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Credit Suisse Earnings: The Key Takeaways

Wall Street Journal MoneyBeat - 1 hour 39 min ago
Reuters

ZURICH—Credit Suisse disappointed with its profit figure for the first quarter on Wednesday, even as the Swiss lender managed to haul in new assets for its private bank at the best rate it has seen in the past few years. The key problem: A diminished investment bank still in the process of shedding unwanted business.

Credit Suisse has been reshaping in a number of ways lately, and generally trying to make businesses that rely on smaller balance sheets become more profitable. The bank has withdrawn from domestic private banking in Germany, a massive, neighboring market where rival UBS continues to press ahead, and has stopped maintaining Switzerland-based accounts for clients from a number of smaller countries. It has also shed businesses at its investment bank, though it still relies heavily on debt trading.

First-quarter results from the bank come in the wake of a series of big charges stemming from U.S. legal issues, which ate into results for 2013. They also come shortly after Switzerland’s Competition Commission flagged Credit Suisse as one of the domestic banks suspected of manipulating foreign exchange rates. Credit Suisse said Wednesday it hasn’t uncovered anything “materially untoward” in the business.

Shares of Credit Suisse trade around 2.6% lower Wednesday.

Here are the key takeaways:

Smaller business, smaller profit: Credit Suisse has made efforts to slim down its investment banking business, in particular by trimming its interest rate trading unit. On Wednesday Credit Suisse said the diminished unit, in addition to troubles in emerging markets, contributed to net revenues falling 13% compared to the same quarter last year. Pretax income fell 36%. Finance chief David Mathers described returns at the investment bank as “solid,” and cited progress in winding down unwanted positions in the rates business.

Private banking as the anchor: Mr. Mathers said net new assets at the private banking & wealth management business were the best Credit Suisse has seen in the past three years, even as clients in Western Europe continued pulling money out in order to get right with the local taxman. Growth in new assets was strong in Asia, the bank said.

Cleaning up: Credit Suisse has disclosed some big charges lately related to legal troubles in the U.S., including 425 million francs for an ongoing U.S. Justice Department probe of assistance the bank gave to Americans hiding assets in Swiss accounts, and 275 million francs related to settling allegations in the U.S. that it misrepresented mortgage-backed securities sold during the run-up to the financial crisis. On Wednesday the bank cited progress in “resolving key legacy litigation issues.”

Status of DOJ probe?: Credit Suisse has now booked a total of 720 million francs in charges related to the Justice Department’s probe since it was first disclosed in 2011, and the bank is hoping to settle the matter soon. However, Chief Executive Brady Dougan said during a conference call Wednesday that “the timing and outcome” of the probe “remain uncertain.”

Categories: Transactions

Europe’s Stocks to Watch: Credit Suisse, Tesco, Danone

Wall Street Journal MoneyBeat - 2 hours 9 min ago
Lackluster profits and legal troubles in the U.S. have Credit Suisse’s stock struggling. Photo-Agence France-Presse/Getty Images

Credit Suisse is in the spotlight Wednesday after delivering a disappointing profit figure for the first quarter, as the Swiss lender was weighed down by the performance of its investment bank.

Zurich-based Credit Suisse, like its larger Swiss rival UBS, is in the process of trying to squeeze more profit from a slimmed-down operation. The bank has steadily shed assets and employees, while shuttering some businesses it deemed were too risky or not worth the costs involved.

Overall, first-quarter profit at the bank fell to 859 million Swiss francs ($975.47 million) from the 1.3 billion francs it reported for the same period a year earlier, as net revenues fell 8% to 6.47 billion francs. Analysts had expected the bank to report a profit of 1.13 billion francs for the period.

Credit Suisse has taken some significant hits to its reported results lately because of legal travails in the U.S. Earlier this month the bank said it had taken a charge of 468 million francs primarily related to a continuing criminal investigation by the U.S. Justice Department into assistance the bank may have provided to American tax evaders. Last month, the bank disclosed a charge of 275 million francs related to allegations made by the U.S. Federal Housing Finance Agency that it was one of several banks that misrepresented mortgage-backed securities it sold in the run-up to the financial crisis.

The bank’s first-quarter pretax profit from operating divisions was 6% below consensus, noted analysts at Nomura, driven by weaker than expected FICC [fixed income, currencies and commodities] and equity trading. However, it wasn’t all bad news, as wealth management surprised with net new money and cost control despite subdued margins.

Tesco is posting strong gains Wednesday despite posting its second consecutive fall in full-year profit as the U.K. retailing giant continued to struggle at home and abroad.

For the year to Feb. 22, Tesco’s trading profit—which excludes property gains or losses—fell to £3.31 billion ($5.54 billion) from £3.45 billion a year earlier, on sales that were largely flat at £70.89 billion.

Tesco’s tough times reflect a wider shift in the U.K. grocery sector, brought on by the rise of international discount chains Aldi. and Lidl. They are forcing Tesco and the country’s other big supermarket chains to reduce prices in a fight to retain customers.

