights Around U.S.

November 19, 2009

By John Hughes and Mary Schlangenstein Nov. 19 (Bloomberg) — Airline flights were disrupted across the U.S. today by a telecommunications malfunction that forced carriers to e-mail or fax route plans to the Federal Aviation Administration. “Significant” delays and cancellations have resulted, said Susan Elliott, a spokeswoman for Delta Air Lines Inc., who couldn’t provide specifics. “We are investigating now to see how it started and how to remedy the problem,” said Les Dorr , an FAA spokesman. The disruption occurred between 5:15 a.m. and 5:30 a.m. Washington time, he said. The FAA is manually entering flight plans into computer systems, he said. The agency still has operating radar and is communicating with flights, Dorr said. Spokesmen for American Airlines and AirTran Holdings Inc. didn’t immediately return calls seeking comment. To contact the reporter on this story: John Hughes in Washington at jhughes5@bloomberg.net ; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

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Bank of England Split Three Ways on Bond Plan, Considered Deposit-Rate Cut

November 18, 2009

By Brian Swint Nov. 18 (Bloomberg) — Bank of England policy makers split three ways in a vote to extend the bond-purchase program to 200 billion pounds ($336 billion), and discussed lowering the deposit rate on bank reserves to encourage lending. While the majority of the nine-member Monetary Policy Committee wanted a 25 billion-pound increase , Chief Economist Spencer Dale favored no change and David Miles sought a 40 billion-pound expansion, minutes of the Nov. 5 meeting published in London today showed. They unanimously kept the benchmark interest rate at 0.5 percent. “A reduction in the rate of remuneration relative to bank rate on a proportion of commercial bank reserves would bear down on short-term market rates and could ease monetary conditions further,” the minutes said. The committee “agreed that it might be a useful policy tool in some circumstances, and therefore should be available in future.” The decision is the first three-way split since August 2008, before the collapse of Lehman Brothers Holdings Inc. exacerbated the financial crisis. A change in the deposit rate would expand the toolkit available to policy makers as they try to pull the U.K. out of its longest recession on record. “It’s very much a case of keeping their options open,” said Alan Clarke , an economist at BNP Paribas SA in London. “These minutes are saying there’s arguments in both directions, and it’s going to be very data-dependent in the next three months.” The pound rose 0.3 percent against the dollar today, trading at $1.6837 as of 10:02 a.m. in London. The yield on the 2-year U.K. government bond fell 2 basis points to 1.25 percent. ‘Costly to Rectify’ Dale said that an increase in the bond plan posed a risk to inflation , and “might result in unwarranted increases in some asset prices that could prove costly to rectify.” Miles’s argument for expansion was that it would “provide greater insurance against the downside risks to growth and inflation arising from constrained credit supply.” While policy makers increased their forecasts for inflation and economic growth this month, Bank of England Governor Mervyn King said last week that he has an “open mind” about expanding the purchases further. The bank’s projections for the next two years show inflation approaching the 2 percent target even if the bank starts to increase interest rates next year and the total asset purchases stay at 200 billion pounds. “Some members thought that that downside risks to activity in the near term were somewhat greater than implied by the inflation report projections,” the minutes said. “A number of committee members noted that one consequence of additional asset purchases would be to bring forward the point at which the extraordinary degree of stimulus could begin to be withdrawn.” To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net .

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Gold Producer Stocks Poised to Underperform Bullion: Technical Analysis

November 7, 2009

By Elizabeth Stanton Nov. 6 (Bloomberg) — Gold stocks are near their most expensive level relative to the price of bullion in 14 months, a sign that they may start to underperform the metal, according to WJB Capital Group Inc. Gold traded at 11.5 times the level of the Philadelphia Stock Exchange Gold and Silver Index in October 2008, the most ever, as the financial crisis caused by Lehman Brothers Holdings Inc. ’s bankruptcy sparked a stock market retreat and spurred investors to buy bullion as a haven. The gap has since narrowed as the mining index more than doubled to catch up with the metal’s gain, beating gold’s 48 percent advance. The ratio , which never surpassed 6.4 from 1984 until September 2008, dropped to less than 6 in September and was 6.3 today. Its return to the level prior to Lehman’s bankruptcy signals that bullion is likely to begin outperforming its producers, said John Roque , managing director in technical analysis at WJB in New York. “Quite simply the chart suggests gold should do better than gold equities,” Roque said. “It doesn’t mean the stocks won’t perform, but they will likely do less well relative to the metal.” Technical analysts make predictions based on price and volume charts. Gold futures rose for a fourth straight session yesterday on speculation that the Federal Reserve will trail other central banks in raising interest rates, driving the dollar down and boosting the appeal of the metal. Bullion futures for December delivery rose $2, or 0.2 percent, to $1,089.30 an ounce on the Comex division of the New York Mercantile Exchange. Gold may outperform mining stocks to a greater degree than it did in the past because the creation of exchange-traded funds is allowing investors to wager directly on the metal’s price without needing to buy mining stocks, Roque said. To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net .

