Search results matching tag 'Merrill Lynch'

8 lifestyles of the rich and incompetent

Minyanville — Mon, 20 Jul 2009 12:17:00 GMT

Take a look at Minyanville's collection of eight lifestyles of the rich and incompetent...

A couple of years ago, a study called "Where Are the Shareholders’ Estates?" by Arizona State University professor Crocker Liu and New York University professor David Yermack, asserted: “Future company performance deteriorates when CEOs acquire extremely large or costly mansions and estates."

The researchers' sources of information included property deeds, tax records, online databases such as Zillow.com and Reply.com, Google searches, employment contracts and voter registration data.

Their findings certainly show a privileged class:

The median home was valued at $2.7 million -- more than 10 times the median sales price for all U.S. homes in 2004.

It included 11 rooms plus 4.5 bathrooms, with a floor area of more than 5,600 square feet and a median land area of 1.25 acres.

12% of CEOs' homes are situated on waterfronts; 8.5% are next to or on the grounds of golf courses.

The median CEO lives 12.5 miles away from corporate headquarters, though 6% of those in the study lived more than 250 miles or more away -- meaning it takes a plane ride to get to the office.

CEOs often buy new homes the year they get the "big" job, with a total of 164 S&P 500 executives doing so in this survey. To finance their purchases, the authors found that 44% used mortgages, almost evenly split between adjustable-rate and fixed-rate loans.

More interesting is that about one-third of CEOs appear to have exercised stock options and sold shares in the 12 months before they made a home purchase. The shares peaked right before the home was bought.

That doesn't mean that they necessarily sold those shares and then used the proceeds to buy their homes. The authors felt the timing of those equity moves was more than just coincidence, however, because the companies' share prices began to fall after that peak.

The study's authors found that a CEO who acquires an extremely large property generally exhibits inferior stock performance, as does a CEO who sold his or her firm's shares and options within 12 months prior to the purchase. A CEO who does not sell any shares to finance their house shows better stock performance.

"The stock charts show that some CEOs might be very motivated sellers who are rolling money into a home," Yermack said. "Home purchases could be a ruse. If you are going to dump stock, you can buy a house to cover your tracks."

Those living really large are the 12% of S&P 500 CEOs with homes topping 10,000 square feet, or on a minimum of 10 acres.

But occupying the biggest house on the block doesn't make you a winner on Wall Street. Their companies' stocks lagged the S&P 500 by about 25% over the three years after the CEOs' home purchases. In contrast, those buying more modestly saw their companies' stocks beat the market benchmark by about the same amount.

Does their thesis hold up? Minyanville took a look at snapshots of actual CEO homes versus their company’s performance to find out -- and found some serious lifestyles of the rich and incompetent.

Eight lifestyles of the rich and incompetent

Top Stocks blogging partner Todd Harrison is founder & CEO of Minyanville.com. This post was written by Minyanville Contributor Justin Rohrlich.

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Study: Executive perks, stock pain go hand in hand

admin — Fri, 26 Jun 2009 14:29:00 GMT

This post was written by Company Focus columnist Michael Brush.

For years whenever I’ve criticized companies like Merrill Lynch, Time Warner (TWX), KB Home (KBH) and Martha Stewart Living Omnimedia (MSO) for showering execs with excessive pay, outsized bonuses and juicy perks, two responses have inevitably followed.

The companies say they need to pay executives that much to attract the “best talent."
Free marketers tell me to leave them alone. The executives, after all, are so good at what they do that they deserve whatever they get. They earned it.

Reality, however, is not so simple. Tellingly, excessive pay and perks often go hand in hand with poor stock performance -- not the kind of superior performance you’d expect from “the best talent” or overachievers.

A quick look at the charts of the stocks of all the companies above bears this out. Each stock has either blown up or vastly underperformed the S&P 500 index over the past five years. Several studies have demonstrated a link between excessive pay and poor stock performance, and now a new one from the Corporate Library joins the chorus.

In the study, the corporate governance research firm created a theoretical portfolio of stocks that excluded those with the worst grades for doling out excessive pay, and for having boards that look too entrenched or otherwise too close to management. This model portfolio of roughly 400-700 stocks was rebalanced each year from 2003 to 2008. It beat the Russell 1,000 by 2.8% annually according to the study, “Investing in Corporate Governance.”

The reason behind all of this is intuitive. Excessive pay and perks can be a sign that boards are too close to top management to act as watchdogs, making sure execs are working hard for shareholders.

Boards, after all, exist to serve shareholders, not management. But given the level of pay and perks at so many companies, a lot of times it still seems like it’s the other way around.

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Bernanke: Conspirator or Scapegoat?

Andrew Horowitz — Wed, 24 Jun 2009 21:19:00 GMT

We have seen a great deal of questionable activities over the past year or so. We have already been through market manipulation and commodity fixing, tax evasion and sex scandals. Now we are learning about the possibility of one of the most respected positions in our government involved in a multi-billion dollar cover up. Would that even surprise you these days? Probably not, as nothing is a surprise anymore.

