Tag Archives: Company coverage
by Liz Hester
Several years after being introduced, five regulatory agencies approved the so-called Volcker Rule on Tuesday bringing in a new era of oversight for Wall Street traders. Banks and others affected will now begin the process of implementing and journalists scrambled to cover all the angles.
Bloomberg’s story began with the idea that Wall Street would now face stricter rules now that agencies had approved the provisions:
Wall Street faces more intensive government scrutiny of trading after U.S. regulators issued what they billed as a strict Volcker rule today, imposing new curbs designed to prevent financial blowups while leaving many details to be worked out later.
The Federal Reserve, Federal Deposit Insurance Corp. and three other agencies formally adopted the proprietary trading ban. The rule has been contested by JPMorgan Chase & Co., Goldman Sachs Group Inc. and their industry allies for more than three years.
Wall Street’s lobbying efforts paid off in easing some provisions of the rule. Regulators granted a broader exemption for banks’ market-making desks, on the condition that traders aren’t paid in a way that rewards proprietary trading. The regulation also exempts some securities tied to foreign sovereign debt.
At the same time, regulators said the final version imposed stricter restrictions on hedging, providing banks less leeway for classifying bets as broad hedges for other risks. To pursue a hedge, banks would need to provide detailed and updated information for review by on-site bank supervisors.
“This provision of the Dodd-Frank Act has the important objective of limiting excessive risk-taking by depository institutions and their affiliates,” Fed Chairman Ben S. Bernanke said in a statement. “The ultimate effectiveness of the rule will depend importantly on supervisors, who will need to find the appropriate balance while providing feedback to the board on how the rule works in practice.”
The New York Times story pointed out that banks will have a tougher time justifying hedging, but they did get more time to comply with the new provisions:
In some crucial areas, regulators adopted a harder line than Wall Street had hoped. Under the rule, which bars banks from trading for their own gain and limits their ability to invest in hedge funds, the regulation includes new wording aimed at the sort of risk-taking responsible for a $6 billion trading loss at JPMorgan Chase last year. The rule also requires banks to shape compensation packages so that they do not reward “prohibited proprietary trading.”
In addition, it requires chief executives to attest to regulators every year that the bank “has in place processes to establish, maintain, enforce, review, test and modify the compliance program,” a provision that did not appear in an October 2011 draft of the rule.
But the rule, which aims to draw a line between everyday banking and risky Wall Street activities, has its limits. For example, the regulation leaves it largely up to the banks to monitor their own trading. Some critics of Wall Street also wanted chief executives to attest that their bank was actually in compliance with the rule, not just that it was taking steps to comply.
And in another concession to Wall Street, regulators will delay the effective date of the rule to July 2015. Until then, bank lawyers are expected to scour the rule for loopholes and to consider bringing lawsuits against the regulators.
The Wall Street Journal pointed out that the rules wouldn’t apply to banks with less than $10 billion in assets. Stock investors seemed to shrug off the news:
The Fed now will move to apply the rule to the large bank holding companies it oversees, but not “community banks” with less than $10 billion in assets, which will be exempt from the rule if they don’t engage in most of the activities covered by it.
Some banks affected by the rule said they believed they are already in compliance with the regulation, while others said they were still studying the nearly 1,000-page document to assess its impact.
Bank of America Corp. Chief Executive Brian Moynihan said Tuesday the rule won’t dramatically change how the nation’s second-largest bank does business and that the company ended proprietary trading—making bets with the bank’s own money—two years ago. He said the bank has been selling its hedge-fund and private-equity holdings over the past four years.
“That’s not a big part our company,” he said to investors at a Goldman Sachs Group Inc. conference in New York. “We’ll have to work through it, but in the end if we serve our customers, there’s a business there.”
U.S. financial stocks, meanwhile, appeared to be taking the Volcker rule in stride, with many financial stocks rising. Goldman Sachs was higher even though Goldman was touted by analysts as the firm most likely to be affected by the new rule.
Some top financial regulators, who have spent 2 ½ years trying to finalize the Volcker rule, expressed support for the final version but noted its effectiveness will depend on its enforcement by banking and market regulators.
And that’s ultimately the main point for any new regulation. It all comes down to enforcement and how regulators will oversee and interpret any perceived violations. Now banks’ compliance departments will get all the fun as they start to digest the final version of the rule.
by Liz Hester
The U.S. Treasury Secretary Jacob Lew announced Monday the government had sold the last of its bailout investment in General Motors for a $10.5 billion loss. While many taxpayers might be angry about the deficit, the real cost of allowing the auto industry to fail would have been much higher.