The British supermarket chain’s market share and stock price are languishing at near-decade lows.

Expectations were low heading into these results, say analysts at Oriel Securities,  and these numbers represent a slight beat versus consensus. Much of Tesco’s malaise is priced in now and, as such, this could serve to stem the downward trend in the share price for now.

Richard Hunter, Head of Equities at Hargreaves Lansdown Stockbrokers notes some glimmers of hope, with progress in the online offering worthy of note, the increasingly important convenience store offering gaining traction and the overall turnaround plan edging ahead.

That said, “whether today marks the nadir of Tesco’s fortunes remains to be seen, as the beleaguered behemoth remains under pressure,” Mr. Hunter added.

Elsewhere, shares in Danone slumped 2% after the French company Wednesday reported a 5.2% drop in first-quarter sales, weighed down by unfavorable foreign-exchange movements in some key emerging markets and as the group’s turnaround in the crucial Chinese market take time.

Danone said sales fell to €5.06 billion ($6.99 billion) from €5.34 billion in the same period a year ago, when the French dairy giant posted record growth in its baby milk division because of strong demand in China.

“The environment remains very volatile and the economic context hasn’t become easier in the first quarter,” Danone’s Chief Financial Officer Pierre-André Terisse said on a conference call.

Danone, which makes Activia yogurt and Evian water, has been suffering in some of its key regions over the past two years. In Europe, sales in southern European markets have been in decline since the financial crisis hit consumer spending power.

More recently, Danone has suffered a hard sales fall in China, the company’s fourth-largest market, as a massive food-safety warning from its key supplier Fonterra last year forced the group to recall infant formula across eight Asian markets.

Categories: Transactions

Credit Suisse Profit Falls 34% in First Quarter

New York Times DealBook - 2 hours 23 min ago
The bank reported quarterly earnings of 859 million Swiss francs, or about $976 million, compared with profit of 1.3 billion francs in the year-earlier period.
Categories: Transactions

Market Winds Blowing in China, Mark Mobius Says

Wall Street Journal MoneyBeat - 2 hours 41 min ago

A new mentality is starting to take hold in some surprising places in China, according to Franklin Templeton’s Mark Mobius, after the government last year promised a greater role for market forces in the country’s economy and financial system.

In a recent meeting, for example, the manager of a listed state-owned enterprise began by apologizing to Mr. Mobius, whose fund is an investor in the company, for its poor profitability.

Franklin Templeton’s Mark Mobius said attitudes are changing in China.
Bloomberg News

“It’s quite surprising. A state-owned enterprise apologizes to foreign investors,” he said. “So what does that say? He is much more market-oriented. He’s been held responsible for the profitability of the company. I’m very bullish about the Chinese market for that reason.”

Mr. Mobius has long been bullish on China, and is still betting on it despite challenges that include shifting toward a demand-driven economy and revamping a creaky financial system burdened with a mountain of debt, much of it tied speculative real-estate development.

A growing number of China’s people will earn more and spend more in coming years, benefiting companies that can meet their demands, said Mr. Mobius, executive chairman of Templeton Emerging Markets Group, which has $43 billion in assets under management.

Around a quarter of the fund’s assets are invested in Hong Kong-listed Chinese stocks the biggest geographical allocation, followed by 15% in Brazil and 6% in South Africa.

The fund owns shares in companies such as Tencent Holdings, one of China’s biggest Internet companies, Hong Kong-based clothing retailer Giordano International, and Brilliance China Automotive Holdings, a BMW manufacturer in China, Mr. Mobius said.

“We want companies with good, fat margins,” he said in an interview.

Of course, there are risks. In addition to debt, there is slowing growth and a possible downturn in the housing market, a key driver of the economy and repository of an unusually high percentage of China’s household wealth.

The country’s first corporate bond default took place just last month, as Chinese regulators look for ways to inject some discipline into a market where there has been little.

There is worse to come, Mr. Mobius said, and even investors in state-owned enterprises will need to reassess risk.

“You’re going to hear about bankruptcy. You’re going to hear about companies going under, you’re going to hear about people getting arrested.”

Categories: Transactions

Morning MoneyBeat Europe: Another U.S. Turnaround Should Keep Bulls in Control

Wall Street Journal MoneyBeat - 3 hours 49 min ago

Good Morning Europe

Local mainboards are tipped to start higher Wednesday, responding dutifully to yet another impressive fightback session in the U.S., the second straight, and helped by strong gains on the Nikkei in Japan.

Any European gains are all-too-likely to be cautious, though, given the Ukrainian government’s first use of military force in its pro-Russian eastern regions. There’s also some lackluster Chinese GDP growth data to chew over, although the details–particularly retail sales and industrial production–seem a lot more encouraging than the headline figure.

U.K. labor data will be in the spotlight this session, with wage growth of special interest given inflation’s weakness and the political focus on costs of living.