But what are the implications if it is concluded that Federal Reserve Chief Ben Bernanke and Former Treasury Secretary Paulson had pressured Bank of America's (BAC) CEO Ken Lewis to keep material information from shareholders?

We are not talking about a white lie or a simple omission. No, we are talking about billions of dollars of losses that were going to be crammed down the throats of Bank of America's shareholders in order to prevent another "too-big-to-fail" from failing. As we have come to find out, Merrill Lynch was teetering on the edge of catastrophe as the losses on their toxic assets were no longer able to be contained.(See Report: Government threatened, bullied Bank of America)

Details are surfacing and fingers are pointing toward Bernanke for using his position and influence (and a threat or three) to merge Merrill's losses into a bank that could handle the load. The problem is that it appears that he withheld information from several Federal agencies and ignored the requests from others. Hard to believe? Take a look at some of the information that is now being reported on Bloomberg:

The memo, prepared by staffers for Republican lawmakers at a House Oversight Committee hearing tomorrow, cites what it identifies as excerpts from internal Fed e-mails to support the conclusion. Fed Chairman Ben S. Bernanke is scheduled to testify at tomorrow’s hearing in Washington.
The e-mails show that the Fed “engaged in a cover-up and deliberately hid concerns and pertinent details regarding the merger from other Federal Regulatory agencies,” Representative Darrell Issa, the panel’s senior Republican, said in an e-mailed statement.
A Fed official was prepared to “steer” Merrill toward announcing the losses later, the memo cited an e-mail as saying. The attempt became moot after Merrill decided to let Bank of America announce the losses when it reported first-quarter earnings in mid-January, the memo said. The deal was completed on Jan. 1, while Merrill’s fourth-quarter loss of $15.3 billion, later revised to $15.8 billion, was disclosed on Jan. 16.

Memos have also been released showing that there was stern opposition to the plan by the FDIC:

The memo today also showed that Federal Deposit Insurance Corp. Chairman Sheila Bair opposed the agency’s role in backstopping the $118 billion agreement.
“Dear Ben, Strong discomfort with this deal at the FDIC, for all the reasons you and I have discussed,” Bair said in a Jan. 14 e-mail, according to the memo. “My board does not want to do this and I don’t think I can convince them to take losses beyond the proportion of assets coming out of the depository institutions.”

So, is Mr. Bernanke capable of such a Machiavellian maneuver? Was Treasury Secretary Hank Paulson complicit? What was/is Mssrs. Geithner's, Obama's, Dodd's and Frank's part in all of this? Was it condoned by others or was it the act one rouge regulator? Is it okay that government has such power over private companies? Is Bernanke just the fall guy?

The list of questions and concerns is endless. What is going to be left of capitalism and free enterprise if this type of "intervention" is allowed to continue?

And one final thought: What does this say about the trust we have in the Federal Reserve and the Treasury department? If they can knowingly defraud Bank of America shareholders, what harm would it do to create a little white lie about green shoots to boost morale?

(UPDATE)

Below are a few FED emails that will be presented/discussed at tomorrow's hearing (Hat tip ZeroHedge)

fed.e-mails

The Disciplined Investor Podcast

Disclosure: Horowitz & Company managed account clients do not hold positions in securities mentioned as of the publish date.

Andrew Horowitz is a money manager and the founder of Horowitz & Company. He is also the author of the bestselling book, The Disciplined Investor . Check out his latest investment idea or listen in as he hosts, The Disciplined Investor Podcast.and his new podcast The Winning Investor: Quick and Dirty Tips for Beating the Market.

Trouble and confusion in the ETF market

Douglas McIntyre — Wed, 24 Jun 2009 10:51:00 GMT

24/7 Wall St.has been a large fan of exchange-traded funds, exchange-traded notes, and other exchange-traded instruments which are open for trade throughout the day and allowed to be invested in just like a stock. But with all new and growing markets, there are risks that need to be kept in check.

There are some leveraged ETF’s and their inverse counterparts which might need to see reverse share splits in the near future. The notion of so many low-priced shares being so active may wreak havoc as the funds managing each ETF try to keep up with appropriate derivatives and in buying and selling shares of the components that are supposed to be the underlying securities.

There are even a few ETF’s which should probably just be closed down entirely and liquidated to holders. Direxion Daily Financial Bull 3X Shares (FAS) and the Direxion Daily Financial Bear 3X Shares (FAZ) are both prime examples of ETFs which skew total daily exchange trading volume numbers because of low share prices today and massive trading volume. This is not meant to pick on the fund groups because they created trading vehicles which they did not expect to see some of these moves. There are many more ETFs and ETNs to consider here.