Here’s the Wall Street Journal story:
The U.S. government sold its last shares in General Motors Co. on Monday, booking a $10.5 billion loss but clearing the way for the auto maker to return cash to shareholders and begin wooing consumers alienated by the bailout.
The Treasury Department’s final sale of GM shares came as the auto maker’s stock hit $40.90, a new high, in 4 p.m. trading and gained 30 cents in late trading following the announcement.
Taxpayers recouped $39 billion of the $49.5 billion spent rescuing the Detroit auto maker. That loss is sure to fuel the debate over whether taxpayer money should have been used to put GM and Chrysler Group LLC through government-led bankruptcies in 2009.
Bailout opponents say the government had no right to orchestrate bankruptcies that resulted in losses for bondholders while protecting pensions for union workers and retirees. Proponents say the auto industry and the nation’s Midwest manufacturing heartland would have been devastated by a collapse of auto and auto-parts makers.
The New York Times story talked about the total bailout investment and the gains taxpayers saw when taken all together. They pointed out that the sale helped lift a stigma from GM and that bailing out the two car companies saves money by preserving jobs and corporate taxes:
All in all, taxpayers have ended up in the black on the crisis-related bailouts, Treasury said: It has recovered $433 billion from the Troubled Asset Relief Program after initially investing about $422 billion.
The Obama administration has argued that it could not have let the Detroit automakers fail during the worst downturn since the Great Depression and that the costs of the public investment outweighed the risks of letting them collapse.
Of the three Detroit automakers, two of them — GM and Chrysler — received federal aid. The Treasury said that all three, which includes Ford, were now “profitable, competitive and growing” and that American carmakers had created 370,000 jobs.
“When I took office, the American auto industry – the heartbeat of American manufacturing – was on the verge of collapse,” President Obama said in a statement. “In exchange for rescuing and retooling GM and Chrysler with taxpayer dollars, we demanded responsibility and results.”
Some economists have argued that the bailouts have saved the taxpayer money by keeping tens of thousands of workers on the job — and thus paying taxes and off of government support. A recent report by the Center for Automotive Research found that the bailouts “saved or avoided the loss of $105.3 billion in transfer payments and the loss of personal and social insurance tax collections.”
The Financial Times added comment from the GM CEO that the company was close to paying dividends:
Dan Ammann, General Motors’ chief financial officer, last week told the Financial Times that the carmaker was “getting closer” to resuming dividend payments.
“I would say we’re certainly getting closer to that point,” Mr Ammann said when asked about dividends. “We’ve had obviously continued good progress in the business.”
Moody’s, the rating agency, had upgraded the company’s credit rating to investment grade in September, Mr Ammann pointed out, while profitability had improved.
The Treasury initially held 60.8 per cent of GM following the company’s exit from bankruptcy. It disposed of more than half its stake during the 2010 IPO.
Steven Rattner, who headed the Treasury auto industry task force that oversaw the restructuring, last week told the FT there was “no question” that GM had performed better than the team had expected.
The Detroit News pointed out that now GM can pay its executives whatever it wants, giving them the ability to attract a new CEO when the time comes:
GM North America President Mark Reuss tweeted after the announcement: “Free at Last, Free at Last — thanks to all of the hard work and those who gave us a chance.”
GM spokesman Selim Bingol declined to comment when asked when GM might increase pay for executives, saying in an email that the automaker would not comment on the government’s stock exit beyond its statement. But an ease in restrictions will give GM’s board more flexibility to attract a new CEO when Akerson, 65, decides to step down.
The Treasury ended its ownership stake in Chrysler Group LLC in July 2011, incurring a $1.3 billion loss on a $12.5 billion bailout.
After the sale of remaining GM shares, the U.S. government’s only asset remaining from the overall $85 billion auto industry bailout is a 64 percent stake in Ally Financial Inc., the auto lender once known as GMAC. The government has recovered about two-thirds of its $17.2 billion bailout and hopes to close that chapter next year.
The Treasury had said this month that higher-than-expected trading in GM stock was speeding its exit and that it planned to wrap it up by Dec. 31.
While the initial headline of losses doesn’t look good at first, it’s definitely good that the government is out of the auto bailout business. Here’s hoping the car companies continue to improve and add jobs, making the whole experiment worth it.
by Chris Roush
Peter Lauria of BuzzFeed writes about how Time Warner Cable used the financial press last week to open the negotiations to sell the company.