By David Cottle

Market Snapshot: U.S. stocks (Tuesday close): DJIA up 0.6%, Nasdaq up 0.3%, S&P 500 up 0.7%. Nikkei ends Wednesday up 3%. June FTSE now up 0.4%, June S&P up 0.3%. Brent crude now down 17 cents at $109.19. Gold up ten cents at $1300.40. EUR/USD now at $1.3824, above $1.3815 late Tuesday in New York. USD/JPY at ¥102.18, above ¥101.91. Ten-year T-note yields 2.64%, Bund 1.47% and Gilt 2.60%.

Watch For: U.K. Labor data, EU harmonized CPI, U.S. industrial production, and, probably blowing the rest out of the water, Janet Yellen speaks at the Economic Club of New York.

What you may have missed from MoneyBeat:

Kiwis and Sheep: The Missing LinkWant to know how to predict sheep prices? Sure you do. Well, the New Zealand dollar can help, according to Deutsche Bank. In a new paper examining whether commodity prices can help predict currencies or vice versa, the bank has highlighted an often-overlooked link between the kiwi (as the currency is affectionately known) and sheep.

French Bonds in Demand, Yields Back Below 2%: Since April 3, French borrowing costs have fallen as investors are willing to pay higher prices to hold the country’s debt.

The Great Inflation Undershoot: A number of central banks are increasingly worried about deflation. Little wonder.

Football Meets FX: You may recall the shocking analysis from the European Central Bank in 2012 showing that traders like watching football. Indeed, sometimes they watch football (soccer, if you must) instead of, well, trading.

Stock Pickers Get Their Day In The Sun: Ever since the Fed unleashed its unconventional policies, investors have lived in a binary world where risky investments were either in vogue or out of fashion, often shifting on a daily basis. Now, fund managers will have to rediscover the pleasures, and pains, of picking stocks and other assets.

From The Wall Street Journal:

Ukraine Uses Force For First Time: Ukraine’s military fired its first shots Tuesday in the fight to regain control of the restive east from pro-Russian separatists, as soldiers repelled an armed mob from a military air base.

Credit Suisse First Quarter Profit Falls: Credit Suisse said Wednesday that first-quarter profit fell to 859 million Swiss francs ($975.47 million) from the 1.3 billion francs it reported for the same period a year earlier, as net revenue fell 8% to 6.47 billion francs.

China’s Economic Growth Slows: China’s gross domestic product growth slipped in the first quarter to its slowest level in 18 months as the world’s second-largest economy continued to downshift.

Danone Sales Fall: Danone on Wednesday reported a 5.2% drop in first-quarter sales, weighed down by unfavorable foreign-exchange movements in some key emerging markets and as the group’s turnaround in the crucial Chinese market take time.

U.S. Housing Market Slow to Hit Its Spring Stride: A flurry of recent housing data suggests that the market’s spring selling season is getting off to a slow start, a worrisome sign after a winter of expectations that warmer weather would rekindle growth.

Alibaba Flexes Muscles Before IPO: The Chinese E-Commerce Titan is more than double the size of Amazon, triple the size of eBay and one-third larger than the value of all the transactions last year at the two U.S.-based platforms together.

Mt. Gox Files for Liquidation: Defunct bitcoin exchange Mt. Gox has given up its plan to rebuild under bankruptcy protection and has asked a Tokyo court to allow it to be liquidated, people familiar with the situation said.

Italian Funds Attract Record Cash: Even as Italian banks nurse the wounds from this country’s protracted downturn, one part of the financial sector is shining: asset management.

Categories: Transactions

Why Alibaba Is a Big Deal

Wall Street Journal MoneyBeat - Tue, 04/15/2014 - 23:17

setSandboxHeight = function(id, height) { if ( height > 5000 ) return; document.getElementById("ifrm_" + id).height = height+ "px"; } Many consumers in the U.S. go to Amazon.com when they shop online. But for hundreds of millions of Chinese consumers, online shopping is synonymous with Taobao and Tmall, the two marketplaces run by Alibaba Group Holding. 

Alibaba founder Jack Ma.
Agence France-Presse/Getty Images

Helped by the sheer size of its domestic market – China has over 600 million Internet users – Alibaba’s business has expanded rapidly over the past decade and its sites already handle more transactions than those for Amazon and eBay combined.

Now, Alibaba is facing a major turning point as it prepares to go public in New York in what could be the largest Internet initial public offering in U.S. history. Analysts and bankers say Alibaba’s IPO could raise $15 billion or more, possibly surpassing Facebook’s $16 billion IPO in 2012.

Even though there is so much hype over its IPO in the U.S., Alibaba’s actual e-commerce operations are still largely unfamiliar to U.S. investors, let alone U.S. consumers many of whom have never used Alibaba’s services. While some businesses in the U.S. have used Alibaba.com to find Chinese suppliers, that business-to-business website is now a relatively small part of Alibaba’s revenue, compared to its Chinese consumer shopping sites Taobao and Tmall, which together account for the company’s revenue according to analysts.

“There’s no other e-commerce group that is as dominant as Alibaba in their home markets,” said Paul McKenzie an analyst at Hong Kong based brokerage CLSA.