Direxion just announced a reverse split for another ETF yesterday, but not its two financial triple-leverage ETFs. Direxion Daily Financial Bull 3X Shares is now back down close to $8 per share, yet it trades 250 million shares on an average day. The Direxion Daily Financial Bear 3X Shares is barely above $5 and trades more than 200 million shares on an average day. So between the FAS and FAZ, you have an average of more than 450 million shares, and at today’s prices that is close to $3 billion worth of nominal value.

This review discusses a portion of the ETFs and ETNs. The ones under discussion today, along with underlying key companies, are Ultra Financials ProShares (UYG), Bank of America (BAC), B2B Internet HOLDRs (BHH), Ariba (ARBA), Internet Capital Group (ICGE), Internet Infrastructure HOLDRs (IIH), VeriSign (VRSN), Akamai Technologies (AKAM), United States Natural Gas (UNG), United States Oil (USO), SPDR Gold Shares (GLD), UltraShort S&P500 ProShares (SDS), SPDRs (SPY), New York Stock Exchange (NYX) and the NASDAQ OMX Group (NDAQ).

Ultra ETFs…

Ultra Financials ProShares is another low-priced active ETF. Its seeks twice the daily performance of the Dow Jones U.S. Financials index, and normally invests 80% of the fund’s assets in financial instruments with economic characteristics that should be twice the return of the index. With a trading range of $1.37 to $25.03 over the last year, it is easy to see where the volatility can go. This trades nearly 100 million shares on average, yet its price is $3.65 after a 2.5% gain.

Merrill Lynch HOLDRs

Now that Bank of America owns Merrill Lynch, it is time for it to clean house on at least two of the HOLDRs family of ETFs. HOLDRs are hybrd ETFs that gave investors a chance to individually own shares directly in underlying stocks. Based on how much direct mail was sent out just a year or two ago on the Semiconductor HOLDRs, B of A could save everyone some serious money by not having to send out that proxy and annual report material to holders of each stock. Let alone a headache.

The B2B Internet HOLDRs is an old legacy ETF that should just go away. While it trades over 30,000 shares on average, it is deep into penny-stock territory. Now that its last major constituent was acquired, Ariba and Internet Capital Group are the only two holdings left. Maybe this is just for pairs trading on days when Ariba has big news.

Internet Infrastructure HOLDRs is another one of the old legacy ETFs from the Internet bubble days that went from active and high priced to micro-cap and generally thin volume. Of course the 266,000 shares around noon is a slap in the face against the argument today, but this frequently sees less than 10,000 shares. The page for the weighting also has over 82% of the entire ETF weighting as being only two stocks: VeriSign Inc.with 55.76% and Akamai Technologies Inc.having 27.9%.

ETFs and ETNs in Commodities….

There are two funds which track energy commodity prices, and these ETFs have actually been accused of manipulating the price of underlying commodities. Jim Cramer recently blasted the United States Natural Gas fund. He said this one has actually become large enough because it gave traders a chance to buy big enough quantity of natural gas that he thinks the fun ran up prices because it invests almost entirely in near-month natural gas futures contracts. If that gets $100 million in buy orders for the ETF, that goes directly into the natural gas futures market.

A similar situation was noted earlier this year and last year during the oil boom and bust: the United States Oil ETF is meant to track the spot price of West Texas Intermediate light sweet crude oil. Yet during the boom and bust of oil, futures traders were able to game the “USO” because of its order flows and high demand followed by an exodus. Whether or not this one is responsible for running up or running down the commodity is something that will never be proven. How many speculators told Congress that speculators were not responsible for the run-up in crude last year? Sometimes the answers are obvious, but are not easy to quantify.

And the beloved gold ETF the SPDR Gold Shares has good intentions too. But it goes out and purchases direct bullion and exchange baskets. This ETF is so large that it is still said to be among the top 10 holders in entire gold reserves.

In commodities, it would seem that FINRA might consider making some of these trade as closed-end funds with limits to size in relation to the entire market of the underlying commodity. That is not likely to occur, but it is a thought. If inflation ever gets too heated, don’t be too shocked if and when you see a sudden Congressional press or or a FINRA-led press to stop inflows from making the commodity prices move solely be ETF owners buying more and more.

Two S&P ETFs That Do Work…

The UltraShort S&P500 ProShares against the SPDRs is an example of a pair of an inverse ETF and corresponding long ETF that actually work the way these were meant to work. The SDS trades 45 million shares on average and that is over $2 billion worth of nominal value. It is technically twice the inverse performance of the S&P 500 Index. The “Spies” trade about 275 million shares a day, yet the price is nearly $90.00 (one-tenth of S&P). That is over $24 billion worth of stock in nominal value. Compare this dollar volume daily to that of the FAS and FAZ.