Lauria writes, “While the WSJ story provided the floor, the Bloomberg story offers up the ceiling. The article is essentially an open invitation to negotiations disguised as an interview with Time Warner Cable’s incoming CEO Rob Marcus, who is due to replace longtime Chief Executive Glenn Britt at the start of the new year. It describes Marcus’ lengthy experience as a finance and mergers specialist and quotes him talking about his interest in creating value for shareholders even if it means he’d be out of a job. (Don’t feel too bad for Marcus, his contract calls for him to get a $50 million payout if the company is sold.)
“But here’s the key line in the story, and it comes not from Marcus, despite his being quoted at length in the piece — but from someone speaking off the record, with an attribution that does not identify, or rule out, Marcus as the speaker: ‘Time Warner Cable, the second-largest U.S. cable provider, would probably accept a bid of $150 to $160 a share, according to a person familiar with the matter, who asked not to be named because the deliberations are private.’
“Later on Friday, Reuters followed Bloomberg with its own exclusive story about how Comcast has hired JPMorgan to advise it on a potential bid. Sixteen paragraphs down in that piece, there’s this auspice line: ‘Any suitor would likely need to bid at least $150 per share to be considered seriously by Time Warner Cable’s board, one person familiar with the matter said.’
“The astute reader will note that both stories attributed to $150 price tag to a single source. Even if it isn’t the same source speaking to both outlets (though it probably is), the figure is more likely deliberate than coincidental. Put bluntly, the signal being sent to potential buyers is that if they offer $150 or more per share, Time Warner Cable is theirs.”
Read more here.
by Liz Hester
When Jos. A. Bank made a bid for Men’s Wearhouse, it was just a straightforward M&A transaction. But on Tuesday, when Men’s Wearhouse turned the tables and made a bid for Jos. A. Bank, the whole story got a lot more interesting.
The Wall Street Journal wrote this story:
Men’s Wearhouse Inc. launched a surprise offer to buy rival men’s clothing retailer Jos. A. Bank Clothiers Inc., turning the tables on its erstwhile suitor in what has become one of the year’s most colorful takeover dramas.
The bid comes less than two weeks after Jos. A. Bank walked away from its bid to buy its larger competitor, which said the $2.3 billion offer was too low and rebuffed it. The new bid values Jos. A. Bank at about $1.5 billion, or $55 a share—an 8.7% premium over its closing price Monday and 32% above where the shares traded before the possibility of the two companies uniting surfaced in early October.
Investors in both companies cheered the latest step in the takeover dance, with Jos. A. Bank and Men’s Wearhouse shares rising 11% and 8%, respectively, from their already-elevated levels. Both stocks surged when Jos. A. Bank made its $48-a-share bid—and the stocks barely retreated even after it pulled the offer Nov. 15, suggesting investors expected another chapter in the saga.
Men’s Wearhouse’s countermove sets up one of the year’s most unusual deal situations. The company, based in Fremont, Calif., is attempting a version of a rare maneuver known in mergers-and-acquisitions circles as a Pac-Man defense, in which deal prey turns into predator. Popularized during the 1980s, the gambit has met with mixed results, with the proposed deals often not getting consummated.
Reuters reported that this wasn’t just about trying to get a higher price on the original deal, but a true takeover attempt:
The combined company would have 1,700 stores that rent tuxedos and sell suits, a scale that in the past has raised antitrust questions about a merger.
The retaliatory offer from Men’s Wearhouse, which the company said implies an enterprise value of about $1.2 billion for Jos. A. Bank, follows pressure from its largest shareholder, New York-based hedge fund Eminence Capital LLC.
Eminence, along with other hedge funds that hold about 30 percent of Men’s Wearhouse shares, had tried to persuade other investors to pressure the company into accepting the takeover offer from Jos. A. Bank.
“We are pleased to see that the board of Men’s Wearhouse agrees with us and recognizes the substantial benefits of merging with Jos. A. Bank,” said Eminence Chief Executive Ricky Sandler.
The last person to push Men’s Wearhouse to sell itself was its founder, George Zimmer, known to U.S. television audiences for his advertising catch phrase, “You’re going to like the way you look – I guarantee it.”
Zimmer was ousted by the board in June after arguing for a sale of the company to an investment group. At the time, he accused the board of trying to silence him for expressing concerns about the direction of the company he founded 40 years ago.
Men’s Wearhouse is serious about acquiring Jos. A. Bank and is not simply trying to force the company to raise its bid for Men’s Wearhouse, according to sources familiar with the process.
