Tag Archives: Coverage

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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.

Comcast Time Warner

Comcast makes the case for Time Warner deal

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The mega merger between Comcast and Time Warner is under regulatory review, and Tuesday Comcast went into great detail to make the case that it should go through.

The Wall Street Journal story by Gautham Nagesh and Steven Perlberg outlined these details:

Comcast Corp. on Tuesday submitted a lengthy document to federal regulators to justify its $45 billion proposed purchase of Time Warner Cable. But its filing also had the effect of showing the many ways in which the combined entity could use its leverage over both cable lines and programming to pressure competitors.

In a 180-page statement with the Federal Communications Commission, Comcast walked through the various parts of the media industry that could be affected by the deal, including online video, television programming, and broadband Internet access, as well as local ad sales in the cable market.

So far, Washington has reacted to the proposed acquisition with cautious skepticism. FCC officials say they can’t talk about pending mergers. Many analysts say they expect it will be approved, with conditions imposed by regulators.

The Associated Press (via the Washington Post site) had these details of Comcast’s argument in favor of the merger:

Comcast has agreed to not discriminate against any traffic in its network through 2018 as a condition of its $30 billion purchase of NBCUniversal, which was completed last year. The company vowed to maintain the commitment despite a federal appeals court decision that struck down the FCC-imposed rules in January.

Comcast says pay-TV alternatives like streaming services from Netflix Inc., Amazon.com Inc. and others have created competition in video, while there is at least one broadband Internet competitor in more than 98 percent of its markets.

“Comcast and Time Warner Cable do not compete against each other in any area. So this transaction will not result in any reduction in consumer choice in any market,” said Cohen on a conference call with journalists Tuesday.

Cohen also responded to calls by Netflix CEO Reed Hastings to extend “Net neutrality” protections to the so-called “interconnection” area between major Internet backbone providers such as Comcast. In February, the two companies reached a deal in which Netflix pays Comcast to ensure its video streams faster and more consistently to Comcast subscribers. But Hastings said last month that the fee amounts to an “arbitrary tax” to companies like Comcast that act as gatekeepers to their networks.

The New York Times added in a story by Edward Wyatt and Eric Lipton that those looking to kill the deal were also getting ready to present their case:

Opponents, too, have been gearing up for a fight. A leading critic of the deal, Public Knowledge, a nonprofit group funded in part by donations from Google, DirecTV, Dish Network and other Comcast rivals, has hired SKDKnickerbocker, a prominent public relations firm led by Anita Dunn, a former White House communications director, and Hilary B. Rosen, a Democratic strategist and former lobbyist.

The maneuvers by both sides portend months of wrangling with regulators at the Federal Communications Commission and the Justice Department’s antitrust division — the two entities that have to approve combining the two huge cable TV and Internet service providers.

On a Tuesday call with reporters, the Comcast executive who oversees the company’s government affairs operations, David L. Cohen, made his case in favor of the $45 billion deal.

“There has been a lot of discussion about whether big is bad, and sometimes when companies join together, big can be dangerous,” Mr. Cohen said. “Sometimes big is necessary and good.”

Alina Selyukh and Liana B. Baker wrote for Reuters that Comcast is also arguing that its merger would be good for consumers:

Comcast also made the case that its sales of service including broadband to small and large businesses could present companies with an alternative to telecom providers such as Verizon and AT&T.

The company also reaffirmed its commitment to so-called network neutrality rules, which ban Internet providers from slowing down or blocking access to content online, and that have been struck down by a court as formal FCC rules in January.

Comcast, thanks to a condition placed on its 2011 merger with NBC Universal, is now the only company bound to uphold net neutrality for the next five years and has promised to apply it post-merger when it becomes larger.

The FCC is now reviewing how to rewrite the net neutrality and the treatment of web traffic, including the fees content companies pay Internet service providers in so-called interconnection deals, is likely to be part of the agency’s review of the merger.

Net neutrality is actually a huge point, especially for small businesses. If their pages load slower than bigger alternatives, that could make online sales even harder. Creating a huge company that spans all the major markets might seem like a monopoly, but it if guarantees equal access, then it might not be bad. The caveat is that it’s only for the next five years. What happens after that?

Money

New banking regulations looming

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The finance world is buzzing with news of even more regulations for various parts of the markets.