Other Issues to Consider

There is another notion here to consider, and that is the New York Stock Exchange and the NASDAQ OMX Group. Both major exchanges have relaxed the old absolute guidelines on the $1 rule. There are many stocks that fell under $1 that are just too active in trading volume. Booting those funds off the exchange because of the numbers of stocks they own and because of the number of shares would be the exchanges intentionally cutting off some of their own trading volume business. How many operating businesses want to intentionally choke their own business and income streams? Yep, not many.

It is impossible to say whether or not a reverse split would make a huge difference in the volatility of low-priced ETFs. You could even make a case that if the prices were adjusted higher via a reverse stock split that the underlying ETFs would see more volatile price moves as each penny is worth less and less on a percentage basis. For a $5 stock, each penny up or down is 0.20% and that is before any commissions are applied.

There are other risks here if ETFs are allowed to grow indefinitely. Imagine if the entire world decided to trade ETFs rather than ever invest in individual stocks. This would make the money flows of an ETF determine the direction of a stock. Imagine if a company was small and attractive, but was not part of any ETF. That company would be public, yet effectively shut out of the market.

This list of questionable ETF and ETN investment is actually far longer than just these mentioned today.

Top Stocks blogger Douglas A. McIntyre is an editor at 24/7 Wall St.

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Report: Government threatened, bullied Bank of America

Kim Peterson — Thu, 23 Apr 2009 19:01:00 GMT

Explosive news out Thursday: Government officials acted like thugs last December, twisting Ken Lewis' arm until he agreed to keep Merrill Lynch. And Lewis sold out Bank of America (BAC) shareholders in order to keep his job.

But will Lewis still have his job after this news sinks in?

The details came out after New York's attorney general began investigating last year's merger between Bank of America and Merrill Lynch -- particularly the big bonus payments Merrill gave after the deal was done.

The investigation (full report here) found that Lewis wanted out of the Merrill deal -- seeing as how Merrill's financials were garbage. In fact, Merrill had lost several billion dollars in the two weeks after the merger was approved by B of A shareholders.

The situation was so bad that Lewis wanted to invoke an escape clause that would let him out of the deal if a "material adverse event" occurred. All those new losses, he figured, certainly qualified as an adverse event that would let B of A off the hook.

The government was none too pleased. Then-Treasury Secretary Hank Paulson turned the screws on Lewis, saying that Lewis and the rest of the board would be fired if they invoked the adverse event clause. (This is according to Lewis' testimony, which was later corroborated by Paulson).

If B of A backed out, Paulson said, it could create a domino effect of chaos in the financial system. The risk was too great.

Paulson said he made the threat because Fed chief Ben Bernanke told him to (Bernanke wouldn't testify). And -- surprise -- the threat worked. "Let's de-escalate," Lewis said.

But shareholders were left in the dark. Lewis wouldn't give details publicly about how badly Merrill was doing, or that he wanted out of the deal.

And, he admitted under questioning, the decision not to invoke the adverse event clause has harmed any shareholder with less than a three-year time horizon, according to the attorney general's report.

Bad behavior all around. Paulson and Bernanke panicked and channeled their inner Tony Soprano. And Lewis backed down to save himself.

Here's what others are saying about the news:

Deputy law school dean Jonathan Macey: "Regulators are supposed to tell you to obey the law, not to disobey the law. If you're the CEO, your first obligation is not to your regulator, it's to your institution and shareholders." (via WSJ)

CBS News: "If Lewis' explanation is true, a Federal Reserve Chairman and a United States Treasury Secretary seems to have threatened a bank CEO to keep information secret from his shareholders."

MarketWatch: "If his testimony is correct, the story seems to vindicate Lewis, in part, for his decision to go through with the deal. One could argue Lewis should have called Paulson's bluff, but when you're facing two regulators threatening your job and your bank, well, one can't blame Lewis for taking the escape route offered to him."

Megan McArdle: "I'm sure that Paulson and Bernanke made this threat. I also think they thought they were acting in the best interest of everyone, possibly even including Bank of America shareholders. Further, I think they may have been right. Lehmann's demise was catastrophic enough; a second investment bank failure immediately on its heels might have made the disaster ten times worse."

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GM runs out of road?

Minyanville — Mon, 30 Mar 2009 12:51:00 GMT

Taking money from the U.S. government isn't just risky; it can cost you your job.

Just ask Rick Wagoner, the now former chief executive officer of General Motors (GM). After accepting billions in aid from the Treasury Department -- but failing to produce an acceptable restructuring plan -- Wagoner was forced out of the beleaguered automaker over the weekend.

The Wall Street Journal reports that, in addition to removing Wagoner, the Obama administration’s auto-industry team floated the notion that bankruptcy may be the best option for Chrysler and GM. Although the government said it doesn’t have plans to oust Chrysler CEO Robert Nardelli, it did suggest that it's growing tired of propping up the struggling company.

The shakeup at GM didn’t end with Wagoner: A large part of the board of directors was also asked to leave, and Chief Operating Officer Frederick “Fritz” Henderson was named chief executive. He, along with a new and improved board and management team, will receive a 60-day credit lifeline by which to devise a more rigorous turnaround plan.