USA Today had this information about the deal and the combined finances of two firms:
A combination of the two companies would create the fourth-largest U.S. men’s apparel retailer, with more than 1,700 total stores and annual sales of more than $3.5 billion, Men’s Wearhouse said.
The company forecast that the combination would create about $100 million to $150 million of annual synergies over three years through more efficient purchasing, customer service and marketing, and streamlining corporate functions. The deal would add to Men’s Wearhouse’s earnings in the first year following closing, it added.
Men’s Wearhouse said it plans to pay for the deal with existing cash from its balance sheet and borrowed money.
Jos. A. Bank withdrew its $2.3 billion offer to buy Men’s Wearhouse earlier in November.
The New York Times story had this background on the original offer and the history of the negotiations:
Jos. A. Bank made an unsolicited $2.3 billion bid in early October for Men’s Wearhouse, which rejected the offer as highly conditional and said it believed that its own turnaround plan would be better for shareholders.
Jos. A. Bank indicated later that it would consider raising its $48-a-share offer if it were allowed confidential access to Men’s Wearhouse’s books. Men’s Wearhouse again rejected the offer, and Jos. A. Bank withdrew its bid this month, but left the door open for possible talks in the future.
The Men’s Wearhouse offer is not contingent on any financing and will not require additional costly third-party equity commitments, the company said.
Bank of America and JPMorgan Chase are advising Men’s Wearhouse, and Willkie Farr & Gallagher is providing legal advice.
Now is when the talks get interesting. One thing is for sure, investors like the idea of a combination of the two men’s retailers and are willing to buy into the idea. Who will have control is the big unknown.
by Liz Hester
Wal-Mart shareholders and employees are getting a new head of the company for the holidays. The world’s largest retailer announced that its promoting Douglas McMillon to replace retiring chief executive Michael Duke.
The Wall Street Journal reported he will be the fifth person to head the company:
Wal-Mart Stores Inc. said company veteran Douglas McMillon will take over as the retailing giant’s chief executive, a rare leadership change at a company that brings in nearly half a trillion dollars in annual revenue but is struggling to book further growth.
The retail giant’s board met Friday in Bentonville, Ark., and named Mr. McMillon as the company’s fifth-ever CEO. The 47-year-old executive, currently president and CEO of Wal-Mart International, will take the top job on Feb. 1, after current CEO Michael Duke retires early next year.
Wal-Mart has a long history of grooming leaders from within and said it began planning for Mr. Duke’s succession years earlier.
The move will create a ripple effect throughout the world’s largest retailer at a time when it is grappling with sluggish sales in its international and U.S. businesses, a global investigation into allegations of bribery at its foreign operations, and worker protests over poor pay practices at its domestic stores.
Mr. McMillon and William Simon, president of Wal-Mart U.S., were among the favored candidates. Now, analysts are watching to see what happens with Mr. Simon and are waiting to see who will take over the international operations as it tries to retool its strategy at its 6,200 stores abroad.
The New York Times added this context around Wal-Mart’s recent performance and struggles to continue to grow:
In recent weeks, Walmart has been busily promoting its holiday deals, in one of the fiercest competitive sales seasons in recent memory, driven partly because there is a very short window this year between Thanksgiving and Christmas. The company’s executives have noted that Walmart’s core customer base remains very budget-conscious, hit by the end of the payroll tax holiday earlier this year and uneasiness over events like the federal budget shutdown. At the busiest time of the year, major retailers are already slashing prices and many are chipping away at the lure of Black Friday deals by offering them even earlier.
Mr. McMillon’s ascension is also occurring at a time when the company has announced major expansion plans in China.
Bloomberg Businessweek wrote a piece about the four things to know about McMillon, including that his division has had some troubles recently. Here are the first two:
1. McMillon’s part of Wal-Mart has had its share of troubles recently.The U.S. Department of Justice and the Securities and Exchange Commission are investigating allegations of corruption by Wal-Mart executives in its Mexican subsidiary, the company’s biggest, and a potential cover-up by executives at its headquarters in Bentonville, Ark. Wal-Mart is cooperating with the investigations and conducting its own internal investigation and review. The retailer also facedcriticism that it wasn’t doing enough to ensure safe working conditions in garment factories in Bangladesh, after several fires killed more than 1,000 people. And last month Wal-Mart had to break up with its Indian partner, delaying its ambitious plans to open hundreds of supercenters there.
