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AOL

AOL PR chief leaves – again

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Peter Land, head of communications at AOL, is leaving his job, marking the third public relations guru to get chopped in just over three years. The news is likely unwelcome for those covering the company as they’ll have to start relationship building all over again.

Ad Age’s Alex Kantrowitz broke the story:

AOL and Peter Land, its head of communications, are parting ways, Mr. Land confirmed on Tuesday. He declined to elaborate.

Mr. Land, who joined AOL from Pepsico in April 2013, did not have it easy in his year at the company. Over the past 12 months, AOL CEO Tim Armstrong had a number of public miscues that gained national attention, including the citing of “distressed babies” born to AOL employees as a reason for rolling back benefits and the firing of Patch creative director Abel Lenz in the middle of a conference call.

The Wall Street Journal story by Mike Shields and William Launder went into more detail about the ouster and AOL’s highly public missteps:

Mr. Land’s departure comes following a string of rough public relations episodes for Mr. Armstrong. Last August. Mr. Armstrong fired a Patch employee for taking an unwanted photograph during an internal employee conference call.

Then in February, during an AOL employee town hall event, made what has become an infamous comment about “distressed babies.” In explaining why the company was altering its 401K policy, he blamed two employees’ troubled pregnancies for costing AOL several million dollars. Mr. Armstrong eventually back tracked on that policy, but the damage had been done.

Still, the timing of Mr. Land’s ouster is strange, consider that AOL–and Mr. Armstrong– seemed to have turned the page. AOL reported fairly solid earnings back in February. Mr. Armstrong has recently announced several big advertising technology initiatives that have drawn industry praise. And next week, the company is set to host advertisers in New York for its annual NewFront event, where it will look to generate buzz around several new shows.

While media companies change their public relations strategies somewhat frequent, the move push out Mr. Land is just the latest in an ongoing pattern for AOL CEO Tim Armstrong, who seems to fall in and out of love with senior executives. For example, in late 2012 AOL said it was eliminating its chief marketing officer positions just five months after the company hired Jolie Hunt to fill that role. By this past August, the had a new CMO of AOL Advertising, Erika Nardini.

PR Week’s story by Diana Bradley highlighted that AOL chose to promote the head of investor relations to run communications:

The company has expanded the duties of IR head Eoin Ryan and AOL Advertising CMO Erika Nardini to oversee communications following Land’s departure, an AOL spokesperson said. Ryan will handle corporate communications, while Nardini will manage internal communications, corporate marketing, and foundation work.

“We are investing in our communications function by promoting two of our most talented up and coming leaders – connecting the entirety of our internal and external communications strategy under a high-powered and unified team,” the company spokesperson said in a statement.

AOL corporate communications director Doug Serton reportedly also left the company a few weeks ago, according to The Wall Street Journal.

Putting a head of IR in charge of communications could be a big mistake. Most IR heads understand talking to investors and presenting financials, while communications officers often have to deal with grayer areas. In particular, cleaning up the mess of Armstrong’s comments about “distressed babies” would be a challenge for anyone, but could be especially challenging for someone not used to dealing with the mainstream media and consumers.

The reporters covering AOL will have to get used to a new way of working with the company — again. Most business journalism is relationships and often the primary one on a beat is with the head of communications. Being the person whose call gets returned first can be the difference between breaking or chasing the news.

But it’s more than getting along. A new communications team means learning how best to ask questions and anticipate the spin the company will give you. You have to learn how the new communications executive will answer questions and how much detail he will give without being prodded. While learning style takes time, I’m sure the reporters covering the company have little incentive to work on getting to know the new communications head. If history proves correct, he won’t be there long.

Ford

Ford CEO speeds up departure

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Ford Motor Co. CEO Alan Mulally is leaving earlier than expected, news reports said Monday. The company is naming a long-term employee as the next in line for the top job. I’m sure General Motors is excited the news isn’t about them.

Mike Ramsey had this story for the Wall Street Journal:

Ford Motor Co. Chief Executive Alan Mulally will leave the company earlier than expected after a more than seven-year run in which he oversaw a significant expansion of the U.S. auto maker, people familiar with the matter said.

Mr. Mulally’s successor will be Mark Fields, 53 years old, a Ford veteran who survived management turmoil in the years before Mr. Mulally’s 2006 arrival from Boeing Co. Mr. Fields, the company’s operating chief, has won praise along with Mr. Mulally for getting Ford’s diverse operations to function as a single business with shared parts, models and goals.

The move may come as soon as July, the people said. Earlier he said he would remain with Ford through at least 2014. Mr. Mulally, in China for the Beijing International Automotive Exhibition, couldn’t be reached on Monday for comment. Last week, he said: “We’ve got a great succession plan. We have nothing new to announce on our succession plan at this point.” Ford declined to comment.

A midyear departure for Mr. Mulally would be earlier than previously indicated. One person close to the situation said the company believes Mr. Fields has proved himself capable in his 15 months as COO. Mr. Mulally also wants to get started with his post-Ford career, likely serving on corporate boards, this person said.

Bloomberg Businessweek said the move would bring in the next chapter for the automaker and recapped Mulally’s bold moves in the top job in a story by Keith Naughton:

The transition will bring an end to a storied chapter in Ford’s history, in which the automaker narrowly avoided bankruptcy thanks to Mulally’s management and a bet-the-business $23 billion loan. Mulally signed off on the loan shortly after arriving from Boeing Co. in 2006 and turned around the automaker by slashing costs and overhauling its lineup with stylish, fuel-efficient models that have won over a new generation of drivers.