After the AIG (AIG) bonus debacle, financial firms are scrambling to return TARP money, lest they be subject to similar scrutiny (or similar witch-hunts). Goldman Sachs (GS), JPMorgan Chase (JPM) and others have suggested they’re working on plans to repay billions in government aid.

Whether it's bonuses at AIG, corporate jets at Citigroup (C) or executive-suite redecoration at Merrill Lynch (BAC), the federal government is taking a rather more active role in any company that has required federal money in order to stay afloat.

The government now controls some of the biggest companies in the world. And if this weekend's actions are any indication, it plans to fully wield that power.

Top Stocks blogging partner Todd Harrison is founder & CEO of Minyanville.com. This post was written by Minyanville Contributor Andrew Jeffery.

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AIG names names

Bernhard Warner and Matthew Yeomans — Mon, 16 Mar 2009 10:01:00 GMT

This post comes from partner site The Big Money.

American International Group (AIG) named names on Sunday, revealing at long last a lengthy list of payouts it made to its creditors for its catastrophically bad bets -- all with Uncle Sam's bailout cash.

Tens of billions were paid out to banks, some that are no longer standing on their own, according to the New York Times. The list includes names like Merrill Lynch ($6.8 billion), Goldman Sachs ($12.9 billion), and Wachovia ($1.5 billion). Overseas banks -- including Deutsche Bank, Societe Generale, Barclays, and UBS -- were also paid off.

They claimed a combined $25.5 billion. It doesn't end there. "In total, A.I.G. named nearly 80 companies and municipalities that benefited most from the Fed rescue, though many more that received smaller payments were left out," the newspaper writes. The Wall Street Journal calculates "that roughly two-thirds of the $173.3 billion in federal aid it received has been paid out to trading partners such as banks and municipalities in the U.S. and abroad."

The stricken insurer, now 80% owned by the government, is still facing the wrath of just about everybody not employed there. Sunday's disclosure comes as AIG was "lambasted for about $450 million in bonus payments planned for employees at a business unit that lost $40.5 billion last year," the newspaper adds.

The latest critics to vent about the AIG bailout include Fed Chairman Ben Bernanke and President Obama's chief economic adviser, Lawrence Summers. On Sunday, Summers called AIG's behavior "outrageous," the Financial Times reports. Still, he added, the Obama administration is powerless to stop the bonus payments.

Bernanke, during a "60 Minutes" interview Sunday, displayed a rare moment of emotion, saying, "Of all the events and all of the things we’ve done in the last 18 months, the single one that makes me the angriest, that gives me the most angst, is the intervention with AIG," the NYT reports.

Demand for oil may be plummeting, but the fortunes of the global economy look even more precarious. That's the hardly promising logic OPEC employed at a weekend meeting in Vienna in deciding not to cut oil output, the NYT reports.

"While some countries favored a tougher line in order to fill their depleted coffers, OPEC’s biggest producer, Saudi Arabia, found support from other moderate nations that believed the global economy remained vulnerable, and that higher crude prices could jeopardize an eventual recovery," the newspaper writes.

Rather than cut levels to stimulate the price of a barrel of oil, the cartel vowed to "comply fully" with earlier agreements to curb crude output. Not surprisingly, the price of oil fell 3% in early trading on Monday to below $45 a barrel, Reuters reports. Sunday's move by OPEC could keep prices at the pump down for a while. "It's a very reasonable decision for OPEC to take at this point, but that means they shouldn't expect to see oil prices at $50 for the foreseeable future," an analyst told Reuters.

Back to Bernanke on "60 Minutes." The last time a Fed chief gave a television interview was in 1987, when Alan Greenspan went on "Meet the Press," the Washington Post reports. Bernanke's interview allowed him to voice some populist anger against the fat cats of AIG but also to cautiously forecast: "We’ll see the recession coming to an end probably this year.”

It also allowed him to portray the normally aloof Fed in a more human, transparent light at a time when America is seething at the backdoor dealings that continue to reward Wall Street execs. "I come from Main Street. ... [T]hat's my background. And I've never been on Wall Street. And I care about Wall Street for one reason and one reason only -- because what happens on Wall Street matters to Main Street," Bernanke said.

Strong stuff from the Fed but, as the Post points out, Bernanke will be hoping his interview is better received on Wall Street than Greenspan's. Following Greenspan's appearance, the stock market had its largest single-day drop in history.

Many state and city governments are struggling to meet their pension-bill commitments due to the tumbling stock market, the WSJ reports. With investments tumbling, municipalities across the land are faced with implementing huge hikes in employer contributions in order to continue paying public-worker pensions that, in many cases, are guaranteed by law.

Pennsylvania state employees' and public teachers' pension funds both have warned that employer contribution rates could surge seven-fold from about 4% of payroll to 28% starting in 2012. Meanwhile, in New Jersey the funds shortfall is so acute that lawmakers are considering "a bill that would allow municipalities to defer payment of half their annual pension bill, due April 1, for one year," writes the WSJ.

