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IBM unveils E&U solutions lab in China

by on March 6, 2010

IBM unveils E&U solutions lab in China

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IBM unveils E&U solutions lab in China

IBM Cut Almost 500 Jobs Across the U.S. Today, Employee Labor Group Says

by on March 2, 2010

By Amy Thomson March 2 (Bloomberg) — International Business Machines Corp. , the world’s largest computer-services provider, fired almost 500 workers in the U.S. and that number may rise, according to employee advocate Alliance@IBM. The cuts are happening around the country and across several divisions, said Lee Conrad , national director for the alliance , which represents some employees. IBM terminated 10,400 people in the U.S. and Canada last year, Conrad said. “It’s pretty much across the board,” Conrad said in an interview yesterday. “We have reports of around eight business units being impacted.” Expenses for workforce reductions at IBM will probably be about the same this year as in the past two years, according to a person familiar with the plans. Work has shifted overseas as IBM coped with sales drops in three of the past four quarters. Most of the restructuring costs this year will be from Europe and Asia, said the person, who declined to be identified because the information isn’t public. “We continually remix our skills and structure to meet the changing needs of our clients,” Doug Shelton , a spokesman for Armonk, New York-based IBM, said yesterday in an interview. He declined to comment further. IBM had $474 million in costs related to global job cuts last year and $737 million in 2008, according to its annual report filed with the U.S. Securities and Exchange Commission. Software and Services The cuts reported yesterday represent less than 1 percent of IBM’s workforce of 399,409 as of Dec. 31. They come less than two months after IBM said full-year profit will be at least $11 a share, up from a previous forecast of $10 to $11. The company has been working to align resources behind its more profitable software and services divisions. Alliance@IBM is affiliated with the Communications Workers of America and is seeking union recognition at IBM. The group verifies the job losses through employees’ severance documents. About 5,000 IBM workers have signed up on the group’s Web site , expressing support, and about 350 are dues-paying members, Conrad said. IBM rose $1.41, or 1.1 percent, to $128.57 in New York Stock Exchange composite trading yesterday. The stock has declined 1.8 percent this year. To contact the reporter on this story: Amy Thomson in New York at athomson6@bloomberg.net

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IBM Cut Almost 500 Jobs Across the U.S. Today, Employee Labor Group Says

The secular bullish case for IBM

February 22, 2010

The secular bullish case for IBM

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Gemalto teams with IBM to deliver an improved identity security solution

February 18, 2010

Gemalto teams with IBM to deliver an improved identity security solution

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SAP Management Upheaval Pits Plattner Against Ellison in Market Share Spat

February 8, 2010

By Ragnhild Kjetland Feb. 9 (Bloomberg) — SAP AG Co-Founder Hasso Plattner may have a bigger challenge as he picks up his rivalry with Oracle Corp. — again. The 66-year-old supervisory board chairman, who’s also the company’s biggest shareholder, is assuming a greater management role at the world’s largest business-management software maker, helming what he said yesterday was an effort to “re-establish trust inside and outside” the company. The Walldorf, Germany-based company’s chief executive officer, Leo Apotheker , unexpectedly resigned on Feb. 7 after SAP’s board decided not to renew his contract that was set to expire at the end of the year. He was replaced by two co-CEOs. The board asked Plattner to advice the new managers on technology and product development, giving him a hands-on role seven years after he stepped down as co-CEO to take on fellow- billionaire Larry Ellison’s Oracle, which says it’s taking business away from SAP. “SAP is still a major actor but it has lost its positive contact to customers,” said Frank Niemann , a SAP software consultant at Pierre Audoin Consultants in Munich. “Hasso is a software guru, a little like the Bill Gates of Europe. He’ll work more on developing technology. He has a very clear understanding of what’s going on in the market. But he can’t force the company in a new direction. That’ll be a challenge.” Apotheker, 56, resigned amid customer and employee discontent, and a failure to boost revenue. He was replaced by board members Bill McDermott and Jim Hagemann Snabe . Both Snabe and McDermott have decades of industry experience, “but neither has been a CEO before and the relationship between them will be interesting and challenging,” said Ross MacMillan , an analyst with Jefferies & Co. in New York. ‘Happy Company’ That may mean a more significant role for Plattner, who in 1972 joined Dietmar Hopp to create SAP with three former colleagues from International Business Machines Corp. “For a public company, profit is everything, but in order to be profitable it must be a happy company, and I will do everything in my power to make us a happy company again,” Plattner said yesterday on a conference call with analysts and journalists, his first in seven years. The management change means SAP is acknowledging the “depths” of its current issues, said JMP Securities analyst Patrick Walravens in San Francisco. “These issues include a convoluted product strategy, loss of market share to Oracle,” as well as trouble adapting to selling software as an online-service, Walravens said. He has an underperform rating on SAP. Product Innovation SAP shares , which reached an all-time high of 71.58 euros in March 2000 — on Plattner’s watch — have since halved. They traded yesterday at 32.56, giving the company a market value of about 40 billion euros ($54.7 billion). Redwood City, California-based Oracle , the world’s second-biggest software maker, has a market value more than double that at $116 billion. Plattner and his two new co-CEOs need to increase software license sales, which dropped 28 percent in 2009 after rising for years. They will also have to improve relationships with clients, which were hurt by an attempt to elbow in an increase in the price of maintenance contracts, said Saverio Papagno , an analyst at AZ Fund Management SA in Luxembourg. “SAP should bring its focus back on product innovation, to avoid losing market share to competitors, rather than cost cuts,” he said. SAP, whose customers include McDonald’s Corp., General Motors Co. and Wal-Mart Stores Inc., slashed more than 3,000 jobs last year, its first such major cut since its creation, helping it beat its own forecast for operating margin. ‘Trim Exposure’ In the near term, the management changes may create turmoil and may backfire, some analysts said. It may slow things down, rather than speed things up as Plattner wants, they said. “These organizational changes tend to freeze activity inside the company, as everyone tries to grab and defend turf,” said Thomas Otter , a Gartner Inc analyst in Ladenburg, Germany. Otter said SAP, whose strategy has been “murky” recently, needs to have a “more compelling technological vision.” “Can this board deliver that? I just don’t know.” On the call yesterday, Plattner said there will be a change in management style, to a “flat” structure; that management will strive to implement “radical changes” when opportunities present themselves; and that changes will be communicated better externally and internally. Michael Nemeroff , an analyst at Wedbush Securities Inc. in New York is not convinced. He said investors should “trim exposure” to SAP until it becomes clear that the potential problems don’t run deeper. ‘Fresh Air’ “Major changes to SAP’s senior leadership could create significant near-term operational risk,” Nemeroff said. To be sure, some analysts called the management shakeup a welcome change. Snabe, currently head of product development, has been credited with improving the productivity in development. McDermott was the head of one of the “stronger sales forces in the software industry,” said Credit Suisse analyst Philip Winslow , in New York. Robert Jakobsen , a Silkeborg, Denmark-based analyst at Jyske Bank A/S said the two new co-CEOs could turn out to be a breath of “fresh air.” He said they will need to build a momentum for SAP inside and outside the organization, through better customer satisfaction and a clearer vision. The company also needs to win market share from Oracle, Jakobsen, said. Battling Billionaires Plattner, who according to Forbes Magazine was the 110th richest person in 2009 with a net worth of $4.5 billion, will be taking on Oracle, whose CEO, Ellison, was ranked fourth-richest by Forbes with a net worth of $22.5 billion. Berlin-born Plattner started at IBM in Mannheim, Germany, after graduating from Karlsruhe University and left four years later with his colleagues. The SAP founders first worked in their homes and on the IBM computer of customer Imperial Chemical Industries Plc to make software to tie together business functions. “There’s lots of debate as to whether Hasso is the right person to bring the company back,” said Ray Wang , a partner at Altimeter Group in San Mateo, California said. “For the next three to six months he brings the vision and direction. To improve the treatment of employees and customers, Hasso is the right person. If there is no turnaround in the next 12-18 months, SAP will be in real trouble,” he said. To contact the reporter on this story: Ragnhild Kjetland in Frankfurt rkjetland@bloomberg.net

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Cenzic Gears Up for a Big Year in Web Application Security With Further Expansion Into Canada

February 8, 2010

Three Former IBM Watchfire Employees Join to Head-Up Canadian and U.S. NorthEast Sales

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Technology Stocks Are Cheap Given Profit Outlook, T. Rowe’s Eiswert Says

February 4, 2010

By Tim Mullaney Feb. 4 (Bloomberg) — Earnings at technology companies such as Intel Corp. may top analysts’ estimates by as much as 20 percent in 2010, a sign valuations are too low, according to the manager of T. Rowe Price Group Inc.’s global technology fund. After an 8.5 percent drop in Standard and Poor’s 500 Information Technology Index in January, the nation’s biggest technology companies are trading at their lowest price-to- earnings ratio since the mid-1990s, said David Eiswert , manager of the Global Technology Fund at Baltimore-based T. Rowe Price. “It’s amazing how bullish companies are in the tech supply chain,” Eiswert, whose fund gained 80 percent last year, said in an interview. “The multiples today are half of what they were in 2003.” The cash stockpiles of technology companies limit how much investors can lose if the economic rebound falters, Eiswert said. U.S. gross domestic product expanded 5.7 percent in the fourth quarter of 2009. The economy will grow 2.7 percent this year, according to a Bloomberg survey of economists. “In 2003 and 2004, technology was overvalued by 10 to 20 percent, and in December it was undervalued by 10 to 20 percent,” said Eiswert, 37, citing an analysis by Credit Suisse. After the market’s fall in 2008 and gains last year, “we’ve come back to a place that’s normal, or a little below,” he said. Beating Peers Apple Inc. , Qualcomm Inc. , International Business Machines Corp. , Juniper Networks Inc. and Palm Inc. are the five biggest holdings in Eiswert’s fund, accounting for about 20 percent of its $250 million in assets, according to data compiled by Bloomberg. The fund beat 90 percent of its peers last year, according to Bloomberg data. Intel, the world’s largest chipmaker, trades at 11 times T. Rowe’s estimate of 2010 earnings, Eiswert said. Analysts estimate profit for Intel of $1.66 a share this year, giving it a price-to-estimated-earnings ratio of 11.9, according to data compiled by Bloomberg. Intel, based in Santa Clara, California, fell 68 cents to $19 at 12:19 p.m. New York time in Nasdaq Stock Market trading. Profit at semiconductor companies likely will exceed analysts’ predictions by 10 percent to 30 percent in 2010, Eiswert said. He has doubled the fund’s investment in chipmakers since the third quarter, buying shares of Intel, San Diego-based Qualcomm and Phoenix-based ON Semiconductor Corp. Corporate technology spending may increase 1.7 percent this year, following a 3.1 percent drop in 2009, Morgan Stanley said Jan. 22, citing a survey of chief information officers. Goldman Sachs Group Inc. said Jan. 11 that it expects “modest” increases in corporate spending this year. Stockpiling Cash Technology companies are stockpiling cash, which means the businesses may be less expensive than their price-to-earnings ratios suggest, Eiswert said. Investors should deduct a company’s cash to calculate how much the market is paying for the underlying business, and then compare that price-to-earnings multiple to historical norms, he said. For example, Apple, maker of the iPhone and Macintosh computer, is on pace to have as much as $50 billion in cash and short- and long-term securities by year-end, up from $39.8 billion on Dec. 31, Eiswert said. That means investors value Apple’s underlying business at 13 times analysts’ estimates for this fiscal year, he said. Analysts predict Apple will post profit of $10.95 a share this year, giving it a price-to- earnings ratio of about 18, according to a Bloomberg survey. “The good thing about tech right now is it’s not that dangerous,” Eiswert said. “If Apple decided to buy back $30 billion of shares tomorrow, they could do it.” To contact the reporter on this story: Tim Mullaney in New York at tmullaney1@bloomberg.net .

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Dan Dorfman: Dodging Financial Land Mines Ain’t Easy

February 1, 2010

Land mines, as we know, kill. Equal in killing power, at least as far as our net worth goes, are financial land mines. Unfortunately, they’re all around us, they’re growing in number and escaping them won’t be easy. You don’t need a microscope. They’re easy to spot — such as the prospects of higher interest rates, higher taxes, the threat of debt defaults in foreign nations, such as Greece, Spain and Portugal, more bank financial bashing from the non-stop increases in mortgage deficiencies and foreclosures and ongoing job losses. Tack on a slew of other unknowns and uncertainties, such as the question of whether foreigners will begin to balk at buying Treasury debt, given our financial turmoil and puny yields, and a worsening Congressional war in do-nothing Washington, D.C. — the place that’s stifling progress on a host of major issues, most notably health care — and you have to be bonkers to take the danger of financial land mines lightly. Unfortunately, many investors seem to be blissfully ignoring them, even though some could explode at any time, leading to new chaos in the stock market. “Too many investors are on cloud nine,” says Los Angeles money manager Leonard Mohr. They’re betting, he observes, that the economic decay is over, that Washington will get its act together sooner than later and that any new shocks will not seriously impede the rise in stock prices despite the market’s big recovery. “It seems like a lousy bet,” he quips, “that’s about as credible as what you might hear from John Edwards.” One potential land mine that comes to mind centers on an old Wall Street adage: “As goes January, so goes the year.” With the market, as measured by the S&P 500, down 3.7 percent last month, obviously the decline has worrisome overtones. Yes and no, judging what I hear from one of Wall Street’s leading historians, Sam Stovall, the chief investment strategist of Standard & Poor’s, who views the January showing as an effective market indicator, but tends to minimize it for this year. The reason: the record shows it provides a more accurate yearly reading when the market goes up in January rather than when it goes down. History hears him out. Dating back to 1945, the January indicator boasts an 85 percent accuracy rating when the month rises, but only 46 percent when it falls. Still, a 46 percent reading is almost 50-50, which conjures up a legitimate reason to be concerned. Stovall is one of a couple of bulls I recently chatted with. Interestingly, each voiced concerns about potential land mines, any one of which could drive stock prices appreciably lower if they were to become a reality. In Stovall’s case, he expressed concern about two in particular. One is the possibility that China might be too successful in slowing domestic loan growth, which could negatively impact the Chinese economy and the global economy in general. The other is the debt levels of smaller European and eastern European countries, and the uncertainty of whether the European Central Bank will bail them out. Still, Stovall, even though he thinks 2010 could produce a fairly bumpy investment ride, tells me “I’d be a buyer of stocks here.” One key reason is his expectations of an economic rebound, with GDP this year growing 2.5 percent and S&P 500 earnings ballooning 37 percent from year-earlier levels. Overall, he sees the S&P 500 climbing about 9 percent from current levels to wrap up the year at 1,215. He cautions, though, that we’re still emerging from a recession — the market advanced more strongly than it usually does in the first year of a new bull market (23.4 percent in 2009) and consumer and government debt levels remain high. Stovall favors seven stocks for the new year, all carrying five-star rankings from S&P, and each of which is viewed as a market outperformer. They are: Coach, Computer Sciences, Express Script, IBM, Jacobs Engineering, State Street Corp., and Wal-Mart. There’s good and bad news from another bull, San Francisco money manager Gary Wollin. On the good side, the economy is on the move, he says, pointing to three consecutive months of rising consumer spending. Further, he adds, “rising top-line sales, lower materials and labor costs, fatter profit margins and a zippier economy should add up to higher stock prices.” He figures the Dow, by year-end should climb to between 11,000 and 11,500 from its current level of about 10,185. The bad news: those land mines. For the near term, Wollin is fearful of higher taxes, the Federal Reserve hiking interest rates, more bum residential and commercial loans making their way onto bank balance sheets and China slowing its growth. Add to this, what Wollin sees, as an “overblown market — one that has gone too far too fast” (up nearly 70 percent from last March’s lows — and he expects about a 500-600 point Dow selloff over the short run. But Wollin hastens to point out that he would use any such decline as a buying opportunity. His five top picks: Chevron, IBM, AT&T, Microsoft and Procter & Gamble. Our bulls may be right in their positive market outlook. But on the negative side, it ain’t easy to dodge land mines. It all reminds me of an old African-American spiritual: “Swing low, Sweet charity, Coming for to carry me home.” Except I would revise the words to “Swing low, Sweet market, Coming for to carry me down.” What do you think? E-mail me at Dandordan@aol.com

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U.S. Stocks Fall Most Since October Amid Curbs on Bank Speculation, China

January 23, 2010

By Elizabeth Stanton Jan. 23 (Bloomberg) — U.S. stocks declined for a second week , sending the Standard & Poor’s 500 Index to the biggest drop since October, as banks plunged on a White House proposal to limit financial risk and China moved to cool economic growth . JPMorgan Chase & Co. and Morgan Stanley slumped more than 8 percent as President Barack Obama called for limiting speculation to prevent another financial crisis. Exxon Mobil Corp. lost 4.4 percent and Alcoa Inc. tumbled 14 percent on concern Chinese demand for commodities will slow. The S&P 500 erased its 2010 gain, retreating 3.9 percent to 1,091.76 for the week after closing at a 15-month high on Jan. 19. The Dow Jones Industrial Average fell 436.67 points, or 4.1 percent, to 10,172.98. The Nasdaq Composite Index decreased 3.6 percent to 2,205.29. “It’s a one-two punch,” Ralph Fogel , head of investment strategy at Fogel Neale Partners in New York, said of the curbs on Chinese growth and Wall Street firms. “In the end it’s going to have the same impact — less flow of money into the marketplace.” The three-day, 5.1 percent tumble to end the week was the biggest decline for the S&P 500 since it sank to a 12-year low in March. The VIX, an index of volatility known as Wall Street’s “fear gauge,” jumped 55 percent to 27.31 over the period, its largest gain since 2007. Uncertainty over whether Federal Reserve Chairman Ben S. Bernanke will win Senate confirmation for a second term beginning Feb. 1 even with Obama’s backing undermined investor confidence, traders said. Barbara Boxer of California and Russ Feingold of Wisconsin said they will oppose Bernanke. Positive Surprises Stocks fell even as most companies releasing fourth-quarter results beat analyst estimates. Of 62 companies in the S&P 500 that reported earnings, 46 were better than the average analyst estimate, according to data compiled by Bloomberg. A record nine-quarter earnings slump is projected to have ended in the fourth quarter with a 73 percent increase in S&P 500 profits. More than 130 companies in the index are scheduled to release results next week, including Apple Inc., 3M Co. and Microsoft Corp. Treasuries rose, sending yields lower. The benchmark 10- year note’s yield dropped to 3.61 percent from 3.67 percent. The S&P 500 still is up more than 60 percent from a 12-year low in March, with a valuation of about 14.2 times the combined operating earnings forecast for its companies this year. Bank Retreat JPMorgan, the second-largest U.S. bank, and Morgan Stanley, the world’s biggest brokerage, led financial companies in the S&P 500 to a 5.2 percent drop. Obama asked Congress on Jan. 21 to bar banks from proprietary trading solely for their own profit and sponsoring private-equity and hedge funds. Obama in June proposed an overhaul of U.S. financial regulations to fix lapses in oversight and risk-taking that helped push the economy into a recession in 2008. The economy grew in the third quarter for the first time in more than a year, and may have expanded at a 4.6 percent rate in the fourth quarter, the fastest pace in four years. That’s the median estimate of economists surveyed by Bloomberg for the Commerce Department’s first estimate of the fourth-quarter growth, to be released Jan. 29. Exxon Mobil , the largest U.S. energy company, fell 4.4 percent to $66.10. Crude oil slumped 4.9 percent to a one-month low amid speculation China, poised to overtake Japan as the world’s second-largest economy after the U.S., will raise interest rates to keep economic growth from igniting inflation. Commodity Prices Alcoa, the biggest U.S. aluminum producer, tumbled 14 percent to $13.40, the biggest drop in the Dow average. Aluminum, copper, lead, nickel and zinc declined after China guided three-month bill yields higher for the second time in two weeks. Also scheduled for next week are reports on new and existing home sales in December and January consumer confidence, and the Fed’s Jan. 27 meeting on interest rates. Regional banks in the S&P 500 advanced after Fifth Third Bancorp and KeyCorp, Ohio’s biggest lenders, reported fourth- quarter losses that were smaller than analysts estimated . Fifth Third climbed 6.5 percent. Keycorp rose 5.4 percent. IBM fell 4.8 percent to $125.50, its biggest weekly drop since March. The world’s largest computer services company said sales of business services fell 2.8 percent in the fourth quarter as its customers reined in costs. Kraft Food Inc. fell 5.8 percent to $27.87 after Cadbury Plc of the U.K. accepted its $19.2 billion takeover bid. Health-care stocks fell 1.9 percent as a group, the smallest drop among the 10 industries in the S&P 500, after Republican Scott Brown won a special election to the Senate. Brown’s victory cost Democrats their 60-vote supermajority, imperiling legislation to overhaul health care. To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net

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IBM quarterly profits climb 9%

January 20, 2010

IBM quarterly profits climb 9%

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Ohio Wooing Tata Consultancy, Wipro as U.S. States Look to India for Jobs

