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Bond Issues From Russia and Ecuador Serve as Cautionary Tales for Junk-Rated Debt

New York Times DealBook - 2 hours 32 min ago
Two fast-imploding bond issues from Ecuador and Russia are leaving prominent creditors, including BlackRock and Franklin Templeton, in their wakes.
Categories: Transactions

Banks Pour Resources Into Mobile

Wall Street Journal MoneyBeat - 2 hours 33 min ago
Bloomberg News

U.S. customers are now interacting with their banks more through mobile devices than any other channel. The banks have taken note, pouring more resources into ensuring customers’ mobile experiences are useful.

Gavin Michael, head of digital at Chase, a unit of J.P. Morgan Chase & Co. created a team focused on digital projects at the bank and set specific goals. One of the top items on his agenda? Revamp the Chase mobile application. Among the changes, Mr. Michael and his team simplified the sign-in process.

In December, an update allowed users to swipe to see balance information for most accounts without logging in, the bank said.

The bank has also been experimenting with personalization. Earlier this year it customized photographs as a way to greet some users. For instance, users in New York City can see Washington Square Park in the day and Bryant Park at night or those in Los Angeles can see Santa Monica beach during the day and Griffith Park at night.

Mr. Michael and his team review hundreds of customer reviews each week to improve issues and incorporate feedback into the next release. One item that often pops up: mobile check deposits. In response, the team has sent out tips on typical problems users face, for instance, don’t take photos of checks on a white background, clean your phone photo lens and keep your hands steady while taking the picture.

Cincinnati-based Fifth Third Bank is preparing to launch a feature that allows users to deposit checks by just laying them in front of their phone’s camera, without having to actually take a picture. The feature, expected to become available in the first quarter of 2015, has already helped cut error rates in half.

While 85% of interactions between Wells Fargo & Co. and its customers are self-service–over ATMs, online and mobile channels–the real power of mobile is its ability to interact and integrate with other channels to make them all better, said Brett Pitts, head of digital at Wells Fargo. The goal is to more seamlessly transition customers from self-service to assisted- and, ultimately, full-service transactions, he said.

The San Francisco-based bank has worked on mobile banking platforms for nearly two decades. In 1997, they worked on a Nokia device, in 2000 they focused on PalmPilots and in 2006 moved to the BlackBerry , said Jim Smith, head of Wells Fargo Virtual Channels, in an interview earlier this year. Eventually they built an app in the bank’s incubator and launched it in early 2007, he said.

Wells Fargo is working on rolling out new infrastructure that’s “device aware” so it will work on say an iPhone or Android operating system, Mr. Smith said. Roughly every 90 days the bank has a new app release, he said, examining customer behavior, competition, economics and risk.

Categories: Transactions

Morgan Stanley, J.P. Morgan Take Tech IPO Honors

Wall Street Journal MoneyBeat - 2 hours 59 min ago

It came down to the wire: A final-month burst in technology and Internet IPO underwriting pushed Morgan Stanley a hair ahead of Goldman Sachs Group Inc., who won last year’s race, in terms of proceeds raised, and tied it with J.P. Morgan Chase & Co. by number of deals, according to Dealogic’s figures.

Associated Press

Morgan Stanley hit the tape as the “lead left” underwriter on six of the seven tech and Internet IPOs this month—headlined by online lender LendingClub Corp.’s $1 billion debut and Chinese dating app Momo Inc.’s $216 million IPO.

By proceeds raised in deals, Morgan Stanley got credit for being a lead underwriter on $6.26 billion worth of U.S.-listed tech and Internet IPOs. That just narrowly beat out Goldman Sachs’s $6.02 billion. Third place in proceeds was Credit Suisse, with $5.67 billion, who jumped up from 6th last year.

In terms of number of deal roles, J.P. Morgan tied Morgan Stanley for the most, with bookrunning positions on 27 tech and Internet IPOs in the U.S. each.

Last year, it was Goldman who had come out on top on both counts, with $1.56 billion across 20 tech and Internet IPOs. That was a notable leap after Morgan Stanley had led virtually all of the big software and Internet IPOs in 2011 and 2012, with top billing on Facebook Inc., LinkedIn Corp., Workday Inc., and Splunk Inc.