 “A lot of great CEOs leave and then there’s chaos behind them,” Executive Chairman Bill Ford, great-grandson of founder Henry Ford, said April 16 on Bloomberg TV. “Alan and I have talked about that — the importance of the final act of a great CEO is having a great transition.”

Ford is planning to make this announcement now to provide clarity on its leadership and an orderly transition of power, the people said. Fields emerged as Mulally’s likely successor when he was promoted to COO in December 2012. Ford had said that Mulally would stay through 2014.

 “There were these rumblings about how long Mulally was going to stay and that caused a distraction,” said Karl Brauer, senior analyst with auto researcher Kelley Blue Book. “They decided ‘We’re not going to wait until everybody’s jabbing them about what’s going on at Ford.’ They’re taking control of the situation and saying, ‘Mulally is leaving and Fields is coming in.’”

Chris Woodyard and Alisa Priddle wrote for USA Today about the contrast between the methodical rise of Fields with the quick ascension of GM CEO Mary Barra:

Unlike the surprisingly quick announcement and promotion of Mary Barra to CEO of General Motors, Fields has been running the daily operations at Ford for 15 months and taken Mulally’s spot in key planning meetings in what is viewed as a thorough and lengthy transition.

Mulally, meanwhile, has said he is concentrating on longer-term strategy and he has already taken a lower profile, such as, for example skipping public appearances at last week’s press preview of the New York Auto Show where the redone 2015 Ford Mustang and the 50th anniversary of the Mustang were featured.

Fields, 53, is credited with restructuring operations in North America prior to his promotion in 2012 to the COO.

At the time of Fields’ promotion, Mulally, 68, confirmed plans to remain with the automaker through the end of this year, but the board of directors is said to be open to an earlier date.

The New York Times story by Bill Vlasic chronicled Fields’ rise through the ranks and his increasing level of responsibility:

Last week, he gave the opening speech at the media previews for the New York International Auto Show, and was host of a company event at the Empire State Building to celebrate the 50th anniversary of the Ford Mustang.

He will inherit some big challenges as the next chief executive, including shepherding the introduction later this year of Ford’s first aluminum-body pickup truck.

“Mark has been well-positioned for this role for years,” said Karl Brauer, an analyst with the research firm Kelley Blue Book. “He certainly has a good sense of the international markets as well as North America.”

Mr. Brauer said Mr. Mulally helped change a culture of infighting that plagued Ford for years before his arrival. “I think Mark learned from Alan that turbulence and rivalries are no good for the company,” he said.

Ford is expected to report healthy first-quarter earnings this Friday, primarily because of the strength of its sales and profits in the United States market.

I’ll bet Barra is slightly jealous of the company that’s being handed to Fields compared with the public relations nightmare that she inherited. It will be interesting to see the next generation of automakers as they move past the threat of bankruptcy and into a healthier operating environment. Both CEOs face challenges.

online

The battle rages for attention online

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There were several stories this weekend highlighting what various companies are doing to try and gain influence with online audiences. While none of the stories were alike, it seemed that they all had an element of grasping for attention in an increasingly crowded market.

The Wall Street Journal had this story by Ian Sherr and Daisuke Wakabayashi detailing the rise in the fight over videogames.

A long-running battle between Apple Inc. and Google Inc. for mobile dominance is spreading to the most lucrative genre of apps: videogames.

The two Silicon Valley giants have been wooing game developers to ensure that top-tier game titles arrive first on devices powered by their respective operating systems, people familiar with the situation said.

In exchange, Apple and Google are offering to provide a promotional boost for these games by giving them premium placement on their app stores’ home pages and features lists, these people said.

Last August, for the launch of “Plants Vs. Zombies 2,” a highly anticipated sequel to a popular zombie-survival strategy game, publisher Electronic Arts Inc. struck a deal with Apple, which promoted the game prominently in its App Store, according to people familiar with the matter.

In exchange, one of these people said, EA agreed to give Apple about a two-month window of exclusivity for the title, which wasn’t released on Google’s Android software until October.

ZeptoLab’s sequel to its popular puzzle game “Cut the Rope,” introduced in December, reflected a similar pattern. The company and Apple agreed to about a three-month window of exclusivity for Apple’s App Store, in exchange for the store prominently promoting the game, one person familiar with the matter said. ZeptoLab launched an Android version in late March.

Apple and Google representatives declined to discuss specifics of their exclusivity efforts. Exclusive titles are a common marketing strategy for videogame consoles, but are new to mobile apps.

Nick Bilton wrote for the New York Times Bits blog about the rise of inflated friends and followers as celebrities and others vie to more quickly go viral. It’s like harnessing the power of the mob, when the crowd is fake:

Whoever said, “Money can’t buy you friends,” clearly hasn’t been on the Internet recently.

This past week, I bought 4,000 new followers on Twitter for the price of a cup of coffee. I picked up 4,000 friends on Facebook for the same $5 and, for a few dollars more, had half of them like a photo I shared on the site.

If I had been willing to shell out $3,700, I could have made one million — yes, a million — new friends on Instagram. For an extra $40, 10,000 of them would have liked one of my sunset photos.

Retweets. Likes. Favorites. Comments. Upvotes. Page views. You name it; they’re for sale on websites like SwenzyFiverr and countless others.

Many of my new friends live outside the United States, mostly in India, Bangladesh, Romania and Russia — and they are not exactly human. They are bots, or lines of code. But they were built to behave like people on social media sites.

Bots have been around for years and they used to be easy to spot. They had random photos for avatars (often of a sultry woman), used computer-generated names (like Jen934107), and shared utter drivel (mostly links to pornography sites).