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Video: Exlservice’s Kapoor Sees Growth in Outsourcing Demand: Video

November 6, 2009

Nov. 6 (Bloomberg) — Rohit Kapoor, chief executive officer of Exlservice Holdings Inc., talks with Bloomberg’s Margaret Brennan about the company’s third-quarter earnings and acquisition strategy. New York-Based Exlservice, which provides offshore services for banking and insurance companies, raised its 2010 sales forecast. (Source: Bloomberg)

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Terra Industries Rejects CF Industries’ Revised Takeover Bid as Inadequate

November 4, 2009

By Christopher Donville Nov. 4 (Bloomberg) — Terra Industries Inc. ’s board rejected an increased takeover offer from rival fertilizer maker CF Industries Holdings Inc. as “inadequate” and “opportunistic.” CF’s proposal is “not in the best interests of Terra and its shareholders,” Sioux City, Iowa-based Terra said today in a statement. Terra, a maker of nitrogen-based fertilizer, has rejected CF’s previous offers as inadequate. Terra’s rejection comes after CF, also the focus of a hostile bid from Agrium Inc. , boosted its takeover offer on Nov. 1 to $32 in cash and 0.1034 of a CF share for each share of Terra, valuing the company at $4.07 billion at yesterday’s closing prices. The previous offer was for 0.465 CF share for each Terra share, or about $3.96 billion. “I’d be shocked if they accepted CF’s offer given that Terra has already agreed to buy assets from Agrium to facilitate Agrium’s takeover of CF,” Louis Meyer , a special situations analyst at Oscar Gruss & Son Inc. in New York, said in an interview before Terra’s announcement. The cash portion of the offer included the $7.50 per-share special dividend Terra previously declared, CF said. Morgan Stanley is acting as an adviser to CF and agreed to provide $2.5 billion of financing. CF also has rebuffed Agrium’s offers since Agrium first moved to acquire the company in February. A successful bid for Terra may help CF fend off Agrium. Terra shareholders are set to vote at the company’s annual meeting on Nov. 20 on whether to re-elect three directors or an opposing slate backed by Deerfield, Illinois-based CF. Agrium, based in Calgary, said last month it agreed to sell part of its nitrogen facility in Carseland, Alberta, to Terra to assuage possible antitrust concerns about Agrium’s proposed takeover of CF. To contact the reporter on this story: Christopher Donville in Vancouver at cjdonville@bloomberg.net .

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Nomura Resumes Dividend Payouts After Quarterly Net Profit Beats Estimates

October 28, 2009

By Takahiko Hyuga (Corrects currency conversion in second paragraph.) Oct. 28 (Bloomberg) — Nomura Holdings Inc. , Japan’s largest brokerage, posted a second straight quarterly profit and resumed dividend payments as earnings from trading and investment banking increased. Net income was 27.7 billion yen ($303 million) in the three months ended Sept. 30, compared with a loss of 72.9 billion yen a year earlier, the Tokyo-based brokerage said in a statement today. The average of five estimates from analysts surveyed by Bloomberg was for second-quarter profit of 11.5 billion yen. The 2008 acquisition of parts of Lehman Brothers Holdings Inc., which resulted in a record loss last fiscal year, helped Nomura take advantage of a recovery in trading and stock sales in the past six months. Chief Executive Kenichi Watanabe , who turned 57 today, raised about $8 billion in stock sales this year to mend the company’s balance sheet and challenge Goldman Sachs Group Inc. and JPMorgan Chase & Co. in the U.S. “Nomura’s earnings will keep improving as it can expect underwriting mandates for the third quarter and later,” Azuma Ohno , a Tokyo-based analyst at Credit Suisse Group AG, said before the announcement. “It’s important for the stock’s performance to show results from the overseas expansion.” Nomura is the biggest arranger of equity and equity-linked sales in Asia-Pacific this year, up from eighth in 2008, according to data compiled by Bloomberg. To contact the reporter on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net