December 30, 2009

By Mehul Srivastava and Moira Herbst Dec. 30 (Bloomberg) — Ohio Governor Ted Strickland is quick to admit that he doesn’t “particularly enjoy heights.” So why would he climb into a cherry picker to be lifted 40 feet in the air? To show off a 196,000-square-foot office park in the Cincinnati suburb of Milford to executives from Tata Consultancy Services , India’s biggest tech company and a thriving part of the Tata Group conglomerate. To sweeten the deal, Strickland threw in $19 million in tax credits and invited the TCS crew to a state dinner at the governor’s mansion. “The economy is difficult,” Strickland says in the Jan. 11 issue of Bloomberg BusinessWeek. “I will go wherever I can to find jobs.” TCS said yes, and in November Strickland showed up at the sprawling wooded campus for a ceremony to mark the hiring of the 300th employee at what has become the cornerstone for TCS’s North American efforts. Tata has hired some 250 graduates of Ohio State University, the University of Cincinnati, and other nearby schools. Soon the facility may employ as many as 1,000 Americans doing back-office and technology outsourcing for U.S. health-care companies and local governments. Atlanta, Dallas With the economy growing again but unemployment stuck at double-digit levels, states and municipalities across the U.S. are scrambling to woo anyone with hiring plans-even if that means going hat in hand to the same bunch that have been responsible for hundreds of thousands of jobs going overseas. Dallas, Atlanta, Minneapolis, and Tallahassee have all been actively courting Indian tech outfits. Wipro Technologies in March inaugurated a center in Atlanta, which now has 350 employees-nearly 300 of them Americans, including senior managers recruited from U.S. tech rivals. Infosys Technologies , meanwhile, is planning an operation in Dallas, to target some of the $52 billion the U.S. government will spend on outsourcing work just in 2010. For the Indians, American facilities can mean more work on government and health-care projects — areas where laws prevent the transfer of data overseas. An on-the-ground strategy gives them access to local workers who can better understand cultural nuances. And it lets them better compete against American rivals such as IBM and Accenture , which tend to win lucrative consulting contracts that hinge on solving complicated business problems on site, rather than simply writing computer code for cheap wages in India. Public Relations? “We need to become more efficient, more sophisticated,” says Sambuddha Deb, a Wipro vice-president who makes sure Wipro’s India-based and foreign employees work seamlessly together. “It’s not just about setting up software factories” in India. Some critics say that the new centers are little more than political cover and that they do little to boost employment in the U.S. “One reason they are doing this is for public relations,” says Ron Hira, an expert on offshoring at Rochester Institute of Technology. “They want to send the message, ‘We’re creating jobs for Americans.’” It’s true that the jobs the Indians have created in the U.S. are a rounding error compared with their overall workforce. Even as it hired a few hundred American employees in 2009, TCS took on tens of thousands of newbies in India. And TCS has more than 11,000 Indians working in the U.S. on temporary visas, while Wipro has 7,000. U.S. Recession That could change if a Senate bill introduced in April makes it through Congress. The measure would bar companies with more than 50 U.S.-based employees from using temporary visas for more than half their U.S. workforce, effectively forcing Indian IT companies to hire more Americans. A further concern for Indian companies is that hiring Americans is far more expensive than shipping work off to India. TCS staffers in Milford, for instance, earn more than $50,000 per year, vs. the $7,000-$8,000 that Indians doing similar work make in Bangalore. “Offshore outsourcers’ wonderful profitability has largely been on the back of labor arbitrage,”” says Peter Bendor- Samuel , CEO of Everest Group, a Dallas consulting firm that advises companies on outsourcing strategies. “Those profits surely would take a hit if the Indian companies start hiring more Americans.” Work in India TCS already had to delay opening the Ohio center for almost six months during the recession in the U.S. And Wipro says its Atlanta operation isn’t yet profitable. Both say American facilities are unlikely to create huge numbers of new jobs in the U.S. soon. For several years, at least, the vast majority of work will continue to be done in India and other low-cost countries, according to Surya Kant, North America president for TCS. “But many (clients) want work to be done in the same time zone, and we want to be closer to our customers,” Kant says. “Increasingly, we will move that work to centers like Cincinnati.” For Strickland and other officials in places where jobs have disappeared as carmakers go bust and steel production moves overseas, the new jobs — and the taxes they generate — are rare good news. “I certainly don’t see it as consorting with the enemy,” says Strickland, who ended up sharing a table with Tata Group Chairman Ratan Tata and India’s Commerce Minister Anand Sharma at the Nov. 25 White House State Dinner for Indian Prime Minister Manmohan Singh . “These are good, solid jobs,” adds the governor. “Jobs that we feel will be long-term, and that we hope will increase in numbers.” Tata is one of several outside contractors that gather and supply data distributed through the Bloomberg Professional Service. To contact the reporters on this story: Mehul Srivastava in New Delhi at msrivastava6@bloomberg.net ; Moira Herbst in New York at mherbst3@bloomberg.net

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Bill Miller Makes Comeback After Three Years With Bet on Economic Rebound

December 29, 2009

By Sree Vidya Bhaktavatsalam Dec. 29 (Bloomberg) — Legg Mason Inc.’s Bill Miller , who snapped his 15-year market-beating streak in 2006, is back near the top of the fund manager rankings this year, betting the U.S. economy will return to its old strength. Miller’s Legg Mason Capital Management Value Trust rose 43 percent this year through Dec. 24, beating 93 percent of similarly managed funds, according to data from Morningstar Inc. in Chicago. The gain marks the first time since 2005 that Miller beat the Standard & Poor’s 500 Index, which rose 25 percent. “We positioned the fund for a recovery,” Miller said in an interview from his office in Baltimore. “Even when things were really bad last fall, it was pretty clear that there would be a cyclical bullish phase to the market.” Miller, contradicting Mohamed El-Erian’s forecast for a prolonged period of below-average economic growth, said better prospects for the economy and lower potential returns in the fixed-income markets will lure investors back into stock funds in 2010. The 59-year-old, best known for guiding Value Trust to higher returns than the S&P 500 for a record 15 years through 2005, trailed the U.S. benchmark index for the next three years as he underestimated the impact of the credit crisis. His fund slumped 55 percent in 2008, contributing to a 7.5 percent decline for investors during the past five years. That places the fund near the bottom of the rankings, behind 99 percent of peers, Morningstar’s data show. “I was too optimistic at the beginning of the crisis,” said Miller. As the financial crisis deepened in 2008, “it was a very harrowing period,” Miller said. Old Normal El-Erian, chief executive officer of Pacific Investment Management Co., has said investors should prepare for an extended period of high unemployment and economic growth of no more than 2 percent following the credit crisis. Miller, in the interview, said expansion of 4 percent is “very doable” in 2010, and that should spur an increase in the S&P 500 of at least 15 percent next year. “There is a lot of upside left,” Miller said. Legg Mason Value Trust, with assets of $4.8 billion, has been run by Miller since its inception in 1982. Miller, who initially co-managed the fund with Ernie Kiehne , took sole responsibility in 1990, the year before his winning streak began. Investors have stopped pulling money out of his funds, although they haven’t started adding new money yet, Miller said. Clients withdrew a net $8 billion from Legg Mason’s funds in the three months ended Sept. 30, down from $30 billion during the previous quarter and a peak of $77 billion in the final months of 2008. Legg Mason managed $694 billion for investors as of Nov. 30. Bargain Hunter “It is too early to pat ourselves on the back,” Miller said. “We’re just one year off of a very bad period, so we can’t get complacent.” Miller is known for his fondness for shares he deems cheap compared with financial yardsticks such as earnings, and typically concentrates his portfolio by holding 30 to 60 stocks in his funds. Internet retailers EBay Inc. and Amazon.com Inc. and information technology companies such as International Business Machines Corp. and Hewlett-Packard Co. accounted for about 28 percent of Value Trust’s portfolio at the end of the third quarter. EBay advanced 70 percent this year. Financials including JPMorgan Chase & Co. and Aflac Inc. were the second-biggest weighting, representing 27 percent, while consumer companies such as Sears Holdings Corp. accounted for about 14 percent of the portfolio. Sears has more than doubled this year. AES “Bill Miller made a bet that risky assets were cheap, and he dove right in,” Bridget Hughes , a fund analyst at Morningstar, said in an interview. “The moves paid off in spades.” Value Trust’s top holding is AES, which accounted for about 9.7 percent of fund assets as of Sept. 30, data compiled by Bloomberg show. The stock has risen 69 percent this year. Miller first started adding AES to his fund in 2002 after misconduct at Enron Corp. pushed other utility shares down, with AES trading at about 90 cents per share. He sold portions of his position over the years and added to AES after March when shares got “screamingly cheap,” Miller said. AES shares reached a low of $4.80 per share on March 5, and have nearly tripled since. Information technology companies in the S&P 500 Index have climbed 61 percent this year, Bloomberg data show. IBM, whose shares have advanced 57 percent, and Hewlett-Packard, up 45 percent, are still cheap at 12 to 13 times earnings, Miller said. Miller sold shares of financial companies including Citigroup Inc. and Bank of America Corp. in February, to move into what he deemed “higher-quality” banks such as Wells Fargo & Co. and JPMorgan Chase. He later got back into Bank of America, while continuing to avoid Citigroup because of the dilution to shareholders from the government’s ownership. Financial companies in the S&P 500 have more than doubled from their low on March 9. To contact the reporter on this story: Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net .

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Oracle Profit Beats Analysts’ Estimates on Renewals of Support Contracts

December 17, 2009

By Rochelle Garner and Connie Guglielmo Dec. 17 (Bloomberg) — Oracle Corp. , the world’s second- largest software maker, reported profit that beat analysts’ estimates after customers renewed annual support contracts. The shares climbed 3.9 percent in late trading. Second-quarter net income rose 13 percent to $1.46 billion, or 29 cents a share, from $1.3 billion, or 25 cents, a year earlier, Oracle said today in a statement. Excluding some costs, profit was 39 cents in the period, which ended Nov. 30. Analysts in a Bloomberg survey estimated 36 cents on average. Chief Executive Officer Larry Ellison has sought more than $42 billion in acquisitions over the past five years. That’s increased the number of customers that sign annual contracts for product updates and support, giving Oracle a more reliable source of revenue. While orders for new software remain slow, they came in at the high end of Oracle’s forecast. “That seems like a nice outcome for them,” said Pat Walravens , an analyst at JMP Securities LLC in San Francisco. He expects the shares to perform in line with the market and doesn’t own them. Excluding some costs, profit will be 36 cents to 38 cents this quarter, Oracle said. That compares with a 36-cent average estimate among analysts . Sales will grow 3 percent to 6 percent in the period, indicating revenue of as much as $5.8 billion. Analysts had projected $5.71 billion. Beating Projections Including revenue from acquired companies, sales rose 3.3 percent to $5.87 billion last quarter, topping the estimate of $5.7 billion. Oracle , based in Redwood City, California, rose 90 cents to $23.78 in extended trading after the results were released. The shares, up 29 percent this year, closed at $22.88 today on the Nasdaq Stock Market. “We are definitely seeing customers back buying,” Oracle President Safra Catz said on a conference call. “No giant deals of any sort, but lots of very nice-size transactions. We are really seeing a recovery.” Goldman Sachs Group Inc. expects global spending on software to rebound next year, growing 8 percent. That’s a faster recovery than information-technology spending in general, which will rise 4 percent in 2010, the firm estimates. Run of Acquisitions To maintain growth, Oracle has acquired 54 companies in the past five years, including the $10.3 billion takeover of PeopleSoft Inc. The spree helped Oracle more than double sales and expand beyond its dominant database software. The acquisitions also turned Oracle into a one-stop software market for business customers. Oracle’s proposed $7.4 billion acquisition of Sun Microsystems Inc. , announced in April, has been delayed by a European antitrust review. A ruling is scheduled by the end of January. Oracle said today it expects regulators to approve the deal without conditions next month. Oracle will avoid the low-margin, high-volume server business with Sun, ceding that market to International Business Machines Corp. , Hewlett-Packard Co. and Dell Inc., Ellison said today. Sun doesn’t have enough volume to compete effectively in that market, he said. Instead, Oracle plans to push sales of high-performance servers, said Ellison, 65. Oracle has added programs that run a variety of tasks, from human-resources management to analyzing internal operations. The programs also target specific industries, such as utilities, retail and manufacturing. ‘How to Execute’ “Oracle becomes a more important part of the information- technology landscape with every acquisition they make,” said Sarah Friar , an analyst with Goldman Sachs in San Francisco. She recommends buying the shares, which she doesn’t own. “They know how to execute.” The acquired applications have pitted Oracle against Walldorf, Germany-based SAP AG , the world’s largest maker of business-management software. Oracle is taking market share away from SAP, Catz said today on the call. Last year, Oracle acquired BEA Systems Inc., stepping up its challenge against IBM in the market for so-called middleware — software that helps different kinds of programs share information. Only Microsoft Corp., the world’s largest software maker , offers as many categories of programs as Oracle. To contact the reporters on this story: Rochelle Garner in San Francisco at rgarner4@bloomberg.net ; Connie Guglielmo in San Francisco at cguglielmo1@bloomberg.net

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FTC Sues Intel For Antitrust Violations

December 16, 2009

NEW YORK — The Federal Trade Commission sued Intel Corp. on Wednesday, looking to block pricing deals and other tactics the government said the world’s biggest chip maker has used to snuff out competition. The FTC said Intel, which makes the microprocessors that run personal computers, has shut rivals out of the marketplace. In the process, the FTC said, Intel has deprived consumers of choice and stifled innovation in the chip industry. In a statement, the agency said it is asking for an order that would bar Intel from using “threats, bundled prices, or other offers to encourage exclusive deals, hamper competition, or unfairly manipulate the prices of its” chips. Intel called the complaint “misguided.” The company accused the agency of rushing the lawsuit without fully investigating the charges and of basing its case on new rules rather than existing statutes. “Intel has competed fairly and lawfully,” Intel said in a statement. Intel has faced similar charges for years and has denied any wrongdoing. The lawsuit comes after a recent $1.25 billion settlement with rival Advanced Micro Devices Inc. over similar claims. In AMD’s lawsuit, a Toshiba Corp. manager compared Intel’s financial incentives for not working with the competition to cocaine, and Gateway executives said Intel beat them “into guacamole” with threats against working with AMD. Intel, which is based in Santa Clara, Calif., is also appealing a record $1.45 billion antitrust fine leveled by European regulators. Intel shares fell 37 cents, or 1.9 percent, to $19.43 in morning trading, while AMD jumped 43 cents, or 4.9 percent, to $9.25. In its complaint Wednesday, which was scheduled to be heard in September by an administrative law judge, the FTC said Intel has used both threats and rewards to keep some of the biggest computer makers from buying other companies’ chips or marketing computers that carried them. The complaint names Dell Inc., Hewlett-Packard Co., and IBM Corp. as Intel’s targets. The FTC also said Intel has secretly redesigned critical computer software to hinder the performance of other companies’ microprocessors, or CPUs. Although the FTC does not ask for any specific damages in its lawsuit, it wants to force Intel to provide its customers with a substitute software at no additional charge and to compensate them for the cost of distributing the replacement. In addition, the agency said Intel is looking to extend its dominance into chips that are used to processes graphics, commonly known as GPUs, an area where Intel faces competition from smaller rivals such Nvidia Corp.. “Intel has engaged in a deliberate campaign to hamstring competitive threats to its monopoly,” said Richard A. Feinstein, director of the FTC’s Bureau of Competition. “It’s been running roughshod over the principles of fair play and the laws protecting competition on the merits.”

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Woman Who Sank Galleon Was Beauty-Queen-Turned-Analyst Insider

November 23, 2009

By Anthony Effinger, Katherine Burton and Ian King Nov. 23 (Bloomberg) — Danielle Chiesi spent a lot of time in hotel ballrooms and bars during the past decade. As an analyst at New Castle Funds LLC, a New York hedge fund firm that manages about $1 billion, she was a regular at conferences on technology stocks, where she could get face time with executives and press them on how many microprocessors and how much software they were shipping that quarter. Chiesi wore short skirts and low-cut tops, according to people who saw her over the years. One ploy was to go barhopping with a group, and then peel someone off to talk to on the dance floor, says a person who attended conferences with her. A blond, blue-eyed former teenage beauty queen, Chiesi used her sexuality to build sources at male-dominated tech companies, says Deborah Stapleton , president of Stapleton Communications Inc., an investor relations company in Palo Alto, California. “It amazes me that grown, wealthy, successful, hardworking men fell for that,” Stapleton says. Chiesi was proud of her network, too. “She bragged about her contacts in public,” Stapleton says. “She was like a teenager who wanted everyone to know she knew some rock star.” U.S. authorities say Chiesi, 44, crossed the line in her pursuit of secrets. They charged her and 19 others with securities fraud in the largest insider-trading case prosecuted since the 1980s, when stock market arbitrager Ivan Boesky paid a $100 million fine and spent three years in prison. Sorority Sister Chiesi, they say, got tips from executives at technology companies and passed them along to other hedge fund managers, including Raj Rajaratnam , billionaire co-founder of New York- based Galleon Group LLC, who was also arrested in the case. Rajaratnam, who is liquidating his hedge funds, has denied wrongdoing. Chiesi’s lawyer, Alan Kaufman , says his client intends to plead innocent. The one-time sorority sister at the University of Colorado is a small fry compared with Rajaratnam, who managed $7 billion in 2008. Of all the alleged conspirators, though, she had the highest-placed sources. She was in regular contact with Hector Ruiz , Advanced Micro Devices Inc. ’s former chairman and chief executive officer, according to a person familiar with the investigation. Government prosecutors say she was friends with Robert Moffat , a senior vice president of International Business Machines Corp. , who was a candidate to succeed CEO Sam Palmisano . An unidentified family friend at Akamai Technologies Inc. allegedly gave her a tip so accurate that New Castle made more than $2.4 million in one week. Government Wiretaps The prosecution marks the first time the U.S. government has tapped phones to get evidence against hedge funds, the lightly regulated partnerships that control $1.4 trillion. After two rounds of arrests — one on Oct. 16 and another on Nov. 5 — Preet Bharara , U.S. attorney for the Southern District of New York, says he’s just getting started. “No one should assume that our aggressive policing of the hedge fund industry will stop at these two cases,” Bharara said at a press conference after the second roundup. Bharara’s promise of a wider crackdown has hedge fund managers thinking twice about picking up the phone, according to an executive at one multibillion-dollar fund. And everyone is wondering whose conversations will spill into the public domain next. Octopussy The ones released so far show that Chiesi may have been the most aggressive of those charged when it came to pursuing tips and tipsters. Her only competition is Zvi Goffer , 33, a former trader at Schottenfeld Group LLC in New York known to some members of the ring as Octopussy, a nod to the 1983 James Bond movie starring Roger Moore , “because he had arms in so many sources of inside information,” according to a Nov. 5 complaint filed by the Securities and Exchange Commission, which is also pursuing the case. While Chiesi may have had fewer sources, they were well placed, and she worked them hard. She made plans to meet with IBM’s Moffat at her mother’s house in Sherman , Connecticut, on a Sunday, government wiretaps show. She talked into the evening with Ruiz from AMD, and she sought to re-establish the trust of the family friend at Akamai so she could pump him for information. Chiesi, one of only two women charged — the other is cooperating with prosecutors — sparred with Rajaratnam over who had the best sources. “I must defer to you on IBM,” Rajaratnam told Chiesi on a call taped by the Federal Bureau of Investigation on Sept. 23, 2008. “And Akamai, too,” Chiesi said. “But AMD?” said Rajaratnam. “Bring it on, baby.” Bear Stearns Inquiry Chiesi’s comments on wiretaps read like dialogue from a Quentin Tarantino movie. “Unless you were on the phone with (the AMD executive) and had Moffat at your house last night, who the f–k would be buying it, honestly?” she asked Mark Kurland , her boss at New Castle, about AMD on Sept. 9, 2008. Chiesi may have been breaking the rules for years. Officials at Bear Stearns Cos., which owned New Castle until January 2009, investigated Chiesi for insider trading at least once in the past five years, according to people familiar with the probe. They suspected Chiesi received nonpublic financial information from an executive at AMD, the Sunnyvale, California- based chipmaker. The investigation was inconclusive, the people say. Fishnet Stockings Kurland, managing general partner at New Castle, encouraged Chiesi’s source building, according to government wiretaps. “This is what I think you should do more of, what you’re doing more of now,” Kurland, 60, who was also arrested, said on a phone call taped on Aug. 22, 2008. “You know, get more relationships. Why don’t you just worry about getting the information, and don’t worry about the numbers.” Kurland declined to comment. The source building paid off: New Castle made $3.8 million in six months, starting in July 2008, using information gathered by Chiesi, the government says. And that’s only on the trades detailed by the U.S. Department of Justice. For someone allegedly dealing in illegal secrets, Chiesi didn’t care much about her cover. At conferences, she would brag in a loud voice that she could get AMD’s Ruiz on the phone anytime, according to a person who heard her. Such brashness was nothing new. When she worked at New York brokerage Furman Selz LLC in the early 1990s, she would show up in a tight red suit with red fishnet stockings, says a person who worked there at the time. She dated a man on the trading desk and didn’t try to hide it, the person says. Peach Melba Chiesi, who grew up in Binghamton, New York, is the daughter of an insurance executive and the granddaughter of a restaurateur, according to an obituary of her father published by the University of Michigan, his alma mater, after he died in 2002 at 65. Her grandfather, Swiss-born Alex Chiesi, studied with French chef Auguste Escoffier, who invented the Peach Melba dessert while running the restaurant at the Savoy Hotel in London in 1893. Alex moved to the U.S., where he owned several restaurants, including the Hapsburg House on East 55th Street in New York, according to the obituary. In 1956, Alex took his family on vacation in Europe. On the way home, his son, Alex Chiesi Jr., met a 17-year-old Italian woman named Gloria who was scheduled to take the SS Andrea Doria to the U.S. By luck, she missed its departure, according to the obituary. The Andrea Doria collided with the Swedish liner Stockholm and sank off Nantucket that July, killing 46 on the Andrea Doria and five on the Stockholm. Miss Southern Tier Alex Jr. and Gloria married in 1963. He became an executive at Binghamton-based Security Mutual Life Insurance Co . of New York, according to the obituary. The couple raised three children in New York state’s Southern Tier, the area along the Pennsylvania border. Their middle child, Danielle, was named Miss Southern Tier Teenager in 1981 and appeared in the local paper wearing a tiara. She went west for college, enrolling at the University of Colorado at Boulder, where she rushed the Pi Beta Phi sorority. “Danielle was really social, gregarious and popular,” says Stacey Maggio, a sorority sister. “She was a knockout with a big heart.” Chiesi graduated in 1988 with a bachelor’s degree in economics. She moved to New York, where she took a job at Mabon, Nugent & Co., a small brokerage. There, she got to know Kurland, then an analyst following paper and packaging companies, according to a person who worked at Mabon at the time. ‘Lunch Money’ Chiesi bounced around after Mabon. Her first stop was Furman Selz, one of the first brokers to target hedge funds as clients. In 1994, she landed at securities firm Arnhold & S. Bleichroeder Advisers LLC , where hedge fund legend George Soros worked from 1963 to 1973. In 1996, she joined Kurland, who had started New Castle a year earlier with another Mabon alumnus. The same year she joined New Castle, Chiesi divorced her husband, Brian Feeney, after a 16-month marriage. Kurland was head of research at the brokerage division of Bear Stearns before starting New Castle. “He wasn’t much of a stock picker when I was there,” says Tad LaFountain, an analyst who worked for him at Bear Stearns from 1993 to 1995. “I only would have given Mark my lunch money to invest if I had wanted to lose weight,” says LaFountain, who left the industry four years ago and lives in Princeton, New Jersey. ‘Top Ticked’ LaFountain says Kurland once prodded him to raise his rating on Vishay Intertechnology Inc. , a publicly traded electronics maker, in response to pressure from Bear Stearns’s investment bankers. LaFountain refused, and Kurland switched coverage of Vishay to another analyst who raised the rating, LaFountain says. Vishay picked Bear to manage the sale of 5 million shares at a split-adjusted $19.23 a share in September 1995. Vishay stock tumbled after the offering, touching $11.63 a share three months later. “They damn near top ticked it,” LaFountain says. As a technology analyst at New Castle, Chiesi spent much of her time visiting companies and contacts on the West Coast, according to former Bear Stearns employees. One of those contacts, says a person familiar with the matter, was Ruiz, 63, the former CEO of AMD, Intel Corp. ’s smaller competitor in the microprocessor market. AMD’s Ruiz Ruiz, who hasn’t been charged with any wrong-doing and who declined to comment through a spokesman, isn’t a child of privilege like Chiesi. A Mexican immigrant, he walked 45 minutes each way to high school in the south Texas town of Eagle Pass and graduated as valedictorian. He went on to get a doctorate in engineering in 1973 from Rice University in Houston and worked at Motorola Inc. for 23 years. He joined AMD in 2000 and succeeded founder Jerry Sanders as CEO two years later. Where Sanders was flashy — he wore handtailored suits, one of which had his name sewn over and over in faint pinstripes — Ruiz was staid. “He’s the quintessential engineer,” says Robert Enderle , a technology analyst at Enderle Group in San Jose, California. “He’s very comfortable in a pocket protector, not so comfortable in an Armani suit.” It isn’t known when Ruiz and Chiesi met, when he started sharing information with her, or why. Chiesi’s contact with someone at AMD prompted the Bear Stearns investigation of her trading, according to the people familiar with the probe. They say they didn’t know the executive’s identity. Kurland, Moffat While the investigation turned up nothing untoward, it did anger Kurland, the people say. Kurland suspected someone on Bear Stearns’s trading desk, which bought and sold stocks for all of the internal funds, of raising concerns about Chiesi’s sources. He pushed even harder for his own trading desk, something that he had long wanted, the people say. He also tried to promote Chiesi to senior managing director several times in recent years, they say. Each time, Bear Stearns turned him down. Mary Sedarat , a spokeswoman for JPMorgan Chase & Co., which bought Bear Stearns last year, declined to comment. Moffat, Chiesi’s alleged source at Armonk, New York-based computer-services provider IBM, was almost as valuable as Ruiz in terms of his clout. The 53-year-old senior vice president ran the systems and technology group, which had sales of $19 billion in 2008. “He’s a huge coup for me, having him at IBM,” Chiesi said on a taped call with Rajaratnam in September 2008. Galleon Boat Ride Chiesi met Rajaratnam at a conference about five years ago, according to a person familiar with the matter. They enjoyed the bull market together. On a 2007 boat ride around Manhattan hosted by Galleon, Chiesi danced suggestively, according to an attendee. On another occasion, Rajaratnam hired country singer Kenny Rogers to perform at a party. Chiesi brought her mother and was more restrained, an attendee says. For a hedge fund analyst, Chiesi had some unusual money problems. In 2006, the board at her co-operative apartment building at 418 E. 59th St. in New York requested an eviction warrant for nonpayment of an $11,301 debt, according to court records. On Aug. 12, 2008, in the midst of the alleged insider- trading spree that earned New Castle almost $4 million, the Internal Revenue Service filed a lien against her apartment for $63,226 in unpaid taxes. In 2000, New York courts issued a warrant for possession of an apartment she lived in at 333 East 56th St. for nonpayment of $5,223. ‘Gonna Guide Down’ Prosecutors say they’ve been investigating the insider- trading case since at least November 2007. The FBI got permission from a judge to tap Rajaratnam’s mobile phone on March 7, 2008, according to the government’s complaint. Agents started listening in time to hear Chiesi and Kurland make what was allegedly their biggest killing. Chiesi’s contact at Akamai called her cell phone at 8:52 p.m. on July 24, a Thursday, and said the Cambridge, Massachusetts-based company, the largest supplier of software and services to make Web sites load faster, was going to lower its earnings forecast when it reported results the following Wednesday. Chiesi hung up and called Kurland. Then she called Rajaratnam. “Akamai,” she said. “I’m trading it tomorrow. They’re gonna guide down. I just got a call from my guy.” The next morning, she called Steven Fortuna , 47, co-founder of S2 Capital Management LP, a hedge fund firm with offices in New York and in Boston, near where Fortuna lives. Shorting Akamai New Castle, Galleon and S2 all sold short Akamai shares. In a short sale, a trader borrows shares from an investor and sells them, hoping to buy them back at a lower price later, return the shares and keep the profit. New Castle also bought put options, giving it the right to sell a fixed number of Akamai shares at a certain price. Like a short sale, a put option is a bet that prices will fall. On Wednesday, July 30, after the market closed, Akamai cut its profit forecast to a range of $1.63 to $1.69 a share from an earlier $1.68 to $1.71 a share. Akamai shares took their biggest-ever tumble the next day, dropping 25 percent. New Castle covered its short position and sold its put options, making about $2.4 million, according to the Justice Department. Galleon made $3.5 million, and S2 made $2.4 million. Fortuna pleaded guilty to securities fraud and is cooperating with the government. New Castle also traded on AMD and IBM tips, the government says. Chiesi spoke with Ruiz in August 2008 about AMD’s plan to spin off its manufacturing plants, a move she expected would boost the company’s stock. New Castle bought at least 327,000 shares of AMD during a six-week period starting on Aug. 15. AMD Spinoff At one point, Chiesi became nervous, according to transcripts of her calls. Talking by phone with an unnamed person about the AMD spinoff, she said: “I swear to you in front of god, you put me in jail if you talk. I’m dead if this leaks. I really am. And my career is over. I’ll be like Martha f—ing Stewart.” Stewart, the homemaking media mogul, served five months in prison after a jury convicted her of lying to investigators about her sale of ImClone Systems Inc. shares in December 2001. AMD announced the spinoff and a $1 billion investment from the government of Abu Dhabi on Oct. 7, 2008. The deal allowed AMD to shed $1.2 billion of debt. That day, shares of AMD rose 36 cents, or 8.5 percent, to $4.59. The bump wasn’t enough to erase a previous decline caused by the credit crisis. New Castle lost at least $270,000, according to calculations based on prices it paid and received for the shares. IBM, Sun New Castle made at least two more winning trades, on IBM and Sun Microsystems Inc. On Jan. 8, 2009, Chiesi got two calls from Moffat’s phone number, according to U.S. authorities. The next day, New Castle started buying IBM shares, amassing 222,500 from that day to Jan. 20, when IBM reported earnings that beat analysts’ forecasts. A day later, New Castle started dumping about half of its shares, making $500,000, the government says. Moffat, a 31-year IBM veteran, allegedly helped with the Sun trade, too. He was on a team doing due diligence on the Santa Clara, California-based server-computer maker, which was up for sale, according to the Justice Department. Talking about Sun with an unnamed associate on Jan. 26, Chiesi said, “My IBM guy said that he thinks they’re gonna beat the quarter.” New Castle bought more than 1 million Sun shares at $3.80 to $4.28 a share on Jan. 26 and 27, when Sun reported its earnings, which did exceed forecasts. The fund sold its Sun shares and reaped $900,000, the government says. ‘Hell on Earth’ Ten months later, Chiesi’s fortunes turned. In photographs taken outside FBI headquarters in Manhattan on Oct. 16, her blond hair is cut short, she’s wearing a baggy white sweater and she appears haggard. Prosecutors asked a judge to require Chiesi to undergo drug testing and treatment as a condition of bail. “It’s not an issue in the case,” Kaufman, Chiesi’s lawyer, says. Chiesi’s mother, Gloria, says her daughter is innocent. “She is the most honest person in the world,” she says. “She is beautiful inside and out.” Danielle’s situation is terrible, though, Gloria says. “This is hell on earth,” she says. It could become hell for more people if the government’s insider-trading investigation widens. If that happens, the probe is unlikely to turn up anyone who did the job with Chiesi’s enthusiasm. Unless they get swept up in the case, the men who sell silicon chips and software will miss the exuberant blonde who lit up the dance floor at those industry events. To contact the reporters on this story: Anthony Effinger in Portland, Oregon, at aeffinger@bloomberg.net ; Katherine Burton in New York at kburton@bloomberg.net ; Ian King in San Francisco at ianking@bloomberg.net

