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A Guilty Plea in a Hacker-for-Hire Case

New York Times DealBook - 2 hours 36 min ago
A private investigator in New York has pleaded guilty to hiring a hacker to help with his investigation.
Categories: Transactions

Exxon Surpassed By Buffett’s Berkshire in Market Cap Rankings

Wall Street Journal MoneyBeat - 4 hours 10 min ago

As Exxon Mobil Corp. continues to set session lows, reaching its weakest level in 17 months in the process, the oil-and-gas giant has fallen another notch on the market-cap tables.

Bloomberg News

Slipping below $360 billion has allowed Berkshire Hathaway Inc. to move past Exxon for No. 3 in the ranks of companies that trade publicly on U.S. markets. It was just last week that a resurgent Google Inc. passed Exxon for No. 2 as the internet giant looks to get back to $400 billion.

According to S&P Dow Jones Indices’ Howard Silverblatt, the last time Exxon finished the year this low in the market-cap rankings was in 1999, when it finished fifth. Then, Microsoft Corp. topped the charts at $604 billion while Exxon was fifth at $278 billion.

Microsoft for a time moved Exxon out of second late last year. It was the first time in a decade Exxon wasn’t first or second. Microsoft, though, sold off sharply after its quarterly report in January, falling to fifth by market cap. It’s currently around $346 billion.

Berkshire hasn’t exactly been on a tear either. The firm, led by famed investor Warren Buffett, is down about 3% this year. But Exxon is down more than 7% in the same span.

Categories: Transactions

Caixabank of Spain Pushes Ahead With Offer for Portuguese Bank BPI

New York Times DealBook - 4 hours 17 min ago
The Spanish bank said on Friday that it had no intention of sweetening its bid, even though BPI’s board rejected it a day earlier.
Categories: Transactions

Apple Helps, But Tech Arguably Still Underrepresented in Dow

Wall Street Journal MoneyBeat - 4 hours 22 min ago
Bloomberg News

Technology will have a bigger profile in the Dow Jones Industrial Average beginning March 19, after Friday’s decision to add Apple to the elite group of 30 stocks. But tech will still be underrepresented, relative to the industry’s importance on Wall Street and impact on the broader economy.

Prior to Apple’s arrival, the Dow includes just four true tech companies: Cisco , IBM , Intel and Microsoft. Together, they account for roughly 10% of the value of the index. By contrast, tech stocks account for roughly 20% of the value of the Standard & Poor’s 500-stock index, a broader group of the nation’s biggest companies.

Some argue that tech accounts for an even larger share of the nation’s economic output. The National Science Foundation, citing data from IHS Global Insight, estimated in 2014 that “knowledge and technology intensive” industries were responsible for roughly 40% of U.S. gross domestic product. That figure includes sectors such as education and health. Absent those, the share would be closer to 30%.

“The Dow is a lagging indicator of the economy,” says Josh Lerner, professor at Harvard Business School. “Clearly there’s been an effort to update and modernize it, but looking at [the list of Dow stocks] it’s hard to feel it’s kept pace with the changes that have taken place with the economy as a whole.”

There’s also a technical reason why tech is underrepresented in the Dow: the share prices of some prominent tech companies.

The Dow is a so-called “price-weighted index,” which means it is calculated by adding the stock prices of its constituents and then dividing by a figure to keep the index consistent for splits.

That means a stock trading at $100 has a ten times greater impact on the index than one trading at $10, regardless of the size of the companies. So Goldman Sachs ' impact on the Dow is roughly six times as great as Cisco’s because its share price is more than six times higher, despite the fact that Cisco’s market cap is nearly twice as large.

Indeed, the index managers said they added Apple because Visa ’s planned stock split, also effective March 19, will reduce its weighting in the index, simply because it will have a lower share price. The index managers categorize Visa as an information-technology company, and wanted to add another information-technology company.

Two other tech bellwethers that might be candidates for the index, Google and Amazon, trade at nearly $600 and $400 respectively. That means they would have an outsized impact on the index, if they were added.

Likewise, Apple itself wouldn’t have been practical to add to the index until it executed a 7:1 stock split last summer. Were it not for that split, the shares would currently be trading at nearly $900.

Categories: Transactions

Monetary Policy: The New Jobs Report Shows Janet Yellen’s Quandary in a Nutshell

New York Times DealBook - 4 hours 28 min ago
Some numbers suggest the Fed should raise interest rates, but wages are still stagnant, and the number of people in the labor force just shrank.
Categories: Transactions

Breakingviews: Apple’s Entry Will Help an Antiquated Dow Catch Up

New York Times DealBook - 4 hours 55 min ago
The Dow dates from a computer-free era when working out the average of 30 stock prices counted as added value. Including Apple in the index was overdue.
Categories: Transactions

How Will Apple Perform in the Dow? Clues From Some Recent Additions

Wall Street Journal MoneyBeat - 5 hours 8 min ago
Kimihiro Hoshino/AFP/Getty Images

Now that Apple is officially a member of the bluest of the blue-chips club, it’s stock is sure to…do what, exactly? The track record of the companies that have been added to the index over the past two decades is mixed. Some have done quite well, some have languished. Most have had their ups and Dow ns. Some don’t even exist in their previous forms anymore.