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VIX Posts Worst Losing Streak in Four Years as Dow Average Exceeds 10,000

October 17, 2009

By Jeff Kearns Oct. 17 (Bloomberg) — The benchmark index for U.S. stock options fell for a 10th day, the longest streak since May 2005, as better-than-estimated earnings reports pushed the Dow Jones Industrial Average above 10,000 for the first time in a year. The Chicago Board Options Exchange Volatility Index lost 1.3 percent to a 13-month low of 21.43 yesterday, extending its retreat since Oct. 2 to 25 percent. The VIX, as the index is known, measures the cost of using options as insurance against declines in the Standard & Poor’s 500 Index , which rose 1.5 percent this week after JPMorgan Chase & Co. and Intel Corp. beat analysts’ projections. “People are comfortable with the levels of the market and getting more comfortable by the day,” said Robert Heller , a trader and managing director at Chapdelaine Brokerage LLC at the NYSE Amex market in New York. “There’s comfort that the recession seems to be easing, and people aren’t as scared of everything like they used to be.” The VIX has plunged 74 percent since closing at a record 80.86 in November after the economy and earnings improved. The Economic Cycle Research Institute’s gauge of U.S. growth surged 27.9 percent in the week that ended on Oct. 9, the fastest increase in data going back to 1968. More than 80 percent of S&P 500 companies beat analysts’ third-quarter earnings estimates. The VIX is 5.8 percent higher than the average of 20.26 during its 20-year history. VIX futures expiring in November gained 1.6 percent to 25.30 today while December contracts advanced 1.2 percent to 26.05. 9/11, LTCM Crisis The VIX never exceeded 50 before Lehman Brothers Holdings Inc. failed in September 2008. It topped 40 after WorldCom Inc.’s 2002 bankruptcy, the Sept. 11 terrorist attacks, Long- Term Capital Management’s collapse in 1998 and the Asian financial crisis in 1997. In Europe, the benchmark gauge of stock-market volatility fell 4.1 percent this week to 25.20 and its Oct. 15 close of 24.78 was the lowest since September 2008. The VStoxx Index measures the cost of protecting against a decline in the Dow Jones Euro Stoxx 50 Index, which rose 0.4 percent. The S&P 500 posted its first two-week decline since July this month after reports on housing, durable goods orders, manufacturing and employment spurred concern the economy is rebounding slower than forecast. The stock index has risen 6.1 percent since then as companies beat profit forecasts. “People are definitely a lot less fearful than they were a few weeks ago, and the fear that we’ll tank or that the rally is a complete illusion is subsiding after most of the earnings results were positive,” said Jeremy Wien , a VIX options trader at Societe Generale SA in New York. To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net .

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Lehman Says Negotiators Knew Barclays Got $5 Billion Discount on Purchase