But today’s bots, to better camouflage their identity, have real-sounding names. They keep human hours, stopping activity during the middle of the night and picking up again in the morning. They share photos, laugh out loud — LOL! — and even engage in conversations with each other. And there are millions of them.

These imaginary citizens of the Internet have surprising power, making celebrities, wannabe celebrities and companies seem more popular than they really are, swaying public opinion about culture and products and, in some instances, influencing political agendas.

And then there’s Facebook, which is rolling out location software to tell you where your friends are hanging out. Seems like a good way to stalk your ex, or gain attention from younger mobile device users. Sarah Frier had this story for Bloomberg:

Facebook Inc. will let people know when their friends are nearby via smartphone notifications, adding features for its growing base of mobile users.

Consumers can customize the tool, called Nearby Friends, to see a certain group of people for a set period of time, or turn it off completely, the Menlo Park, California-based company said yesterday in a blog post. Friends will need to have the feature turned on in order to be seen.

Nearby Friends is Facebook’s latest move into location-sharing capabilities. The world’s biggest social network has added the ability for its more than 1.2 billion members to check into places like they would on Foursquare Labs Inc.’s mobile application. Facebook also has acquired Glancee, a location-tracking startup, and Gowalla, a location-based social network.

Foursquare, which popularized social location sharing, isn’t threatened by Facebook’s new service, Chief Executive Officer Dennis Crowley said in a post on his Tumblr blog. He cited a posting April 16 on the Verge technology news blog saying that people have accumulated many acquaintances on Facebook that aren’t their true friends.

While none of these applications are the same, it’s clear that mobile companies are competing for attention, especially as we all become more reliant on our mobile devices. What’s clear is that the companies that can win the battle for mobile will have a much easier time in the future.

virtu-financial-logo

Virtu IPO pulled

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The fall-out from Michael Lewis’s new book on high speed trading was too much for Virtu Financial Inc. The company postponed its initial public offering Thursday. The move came as other recent IPOs have gotten off to rocky starts.

Bloomberg had this story by Leslie Picker and Sam Mamudi:

Virtu Financial Inc., the high-frequency trader that announced plans last month to sell shares, will start marketing the offering weeks later than bankers anticipated, two people with knowledge of the matter said.

Virtu won’t start marketing the initial public offering until after April 20, a process its bankers had expected to begin this week, according to the people, who asked not to be named because the decision is private.

The delay comes amid unprecedented scrutiny of high-frequency traders. “Flash Boys,” the Michael Lewis book released March 31, says high-speed traders, Wall Street brokerages and exchanges have rigged the $23 trillion U.S. stock market. New York Attorney General Eric Schneiderman is examining privileges such as enhanced data feeds marketed to high-speed firms, while the Federal Bureau of Investigation is looking into whether those traders are breaking U.S. laws by acting on nonpublic information.

Chris Concannon, the president of New York-based Virtu, declined to comment on the IPO. The trading firm provides quotes in more than 10,000 securities and contracts on more than 210 venues in 30 countries, according to its IPO filing. It earned money from trading on every day but one in the last five years, according to the document.

In its IPO filing released in March, Virtu said U.S. derivatives regulators are looking into its trading practices.

The decision comes the day after the Chinese version of Twitter, Weibo, failed to sell as many shares as they wanted. The stock climbed 19% in trading Thursday. The Wall Street Journal story by Paul Mozur, Telis Demos and Matt Jarzemsky:

Weibo, which is growing fast but posted a net loss last year, raised $286 million in its initial public offering Wednesday. The amount fell short of expectations because the price of $17 a share was at the bottom of the projected range of $17 to $19, and the company sold 16.8 million shares, fewer than the 20 million expected.

Despite that sluggish start, the stock surged in its first day in the market. The company’s American depositary shares, which trade under the symbol “WB,” hit an intraday high of $24.48, up 44%.

In all, nearly 33 million Weibo shares exchanged hands Thursday.

The offering comes amid broad weakness in the U.S. IPO market and a month-long pullback in stock prices for both Chinese and U.S. Internet companies, including Twitter, whose shares have fallen 18% since the beginning of March.

The New York Times story by Michael J. de la Merced pointed out that Sabre, a travel technology company, also priced below expectations, but that shares climbed 4 percent on the first day of trading:

Both companies made their trading debuts during one of the roughest times for new stock sales in weeks, as shareholders have shown ambivalence about riskier investments. Until earlier this month, I.P.O.s had been on a tear, with many offerings pricing above expectations and then trading even better once they made their official market debut.

As investors began to fall out of love with fast-growing sectors like Internet and biotechnology, however, many prospective I.P.O.s began to falter as well, sending indexes like the Nasdaq in free fall on some days. An index of shares in newly public companies created by Renaissance Capital is down more than 1 percent so far this year.

Thomas Klein, Sabre’s chief executive, said in an interview that he wasn’t surprised about the change in investor sentiment since his company filed a prospectus in January. Still, he added that the travel services provider viewed its listing as the first step in a long-term journey toward becoming a public company after seven years of ownership by private equity firms.

“We were pleased with the decision to change the size a little bit,” he said.

Writing for Forbes, Steve Schaefer predicted that investors are beginning to steer away from IPOs:

The two-year anniversary of Facebook’s 2012 IPO is just a month away, and if recent trends continue the demand for new offerings may start resembling the freeze that followed the social network’s debut.

After that botched open, it took weeks for the next batch of IPOs to come through, and in the midst of the hottest IPO market since the dot-com bubble there are signs that conditions have gotten overheated and investor appetite is waning.

For one thing, the number of unprofitable companies flowing through the IPO pipeline has swelled. Jason Goepfert, author of the SentimenTrader Daily Report, cites a statistic that 83% of deals in the last three months were from money-losing companies, the highest such figure since the first quarter of 2000 (h/t to the Wall Street Journal).