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Woman Who Sank Galleon Was Beauty-Queen-Turned-Analyst Insider

November 23, 2009

By Anthony Effinger, Katherine Burton and Ian King Nov. 23 (Bloomberg) — Danielle Chiesi spent a lot of time in hotel ballrooms and bars during the past decade. As an analyst at New Castle Funds LLC, a New York hedge fund firm that manages about $1 billion, she was a regular at conferences on technology stocks, where she could get face time with executives and press them on how many microprocessors and how much software they were shipping that quarter. Chiesi wore short skirts and low-cut tops, according to people who saw her over the years. One ploy was to go barhopping with a group, and then peel someone off to talk to on the dance floor, says a person who attended conferences with her. A blond, blue-eyed former teenage beauty queen, Chiesi used her sexuality to build sources at male-dominated tech companies, says Deborah Stapleton , president of Stapleton Communications Inc., an investor relations company in Palo Alto, California. “It amazes me that grown, wealthy, successful, hardworking men fell for that,” Stapleton says. Chiesi was proud of her network, too. “She bragged about her contacts in public,” Stapleton says. “She was like a teenager who wanted everyone to know she knew some rock star.” U.S. authorities say Chiesi, 44, crossed the line in her pursuit of secrets. They charged her and 19 others with securities fraud in the largest insider-trading case prosecuted since the 1980s, when stock market arbitrager Ivan Boesky paid a $100 million fine and spent three years in prison. Sorority Sister Chiesi, they say, got tips from executives at technology companies and passed them along to other hedge fund managers, including Raj Rajaratnam , billionaire co-founder of New York- based Galleon Group LLC, who was also arrested in the case. Rajaratnam, who is liquidating his hedge funds, has denied wrongdoing. Chiesi’s lawyer, Alan Kaufman , says his client intends to plead innocent. The one-time sorority sister at the University of Colorado is a small fry compared with Rajaratnam, who managed $7 billion in 2008. Of all the alleged conspirators, though, she had the highest-placed sources. She was in regular contact with Hector Ruiz , Advanced Micro Devices Inc. ’s former chairman and chief executive officer, according to a person familiar with the investigation. Government prosecutors say she was friends with Robert Moffat , a senior vice president of International Business Machines Corp. , who was a candidate to succeed CEO Sam Palmisano . An unidentified family friend at Akamai Technologies Inc. allegedly gave her a tip so accurate that New Castle made more than $2.4 million in one week. Government Wiretaps The prosecution marks the first time the U.S. government has tapped phones to get evidence against hedge funds, the lightly regulated partnerships that control $1.4 trillion. After two rounds of arrests — one on Oct. 16 and another on Nov. 5 — Preet Bharara , U.S. attorney for the Southern District of New York, says he’s just getting started. “No one should assume that our aggressive policing of the hedge fund industry will stop at these two cases,” Bharara said at a press conference after the second roundup. Bharara’s promise of a wider crackdown has hedge fund managers thinking twice about picking up the phone, according to an executive at one multibillion-dollar fund. And everyone is wondering whose conversations will spill into the public domain next. Octopussy The ones released so far show that Chiesi may have been the most aggressive of those charged when it came to pursuing tips and tipsters. Her only competition is Zvi Goffer , 33, a former trader at Schottenfeld Group LLC in New York known to some members of the ring as Octopussy, a nod to the 1983 James Bond movie starring Roger Moore , “because he had arms in so many sources of inside information,” according to a Nov. 5 complaint filed by the Securities and Exchange Commission, which is also pursuing the case. While Chiesi may have had fewer sources, they were well placed, and she worked them hard. She made plans to meet with IBM’s Moffat at her mother’s house in Sherman , Connecticut, on a Sunday, government wiretaps show. She talked into the evening with Ruiz from AMD, and she sought to re-establish the trust of the family friend at Akamai so she could pump him for information. Chiesi, one of only two women charged — the other is cooperating with prosecutors — sparred with Rajaratnam over who had the best sources. “I must defer to you on IBM,” Rajaratnam told Chiesi on a call taped by the Federal Bureau of Investigation on Sept. 23, 2008. “And Akamai, too,” Chiesi said. “But AMD?” said Rajaratnam. “Bring it on, baby.” Bear Stearns Inquiry Chiesi’s comments on wiretaps read like dialogue from a Quentin Tarantino movie. “Unless you were on the phone with (the AMD executive) and had Moffat at your house last night, who the f–k would be buying it, honestly?” she asked Mark Kurland , her boss at New Castle, about AMD on Sept. 9, 2008. Chiesi may have been breaking the rules for years. Officials at Bear Stearns Cos., which owned New Castle until January 2009, investigated Chiesi for insider trading at least once in the past five years, according to people familiar with the probe. They suspected Chiesi received nonpublic financial information from an executive at AMD, the Sunnyvale, California- based chipmaker. The investigation was inconclusive, the people say. Fishnet Stockings Kurland, managing general partner at New Castle, encouraged Chiesi’s source building, according to government wiretaps. “This is what I think you should do more of, what you’re doing more of now,” Kurland, 60, who was also arrested, said on a phone call taped on Aug. 22, 2008. “You know, get more relationships. Why don’t you just worry about getting the information, and don’t worry about the numbers.” Kurland declined to comment. The source building paid off: New Castle made $3.8 million in six months, starting in July 2008, using information gathered by Chiesi, the government says. And that’s only on the trades detailed by the U.S. Department of Justice. For someone allegedly dealing in illegal secrets, Chiesi didn’t care much about her cover. At conferences, she would brag in a loud voice that she could get AMD’s Ruiz on the phone anytime, according to a person who heard her. Such brashness was nothing new. When she worked at New York brokerage Furman Selz LLC in the early 1990s, she would show up in a tight red suit with red fishnet stockings, says a person who worked there at the time. She dated a man on the trading desk and didn’t try to hide it, the person says. Peach Melba Chiesi, who grew up in Binghamton, New York, is the daughter of an insurance executive and the granddaughter of a restaurateur, according to an obituary of her father published by the University of Michigan, his alma mater, after he died in 2002 at 65. Her grandfather, Swiss-born Alex Chiesi, studied with French chef Auguste Escoffier, who invented the Peach Melba dessert while running the restaurant at the Savoy Hotel in London in 1893. Alex moved to the U.S., where he owned several restaurants, including the Hapsburg House on East 55th Street in New York, according to the obituary. In 1956, Alex took his family on vacation in Europe. On the way home, his son, Alex Chiesi Jr., met a 17-year-old Italian woman named Gloria who was scheduled to take the SS Andrea Doria to the U.S. By luck, she missed its departure, according to the obituary. The Andrea Doria collided with the Swedish liner Stockholm and sank off Nantucket that July, killing 46 on the Andrea Doria and five on the Stockholm. Miss Southern Tier Alex Jr. and Gloria married in 1963. He became an executive at Binghamton-based Security Mutual Life Insurance Co . of New York, according to the obituary. The couple raised three children in New York state’s Southern Tier, the area along the Pennsylvania border. Their middle child, Danielle, was named Miss Southern Tier Teenager in 1981 and appeared in the local paper wearing a tiara. She went west for college, enrolling at the University of Colorado at Boulder, where she rushed the Pi Beta Phi sorority. “Danielle was really social, gregarious and popular,” says Stacey Maggio, a sorority sister. “She was a knockout with a big heart.” Chiesi graduated in 1988 with a bachelor’s degree in economics. She moved to New York, where she took a job at Mabon, Nugent & Co., a small brokerage. There, she got to know Kurland, then an analyst following paper and packaging companies, according to a person who worked at Mabon at the time. ‘Lunch Money’ Chiesi bounced around after Mabon. Her first stop was Furman Selz, one of the first brokers to target hedge funds as clients. In 1994, she landed at securities firm Arnhold & S. Bleichroeder Advisers LLC , where hedge fund legend George Soros worked from 1963 to 1973. In 1996, she joined Kurland, who had started New Castle a year earlier with another Mabon alumnus. The same year she joined New Castle, Chiesi divorced her husband, Brian Feeney, after a 16-month marriage. Kurland was head of research at the brokerage division of Bear Stearns before starting New Castle. “He wasn’t much of a stock picker when I was there,” says Tad LaFountain, an analyst who worked for him at Bear Stearns from 1993 to 1995. “I only would have given Mark my lunch money to invest if I had wanted to lose weight,” says LaFountain, who left the industry four years ago and lives in Princeton, New Jersey. ‘Top Ticked’ LaFountain says Kurland once prodded him to raise his rating on Vishay Intertechnology Inc. , a publicly traded electronics maker, in response to pressure from Bear Stearns’s investment bankers. LaFountain refused, and Kurland switched coverage of Vishay to another analyst who raised the rating, LaFountain says. Vishay picked Bear to manage the sale of 5 million shares at a split-adjusted $19.23 a share in September 1995. Vishay stock tumbled after the offering, touching $11.63 a share three months later. “They damn near top ticked it,” LaFountain says. As a technology analyst at New Castle, Chiesi spent much of her time visiting companies and contacts on the West Coast, according to former Bear Stearns employees. One of those contacts, says a person familiar with the matter, was Ruiz, 63, the former CEO of AMD, Intel Corp. ’s smaller competitor in the microprocessor market. AMD’s Ruiz Ruiz, who hasn’t been charged with any wrong-doing and who declined to comment through a spokesman, isn’t a child of privilege like Chiesi. A Mexican immigrant, he walked 45 minutes each way to high school in the south Texas town of Eagle Pass and graduated as valedictorian. He went on to get a doctorate in engineering in 1973 from Rice University in Houston and worked at Motorola Inc. for 23 years. He joined AMD in 2000 and succeeded founder Jerry Sanders as CEO two years later. Where Sanders was flashy — he wore handtailored suits, one of which had his name sewn over and over in faint pinstripes — Ruiz was staid. “He’s the quintessential engineer,” says Robert Enderle , a technology analyst at Enderle Group in San Jose, California. “He’s very comfortable in a pocket protector, not so comfortable in an Armani suit.” It isn’t known when Ruiz and Chiesi met, when he started sharing information with her, or why. Chiesi’s contact with someone at AMD prompted the Bear Stearns investigation of her trading, according to the people familiar with the probe. They say they didn’t know the executive’s identity. Kurland, Moffat While the investigation turned up nothing untoward, it did anger Kurland, the people say. Kurland suspected someone on Bear Stearns’s trading desk, which bought and sold stocks for all of the internal funds, of raising concerns about Chiesi’s sources. He pushed even harder for his own trading desk, something that he had long wanted, the people say. He also tried to promote Chiesi to senior managing director several times in recent years, they say. Each time, Bear Stearns turned him down. Mary Sedarat , a spokeswoman for JPMorgan Chase & Co., which bought Bear Stearns last year, declined to comment. Moffat, Chiesi’s alleged source at Armonk, New York-based computer-services provider IBM, was almost as valuable as Ruiz in terms of his clout. The 53-year-old senior vice president ran the systems and technology group, which had sales of $19 billion in 2008. “He’s a huge coup for me, having him at IBM,” Chiesi said on a taped call with Rajaratnam in September 2008. Galleon Boat Ride Chiesi met Rajaratnam at a conference about five years ago, according to a person familiar with the matter. They enjoyed the bull market together. On a 2007 boat ride around Manhattan hosted by Galleon, Chiesi danced suggestively, according to an attendee. On another occasion, Rajaratnam hired country singer Kenny Rogers to perform at a party. Chiesi brought her mother and was more restrained, an attendee says. For a hedge fund analyst, Chiesi had some unusual money problems. In 2006, the board at her co-operative apartment building at 418 E. 59th St. in New York requested an eviction warrant for nonpayment of an $11,301 debt, according to court records. On Aug. 12, 2008, in the midst of the alleged insider- trading spree that earned New Castle almost $4 million, the Internal Revenue Service filed a lien against her apartment for $63,226 in unpaid taxes. In 2000, New York courts issued a warrant for possession of an apartment she lived in at 333 East 56th St. for nonpayment of $5,223. ‘Gonna Guide Down’ Prosecutors say they’ve been investigating the insider- trading case since at least November 2007. The FBI got permission from a judge to tap Rajaratnam’s mobile phone on March 7, 2008, according to the government’s complaint. Agents started listening in time to hear Chiesi and Kurland make what was allegedly their biggest killing. Chiesi’s contact at Akamai called her cell phone at 8:52 p.m. on July 24, a Thursday, and said the Cambridge, Massachusetts-based company, the largest supplier of software and services to make Web sites load faster, was going to lower its earnings forecast when it reported results the following Wednesday. Chiesi hung up and called Kurland. Then she called Rajaratnam. “Akamai,” she said. “I’m trading it tomorrow. They’re gonna guide down. I just got a call from my guy.” The next morning, she called Steven Fortuna , 47, co-founder of S2 Capital Management LP, a hedge fund firm with offices in New York and in Boston, near where Fortuna lives. Shorting Akamai New Castle, Galleon and S2 all sold short Akamai shares. In a short sale, a trader borrows shares from an investor and sells them, hoping to buy them back at a lower price later, return the shares and keep the profit. New Castle also bought put options, giving it the right to sell a fixed number of Akamai shares at a certain price. Like a short sale, a put option is a bet that prices will fall. On Wednesday, July 30, after the market closed, Akamai cut its profit forecast to a range of $1.63 to $1.69 a share from an earlier $1.68 to $1.71 a share. Akamai shares took their biggest-ever tumble the next day, dropping 25 percent. New Castle covered its short position and sold its put options, making about $2.4 million, according to the Justice Department. Galleon made $3.5 million, and S2 made $2.4 million. Fortuna pleaded guilty to securities fraud and is cooperating with the government. New Castle also traded on AMD and IBM tips, the government says. Chiesi spoke with Ruiz in August 2008 about AMD’s plan to spin off its manufacturing plants, a move she expected would boost the company’s stock. New Castle bought at least 327,000 shares of AMD during a six-week period starting on Aug. 15. AMD Spinoff At one point, Chiesi became nervous, according to transcripts of her calls. Talking by phone with an unnamed person about the AMD spinoff, she said: “I swear to you in front of god, you put me in jail if you talk. I’m dead if this leaks. I really am. And my career is over. I’ll be like Martha f—ing Stewart.” Stewart, the homemaking media mogul, served five months in prison after a jury convicted her of lying to investigators about her sale of ImClone Systems Inc. shares in December 2001. AMD announced the spinoff and a $1 billion investment from the government of Abu Dhabi on Oct. 7, 2008. The deal allowed AMD to shed $1.2 billion of debt. That day, shares of AMD rose 36 cents, or 8.5 percent, to $4.59. The bump wasn’t enough to erase a previous decline caused by the credit crisis. New Castle lost at least $270,000, according to calculations based on prices it paid and received for the shares. IBM, Sun New Castle made at least two more winning trades, on IBM and Sun Microsystems Inc. On Jan. 8, 2009, Chiesi got two calls from Moffat’s phone number, according to U.S. authorities. The next day, New Castle started buying IBM shares, amassing 222,500 from that day to Jan. 20, when IBM reported earnings that beat analysts’ forecasts. A day later, New Castle started dumping about half of its shares, making $500,000, the government says. Moffat, a 31-year IBM veteran, allegedly helped with the Sun trade, too. He was on a team doing due diligence on the Santa Clara, California-based server-computer maker, which was up for sale, according to the Justice Department. Talking about Sun with an unnamed associate on Jan. 26, Chiesi said, “My IBM guy said that he thinks they’re gonna beat the quarter.” New Castle bought more than 1 million Sun shares at $3.80 to $4.28 a share on Jan. 26 and 27, when Sun reported its earnings, which did exceed forecasts. The fund sold its Sun shares and reaped $900,000, the government says. ‘Hell on Earth’ Ten months later, Chiesi’s fortunes turned. In photographs taken outside FBI headquarters in Manhattan on Oct. 16, her blond hair is cut short, she’s wearing a baggy white sweater and she appears haggard. Prosecutors asked a judge to require Chiesi to undergo drug testing and treatment as a condition of bail. “It’s not an issue in the case,” Kaufman, Chiesi’s lawyer, says. Chiesi’s mother, Gloria, says her daughter is innocent. “She is the most honest person in the world,” she says. “She is beautiful inside and out.” Danielle’s situation is terrible, though, Gloria says. “This is hell on earth,” she says. It could become hell for more people if the government’s insider-trading investigation widens. If that happens, the probe is unlikely to turn up anyone who did the job with Chiesi’s enthusiasm. Unless they get swept up in the case, the men who sell silicon chips and software will miss the exuberant blonde who lit up the dance floor at those industry events. To contact the reporters on this story: Anthony Effinger in Portland, Oregon, at aeffinger@bloomberg.net ; Katherine Burton in New York at kburton@bloomberg.net ; Ian King in San Francisco at ianking@bloomberg.net