The sobering model for state employees across the nation may be Wisconsin, which adjusts the amount of benefits paid based on its pension fund's performance. For the first time in 25 years, "the majority of retirees will receive a benefit reduction," notes the WSJ.

And, finally, Yahoo (YHOO) on Monday will unveil its latest video-entertainment strategy -- what the NYT is calling "Take Two." It will not be a Web version of sitcoms, reality TV, or talk shows -- all genres the struggling Web giant tried in the past and shelved for one reason or another.

"This time, Yahoo’s executives say they have found a sustainable model for making original video online, in part by explicitly not competing with television," the newspaper reports. What does that mean? To take one example, "Instead of producing TV, Yahoo now recaps TV in a daily show called 'Primetime in No Time,' " the newspaper writes. The program has an average audience of 400,000 daily streams, a good number for the Web perhaps but certainly not for TV.

This post was written by Bernhard Warner and Matthew Yeomans of The Big Money.

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For Madoff, does life begin today?

Bernhard Warner and Matthew Yeomans — Thu, 12 Mar 2009 10:15:00 GMT

This post comes from partner site The Big Money.

Rogue financier Bernard Madoff is expected to plead guilty today to operating a vast decades-long fraud, and details of his elaborate international Ponzi scheme continue to emerge.

The Wall Street Journal leads its coverage today with details that Madoff used his London office to launder cash in a type of carousel trade, "transferring client money from the investment-advisory business in New York to London and then back to the U.S. to support the U.S. trading operation of Bernard L. Madoff Investment Securities LLC, and also for his personal benefit and for family members and associates." The revelation means British authorities have opened up an investigation of their own into the alleged fraudster's dealings, the newspaper adds.

According to the New York Times, after today's plea hearing in federal court, "there is a strong chance that [Madoff] will not return home." The most suspenseful moment today will come after the plea, the newspaper writes, when Madoff's attorneys will argue that the judge ought to preserve his $10 million bail agreement and let him resume living in his penthouse apartment rather than wait out the next few weeks (or few months) until he's sentenced behind bars.

He may be guilty of running the largest financial fraud in history, BusinessWeek notes, but does a potential life sentence for Madoff fit the crime? The magazine talks to a variety of trial attorneys, and their verdict is not heartening for Madoff.

"For any kind of business crime, any kind of fraud, judges are much tougher on offenders at sentencing in an environment like this," Alan Ellis, a San Francisco attorney tells BusinessWeek. "They sense the public outcry." Another attorney, though, counters that we won't be seeing a repeat of the French Revolution.

Thanks to the Madoff case and the multiplying mini-Madoff frauds that have emerged since the markets started souring, financial fraudsters and bad bankers are now fast becoming the new Public Enemy No. 1. And to fight this war on financial terror, prosecutors will be getting more resources, the NYT writes, as the Obama administration focuses more attention on stabilizing the banks and restoring confidence in the sector.

The proposed federal budget contains "hints that it will add to this weight of litigation, including money for more F.B.I. agents to investigate mortgage fraud and white-collar crime, and a 13% raise for the Securities and Exchange Commission," the newspaper writes. Not surprisingly, Connecticut Attorney General Richard Blumenthal tells the NYT that new Attorney General Eric Holder is advocating a "zero tolerance for mortgage fraud."

One attorney general who will welcome added resources no doubt is New York's Andrew Cuomo. Yesterday, Cuomo kept up the heat on Merrill Lynch's top brass over last year's $4 billion bonus payout. In a new court filing, Cuomo says, "Merrill Lynch misled a congressional committee about the timing of its decision to move up the payment of 2008 bonuses to December, just days before the company was acquired by Bank of America," the Financial Times writes. Cuomo is once again putting pressure on Bank of America to release details of which Merrill execs got bonuses on the eve of the merger, the newspaper writes.

Remember how the banks were too big to fail? Where does that leave the nation's life insurers, which the WSJ calls "an important cog" in the economy whose "mounting losses weaken the companies' capital and erode investor confidence"?

As the industry receives a collective pummeling on Wall Street (the Dow Jones Wilshire U.S. life insurance index has dropped 59% since the beginning of the year), some dozen life insurers are waiting to hear whether they will receive aid from the government's $700 billion Troubled Asset Relief Program.

If folks aren't fretting over their life insurance policies, it's probably because they're worrying about their mortgage payments. New figures from RealtyTrac, the online marketer of foreclosed properties, shows that more than 74,000 homes were lost to bank repossessions in February, a 6% jump on January's figures and a 30% increase from just a year before.

The figures are of particular concern as they come after many big banks and mortgage lenders had imposed a foreclosure moratorium. It appears that, for many borrowers, "once they go into default, they never get out despite moratorium efforts," writes CNN Money.