That alone doesn’t mean the IPO market is going to grind to a halt. Far more important are the returns for both the broader market and the most recent predecessors to companies going public today. Unfortunately for the optimists there is softness on that front as well.

The Nasdaq Composite and Russell 2000, home to high-growth names in sectors like tech and biotech that are well-represented in the IPO market, are each in negative territory for the year, down 1.9% and 2.7% respectively.

It may that there were just a few too many tech companies looking to tap the markets or that investors are pulling back from the market in general. But those who got in on the ground floor of these are happy about their decision after today.

Google

Google has rare stumble

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The company is so ubiquitous that its name is a verb. But being part of the lexicon isn’t a pathway to riches. What’s most interesting about Google’s earnings this quarter is the business media’s portrayal of a 19 percent rise in revenue as a misstep.

Rolfe Winkler and Alistair Barr wrote for the Wall Street Journal that increased costs caused the drop in profit:

Fast-rising expenses eroded Google Inc.’s first-quarter profits, disappointing investors and sending Google shares lower in after-hours trading.

The Internet-search giant said revenue for the quarter rose 19% to $15.4 billion from $13 billion a year earlier, excluding the Motorola Mobility business Google plans to sell to China’s Lenovo Group Ltd. Analysts had projected revenue of $15.5 billion on that basis, according to S&P Capital IQ.

But expenses grew faster—at 23%. As a result, Google’s net income increased 3% to $3.65 billion, or $5.33 a share, from $3.53 billion, or $5.24 a share. The figures were adjusted for the pending Motorola sale and a 2-for-1 stock split.

Excluding stock-based compensation and other items, Google said earnings were $6.27 a share; on that basis, analysts had predicted $6.41 a share.

“The top line was pretty good, but the margin compression probably disappointed the market,” said Brian Wieser, an analyst at Pivotal Research Group. “The margin erosion trend seems to be well in place.”

The New York Times headline said earnings “disappoint” in a story by David Streitfeld, which pointed out Google is making acquisitions in order to post growth — at some point:

Its core digital advertising business is so dominant that analysts are questioning just how much it can continue to grow. So Google is unleashing its vast cash hoard on robotics, artificial intelligence, smart thermostats and, just this week, high-altitude drone satellites.

The only thing all these acquisitions have in common is a focus on the future — often, the distant future.

The risk in thinking about what will be big in 2050, however, is that you can lose sight of 2014.

Google’s first-quarter earnings report, released after the market closed on Wednesday, surprised Wall Street. The company has traditionally gushed profits without breaking a sweat. Now it takes more of an effort.

One big reason was a problem of several years’ standing: Internet users are migrating to mobile devices, but ads on phones and tablets still do not have the familiarity and appeal they do on bigger computers. And they are not as profitable for Google. Google’s ad volume jumped 26 percent in the quarter, which sounds good but is less than expected, while the amount advertisers pay dropped 9 percent, which sounds bad and is.

The CNET story by Seth Rosenblatt led with the fact investors didn’t like the news either:

Google’s shares fell sharply in after-hours trading Wednesday following first-quarter earnings and sales that missed Wall Street’s expectations, thanks in part to its continued acquisition binge and the ongoing shift in ad revenue from desktop to mobile.

The stock was down 5.85 percent to $524 per share immediately after the markets closed.

Colin Gillis, senior technology analyst at BGC Financial, said “a little [investor] pullback is healthy.”

“[Cost-per-click on] mobile’s a major problem. People have had a decade to optimize their [desktop] sites,” he said. Even though mobile ad revenue is rising, it’s not rising as fast as desktop is shrinking.

Kevin Shalvey wrote for Investor’s Business Daily that Google’s fall was based on lower pay ad clicks:

Google since mid-2011 has focused on building mobile-ad technology, in part to increase revenue from users in emerging countries where smartphones are used more widely than traditional desktops.

But worldwide paid clicks on ads grew just 26% in Q1, down from 31% growth in the three months prior. Analysts expected 29% growth, says Seyrafi.

Advertisers still aren’t willing to pay as much for a click on a mobile ad. Google’s overall cost-per-click, or CPC, rate slipped 9% from a year earlier, although it remained unchanged from Q4.

“I believe, in the medium to near term, mobile pricing has to be better than desktop,” Chief Business Officer Nikesh Arora told analysts on the post-earnings conference call.

CNNMoney attributed the stumble to mobile in a story by James O’Toole:

The challenge for Google is convincing marketers to pay as much for mobile ads as they do for desktop ads, a task that’s become increasingly pressing as Web usage shifts to smartphones.

Google Chief Business Officer Nikesh Arora said in a conference call Wednesday afternoon that the company’s mobile ad revenue is being held up in part because merchants haven’t spent enough time developing their mobile sites, assuming that customers will make more purchases via desktop.

“The journey is just beginning for advertisers on the mobile side,” he said. As advertisers begin to see the potential of mobile ads, including location targeting, Arora added that the gap between desktop and mobile ad rates would likely close.

“Right now we can lead the horse to water, but we can’t make it drink,” he said.

Part of the way Google is addressing this issue in the meantime is through the “enhanced campaign” strategy it introduced last year, which requires advertisers to buy across multiple platforms.

Taken all together this might indicate that Google will likely continue to see earnings growth slow in the near-term. What isn’t so clear is how they’re positioning themselves for the future. If you believe in the acquisitions and that cost cutting could come into play, then this might be a temporary setback. Otherwise, it could be the beginning of a long decline.