Some of Alibaba’s financial information is available through its major shareholder, Yahoo, which includes Alibaba’s results in its quarterly earnings reports. And the latest Alibaba earnings numbers from Yahoo showed the Chinese company’s continued growth.

The next big opportunity to find out a lot more about Alibaba — its operations, finances and ownership – will be when the company actually files for a U.S. IPO. Its IPO prospectus should provide potential investors with a lot of new material to digest. Alibaba last month said it has decided to start the process of an IPO in the U.S., but it still hasn’t made the IPO filing.

Categories: Transactions

Citi Names Head of Asia Markets and Securities Services

Wall Street Journal MoneyBeat - Tue, 04/15/2014 - 22:52

Citigroup Inc. has picked Patrick Dewilde to run its Asia markets and securities services business, putting a company veteran in one of the bank’s most important posts in the region, according to a memo seen by The Wall Street Journal.

Mr. Dewilde, who first joined Citi in 1983, will move to Singapore from London for the position, which oversees everything from the bank’s regional foreign-exchange business and its prime brokerage to custody services and fund administration. He was most recently working as head of Citi’s local markets risk treasury and markets head for South East Africa, Turkey and Israel.

Mr. Dewilde replaces Nadir Mahmud, who in February was tapped to run Citi’s foreign-exchange business. He replaced Anil Prasad, the man who helped Citi develop its currencies business into the second-biggest in the industry.

Categories: Transactions

Softbank Shares Rise on Alibaba Profit Report

New York Times DealBook - Tue, 04/15/2014 - 22:50
Shares in Softbank rose as much as 8 percent after Alibaba, which is 37 percent owned by Softbank, reported $1.4 billion in profit for the October to December quarter.
Categories: Transactions

Deutsche Bank Taps Citi Banker To Head Indonesia Operations

Wall Street Journal MoneyBeat - Tue, 04/15/2014 - 22:28

Deutsche Bank AG, the world’s largest currency trader, has hired a banker from Citigroup Inc. to head its Indonesia operations, as the German bank continues to bulk up across the region.

Deutsche Bank’s headquarters in Frankfurt.
Reuters

Kunardy Lie has been appointed as Deutsche Bank’s chief country officer for Indonesia with immediate effect to replace Suresh Narang who retired from the bank end March, Deutsche Bank said in a statement. Prior to his joining Deutsche, Mr. Lie was the managing director and head of corporate and investment banking, Indonesia.

The latest appointment is the seventh such hire by Deutsche in the last two years. During the period, the German bank has appointed chief country officers in Singapore, Malaysia, Korea, China, Australia & New Zealand, Japan and India. Last year, Deutsche Bank tapped JPMorgan & Chase Co’s Southeast Asia Investment banking chief executive Philip Lee to head its Singapore operations and be its Southeast Asia vice chairman. In August, it appointed James McMurdo as its chief executive of Australia & New Zealand. Mr. McMurdo was with Goldman Sachs in the U.K. before his Deutsche move.

Indonesia, the most populous nation in southeast Asia with a population of 240 million, has been a sought-after destination for deals in recent years mainly due to its rising middle class income and strong economy. The country is currently in the middle of legislative and presidential elections and investors are keenly watching what reform moves the next government will take up in the financial and other sectors of the economy. Currently, Indonesia’s stock market is the second best performer in Asia after Vietnam. The Jakarta Composite Index is up 14.3% year to date.

Deutsche Bank, which started its operations in Indonesia in 1969, has a commercial banking license and employs 280 professionals in Jakarta and Surabaya.

Categories: Transactions

‘Friendly’ Activist Among Japan’s New Pension Managers

Wall Street Journal MoneyBeat - Tue, 04/15/2014 - 22:02
A man is reflected on a screen outside a Tokyo brokerage on Monday.
Reuters

Japan’s first-ever selection of an activist investor to help manage its mammoth pile of public pension money has drawn applause, and may herald a change in its view of who it can trust with its retirees’ savings.

The Government Pension Investment Fund, the world’s largest with Y126 trillion ($1.23 trillion) in assets, this month raised eyebrows when it named Taiyo Pacific Partners as among the new foreign asset managers it had chosen.

For one thing, Taiyo is much smaller than previous asset managers hired by the GPIF, with just $2.5 billion in assets under management. A prior GPIF manager, Amundi Asset Management, by contrast, manages more than 750 billion euros (Y103 trillion).

Taiyo stands out in another way. Instead of merely investing in companies, it tries to change the way top Japanese executives think.

In an interview with The Wall Street Journal, Taiyo Chief Executive Brian Heywood described his firm as a ‘friendly activist investment fund.’

“CEO is really an insular, lonely job. Everybody tells you what you want to hear,” Mr. Heywood said, prior to the announcement that Taiyo had been selected by the GPIF. “But as foreigners, we can let corporate heads experience something new, while getting a central message across–like realizing cost of capital, efficiency, teamwork, or some other concept related to improving the value of the company in which we actually invest.”