Both Goldman and Morgan Stanley had some leadership changes in their tech banking businesses in 2014: Goldman lost Anthony Noto, who helped land Twitter’s IPO, when he left to become Twitter’s CFO. At Morgan Stanley, veteran Paul Chamberlain retired, and Drew Guevara and Andy Kearns were named as co-heads of global tech banking with Michael Grimes.

Alibaba, despite raising $25 billion in its IPO, had limited effect on the final ranking. The way Dealogic works is, it divides the total sum raised by the deal equally among each lead underwriter. So giant as it was, Alibaba ended up as a bit of a wash because it spread out the lead-bank love so widely. (Dealogic also gives no extra credit for being “lead left,” or the first listed on a deal, which sometimes, but not always, goes along with a bit more money and responsibility.)

Credit Suisse Group AG secured its winning position for China-based Internet and tech IPOs, with lead credit for $4.7 billion worth, across 9 deals.

Banks fight fiercely for hot Internet company deals, and often tout their leadership in the sector. So while it’s hardly life-and-death stuff, the league table is always closely watched, including by companies who are picking banks for their own deals.

In other words, the folks at Uber Technologies Inc., Xiaomi Inc., and other members of the $10 billion-plus private valuation club will surely be seeing a lot of these tables in slide decks.

Categories: Transactions

Podcast: Recapping a Wild Week for Markets

Wall Street Journal MoneyBeat - 3 hours 13 min ago

The stock market took investors on a wild ride this week, tumbling alongside the plunging price of oil at the start of the week and then reversing course sharply when the Federal Reserve vowed to be “patient” in raising interest rates.

Paul Vigna/WSJ

In this week’s edition of the MoneyBeat Week podcast, the crew revisits all that action, and debates whether the market’s reaction to the Fed was the right one. Did anything really change in the Fed statement?

We also look into our crystal ball to see what lies ahead in 2015 for interest rates, markets, economies and one company that always seems to be top of mind for investors: Apple Inc.

For all that and more, grab a set of headphones and listen to MoneyBeat Week. Or catch us on iTunes along with other Journal podcasts in the WSJ What’s News section.

 

Categories: Transactions

Buffett Reminds His Top Managers: Reputation Is Everything

Wall Street Journal MoneyBeat - 3 hours 34 min ago

Warren Buffett‘s “All-Stars” are getting their biennial reminder this month that they need to guard Berkshire Hathaway Inc.'s reputation–and plan for the future.

Bloomberg News

Mr. Buffett, who’s run Berkshire for the past five decades, sends a memo every other year to the managers of each of Berkshire’s 80-plus subsidiaries that emphasizes those two points. The latest such memo, which varies little from the version Mr. Buffett shared with investors in Berkshire’s 2010 annual report, carries Friday’s date.

Mr. Buffett reminds his managers–who head units that lease planes, sell jewelry, print newspapers, rent office furniture, make bricks, and train pilots, among other things–that their top priority must be to “zealously guard Berkshire’s reputation.”

“As I’ve said in these memos for more than 25 years,” he writes in the latest one, “we can afford to lose money–even a lot of money. But we can’t afford to lose reputation–even a shred of reputation.”

The concern about reputation is a theme Mr. Buffett has hit on in other forums as well through the years. Most famously, it was central to testimony he delivered to Congress after he stepped in as chairman of a floundering Salomon Brothers in 1991. He told legislators that his message to employees then was: “Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.”

The latest memo also reminds the managers–who he’s dubbed “The All-Stars”–to keep him in the loop about “who should take over tomorrow if you should become incapacitated overnight.”

Generally, the managers operate with a large degree of autonomy, and Mr. Buffett says elsewhere in the letter that they can “talk to me about what is going on as little or as much as you wish.” But Mr. Buffett himself takes responsibility for keeping a roster of potential replacements for each of the leaders of Berkshire’s far-flung operations.

“Your note can be short, informal, handwritten, etc,” he writes. “Just mark it ‘Personal for Warren.’”

The memo can be viewed in its entirety below. Click on the box in the bottom left for a full-screen view.

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Categories: Transactions

Dealpolitik: Decision Time for Dollar Tree

Wall Street Journal MoneyBeat - 3 hours 58 min ago
Reuters

Dollar Tree Inc. is facing a critical decision this weekend on its proposed acquisition of Family Dollar Stores Inc.: Will it up its bid for Family Dollar or declare its current cash-and-stock deal best and final, forcing Family Dollar shareholders to vote the deal up or down at Tuesday’s scheduled meeting? Or will it punt by allowing Family Dollar to postpone the meeting?