All of which suggests that being added to the granddaddy of the indexes isn’t exactly a golden ticket to easy street. Here’s a look at how the Dow’s more recent classmates have fared.

Class of 1997:

Hewlett-Packard  is the worst performer from the Class of ’97. Trading around $21.63 when it was added to the index, it rose to $62 by July 2000, riding the tech boom. It has had a rougher go of it since then, falling to under $13 in November 2012. It left the index in 2013, replaced by Visa. Currently trading at $33.62.

Johnson & Johnson  has risen pretty steadily since its inclusion into the index. From $29.94 in March 1997, it has moved in a steady line higher despite two recessions. Currently at $100.67.

Travelers Group has gone through more mergers, acquisitions and spinoffs than Lady Gaga’s gone through wardrobe changes, so it’s hard to say exactly how the stock has fared. It was added to the index in 1997, and a year later became part of one of the most notorious deals in corporate history, when it merged with Citicorp. Citigroup , the resulting company, stayed in the index through the financial crisis, even as its stock collapsed. It was dropped in 2009 (see below).

Wal-Mart was golden through the dot-com boom. Trading under $14 in March 1997, it rose as high as $65 in 1999 before hitting a plateau. It got back to $65 in 2012, and has gone up from there, currently around $82.61

Class of 1999:

Home Depot  was trading around $54 in 1999. Its first decade in the index was a black hole, despite having a historic housing boom on its side. By 2009, the stock was at $23. Since then, however, it’s been a steady riser, currently around $115.

Intel  today looks like the very picture of a high-tech utility company, making products that help power everything from talking teddy bears to smartphones. In other words, it’s a safe, steady company. In the dot-com days, though, it was a hot product. Like Microsoft , it had surged through the ’90s. Trading at just under $40 when it was added to the index, it rose to $74 by the fall of 2000. It never recovered those dot-com highs, trading around $33.22 today.

Microsoft, like Hewlett-Packard and Intel, rode the tech boom. Scratch that, Microsoft led the tech boom. It may be hard for today’s cool kids to picture, but once upon a time, Microsoft was what Apple is today, the leviathan that rules the seas. Windows owned the world. Trading around $12 in 1997, it was just under $46 in November 1999 when it got added to the index, and rose to $58 by the end of 1999. But then dot-com bubble burst, Bill Gates turned the company over to Steve Ballmer, the Justice Department turned its full focus on the boys from Redmond, and its ability to innovate steadily winnowed away. It fell all the way back to $16 by 2009. It has fared better since then, rising back to $42.38 currently.

SBC Communications was born of the break-up of  AT&T in 1984. The current company is the result of the spun-off company acquiring its former parent, AT&T, in 2005, and adopting its name and ticker. So, the current AT&T stock reflects the fortunes of SBC. When it was added to the Dow in 1997, it was trading around $45. Currently, it’s around $33.50, and is about to replaced by Apple.

Class of 2004:

AIG was added to the index just as the housing boom was taking off. Four years later it got bounced from the Dow after receiving a massive, historic, and controversial government bailout. Trading at $65 in April 2006, the stock plummeted during the financial crisis. As Hank Greenberg will gladly tell you, shareholders got precious little in exchange for their careening stock in that bailout. Today it sits at $55.

Pfizer was trading around $35 in April 2004. It’s at $33.82 today.

Verizon was trading at $33 when it was added to the index. Trading around $29 during the depths of the financial crisis. Today it’s at $48.

Class of February 2008:

Bank of America  At $16.29 lately, and shareholders should be happy to have that. One of poster children of the financial crisis, the stock was around $43 when it was added to the index. It was already on its way down, having peaked at $55 in 2006. It would continue falling, dropping all the way to $3 in March 2009.

Chevron At $84 when it was added to the index, today it trades at $103.

Class of September 2008:

With AIG collapsing and threatening to take down the world with it, Kraft Foods was added to the index. It was a short-lived appointment. It stayed in for just four years. In 2012 the company split in two, into Kraft Food and Mondelez International. It was dropped out of the Dow that year and UnitedHealth replaced it.

Class of 2009:

Cisco Another dot-com high flyer. It was at $79 in March 2000 and was trading around $20 when it was added to the index. It’s at $28.89 today.

Travelers Cos. The reincarnation of Travelers Group after that outfit was split off from Citigroup, was added to the index, replacing  of all names Citigroup. Trading around $44 when it was added to the index, it is currently around $106.

Class of 2012:

UnitedHealth traded around $56 when it was added in September 2012. It’s had a nice run since then, currently at $112.85.

Class of 2013:

Goldman trading around $169 in September 2013, it’s at $187.77 today.

Nike traded around $70 when it was added. At $97.33 today.

Visa around $199 when it was added. Trading at $272 today (and will soon have a 1-for-4 stock split, which will take the price down, which sparked the rebalancing that is bring Apple into the index).