For the past five years, Seattle-based Taiyo has sponsored annual retreats in which 25-35 Japanese CEOs network, share ideas and occasionally even seal business deals. Retreats have taken executives to Zen temples, Samurai sword-making factories and tsunami-ravaged disaster areas.

Taiyo’s strategy made an impression on GPIF. “We were looking for a fresh approach, and they seem to have one that holds promise,” a GPIF spokesman said.

Taiyo generally holds stakes of 5% or more in companies that often aren’t household names, such as plastic fastener-maker Nifco and Nissha Printing.

Neither the GPIF nor any of its newly chosen asset managers would disclose specific allocations, fees or investment strategies.

Still, some have called the GPIF’s selection of Taiyo and other more aggressive foreign asset managers, as well as fresh performance benchmarks, as some of the biggest changes in its history.

“If the GPIF wanted to show that it can think outside the box then mission accomplished,” said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

“If [the newly chosen foreign firms] turn in good performance numbers, there won’t be any excuse to not give them even more money next time.”

Categories: Transactions

Baioo’s Fall Clouds Hong Kong’s Allure for Gaming IPOs

Wall Street Journal MoneyBeat - Tue, 04/15/2014 - 21:38
Wu Lili, CEO and co-founder of Baioo, left, and CFO Carl Yeung shake hands during the company’s listing ceremony at the Hong Kong Stock Exchange.
Bloomberg News

A Chinese online-game developer whose popular children’s game features bearlike creatures that go on adventures is the latest victim of the global selloff in technology stocks, writes Prudence Ho in today’s Moneybeat column:

Shares of Baioo Family Interactive2100.HK +3.75%… plunged in the two days after its offering last week. Bankers say that decline will make it harder for other online-game companies to go public.

Over the longer term, though, the city is expected to remain the listing venue of choice for Chinese online-gaming companies, even though Hong Kong lost out to New York in the competition for the IPO of Chinese e-commerce giant Alibaba Group Holding Ltd., which will likely be one of the world’s largest. Game companies have flocked to list in Hong Kong recently, partly because valuations for companies listed on the city’s stock exchange are often similar to, or higher than, those of their U.S.-listed counterparts.

Read the rest of the story on WSJ.com.

Categories: Transactions

Investors Keep an Eye on FS Investment’s Listing Wednesday

Wall Street Journal MoneyBeat - Tue, 04/15/2014 - 20:21

Some investors are keeping a close eye on Wednesday’s planned listing of specialty finance company FS Investment Corp. amid turbulence in the stock market.

FS Investment Corp. is a venture of Franklin Square Capital Partners and GSO Capital Partners LP, the credit arm of private-equity giant Blackstone Group LP. FS Investment isn’t selling any new shares, but existing holders of $2.7 billion worth of private shares – largely retail investors who made purchases in previous private offerings — are free sell into the public market once the listing takes effect.

The company, which primarily lends to privately held U.S. companies, is expected to be listed on the New York Stock Exchange under the ticker symbol “FSIC.”

Some analysts and industry participants see the listing as a sign of the maturation in the market for so-called business-development companies. Many participants are trying to attract larger investors to an industry that has long been the preserve of individuals.

A listing from a private-equity-backed firm “begins to create some comfort with institutional investors owning these names, and it helps the smaller players,” said Robert Dodd, senior vice president in research for specialty finance companies at Raymond James.

A typical BDC targets about 90% retail investors and 10% institutional buyers, said Mr. Dodd. An IPO in March for TPG Specialty Lending Inc., an affiliate of private-equity firm TPG Capital, had about 85% institutional participation, according to people familiar with the deal, something analysts said was a departure from the norm.

FS Investment’s plans reflect the niche lender’s commitment to its expansion amid regulatory pressure on traditional lenders in the wake of the 2008 financial crisis, the people familiar with the matter said.

The deal will catapult the private lender into the rankings as the fourth-largest public business development company by market cap, according to Keefe, Bruyette & Woods research, putting it behind Ares Capital at $5.1 billion, American Capital at $4 billion and Prospect Capital Corp. at $3.6 billion.

Mickey Schleien, an analyst covering BDCs for Ladenburg Thalmann & Co., wrote in a recent note that the FSIC shares should list “at a suitable valuation in relation to the $10.80 price” at which it last sold shares, which would be 5% above its $10.27 net asset value.

He said the roughly 60,000 individual investors owning FSIC shares may cause “selling pressure once the stock is listed” but that a management tender offer for the shares, a share repurchasing program and two newly announced special dividends should “alleviate much of this pressure,” if they were implemented.

Units of Bank of America Corp., J.P. Morgan Chase & Co. and Wells Fargo & Co. are advising on the FS Investment listing. Representatives for these banks either declined comment or did not return calls.

Under the GSO/Franklin venture, Franklin Square raises the money through private distribution channels, using brokers to sell shares to mostly affluent individuals. Some of those brokers have earned up to 10% commission, a figure that has raised eyebrows in the industry. Once the money is raised, GSO invests the cash by sourcing lending opportunities. Franklin now has more than $10 billion in BDC assets, while GSO manages $65 billion.