2. His rival for the job faced worse problems. Bill Simon, the head of Wal-Mart’s U.S. operations, was the other executive frequently named as a potential successor to Duke. But Wal-Mart’s U.S. stores have been dealing with even bigger issues than its international ones. Bloomberg News has reported that the retailer alienated some shoppers on its home turf because the retailer doesn’t have enough workers to keep shelves adequately stocked. Some of those workers, meanwhile, have been protesting Wal-Mart’s low wages. And recently the company said it expects same-store sales over the all-important holiday season to be “relatively flat.”
The USA Today story chose to focus on McMillon’s qualifications, which helped him edge out other candidates for the top job:
“Unless you’re there, you don’t really understand it, and when you’re big, people may assume that you’ve got bad intentions,” McMillon said. “I learned more in the first six months at Wal-Mart than I learned in 5 1/2 years of post-secondary education.”
Originally from Jonesboro, Ark., McMillon, 47, started his career in 1984 as a summer associate at a Wal-Mart distribution center.
He got a B.S. in business administration from the University of Arkansas and an MBA from the University of Tulsa. While pursuing the MBA, he rejoined the company in a Tulsa Walmart store.
A lot of McMillon’s 22 years at the company were spent in merchandising in the Walmart U.S. division, giving him with experience with food, apparel and general goods. From 2006 to February 2009, he ran Sam’s Club and then took over Walmart International.
That deep Wal-Mart experience likely gave him leg up versus other candidates like Bill Simon, who runs Walmart U.S.
“Bill Simon was more of an outsider,” said Sucharita Mulpuru, a retail analyst at Forrester Research. “It was going to be one of them.”
McMillon also has a record of generating growth – both at Sam’s Club and the International business, which he ran from Arkansas.
Investors seemed to be indifferent to the news of an insider taking over since the stock only rose slightly on the news. It will remain to be seen how radically a nearly life-long Wal-Mart executive will change things. With all the pressure to keep costs low on one hand and to pay workers more on the other, McMillon will have his fair share of problems to solve.
by Chris Roush
Los Angeles Times business columnist Michael Hiltzik writes about what he perceives to be the real problem with business news network CNBC in the wake of the departure of anchor Maria Bartiromo.
Hiltzik writes, “The other issue with CNBC, and the one more relevant to Maria Bartiromo’s career, is the extent that it’s been co-opted by the corporate community. ‘Co-opted’ may be the wrong term — CNBC may never have been independent or objective in the traditional journalistic sense. In recent years, however, the network certainly seems to have abandoned almost all pretense of aggressive journalism.
“The best example of this may be Bartiromo’s appearance with Alex Pareene of Salon.com, who should win the prize as the reporter least likely to be featured on a CNBC segment. Pareene was brought on to defend his argument that Jamie Dimon should be fired as JPMorgan’s chairman and chief executive, given the record of corruption he’s presided over at the big bank. (We’ve covered that issue here and here.) Openly scandalized at the very suggestion, Bartiromo scoffed at evidence of Morgan’s corruption, even though the bank has acknowledged much of it in public documents and its own annual reports.
“This isn’t the behavior of a financial journalist. It’s the behavior of a television interviewer whose trick for snagging interviews with big-name CEOs and global investment gurus is the guarantee that she’ll always take them at their own level of self-esteem.
“Bartiromo is a master (mistress?) of lobbing soft-balls at self-important targets. But that’s exactly what diminishes CNBC’s value as a news source, except for breaking events that can be reduced to the crawl at the bottom of the screen — the reason most TVs tuned to CNBC during the market day have their sound turned off is that the blather from anchors often isn’t worth hearing.”
Read more here.
by Liz Hester
Chinese asset management company Cinda is shaping up to be the hottest initial public offering of the holiday season. Hedge funds and other investors are pouring cash into the offering, hoping to capitalize on the growing pile of debt expected to go bad.
The Wall Street Journal offered this list of investors:
China Cinda Asset Management Co. has lined up 10 cornerstone investors to take up 44% of the funding it seeks to raise—up to $2.46 billion—in its initial public offering, people familiar with the deal said Sunday.
The offering is set to be Hong Kong’s biggest IPO of the year, and if the interest among cornerstone investors is any indication, it may be one of the more popular. The so-called bad bank, whose bread-and-butter business is buying up bad loans from Chinese banks and distressed assets from factories and real-estate firms, could benefit from an uptick in nonperforming loans in China.
The 10 cornerstone investors have together committed to buying $1.09 billion of the IPO.