Categories: Transactions

Canadians Are ‘Spocking’ Their Money to Honor Leonard Nimoy

Wall Street Journal MoneyBeat - 6 hours 6 min ago

Sir Wilfrid Laurier, one of Canada’s greatest prime ministers, is boldly going where no dead Canadian politician has gone before.

Sir Wilfrid, who governed Canada from 1896 to 1911 and is widely considered one of the country’s greatest prime ministers, is being transported into the realm of Star Trek by Canadians. They’ve been drawing the features of Mr. Spock, a character from the show, on the portrait of Sir Laurier on the country’s five-dollar bill.

It’s been going on for years, but the practice of “Spocking” the five-dollar bill reached a new plateau in the last few days after the death of Leonary Nimoy, the American actor who depicted Spock, on Feb. 27.

Canadian Design Resource, a collective that supports Canadian designers, issued a public call for Spocking after Nimoy died. By Thursday that request had been retweeted 1,693 times.

“Spock” your $5 bills for Leonard Nimoy pic.twitter.com/bKdKyC3l4q

— Design Canada (@The_CDR) February 27, 2015

Todd Falkowsky, the publisher of its website, said the group asked its Twitter followers to “Spock” their older fives in a nod to the passing of Mr. Nimoy.

“We had seen these portraits for years, and thought it would be a genuine way to give this doodling a real purpose,” he said by email.

The Bank of Canada, which supervises Canada’s currency system, issued a statement on the practice of Spocking. It outlined the reasons for not mutilating or defacing bank notes, but didn’t threaten “Spockers” with any legal sanctions.

That’s because it can’t. Since 1991, it has not been illegal to write or make other markings on bank notes in Canada.

Canada adopted new, polymer bills with increased anti-counterfeiting features and longer lifetimes beginning in 2011. But the rise of Spocking shows that the new-high tech currency is vulnerable: the Bank said writing on a bank note may interfere with the security features and reduces it lifespan.

“Markings on a note may also prevent it from being accepted in a transaction,” the Bank said. “Furthermore, the Bank of Canada feels that writing and markings on bank notes are inappropriate as they are a symbol of our country and a source of national pride.”

Robert Talbot, 33, a post-doctoral fellow in history at the University of New Brunswick, said Spocking might promote awareness of one of Canada’s great prime ministers.

“Maybe I’m naive, but it would make me hopeful that this tempest in a teapot over Laurier might get people interested in reading up on him,” he said.

Mr. Talbot said he doesn’t advocate defacing currency, and hasn’t Spocked five-dollar note himself.

There are grounds for Spocking Sir Wilfrid in particular, Mr. Talbot said.

The two are somewhat similar in appearance, and Sir Laurier’s late nineteenth-century garb is somewhat reminiscent of the uniforms worn by Star Trek characters.

“He’s a victim of fashion standards of the Edwardian period,” he said.

Like Spock, Sir Wilfrid was intensely logical, and showed a keen interest in the future.

He famously said that: “The 19th century was the century of the United States. I think we can claim that it is Canada that shall fill the 20th century.”

It’s not known what he thought about the 21st, or the 23rd.

-Alistair MacDonald contributed to this article

Categories: Transactions

Senior Credit Suisse Banker Switches to Perella

Wall Street Journal MoneyBeat - 6 hours 22 min ago
Reuters

Credit Suisse Group AG is losing an experienced European adviser with Christopher Williams moving to boutique Perella Weinberg, according to two people familiar with the matter.

Williams is vice chairman of the global financial institutions group at the Swiss bank, which he joined in 2009 as vice chairman of investment banking for Europe, the Middle East and Africa. Prior to this he worked at Citigroup where he was an adviser to the U.K. government’s Asset Protection Scheme, designed to help banks deal with the tumbling value of their bad loans.

At Credit Suisse he worked alongside the likes of James Leigh-Pemberton, now responsible for managing the U.K. government’s bank stakes, and Ewen Stevenson, now chief financial officer at Royal Bank of Scotland PLC.

Williams becomes the latest adviser to switch from bulge-bracket bank to an independent advisory house after independents enjoyed a banner year in M&A last year, racking up more than $1 trillion in announced deal value, according to data from Dealogic.

Last month Tom Massey, head of European M&A at Citigroup, agreed to join Evercore, while Johannes Groeller, previously co-head of M&A at Morgan Stanley in EMEA, agreed this year to join PJT Partners, the boutique advisory firm set up by ex-Morgan Stanley banker Paul Taubman.

This article first appeared in our sister publication Financial News.

Categories: Transactions

Bank Stress Tests: What the Analysts Say

Wall Street Journal MoneyBeat - 6 hours 23 min ago
Associated Press

The largest U.S.-based banks passed the first rounds of so-called stress tests administered by the Federal Reserve, which deemed them strong enough to keep lending during a severe recession. It’s a sign that many of these banks will get the Fed’s blessing to either raise dividends or buy back shares.

The Fed is slated to announce its determination about banks’ ability to return capital to shareholders next Wednesday.