FS Investment Corp. has two successor funds: FSIC II that is closed to new investment, with $3.1 billion of equity raised; and FSIC III that is being ramped up and is open to investors. The company would need shareholder approval to merge the funds.

Categories: Transactions

Morning MoneyBeat Asia: Up, Down, and Back Up Again

Wall Street Journal MoneyBeat - Tue, 04/15/2014 - 18:23

Market Snap: At the New York close: S&P 500 up 0.7% at 1842.98. DJIA up 0.6% at 16262.56. Nasdaq Comp up 0.3% at 4034.16. Treasury yields mixed; 10-year fell to 2.628%. Nymex crude oil down 0.3% at $103.75. Gold down 2.1% at $1,300.00/ounce.

How We Got Here: Another erratic day of trading, with the Dow up 100 points at its early morning high, and down 110 points at its low, before another late-afternoon rally pushed it up 89 points on the day. All this volatility could just be the market digesting recent gains, or it could be a pivot point. We just have to wait and see. Keeps it exciting, doesn’t it?

Meanwhile, earnings season is in full swing, and there were a few blue-chip names for investors to chew on, including Coke and Johnson & Johnson. Yahoo reported after the bell, and shares are up sharply in late trading after the Internet company showed tepid signs of growth, and Alibaba showed torrid signs of growth.

Intel rose in late trading, too, as earnings topped views even though profit contracted from last year, and revenue rose marginally.

Coming Up: In China, a clutch of data points, including first-quarter GDP (10 a.m., Beijing time), Jan-Feb. fixed asset investment, and March industrial output. Obviously the focus is on GDP, which has been steadily ratcheting down for years now.

In New Zealand, the first-quarter consumer prices report arrives at 10:45 a.m., Wellington time. In Japan, February revised industrial output hits at 1:30 p.m., Tokyo time.

What You Missed Overnight

Clash Erupts at Military Airport in Eastern Ukraine Two pro-Russian militants were apparently wounded in a clash at a military airfield Tuesday as armored Ukrainian units began moving into the country’s restive east, part of a military operation to take back control of cities seized by separatists.

U.S. Stocks Rise Amid Volatile Trading U.S. stocks ended a volatile session with broad gains on Tuesday, erasing a sharp midday swoon that saw the Nasdaq Composite Index fall to nearly five-month lows before recovering.

Radioactive Waste is North Dakota’s New Shale Problem At a deserted gas station in a remote North Dakotan town, local officials recently found the latest example of the shale-oil boom’s unintended consequences: hundreds of garbage bags filled with mildly radioactive waste.

Alibaba’s Profit Surges Chinese e-commerce giant Alibaba reported strong fourth-quarter revenue and profit, as it prepared for an initial public offering in coming months.

From The Wall Street Journal Asia

No Signs of Missing Jet in Seabed Search  Initial data from an unmanned submersible launched Monday to scan the Indian Ocean seabed for wreckage of Malaysia Airlines Flight 370 revealed nothing related to the missing plane, authorities said Tuesday.

Business Leaders Hedge Bets on Xi President Xi Jinping has challenges ahead of him, from repairing China’s broken industrial model and reinventing its financial system, while tackling endemic corruption and chronic pollution. It’s a big task, and business leaders are on the fence about his prospects for success.

North Korea’s ‘Criminal’ Economy  The breakdown of North Korea’s public distribution system during the famine years of the mid-1990s fostered the emergence of an underground market economy as the populace were forced to find ways to try and survive. The growth of that economy in subsequent years has been the subject of great interest to observers.

Obama’s Trip to Japan: a Three-Day Visit That Isn’t  A close look at the itinerary of President Obama’s visit to Japan provided by the foreign ministry shows Mr. Obama isn’t in for a leisurely stay.

From MoneyBeat

Yahoo Shares Surge on Growth Signs  Yahoo shares rose sharply in late trading, after the venerable Internet company’s first-quarter earnings report showed some signs of growth for the first time in a year. But Alibaba, in which Yahoo has a 24% stake, reported torrid growth, a good sign as it prepares for an IPO.

Twitter Notches Biggest Rally Since IPO  Twitter shares rose 11% to $45.52, the biggest rally since the microblogging site went public in November. The gains came one day after some of Twitter’s biggest and earliest backers said they don’t intend to sell shares when rules barring them from doing so expire next month.

Nasdaq Nears Correction Territory The Nasdaq Composite is poised to go where it hasn’t gone in two years: correction territory.

‘Weakest Earnings Cycle in 55 Years’  Earnings growth during this cycle is coming in at the weakest clip in 55 years, LPL Financial’s Jeffrey Kleintop said, averaging about 2.8% annualized, compared to an average of 7.3%.