As Dollar Tree weighs its course of action, its rival for Family Dollar, Dollar General Corp., on Friday issued a long-promised update to the status of its own antitrust discussions with the Federal Trade Commission that turned out to be somewhat of a dud. Dollar General said it remained “actively engaged in discussions with” the FTC. Absent from the update were Dollar General’s prior emphatic statements that it “remains committed” to a Family Dollar buyout or that it is “confident in its antitrust strategy.”

The FTC review of antitrust issues is critical to the deal. Family Dollar’s board has rejected Dollar General’s $80-per-share offer in favor of a cash and stock deal with Dollar Tree currently worth around $76.50 per Family Dollar share. The board’s position is that there is too much antitrust risk in the Dollar General deal, and, even if the issues can be resolved, it will take a long time to close the deal. Dollar Tree has agreed to a “hell or high water” provision under which it pledges to sell as many stores as the FTC requires to approve the deal. Dollar General, however, has capped the number of stores it would sell at 1,500 and says if the deal dies for antitrust reasons, it would pay Family Dollar a fee of $500 million.

The spotlight is now back on Dollar Tree. It has a right under its merger agreement with Family Dollar to force the Dec. 23 shareholder vote unless there were to be additional disclosure that shareholders need about the deal or Family Dollar thought it would lose the vote on the merger. If it forces the meeting, it faces the risk that shareholders may turn down the merger in the hopes of getting the higher price from Dollar General or forcing Dollar Tree to up its bid.

More In Dealpolitik

Dollar Tree could decide to increase its price so that it comes closer to matching Dollar General’s $80-per-share bid. There is risk in this, as well, because substantial changes in the deal could require postponement of the Dec. 23 meeting date. That could give Dollar General time to see if it can make progress at the FTC.

Dollar Tree has a third option. It could permit Family Dollar to postpone the meeting without increasing its bid to see if Dollar General flames out in its attempt to get FTC clearance. (CNBC reported Friday that Family Dollar is planning to delay the Dec. 23 vote, and the New York Post last week had a similar report.) Since Dollar Tree’s last statement on the matter said the earliest the deal could close is February, putting the meeting off even by a month would not delay the closing. Things may not change much in a month. FTC negotiations can take a long time, and we may not know much more about Dollar General’s antitrust discussions in a month. But if Dollar Tree were in a position to close the deal shortly after a vote, shareholders might look more favorably on its deal even if its price was lower than Dollar General.

Send questions, comments or story ideas to Dealpolitik@gmail.com and follow Ron on Twitter: @Dealpolitik.

Categories: Transactions

1. ___________ Weighs In on Goldman’s Crossword Puzzle

New York Times DealBook - 4 hours 14 min ago
Hint: The New York Times's master of all words across and down.
Categories: Transactions

Nirvana Asia: Nevermind

Wall Street Journal MoneyBeat - 4 hours 58 min ago

Nirvana Asia was meant to bring investors life after death. Instead, the funeral company that caters to ethnic Chinese in Southeast Asia has plunged 36% below its initial public offering price since trading started in Hong Kong on Wednesday.

The company, which owns six crematoria and related tomb facilities in Malaysia, Singapore and Indonesia, was at a loss to explain the fall in a filing made on Friday. Nirvana reprinted its previously disclosed third-quarter results as if this old information might stir investor spirits. Perhaps the writing was on the wall when the IPO came in at the bottom of the expected price range.

The stock should find some support from cornerstone investors, who hold almost 6% of the company. These include Taikang Life Insurance Co., which now has exposure both to the death of its insurance premium payers and to their afterlife plans. It has agreed not to sell its Nirvana shares for six months. These now trade at a substantial discount to Chinese rival Fu Shou Yuan , based on earnings multiple. Perhaps investor nirvana could yet be achieved.