Bank of America Corp.'s stock traded up nearly 2% Friday and Morgan Stanley 's stock was slightly higher. Wells Fargo & Co. was flat, while shares of Citigroup Inc., Goldman Sachs Group Inc., and J.P. Morgan Chase & Co. were down about 1%.

Here’s what analysts had to say about how individual banks fared on this round of tests:

R.W. Baird’s David George:
Mr. George said Bank of America was the winner among the largest U.S. banks, citing its year-over-year improvement in projected earnings power.

Jefferies’ Kenneth Usdin:
The biggest banks, Mr. Usdin wrote, had lower ratios for the necessary capital buffers during times of stress than he had expected.  ”Our initial take is that the Fed’s assumptions were tougher than the banks’ own inputs on provisions/charge-offs and balance sheet size,” Mr. Usdin wrote.

Among the big banks, he cited Bank of America as a better performer compared to last year, while Citigroup, J.P. Morgan Chase and Wells Fargo fared slightly worse. Still he expects Citigroup among the big banks to receive the largest year-over-year increase in its authorization to buyback shares.

BMO Capital Markets’ Peter Winter:
“We remain confident that Citigroup will pass CCAR on March 11, 2015, and that this will prove a positive catalyst for the stock.”

Yet, Mr. Winter is more wary about what Zion’s results from the stress tests means for its CCAR results next week: “We are concerned that the significant disparity between the Fed’s stress test results and its internal results could lead to a qualitative failure in CCAR. The marginal pass on [the stress test] could also mean additional balance sheet restructuring is needed,”

Goldman Sachs’ and Morgan Stanley’s results left him also more wary of how they will fare on the CCAR tests. “We may be too aggressive with our share repurchase forecasts for Goldman Sachs and Morgan Stanley.”

Sanford C. Bernstein’s John McDonald:
“We caution investors from using these results as an exact barometer of the magnitude of banks’ requests (which will be released next Wednesday) as a number of factors could create variances. In addition, as we learned last year, the Fed can also still reject any bank’s capital plan on “qualitative” grounds, even if the bank clears all the quantitative hurdles.”

Mr. McDonald cited Bank of America as the big winner.

RBC Capital Markets Joe Morford:
Mr. Morford said Bank of America’s capital position didn’t strengthen materially, so he expects that it requested “only a modest payout this year.”

Still, he chalked it up to a win for the bank and its shareholders in time. “Going forward, however, we expect the company to deliver greater earnings consistency now that it has moved past much of its legacy issues, and accordingly we look for it to return more capital to shareholders over time,” he wrote.

Evercore ISI’s Glenn Schorr:
Mr. Schorr predicts that many banks may have sought to return less capital than many on the Street expected.

“Of the big 8, we think Bank of America, Bank of New York Mellon, and Wells Fargo look good, Citigroup looked a low at first glance, but fine post their planned preferred issuance. J.P. Morgan, State Street Corp. and Morgan Stanley looked close to the line & might imply a modest mulligan for a lower ask and Goldman Sachs was furthest from the Fed with the smallest excess capital position and will likely see the largest reduction in capital return ask.

Vinings Parks’ Marty Mosby:
“Going into this year’s CCAR results we have consistently highlighted Citigroup (C, Strong Buy, $53.56) as the bank with the most to gain in this year’s CCAR process. We still believe that C should pass next week and receive approval to begin to distribute a meaningful amount of capital. If C can increase its dividend to 10 cents per share and begin to repurchase $4 billion over the next 4 quarters we believe its stock should outperform over the next month.”

Macquarie’s David Konrad:
Mixed: J.P Morgan Chase – “Although the tier 1 leverage ratio came in lower than expected at 4.6%, we believe there is enough room for our $10.7bn buyback estimate.”

“Morgan Stanley also fared well in DFAST, as the 4.5% minimum leverage ratio should give the company enough room for our buyback estimate of $1.8bn. Further, more cushion may be available given trading losses are booked early in the DFAST cycle and MS generated more capital by the end of the cycle. That said, the recent legal settlement and corresponding limited reserve may provide some qualitative risks.”

Negatives: “Goldman Sachs is right on top of the minimum 8% requirement for the total-risk based capital ratio (8.1%). However, given a broker’s mark-to-market model assumes the bulk of the losses upfront in the cycle, we believe GS will still have room to buyback stock given the ending total risk based ratio is 10%. That said, Goldman’s stress test was materially different than the Fed’s …which is a negative from a qualitative perspective.”

UPDATE: This post has been updated to correctly cite David Konrad as Macquarie’s bank analyst.

Categories: Transactions

The Force Ends Up With Deutsche Bank

Wall Street Journal MoneyBeat - 6 hours 29 min ago
Jon Hamm, right, takes a selfie at the unveiling of his wax figure at Madame Tussauds (Photo by Charles Sykes/Invision/AP)

Last Thursday, analysts at Deutsche Bank AG waxed lyrical on Merlin Entertainments PLC, the U.K. owner of attractions including Madame Tussauds and Legoland Parks. The analysts raised their target price for Merlin’s shares from £4.40 ($6.78) to £4.75 and praised the rollout of new Star Wars displays in Madame Tussauds in London and Berlin, slated to open May 4th.