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Lazard Chief Kenneth Jacobs Was Constant Amid 21 Years of Changes at Firm

November 18, 2009

By Michael J. Moore and Josh Fineman Nov. 18 (Bloomberg) — In his 21 years at Lazard Ltd. , Kenneth Jacobs witnessed three chief executive officers, the 161-year-old firm’s initial public offering and a power struggle lost by the founding family. Now that he’s being rewarded with the top job, Lazard may be in for a period of calm. Jacobs, 51, will succeed Bruce Wasserstein as chairman and chief executive officer, the Hamilton, Bermuda-based investment bank said yesterday. The announcement came a month after Wasserstein’s death at 61 set off a succession contest at the company, the world’s largest non-bank adviser on mergers and acquisitions. Wasserstein brought to a deal a “brand of psychological bullying” that could influence his own clients to stay in the bidding and not give up, Forbes said in a 1989 profile. That trait prompted his critics to call him “Bid-’Em-Up Bruce.” Jacobs comes to the job with a style tailored around building consensus, said Andrew Alper , chairman of the University of Chicago’s Board of Trustees who worked with the new CEO at Goldman Sachs Group Inc. before he joined Lazard. “He doesn’t have to yell and scream and table-thump to make his point,” said Alper, chairman of EQA Partners LP and a former chief operating officer of Goldman Sachs’s investment- banking division. “Even if he’s not the loudest guy in the room, people listen to what he has to say because it’s thoughtful and well presented.” Goldman Sachs Jacobs joined the company in 1988 from Goldman Sachs when Lazard was a private partnership controlled by a descendant of the founding family, and became a partner in 1991. He has served as deputy chairman and CEO of North American businesses since 2002, shortly after Wasserstein arrived at the firm. “It fits perfectly,” said Felix Rohatyn , the former U.S. ambassador to France who worked at Lazard for almost 50 years. “What he would bring in terms of style as a CEO of the firm is very consistent with the history and tradition of the firm. You don’t have to turn the firm upside down to fit Ken Jacobs .” Wasserstein, the pre-eminent Wall Street dealmaker who took Lazard public in 2005, helped recruit high-ranking bankers to the firm such as Gary Parr and William Lewis from Morgan Stanley and Charles Ward from Wasserstein Perella Group Inc. Jacobs said he inherited a strong team and business model that he doesn’t plan on changing. Bruce’s Legacy “Bruce’s great legacy is that he has put in place a global leadership team, a deep reservoir of talent,” Jacobs said yesterday in an interview. “My legacy is to make sure we can retain those people, continue to attract new talent and provide an unrelenting focus on our clients.” Lazard rose 15 cents to $40.82 at 9:54 a.m. in New York Stock Exchange composite trading . The shares climbed 37 percent this year through yesterday. Michel David-Weill , whose family founded Lazard LLC in 1848, merged its New York, Paris and London offices into a single partnership in 2000. Later that year, he relinquished his CEO title to William Loomis . Jacobs, then the head of mergers and acquisitions, had to help run the year-end compensation process and be the firm’s representative to the press after Loomis was fired in 2001, according to “The Last Tycoons,” the 2007 book about Lazard written by William Cohan . Jacobs was a better long-term option to succeed Wasserstein than interim CEO Steven Golub , 63, and he has shown more interest in the management side of Lazard’s business than other dealmakers like Parr, Cohan said. Administrative Jobs “So many of the people there just want to do deals and get paid a lot, and don’t want to do the administrative part of the job,” said Cohan, a Bloomberg Television contributing editor. “He likes the administrative part of the job, and at Lazard, that’s especially important.” This year, Jacobs worked with Philadelphia’s Haas family, the major shareholder of Rohm & Haas Co. , on the company’s $16.5 billion sale to Dow Chemical Co. He also helped GlaxoSmithKline Plc on its $2.9 billion purchase of Stiefel Laboratories Inc. Jacobs’s clients also include Colgate-Palmolive Co. and International Business Machines Corp. Jacobs takes over as the worst market for mergers and acquisitions since 2003 shows signs of a rebound. The firm’s third-quarter profit beat analysts’ estimates as restructuring work helped compensate for the slowdown in mergers, and Chief Financial Officer Michael Castellano said earlier this month that the M&A market is improving. Replacing Wasserstein “There is no Bruce Wasserstein on the horizon to replace Bruce Wasserstein,” Michael Holland , chairman of Holland & Co., said in a Bloomberg Television interview in New York. “That person doesn’t exist. So if you’re not going to replace Bruce with another Bruce, what’s the best place to go? And I think they did a good job.” Jacobs graduated with a bachelor of arts degree in economics from the University of Chicago in 1980 and received his master’s in business administration from Stanford University in 1984. He sits on the board of trustees at the University of Chicago and the Brookings Institution. His wife, Agnes Mentre , previously worked at Lazard. She served as executive producer of “The Wrestler,” a 2008 film that earned star Mickey Rourke an Academy Award nomination, according to Internet Movie Database. She also was an executive producer of the 2004 Michael Moore-directed documentary “Fahrenheit 9/11.” No Shifts “Jacobs has been with the firm for over 20 years, is highly regarded both inside and out, and appeared to be a leading contender for the role from the start,” Sandler O’Neill analysts Devin Ryan and Jeff Harte said in a note to investors yesterday. “We do not expect any material strategic shift with the firm or change in its business opportunity.” Golub will continue as vice chairman of Lazard and chairman of the financial-advisory group. Golub was a potential candidate for the post, according to current and former bankers at the firm who weren’t privy to the board’s deliberations. Other possible CEOs included Parr, 52, and Ward, 57. Parr was named to the board of directors with Ashish Bhutani , 49, effective Jan. 4. Bhutani will continue as chief executive of Lazard Asset Management . Steven Heyer , 57, a director since Lazard’s IPO in 2005, was named lead director, a new board position, effective immediately. Antonio Weiss , 43, was named global head of investment banking. Jacobs will work in partnership with Weiss and Alex Stern , 43, who was named chief operating officer, Lazard said in the statement. “Ken Jacobs is a Lazard survivor,” Cohan said. “There’s been so much change in that firm over the last 10 years and no matter what the change, behind the scenes, Ken Jacobs has been picking up the pieces or holding the firm together.” To contact the reporters on this story: Michael J. Moore in New York at mmoore55@bloomberg.net ; Josh Fineman in New York at jfineman@bloomberg.net .

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Don McNay: President Obama’s Entrepreneurial Mindset

November 16, 2009
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Don McNay: President Obama’s Entrepreneurial Mindset

November 16, 2009
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Recession Intensifies GenX Discontent At Work: Generation X Vs. Baby Boomers, GenY

November 15, 2009

CHICAGO — They’re antsy and edgy, tired of waiting for promotion opportunities at work as their elders put off retirement. A good number of them are just waiting for the economy to pick up so they can hop to the next job, find something more fulfilling and get what they think they deserve. Oh, and they want work-life balance, too. Sounds like Gen Y, the so-called “entitlement generation,” right? Not necessarily, say people who track the generations. In these hard times, they’re also hearing strong rumblings of discontent from Generation X. They’re the 32- to 44-year-olds who are wedged between baby boomers and their children, often feeling like forgotten middle siblings – and increasingly restless at work as a result. “All of a sudden, we’ve gone from being the young upstarts to being the curmudgeons,” says Bruce Tulgan, a generational consultant who’s written books about various age groups, including his fellow Gen Xers. This isn’t the first time Gen Xers have faced tough times. They came of age during a recession and survived the dot-com bust of 2000. In recent years, though, more members of the generation – stereotyped early on as jaded individualists – had families or began settling down in other ways. It was time, they thought, to enjoy the rewards of paying some dues. “We were starting to buy into the system, at least to some extent,” Tulgan says, “and then we got the rug pulled out from under us.” Now, in this latest recession, nearly two-thirds of baby boomer workers, ages 50 to 61, say they might have to push back their retirement, according to a recent survey from Pew Research. Meanwhile, on the other end of the age spectrum are Gen Yers, who are often cheaper to hire and heralded for their coveted high-tech knowledge, even though many Gen Xers consider themselves just as technologically savvy. “It’s so annoying,” says Lisa Chamberlain, another Gen Xer who wrote the book “Slackonomics: Generation X in the Age of Creative Destruction.” “First, it was always the baby boomers overshadowing everything. Then there was this brief period in the mid-’90s where Gen X was cool. “Now it’s, ‘What are the new kids doing?’ It’s like ‘Yo, hello, the Google guys are Gen Xers.’” They can sound a little whiny. But there’s also some evidence that Gen Xers really are being taken for granted at work. One survey done this year for Deloitte Consulting LLP, for instance, found that nearly two-thirds of executives at large companies were most concerned about losing Gen Y employees, while less than half of them had similar concerns about losing Gen Xers. The assumption is often that Gen Yers are the least loyal and most mobile, says Robin Erickson, a manager with Deloitte’s human capital division. However, she points out that a companion survey of employees found that only about 37 percent of Gen Xers said they planned to stay in their current jobs after the recession ends, compared with 44 percent of Gen Yers, 50 percent of baby boomers and 52 percent of senior citizen workers who said the same. Everyone surveyed worried about job security. Gen X and Gen Y were most likely to complain about pay. But a “lack of career progress,” was by far the biggest gripe from Gen Xers, with 40 percent giving that as a reason for their restlessness, compared with 30 percent of Gen Yers, 20 percent of baby boomers and 14 percent of senior workers. Gen Yers, meanwhile, were more likely than the other generations to cite “lack of challenges in the job” as a reason they would leave, while baby boomers more often chose “poor employee treatment during the downturn” and a “lack of trust in leadership.” The Deloitte study warns of a “resume’ tsunami” once economic recovery begins, especially among Gen Xers, and notes that many executives were largely unaware of employee complaints unrelated to money. Such findings don’t surprise Rich Yudhishthu, a 37-year-old Gen Xer who’s a business development consultant from Minneapolis. “The lack of promotional opportunities has pretty much killed job loyalty within a generation,” he says. Liza Potts, a 35-year-old professor at Old Dominion University in Norfolk, Va., agrees, but also notes that the disillusionment took hold for many of her peers as far back as childhood. “Many of my friends had hoped to have jobs like their parents – places they would stay forever that would take care of them like they did their parents. But then we saw that start to crumble for our folks,” she says, recalling friends whose fathers and mothers got laid off from companies such as IBM or had to relocate. Now worried about their own foreclosures, debt and unemployment, her generation is left to do the soul-searching their parents did. “Is there still time to become something different? Must we just accept where we are? Is there time to innovate elsewhere?” asks Potts who left her own career in the software and Internet industry for a life in academia. It’s meant less money, she says, but also more freedom to choose her work hours and projects. In Chicago, 40-year-old real estate agent Adon Navarette has taken on extra jobs to make it, from consultant for an energy supply company to starting his own health and wellness business. He’s heard his peers sniping about other generations, but also thinks their experience with other rough economic patches makes them resilient, too. It’s a pivotal moment, he says. “What’s going to define me as a Gen Xer is how I come out of this. What’s going to define me is, ‘What have I done to allow myself to take advantage of the market when the market turns around?’” he says. Sometimes, it means working for less money. Jon Anne Willow, co-publisher of ThirdCoastDigest.com, an online arts and culture site in Milwaukee, is among employers who’ve recently been able to hire more experienced candidates for jobs traditionally filled by 20somethings. They’re hungry to work, she says. And as she sees it, that gives her fellow Gen Xers and the baby boomers she’s hired a distinct advantage over a lot of the Gen Yers she’s come across. “When the dust settles, they’ll be exactly as they were before and we’ll just have to sift through them and take the ones that actually get it and hope the rest find employment in fast food,” she quips. Spoken like a truly jaded Gen Xer. ___ On the Net: Pew: http://pewresearch.org/ ___ Martha Irvine is an AP national writer. She can be reached at mirvine(at)ap.org or via http://twitter.com/irvineap

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Galleon Scandal Scorecard: Hedge Funds, Traders, Lawyers and `Octopussy’

November 7, 2009

By Bob Van Voris Nov. 7 (Bloomberg) — Twenty people, including Galleon Group LLC co-founder Raj Rajaratnam, have been criminally charged in what federal authorities call the biggest prosecution of alleged hedge-fund insider trading in the U.S. Prosecutors in Manhattan say they have evidence from wiretaps, trading records and cooperating witnesses to prove widespread trafficking in illegal insider information. Except for those who have pleaded guilty, all those charged have denied wrongdoing and are free on bail. One suspect remains at large. The most prominent executive linked to the case, former Advanced Micro Devices Inc. Chief Executive Officer Hector Ruiz, hasn’t been charged. Those involved in the case include: Raj Rajaratnam : Galleon co-founder Rajaratnam, 52, was arrested and charged Oct. 16 with making millions of dollars by trading on insider information. Rajaratnam, born in Sri Lanka, earned a degree from the University of Sussex, England, in 1980, and an MBA in Finance from the University of Pennsylvania’s Wharton School in 1983. Rajaratnam lives in New York. Roomy Khan : A former employee of Intel Corp., Khan, 51, was convicted of wire fraud in 2001 for passing inside sales information to Galleon. She worked for Galleon in the 1990s and tried to rejoin the firm in late 2005. She has agreed to plead guilty to charges of conspiracy and securities fraud. She is cooperating with federal authorities. She lives in Fort Lauderdale, Florida. Deep Shah : A former analyst at Moody’s Investors Service, Shah, 27, is alleged to have given insider information to Khan, including Hilton Hotels Corp.’s impending takeover by Blackstone Group LP. Federal authorities believe he is now in India. Rajiv Goel : Goel, 51, a former Intel Capital employee, was arrested and charged Oct. 16 with passing inside tips about Clearwire Corp. and Intel earnings to Rajaratnam. He lives in Los Altos, California. He has an MBA in Finance from Wharton and is a friend of Rajaratnam. Danielle Chiesi : Chiesi, 43, was a consultant at New Castle Funds LLC, a former Bear Stearns Cos. hedge fund. She was arrested and charged Oct. 16 with insider trading. Prosecutors claim she passed tips along to Rajaratnam, including advance notice of a spinoff by Advanced Micro Devices. Chiesi lives in New York. Mark Kurland : Kurland, 60, co-founder of New Castle, was Chiesi’s boss. He was arrested and charged in the insider trading case Oct. 16. Kurland lives in Mt. Kisco, New York. Robert Moffat : A former executive with International Business Machines Corp., Moffat, 53, was arrested and charged Oct. 16. Federal officials claim he passed tips to Chiesi, including information about the Advanced Micro Devices spinoff and IBM earnings. He lives in Ridgefield, Connecticut. Anil Kumar : A friend of Rajaratnam, Kumar, 51, is a former director at the consulting firm McKinsey & Co. He was charged with insider trading Oct. 16. Investigators claim Kumar gave Rajaratnam inside information on the impending spinoff of Advanced Micro Devices, which was a McKinsey client. He lives in Saratoga, California. Hector Ruiz : The most prominent executive tied to the Galleon case, Ruiz, 63, is the former chief executive of Advanced Micro Devices. He is the executive prosecutors say provided insider information about the upcoming Advanced Micro Devices spinoff to Chiesi. Ruiz, who has not been charged, said he will resign as chairman of Globalfoundries Inc., the company that resulted from the spinoff, Jan. 4. He is on a leave of absence from the company. Richard Choo-Beng Lee : Lee, 53, and Rajaratnam were colleagues at the research firm Needham & Co. almost 20 years ago. Lee and Ali Far founded Spherix Capital LLC in 2008. Lee has a degree in electrical engineering from Duke University and an MBA from the University of California, Berkeley. He pleaded guilty and is cooperating with federal authorities. He lives in San Jose, California. Ali Far : Far, 47, is a former Galleon employee who founded Spherix Capital with Lee. He pleaded guilty and is cooperating with the government. Far lives in Saratoga, California. Steven Fortuna : Fortuna, a co-founder and principal of the hedge fund S2 Capital in Boston, pleaded guilty and is coopering with prosecutors. Fortuna is alleged to have traded on a tip from Chiesi about Akamai Technologies Inc. earnings. Fortuna, 47, lives in Westwood, Massachusetts. Ali Hariri : A former vice president at the semiconductor company Atheros Communications Inc., Hariri, 38, allegedly tipped Far and Lee to company earnings. He was arrested Nov. 5 and charged with conspiracy and securities fraud. Hariri lives in San Francisco. Arthur Cutillo : Cutillo, 33, a former attorney at the law firm Ropes & Gray LLP, was arrested Nov. 5 and charged with passing insider tips on deals the firm was working on involving Hilton, Avaya Inc., 3Com Corp. and Axcan Pharma Inc. Cutillo, who is alleged to have received kickbacks for the tips, lives in New Jersey. Prosecutors say he was a key source of inside information for the ring. Jason Goldfarb: Prosecutors claim Goldfarb, a 31-year-old New York lawyer, received tips from Cutillo and passed them on to Zvi Goffer. Zvi Goffer : Prosecutors claim Zvi Goffer, 33, was known within the ring as “the Octopussy,” due to his reputation for having multiple sources of inside information. Goffer, the founder of Incremental Capital LLC, previously worked at Galleon and Schottenfeld Group LLC. Prosecutors say he paid Cutillo and other tipsters and gave them prepaid mobile phones to avoid detection. He was arrested and charged Nov. 5 with fraud and conspiracy. He lives in New York. Emanuel Goffer : The brother of Zvi Goffer, Emanuel, 31, was a trader at Spectrum Trading before joining Zvi at Incremental Capital. He was arrested and charged with securities fraud and conspiracy Nov. 5. Emanuel is alleged to have traded on insider tips from Zvi. Gautham Shankar : Shankar, 35, was a trader at Schottenfeld. He pleaded guilty to securities fraud for trading on tips from Zvi Goffer and is cooperating with the authorities. He lives in New Canaan, Connecticut. David Plate : A trader formerly with Schottenfeld, Plate was arrested and charged Nov. 5 with securities fraud and conspiracy for trading on tips from Zvi Goffer. Prosecutors say he now works for Incremental and lives in New York. Craig Drimal : Drimal, 53, was arrested and charged Nov. 5 with fraud and conspiracy for trading on tips from Zvi Goffer. Prosecutors say he worked in Galleon’s office space without being employed by the firm. Michael Kimelman : Kimelman, a trader with Lighthouse Financial Group, was arrested and charged Nov. 5 with fraud and conspiracy for trading on tips from Zvi Goffer. To contact the reporter on this story: Bob Van Voris in New York at rvanvoris@bloomberg.net .