The Wall Street Journal reported in a story by Ryan Tracy and Stephanie Armour that capital requirements for large banks are about to go up, potentially making it even harder to get a loan:

U.S. regulators are set to impose another curb on risk taking at the largest U.S. banks Tuesday as part of a continuing push to force big banks to gird themselves against periods of market stress.

Under the new “leverage ratio,” scheduled for a vote by the Federal Deposit Insurance Corp. and the Federal Reserve, the eight biggest U.S. firms would have to double the amount of capital they hold as protection against every loan, investment, building, security and other asset on their books—not just the risky ones.

The rule could force big banks to add tens of billions of dollars in new capital, though many have been bulking up since regulators first floated a leverage ratio in July

The biggest companies would be required to maintain loss-absorbing capital worth at least 5% of their assets, and their FDIC-insured bank subsidiaries would have to keep a minimum leverage ratio of 6%. The amounts, which are line with what banks expected from regulators, compare with the 3% set out by international accord.

For the largest banks, satisfying the new requirement will likely be manageable in the near term, but analysts warned it could constrain future growth since it would limit each bank’s ability to increase its asset base, forcing it to either raise more cash from investors or shed assets elsewhere if it begins to bump up against the ratio’s limits.

“In an environment where you are getting strong economic growth, it could be a limiting factor with how much you can grow,” said Brian Kleinhanzl, an analyst at Keefe, Bruyette, & Woods.

And that’s not all for the conglomerate banks. They may also have to worry about their trading businesses as well. Nelson D. Schwartz wrote in a New York Times story that many are calling for trading surcharges:

But a burst of outrage in recent days generated by Michael Lewis’s new book about the adverse consequences of high-frequency trading on Wall Street has revived support in some quarters for a tax on financial transactions, with backers arguing that a tiny surcharge on trades would have many benefits.

“It kills three birds with one stone,” said Lynn A. Stout, a professor at Cornell Law School, who has long followed issues of corporate governance and securities regulation. “From a public policy perspective, it’s a no-brainer.”

Not only would the tax reduce risk and volatility in the market, Professor Stout said, but it would also raise much-needed revenue for public coffers while making it modestly more expensive to engage in a practice that brings little overall economic benefit.

Despite these arguments, and support from many economists on the left for what European advocates have called a “Robin Hood tax,” even backers acknowledge the idea faces a struggle to become law, especially in the United States but also more broadly in Europe.

Not only are Republicans in Congress against new taxes in general, as are many Democrats, but opposition from deep-pocketed campaign donors on Wall Street is enough to persuade even politicians who might favor the idea to back off. Last Wednesday’s Supreme Court ruling allowing individuals to make much larger campaign donations to candidates and political parties strengthens the hand of donors.

But it’s not all rosy on the other side of the pond either. Mark Cobley reported for Financial News that banks could also have to set aside more to cover their pensions:

The UK’s five largest banks may have to find billions of pounds of extra high-quality capital to back their pension schemes under regulations coming in next year.

Pensions consultancy Redington has calculated the requirement as £12 billion. It cautions that it has used figures from the banks’ 2012 accounts. Banks could have reduced their liability by reducing equity exposure since then.

Redington based its analysis on an announcement in December by the Prudential Regulation Authority, the Bank of England’s risk watchdog, on how it would apply new EU capital requirements to banks’ pension finances.

The PRA said that under part of the EU Capital Requirements Directive IV, which comes into force on January 1 next year, the quality of capital banks hold against their pension schemes would have to be higher. Around half of their pension risk will have to be backed by core Tier 1 capital, the highest quality, consisting of shareholders’ equity and retained earnings.

The provisions are “far more punitive than the pension trustees’ usual deficit measures”, according to Antony Barker, director of pensions at Santander, one of the banks analysed by Redington.

All these new rules on various parts of the business don’t bode well for banks, particularly those with lending and trading in multiple countries. While it has always been complicated to be a multinational bank, regulators around the world are asking them to hold more money, which only means there’s less for the rest of us to borrow.

Ezra Klein 1124

Vox, the forefront of technology and journalism?

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Ezra Klein is being hailed as the future of technology driven journalism in a Sunday profile in the New York Times by Leslie Kaufman. In the introductory quote, Klein says that while he respects the Washington Post, he was being hampered by its technology. He rolled out the new version of Vox.com on Sunday and talked about the decision with the Times:

Technology has become crucial to every newsroom, of course, but not all technology has been designed equally. News organizations born in the print era have generally knit together disparate systems over the years to produce websites that integrate graphics, social media and reader comments with various degrees of smoothness.