October 17, 2009

By Christopher Scinta Oct. 17 (Bloomberg) — Lehman Brothers Holdings Inc. executives who negotiated the sale of the bank’s North American brokerage business to Barclays Plc knew they were giving the U.K.-based bank a $5 billion discount, Lehman said in court. Executives including Ian Lowitt , Paolo Tonucci and Bart McDade knew that Barclays was getting securities valued at about $50 billion for $45 billion in cash, according to a September motion unsealed Oct. 15 in U.S. Bankruptcy Court in New York in which Lehman asked for the return of some assets. Some executives negotiating the deal knew they would receive offers to work at Barclays after the sale, Lehman said, citing e-mails and deposition testimony. The salaries offered were blacked out. “I was aware that the — that Barclays was going to purchase a substantial block of assets for less than the amount that we had on our books to reflect a sort of bid offer that reflected both the size of the purchase, as well as inherent volatility in the market, which was significant that week,” Lowitt, Lehman’s chief financial officer at the time, testified, according to the documents. A Barclays Capital spokeswoman, Kerrie-Ann Cohen , and Kimberly Macleod , a Lehman spokeswoman, declined to comment. Lowitt declined to comment through a spokesman. Tonucci, then Lehman’s global treasurer, didn’t respond to messages seeking comment. McDade, then the bank’s president, couldn’t be reached. Lehman’s assets were under the control of the bankruptcy court when Barclays paid $1.54 billion for them in a sale that closed Sept. 22. Facts Held Back “Material components” of the deal were kept from U.S. Bankruptcy Judge James Peck , who approved the sale, Lehman said, giving Barclays an “immediate and enormous windfall profit” that may have exceeded $8.2 billion when liabilities Barclays assumed are taken into account. Lehman filed the largest bankruptcy in U.S. history on Sept. 15, 2008, with assets of $639 billion. The collapsed bank asked to revise the deal and be allowed to pursue claims for breach of contract, breach of fiduciary duty and unauthorized transfer of assets. The request is supported by Lehman’s unsecured creditors and James Giddens , the trustee liquidating Lehman’s brokerage on behalf of the U.S. Securities Investor Protection Corp. The fight between Barclays and Lehman’s creditors over the value of assets transferred is set to last well into next year. Peck said Oct. 15 he wanted to hear live testimony rather than rely completely on depositions. He advised parties to discuss May trial dates. Regulators’ Support Government regulators supported the speedy sale to Barclays at the time in an effort to calm global securities markets. Some Lehman creditors fought it, saying the deal was moving too quickly and London-based Barclays was underpaying. Lehman and Barclays held talks about an acquisition by the U.K. bank in the days before Lehman’s bankruptcy, without agreeing on a deal. Within hours of the court filing, Barclays approached Lehman and negotiated an agreement “very quickly” as the value of Lehman’s assets tumbled, according to court papers. During a hearing on the deal before Peck, negotiators changed some terms without disclosing them to the court, according to Lehman’s filing by attorneys at Jones Day . Lehman asked in May for permission to investigate whether Barclays got too good a deal after the U.K. bank’s financial results for 2008 showed a gain of 2.26 billion pounds ($3.72 billion) from the acquisition of Lehman’s North American operations. The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). — With assistance from Linda Sandler and Josh Fineman in New York. Editors: David E. Rovella , Charles Carter To contact the reporter on this story: Christopher Scinta in New York at cscinta@bloomberg.net .

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Lehman Judge Authorizes Moving Ahead With Suncal Reorganization Proposal

October 7, 2009

By Christopher Scinta Oct. 7 (Bloomberg) — A judge said Lehman Brothers Holdings Inc. said the bankrupt investment bank can move ahead with a Suncal bankruptcy plan.

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Goldman Sachs Said to Reap $1 Billion Payment in Case of CIT’s Bankruptcy

October 5, 2009

By Dakin Campbell Oct. 5 (Bloomberg) — Goldman Sachs Group Inc. is set to earn about $1 billion in the event CIT Group Inc. enters bankruptcy or otherwise ends a $3 billion financing agreement, according to a person familiar with the matter who declined to be identified because the payout hasn’t been disclosed. The payout would cover fees from a 20-year agreement signed June 6, 2008, according to regulatory filings . Under the deal, CIT agreed to pay Goldman 2.85 percent of the maximum amount lent under the facility, or $85.5 million annually for the first decade and then a declining amount after that, the filings show. “This would not be a windfall payment,” Goldman Sachs said in a statement today. “The make-whole payment, which was publicly disclosed at the time of the financing, is simply the present value of the spread to be earned over the life of the facility.” CIT Chief Executive Officer Jeffrey Peek is seeking to modify as much as $29 billion in debt, asking bondholders to swap unsecured obligations for new secured debt and preferred shares, in an effort to avoid bankruptcy. The company turned to bondholders in July for $3 billion in rescue financing after failing to win a second U.S. bailout. CIT is in talks with Goldman to amend the facility, but no agreement has been reached, according to an Oct. 2 CIT filing. The Financial Times reported the payout earlier today, without saying where it got the information. If the debt exchange fails to win agreement from bondholders, CIT will seek court protection through a pre-packaged bankruptcy, the company said Oct. 1. CIT, which finances about 1 million businesses from Dunkin’ Brands Inc. to Eddie Bauer Holdings Inc., posted a second-quarter loss of $1.62 billion as more customers defaulted on loans. Credit Agreement Goldman Sachs provided the credit facility last year after CIT was cut off from the commercial-paper market, its traditional source of funding. The maximum amount of the facility declines by $300 million each year after the first 10, the filings show. Goldman Sachs spokesman Michael DuVally declined to comment beyond the company’s statement. An e-mail to CIT spokesman Curt Ritter wasn’t immediately returned. CIT is boosting its board to 13 members from 10, and replacing some directors who may step down, according to an Oct. 2 regulatory filing. A bondholder steering committee will recommend candidates, who must be approved by the Federal Reserve Bank of New York, CIT said. The plan to expand the board means CIT may be preparing to remove Peek, according to corporate governance experts. Peek, 62, joined CIT in 2003 after being denied the top job at Merrill Lynch & Co. CIT’s board extended Peek’s employment contract last month, keeping him at the helm until at least Sept. 2, 2010, according to a Sept. 4 filing. Peek earned $800,000 in base salary last year, and stock and option awards helped bring his total compensation to $5.4 million, according to CIT’s proxy statement. To contact the reporter on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net