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Liz Ryan: Keep Your Resume Out of the Black Hole

November 6, 2009

My friend Stephanie wants to

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Liz Ryan: Keep Your Resume Out of the Black Hole

November 6, 2009

My friend Stephanie wants to

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Hector Ruiz Will Leave Globalfoundries Amid Galleon Insider-Trading Case

November 2, 2009

By Ian King Nov. 2 (Bloomberg) — Hector Ruiz , the most prominent executive tied to the Galleon Group LLC insider-trading case, is stepping down as chairman of Globalfoundries Inc., a spinoff of Advanced Micro Devices Inc. Ruiz, 63, will be on leave of absence before resigning on Jan. 4, Globalfoundries said today in a statement. Ruiz is the AMD executive government prosecutors say provided nonpublic information to Danielle Chiesi , alleged to be part of the Galleon insider-trading ring, a person familiar with the matter said last week. Ruiz, who stepped down as AMD’s chief executive officer last year, was instrumental in the company’s plan to spin off its manufacturing plants, becoming chairman of Globalfoundries, the new company created from the deal. Chiesi allegedly traded on information about that transaction. “The shockwaves of this controversy seem to be extending really far,” said Charles Elson , chairman of the University of Delaware’s corporate-governance center in Newark, Delaware. “The higher the profile of the individual involved, the more vigilant the industry will become. It makes everyone else much more sensitive.” Prosecutors have released parts of recorded conversations between Chiesi, a former Bear Stearns Asset Management official, and an AMD executive, in which they allegedly discussed the timing of the spinoff of AMD’s plants. The unnamed executive told Chiesi about the transaction in September 2008, ahead of the announcement of the deal, according to court documents. No Charges Ruiz had already been planning to step down — he had submitted his resignation in September, which would take effect in January, Sunnyvale, California-based Globalfoundries said. Board member Alan E. Ross , the former CEO of Broadcom Corp., will replace Ruiz, serving as interim chairman until a permanent replacement is chosen by the board. Last week, International Business Machines Corp. replaced Senior Vice President Robert Moffat , who is accused by prosecutors of leaking information on the transaction that created Globalfoundries to Chiesi. Ruiz hasn’t been charged with wrongdoing in the case, and prosecutors don’t say he profited from insider trading. Jeremy Fielding of Finsbury Group, who is representing Ruiz, declined to comment. Globalfoundries hasn’t been approached as part of the investigation and isn’t conducting its own inquiry, spokesman Richard Mintz said. AMD isn’t commenting on the matter, said spokesman Drew Prairie . AMD, also based in Sunnyvale, rose 9 cents to $4.69 at 11:48 a.m. in New York Stock Exchange composite trading. The stock has more than doubled this year. ‘Dead if This Leaks’ The unnamed AMD executive allegedly told Chiesi that there was a 99 percent chance the plant-spinoff agreement would be disclosed before earnings were announced — a prediction that came true, prosecutors said. On Oct. 7, 2008, AMD said it would offload its manufacturing arm as part of an $8.4 billion investment from the Abu Dhabi government. The shares jumped 8.5 percent that day. AMD reported earnings on Oct. 16, 2008. According to one of the criminal complaints, Chiesi discussed the AMD transaction with a co-conspirator not named as a defendant on Aug. 27, 2008. “You just gotta trust me on this,” Chiesi is quoted as saying. “Here’s how scared I am about what I’m gonna tell you on AMD.” Chiesi and the co-conspirator talk a little more, prosecutors said, and Chiesi states, “I swear to you in front of god, you put me in jail if you talk.” Later, the government said, she’s quoted as saying: “I’m dead if this leaks. I really am… and my career is over. I’ll be like Martha f—ing Stewart.” Chiesi has denied any wrongdoing. Abu Dhabi Globalfoundries owns former AMD factories in Dresden, Germany, and is building a new plant in upstate New York. While AMD remains Globalfoundries’ largest customer, manufacturing all its computer processors, the company is trying to sign up other chipmakers that are outsourcing production. That strategy puts it into competition with Taiwan Semiconductor Manufacturing Co. and United Micro Electronics Co. , the two contract manufacturers of chips. In September, the Abu Dhabi government agreed to buy Singapore-based Chartered Semiconductor Manufacturing Ltd. to combine it with closely held Globalfoundries. In July, Globalfoundries announced it had signed up STMicroelectronics NV as its first customer beyond AMD. Immigrant to CEO Ruiz’s career has spanned more than 30 years at some of the world’s biggest semiconductor makers. A Mexican immigrant, he worked at Texas Instruments Inc. and then Motorola Inc. , where he became the head of its chip unit. AMD founder Jerry Sanders hired Ruiz from Motorola in 2000, grooming him as a successor. Ruiz had the top job at AMD from 2002 until Globalfoundries was created. AMD is Intel Corp. ’s only major competitor in the $32 billion market for personal computer microprocessors. Under Ruiz, AMD shares advanced to $42.10 in February 2006, before declining as Intel stepped up competition. The stock reached a low of $1.80 in November 2008. The stock fell almost 6 percent on Oct. 28, a day after the person familiar said Ruiz was the AMD executive cited in the insider-trading documents. Ruiz received total compensation of $2.97 million in 2008, the year he left AMD. That included $1.12 million in salary and $1.36 million in option awards, according to the company’s proxy filing . He also was awarded a retirement bonus of $4.4 million and got a lump-sum payment of $3 million for successfully completing the Globalfoundries spinoff. To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

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Blade.org Announces New Chairman and Expands Its Board of Directors

November 2, 2009

PISCATAWAY, NJ–(Marketwire – November 2, 2009) – Blade.org, the premier open community dedicated to creating solutions based on the blade server platform pioneered by IBM and Intel, announced Alex Yost, vice president and business line executive for IBM System x and BladeCenter, will assume the role of chairman effective immediately. The Blade.org Board of Directors unanimously confirmed Yost for the position. Yost has been involved in Blade.org for a number of years, and was a natural choice for the chairman role.

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Video: In-Depth Look – Who is Bob Moffat?

October 26, 2009

Moffat Arrest Stuns IBM Staff – Senior VP Arrested in Insider Trading Case (Bloomberg News)

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Galleon Tip-Seeking on Intel Known to Prosecutors Since 2001 Khan Case

October 24, 2009

By Karen Gullo, Joel Rosenblatt and David Scheer Oct. 24 (Bloomberg) — Galleon Group LLC, the hedge fund firm at the center of a $20 million insider trading prosecution, came to the attention of prosecutors by 2001 for allegedly soliciting internal data on Silicon Valley companies. That year the government charged tipster Roomy Khan , a former Intel Corp. employee, with passing nonpublic information about the chipmaker’s backlog and billing reports, product pricing and sales to the Manhattan-based fund in 1998, according to a criminal complaint filed in federal court in San Jose, California in February 2001. An unidentified representative of Galleon Management Inc. sought the information from Khan , according to the document. In March 1998, Khan faxed documents from Intel’s Santa Clara, California, offices to a machine at Galleon, prosecutors said in the complaint. Khan pleaded guilty to wire fraud in 2001. Raj Rajaratnam , Galleon Group’s co-founder, was charged with insider trading on Oct. 16, 2009. “It’s surprising that the government would only go after one side of the case” in 2001, Peter J. Henning , a professor at Wayne State University Law School, said in an interview. He said that, given Khan’s conviction, the government would have been expected “to pay a lot more attention to Galleon since 2001 — and on the flip side you’d expect Galleon to be much more careful.” When a tipster is charged, the government normally moves quickly to go after the recipient of the inside information, Henning said. Khan Informant Information provided by Khan was central to the investigation that led to the arrests of billionaire Rajaratnam, an Intel unit executive and four others in the alleged insider- trading scheme, according to a person familiar with the probe, who asked not to be identified because Khan’s name wasn’t disclosed by the government. Rajaratnam was charged in federal court in New York with Rajiv Goel , a director at Intel Capital, and former directors at a Bear Stearns Cos. hedge fund, in what prosecutors have called the biggest-ever insider trading case involving hedge funds. Rajaratnam also was sued by the U.S. Securities and Exchange Commission. According to prosecutors who used wiretaps of Rajaratnam to build their case, tips to the hedge fund manager came from insiders and others at hedge funds, investor relations firms, and companies including Intel, International Business Machines Corp. , McKinsey & Co., and companies whose shares were traded in the scheme. Rajaratnam Rajaratnam has said he is innocent. His lawyer, Jim Walden , declined to comment yesterday. Chuck Mulloy , an Intel spokesman, also declined to comment. Rebekah Carmichael , a spokeswoman for U.S. Attorney Preet Bharara in New York, and Jack Gillund, a spokesman for the U.S. Attorney’s office in San Francisco, declined to comment. Galleon Management didn’t hold Intel shares as of March 31, 1998, according to the firm’s regulatory filings at the time. By the end of June that year, it accumulated a $39 million stake in Intel, the firm’s largest holding in any single company, the filings show. Over the next nine months, Intel’s stock climbed 60 percent as the chipmaker’s sales and revenue surged on demand for computers in the dot-com boom. Regulatory filings show Galleon reduced its stake to $20.7 million by the end of 1998, and no longer held Intel stock at the end of March 1999. Guilty Plea Khan pleaded guilty in 2001 to one count of wire fraud and was sentenced the following year to six months of home detention, fined $30,000 and ordered to pay $120,000 in restitution, said Joseph Schadler, a spokesman for the Federal Bureau of Investigation, in a phone interview yesterday. The maximum penalty for wire fraud is 20 years in prison and a $250,000 fine. Records of Khan’s criminal case are under seal in federal court in San Jose. Khan, identified by an Oct. 16 SEC complaint as “Tipper A,” is a hedge-fund manager who worked for Galleon in the 1990s and sought to rejoin Rajaratnam in late 2005 when she faced financial difficulties, according to that agency. Khan is identified in the criminal case against Rajaratnam as “CW,” for cooperating witness. The cooperating witness began helping the FBI in November 2007 in its inside trading probe in the hope of receiving a reduced sentence, according to court documents. The witness used inside information to trade securities and had tipped Rajaratnam since 2006, prosecutors said. The person helped federal investigators by “making consensual recordings of four telephone conversations” with Rajaratnam, according to court papers. The witness agreed to plead guilty to charges of conspiracy and securities fraud. Khan, who in May sold her house in Atherton, California, couldn’t be located for comment. Possible Explanation One possible explanation of why nine years passed before someone at Galleon was charged is that prosecutors and the SEC couldn’t demonstrate that the firm traded on the specific information that Khan provided, Henning said. He said it’s also possible that federal securities regulators couldn’t show the information would be material, or something that investors would want to know when making decisions. The 2001 conviction may hurt the government’s insider trading case against Rajaratnam, Henning said, because it raises questions about her reliability and trustworthiness. Those questions in turn mean the government will have to rely more on documentary evidence and wiretaps, he said. “Having a prior conviction, that’s fodder for the defense,” Henning said. “They may not use her as a witness, she may be too tainted.” The case is U.S. v. Kahn, 01-20029, U.S. District Court, Northern District of California (San Jose). To contact the reporters on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net ; Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net ; David Scheer in New York at dscheer@bloomberg.net .

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Chiesi Faced Tax Lien as Government Says She Reaped Illegal Akamai Profit

October 20, 2009

By Oshrat Carmiel and Katie Hoffmann Oct. 20 (Bloomberg) — Danielle Chiesi , accused with Raj Rajaratnam in the largest insider-trading case against a hedge fund, was allegedly short-selling shares of Akamai Technologies Inc. as she faced a federal lien for $63,226 in unpaid taxes. The Internal Revenue Service filed the lien against her Manhattan apartment on Aug. 12, 2008, a step taken by the agency after a formal demand for payment is ignored, according to city records and the IRS . A month earlier, Chiesi was gathering insider information about Akamai’s earnings , setting in motion a bet that the stock would fall that earned $2.4 million for her firm, New Castle Funds LLC, according to an Oct. 16 complaint filed by the U.S. Securities and Exchange Commission. Chiesi paid the IRS in November 2008, city records show . She didn’t return a message left for her with the doorman, and a phone call and e-mail to her lawyer, Alan Kaufman, weren’t immediately returned yesterday. Chiesi was arrested Oct. 16 with five others, including Rajaratnam, the billionaire founder of New York-based Galleon Group. The case, which used wiretaps to allege $20 million in ill-gotten profits, provides a snapshot of an alleged network of informants and traders, led by Rajaratnam, 52. His co- conspirators, according to prosecutors, included a McKinsey & Co. consultant, executives at Intel Corp. and International Business Machines Corp. , and Chiesi, 43, a Bear Stearns Cos. veteran who used expletives as she talked with Rajaratnam. “Who knows IBM? And who’s in bed with AMD? Put Danielle’s name on the f—-n’ ticket,” she allegedly said in an Aug. 19, 2008, call with Rajaratnam, who lives one block away from her on Manhattan’s Upper East Side. ‘Entirely Innocent’ Armonk, New York-based IBM, the world’s largest computer- services provider, said yesterday it put Senior Vice President Robert Moffat , one of Rajaratnam’s alleged conspirators, on temporary leave. Moffat, 53, declined to talk to a reporter yesterday outside his home in Ridgefield, Connecticut. “I am entirely innocent and will vigorously defend myself and our firm,” Rajaratnam said yesterday in a letter to employees and clients. He was released on $100 million bail. On a call on Aug. 15, 2008, Chiesi allegedly complained that in pursuit of insider tips she’d have to meet Moffat “on f—–g Sunday at my mom’s house.” Chiesi’s boss, Mark Kurland , co-founder of New York-based New Castle, was also arrested. Messages left for him at New Castle’s office were not returned. Kurland, 60, was not at his Mt. Kisco, New York, home when a reporter arrived at his door yesterday. Akamai Leak At Akamai Technologies, prosecutors said Chiesi had a family friend who leaked data on the provider of software to make Web sites load faster. Chiesi both used her Akamai intelligence for New Castle’s trading and passed it on to Rajaratnam, prosecutors said. New Castle began making bets Akamai’s stock price would fall on July 25, 2008, eventually shorting 290,000 shares, according to the SEC. That was five days before Akamai Technologies announced earnings and cut its profit forecast for the year. New Castle also bought put options on Akamai on July 30, the day the Cambridge, Massachusetts-based company released its earnings outlook after the market close. The next day, Akamai shares saw their biggest one-day drop in Nasdaq Stock Market trading. Akamai continued to fall through the third quarter, plunging 48 percent between July 21 and Oct. 1, 2008, according to Bloomberg data. Galleon’s Profit A put option is an agreement that gives the buyer the right to sell a specific number of a company’s shares by a preset date. A short sale involves a security that one doesn’t own and has borrowed in anticipation of making a profit by paying for it after its price has fallen. Galleon had begun selling short shares of Akamai on July 2, eventually shorting half a million shares, according to the complaint. Its profit: $3.2 million. The complaint says Chiesi and the source at Akamai spoke multiple times in July 2008, including two lengthy conversations on July 24. The wiretaps, which prosecutors said hadn’t previously been used to catch those dealing in inside information, showed Rajaratnam and Chiesi preferred bartering for confidential intelligence to paying for it. A Sept. 9, 2008, call between Chiesi and her contact there illustrates the alleged information-swapping process. After discussing whether Akamai would be buying back stock, Chiesi told her source, according to the transcript, “I want you to buy AMD … before the end of the month. Nothing’s gonna happen next week, but the week after … I think I’ve got a big deal.” The Akamai executive replied, “Okay, okay, good. I really appreciate that.” Real Estate Woes In October 2006, the board of Chiesi’s co-operative apartment at 418 East 59th St . requested an eviction warrant against her for nonpayment of an $11,301 debt, according to New York State Court records. As of yesterday, she was still residing in the building, according to a doorman in the lobby reception. In 2000, New York courts issued a “warrant for possession” of a different apartment at 33 East 56th St. for nonpayment of $5,223, according to court records. Chiesi was married for 16 months to Brian Feeney before divorcing in 1996, according to court records. Reached at home in Connecticut yesterday, Feeney declined to comment, saying he hadn’t seen Chiesi for almost a decade. Chiesi joined New Castle, which was started in 1995 as part of Bear Stearns’s asset-management unit, in 1996. She had previously worked at New York-based investment firm Arnhold & S. Bleichroeder as a vice president in investment banking and research sales for two years, according to New Castle’s marketing documents. Prior to that she worked at research firm Furman Selz and Mabon Nugent. Chiesi graduated from the University of Colorado with a bachelor’s degree in economics, according to the documents. The cases are U.S. v. Rajaratnam, 09-02306, and U.S. v. Chiesi, 09-mag-2307, U.S. District Court, Southern District of New York (Manhattan). To contact the reporters on this story: Oshrat Carmiel in New York at ocarmiel1@bloomberg.net ; Katie Hoffmann in New York at khoffmann4@bloomberg.net

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Galleon’s Rajaratnam Is Charged by U.S. With Insider Trading at Hedge Fund

October 16, 2009

By David Glovin, Katherine Burton and David Scheer Oct. 16 (Bloomberg) — Raj Rajaratnam , the billionaire founder of the hedge fund firm Galleon Group, and ex-directors at a Bear Stearns Cos. hedge fund were among six people charged in a $20 million insider trading scheme by federal prosecutors. Also accused were Rajiv Goel, who worked at Intel Capital as a director in strategic investments, Anil Kumar, who worked as a director at McKinsey & Co., and IBM Corp. executive Robert Moffat . The former officials at Bear Stearns Asset Management are Danielle Chiesi and Mark Kurland , who were affiliated with the firm’s New Castle Partners, which managed about $1 billion. Rajaratnam used “devices, schemes and artifices to defraud,” one of two complaints in Manhattan federal court says. Prosecutors said they used wiretaps on the billionaire’s phone. “A number of the calls intercepted over the wiretap consist of Rajaratnam either providing, receiving, or seeking material nonpublic information about various publicly traded companies,” a complaint says. The case represents the first time wiretaps were used to target insider trading, U.S. Attorney Preet Bharara in Manhattan said at a press conference. Tips came from insiders and others at hedge funds, investor relations firms, and companies including Intel, IBM, McKinsey, and companies whose shares were traded in the scheme, Bharara said. 13 Counts Rajaratnam, 52, a graduate of the University of Pennsylvania’s Wharton School, was identified this year by Forbes as the 559th richest person in the world, with a net worth of $1.3 billion. Galleon Partners is based in Manhattan and has offices in London, Singapore, Mumbai, and Menlo Park, California. He faces 13 fraud and conspiracy counts, many of which carry 20-year maximum sentences. Rajaratnam lives in New York City, as do Chiesi, 43, and Kurland, 60. Goel is 51 and lives in Los Altos, California. Kumar is also 51 and lives in Santa Clara, California. Moffat, 53, lives in Ridgefield, Connecticut. Pen Pendleton, a spokesman for Galleon, declined to comment. The six are charged with using insider information in two schemes to trade in shares of companies including Google Inc., Polycom Inc., Hilton Hotels Corp. and Advanced Micro Devices Inc., according the complaints filed in Manhattan federal court today. Arrests Five of the defendants have been arrested in the New York City area and will appear in the Manhattan court today. Goel was arrested in California. “The firm was distressed to learn that Mr. Kumar was arrested and is looking into the matter urgently,” said McKinsey spokeswoman Yolande Daeninck . IBM spokesmen Ian Colley and Ed Barbini did not immediately respond to phone and e-mail messages seeking comment. Prosecutors said they’ve been investigating the case since at least November 2007, when a person they don’t name in the complaint began meeting with agents of the Federal Bureau of Investigation. The person, who has pleaded guilty and is cooperating with authorities, had used inside information to trade securities and tipped Rajaratnam since 2006, prosecutors say in one of two complaints filed in Manhattan federal court. Taped Conversations The person, who had sought a job at Galleon in 2005, helped prosecutors by “making consensual recordings of four telephone conversations” with Rajaratnam, the complaint says. Authorities say they have other taped conversations of the billionaire as well. On March 7, 2008, the government got court approval to intercept a cell phone Rajaratnam used, according to one of the complaints. Prosecutors said they’ve also been listening to two of Chiesi’s landlines since August 2008. According to one of the complaints, Chiesi got secret tips from an unidentified person at Akamai Technologies Inc. and from Moffat, who passed along information about IBM, Sun Microsystems Inc., and Advanced Micro Devices Inc. “Chiesi shared certain of this inside information with Kurland,” and they bought securities in the companies, the complaint says. Chiesi also passed along tips to Rajaratnam, “who in turn provided Chiesi with inside information regarding AMD and other publicly traded companies,” prosecutors said in the complaint. Authorities said that Chiesi made illegal insider trades with accounts affiliated with New Castle. Like Martha Stewart The complaint quotes from a conversation on or about August 27, 2008, between Chiesi and a co-conspirator not named as a defendant. “You just gotta trust me on this,” Chiesi is quoted as saying. “Here’s how scared I am about what I’m gonna tell you on AMD.” Chiesi and the co-conspirator talk a little more and Chiesi says, “I swear to you in front of God, you put me in jail if you talk.” Still later, she’s quoted as saying “I’m dead if this leaks. I really am … and my career is over. I’ll be like Martha f—ing Stewart.” The complaint quotes from conversations between Chiesi and Rajaratnam, including a July 24, 2008, discussion that they had after she spoke to the Akamai executive. That day, Akamai stock had closed at $32.18. “Akamai,” she told Rajaratnam, according to the complaint. “They’re gonna guide down. I just got a call from my guy.” After Chiesi said that the company would bring the stock down to $25 a share, Rajaratnam replied that he would be “radio silent” and asked when Akamai would report, the complaint says. Short Every Day “Just keep shorting every day,” Chiesi responded, the complaint says. “We got a lot of days.” The complaint says Moffat tipped Chiesi about an AMD venture in Abu Dhabi in which IBM participated, and she told Rajaratnam about that, too. Galleon, which started as a hedge fund firm focusing on technology and health-care stocks, grew to more than $5 billion in 2001 from its start in January 1997. Rajaratnam founded Galleon with three other colleagues from Needham & Co. an investment bank that focused on technology and health-care companies. None of the other co-founders are still at the firm, according to a Galleon marketing document. Galleon Management, the company’s advisory business, oversaw more than $2.6 billion at the end of March, mostly on behalf of hedge funds, according to regulatory filings it submitted to the Securities and Exchange Commission at the time. Rajaratnam held a 50 percent to 75 percent controlling stake in the advisory, the documents show. The cases are U.S. v. Rajaratnam, 09-02306, and U.S. v. Chiesi, 09-mag-2307, U.S. District Court, Southern District of New York (Manhattan). To contact the reporter on this story: David Glovin in New York federal court at dglovin@bloomberg.net , and David Scheer at David Scheer in New York at dscheer@bloomberg.net .