New York-based Och-Ziff Capital Management Group LLC, which has a strong focus on distressed debt, and China Life Insurance Co. are taking $200 million each, the people said. Norges Bank Investment Management, Norway’s sovereign-wealth fund, is buying $150 million.
Three other investors, including San Francisco-based Farallon Capital Management LLC and Chinese fund Rongtong Capital Management Co. are taking $100 million each.
Distressed-investment specialist Oaktree Capital Management, a unit of the U.S.’s Oaktree Capital Group LLC, and Upper Horn Investments Ltd., a unit of Chinese power firm Guangdong Yudean Group Co., are buying $52.95 million and $50 million, respectively, the people said.
Reuters offered this background on the firm’s creation and how investors expect to make money as more people fall behind on their loans:
The offering is set to be the biggest in Hong Kong this year as global investors bet that soured loans will be a growth business in China. It opens a window into how the four firms have managed loans, investments and properties seized from companies unable to repay their lenders as the world’s second-largest economy slowed.
Cinda, the first of the four to launch an IPO, said in a filing to the Hong Kong Stock Exchange that total assets rose 11 percent to 283.55 billion yuan ($46.5 billion) as of June 30, compared to the end of December last year.
The next Chinese bad debt manager expected to pursue an IPO is Huarong Asset Management Corp, which hopes to raise up to $2 billion through a listing though no timetable has been set. Reuters reported the Huarong IPO plans in June.
Created in 1999 to handle the bad loans of China Construction Bank, the country’s No. 2 lender, Cinda said profit attributable to equity holders was 4.06 billion yuan ($667 million) for the six months ended June 30, 2013, up 36 percent from 2.99 billion yuan a year earlier.
In its IPO Cinda is offering 5.32 billion new shares in an indicative range of HK$3.00 to HK$3.58 ($0.39 to $0.46) each.
The MarketWatch story pointed out that the Chinese financial system is become more complex, creating both opportunities and problems for companies like Cinda that are trying to capitalize on the missteps of others:
In recent years, investment trusts, real estate and investment banking have been added to Cinda’s distressed-loan business. It also appears to have done well, with an operating margin of 28% in 2012 referenced in pre-deal research. No doubt China’s asset boom in recent years will have done its part to rescue some of these earlier bad loans.
But going forward, investors will need some comfort understanding its business model.
Indeed, reports suggest Cinda will be using funds raised in this listing — and then some — to help clean up China’s next batch of problem loans. The Financial Times says Cinda is ready to buy 100 billion yuan ($16.4 billion) in bad debt over the next two years.
As concerns mount that China is careening toward a new bad-loan cycle, the reception of Cinda will be a key gauge of how much confidence investors have that the lid can be kept on problem loans.
Optimists will hope that this listing exercise will, at the very least, bring a bit more transparency to China’s murky world of distressed debt.
At a conference on China debt-restructuring opportunities held in Hong Kong earlier this month, a key message was that the next bad-debt cycle will be tougher than the last one.
Not only has the size of China’s financial sector grown exponentially, but it’s also much more complicated. China’s banks are not just much bigger, but also now have operations and listings overseas.
The last time around, for instance, China cleaned up loans without outside help, and it appeared relatively painless, with problem loans taken on at par. This time, however, the size of the financial sector means it may not be realistic to expect a crisis to be handled alone.
And that’s likely why all these U.S. hedge funds and distressed investment vehicles are turning to Cinda. Yields on opaque foreign restructurings will likely be higher than the well-understood reworkings in the U.S. Anything that sheds more light onto the financial sector is a good thing, especially in a country as tightly controlled as China.
by Liz Hester
With consumers ready to open their wallets for the holiday shopping season, those worried about the quality of working conditions for factory workers may find some comfort in a retail agreement announced Wednesday.
The Wall Street Journal had this story:
Three parallel safety pacts spurred by the death of more than 1,100 people in the April collapse of a garment factory in Bangladesh have tentatively agreed on common standards for plant inspections in the country.
Experts from the three groups—the Accord on Fire and Safety in Bangladesh, which is led by mostly European retailers; the Alliance for Bangladesh Worker Safety, led by Wal-Mart Stores Inc. and Gap Inc.; and the government’s own National Tripartite Action Plan—reached the deal last week.
It would prompt the groups to adopt unified standards to simplify inspections and avoid duplication, officials with the three programs said.
The agreement, which still needs final approval from each group’s steering committee, could be a significant breakthrough in international efforts to raise standards in Bangladesh’s garment industry, according to Srinivas Reddy, country director of the International Labor Organization, which helped broker the deal.