Categories: Transactions

Morning Agenda: Goldman Promotes Star Deal Maker

New York Times DealBook - 5 hours 16 min ago
Goldman names John E. Waldron co-head of its investment bank. | Regulators deem MetLife "too big to fail." | Another big whistle-blower reward in Bank of America case. | London tenants win battle over U.S. equity firm.
Categories: Transactions

A Great Place to Work Can’t Be Found on a List

New York Times DealBook - 5 hours 33 min ago
Few companies recognize that it’s not the number of hours their people work that determines the value they create, but rather the energy they bring to the hours they work, writes Tony Schwartz in the Life@Work column.
Categories: Transactions

Whistle-Blower Payouts Approach $170 Million in Bank of America Case

New York Times DealBook - 5 hours 37 min ago
The combined payout to four whistle-blowers in the federal government’s $16.65 billion settlement with Bank of America over its mortgage business would be one of the larger settlements the federal government has agreed to in any single case.
Categories: Transactions

With Oil Falling, Howard Marks Says Oaktree May Shed Some Caution

New York Times DealBook - 5 hours 51 min ago
Oaktree Capital likes to take advantage of disarray and doubt among other investors, and it's starting to see some.
Categories: Transactions

Oversight Council Explains Decision on MetLife

New York Times DealBook - 6 hours 8 min ago
The Financial Stability Oversight Council said it deemed MetLife systemically important because of its size, leverage and interconnectedness with other financial institutions.
Categories: Transactions

A Food Deal That Swims Against the Tide

New York Times DealBook - 6 hours 13 min ago
Thai Union's ’ $1.51 billion purchase of Bumble Bee Seafoods shows a focused, low-key approach to acquisitions that has lessons for others, says Una Galani of Reuters Breakingviews.
Categories: Transactions

Hedgies Hit Hard by Oil’s Crash

Wall Street Journal MoneyBeat - 6 hours 49 min ago

The crash in oil prices has been felt everywhere from Riyadh to Reno. It’s driven a wedge in OPEC, and it’s wracking the frackers in North Dakota and Texas.

It’s also hitting investors on the Street, and one group of investors in particular: hedge funds. Those their strategies differ, big-name investors like Carl Icahn and John Paulson have been losing serious money on their energy-industry bets.

WSJ’s David Benoit sat down at the MoneyBeat desk this morning to talk about what the oil crash has done to hedge funds, which are very likely to record a flat year even amid yet another strong year for equities.

Categories: Transactions

Betting on the Economy in 2015

Wall Street Journal MoneyBeat - 7 hours 13 min ago

The upcoming year will be the last gasp of the liquidity party, PineBridge Investment’s Michael Kelly said this morning on the MoneyBeat show, as the ECB and Bank of Japan ramp up new stimulus efforts and the Fed starts hiking rates.

That does mean more volatility, but it doesn’t mean a global recession. The firm sees global GDP and U.S. GDP improving in 2015, and expects economic growth be driven more by fundamentals than by liquidity. That’s going to lead to “unsynchronized business cycles,” creating winners that are more fundamentally sound.

The overarching themes, he said, will be central-bank policy and economic reforms that will set for the stage for the next several years.

Categories: Transactions

Goldman Adds Two Directors to Expanded Board

New York Times DealBook - 7 hours 23 min ago
Mark A. Flaherty and Mark O. Winkelman will serve on a board that now has 14 members.
Categories: Transactions

Frontier Bond Issuance Hits Record Amid Rush to Tap Cheap Credit

Wall Street Journal MoneyBeat - 7 hours 28 min ago
Vietnam is among the frontier market countries that have seen the value of their bonds gyrate amid recent turmoil in global markets.
Agence France-Presse/Getty Images

With rate hikes looming in the developed world, frontier market countries have been rushing to sell bonds on the cheap this year.

Such borrowers have raised $38.5 billion from dollar bond sales over the course of 2014, around 50% more than last year and the highest on record, according to Dealogic.

“People are pre-empting yields going higher and trying to lock in low funding costs while they can,” said Mohammed Hanif, chief investment officer at Insparo Asset Management, which specializes in frontier-market investments.

Countries from Jamaica to Vietnam were among frontier government borrowers to tap international bond markets this year, latching on to strong demand for higher yielding debt while global interest rates remain low. Jamaica, for example, which only last year restructured some if its existing debt, in July was able to borrow $800 million at a yield of 7.625%. The bond will be repaid in three annual installments from 2023. Vietnam was able in November to borrow $1 billion for 10 years at a yield of 4.8%.

African countries were among some of the most active issuers, with Kenya and Ethiopia extending the recent list of first-time borrowers from the sub-Sahara region. Kenya in June sold $2 billion of bonds, one of the largest ever debut deals from an African country. It paid 5.875% for five-year cash and 6.875% for 10-year money.