GM

GM still in the news

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General Motors Co. continues to make headlines as Chief Executive Officer Mary Barra deals with the aftermath of recalls and public relations crises. Last week, two top employees were suspended, while Tuesday there were several more follow-up stories about what’s going on at the automaker.

Jeff Bennett wrote for the Wall Street Journal that GM is trying to increase safety standards:

General Motors Co. Chief Executive Mary Barra sought to shift the focus on Tuesday to the auto maker’s coming new vehicles and away from investigations of a troubled ignition-switch recall, but struggled amid a barrage of questions about its responses to the probes.

In New York ahead of an auto show, Ms. Barra deflected questions about a potential U.S. criminal probe, saying she wasn’t aware if the Department of Justice has sought documents from the company, and declined to say when GM expected to answer all questions posed by auto-safety regulator National Highway Traffic Safety Administration.

“We are working on those every day,” she said of the NHTSA inquiry while surrounded by a media crowd peppering her with questions. GM Global Product Chief Mark Reuss was recruited to help provide crowd control after her speech.

GM said it is forming a product integrity organization under Mr. Reuss that will include a newly named vehicle safety czar. GM named engineering veteran Jeff Boyer as vice president of global vehicle safety and charged him with handling all safety-related issues including recalls. His group will be moved into the new organization. Mr. Reuss declined to provide more details on how the group will work but did say he will make additions to the team in the coming days.

Writing for the Detroit Free Press, Nathan Bomey reported that Barra was also cleaning up the company’s leadership in the wake of the recalls:

Two members of General Motors’ senior leadership team are leaving the company three months after a transition to a new CEO and amid a crisis over the automaker’s failure to fix an ignition switch defect.

Selim Bingol, senior vice president of public policy and communications, and Melissa Howell, senior vice president for human resources, will “pursue other interests,” GM said in a statement.

A company spokesman, Greg Martin, said the departures were not connected to the recall of 2.6 million small cars from 2003 through 2010 for defective ignition switches. The ignition switch defect is tied to at least 31 crashes and 13 deaths in Chevrolet Cobalts and Saturn Ions.

Bingol, has led GM’s public relations team since 2010 when he was tapped by former CEO Ed Whitacre. His successor will be named later.

Howell, who had been in the top HR job since February 2013, joined the automaker in 1990.

The New York Times had a story by Alexandra Stevenson pointing out that GM still had some (or one) willing to defend the company:

General Motors has come up against a tide of criticism. Its chief executive has been grilled by lawmakers for creating a “culture of cover-up,” it has been fined, and it faces investigations by a Senate panel and regulators over when it knew about serious safety issues.

But there is at least one person outside the company who is willing to step forward to defend G.M.: J. Kyle Bass, the hedge fund manager who made a name for himself betting against subprime mortgages.

He is now betting on G.M., which is under political scrutiny for a decade-long delay in dealing with a defect tied to 13 deaths.

“The question is why isn’t anyone defending General Motors, and I think neither side of the aisle can gain political capital by defending them,” Mr. Bass said in an interview. “They’ve been indicted in the public court of opinion. If you’re talking about true legal liability, it is de minimis.”

Mr. Bass’s $2 billion hedge fund, Hayman Capital, owns eight million shares of G.M., according to a person close to the firm. It is a stake that is small relative to the size of the $51 billion company, but it is the fund’s single biggest holding.

James Detar wrote for Investor’s Business Daily that GM workers stood in the way of an internal inquiry into the faulty ignition switch:

General Motors (GM) came under fresh scrutiny as a report analyzing documents released last week indicated that co-workers apparently blocked an in-house investigation into a faulty ignition switch linked to 13 deaths.

GM shares, which had fallen 30% from a Dec. 26 high to last Friday, rose as much as 3% early Monday. Some analysts have said that the strong auto market in the U.S. and China could offset losses associated with recent recalls.

In a report released Monday based on GM internal emails released by the company last week, Bloomberg found that engineer Brian Stouffer began trying in summer 2011 to determine why some ignition switches caused cars to stall, resulting in accidents. But upper-level managers reassigned him three times in a year, hampering his investigation.

As the story continues to unfold, I’m reminded of something that one of the smartest public relations executives once told me. The gist of the advice was that once a company uncovers something that’s gone wrong, the best way to deal with it is all at once and upfront. It might be painful to air all the dirty laundry at once, but it does prevent the days and days of front-page and bold website headlines as stories unfold slowly. Once the original story is broken, it’s most likely to all come out.

 

citigroup

Citigroup beats estimates, vows turnaround

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Citigroup Inc. finally had some good news as earnings beat analysts’ expectations for the quarter. But reporters had many different takes on the overall story.

Michael Corkery had this story for the New York Times:

Investors and analysts feared the worst from Citigroup, the global bank that has been besieged for months by regulatory problems and an industrywide trading slump.

But Citigroup managed to beat Wall Street expectations on Monday, with a 4 percent increase in first-quarter profits, compared with a year earlier.

The positive results come after a string of recent stumbles, including Citigroup’s failure to pass the Federal Reserve’s stress test and a costly fraud in its Mexican unit that has spawnedmultiple criminal investigations and broader questions about whether the bank is too large to manage effectively.

“We came into this worrying everything else was going to get worse,” said Moshe Orenbuch, a banking analyst at Credit Suisse. “It was not the case.”

Citigroup’s surprisingly good profit drove its shares up 4.4 percent, as investors expressed relief that the results were not as bad as expected.

Still, the results reflected little broad improvement in the bank’s ability to expand its fundamental businesses.