Many all-digital organizations have built their content management systems from the ground up with the Internet in mind. That strategy, many say, produces a more organic melding of journalism and technology.

The result is an increasingly dynamic publishing universe where sites like Vox, Vice and BuzzFeed, and new enterprises like Pierre Omidyar’s The Intercept, are luring seasoned journalists as well as a new generation of storytellers.

In this high-tech universe, Vox Media’s content management system — which even has its own name, Chorus, and is used to publish all the company’s websites — has earned recognition. It is credited with having a toolset that allows journalists to edit and illustrate their copy in dramatic fashion, promote their work on social media, and interact with readers — all seamlessly and intuitively.

What is interesting is that the site isn’t being hailed for its content, but the ability to make managing it easier and more accessible. The BBC reported that venture capitalists are:

The financial future of the news business is uncertain, but lately US venture capitalists have been placing their bets on journalism.

Over the past year, venture capitalists contributed at least $300m (£180m) to digital news organisations, many of them start-ups, according to a recent report from the Pew Research Center.

“It’s a great time to build new brands in the media landscape,” says Eric Hippeau, managing director at Lerer Ventures, a venture capital fund that has invested in scores of digital start-ups, including Policymic, a news site geared towards millennials – people born between 1980 and 2000.

Mr Hippeau believes the youngest generation of news consumers are an appealing target audience.

“Young people do not really care about the old brands for the most part. They are attracted by brands that cater to and are building content that are specifically for what they like,” he says.

That sounds like good news for Vox. The Times story reported they’re trying to create a pool of reporters who are constantly updating pages, much like Wikipedia:

To help accomplish this, the developers have been building a tool they call the card stack. The cards, trimmed in brilliant canary yellow, contain definitions of essential terms that a reader can turn to if they require more context. For example, a story updating the battle over the Affordable Care Act might include cards explaining the term “insurance exchange.”

Ms. Bell said Vox.com would start with roughly 20 reporters with expertise around specific topics, a limited travel budget, and, of course, very inchoate technology.

Ms. Bell confessed that she was both “excited and terrified” to go out with a product that has had just three months to gestate. “I worry people will say, ‘Hey, you guys promised us magic,’ ” she said, “and I’ll say, ‘Hey, wait a minute. Give us some time and we will get there.’

Columbia Journalism Review also touched on the topic of journalism and technology this week:

Cultivating many small audiences of superfans in different subject areas isn’t exactly a new business model. Many old-school trade magazines share a single publisher. And digital powerhouses like Gawker segment their audience and appeal to advertisers with a portfolio of sites, each with a distinct, narrow focus. But with companies tracking individual users’ every click across the internet, advertisers can increasingly target users over sites. Rather than buy a large banner ad atop Jalopnik, Gawker Media’s car blog, the company can just serve its ad to a subset of car-interested people no matter where they browse. (If you’ve become annoyed when a product you clicked on once while online shopping shows up in ads on every other site you visit, you’ve experienced this phenomenon firsthand.) This sort of highly targeted ad usually involves a middleman, and therefore results in less revenue for the publication serving it. Soon the niches will have to be even niche-ier, the superfans even more devoted, to convince an advertiser to buy directly from a publication.

Digital trends point to the biggest media companies getting even bigger, with everyone else staying relatively small. Despite the explosion of blogs and media startups, the top 7 percent of news websites still attract 80 percent of all traffic, according to Nielsen. Most sites will never be big enough to appeal to advertisers on the basis of unique visitors alone, but they can embrace their size by making a play to keep the readers they do have engaged and coming back. But systematic thinking about how to do that has fallen by the wayside as even the little guys pursue viral hits—and the immediate Chartbeat spike that comes with them—to meet monthly traffic goals. According to Chartbeat, visitors from social are the least likely to return to a site in the future.

What if some of the effort spent writing the perfect tweet or shareable headline was focused instead on trying to deepen the relationship with existing repeat visitors?

It’s a good question. And according to CJR, Vox will have a lot of work to do to attract eyes. But if the model of deeper engagement is one that works, then there will be many following their example. And if not, then Klein will have a lot of questions to answer.