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Bair Says Creditors Should Help Cover Bank Failures to Keep `Skin in Game’

October 4, 2009

By Rebecca Christie and Christine Harper Oct. 4 (Bloomberg) — Federal Deposit Insurance Corp. Chairman Sheila Bair said regulators should consider making bank holding companies and secured creditors carry more of the cost of bank failures. “This could involve potentially limiting their claims to no more than, say, 80 percent of their secured credits,” Bair said in a speech to a banking conference in Istanbul today. “This would ensure that market participants always have some skin in the game, and it would be very strong medicine indeed.” Bair’s comments go beyond any of her previous proposals for changing the way large and so-called systemically important financial institutions are treated to reduce the risk of their failure. She has long supported broadening the government’s powers so that it can limit the impact of a collapse such as last year’s bankruptcy of Lehman Brothers Holdings Inc. Investors might keep closer tabs on bank risk if secured claims, such as repurchase agreements, were subject to losses, Bair said today. “By totally protecting secured claims and many repo claims as nettable financial contracts, the current priority scheme may encourage greater fragility in the financial markets,” she said. Bair acknowledged that such a move would have drawbacks, such as potentially making it harder or more expensive for banks to finance new lending. Cost of Funding “It could have a major impact on the cost of funding for companies subject to the resolution mechanism,” Bair said. Such proposals to target secured creditors would need to be weighed carefully, she added. Still, she said, changes in this area also could be used to encourage banks to rely less on short-term financing, including commercial paper, Bair said. Bair also recommended that all bank holding companies be on the hook if they have a subsidiary protected by FDIC insurance, even if the parent firm is an insurance company or a hedge fund. She said the FDIC wants to see bank capital requirements rise over time, not “spike up” in a way that could jeopardize lending as the global economy emerges from the worst recession since the Great Depression. She predicted more bank failures between now and the end of 2010, and said the commercial and residential real estate markets still face problems. At the same time, the worst of the crisis appears to have passed. “We’re now in a period of relative stability,” Bair said. Banks in Minnesota, Michigan and Colorado were shut by regulators last week, bringing this year’s toll of U.S. failures to 98. The banks are Jennings State Bank of Spring Grove, Minnesota; Warren Bank of Warren, Michigan, and Southern Colorado National Bank of Pueblo. To contact the reporter on this story: Rebecca Christie in Istanbul at Rchristie4@bloomberg.net ; Christine Harper in Istanbul at charper@bloomberg.net

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BNP Will Raise $6.3 Billion to Repay Government Assistance; Shares Advance