“The timing looks inspired as it will coincide with the release of the new Star Wars film later this year,” the bank said in a note titled “May the fourth be with you.”

In short, the stock looked hot.

A week later, Deutsche Bank made a different declaration about the same company. In a regulatory announcement on the London Stock Exchange on Friday, Deutsche Bank said it owned £303 million ($457 million) of Merlin stock—equivalent to 7% of the company. How did that happen?

Private equity firms CVC and Blackstone hired Deutsche Bank to sell £660 million worth of Merlin shares on Monday, according to a person familiar with the matter. The deal was priced at £4.17 on Tuesday, a discount of around 2.2% to the price the shares were trading at prior to the proposed sale.

But investors were not so keen, and Deutsche Bank failed to sell all of the Merlin shares and was left with the stock that it couldn’t offload.

Deutsche Bank declined to comment.

Bankers on the deal, though, won’t have gone into meltdown. Merlin shares are currently trading around £4.25 on Friday, up 2% from the share offering price. Given the FTSE 250 has been flat since Monday, the force may have been with Deutsche Bank after all.

Categories: Transactions

Banks Did Better – And Worse – At Predicting Stress Test Results

Wall Street Journal MoneyBeat - 6 hours 35 min ago
Reuters

The first round of results of the Federal Reserve’s stress tests didn’t tell investors what they really want to know: Whether big banks will be able to make big shareholder payouts.

But they do say a lot about how well banks are doing in predicting the Fed’s results, which is crucial for firms as they plan for their future capital needs – and future shareholder payouts.

Bankers have described the Fed’s test as a “black box,” criticizing the central bank for continually changing the tests in a way that makes them difficult to predict and plan for. The Fed says it does disclose a lot about the tests but wants them to be unpredictable – otherwise banks would have all the answers before they take them.

The tests simulated a hypothetical recession with high unemployment, corporate defaults, and huge declines in stock and home prices. Banks must evaluate how their loan portfolios would perform.

At least some banks seem to be getting better at seeing inside the “black box” by doing a better job at getting their projections in line with the Fed. For instance, two key ratios that Bank of America Corp. calculated were far closer to the Fed’s calculations than they were a year ago.

Last year, the Fed calculated that Bank of America’s Tier 1 common ratio, a measure of capital as a percentage of risk-weighted assets, would dip to 5.9%, while the bank calculated that the lowest it would fall would be 8.6%. This year, the two sides were far closer: The Fed calculated a low of 7.1% for Bank of America, while Bank of America calculated a low of 8.1% for itself. The Fed’s and Bank of America’s calculations for the bank’s Tier 1 leverage ratio, which measures capital as a percentage of all assets, followed a similar pattern. (As a side note, Bank of America also had some capital-reporting errors that it disclosed last year.)

Citigroup Inc. also closed the gap on Tier 1 common ratio, but found it widening on another capital measure. In 2014 it disclosed a 10% minimum Tier 1 common ratio, compared to the Fed’s finding of 7.2% – a 2.8% difference. This year the difference was just half a percentage point. But the bank was farther off in its projection of the minimum Tier 1 leverage ratio. Last year its projection was 0.4% different from the Fed’s. This year the difference was 1.4%.

More In Stress Tests

Many other banks reported differences with the Federal Reserve’s numbers for their stress tests, but perhaps none so glaring as Zions Bancorp . The bank on Friday said its tier 1 common capital ratio in a severely adverse stress scenario would be 8.6%. The Fed, however, pegged that number at 5.1%, barely above the 5% threshold. That’s 3.5% gap and gives Zions little space to justify paying out capital to shareholders. Last year, Zions projected a 5.9% Tier 1 Common ratio, but the Fed found it would drop to 3.6%. The differences can be attributed to Fed expectations of greater losses than Zions in its loan portfolio.

Analysts were wary of Zions on Friday, with Evercore writing the results “confirm our concerns” about the bank’s “ability to grow and earn an acceptable rate of return on capital.” Evercore reiterated its hold rating on the stock, which was down 2% in recent trading

Banks also often note that their own calculations are more generous than the Fed’s, as was the case at J.P. Morgan Chase &. Co, Wells Fargo & Co. this year. But Wells Fargo’s minimum Tier 1 common ratio was 2% different than the Fed’s, while J.P. Morgan’s was 1% above the Fed’s calculation.

At least five banks – KeyCorp ., BB&T Corp., Discover Financial Services , and the U.S. units of HSBC Holdings PLC and BMO Financial Group , posted lower capital ratios than the Fed this year, indicating their tests were actually more conservative that the Fed’s. Here’s a list of how a number of banks fared on the Tier 1 common ratio compared to the Fed.

–Julie Steinberg and Christina Rexrode contributed to this article.

Categories: Transactions

Blame Oil for the Slow Start for IPOs This Year

Wall Street Journal MoneyBeat - 7 hours 8 min ago

It’s been a slow start to 2015 for initial public offerings.