The Roche-Genentech dalliance has a happy ending. The WSJ reports that the Swiss Big Pharma giant has "sealed a friendly deal" with the California biotech company to buy the 44% of the company it doesn't already own for around $46.8 billion.

The agreement, the second Big Pharma merger in a week, comes after months of wooing and was finally agreed to after Roche raised its offer price to $95 a share. The current economic climate has prompted a rush to merge within the pharmaceutical sector as many companies are viewed as undervalued after taking a beating during the last year.

Roche was particularly keen to close this deal this month because it feared that an anticipated positive result of a trial of Genentech’s Avastin cancer drug -- due out in April -- could drive up the price, Bloomberg reports. “Genentech is [Roche's] best asset. They had to get this done before the Avastin data came out,” one analyst tells Bloomberg.

It's that time of year again, when Forbes publishes its list of the world's most fabulously rich and influential. Never mind that there are some 330 fewer billionaires this year on the list, as the Houston Chronicle points out. Forbes would like to point out that 72 moguls are single. And, presumably, a good number are looking for that someone special. "Of those [72] plutocrats, 21 are perennial bachelors while the other 51 are divorcées yearning for a new chance at love," the magazine writes. The list includes, the magazine continues, moguls like Michael Bloomberg and Oprah Winfrey. There's no mention in the article of the most recent soon-to-be-divorced mogul, 85-year-old Sumner Redstone.

This post was written by Bernhard Warner and Matthew Yeomans of The Big Money.

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Can China save the day?

Bernhard Warner and Matthew Yeomans — Thu, 05 Mar 2009 11:13:00 GMT

This post comes from partner site The Big Money.

Eight percent growth in 2009. That's the lofty outlook China delivered on Thursday, reiterating a growth rate that remains unchanged even as the rest of the global economy continues to sink, the Wall Street Journal and Financial Times report this morning.

Both newspapers are a bit suspicious of Premier Wen Jiabao's rosy outlook. The FT points out Jiabao spoke of choosing the right policy mix to achieve the 8% target, but he was vague as to what that might be. The WSJ adds that Jiabao failed to deliver on a long-rumored new economic stimulus package. There's a lot riding on this target. Not meeting it could lead to further social unrest, even Jiabao acknowledged.

Jiabao's vague address probably won't please market watchers. Shares in the U.S. surged on Wednesday, breaking a five-day string of losses, on hopes China might introduce a new stimulus proposal, the WSJ writes. Yesterday, the newspaper writes, the so-called "China trade" was back on. Shares in Japan and China, though, remained buoyant on Thursday, climbing slightly after Jiabao's address, the BBC reports.

The WSJ's continued digging into Merrill Lynch's 2008 eleventh-hour bonus scheme today reveals a number of names. According to the newspaper's sources, New York State Attorney General Andrew Cuomo issued a new crop of subpoenas to several top Merrill executives "who were each paid more than $10 million in cash and stock last year."

The execs include: Andrea Orcel, the top investment banker at Merrill; global sales and trading chief Thomas Montag; and Peter Kraus, Merrill's former head of strategy, the newspaper writes.

Staying on the bonus beat, the FT writes that Barclays, too, is being asked to come clean on $3.3 billion "earmarked for bonuses and other liabilities that the UK bank received when it acquired part of the bankrupt" Lehman Bros. last year. Regulators weren't finished there. More than a dozen trading firms paid a $69 million settlement to the Securities and Exchange Commission yesterday to bring an end to an investigation into allegedly skimming off the top on trades. The New York Times writes that the SEC was looking into whether the firms "systematically cheated their customers of millions of dollars by improperly slicing bits of profit from countless trades."

Details of the $75 billion home foreclosure aid were unveiled yesterday, and the NYT calls it is the most ambitious policy to help troubled homeowners since the dark days of the 1930s. According to the NYT, "people with mortgages as high as $729,750 could qualify for help, and there is no ceiling on how high their income can be as long as they are in danger of losing their homes." There are limitations, though. You actually have to live in the home in order to qualify for the aid, the WSJ writes. Still, one in nine homeowners could avail themselves of the new foreclosure-fighting plan, the newspaper adds.

Could General Electric lose its triple-A rating? This is the fear that now weighs on GE, the FT writes, sending shares to a level last seen in 1991. The big albatross continues to be its finance arm, GE Capital. According to the newspaper, GE wrote to investors on Wednesday "seeking to assuage fears for GE Capital’s stability."

Still, the shares defied the Dow comeback yesterday, falling for the 11th time in the past 14 sessions, the FT tallies. The WSJ puts the GE share slide into some uncomfortable perspective. "The downward spiral in investor confidence resembled those that have humbled other financial giants in the past year, including AIG, Lehman Brothers Holdings Inc. and Citigroup Inc.," the newspaper writes, even though there is one major difference between GE and its stricken rivals in finance: The conglomerate's industrial units are expected to generate profits of $18 billion this year.