September 29, 2009

By Fabio Benedetti-Valentini and David Whitehouse Sept. 29 (Bloomberg) — BNP Paribas SA, France’s largest bank, said it will raise 4.3 billion euros ($6.3 billion) in a rights offer to help repay government funds. BNP Paribas is offering existing investors 107.6 million shares at 40 euros each, or 29 percent below yesterday’s closing price, the Paris-based bank said today. The company will repay 5.1 billion euros it received from the French state as well as 226 million euros of interest, it said. BNP Paribas and Societe Generale SA , the country’s second- largest bank by market value, received a total 8.5 billion euros from the state to boost capital and sustain lending after Lehman Brothers Holdings Inc. ’s failure shook markets last September. After paying back the government, BNP Paribas’s tier-one capital ratio, an indicator of financial strength, will be above 9 percent, the company said. “This will put them in a stronger position and I certainly support this,” said Andy Lynch , who manages $1.8 billion at Schroders Investment Managers in London and holds BNP shares. “We are likely to see more of these moves throughout Europe.” BNP Paribas rose as much as 4.1 percent in Paris trading, and was up 2.7 percent at 58.09 euros by 9:17 a.m. in Paris, valuing the bank 62.6 billion euros. The stock has risen 92 percent so far in 2009, outpacing the 53 percent gain of the 64-member Bloomberg Europe Banks and Financial Services Index. ‘Objectives’ Achieved In return for the government funds, the banks agreed to increase the volume of outstanding loans to households and companies by at least 3 percent this year. BNP Paribas said it’s standing by commitments given to the French state. The state assistance has “fully achieved its objectives,” the bank said in a statement. “Given the changing environment and the strong performance of BNP Paribas, this support is no longer required.” BNP Paribas said results for the third quarter in each of its “three core businesses” should not differ significantly from the previous quarter, beyond the usual seasonal effects. Second-quarter profit rose 6.6 percent to 1.6 billion euros, helped by the acquisition of Fortis assets and higher investment-banking revenue, the bank said Aug. 4. Axa SA , which holds about 5.2 percent of BNP Paribas’s shares, will subscribe to new stock “by exercising all of the preferential subscription rights it will be granted,” BNP said. BNP Paribas will be offering investors one new share for every 10 they already hold. The transaction will “be 8.4 percent accretive” to earnings per share, based on analysts’ consensus estimates for 2010 net income, the bank said. The offer runs between Sept. 30 and Oct. 13. The bank will also use about 750 million euros of equity from dividends paid in shares and about 260 million euros from a capital increase reserved for employees to help reimburse “all of the non-voting shares issued in March to Societe de Prise de Participation de l’Etat,” the state-run financing company, BNP Paribas said. The offer will be managed by BNP Paribas and underwritten by a syndicate led by BNP Paribas, HSBC Holdings Plc and Calyon. To contact the reporters on this story: Fabio Benedetti-Valentini in Paris at fabiobv@bloomberg.net David Whitehouse in Paris on dwhitehouse1@bloomberg.net

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Bond Funds Swell by $295 Billion, Fueling Debt Rally, Bank of America Says

September 25, 2009

By Jody Shenn Sept. 25 (Bloomberg) — Cash continues to pour into bond funds , helping to explain the size of the credit-market rally as recent inflows exceed those in stock funds by the most since at least 1993, according to Bank of America Corp. analysts. About $295 billion has been added this year to funds targeting debt including corporate bonds, bank loans and municipal notes as investors seek to limit risk-taking as they shift from money-market funds , which have shrunk $334 billion, the analysts wrote in a report yesterday, citing AMG/Lipper Data Services. Net outflows from equity funds have been trimmed to $31 billion, from $77 billion in April. The flow of money into bonds, with the Federal Reserve buying $1.75 trillion of debt, has helped inflate values along with signs that the economy and markets are healing. Yields on high-yield, high-risk corporate bonds have tumbled to 7.54 percentage points more than Treasuries, from a record high of 19.7 percentage points last December, according to Barclays Capital index data . “Investor preference for security and stable coupons following Lehman’s collapse is finding its reflection in overwhelming flows into fixed-income products as opposed to equities,” the New York-based Bank of America analysts Oleg Melentyev and Mike Cho wrote. “This also helps explain why credit is leading stocks in this market rebound.” Post-Lehman Spreads Yield spreads on investment-grade and junk corporate bonds, along with other debt including top-rated asset-backed securities, have fallen below their levels before New York-based Lehman Brothers Holdings Inc. filed for bankruptcy protection on Sept. 15, 2008, sending global asset markets into a tailspin. Through yesterday, the Standard & Poor’s 500 stock index dropped 16 percent since Sept. 12, 2008, just before the Lehman bankruptcy. The difference between flows into bond and equity funds, calculated as a percentage of assets over trailing six-month intervals, currently is 22 percent, the highest since at least 1993, according to Bank of America. “As the systemic risk has faded, all of that available capital that came out of the equity markets, that came out of other financial assets — the first step back into risky assets has been toward riskier bonds,” said William Cunningham , head of credit strategies and fixed-income research at State Street Global Advisors in Boston. “So any bonds with a substantial risk premium versus traditional governments have been the beneficiary,” he said in an interview. State Street oversees $1.6 trillion in assets. — With assistance from Shannon Harrington in New York. Editors: Charles W. Stevens , Mitchell Martin . To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net or