In the first two months of the year, U.S.-listed IPOs raised $4.7 billion, compared to $8.3 billion raised during the same period in 2014, according to Dealogic. In 2013 $6.2 billion was raised.

AFP/Getty Images

Blame oil for the slowdown.

“There were some big energy deals a year ago, and just given the price of oil, this year there have been none,” said Andy Sanford, head of equity capital markets at Wells Fargo Securities.

Indeed, two of the three biggest IPOs in the first two months of 2014 were in the energy sector: Rice Energy Inc. raised about $1.1 billion and EP Energy Corp. raised roughly $700 million when they went public in January 2014.

But with crude-oil futures falling more than 50% between June and January, excluding master limited partnerships, the IPO market for exploration and production companies has screeched to a halt. No exploration and development companies excluding MLPs have gone public since June, according to Dealogic. Though MLPs are typically in the energy sector, demand for the segment has remained strong, in part because MLPs pass along most of their income to shareholders in tax-favored distributions, making them particularly attractive for income-hungry investors as interest rates remain near historic lows.

The return of volatility to the stock market in January also delayed some stock-market debuts, according to equity capital markets executives.

January was plagued by sharp swings in U.S. stocks. The Dow Jones Industrial Average closed 1% higher or lower on 10 separate occasions during the month of January, the highest monthly total since October. Trading volumes also were at their highest level for any month since October.

Bankers noted that in the tech sector, a number of companies completed IPOs in late December, clearing out a bit of the early-year pipeline. And other companies have opted for additional pre-IPO funding rather than pushing to list.

“The private market is so flush, some people are moving IPOs to later this year or next year,” said William Bowmer, head of Americas technology-stock offerings at Barclays PLC.

But, he said, with stock prices performing well overall, it doesn’t feel like the environment is overall tougher for IPOs. “There’s no tidal shift, and we may see more deals now that earnings season is over,” he added.

Others in the equity capital markets industry agree, saying despite less money being raised by IPOs so far in 2015, the IPO market looks strong, especially when performance is taken into account.

“This year simply hasn’t had a few of the large deals we had last year, but I don’t think the high-level numbers tell the whole story,” said Michael Cippoletti, head of U.S. equity capital markets for BMO Capital Markets. “The IPO market year to date has performed well.”

For the first two months of 2015 the average first-day pop for an IPO was 12%, according to Dealogic. In the same period in 2014 the average pop was 15%, Dealogic said.

More In IPOs

Even as activity in IPOs has remained muted, other activity in equity capital markets has risen in 2015 compared to the prior year. For instance, the money raised by convertible bonds is up to roughly $13 billion for the first two months of the year compared to $7.7 billion in 2014, according to Dealogic.

Convertible bonds can convert to stocks if the share price of their issuer rises to a high enough level. In the meantime, they pay income like a bond. Part of the reason for the acceleration in convertible bond issuance is the increased choppiness of the equities market, industry participants say. As volatility goes up, the value of the option associated with the bond increases, too.

Bankers and fund managers say they expect the rest of 2015 to pick up in terms of IPO volumes. The pipeline for deals remains robust, many say. It’s important to remember, they add, that last year was the biggest year in IPOs since 2000, and even if 2015 doesn’t reach those levels, it still has the potential to be very healthy.

“We just had the most active IPO market since the financial crisis, so I would expect the backlog to be a bit smaller, especially because when you take away some of the energy deals,” said Mr. Cippoletti. “Our backlog spans all major industry sectors, but what we don’t have as much of is oil and gas.”

Categories: Transactions

Zambia Copper Dispute Could Pressure Market

Wall Street Journal MoneyBeat - 7 hours 18 min ago
A truck exits the mine after collecting ore from 516 meters below the surface at the Chibuluma copper mine in the Zambian copperbelt region
Reuters

Windfall taxes usually work best when prices are rising.

Zambia has taken a different approach. The price of copper is in free-fall and in January, the government hiked royalties to try to shore up its finances.

The Copperbelt that stretches across southern Congo and northwestern Zambia accounts for 15% of total global copper production. Zambia was ranked the seventh-largest producer of the red metal in 2014. Output has been growing; the southern African nation could move into sixth place if new mines come online this year as planned, according to data from Australian bank Macquarie.

The copper price has rebounded 7% since touching five-and-a-half-year lows in mid-January, but is still down almost 10% since the start of the year. The dispute in Zambia may start to feed through into higher global copper prices if more mines shutdown.

“If you start to see a tightening a market and you see production coming offline in Zambia due to taxes and economics then I think that could be impactful on sentiment about the marketplace,” said Vivienne Lloyd, a base metals analyst at Macquarie.

Copper futures on the London Metal Exchange are currently trading down 1.6% at $5,740.00 a metric ton – down from $6,250 a ton at the start of the year.

Zambia knows that it cannot upset foreign investors and mining companies so much that there is a mass exodus. Already, Barrick Gold Corp. has said it will shut its Lumwana mine, and other closures have been threatened.

Newly-elected Zambian President Edgar Lungu has expressed a desire to work with miners to resolve the standoff. But in late February he appeared to take a firmer position, saying that if Barrick shuts the mine, he would find a strategic partner to work with the government to take over mining operations.