The Wall Street Journal story by Christina Rexrode and Saabira Chaudhuri focused on CEO Michael Corbet’s promise to deal with the bank’s the regulatory issues:

Citigroup Inc. Chief Executive Michael Corbat vowed to find an “industrial-strength” solution to the regulatory problems dogging the bank

Speaking after Citigroup reported better-than-expected first-quarter earnings Monday, Mr. Corbat faced more than a dozen questions from analysts on the bank’s recent failure to win regulatory approval to return capital to shareholders.

“Is the Fed denial a wake-up call for Citi or not?” CLSA analyst Michael Mayo asked. “We’re wide awake,” Mr. Corbat replied after declaring earlier, “I want, and I know shareholders deserve, an industrial-strength, permanent solution that paves the way for sustainable capital return over time.”

Mr. Mayo has a “buy” rating on Citigroup.

The nearly two-hour analyst call, coming less than three weeks after the Federal Reserve rejected the bank’s capital plan last month, was dominated by questions over the so-called stress tests.

By contrast, the third-largest U.S. lender by assets fielded only two questions on mortgage lending and one on fixed-income trading, two of the most pressing concerns on Wall Street.

While Corbat might have faced his toughest questions about regulation, Reuters reporter David Henry decided to lead with expense cutting, another focus for the bank:

At a meeting with 300 senior Citigroup officials in the first week of February, Chief Executive Michael Corbat said the bank needed to focus on two things above all else this year: expenses and efficiency.

The bank’s first quarter results on Monday showed just how much work Citigroup executives have ahead of them in those areas.

In Citigroup’s main businesses, revenue fell 3.5 percent in the quarter while operating expenses eased only 1.5 percent compared with a year earlier, the bank said. It still needs to cut another 3.5 percent, or $1.5 billion, from its annual operating expenses to meet its own 2015 targets for efficiency, according to Reuters calculations.

The company’s expenses are too high given its weak revenues, said Gary Townsend, a longtime bank stock investor who owns Citigroup shares and formerly ran Hill-Townsend Capital.

High costs have bedeviled Citigroup for a decade. For years, the bank’s problems were mainly linked to its failure to fully integrate businesses built up over years of acquisitions.

That integration is mostly done. But now the bank, like other major American banks, is struggling to cut costs as it seeks to cope with the expense of complying with a welter of new laws and regulations following the financial crisis.

Executives at Citigroup, which had to be rescued by the U.S. government three times during that crisis, in the past 18 months have already eliminated $2.8 billion from the company’s overall annual expense base through layoffs and assorted reorganization and productivity steps, Chief Financial Officer John Gerspach said on a conference call with analysts. A big chunk of that stems from the company’s December 2012 announcement that it was eliminating more than 11,000 jobs.

Dakin Campbell wrote for Bloomberg that Corbat was taking responsibility for the company’s shortcomings in the stress test:

The bank will focus on preparing for the 2015 stress test rather than requesting additional buybacks or dividend increases this year, Corbat said today on a conference call with analysts.

The stress-test rejection means “it’s hard to imagine” a scenario in which the company can meet its 2015 goal of reaching a 10 percent return on tangible common equity, Chief Financial Officer John Gerspach said today on a conference call with journalists.

Corbat said his conversations with regulators lead him to conclude they aren’t opposed to the bank’s business model or strategy. The CEO said he expects the board to hold him responsible for the stress-test failure.

“I’m accountable,” Corbat said on the call. “It is something I’m sure the board will hold me accountable for in 2014 when they reflect upon the year.”

I’m sure the board will hold him accountable and likely so will investors. Citigroup has had a tough time since the financial crisis and its latest regulatory problems. Maybe Corbat can turn it around and maybe not, but the profit is a good start.

yahoo-logo_2

Yahoo moves into TV

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Last week, Yahoo announced yet another strategy to win over Internet users – moving into original TV programming.

The Wall Street Journal had this story by Mike Shields and Douglas MacMillan:

Yahoo Inc. is raising its ambitions in online video, with plans to acquire the kind of original programming that typically winds up on high-end cable-TV networks and streaming services like Netflix, people briefed on the company’s plans said.

The company is close to ordering four Web series, these people said. And unlike in years past, Yahoo isn’t looking for short-form Web originals, but rather 10-episode, half-hour comedies with per-episode budgets ranging from $700,000 to a few million dollars, the people said.

The projects being considered would be led by writers or directors with experience in television. “They want to blow it out big time,” said one of the people briefed about the plans.

Yahoo Chief Executive Marissa Mayer is hoping to show off TV-caliber content to advertisers on April 28 when Yahoo holds its “NewFront” event that is Internet companies’ answer to the so-called upfront ad-sales presentations made by TV networks each spring.

David Carr of the New York Times called Yahoo a “permanent adolescent in search of an identity” in his column about their latest move:

At a time when the culture is addicted to high-end television narratives, Yahoo wants in on the action, partly because while its site may have (flat) traffic — 700 million global visits a month — and (declining) revenue, it has zero cachet and no discernible way forward.

For many years, digital media players watched longingly as HBO and then AMC, FX and Showtime managed to rise above the clutter on television, where Americans still spend five hours a day. So last year, when Netflixbroke through with “House of Cards,” it made sense that companies like Amazon, Hulu and Yahoo would want to follow suit.

There are signs that it is working — streaming for Amazon Prime tripled in the last year and the company has introduced its own device, Fire TV, which will fight for shelf space in your home along with Apple TV, Chromecast and Roku. At the same time, Comcast is seeking a merger that will give it the scale to invest in technology, and HBO Go is pushing to follow the consumer onto mobile. “People always want to be what they aren’t,” said Jonah Peretti of BuzzFeed when we discussed the crisscross the other day.