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Video: IBM Down In Late Trading

October 16, 2009

IBM drops last quarter; Almost $1 billion worth of deals were signed on the fourth quarter. (Bloomberg News)

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Intel Sales, Profit Forecasts Top Analysts’ Estimates as PC Market Revives

October 13, 2009

By Ian King Oct. 13 (Bloomberg) — Intel Corp. , the world’s biggest chipmaker, forecast sales and profitability that topped estimates, indicating that computer demand is returning to pre- recession levels. The shares jumped 6.4 percent. For the fourth quarter, Intel forecast sales of $9.7 billion to $10.5 billion, compared with the $9.5 billion average estimate in a Bloomberg survey . Third-quarter net income dropped to $1.86 billion, or 33 cents a share, the company said today in a statement. Revenue fell 8.1 percent to $9.39 billion. Today’s numbers were all the more impressive because Intel raised its outlook two months ago, said Patrick Wang , an analyst at Wedbush Morgan Securities in New York. Chief Executive Officer Paul Otellini expects the PC market to grow this year, defying analysts’ predictions. “They had a phenomenal quarter once again,” said Wang, who expects the shares to outperform their peers. “They beat expectations on revenue and from a gross-margin standpoint.” Intel rose $1.31 to $21.80 in extended trading. The shares, up 40 percent this year, closed at $20.49 on the Nasdaq Stock Market. Net income was down 7.8 percent from $2.01 billion, or 35 cents a share, in the year-earlier period. In August, Intel said that third-quarter sales would be as much as $9.2 billion, compared with an August prediction of up to $8.9 billion. Profit Margin Gross margin , the percentage of sales remaining after the costs of production, was 58 percent in the third quarter. That compared with Intel’s prediction of about 53 percent. This quarter, it will widen to about 62 percent, the company said. Intel’s report kicked off two weeks of earnings by big U.S. technology companies, including International Business Machines Corp. , Google Inc. and Microsoft Corp. The use of Intel’s chips in everything from laptops to supercomputers makes its sales a barometer of industry demand. “Everyone has been pretty surprised at the strength of technology throughout the downturn,” said Kim Caughey , an analyst at Pittsburgh-based Fort Pitt Capital Group Inc., which owns about $1 million worth of Intel shares. “Whether or not we’re still in a recession, companies and retailers and customers alike are very careful about where they’re spending their money. Clearly they’re still buying computers and all things electronic.” New Windows Microsoft is introducing a new Windows operating system this month — an event that typically triggers a surge in PC orders. The question now is how long that boost will last. Orders for PC parts are ebbing, indicating that Intel’s sales may slow again, said Daniel Berenbaum , an analyst at Auriga USA in New York. PC makers have accumulated inventory, which may curb their demand for Intel’s chips later, he wrote in a report. Gartner Inc. , a research firm in Stamford, Connecticut, expects the PC market to grow in the fourth quarter. For the full year, it predicts a decline in global shipments of 2 percent to 285 million. China’s stimulus program may be helping the market by giving shoppers money to spend on PCs, said Edwin Mok , an analyst for Needham & Co. in San Francisco. He recommends buying Intel shares, which he doesn’t own. “The PC has been one of the bright spots this year,” Mok said. To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

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Boeing’s Muilenburg Targets Power-Grid Business as U.S. Cuts Hurt Defense

October 13, 2009

By Susanna Ray and Gopal Ratnam Oct. 13 (Bloomberg) — Boeing Co. defense chief Dennis Muilenburg is seeking to enter the potential $20 billion U.S. power-grid market as the second-largest military contractor’s key programs are being canceled or face budget cuts. After a month in the job, Muilenburg, 45, said he’s accelerating plans to expand beyond aerospace and defense that were started by his predecessor, Jim Albaugh , who was named head of the commercial-jet division on Aug. 31. “We know that we have to reposition our business, and that repositioning is something we are very aggressively doing,” Muilenburg said in an interview in his office overlooking the Pentagon. “One idea is to take some of our defense technology and use it to help solve problems in the energy sector.” Energy projects would put Boeing in competition with General Electric Co. , International Business Machines Corp. and Cisco Systems Inc. for $4.5 billion of U.S. stimulus spending aimed at improving the grid. The planned “smart-grid” technology seeks to lower costs and prevent disruptions with systems that allow energy providers to communicate. The market for the grid’s communications segment may be worth $20 billion in the next few years, Boeing spokesman Chris Haddox said. Boeing proposes using network and integration technologies from its missile-defense program and the Army’s Future Combat Systems to “add a certain level of intelligence to the grid and allow efficiency and reliability improvements” for utilities, Muilenburg said. Boeing fell 9 cents to $51.57 at 10:27 a.m. in New York Stock Exchange composite trading . The shares gained 21 percent this year through yesterday. ‘Trepidation’ “I would have some trepidation about Boeing’s ability to manage program risk in these new areas as this would be unfamiliar territory versus defense,” Rob Stallard , an analyst with Macquarie Capital Inc. in New York, said in an e-mailed response to questions. “The past is littered with examples of defense companies trying to diversify and the outcomes being less than optimal for shareholders.” Stallard has a neutral rating on the shares. Boeing has partnered with Consolidated Edison Inc. in New York and Southern California Edison Co. Boeing already has helped military bases reduce energy consumption and worked to improve the fuel efficiency of military planes, Muilenburg said. Boeing submitted three proposals on Aug. 26 for grants from the stimulus money to study the smart grid. The Department of Energy is expected to award the grants this year, Muilenburg said in the Oct. 9 interview. About $600 million of the Department’s funds will be distributed to smart-grid demonstration projects and $3.3 billion will support manufacturing, purchasing and installing equipment, the department said in June. Future Combat Systems The extra business would be a boost to Chicago-based Boeing, which has faced losses in the Pentagon’s new spending plans. The company’s Future Combat Systems and Airborne Laser programs were canceled, as was a ground-based missile-defense site in Europe it would have built. The company is fighting for a $35 billion contract for aerial-refueling tankers against a group including the parent of Airbus SAS. Defense Secretary Robert Gates in May called the $159 billion Future Combat Systems — manned and unmanned vehicles joined by a wireless network — “messed up” and split it into five programs. Boeing, which had been leading the effort, was left with one of the five. Army Communications Boeing will continue to have a role in the communications part of that program, which has worked “exceptionally well,” Muilenburg said, allowing it to be deployed on the existing fleet of Army vehicles. “That’s why we are now able to take that technology and move it to adjacencies,” he said. Muilenburg, who has been with Boeing since 1985, led the Future Combat Systems program in its early years. The company, which also is the world’s second-largest commercial-jet builder and is entering the commercial-satellite market, aims to use its expertise to expand in other areas as well, Muilenburg said. Boeing is offering supply-chain management services and has other expansion plans, he said, declining to give details. Boeing was founded in 1916, when Bill Boeing built a float plane on the shores of Seattle’s Lake Washington. The company bought McDonnell Douglas in 1997, expanding the defense side of the business to help counter the cyclical air-travel market. Defense Unit Boeing’s defense unit is leading the effort to enter the energy market, with help from the commercial side, and there are no plans to create a separate division, Muilenburg said. He and Albaugh, 59, are “very much focused on leveraging commonalities” in their new positions, he said. Boeing also is seeking growth from the helicopters, unmanned-drone, cyber-security and intelligence businesses, Muilenburg said. U.S. purchases of the company’s C-17 transport planes and F/A-18 fighter jets depend on yearly decisions by Congress, and the F-15 program relies largely on foreign buyers. “Any progress in taking on Department of Energy projects is likely to be initially very small, especially when compared to headwinds” like the conclusion of Boeing’s C-17 production, Stallard said. Boeing’s international sales will rise to 20 percent to 25 percent of revenue from 15 percent in the next five years as U.S. defense budget growth stalls and the company pushes for overseas contracts, Muilenburg said. Boeing is expanding international marketing of its Chinook transport and Apache attack helicopters, he said. Demand for the company’s ScanEagle drone is increasing, and customers are seeking unmanned aircraft that offer “significantly longer endurance, measured in days and weeks, not hours,” he said. The company is making internal investments to meet those needs and will seek acquisitions where needed, he said. “It’s not really a sea change in the strategy or approach but adding a sense of urgency,” Muilenburg said. To contact the reporters on this story: Gopal Ratnam in Washington at gratnam1@bloomberg.net ; Susanna Ray in Washington via sray7@bloomberg.net .

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Michael Dell Says His Company Will Be `Reasonably Active’ in Acquisitions

October 13, 2009

By Connie Guglielmo Oct. 13 (Bloomberg) — Dell Inc. founder Michael Dell , who announced a $3.9 billion takeover of Perot Systems Corp. last month, said his company is “rapidly developing” merger expertise and will seek more deals as part of a turnaround plan. “You will see us be reasonably active,” Dell, the company’s chief executive officer, said in an interview yesterday. He said Dell will look at acquisitions that bolster sales to corporate customers and will consider more purchases in the health-care industry. “We have a talented team of people that includes people who have been at Dell a long time and understand the Dell culture in the transactions that we’ve done and know why those have succeeded or not,” said Dell, 44. “We are rapidly developing that, and we’ve added some talent to help us do that.” The acquisition of Perot Systems is the largest purchase in Dell’s 25-year history and follows the takeover of storage- computer maker EqualLogic Inc. for $1.4 billion in 2008. Dell, the world’s second-largest personal-computer maker, also hired International Business Machines Corp. ’s top dealmaker, David Johnson , in May. Johnson, who didn’t work on the Perot deal, has a team working on “plenty of other things,” Dell said. Perot Systems will expand Dell’s reach into the computer- services market, especially in the health-care industry, while lessening the company’s reliance on PCs. The combined company stands to benefit from a U.S. economic stimulus package that will pour about $20 billion into health-care information technology. Perot Systems gets about half of its sales from hospitals, physicians’ practices and health-insurance companies. ‘Promising for Growth’ “When you look at the health-care space, it’s the one sector of the economy that has the least amount of IT, and we see it as very promising for growth,” Dell said. “There’s usually more technology at the grocery store than there is at your doctor’s office.” Dell spent two years courting Perot Systems and talking to other services providers. The company decided against pursuing a deal earlier because “it didn’t feel earlier was the right time,” Michael Dell said. Meanwhile, IBM, the leader in computer services, expanded in the market and Hewlett-Packard Co. spent $13.2 billion to buy services provider Electronic Data Systems Corp. “Perot is a bit of a catch-up deal,” said Ben Reitzes , an analyst with Barclays Capital in New York. “It would have been better if they had done it earlier.” Dell fell 39 cents to $15.42 yesterday in Nasdaq Stock Market trading. The shares have climbed 51 percent this year. Perot Systems, based in Plano, Texas, rose 8 cents to $29.84 on the New York Stock Exchange. College Dorm Dell, who founded the Round Rock, Texas-based company from his college dorm room in 1984, returned as CEO in 2007 after the company lost the PC market lead to Hewlett-Packard. He’s shuffled executives, fired employees, shifted away from a model of only selling over the phone and Internet, and outsourced manufacturing. He’s made about 10 acquisitions to help bolster sales and profit since 2007. Microsoft Corp. ’s release of the Windows 7 operating system on Oct. 22 should drive consumer PC purchases this year, with corporate buyers expected to follow later, Dell said. As the economy improves, technology companies are poised to benefit from any pickup in spending, he said. “There has been a faster-than-people-expected improvement in the broader economy, but it might be a little early to get out the celebration horns,” Dell said. “For the technology sector, the prospects are pretty good. Fundamentally we sell productivity, and if there’s anything you need in an economy that’s not that robust, it’s productivity.” Dell also is expanding in the mobile-computing market. The company said in August that it’s developing a wireless device for China Mobile Ltd., the world’s biggest mobile-phone company by users. “You could see us in the next year in the U.S. with some of the major carriers as well,” Dell said. To contact the reporter on the story: Connie Guglielmo in San Francisco at cguglielmo1@bloomberg.net .

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Wall Street Derivatives Lobby Links With New Democrats to Blunt Obama Plan

October 9, 2009

By Dawn Kopecki, Matthew Leising and Shannon D. Harrington Oct. 9 (Bloomberg) — As President Barack Obama vowed in a Sept. 14 speech in New York’s Federal Hall to correct “reckless behavior and unchecked excess” on Wall Street, Mike McMahon and Barney Frank sat in the audience discussing how to ease proposed rules for the $592 trillion over-the-counter derivatives market. Side by side at 26 Wall St., across from the New York Stock Exchange, freshman congressman McMahon told House Financial Services Committee Chairman Frank he was worried that Obama’s derivatives plan, released in August, would penalize a wide swath of U.S. corporations and could push jobs in his home district overseas, McMahon said in an interview. “It’s not just the farmers, and it’s not just the Wall Street guys,” said McMahon, a member of the New Democrat Coalition , a group of 68 self-described pro-growth Democrats in the U.S. House of Representatives. “It’s across the nation. American industry uses these products for a very useful purpose, which keeps down prices and makes consumer products cheaper.” McMahon said Frank agreed it was important to protect so- called end-users, the corporations that rely on derivatives to hedge everyday operational risk, such as fluctuations in foreign currency rates, interest rates and commodity prices. The Obama plan would subject companies to higher collateral requirements whether they trade standardized or customized contracts. It also calls for most trades to be executed on an exchange or an “alternative swap execution facility.” ‘Working Together’ “He said we’d be working together on this,” said McMahon , who represents a large constituency of Wall Street workers on Staten Island and in southwest Brooklyn. “We never had a philosophical difference.” It’s not just end-users who won concessions from McMahon and Frank. JPMorgan Chase & Co., Goldman Sachs Group Inc. and Credit Suisse Group AG lobbied McMahon and fellow New Democrat Coalition member Representative Melissa Bean of Illinois, among others, to expand the ways the legislation allows dealers and major investors to trade the contracts, according to people familiar with the matter. Bean’s spokesman Jonathan Lipman rejected the notion that the New Democrats made any changes to the bill at the behest of banks. “New Dems have promoted strong regulatory reform that institutes trade and price reporting, capital requirements, and margin requirements, all of which puts mandates on these institutions that they don’t like,” Lipman said. “New Dems have been focused on increasing transparency, reducing systemic risk, and preserving the ability for end-users to hedge their risk.” JPMorgan spokesman Justin Perras , Goldman Sachs spokesman Michael DuVally and Credit Suisse spokeswoman Victoria Harmon declined to comment. Loopholes The battle over derivatives legislation is a test for the Obama administration’s efforts to tighten financial regulation to prevent a repeat of the financial crisis that shook the global economy — a crisis exacerbated by derivatives trading. Frank, a Massachusetts Democrat who rose through the ranks in Congress fighting homelessness and advocating for gay and consumer rights, found his handiwork panned by administration officials after he released draft legislation last week that they criticized as too friendly to business. Frank’s bill allows for no change in how standardized over-the-counter derivatives are traded as long as they are reported to regulators. Commodity Futures Trading Commission Chairman Gary Gensler and Henry T.C. Hu of the Securities and Exchange Commission said Frank’s “discussion draft” created too many loopholes and had the potential to exclude all hedge funds and corporate end-users from oversight. New Democrats “That’s why it’s called a discussion draft, because it brings forth people’s comments,” Frank said in an interview after an Oct. 7 hearing at which Gensler and Hu testified. “It’s an ongoing process.” Frank told the committee that he agreed to “tighten up” the legislation before it is voted on next week. With 68 of the Democrats’ 256 votes in the House, the New Democrats have become a growing force within their party. Democrats hold a 38-member voting majority over Republicans and cannot pass financial legislation without coalition support. “Oh, they were very important,” Frank said. “A couple of them have some experience in this area. They are also an important part of our caucus.” Derivatives dealers became concerned that Obama’s plan didn’t adequately define “alternative swap execution facility” and that, in the end, regulators would write rules making them similar to exchanges, people familiar with the lobbying effort said. Over the last two months, the banks pressed to have Frank’s draft allow standardized trades to be executed privately via telephone, as they’ve been traded for decades, as long as they are reported to regulators, the people said. Shrinking Spreads The change could protect billions of dollars in profit for the dealers. When securities or derivatives are traded on exchanges — where investors can see real-time prices, rather than indicative prices sent by e-mail in the over-the-counter market — it can shrink the amount that dealers make on each trade, known as the spread. “Having more discretion for the dealers in the regulations gives an extra benefit to them by staying away from narrower spreads,” said Darrell Duffie , a finance professor at Stanford University in California. The top five U.S. commercial banks, including JPMorgan, Goldman Sachs and Bank of America Corp., were on track through the second quarter to earn more than $35 billion this year trading unregulated derivative contracts, according to a review of company filings with the Federal Reserve and people familiar with the banks’ income sources. Real-Time Pricing The banks are arguing that an exchange or trading-system mandate that publicizes large trades could make it too expensive or impossible to execute customer orders and hedge those trades at the same time, according to the people familiar. Publicized large orders may dry up the willingness of dealers and investors to buy or sell contracts, they said. That argument might not get a sympathetic ear at the Commodity Futures Trading Commission. Its chairman has several times called the regulated platforms “electronic trading systems,” suggesting that U.S. officials may seek to require banks and investors to use them like exchanges with real-time, public pricing. “People viewed it as tantamount to an exchange,” said Robert Pickel , chief executive officer of the International Swaps and Derivatives Association , a New York-based group that sets standards in OTC derivatives markets. ‘Into the Weeds’ While the concerns were raised through both Republicans and Democrats, “the New Democrats have played a central role here both in terms of interacting with the end-users but also being able to take that concern to Chairman Frank,” Pickel said. A half dozen New Democrats pressed Treasury Secretary Timothy Geithner to expand the administration’s exemption for end-users in an Oct. 1 meeting. “We got into the weeds on the derivatives bill,” said Connecticut Representative James Himes , a former investment banker at Goldman Sachs and a member of the New Democrats, who attended the meeting along with McMahon, Bean and chairman Joseph Crowley of New York. Unlike Obama’s plan, Frank’s bill doesn’t require derivatives users or dealers to execute standardized over-the- counter contracts on a regulated exchange or trading platform, which would force greater price transparency. Instead, it gives them the option to decide if they want to use an exchange or a trading platform, or merely report the transaction to regulators by the end of the day. Non-Standardized Contracts Not mandating exchange or other types of electronic trading “will probably prevent spreads from dropping like a rock,” said Kevin McPartland , a senior analyst in New York at Tabb Group, a financial-market research and advisory firm. “There’s no reason, at least that I can see, why anybody would go to an exchange.” The legislation “recognizes that a lot of derivatives contracts are non-standardized, meaning that IBM has exposure to the yen on a certain timetable that just doesn’t fit into standard exchange-traded contract,” said Himes. “The bill recognizes that some risks are unique. Sometimes you need a custom-made contract that won’t be exchange-traded or clearinghouse-cleared.” Executives and lobbyists in finance, manufacturing, agriculture and other industries had been pressing lawmakers and administration officials for months before McMahon’s fortuitous seating assignment at Federal Hall. “We’ve seen a steady parade of all of the big dealers, all of the major money-center banks have come through Congress,” Himes said in an interview. Derivatives Coalition The House Agriculture Committee approved legislation in February granting the CFTC or SEC oversight of clearinghouses backing credit-default swaps. It also would have allowed those regulators to suspend trading in the $26 trillion market. “That acted as a catalyst, and we formed a small group of companies that were interested in this issue,” said Dorothy Coleman , vice president of tax and domestic economic policy at the National Association of Manufacturers in Washington. Momentum continued to build over the next six months as the Obama administration made derivatives reform a key element of its financial regulatory agenda. The NAM group was joined by members of the U.S. Chamber of Commerce and the Business Roundtable to form the Coalition for Derivatives End-Users. Its 171 members are all non-financial corporations, including brewer MillerCoors LLC, International Business Machines Corp. and tractor-maker Deere & Co. Letter to Congress The coalition sent Congress a letter on Oct. 2 saying that some reform proposals “place an extraordinary burden on end- users of derivatives.” Members also met this week with lawmakers and staff on Capitol Hill. In the end-users coalition, broker-dealers found a powerful ally. Although the two groups say they didn’t coordinate their lobbying, their interests overlapped and many of the concessions won in the bill for end-users ended up benefiting some of the biggest Wall Street banks whose credit-default swaps exacerbated the financial crisis. “There’s very little sympathy for the plight of money- center banks on Capitol Hill right now,” Himes said. To contact the reporters on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.com ; Matthew Leising in New York at mleising@bloomberg.net ; Shannon D. Harrington in New York at sharrington6@bloomberg.net .