Categories: Transactions

As Moelis Debuts, A Look At How Other Bank IPOs Have Performed

Wall Street Journal MoneyBeat - Tue, 04/15/2014 - 18:20

Moelis & Co. moved forward with its initial public offering Tuesday night, but it couldn’t escape the tumult that has hit the stock and IPO markets in recent weeks.

The boutique investment bank sold fewer shares than planned and it priced its IPO below expectations. The WSJ is reporting that Moelis sold 6.5 million shares for $25 apiece, raising $162.5 million before the potential sale of additional shares by underwriters. Moelis had expected to offer 7.3 million shares for $26 to $29 each, according to a regulatory filing earlier this month.

The lackluster pricing follows a pullback in U.S. stocks in recent weeks, particularly in shares of many newly public companies.

Shares of the so-called investment-banking boutiques that closely resemble Moelis haven’t escaped the selling. Evercore Partners Inc.'s shares have fallen 17% year-to-date while Lazard Ltd. is down 2.4%. They’re up 33% and 32% the past 12 months, respectively, well ahead of the S&P 500′s 19% advance during the period.

Moelis is set to open on the New York Stock Exchange Wednesday under the symbol MC. Goldman Sachs Group Inc. led the offering with Morgan Stanley.

Here is look at a number of investment banks and brokerages that have gone public is the past 20-plus years. This group of IPOs averaged a 14% pop on their first day of trading.

Categories: Transactions

Moelis Fees on the Rise

Wall Street Journal MoneyBeat - Tue, 04/15/2014 - 18:08

After selling fewer shares for a lower price Tuesday, Moelis & Co. can find a silver lining in this year’s league table rankings.

The night before its trading debut, Moelis is sitting higher on the league table of investment banks by fees for U.S. mergers and acquisitions than it was a year ago.

The boutique has received $65 million in fees from advising on U.S. M&A deals year to date, according to Dealogic. That puts the firm 12th on the league table for the period.

During the same time last year, it ranked 15th with $45 million in revenue from M&A transactions.

Moelis currently ranks 19th among advisers by announced U.S. deal volume so far this year, according to Dealogic, down from eighth place during the same period in 2013. Last year Moelis scored a role advising HJ Heinz Co. on its $27.5 billion buyout by Warren Buffett‘s Berkshire Hathaway Inc. and 3G Capital Inc. in the first quarter. It also advised on AMR’s $13 billion merger with US Airways that was announced last February.

The largest announced deal the New York firm has advised on this year is hedge fund Elliott Management’s $3.36 billion bid for Riverbed Technology Inc. in February.

Moelis will open on the New York Stock Exchange Wednesday under the ticker MC. The Wall Street Journal reported Tuesday that the firm sold fewer shares than it initially planned at a lower than expected price. It sold 6.5 million shares at $25 each after announcing earlier this month in a regulatory filing that it would sell 7.3 million shares for $26 to $29 each.

The biggest deal the boutique has ever advised on was InBev SA’s 2008 deal to buy Anheuser-Busch, which created the world’s biggest brewer.

In an earlier filing, the firm said it expected to report revenues of between $113 million and $115 million for the first quarter, up from $59.8 million in the first quarter of last year.

Categories: Transactions

In Corporate Monitor, a Well-Paying Job but Unknown Results

New York Times DealBook - Tue, 04/15/2014 - 17:33
A compliance supervisor is hired ensure that a company accused of wrongdoing does not break the law again, but the concept is problematic, writes Steven Davidoff in the Deal Professor.
Categories: Transactions

Moelis & Co. Prices Its I.P.O. at $25 a Share, Below Expectations

New York Times DealBook - Tue, 04/15/2014 - 16:56
The pricing of the offering below its expected range suggests that not even a strongly performing investment bank can escape the chill that has entered the I.P.O. market.
Categories: Transactions

Fed Weighing New Rules on Short-Term Borrowing, Yellen Says

New York Times DealBook - Tue, 04/15/2014 - 16:15
The Fed chairwoman on Tuesday suggested some measures to reduce the risks for Wall Street firms. The measures include requiring banks to hold more capital.
Categories: Transactions

Yahoo Shares Surge; Tepid Growth Is Still Growth

Wall Street Journal MoneyBeat - Tue, 04/15/2014 - 15:58

Yahoo shares rose sharply in late trading, after the venerable Internet company’s first-quarter earnings report showed some signs of growth for the first time in a year. But Alibaba, in which Yahoo has a 24% stake, reported torrid growth, a good sign as it prepares for an IPO.

Bloomberg News

Yahoo’s growth wasn’t profit growth, and it wasn’t revenue growth, at least not overall revenue growth. But there was a sign of growth, and that apparently surprised Wall Street.

Yahoo shares rose 8.3% at $37.05 in late trading. After opening 2014 at $40.44, shares had drifted down to a closing-price year low of $32.87 on April 11.

The company earned $311.6 million, or 29 cents a share, in the quarter, down from $390.3 million, or 35 cents a share, a year ago. Revenue fell 1% to $1.14 billion. Excluding stock-based compensation and other “one-time” items, earnings were flat at 38 cents a share.