The prize is dear. Winning in the distribution of high-end content is about mining an audience, and you can’t blame technology companies for believing they have relevant skill sets.

Bloomberg Businessweek reported in a story by Claire Suddath that Yahoo is planning to pay for its new content by selling ads:

Yahoo’s shows will theoretically be ad-supported and available to people for free online, aligning it more closely with YouTube (GOOG) than, say, Netflix’s subscription-driven strategy. Also unlike Netflix (NFLX), which captured an existing audience with the already-beloved Arrested Development and then jumped headfirst into the serialized drama fray with House of Cards, Yahoo is looking for 10-episode comedy series with a per-episode cost that’s less than “a few million dollars,” as the Journal put it—or about the price of a regular network sitcom. That’s a deft move on Yahoo’s part: Audiences already have plenty of novelistic dramas, but what they can’t get online (as original content, anyway) is a new half-hour comedy that really makes them laugh.

The moves by Yahoo and Microsoft are just part of a larger erosion of the traditional TV audience. The shrinking started in 2011 when Nielsen (NLSN) reported that the number of U.S. homes with television sets dropped for the first time in 20 years. As a result, the number of people who watched traditional TV programming, via broadcast or cable, started to decline as well. So far the decline has been slight but in a few years will probably pick up speed. Last year 86 percent of Americans still had cable—down from 88 percent just three years before. The premium cable channels have been hit the hardest: 32 percent of people subscribed to HBO, Showtime, or Starz last year, down from 38 percent in 2012, according to NPD group. Meanwhile, the number of Netflix subscribers rose 24 percent, to 31.1 million people.

As cable audiences shrink and the providers reduce competition by merging (Comcast and Time Warner), there is room for more original programming. The big question is whether Yahoo can move into that space. The firm’s reputation as an Internet innovator and go-to location for content has been damaged during the past few years. Many earlier adopters have left the platform for others. It will be interesting to see if it can win back users or if this is just another phase in its identity search.

SAC Capital

Looks like Cohen gets off

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SAC Capital settled charges of insider trading Thursday, and sources close to the firm are saying that this is likely the end of the line for charges.

The Wall Street Journal story by Christopher M. Matthews led with the news that prosecutors are not likely to continue pursuing founder Steven Cohen:

After a decadelong probe into SAC Capital Advisors LP, federal prosecutors won approval of a $1.8 billion settlement with the hedge fund but appear to have all but given up efforts to charge its billionaire founder, Steven A. Cohen.

On Thursday, a federal judge approved a guilty plea entered on behalf of SAC and a landmark insider-trading settlement with the firm. Prosecutors and the Federal Bureau of Investigation have eyed Mr. Cohen for years, but haven’t been able to mount a criminal case against him personally. While prosecutors aren’t barred under terms of the settlement from indicting Mr. Cohen or other SAC traders, no new charges are imminent, according to a person familiar with the matter.

U.S. District Judge Laura Taylor Swain accepted the criminal settlement in federal court in Manhattan, calling the pact unprecedented. “The defendants’ crimes were striking in their magnitude and strikingly indicative of a lack of respect for the law,” Judge Swain said.

After years of denials, the hedge fund agreed to plead guilty to insider trading in November and pay a $1.8 billion penalty, marking a high point in the government’s yearslong clampdown on such illicit practices. Over the past two decades, SAC became one of the most successful hedge funds in the world, earning billions of dollars in profits for Mr. Cohen and his investors.

The New York Times pointed out all the recent changes at the firm, including a new name, in a story by Matthew Goldstein and Ben Protess:

Now the 57-year-old investor is hoping for a less litigious transition for his firm, as it becomes a so-called family office, rechristened Point72 Asset Management, that will manage about $9 billion of his own fortune.

Federal authorities, speaking on condition of anonymity, privately acknowledge that additional charges against SAC employees are unlikely unless new evidence surfaces. And the authorities, who still have a smattering of insider trading cases to file against other hedge funds, have seen a slight downtick in reports of suspicious trading.

But to shake fully its tainted past — and steer clear of the spotlight — Mr. Cohen’s firm will have to do more than plead guilty and change its name. And for Mr. Cohen, who has not been criminally charged despite spending the better part of a decade under investigation, a few legal hurdles remain before he can exhale.

Mr. Cohen still faces a civil action from the Securities and Exchange Commission, which during the course of the case could identify additional wrongdoing and permanently bar him from managing money for outside investors. The Federal Bureau of Investigation, authorities say, also continues to examine a handful of stocks for signs of insider trading at SAC, while several former employees who cooperated with the investigation have yet to be sentenced, a sign the case is not officially closed.

Patricia Hurtado’s story for Bloomberg offered this background on the investigation, which has been going on since 1999:

The alleged scheme involved more than 20 companies and went back as far as 1999. Indicted in July, the hedge fund agreed in November to plead guilty to four counts of securities fraud and one count of wire fraud, and to shutter its investment advisory business.

Cohen’s firm managed about $11.9 billion in assets as of Feb. 1, according to regulatory filings. Executives at the hedge fund had expected to start this year with only $9 billion after returning capital to investors.

The grand jury indictment of the fund outlined criminal conduct by at least eight former SAC Capital employees. Noah Freeman, Donald Longueuil, Wesley Wang, Richard Choo-Beng Lee, Richard Lee and Jon Horvath have all pleaded guilty. Two portfolio managers, Mathew Martoma and Michael Steinberg, were convicted separately after trials in Manhattan federal court.

The government said SAC Capital encouraged its employees to obtain an informational “edge” over competitors, and hired people specifically for their contacts with insiders at publicly traded companies.