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Barclays, U.K. Banks File $3.2 Billion of Claims in Lehman Bankruptcy Case

September 25, 2009

By Michael J. Moore Sept. 25 (Bloomberg) — The U.K.’s biggest financial institutions, including Barclays Plc and HSBC Holdings Plc, filed more than $3.2 billion of claims in Lehman Brothers Holdings Inc. ’s bankruptcy case. Barclays, which purchased Lehman’s headquarters and North American brokerage last year, filed claims totaling more than $2.5 billion, according to Lehman’s bankruptcy claims administrator, Epiq Systems . HSBC, Britain’s biggest bank, is seeking to recover more than $440 million. Creditors from sovereign wealth funds to sports teams submitted more than 16,000 claims against Lehman before a Sept. 22 deadline. Lehman, once the fourth-largest investment bank, filed the largest bankruptcy in U.S. history by assets listed in the petition in September 2008. The New York-based company said it had $613 billion of total debts. Lehman creditors worldwide might file more than $1 trillion in claims against the bankrupt investment bank and likely will have trouble validating them, said Harvey Miller , Lehman’s lead bankruptcy lawyer. Lloyds Banking Group PLC filed claims of more than $273 million, according to data listed on Epiq’s Web site for the Lehman case. Royal Bank of Scotland Group Plc, majority-owned by the government after receiving a 20 billion-pound bailout last year, filed claims totaling about $13 million. Some of the claims are duplicates, filed for the same amount against different Lehman units, and some were made by investment funds that the firms manage. Credit Suisse Several large claims also have been sold in recent months, according to court records. Credit Suisse Group AG, Switzerland’s second-largest bank, is trying to sell a $1 billion claim it holds against Lehman, people familiar with the matter said yesterday. Kim Macleod , a spokeswoman for Lehman Brothers, didn’t immediately return calls to her office and mobile phone seeking comment. Prime Minister Gordon Brown’s government pledged to invest about 50 billion ($82 billion) pounds in the U.K. banking system on Oct. 8, 2008, to save it from meltdown in the aftermath of Lehman’s bankruptcy. Bank of England Governor Mervyn King told the BBC that two British banks got within hours of a liquidity shortfall on Oct. 6, 2008, and the day after. Some claims may have been filed and not yet posted, and claims related to certain Lehman securities aren’t due until Nov. 2, according to court papers. The case is: In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net .

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Buyout Firms Return to Market on Stock Rally as Select Medical Readies IPO