“It should be noted that copper production performed poorly in 2014 even before the new mining tax regime was introduced,” the president said in a statement on Feb. 23.

Anecdotal evidence suggests that despite the entrenched positions, behind-closed-doors conversations between the Zambian government and mining companies are apparently more diplomatic. Falling tax receipts may nudge the government to be more conciliatory.

“Publicly, the view of the government is quite intransigent, it’s a very strong view … Privately, there is a degree of flexibility,” said Raj Kohli, global head of mining and metals at Standard Bank, in a panel discussion at the 28th International Copper Conference in Brussels last week.

Some market participants believe that had the hike happened when red metal prices were healthier, mining companies might not have been so vocal. As it is, mining companies are coping with soaring power and labor costs, as well as the negotiations with the government.

“It’s difficult” but we’re positive, said Somnath Ghosh, general manager of sales and marketing at Konkola Copper Mines, the country’s second-largest copper producer, in a speech at the conference. KCM, a unit of London-listed Vedanta Resources PLC, recently settled a separate dispute with the Zambian government over value added tax refunds worth around $130 million.

Categories: Transactions

Retiring Oil Price Predictions

Wall Street Journal MoneyBeat - 7 hours 24 min ago
Oil tankers sit at a rail yard in Richmond, California.
Bloomberg News

Wall Street doesn’t have a stellar reputation when it comes to predicting oil prices. As late as last September, analysts were forecasting Brent crude would end 2014 at about $105 a barrel (it came in at about $61).

That may be why oil executives almost universally demur when asked where prices are going, usually saying they plan for a range of scenarios.

Former ConocoPhillips board member and current senior advisor to TPG Capital William Reilly has a more straightforward answer. Sitting on a recent panel discussing “Cheap Gasoline,” organized by the Commonwealth Club in San Francisco, he was asked the usual question.

Mr. Reilly’s advice on issuing “firm” predictions about things as volatile as oil prices? Make them “for a period well beyond your own retirement.”

That seems sensible enough. Still, he didn’t dodge the question altogether. Perhaps to the disappointment of Wall Street analysts—who have to make firm forecasts—Mr. Reilly doesn’t see oil returning to triple digits anytime soon. Even worse, while he didn’t give a firm number, Exxon Mobil CEO Rex Tillerson sounded a bearish note on oil prices, saying “people need to kind of settle in for a while.”

Categories: Transactions

Rum Maker Seeks Partner to Punch Up Sales

Wall Street Journal MoneyBeat - 7 hours 36 min ago
Worthy Park Estates

A Jamaican rum maker is looking for a drinking buddy.

Worthy Park Estate Ltd. is seeking to sell an equity stake that could value the business at more than $40 million.

The company hopes to sell the stake to an industry partner that can help boost its sales internationally, Gordon Clarke, a Worthy Park director, said in an interview. The company produces rum for consumption in Jamaica but also exports to the U.K., India and the Bahamas, among other countries.

The company is working with Winchester Capital to find a buyer for the stake.

Worthy Park began making rum in the 1700s as a byproduct of its brown sugar production. More recently, it created the Rum-Bar brand, named after Jamaica’s estimated 20,000 roadside rum bars, Mr. Clarke said. It sells about 75,000 cases of rum a year but has capacity to grow to 400,000 cases a year, he added.

The world’s largest spirits makers have been thirsty for rum makers in recent years.

Gruppo Campari SpA in 2012 bought Jamaican run maker Lascelles de Mercado & Co., whose brands include Appleton Estate and Wray and Nephew, for more than $400 million. In 2011, Diageo PLC bought 50% of Guatemalan rum producer Zacapa for more than $100 million.

Categories: Transactions

High ‘Skew’ Doesn’t Always Signal Investor Fear

Wall Street Journal MoneyBeat - 7 hours 42 min ago
Bloomberg News

An options-market gauge is suggesting that protective put options on stock indexes have become pricey, but that doesn’t mean investors are girding for an immediate pullback.

“Skew” measures the cost of put options against call options. Put options grant the right to sell a stock at a certain price, called the strike, by a specific time. Call options confer the right to buy a stock.

There’s typically some underlying demand for put options regardless of the market’s direction, since they’re used by investors to hedge stock portfolios. That’s why put options tend to be more expensive than call options.

Skew on the SPDR S&P 500 ETF has increased over the past few weeks. But the SPY also rose in that period, suggesting that investors were accumulating stocks and hedging those positions at the same time, says Todd Salamone, senior vice president of research at Schaeffer’s Investment Research.

The simultaneous purchase of stocks and protective puts fits in with the idea that investors are turning a bit more cautious on the market after six years of a bull run. Many investors say they expect smaller returns from stocks this year, coupled a smattering of pullbacks or even a correction.

What’s worrisome, Mr. Salamone says, is when skew rises as the SPY declines. “I view that as hedging going on without stock accumulation,” he adds. That happened in December’s pullback, as evident in this chart, and can be an indicator of a bigger drop in stocks.