Manhattan U.S. Attorney Preet Bharara, whose office has pursued SAC Capital and its employees for more than six years, described the hedge fund as a “firm with zero tolerance for low returns but seemingly tremendous tolerance for questionable conduct.”

The saga has been long and drawn out, but it does bring up the issue of, what’s the point of it all? Years of government time and effort, and the man responsible likely isn’t going to face criminal prosecution. While he may not be able to manage others money, his personal wealth is still more than the vast majority of hedge funds have in their coffers. It’s hard to see the punishment.

Fed

The next Fed concern: Inflation and interest rates

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Maybe the worry is confusing investors, or maybe the Fed is anxious about it’s plans to change the stimulus package. Whatever it is, reporters picked up on several themes in the latest Fed’s minutes.

Jon Hilsenrath’s story for the Wall Street Journal ran under the headline that the Fed was worried about inflation:

Federal Reserve officials are growing concerned the U.S. inflation rate won’t budge from low levels, the latest sign of angst among central bankers about weakness in the global economy.

The Fed began 2014 hopeful that a strengthening U.S. economy would push very low inflation from 1% toward the 2% level that officials associate with healthy business activity. Three months into a year marked by unusually harsh winter weather, which appears to have damped economic growth, there is little evidence of such movement.

Fed officials expressed worry about the persistence of low inflation at a policy meeting last month, according to minutes of the meeting released by the central bank Wednesday. They discussed at the March 18-19 meeting whether to make a more explicit commitment to keeping short-term interest rates pinned near zero until they saw inflation move up, but chose instead to take a wait-and-see approach.

Low inflation is high on the agenda of global central bankers and finance ministers gathering in Washington this week for semiannual meetings of the International Monetary Fund. Bank of Japan officials are trying to overcome more than a decade of on-again-off-again deflation, and inflation in Europe is running close to zero.

“We think there is also a risk of deflation, negative inflation. And we think that if this were to happen, this would make the adjustment both at the euro level, and even more so for the countries in the periphery, very difficult,” IMF chief economist Olivier Blanchard said of Europe on Tuesday, after the IMF released updated economic projections. “We think that everything should be done to try to avoid it.”

On its face, flat consumer prices sound like a blessing that holds down household costs. But when tepid inflation is associated with small wage gains, excess business capacity and soft global demand, as now, economists see it as a sign of broader economic malaise that restrains investment and hiring. Exceptionally slow wage and profit gains also make it harder for household and business borrowers to pay off debt.

The New York Times story by Binyamin Appelbaum led with the Fed’s decision about when to start raising short-term interest rates:

The meeting, which the Fed described for the first time on Wednesday, underscores the complexity of the decision to replace the Fed’s guidance about when it might begin to raise short-term interest rates — which emphasized a specific unemployment threshold — with a vague description of the central bank’s economic goals.

Fed officials felt that markets understood the old guidance, and they were reluctant to disrupt that understanding, according to the minutes. But they concluded that the scheduled March meeting was an opportune moment to make the change, which was necessary at some point as the unemployment rate, currently standing at 6.7 percent, fell toward the Fed’s threshold level of 6.5 percent.

The account of the two meetings, which the Fed published on Wednesday after a standard three-week delay, said that most officials agreed that the Fed should move to a weaker form of guidance rather than trying to substitute a new threshold based on the unemployment rate or some other specific target.

While both stories are talking about the same issue, what is interesting is the framing. One chose to focus on inflation and the economic model, the other decided to turn a spotlight on how to communicate the new moves. Bloomberg’s story by Jeff Kearns and Craig Torres focused on the market’s reaction to the minutes:

U.S. stocks rallied the most in a month while Treasuries pared declines after the minutes eased concern about the timing of future interest-rate increases. Even after rates rise, officials said last month, they might have to be kept at levels considered below normal for longer because of tighter credit, higher savings and slower growth in potential output.

The minutes reinforce Janet Yellen’s message at her debut press conference as chair last month that the interest-rate forecasts of policy makers — which are displayed as a series of dots on a chart — are less important than the Fed’s post-meeting statement.

“She was pretty blunt about it, saying ‘Pay attention to the statement, don’t look at the dots,’ ” said Josh Feinman, the New York-based global chief economist for Deutsche Asset & Wealth Management, which oversees $400 billion. “They knew this could be a source of confusion with the dots moving up, and they were thinking about how to manage that.”

The Standard & Poor’s 500 Index rose 1.1 percent to 1,872.18 to close at the high of the day. The yield on the 10-year Treasury note climbed one basis point to 2.69 percent.

Treasury yields jumped last month after policy makers predicted that the benchmark rate would increase faster than previously forecast and Yellen said rates might start to rise “around six months” after the Fed ends its bond buying.

Jonathan Spicer and Ann Saphir wrote for Reuters that the minutes didn’t actually clear up anything:

The minutes shed little new light on what might prompt an eventual policy tightening after the Fed ends its bond-buying program, which most policymakers thought would be completely wound down in the second half of 2014.

After its March meeting, the Fed said in a statement that it would wait a “considerable time” following the end of its bond-buying program before finally raising interest rates.

Fed Chair Janet Yellen played down the “upward shift” in Fed officials’ rate forecasts in her post-meeting press conference, saying that the “dots” are not the Fed’s primary way to communicate policy.

But what drew the most attention from financial markets was Yellen’s definition of “considerable time” as “around six months,” depending on the economy.

What’s interesting about the coverage is that many of the major news organizations didn’t find the same things in the minutes. Often agencies give guidance, shaping the coverage for the day, but in this case many of the stories were different in their focus. While the policy minutes contain much information and no one was inaccurate in the reporting, the different takes do make a point about the new regime at the Fed.