“It was vital to agree on a coordinated approach toward safety standards and inspection methodologies to avoid multiple inspections of the same factories and to ensure that the same basic standards are applied,” Mr. Reddy said.
Reuters added these details of the agreement between the various retailers:
European retailers have agreed to finance fire and safety reforms for buildings that do not meet requirements, while the North American group – Alliance for Bangladesh Worker Safety – pledged $100 million in loans to factory owners to finance safety upgrades.
“The reason garment factories continue to be unsafe is not for a lack of common standards. It is because the monitoring visits carried out by brands were not conducted by competent engineers, not done in manner that is transparent, and did not include any commitment by brands and retailer to finance repairs,” said Theresa Haas, a spokeswoman for the Worker Rights Consortium, a labor rights group that is a member of the European-led Accord on Fire and Building Safety in Bangladesh.
“It’s up to the factory owner to decide if they want to remediate. We can’t force them to make these changes,” said Jeffrey Krilla, president of the American-led alliance, who called the agreement a huge step forward.
Individual retailers can voluntarily pull out of factories that do not meet safety requirements.
The new agreement comes as hundreds of workers take to the streets, demanding higher wages in protests that resulted in the death of least two workers and suspended production in up to 200 clothing factories.
Bangladesh garment factory working conditions have been under close scrutiny since the April collapse of the Rana Plaza factory complex killed more than 1,100 garment workers and a November 2012 fire at the Tazreen factory killed 112 workers.
USA Today’s story talked about how many labor groups felt the agreement didn’t go far enough:
The agreement is less stringent than the guidelines being pushed coalition of labor groups that called for third-party monitoring and labor representation and the coalition immediately lashed out at the retailers’ plan, calling it a “sham.”
“Worker representatives are not part of the agreement and have no role whatsoever in its governance,” the labor groups said in a statement Wednesday. “Given the grave risks facing millions of workers in Bangladesh, there can be no credible or effective program without a central leadership role for worker representatives.”
Scott Nova of the Worker Rights Campaign called the deal “an attempt to side-step the issue.”
Retailers said they objected to the labor-backed pact because they say it exposes them to unlimited liability. They also say that the pact called for large funding from the retailers and other private businesses without providing accountability for how the money would be spent.
Under the retailers’ plan, inspectors will “prioritize factory safety risks for remediation efforts” and will be empowered to report dangerous safety conditions to all parties. The initiative also includes an independent chair of a board of directors responsible for oversight.
The Bloomberg story added this context about the backdrop for labor unrest and why retailers are being pressured to make changes to business practices:
Unsafe factories and wages higher than only Myanmar in Asia have sparked labor tensions in Bangladesh’s $20 billion garment industry. A series of protests by workers demanding higher wages have taken place in the past several months in the industrial zones of Gazipur and Ashulia on the outskirts of the capital Dhaka. Some workers clashed with the police in demonstrations that forced the shutdown of factories.
Two workers died and 30 others injured in a protest this week as thousands took to the streets demanding a higher monthly salary of 8,000 taka ($103). The government last week increased the minimum wage to 5,300 taka, below the amount unions are demanding.
Except for one or two factories, most that had been shut by labor unrest have resumed production, Abdus Salam Murshedy, president of Exporters Association of Bangladesh, said via phone today. “Workers have joined work,” he said. “We expect that the government will issue a formal, written notice on the new wage structure today. The situation is returning to normal.”
Bangladesh Prime Minister Sheikh Hasina yesterday urged workers to accept the wage increase and to end violence, she said in a speech broadcast by Bangladesh Television.
The standards will hopefully help relieve some of the worst labor abuses, but often when regulations are enacted, business simply moves to a less regulated environment. As pressure mounts for retailers to lower costs and increase margins, it will remain to be seen how many companies continue to manufacture in Bangladesh instead of moving to another location. What would really be newsworthy is if these standards could be applied to all countries.
by Chris Roush
The editor and publisher of the Newark Star-Ledger claim a disgruntled businessman who was featured in the newspaper is using their names in an Internet domain that directs users to hard-core pornography, reports Cheryl Armstrong of the Couthouse News Service.
Armstrong writes, “Editor Kevin Whitmer and publisher Richard Vezza sued Alfred Demola and Domains by Proxy LLC in Federal Court, alleging harassment, cybersquatting, cyberpiracy and privacy violations.
“The newspaper itself is not a party to the lawsuit.