September 24, 2009

By Jason Kelly, Cristina Alesci and Michael Tsang Sept. 24 (Bloomberg) — The owners of Select Medical Holdings Inc. may almost double their money when the hospital operator goes public tomorrow as leveraged buyout firms take advantage of the steepest stock market rally in 70 years. Welsh Carson Anderson & Stowe and Thoma Cressey Bravo LLC will hold a stake valued at more than $1 billion if Select Medical fetches $12 a share, the midpoint for its initial public offering price. The private-equity firms invested $617 million in cash when acquiring the Mechanicsburg, Pennsylvania-based company in February 2005, according to a regulatory filing . Buyout firms are lining up IPOs to repay debt used to purchase companies and return profits to their investors. KKR & Co., Silver Lake and Fortress Investment Group LLC are among those planning share sales amid a 57 percent gain by the Standard & Poor’s 500 Index since March 9. “In an environment in which private-equity performance has suffered, the ability to demonstrate cash-on-cash returns by exiting investments at an attractive valuation is compelling and may help firms raise future funds,” said Andrew Wright , a partner at law firm Kirkland & Ellis LLP in New York. Select Medical plans to sell 33.3 million shares today at $11 to $13 apiece, raising as much as $433.3 million, according to a U.S. Securities and Exchange Commission filing. The stock is set to begin trading tomorrow on the New York Stock Exchange. Bankers arranged about $1.5 billion in financing for the Select Medical purchase by New York-based Welsh Carson and Thoma Cressey of Chicago, which subsequently split into two firms. The transaction was valued at $2.1 billion including assumed debt, according to data compiled by Bloomberg. The firms will use IPO proceeds mostly to reduce Select Medical’s debt, they said in the filing. Officials didn’t return phone calls seeking comment. KKR’s Pair KKR, based in New York, and Menlo Park, California-based Silver Lake, took Avago Technologies Ltd. public last month in a $745 million deal. The Singapore-based semiconductor maker has gained 16 percent since it began trading in early August. KKR subsequently filed an initial public offering for discount retailer Dollar General Corp. of Goodlettsville, Tennessee. RailAmerica Inc., a Jacksonville, Florida-based railroad operator owned by Fortress, said Sept. 22 it increased the size of its IPO to $450 million from $300 million. New York-based Fortress bought the company in February 2007. Private-equity firms bought a record $1.4 trillion of companies in 2006 and 2007, the height of the leveraged-buyout boom. The global credit crisis brought dealmaking to a halt and prevented firms from selling companies they already owned. ‘Pent-Up Demand’ “There is a pent-up supply of portfolio companies, many of which will go public,” said Jay Ritter , a professor of finance at the University of Florida. “During the last year, exits had ground to a halt.” Companies are selling shares after the S&P 500 climbed in six straight months, restoring about $4.9 trillion to U.S. equity markets. The advance since the gauge fell to a 12-month low in March represents the steepest rally since the Great Depression, according to data compiled by Bloomberg. Health-care stocks are the third best-performing industry behind household-product makers and technology companies in the S&P 500 since it climbed to a record 1,565.15 on Oct. 9, 2007. Ten companies may sell shares to the public this month, the most since January 2008, according to data compiled by Bloomberg. Together, the deals may raise $3.86 billion, the most since March 2008, when Visa Inc.’s $17.9 billion IPO accounted for almost all the money raised. Five companies, including KAR Holdings Inc., a vehicle- auction company based in Carmel, Indiana, and Houston-based Cobalt International Energy Inc., an energy-exploration firm, filed this month to raise as much as $1.82 billion. Talecris Among the biggest scheduled IPOs this month is Talecris Biotherapeutics Holdings Corp. , the drugmaker controlled by private-equity firm Cerberus Capital Management LP and Ampersand Ventures, which plans to raise $850 million on Sept. 30, according to data compiled by Bloomberg. The Research Triangle Park, North Carolina-based maker of protein therapies derived from blood plasma said in its Sept. 10 filing that it seeks to sell 44.7 million common shares at $18 to $20 apiece. At $19 a share, Cerberus and Ampersand would reap a profit of $300 million for their investors by selling 15.8 million shares. After the IPO, the private-equity firms will own 60.5 percent of Talecris, valued at $1.38 billion based on a $19 IPO price. Peter Duda , a spokesman for New York-based Cerberus, declined to comment, as did Becky Levin, a spokeswoman for Talecris, citing the quiet period before the IPO. Past Dividends Cerberus and Ampersand of Wellesley, Massachusetts, created Talecris after buying Bayer AG’s plasma business in 2005. At the time, the purchase was valued at $590 million, with the private- equity firms investing a combined $125 million in cash. Talecris has paid its owners at least $833.2 million in dividends since then, mainly funded by a $1.35 billion loan. Including the payouts, Cerberus and Ampersand are set to earn 20 times their initial cash investment in the company. The company will use its share of IPO proceeds to pay down debt. It doesn’t plan to pay shareholder dividends after the IPO, using all earnings to finance operations, according to its prospectus. To contact the reporters on this story: Jason Kelly in New York at jkelly14@bloomberg.net ; Cristina Alesci in New York at Calesci2@bloomberg.net ; Michael Tsang in New York at mtsang1@bloomberg.net .

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