The surprise came in Yahoo’s revenue minus commissions paid to partners for web traffic. This key metric rose 1%, after four straight quarters without growth. Revenue from display ads, moreover, rose 2% to $409 million.

Yahoo is hosting a conference call at 5 p.m. ET. Our colleagues at Digits are covering it via live blog. The real interest will revolve around Yahoo’s Alibaba stake. In the slides that will accompany the conference call, Yahoo reported that Alibaba’s revenue rose 66% – to $3.06 billion from $1.8 billion – from a year ago, gross profit rose 73% – to $2.4 billion from $1.4 billion – and income from operations rose 105% – to $1.6 billion from $803 million.

That is decidedly not tepid growth. Since a big chunk of Yahoo’s valuation is tied up in its Alibaba stake, this is a prime focus for investors.

One firm that was likely not surprised by the report was SunTrust, as our colleague John Shipman relates:

Pretty nice timing for SunTrust Robinson Humphrey, which upgraded Yahooyesterday to buy from neutral. Shares up 6.8% after hours following a 1Q earnings beat, and gained 2.3% during regular trading. SunTrust upgrade cited recent pullback in shares, and its analysis indicated that “after adjusting for Yahoo’s ownership of Yahoo Japan and Alibaba…investors are essentially getting the core Yahoo asset for free.” Core “is still very much entrenched in a turnaround,” SunTrust wrote, but the firm figured investors would “look past” it in today’s report. Some positive signs from the core, however, help lift shares, with modest growth in revenue ex commissions paid to partners for web traffic.

Categories: Transactions

BitBeat: Bitcoin, the Honey Badger of Money, Fearless Again

Wall Street Journal MoneyBeat - Tue, 04/15/2014 - 15:37
Reuters

Welcome to BitBeat, your daily dose of crypto-current events, written by Paul Vigna and Michael J. Casey.

Bitcoin Latest Price: $496.84, up 8.6% (via CoinDesk)

Crossing Our Desk:

- It may be impossible to know exactly how many people are part of the bitcoin community, but there’s a new site called bitnodes that is trying to track the number of “nodes” (each representing a server, or a server farm) on the bitcoin network, and it’s turning out some surprising results.

The country with the largest number of nodes, 3,236 currently, is the U.S.; that’s 38% of all the nodes counted so far. Germany is number two, the U.K. number three, and Canada comes in fourth. But Germany represents just 6.2% of all the nodes. In other words, the numbers drop off dramatically after the U.S. count.

The biggest surprise on the top-1o list is Ukraine, with currently is number nine (and has moved up a few notches since we first saw the site), with 149 nodes, about 1.7% of all available. The site currently records users in 96 countries, with a number of one-node entries, like Zimbabwe, Macedonia, Aruba, and Lebanon. (Paul Vigna)

–How about that price action, eh? For a couple of financial reporters who’ve watched all manner of markets over the years, it sure is fun watching the price of bitcoin.

The declines of the past month had seemed so relentlessly one-way that some of the virtual currency’s critics were gleefully ringing its death knell. Now, two days out from Friday’s five-month low of $355.38, the price rose as high as $514.72 on Tuesday. They don’t call bitcoin the honey badger of money for nothing.

As is often the case, it’s not easy to get a definitive explanation for this Lazarus-like rebound. Nonetheless, we find it curious that it has coincided with the arrival of April 15, a date that loomed large in bitcoiners’ minds this past month.

For one, it’s the filing deadline for U.S. income taxes, arriving just three weeks after the Internal Revenue Service declared that bitcoin would be subject to capital gains taxes. Many bitcoiners have hopefully concluded that the IRS won’t penalize them if they let 2014 slide for now, but there were signs that others were more cautious and pared down their holdings to finance possible tax bills. After the IRS announcement on March 25, the virtual currency fell 38% from $582.28 to its low on Friday. Does the rebound since then – more or less the same magnitude as the decline in percentage terms — imply that those fund-raising sales are over?

The other April 15 deadline was imposed on China’s banks by its central bank, which ordered them to sever their ties with bitcoin exchanges by that date. And, indeed, China-based exchanges Huobi and OKCoin reported receiving termination statements. But, after checking in frequently with Bobby Lee, the CEO of BTC China, we’ve learned that his exchange never received one. Until he does, Mr. Lee has said, it will be business as usual at China’s most well-known bitcoin exchange.

Who knows what the next big test for bitcoin will be. But at least April 15 is out of the way. (Michael Casey)

- One sign of continued optimism: the first bitcoin job fair. Organized by bitcoin entrepreneur and Blockchain.info Chief Security Officer Andreas Antonopoulos, the fair will take place at the Plug and Play Tech Center in Sunnyvale, Calif. on Saturday, May 3. Prospective employers in attendance will include Circle Internet, Xapo, Bitpay, Kraken, Blockchain and GoCoin. (Michael Casey)

Contacts: paul.vigna@wsj.com, @paulvigna / michael.casey@wsj.com, @mikejcasey

Categories: Transactions

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