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Video: Sector to Watch – Technology

October 9, 2009

Barclays Raises IBM Price Target to $140, Upgrades Tech Hardware Companies Like NetApp, HP, and EMC; Intel to Benefit from IT Spending; According to JPMorgan, Chip Stocks to Beat Estimates (Bloomberg News)

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Renaissance Founder Simons, Computer-Trading Pioneer, to Step Down as CEO

October 9, 2009

By Saijel Kishan and Katherine Burton Oct. 9 (Bloomberg) — James Simons , the billionaire founder of hedge-fund firm Renaissance Technologies Corp. who helped pioneer investment strategies that use computer models, plans to retire as chief executive officer by the end of the year. Bob Mercer and Peter Brown , the current co-presidents of the East Setauket, New York-based firm, will take over as co- CEOs on Jan. 1, 2010, according to a letter sent to investors yesterday. Simons, 71, will stay on as non-executive chairman. “I have led the organization and its predecessor for 31 years, and it is definitely time to pass the torch,” Simons said in the letter, a copy of which was obtained by Bloomberg News. A spokesman for Renaissance confirmed details of the letter and declined to comment further. Simons, a former military code cracker who uses statistical models to buy and sell securities, options, futures, currencies and commodities, built Renaissance into one of the largest hedge-fund managers by 2007. While his Medallion fund, which invests employee money, gained about 80 percent last year as financial markets collapsed, he lost money in two funds for outside investors that he started over the past four years. Renaissance ranked as the ninth-biggest hedge fund in 2008, managing $20 billion, according to Absolute Return magazine. The firm managed more than $30 billion in 2007. Professors, Engineers Before founding Renaissance, Simons was chairman of the mathematics department at Stony Brook University, part of the New York state university system. He abandoned academia in 1977 to start what would become Renaissance, hiring professors, code breakers and statistically minded scientists and engineers who had worked in astrophysics, language recognition theory and computer programming. In the so-called quant funds that he helped make popular, scientists mine data from financial markets looking for relationships among stocks, bonds, derivatives and commodities. They search for signals that will foretell whether a price is likely to rise or fall. Some forms of computerized trading that use high-speed orders to exploit tiny price swings have drawn scrutiny from policy makers who argue they undermine fairness and transparency. Nasdaq, the second-largest U.S. stock market, and Bats, the fourth-biggest, stopped offering so-called flash orders after Democratic Senator Charles Schumer of New York urged the Securities and Exchange Commission to halt the practice. Overtaking Paulson Simons, who overtook John Paulson as the world’s best-paid hedge fund manager last year with an estimated income of $2.5 billion, according to Alpha magazine, will remain the firm’s main shareholder. He has no plans to reduce his investment, said a person familiar with the firm. Simons’s $5.5 billion Renaissance Institutional Equities Fund, known as RIEF, fell 9.5 percent this year through September after losing 16 percent in 2008, the person said. The fund seeks to outperform the Standard & Poor’s 500 Index of the largest U.S. companies by between 4 percent and 6 percent on an average rolling basis. This year is the first that the fund underperformed since it was started in 2005. The S&P 500 index has gained 17 percent this year through September. Simons’s $2.5 billion Renaissance Institutional Futures Fund, or RIFF, gained 1.6 percent this year after losing 12 percent in 2008, the person said, while his $9 billion Medallion fund has gained about 12 percent this year through June. Hedge funds globally have returned 17 percent this year through September after posting average losses of 19 percent in 2008, according to Chicago-based Hedge Fund Research Inc. Language Technology Hedge funds are mostly private and unregulated pools of capital where managers can buy or sell any assets, participating substantially in the profits of the money invested. Brown and Mercer were both hired by Renaissance in 1993 from the IBM Thomas J. Watson Research Center, where they were language technology experts. Simons was born in 1938 and grew up in Brookline, Massachusetts, a suburb in Boston. He graduated with a bachelor’s degree in mathematics from Massachusetts Institute of Technology and completed his Ph.D. in math from the University of California, Berkeley. To contact the reporter on this story: Saijel Kishan in New York at skishan@bloomberg.net ;

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Obama, Congressional Leaders May Extend Tax Credits to Revive Home Market

October 8, 2009

By Lorraine Woellert and Jody Shenn Oct. 8 (Bloomberg) — President Barack Obama and congressional leaders might extend or expand tax credits and housing aid as they seek to counter the unprecedented decline in the U.S. housing market and reverse rising job losses. House Speaker Nancy Pelosi said lawmakers might extend an $8,000 tax credit for first-time homebuyers that is set to expire Dec. 1. Senate Banking Committee Chairman Christopher Dodd said he is “hopeful” that lawmakers will allow Fannie Mae, Freddie Mac and the Federal Housing Administration to continue financing larger mortgages past the year’s end. Extending the tax credit for homebuyers is “under consideration,” Pelosi, a California Democrat, told reporters today in Washington. “The question is, would that be just first-time homeowners or would you open it up to other purchasers of homes?” “There’s no question that I think it should be extended; for how long, we should discuss,” said House Ways and Means Committee Chairman Charles Rangel , a New York Democrat. He said the tax credit shouldn’t be made permanent. With the U.S. unemployment rate likely to reach 10 percent by the end of the year, Obama and his advisers are considering a mix of spending programs and tax cuts beyond the stimulus package Congress passed earlier this year. Pelosi and Senate Majority Leader Harry Reid met with Obama yesterday to discuss ways to bolster the economy amid concerns that joblessness will be a drag on the recovery. Talks With Lawmakers “We have continued to have conversations with members about initiatives that work for them in their districts to create jobs,” Pelosi said. “We’ll also be hearing from some economists from right to left on the spectrum in the days ahead.” White House spokesman Robert Gibbs told reporters “an evaluation has been going on for several weeks about measures that are expiring.” Ways and Means Committee spokesman Matthew Beck said continuing the homebuyer credit would cost the government about $1 billion for each month it is extended. A gauge of 12 homebuilders surged almost 6 percent. Also today, Treasury Secretary Tim Geithner told reporters on a conference call that housing markets are showing “broad signs” of improvement even though they haven’t yet healed. Real-Estate Companies Real-estate companies rose 1.9 percent. Simon Property Group Inc., the largest mall owner in the U.S., and ProLogis, which leases warehouses and industrial spaces, gained at least 1.7 percent. Today, more than 500 companies and trade associations signed a letter urging Congress to extend business tax credits, including one for research and development, which are set to expire at the end of the year. “Thousands of U.S. businesses and individual taxpayers would face major tax increases if these tax provisions expire,” the letter read. “An extension would bring more certainty in U.S. tax law, foster more effective business decisions, and encourage investment.” Bank of America Corp., IBM Corp ., American Apparel Inc. , and Norfolk Southern were among the companies signing the letter. Tax Deductions Policymakers are weighing proposals including accelerated depreciation tax deductions for companies and extending the loss carry-back deduction from two years to five years. They also are considering extending unemployment insurance benefits. On housing, Dodd is pushing legislation to allow government home-loan agencies to finance up to $729,750 in high-cost areas. The loan guarantees are set to otherwise fall to $417,000. “We need to keep this support in place,” said Dodd, a Connecticut Democrat. Dodd spoke at a hearing focused on the future of Fannie Mae and Freddie Mac, which were seized by regulators last year and are being supported by $400 billion in capital lifelines amid the housing slump. The Obama administration has said the issue can’t be resolved until the market stabilizes. Loan limits for Washington-based Fannie Mae , Freddie Mac of McLean, Virginia, and FHA, the U.S. mortgage-insurance agency, were boosted by lawmakers in February 2008 as part of efforts to curb a housing crash that then deepened. Higher limits were then affirmed as part of two other laws passed last year and this year. Senator Richard Shelby of Alabama, the top Republican on Dodd’s committee, focused on the oversight failings that led to the collapse of Fannie Mae and Freddie Mac and their seizure by the U.S. in September 2008. Not resolving the companies’ status may boost the cost of supporting them, he said. “I fear the longer we wait, the more it’s going to cost the U.S. taxpayer,” Shelby said, though he later added that he doesn’t believe “we should do anything hastily.” To contact the reporters on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net ; Jody Shenn in New York at jshenn@bloomberg.net .

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Dan Dorfman: Is Strong Wrong … Or Weak Right?

October 8, 2009

The bull-bear debate rages on, but no two ways about it: the bull, judging from the market’s ongoing Samson-like strength following roughly a 50% sprint from its March lows, has firmly grabbed the Wall Street reins. The bears are still out there hollering fire, but the fact of life is no one is paying any attention to the dire warnings from the more prominent skeptics. In particular, these include dour economist Nouriel Roubini, who has suddenly began to waver on his bleak economic projections and recently forecast another major stock decline; global money manager George Soros, who predicts the “bankrupt U.S. banking system” will lead to a very slow economic recovery; and Federated Investors’ strategist David Tice, a perennial bear who sees the S&P 500, now at about 1065, tumbling in a year to 400 and maybe even to 325. Given the vigor of the market and increasing signs of economic pep, our trio, for now at least, is rapidly losing any semblance of credibility. One trader sums it up, “The beat of the stock market — a harbinger of what’s ahead for the economy — has swung from a slow fox trot to fast stepping disco dancing,” he says, “and the non-believers like the ones you’re talking about look like buffoons.” For some thoughts, I rang up four market pros, both bulls and bears, one of whom ridicules the bullish thesis. That’s Charles Biderman, the head of TrimTabs Research, a West Coast liquidity-tracking service partially owned by Goldman Sachs. Steadfastly bearish since April, which Biderman says has very frustrating, he sees a market decline of about 20% kicking off at any time. The key reason is his contention that the economy, contrary to general belief, is getting worse, not better. In support of this view, he points to: –Falling wages and salaries (down 8% year over year). –Substantial numbers of understated job losses. Responding to government claims that new companies over the past three months have created more jobs (184,000) than have been lost by older companies that have gone out of business in the same period, Biderman says “that’s insane and utterly unbelievable.” –Plunging bank lending. –Millions of new foreclosures in the pipelines, with 6 million or 11% of the country’s mortgages not current. –A dramatic reduction in money-market funds and CDs on the part of consumers who are using the money to pay their bills and reduce debt. The way Biderman figures it, professional investors have been borrowing like crazy to buy stocks, which is what’s been goosing the market. But with margin debt way up and mutual fund cash reserves hovering at record low levels and very little new money going into them, he figures it’s only a matter of time before the big guns run out of cash and stocks head south big time. On another bearish note — a pretty significant one — Insider Insights, a newsletter that tracks insider activity (buying and selling by officers and directors in their own companies’ shares), reports that insiders are non-believers when it comes to the recent rally. “Insiders are saying beware; they’re flashing a bright yellow light,” says editor Jonathan Moreland. He notes that monthly insider purchases in each of the past three months represented the lowest amount of monthly insider buying since January of 2000. The significance: Since insiders are the most informed people around when it comes to knowing precisely what’s happening within Corporate America, their refusal to actively participate in a strengthening stock market predicated on a supposedly strengthening economy raises an obvious question. Is Wall Street trying to sell investors the Brooklyn Bridge? Sam Stovall, the chief investment strategist of Standard & Poor’s, doesn’t see it that way. Based on his rosy outlook, he thinks the bears should hibernate before they’re slaughtered. While many skeptical pros remain leery of the market for all the reasons everybody knows — ranging from a shoddy jobs picture to rising geopolitical risks — Stovall is not one of them. His overall market view: It’s the wrong time to be a wimp. “We’re in a bull market,” he says, pointing out that we’ve climbed 20% above the March lows and that advance has been in existence for more than six months without a subsequent 20% decline (which is what a bull market is all about). What’s more, Stovall expects the bull to continue its romp, given his strong belief the economy is clearly on the road to recovery. Not growing like crazy, mind you, but growing. In terms of specific numbers, he sees GDP growth of 2.5% in the third quarter, and 1.3% growth in the fourth quarter, followed by a slow uphill climb in 2010, with growth averaging 1.6% for the entire year. Corporate earnings growth, on the other hand, is seen humming, with Stovall envisioning a hefty 35% jump in 2010, versus an estimated 9% gain this year. One significant economic plus, as Stovall sees it, is the falling cost energy, with the price of a barrel of oil (now at around $70.10) down substantially from its $105 price tag at the end of the third quarter of last year. What about the dismal jobs picture? Stovall’s outlook is hardly encouraging. He sees the unemployment rate (now at 9.8%), topping 10% this year. And while he expects the rate to peak in next year’s second quarter, he looks for 10% plus for all of 2010. While he sees unemployment peaking later next year, it won’t be a significant drop, given his expectation of about a 9% jobless rate for all of 2011. “We’re in for a jobless recovery, similar to what we had in the Eighties,” Stovall says. Still, our bull sees stock prices continuing to balloon, with the S&P 500 surging 12 months out to 1100 from its current level. His best stock bets, five all told and among the highest ranked S&P companies, are all rated market outperformers and potential gainers of 21% or better over the next 12 months. They are Family Dollar Stores, Gulfmark Offshore, Arris Group, IBM and Gamestop Corp. A fella who swings back and forth with bullish and bearish views — he’s now a bull — is online investment adviser Mark Leibovit, the skipper of VRTrader.com of Sedona, Ariz. Leibovit, rated one of the best market timers around, notes the Wall Street crowd had been looking for a crash. Instead, he says, they’re getting an enema: that is, the shorts (those pros who bet stock prices will fall) are being squeezed, pushing stock prices higher. The avoidance of a widely September crash is one of the reasons he’s bullish. Another is a clear downtrend in the dollar, which is bullish for both stocks and gold. Technically, he notes the S&P 500 has held support at its 50-day moving average. The game, he believes, has changed. He expects the Dow (now at 9787) to hit 10,000 before year end, followed by maybe a rise next year to 11,000. He does raise the possibility, though, of a near-term pullback for several weeks before the market heads higher. Still investors need not worry, he believes, because, as he sees it, “we’re now in a melt-up, versus a melt-down.” It all raises the yet unanswered question. Is strong (the bull) wrong…or weak (the bear) right? Write to Dan Dorfman at Dandordan@aol.com

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Pelosi Says House Will Consider Extending First-Time Home-Buyer Tax Credit

October 8, 2009

By Lorraine Woellert and Jody Shenn Oct. 8 (Bloomberg) — House Speaker Nancy Pelosi said lawmakers might extend an $8,000 tax credit for first-time homebuyers that is set to expire Dec. 1. In addition, Senate Banking Committee Chairman Christopher Dodd said he is “hopeful” that lawmakers will allow Fannie Mae, Freddie Mac and the Federal Housing Administration to continue financing larger mortgages past year-end. “There’s under consideration whether we extend the first- time homeowners’ credit,” Pelosi, a California Democrat, told reporters today in Washington. “And the question is, would that be just first-time homeowners or would you open it up to other purchasers of homes?” Pelosi and Senate Majority Leader Harry Reid met with President Barack Obama yesterday to discuss ways to bolster the economy amid concerns that rising unemployment will be a drag on the recovery. “We have continued to have conversations with members about initiatives that work for them in their districts to create jobs,” Pelosi said. “We’ll also be hearing from some economists from right to left on the spectrum in the days ahead.” With the jobless rate likely to reach 10 percent by the end of the year, Obama and his advisers are considering a mix of spending programs and tax cuts beyond the stimulus package Congress passed earlier this year. Today, more than 500 companies and trade associations signed a letter urging Congress to extend business tax credits, including one for research and development, which are set to expire at the end of the year. ‘Major Tax Increases’ “Thousands of U.S. businesses and individual taxpayers would face major tax increases if these tax provisions expire,” the letter read. “An extension would bring more certainty in U.S. tax law, foster more effective business decisions, and encourage investment.” Bank of America Corp., IBM Corp ., American Apparel Inc. , and Norfolk Southern were among the companies signing the letter. Proposals under consideration include accelerated depreciation tax deductions for companies and extending the loss carry-back deduction from two years to five years. Lawmakers also are considering extending unemployment insurance benefits. Dodd is pushing legislation to allow government home-loan agencies to finance up to $729,750 in high-cost areas. The loan guarantees are set to otherwise fall to $417,000. “We need to keep this support in place,” said Dodd, a Connecticut Democrat. Fannie and Freddie Dodd spoke at a hearing focused on the future of Fannie Mae and Freddie Mac, which were seized by regulators last year and are being supported by $400 billion in capital lifelines amid the housing slump. The Obama administration has said the issue can’t be resolved until the market stabilizes. Loan limits for Washington-based Fannie Mae, Freddie Mac of McLean, Virginia, and FHA, the U.S. mortgage-insurance agency, were boosted by lawmakers in February 2008 as part of efforts to curb a housing crash that then deepened. Higher limits were then affirmed as part of two other laws passed last year and this year. Senator Richard Shelby of Alabama, the top Republican on Dodd’s committee, focused on the oversight failings that led to the collapse of Fannie Mae and Freddie Mac and their seizure by the U.S. in September 2008. Not resolving the companies’ status may boost the cost of supporting them, he said. “I fear the longer we wait, the more it’s going to cost the U.S. taxpayer,” Shelby said, though he later added that he doesn’t believe “we should do anything hastily.” To contact the reporters on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net ; Jody Shenn in New York at jshenn@bloomberg.net .

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Mike Smith: Clean Energy Advocates at GridWeek

September 24, 2009

Energy Stimulus is (just) a “Catalyst” “Smart grid,” President Obama said on David Letterman this week, “leads to long-term stability” for the U.S. “Clean energy,” Obama added, “will put 100,00 people back to work.” “Huge potential,” pitched the President, going directly to Americans. So what exactly is the state of smart grid and new power infrastructure. Electrification technology has been basically unchanged as a mechanical output for over 100 years. This week’s GridWeek, sponsored by DOE and a host of corporate entities at the Reagan Building in Washington, DC, began to provide some answers. There were three over-arching themes at this year’s GridWeek 2009 event in Washington: • Focus on Technology, R&D : The fact that President Obama mentioned smart grid on Letterman on Monday was compelling. GridWeek attendees on Tuesday morning had the sense the confluence of environmentalism and desire for energy security (independence from foreign oil), means their time has finally come. Democrats, Republicans and voters (consumers) support these initiatives. Apparently, it is cool to work for a power company or tech firm to build our grid! • Consensus is Driving Clean Energy: GridWise Consortium – Guido Bartel, chairman, and global IBM chief, and Katherine Harrison, president of the consortium, both told me the $4.8 billion in stimulus money for clean energy technology, energy grants, which is almost 50 times earlier Administration’s investments, has placed laser-sharp focus on building energy solutions. “Brought everyone to the table,” said the IBM’er. • Consumer Education is Critical : whether we as Americans will adopt smart grid and pay small surcharges (power companies estimated $2.85 to $3.05 for clean energy and grid infrastructure), knowing the impact we have on carbon footprint seems the biggest challenge. DOE’s Smart Grid Czar Eric Lightner offered 6 new DOE public service directories, a road show, and smart cities tour that will help educate the public. GridWeek had over 1000 people this year from utilities, power generation or transmission, tech solutions. And from U.S. Government including Aneesh Chopra, the President’s CTO , or State Government such as New Mexico’s Energy Chief Tom Bowles. These two formed the keynote session and encouraged industry innovation. Public-private partnerships seem more likely. CTO Aneesh Chopra wants practical applications from smart grid and to learn “what’s possible.” He left with 25 business cards and a promise to hear more about energy solutions. Power company execs joined the plenary and harped that there are not enough resource put against clean energy. Private sector will need to invest perhaps trillions to deliver full automation and energy efficiency upgrades. “The Energy problem is a world problem,” said Thomas Bowles from New Mexico. “We are collaborating with Japan.” Japan announced a bold measure at the UN this week to reduce carbon emissions by 25% by 2020. The Washington Post called this declaration by Prime Minister Hatoyama, “The most ambitious commitment to curbing greenhouse gases by an economic power.” Bowles added that he promotes “Smart grid cities” in New Mexico. With national lab R&D from DOE’s Sandia and Los Alamos labs, NM makes sense as a critical hub. In fact, Taos, the home of harmonic convergence, now has 40 percent smart grid in place. “On their own” initiative, said Bowles.. His goal is to: “Build out our green grid and export more energy. We already produce coal and gas but now have capacity in renewable” including solar and wind. Stimulus is a “catalyst”, said GE’s Luke Clemente. Global thinking-and worldwide focus on energy solutions is pre-requisite. When your government budget for Energy technology and power transmission is $100 million, an infusion of $4.8 billion in ARRA stimulus funding and energy grants seems like a huge leap. But industry and government experts alike called this a “down payment” on private sector investment. BAE Systems predicted stimulus money may be awarded as early as December and will “start being spent by March.” However, with over 500 applications to review, DOE has its hands full to funnel money by early 2010. Plus, the dollars for clean energy technology come in several launches. Consider this a slow roll. DOE’s Lightner said “consumer education is our biggest challenge”. The DOE will have a “smart grid clearinghouse” and road show demos of best in-home use of these new monitoring devices. Like so many things, market forces, consumer demand, and a little help from the Obama administration to prime the pump will determine the success of our national power supply. Mike Smith is a political blogger. He tweeted the GridWeek event at smittypa. His company, Mike Smith Public Affairs, also works with clean energy companies in communications to help develop sustainable business.

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Hockney, Capote, Mailer Draw Themselves in Auction of Quirky Portraits

September 23, 2009

By Lindsay Pollock Sept. 23 (Bloomberg) — A collection of quirky self- portraits by hundreds of notables, including writers Truman Capote and Saul Bellow , actor Paul Newman and painter David Hockney , is estimated to sell for as much $500,000 on Sept. 24 at Bloomsbury Auctions in New York. Not a bad price given that the illustrations were assembled with no money, just chutzpah. “Portrait of the Artist: The Burt Britton Collection’’ includes 500 drawings in 213 lots that are being sold with prices ranging from a few hundred dollars to more than $10,000, depending on the fame of the artists as well as the rarity and quality of the drawing. Britton, a New York denizen and bibliophile, started his collection in the mid-1960s while bartending at Manhattan’s Village Vanguard jazz club. When he asked Norman Mailer to draw himself, the writer complied with a confident black-crayon doodle, recognizable for the mop of hair and prominent nose (estimate: $2,000 to $3,000). Thus began a 14-year avocation that yielded more than 2,000 self-portraits. Britton, now 76, worked at the Strand bookstore in Greenwich Village from 1968 to 1978, and then co-founded the Madison Avenue shop Books & Co. with Jeannette Watson, an IBM heiress. These jobs put him face-to-face with his writer heroes and he buttonholed hundreds of famous names. “He was really beloved by American writers ranging from Bernard Malamud to Don DeLillo,’’ said rare-book dealer Glenn Horowitz. “His devotion to literature was on a very, very high level.’’ Angelou’s Lips The collection reveals some talent. Poet John Ashbery , who studied painting, drew himself as a wide-eyed young man in a turtleneck (estimate $3,000 to $5,000). Maya Angelou took a more conceptual tack, signing her name inside a pair of floating lips ($800-$1,200). Saul Bellow avoided detail, tracing a loose profile ($3,000-$4,000), while Capote wouldn’t win any art prizes for his minimalist orb sporting spectacles ($2,500-$3,500). Both could use drafting lessons from writer Tom Wolfe , who portrays himself as a bow-tied dandy, reclining in a plush armchair ($3,000-$4,000). Through his writer pals, Britton also befriended artists. These meetings resulted in some of the most accomplished, and valuable, items in the collection. Elaine de Kooning sketched herself amid a paper-strewn studio ($3,000 to $5,000), while painter Philip Guston depicted himself unflatteringly as a stubbly, wrinkled smoker ($20,000 to $30,000). ‘Hi Burt!’ Hockney drew a bag filled with books, sneaking his own likeness onto one of the covers ($10,000 to $15,000). Alex Katz drew his skinny, hairy body hurtling off a diving board. He yells “Hi Burt!” in a cartoon-style bubble ($6,000 to $8,000). Writer Anais Nin suggested Britton make a book with the drawings. “Self-Portrait: Book People Picture Themselves” was published in 1976 by Random House . Britton left Books & Co. in 1980. He declined to be interviewed by Bloomberg News. Friends describe Britton as hermetic. When he left Books & Co., he was rumored to have landed a contract to write a novel, but nothing has ever been published. The collection at Bloomsbury may well be his finest creation. “It was about chance encounters for many years,’’ said Bloomsbury’s Peter Costanzo, the specialist in charge of the sale. “He relied on the kindness of strangers.’’ For more information on the auction: +1-212-719-1000; http://www.bloomsburyauctions.com To contact the reporter on the story: Lindsay Pollock in New York at lindsaypollock@yahoo.com ;

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Dell’s Offer to Perot Over Breakfast `Just Evolved’ Into $3.9 Billion Deal