“‘Between December 2010 and October 2013, the Ledger published seven articles in the Business section of the Ledger as part of a weekly column entitled ‘Bamboozled’ concerning reports of defendant Demola’s allegedly unscrupulous business practices in his waterproofing businesses,’ the complaint states.
“The articles by freelance columnist Karin Price Mueller were based on customer complaints about alleged failure to return deposits and shoddy workmanship.
“‘On September 10, 2013, Demola contacted Ms. Mueller by phone after Ms. Mueller left him voicemail messages to offer Demola a chance to comment on a story that she was preparing concerning his business practices. He demanded that she stop writing about him,’ the lawsuit states.”
Read more here.
by Liz Hester
Depending on whom you ask, the $8.5 billion settlement between Bank of America and 22 institutional investors is a great way for them to move on or a terrible idea. The two-year-old lawsuit has been in hearings for the past eight weeks.
The Financial Times led with the unhappy investors, who are in the minority on claiming the settlement should be rejected:
Bank of America’s plan to pay $8.5bn to compensate 22 institutional investors for soured mortgage-backed securities is a “Frankenstein settlement”, and should be rejected, a lawyer for a dissenting group of investors told a New York judge Tuesday.
The claim came as lawyers for investors locked in combat over the proposed settlement made their last pitches after eight weeks of hearings.
BofA and a group of investors that includes BlackRock, MetLife and Pimco, agreed to the $8.5bn deal more than two years ago to resolve claims on mortgage-backed securities issued by Countrywide, the troubled bank it rescued in 2008.
But a contingent of investors, led by American International Group and representing less than 7 per cent of the outstanding claims, is fighting the June 2011 settlement, which must be approved by Judge Barbara Kapnick of the New York state’s Supreme Court.
“This monster is a Frankenstein settlement . . . They [the creators] were not willing to give life to this settlement, instead they brought it to you,” Daniel Reilly, AIG’s lawyer, told Judge Kapnick.
If she finds the deal is acceptable, the dissenting investors will be bound by it. If not, BofA could face new claims and further litigation. It is not clear when she will rule.
The bank is already on the hook for around $50bn in settlements, not including this one, stemming from the financial crisis. It is also under investigation by at least three US attorneys’ offices – California, New Jersey and Atlanta – and the DoJ for various MBS securities deals. BofA says it has set aside money to cover the $8.5bn.
Reuters had this story on Monday about the investors in favor of the settlement:
A lawyer for an investor group on Monday urged a judge to approve Bank of America Corp’s proposed $8.5 billion settlement over mortgage-backed securities that soured in the financial crisis, noting that not one investor testified against the deal in a nine-week proceeding.
Kathy Patrick, a lawyer for a group of institutional investors who entered into the settlement, was summing up the case in New York state court in Manhattan.
Bank of America agreed to the settlement in June 2011 to resolve claims over shoddy mortgage-backed securities issued by Countrywide Financial Corp, which the bank acquired in 2008.
Bloomberg added this context about the settlement and why Bank of America is eager to put this behind them:
The settlement is part of an effort by Brian Moynihan, chief executive of Charlotte, North Carolina-based Bank of America, to resolve liabilities tied to faulty mortgages that have cost the company about $50 billion in legal claims, including those the bank inherited with the purchase of home lender Countrywide Financial Corp. in 2008.
The accord, which includes more than $3 billion in servicing improvements, resolves claims over mortgages packaged into securities. It settles allegations the loans backing the bonds didn’t meet their promised quality.
BNY Mellon, as trustee for more than 500 residential mortgage-securitization trusts, filed a petition in June 2011 seeking approval of the settlement under a state law that allows trustees to seek judicial consent for their actions.
While the settlement was backed by a group of more than two dozen investors including BlackRock Inc. (BLK) and Pacific Investment Management Co., almost four dozen investors objected, including AIG. Only 15 objectors opposed to the settlement remained as closing arguments began, Ingber said.
The closing arguments cap a hearing that started in June, stretched over eight weeks and included testimony from almost two dozen witnesses and evidence from more than 200 documents.
Bank of America declined to participate in mediation talks proposed by AIG and other opponents of the settlement after Kapnick urged the parties to consider using a mediator to resolve their objections during a break in the hearing.
The arguments before the judge comes as JPMorgan Chase works through a $13 billion civil settlement with the Justice Department. Banks are trying to put the financial crisis behind them and remove some of the overhang from litigation risk. At least once settlements have been approved then it removes the doubt from stock market valuation. It might not be best in the short-term but should be a good way for the industry to move forward.