And, finally, where else but in the technology sector could you find a startup with zero revenues but a valuation in the hundreds of millions? This is the case with Twitter, the micro-blogging platform with a cultish following. According to BusinessWeek, Twitter is being sized up by Facebook and Google for a possible acquisition. Facebook offered as much as $500 million in cash and stock late last year before talks broke down, the magazine reports.

The NYT's DealBook blog gets in on the Twitter acquisition talks, noting counter-intuitively that Google's Eric Schmidt dismissed Twitter as nothing more than a "poor man's e-mail" in a recent speech. This line was decoded as: Google wants to buy Twitter. "This is how it works, people. When there’s a perceived threat, you poke it with a stick. If it moves -- and you’re a cash-rich company -- you buy it," DealBook quotes Rick Aristotle Munarriz of Motley Fool as saying.

This post was written by Bernhard Warner of The Big Money.

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Former Countrywide execs making bank from crisis

Bernhard Warner and Matthew Yeomans — Wed, 04 Mar 2009 12:45:00 GMT

This post comes from partner site The Big Money.

New York Attorney General Andrew Cuomo's crusade against the highest paid provides the Wall Street Journal with front-page fodder today. Meanwhile, those that brought you the housing crisis are reaping big rewards for buying back defaulted mortgage loans at "pennies to the dollar," according to the New York Times in a front-pager about Stanford Kurland, Countrywide's former president, who has launched a distressed debt firm.

The WSJ has identified the top 10 best-compensated Merrill Lynch employees, who are the target of an investigation led by Cuomo into $3.6 billion in bonuses paid by the firm in the days before it was taken over by Bank of America. Those executives, the story reveals, received a grand total of $209 million in cash and stock in 2008 ($8 million more than what was doled out to the top 10 last year), much of which came from bonuses. Merrill's base salaries for top executives are usually $200,000 to $750,000. Bank of America hasn't yet coughed up the names of Merrill's highest-paid executives, "claiming it would help rivals woo its top talent."

The Countrywide legacy lives on in the "spacious headquarters" of PennyMac in Los Angeles, where Kurland, the "soft-spoken No. 2 to Angelo Mozilo," leans "comfortably back in his leather chair" and tells the NYT that his new business buying delinquent home mortgages is doing "off-the-charts good." Of course, the prospect of Kurland being back in the saddle has some critics "distressed" (hey, the paper said it), but the firm is, evidently, helping troubled homeowners. One such benefactor, whose interest rate was cut by more than half, told the Times, "Literally, their assistance saved my family's home."

Topping the Washington Post's business coverage this morning is a look at how President Obama plans to set up funds comprised of toxic assets from banks so that private investors, such as hedge funds and private equity firms, can "vie" for the securities. "By competing to buy assets, the funds could set a market price that would finally allow banks to sell them off," the article says. The size of the initiative could range from $500 billion to $1 trillion.

The WSJ, in a related article, takes a look at the Term Asset-Back Securities Loan Facility, whose reach was expanded yesterday to target securitized loans for heavy industrial equipment, agricultural-equipment leases, and rental-car fleets. This will be in addition to backing securities for consumer and small-business loans. "Starting March 17, large investors -- including hedge funds and private-equity firms -- can obtain cheap credit from the Fed and use the money to buy newly issued securities backed by such loans," according to the article.

Much is riding on the initiative, the WSJ says. "At the height of the credit boom, Wall Street issued more than $1 trillion a year of securities that were backed by consumer credit, and trillions more backed by mortgages." If effective, the program could be a saving grace for the ailing auto industry, which saw U.S. auto sales plummet last month, dropping 41% from January, the paper reports in a separate article.

BusinessWeek chimes in, reporting that the sales rate of 9.1 million cars sold was the worst February performance in 40 years. General Motors, it says, was the biggest loser, with sales falling 53%. The carmaker is now mulling a possible sale of a portion of its Opel unit, the core of its European business, in order to secure governmental aid, according to the WSJ.

At CNN Money, the top car story is that Chrysler is in talks with a few companies that might want to buy its Dodge Viper sports-car line. Chrysler announced in late August that it was exploring a sale to generate cash but that discussions had slowed due to the credit markets. Chrysler saw U.S. sales decline 44 percent in February.

Federal Reserve Chairman Ben Bernanke's and Timothy Geithner's remarks yesterday at hearings with the Senate Budget Committee and the House Ways and Means Committee imply that financial institutions can expect new restrictions in "what may become the broadest overhaul to financial rules since the 1930s," Bloomberg reports. "If there is a single episode in this entire 18 months that has made me more angry, I can't think of one other than AIG," Bernanke said. Geithner added, "AIG is a huge, complex, global insurance company attached to a very complicated investment bank, hedge fund that was allowed to build up without any adult supervision."

This post was written by Sara Behunek of The Big Money.

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