September 23, 2009

By Doron Levin and Connie Guglielmo Sept. 23 (Bloomberg) — H. Ross Perot Jr. said he began talking “chairman to chairman” with Michael Dell two years ago, relying on an old family friendship, before agreeing to Dell Inc. ’s $3.9 billion buyout offer for Perot Systems Corp. Perot and his father, company founder H. Ross Perot Sr., initially declined Dell’s suggestion that the companies merge, Perot Jr. said in an interview. Dell , the world’s second-largest maker of personal computers, and Perot Systems , a provider of computer services, seemed too different, he said. “I went down to Austin to meet him on Saturday for breakfast a couple of years ago, thinking we were going to do some business together, and Michael broached it,” said Perot Jr., chairman of the Plano, Texas-based company . “We really liked each other, but I said no. Dell is in the manufacturing business, we’re in services. They’re as different as football and basketball.” Perot Jr. said talks with Michael Dell, a family friend since the 1980s, “just evolved” over time. Dell, 44, convinced the Perot family that the acquisition would benefit both Texas technology companies by expanding sales. Negotiations heated up in June, culminating this week in Dell’s $30-a-share cash offer. The acquisition vaults Dell into the health-care information-technology business, giving the company access to customers such as hospitals and insurance companies. Health-care IT spending, including outlays for services and equipment, will total $22.3 billion this year, the research firm IDC estimates. Complementary Pieces “What we see in Perot Systems is an incredibly complementary set of capabilities,” Michael Dell, who serves as chairman and chief executive officer, told employees in a question-and-answer session this week. The combination will “allow us to go pursue all kinds of new customer opportunities in new geographies.” Dell , based in Round Rock, Texas, fell 28 cents to $15.73 yesterday in Nasdaq Stock Market trading. The shares have climbed 54 percent this year. Perot Systems jumped 65 percent to $29.56 on Sept. 21, the day the deal was announced. The shares were unchanged yesterday. The Perot family stands to make almost $400 million from the deal. About 25 percent of Perot Systems belongs to HWGA Ltd., which is the family’s investment company. Perot Sr., 79, is HWGA’s managing partner. Family Riches The two blocks of stock together are valued at $952 million at the $30-a-share acquisition price, which is 68 percent more than the family’s $568 million stake on Sept. 18, before the deal was announced. Perot Sr. has an estimated worth of about $5 billion and his son, 52, has a fortune of about $2.2 billion, according to Forbes magazine. With Perot Systems, founded by the elder Perot in 1988, Dell can expand its services business and challenge International Business Machines Corp. and Hewlett-Packard Co. The combined company stands to benefit from a U.S. economic stimulus package that will pour about $20 billion into health- care information technology. Perot Systems , whose customers include the Centers for Disease Control and Prevention, gets about half of its sales from hospitals, physicians’ practices and health-insurance companies. Dell and Perot Systems have been working together in the services market for the past two years. In April, they announced an alliance to create systems for electronic health records. “To have our company join with Michael Dell’s company will make one more than twice as productive as on their own,” Perot Sr., a former U.S. presidential candidate, said in a separate interview. “Together, we have a lot more freedom and flexibility to do great work. ‘Great Admiration’ “I have watched Michael Dell with great admiration as Dell has grown, and am absolutely comfortable as far as culture is concerned, or I wouldn’t have done it,” Perot Sr. said. Perot Systems hired Goldman Sachs Group Inc. about a month ago to “give opinions and make sure best practices were observed,” Perot Jr. said. Morgan Stanley advised Dell. Thomas Luce III , a Dell director since 1991 and a member of the audit committee, also “played a critical role in the deal,” Perot Jr. said. Luce has been a close associate, friend and adviser to the elder Perot for much of his business career. “We never really asked for stock” during the course of negotiations with Dell, Perot Jr. said. “With the way stocks are beaten down, cash is a better way for them to go.” Once the acquisition is complete, Perot Systems will become Dell’s services unit, headed by Perot’s current CEO, Peter Altabef . Dell’s services business will generate annual sales of about $8 billion and the deal will probably boost profit in fiscal 2012, Dell said this week. Perot Jr. will join Dell’s board , Michael Dell said in the employee meeting this week. The elder Perot said he plans to keep working hard at the company. “What else would I do? I’ll be here every day.” To contact the reporters on the story: Doron Levin in Southfield, Michigan, at dlevin5@bloomberg.net ; Connie Guglielmo in San Francisco at cguglielmo1@bloomberg.net

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Dell Pays 68% Premium for Perot to Expand in Health Care Technology Market

September 22, 2009

By Connie Guglielmo and Katie Hoffmann Sept. 22 (Bloomberg) — Dell Inc. ’s proposed $3.9 billion buyout of Perot Systems Corp. reflects the second-largest personal-computer maker’s ambitions in the market for health- care information technology. Dell offered $30 a share in cash yesterday for Perot, 31 times its earnings in 2009, according to Ben Reitzes of Barclays Capital in New York. Hewlett-Packard Co. bought Dallas-based EDS last year for $13.2 billion, 14 times that company’s 2008 earnings, Reitzes said. “The Perot deal offers them plenty of opportunities in the health-care and federal space,” said Paul Roehrig, an analyst at Cambridge, Massachusetts-based Forrester Research Inc. “Dell can build a leaner, commodity-based services offering to be an interesting competitor.” With Perot, founded by former U.S. presidential candidate H. Ross Perot , Dell gains a partner to boost sales of computer services as consumers and companies trim PC purchases to cope with the economic slump. Larger services units helped International Business Machines Corp. and Hewlett-Packard withstand the recession better than Dell, whose sales slumped 22 percent last quarter . Perot, whose customers include the Centers for Disease Control and Prevention, gets about half of sales from hospitals, physicians’ practices and health-insurance companies. President Barack Obama’s plan to expand health-care insurance coverage to virtually all Americans, if passed by Congress, could boost Perot’s health care-related business. Electronic Health Records Tighter budgets for hospitals and a shift to electronic health records also will bolster Perot’s sales, according to Reik Read , an analyst at Robert W. Baird & Co. in Milwaukee. The U.S. economic stimulus bill included $20 billion to upgrade health-care information technology, Read said in a report. Dell’s services business will generate annual sales of about $8 billion and the deal will probably boost profit in fiscal 2012, Round Rock, Texas-based Dell said yesterday. Hewlett-Packard’s services revenue was $22.4 billion in 2008, and IBM’s was $58.9 billion. “It doesn’t necessarily make them a contender to IBM and HP,” said Dane Anderson , an analyst at Stamford, Connecticut- based Gartner Inc. “It’s digestible from a size perspective and brings them to a level where they can compete.” “We’ve had services capability and we’ve been trying to grow that organically,” Paul Prince, chief technology officer for Dell’s enterprise group, said yesterday in an interview. “It’s pretty clear that we felt like customers were looking for a bigger picture, bigger solution at a faster pace than we could have done just by growing it organically.” Services Strategy EDS, the world’s second-largest computer-services provider after IBM, helped Hewlett-Packard increase its services revenue 93 percent last quarter as sales at the PC division fell 18 percent. Perot also was the founder of EDS, established in 1962. “The economy is forcing a lot of companies to rethink their services strategy,” said Alexander Motsenigos, director of global services markets and trends for Framingham, Massachusetts-based IDC. The researcher estimates the 2008 global services market at $806 billion. “Whether it’s going to be successful is a different question.” Perot shares jumped $11.65, or 65 percent, to $29.56 yesterday in New York Stock Exchange composite trading. Dell, which ranks second to Hewlett-Packard in PC sales, fell 68 cents, or 4.1 percent, to $16.01 on the Nasdaq Stock Market. Dell already has worked with Perot in the services market for the past two years, the companies said. Once the acquisition is complete, Plano, Texas-based Perot will become Dell’s services unit, headed by Perot’s current CEO, Peter Altabef . Perot Contracts Perot manages customers’ computer systems, data centers, software and Web sites through multiyear contracts. The company reported sales of $2.78 billion last year. Second-quarter net income rose 3 percent even as revenue slipped 11 percent. The company’s revenue was forecast to decline 9 percent this year, according to the average estimate of analysts in a Bloomberg survey . Dell’s revenue will drop 16 percent, analysts project. Michael Dell, 44, called the purchase a “profound” move. “This isn’t a services acquisition. It’s the right services company for us,” he said yesterday in an audio message to both companies’ employees that was included in a regulatory filing. The deal “illustrates pretty clearly how we’re remaking Dell around a clear vision, on our terms.” Cost Cutting Dell, which lost the PC market lead to Hewlett-Packard three years ago, has relied on cost reductions including job cuts to help prop up profit amid the recession. The company, aiming to save $4 billion a year, already has farmed out 40 percent of manufacturing and said it expects to contract out even more. Still, net income dropped 23 percent last quarter. While Michael Dell has predicted a new version of Microsoft Corp.’s Windows operating system for PCs, due next month, should help boost PCs sales, he also said the company doesn’t expect to see a huge uptick in PC upgrades until 2010. Perot’s Chairman, Ross Perot Jr., may join Dell’s board of directors. Goldman Sachs Group Inc. advised Perot on the transaction, and Morgan Stanley advised Dell. Perot agreed to pay a termination fee of $130 million to Dell if it breaches the agreement. Perot is unlikely to get another bid, given that Dell has an established relationship with the company, the offer is all cash and Dell is paying a “significant valuation premium,” Baird’s Read said. Investors say they aren’t concerned that Dell may have to hold off on other purchases, at least for a while. “They have enough on their plate,” said Kimberly Caughey , investment analyst at Fort Pitt Capital Group Inc. in Pittsburgh, which owns about 230,000 Dell shares. “They need to look at their portfolio and see how they are going to market themselves.” To contact the reporters on the story: Connie Guglielmo in San Francisco at cguglielmo1@bloomberg.net ; Katie Hoffmann in New York at khoffmann4@bloomberg.net

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Oracle’s Ellison Concerned by Delay in Europe’s Approval for Sun Takeover

September 21, 2009

By Rochelle Garner Sept. 22 (Bloomberg) — Oracle Corp. Chief Executive Officer Larry Ellison said the company is concerned about the delay in approval by European authorities of its planned takeover of Sun Microsystems Inc. The longer the European Commission takes, the more Sun loses, Ellison said today at a technology-industry event in San Jose, California. Sun is losing $100 million a month and the delay is “not good for anyone,” he said. Oracle is seeking European approval for its takeover of Sun, one of the last hurdles for the $7.4 billion acquisition announced in April. Earlier this month, the European Union said it’s taking a deeper look at the purchase because of “serious doubts” about competition in the database market. Oracle , the world’s biggest database maker, would acquire Sun’s MySQL, the most popular open-source database program in the deal. Open-source programs are distributed freely over the Internet. Sun makes money from MySQL by selling related services and software. Oracle and MySQL don’t compete and the company won’t spin off MySQL, Ellison said. The plan is to save as many jobs as possible in the takeover, he said. Losing Revenue The company will retain everything from Sun and the combined business will be able to compete with International Business Machines Corp., the world’s largest provider of computer services. European regulators plan to rule on the transaction by Jan. 19. In the meantime, Sun is losing revenue as customers shy away from the uncertainty surrounding the acquisition. Last month, Sun posted a $147 million loss . The company said fourth-quarter sales fell 31 percent to $2.63 billion, partly because of the pending acquisition. The losses and falling sales make it “increasingly improbable” that Oracle can meet its goal of squeezing $1.5 billion operating profit from Sun after the deal closes, Toni Sacconaghi , an analyst with Sanford C. Bernstein & Co. in New York, said last week. Oracle fell 5 cents to close at $21.57 in trading on the Nasdaq Stock Market. The stock has gained 22 percent this year. The company, based in Redwood City, California, ranks second to Microsoft Corp. in worldwide software sales . To contact the reporters on this story: Rochelle Garner in San Francisco at rgarner4@bloomberg.net

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Perot Options Trading Rose to Seven-Year High Before Dell Announced Offer

September 21, 2009

By David Scheer and Jeff Kearns Sept. 21 (Bloomberg) — Trading in bullish Perot Systems Corp. options jumped to a seven-year high Sept. 18 before Dell Inc. said today it will buy the company for $3.9 billion. Calls volume climbed to 2,539 contracts, or 242 times the four-week average, according to data compiled by Bloomberg. Only 10 puts traded that day, the data show. The shares, which rose 0.1 percent to $17.91 on Sept. 18, surged 65 percent to $29.62 at 11:03 a.m. New York time today. Call options, which convey the right to buy stock at a specified price by a certain date, often return more to investors speculating on takeover targets. Some of the U.S. Securities and Exchange Commission’s biggest insider-trading cases have focused on purchases of options before acquisitions of companies such as Dow Jones & Co. and TXU Corp. “The question is whether there was insider trading,” said Tamar Frankel , a professor at Boston University School of Law who has testified to Congress on financial regulation. “It’s enough of a bump to warrant attention, and it’s not costly for regulators to inquire.” SEC spokesman John Heine and Dell spokesman David Frink declined to comment. Perot spokesman Marvin Singleton didn’t immediately return a call for comment. Most Active The last session’s most-active options were October $20 calls, which gained 22 percent to 55 cents Sept. 18 and jumped 1,645 percent to $9.60 today. Those contracts, which expire Oct. 16, are also the most widely owned options, accounting for about half of all 10,353 Perot contracts. Last week’s call volume of 8,279 contracts is almost double that of the preceding three months, according to data compiled by Bloomberg. “When there’s a volume spike on a legitimate takeover it smacks of insider trading,” said Steve Sosnick , equity risk manager at Timber Hill LLC, the market-making unit of Greenwich, Connecticut-based Interactive Brokers Group Inc. “What made people wake up Friday and decide to make big bets in upside calls on Perot? That’s the question that has to be asked and the most obvious answer is probably that someone got wind of the transaction.” Sosnick’s firm doesn’t make markets in Perot options. Other factors may explain the trading, such as investments triggered by changes in the price of Perot’s stock, Frankel said. Dell said in a statement today that it agreed to buy Perot, founded by former U.S. presidential candidate H. Ross Perot, undertaking its biggest purchase ever to compete with Armonk, New York-based International Business Machines Corp. and Palo Alto, California-based Hewlett-Packard Co. in computer services. Dell, the second-biggest maker of personal computers, offered $30 a share in cash, about 68 percent more than Plano, Texas-based Perot’s closing price Sept. 18. The acquisition probably will boost profit in fiscal 2012, Round Rock, Texas- based Dell said in a statement today. To contact the reporters on this story: Jeff Kearns in New York at jkearns3@bloomberg.net . David Scheer in New York at dscheer@bloomberg.net

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Misys achieves IBM Banking Industry Framework certification

September 13, 2009

Misys achieves IBM Banking Industry Framework certification

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Citigroup’s Pandit Said to Mimic Marty McFly in `Bank of the Future’ Push

September 11, 2009

By Bradley Keoun Sept. 11 (Bloomberg) — Citigroup Inc. Chief Executive Officer Vikram Pandit may be the Marty McFly of banking. Executives at Citigroup’s U.S. retail-banking unit have huddled for seven months to conceive a “Bank of the Future” offering rejuvenated Internet and cell-phone portals alongside branches, people familiar with the matter said. Citigroup hired 37-year-old Michelle Peluso , who helped modernize airline reservations as CEO of Travelocity.com , to lead the sessions. Like McFly, the character played by Michael J. Fox in the movie “Back to the Future,” Citigroup is reaching to the past to reinvent itself. In 1997, under then-CEO John Reed , the bank unveiled a short-lived plan to do away with branches wherever possible by pushing more customers to personal computers, telephones and automated teller machines, a technology that Reed helped proliferate. Pandit, unlike Reed, doesn’t plan to get rid of branches. Bankers have long assumed that “people who like online banking have no money, and people with money don’t like online banking,” said Seamus McMahon , a former regional president for HSBC Holdings Plc’s U.S. banking unit. Now, “there is a group of people who were in their 20s and are now in their 30s, and actually have some money.” Citigroup, which got a $45 billion federal bailout last year, is trying to swell U.S. deposits prized as a source of funding amid the global credit crunch. Wells Fargo & Co. and Bank of America Corp. have more than 6,000 domestic branches each, compared with Citigroup’s 1,001, and at least three times Citigroup’s U.S. retail deposits. Failed Wachovia Bid Pandit tried to bolster deposits last year by buying the failing bank Wachovia Corp., only to have the bid trumped by San Francisco-based Wells Fargo. As of June 30, Citigroup had $135.7 billion of retail-banking deposits in the U.S. and Canada. “They don’t have nearly the branch presence in the United States as their competitors,” said Edward Najarian , an analyst at institutional brokerage International Strategy & Investment Group in New York. “So they have to come up with something innovative.” Citigroup’s strategy-planning project, initially known as “Bank of the Future” and later given the official name, “Citi Forward,” is overseen by Teresa “Terri” Dial , 59, a former Wells Fargo executive who was hired by Pandit in March 2008 to run the U.S. consumer division. The unit had $1.76 billion of revenue in the second quarter, down 17 percent from a year earlier. ‘Project Harmony’ In an Aug. 27 memo to staff, Dial wrote that there’s a “significant and immediate opportunity to embrace a more client- and customer-centric approach across our product lines and delivery channels.” Key elements of the “service model” include “technology, the Internet and mobile,” Dial wrote. Liza Landsman, 40, a former International Business Machines Corp. executive who has worked at Citigroup for nine years, was named to head the Internet and mobile-banking team, according to the memo, which was confirmed by Citigroup spokeswoman Susan Thomson . Peter Knitzer , 51, a 13-year veteran who previously oversaw marketing along with Citibank Online and other duties, will leave the company later this year, Dial said in a separate memo on Aug. 26. Thomson declined to discuss specific products or services being developed under Citi Forward. A related effort, known internally as “Project Harmony,” aims to consolidate Web portals for personal banking and credit cards, so customers don’t have to log in separately, people familiar with the matter said. Some other banks, including JPMorgan Chase & Co. and Bank of America, already offer single sign-ons. Supported by Parsons Earlier this year, Dial hired Peluso, who was Travelocity’s CEO from 2003 through January, as a part-time consultant. Peluso previously had worked at Boston Consulting Group and served as a White House fellow in the late 1990s. Employees tapped for the project were told in February to gather for lunch in an executive dining room at Citigroup’s Park Avenue headquarters, the people familiar with the matter said. Peluso opened the meeting by saying she had just bumped into board Chairman Richard Parsons , who told her he was excited about the project and that it was important to the bank’s future, according to two people who attended. Parsons, 61, didn’t respond to a request for comment. Dial arrived later in the meeting and said she wanted to prove that having a smaller branch network than rivals could be a competitive advantage, two people familiar with the matter said. Dial wasn’t available to comment. Marketing Officer Sought The Citi Forward group has been meeting about twice a week, one person involved in the process said. In the Aug. 27 memo to staff, Dial wrote that she was searching for a new chief marketing officer to play a “critical role in helping us define the future for North American consumer banking and earn the right to our customers’ lifetime business.” Peluso, working under a consulting agreement, was appointed to the role on an interim basis, according to the memo. To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net

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Jon Younger: The Human Element: Implement Stay Interviews Before It’s Too Late

August 14, 2009

Don’t wait until your best employees start leaving. As the economy recovers, companies of all stripes and sizes will need to build back their staffing levels to handle growth. But these same companies also need to keep the competent employees already working for them. Taking employee loyalty for granted is naïve. At least some of your best employees have already started looking around for opportunities to grow and prosper beyond (or faster than) what they believe is achievable with your company. And your most aggressive competitors are undoubtedly starting to look for good people, and targeting your best and brightest. Your secret weapon is knowing why your top employees stay. And your best tactic is taking the actions required now to attract and keep them. Do you know why your best people stay? Not guess or generalize from your last employee lunch. At a recent meeting of The RBL Institute, HR executives of leading companies such as IBM and Proctor & Gamble talked about using “stay interviews” to understand what top employees want from their organizations. (Full disclosure: I am a director of The RBL Institute which is led by The RBL Group co-founder Dave Ulrich and sponsored by the HR heads of 35 global corporations.) A stay interview is the inverse of an exit interview. Exit interviews tell you why good people are leaving, but rarely in time to prevent their departure. However, a stay interview implemented consistently and well is an early warning system that shows your appreciation, identifies ways to reinforce their good will, and helps you keep them on your payroll and not someone else’s. Stay interviews often consist of the following questions: • What do you like best about your job? About working here? • What do you want more of and less of in your work? What’s one thing you’d like to change in your current role? • What’s your dream job? (Someday you would like to _____?) • What can we do to support your career goals? • What might entice you away? What would it take to get you to consider leaving? As you implement stay interviews, keep in mind the following: • One at a time. Part of the power of a stay interview is to show your best performers that you care enough to talk about their interests, goals and hopes. This is “class” not “mass”. • Listen. Don’t guide the conversation into what you want to hear or do. Instead, pay attention to what gets the employee excited and engaged. • Be straight. If there are areas where you can’t act, be clear with the individual. • Be creative in finding the win/win. More money may be off the table, but how about increasing flexibility in work schedules so an employee can attend to his young child or elderly parent? • Do not negotiate. Remember, the purpose of the stay interview is to show appreciation and remind top people that they are important to the company. Don’t pollute it by turning it into a negotiation. Stay interviews are no panacea, but a tool to help managers gain insight into what needs must be met for employees remain with the company. For example, some years ago The RBL Group was engaged to help the IT department of UBS address significant attrition. Top performers were attracted by the promised opportunity to do groundbreaking work, but a new policy pushed the more innovative work to consultants. When top performers started to leave, IT management responded by offering them more money. Wrong answer. These employees wanted to be involved in cutting edge projects. A stay interview would have given UBS this insight and helped them respond accordingly. Smart companies take fuller advantage of the stay interview technique by applying it creatively. For example, IBM uses the stay interview concept to help it to create a more inclusive work environment. Executive task forces focused on diverse populations (e.g., Asians, Gay/Lesbian) now ask diversity group members: What is required for your group to feel welcomed and valued at IBM? What can IBM do to maximize your productivity? On a “one off” basis, stay interviews help a company keep its best people, but they can also be powerful strategy for attraction and retention. But, a more systematic approach increases its value. Have every manager conduct a stay interview at least monthly and have managers meet regularly to discuss the themes that come up. What are the consistent messages the company ought to address? If so, make the changes that will help the company retain great people … and attract others. What are your experiences with stay interviews and other creative retention strategies? Jon Younger is a Partner of The RBL Group , a strategic HR and leadership systems advisory firm. Jon leads the Strategic HR practice area and is also a Director of the RBL Institute. He is co-author, with Dave Ulrich and three other principals at The RBL Group, of ” HR Competencies ” (SHRM, 2007), ” HR Transformation ” (McGraw-Hill, July 2009) and many articles. Last year he logged client work in 35 countries.

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Takeovers & Tenancy: SPSS Soon to Be an IBMer?

August 4, 2009

Computer technology giant IBM said last week that it plans to acquire SPSS Inc., the analytics software developer, for about $50 per share. The deal, worth about $1.2 billion, is expected to close in the second half of this year. The acquisition is…

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Stocks in U.S. Retreat After Gauge of Consumer Confidence Trails Estimates

July 28, 2009

By Lynn Thomasson July 28 (Bloomberg) — U.S. stocks fell and the Standard & Poor’s 500 Index retreated from an eight-month high as consumer confidence trailed projections and companies from Office Depot Inc. to Coach Inc. posted worse-than-estimated results.

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