Schaeffer’s

The SPY is up 0.1% to $210.50. Put options below that price are known as downside puts, and generally bought by investors as protection against a selloff. Call options above that price are known as upside calls, and are bought by investors betting on future gains.

Skew can be driven higher by really expensive downside puts or really cheap upside calls, as well as a combination of the two, says Chris Jacobson, derivative strategist at Susquehanna Financial Group.  Right now, “downside puts are historically rich, but not to the same extent that upside calls are historically cheap,” he says. That further supports the idea that even though skew is high, it’s not indicative of broad-based investor panic.

Categories: Transactions

Apple’s Addition to the Dow Is a Win for Tech Stocks

Wall Street Journal MoneyBeat - 8 hours 27 min ago
AFP/Getty Images

Tech is about to take a bigger bite out of the Dow Jones Industrial Average.

Apple Inc. is set to join the blue-chip index in the first change the Dow 30 has seen in more than a year. The iPhone and iPad maker will replace telecom company AT&T Inc. as of the close on Wednesday, March 18.

The tech giant is poised to enter the Dow as the fifth-largest component with a weight of 4.7% when accounting for Visa ’s four-for-one stock split that takes effect the same time Apple is set to enter. Because Apple is so big, it will increase tech’s portion of the Dow 30 by 11.2 percentage points to 30.9%, according to S&P Dow Jones Indices senior index analyst Howard Silverblatt. That comes at the mercy of the telecom sector, whose weighting will dwindle to 1.8% as Verizon Communications Inc. will represent the sole remaining telecom constituent.

For reference, as of last week, tech accounted for 19.9% of the S&P 500 and telecom made up 2.3%. In contrast to the Dow, the S&P 500 is a market-cap weighted index.

At the beginning of trade Thursday, March 19, Visa will move from the biggest stock in the Dow to the 21st largest – putting it in the bottom third when its stock split takes effect. Its weight will go from 9.7% to 2.5%, says Mr. Silverblatt.

The new top dog will be Goldman Sachs Group Inc., which will make up 7% of the Dow – a fractional increase from its current position. 3M Co. will be the second biggest stock, capturing 6.2% of the index, followed by International Business Machines Corp. with a 6.0% weight and Boeing Co. with a 5.7% position.

Now, remember, all this could change ahead of trade Thursday, March 19, when Apple enters and Visa starts trading on a split-adjusted basis. If tech keeps up its momentum in 2015 – largely driven by Apple – the sector could account for even more of the Dow. While Goldman is set to secure the top stock spot in terms of impact, financials have been a laggard this year. As of Thursday’s close, 3M is $22.51 shy of Goldman’s price.

Categories: Transactions

Apple to Replace AT&T in Dow Index

New York Times DealBook - 8 hours 36 min ago
The step is a reminder of the soaring valuations among consumer-driven technology and social media companies like Google, Facebook and Twitter.
Categories: Transactions

Ins and Outs of the Dow — Apple Edition

Wall Street Journal MoneyBeat - 8 hours 45 min ago
Associated Press

Apple Inc. is in and AT&T is out.

That’s the news this morning as S&P Dow Jones Indices announced the latest shake up to the Dow Jones Industrial Average.

Apple 's addition to the 119-year-old blue-chip index is the latest milestone for the company, which has emerged in recent years as the standard-bearer for a resurgent U.S. technology sector. It also caps the ascendancy of tech in the Dow that began in 1999 with the inclusion of software giant Microsoft Corp. and semiconductor maker Intel Corp., a nod to the “New Economy” boom then sweeping the U.S.

The shift in Dow components reflects Apple’s technology leadership and the need to rejigger the index for a pending 4-for-1 stock split by Dow component Visa Inc., according to S&P Dow Jones Indices.

Here’s a look at the changes to the Dow components during the past two decades:

1997
Out: Westinghouse Electric, Texaco Inc., Bethlehem Steel and Woolworth
In: Travelers Group, Hewlett-Packard Co., Johnson & Johnson and Wal-Mart Stores Inc.

1999
Out: Chevron Corp., Goodyear Tire & Rubber Company, Union Carbide Corp. and Sears, Roebuck
In: Microsoft Corp., Intel Corp., SBC Communications and Home Depot Inc.

2004
Out: Eastman Kodak, International Paper and an old formation of AT&T
In: American International Group Inc., Pfizer Inc. and Verizon Communications Inc.

February 2008
Out: Altria Group, Incorporated and Honeywell International, Inc.
In: Bank of America Corporation and Chevron Corporation

September 2008
In: Kraft Foods Inc.
Out: American International Group Inc.

2009
Out: Citigroup Inc. and Cisco General Motors Corp.
In: The Travelers Companies Inc and Cisco Systems Inc.

2012
Out: Kraft Foods Inc.
In: UnitedHealth Group Inc.

2013
Out: Alcoa Inc., Hewlett-Packard Co. and Bank of America Corp.
In: Nike Inc., Visa Inc. and Goldman Sachs Group Inc.

Click here to explore the Dow in more detail.

Categories: Transactions

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