Ethiopia earlier this month sold $1 billion of 10-year notes at a yield of 6.625%, becoming the poorest country ever to issue international bonds.

The market has suffered bouts of volatility, though. Frontier bonds and African debt in particular have been hit hard by wider global economic concerns. In October, African bonds wobbled amid worries about the Ebola outbreak and a slide in global oil prices. With the oil rout intensifying this month, African bonds have been clobbered again.

Nigeria, for instance, the largest oil producer in Africa, saw its bond yields shoot higher. Dollar bonds maturing in July 2023 hit a record high yield of 7.7% this week, two percentage points more than at the start of the month, according to data provider Tradeweb. Yields move in the opposite direction to prices.

Even African countries that aren’t dependent on oil revenues were caught up in the wider turmoil. Kenya’s bonds maturing in June 2024 hit a high of about 7.3% this week, 1.4 percentage point higher than at the start of the month, Tradeweb data show.

Both bonds have since recovered. Nigeria’s bond is yielding 6.6% on Friday, while Kenya’s is yielding 6.2%, highlighting the wild swings frontier debt can suffer amid broader market stress.

The oil slump and the retreat from riskier assets in December hit bonds outside of Africa too. Yields on Vietnam’s bonds issued in November, for instance, hit a high of almost 4.7% this week, before falling back to 4.4% on Friday.

WSJ Frontiers Newsletter

“Most of the movements in emerging-market asset prices are not caused by events in emerging markets themselves, they’re caused by events in developed economies,” says Jan Dehn, head of research at Ashmore, an emerging-market asset manager. “Investors tend to behave in a very knee-jerk fashion when there’s any volatility–you basically buy something in America and you sell something in emerging markets.”

Yields on 10-year U.S. Treasurys dropped below 2.1% this week as the turmoil roiled emerging-market bonds, before climbing to 2.23% on Friday as riskier debt rallied.

Despite this latest period of volatility, the outlook for frontier market borrowers remains bright, particularly those whose economies are linked to commodity prices, says Dehn. That’s because low commodity prices will likely stimulate demand while prompting producers to cut supply, allowing prices to potentially push higher next year, he says.

“This is likely to be a temporary dip, and from an investor perspective that suggests there is an opportunity here to begin to selectively pick up stuff over the next few months and get into frontier markets at somewhat more advantageous entry levels than a couple of months ago,” Dehn adds.

While higher global rates might slow the pace of issuance next year, most investors expect frontier borrowers to keep tapping bond markets even if the pool of potential debut issuers is lower.

“Next year will more likely be returning issuers than new issuers,” says Kaan Nazli, senior economist at Neuberger Berman, an asset manager. “Rates are a big part of it. As [the U.S. Federal Reserve] starts tightening conditions, costs will be more of an issue for new borrowers.”

Nazli reckons African countries such as Angola and Tanzania might consider selling bonds next year.

Write to Ben Edwards at ben.edwards@wsj.com.

Categories: Transactions

What ‘Petro Panic’? How Investors Should Adjust Their Portfolios

Wall Street Journal MoneyBeat - 7 hours 41 min ago
Call it the “petro panic.” As oil prices collapsed, the Dow and the S&P 500 sank 5.1% in just seven trading days between Dec. 5 and their bottom (so far, at least) this past Tuesday.
Categories: Transactions

Why Negative Rates Still Won’t Dampen the Swissie’s Allure

Wall Street Journal MoneyBeat - 7 hours 50 min ago
Reuters

Switzerland’s bold move into negative interest rates could be just the first stage in run of more aggressive easing policy, analysts have said. Amid turmoil in Russia and potential quantitative easing across the eurozone, the Swiss National Bank faces a struggle to suppress the franc’s allure. So attempts to curb gains and defend a floor against the euro might now have to be stepped up, they say.

Markets were surprised by the SNB’s decision to cut its deposit rate to -0.25% from Jan. 22 onwards.

The Swiss franc rose more than 1% against the U.S. dollar following the announcement of the measures Thursday.

The SNB’s aim, in all of this, is to ensure that one euro cannot buy less than 1.20 Swiss francs, a floor it has maintained since Sept. 2011.

But analysts think that’s a tough task.

Investors widely see the Swiss franc as a safe bet, so tend to buy it when markets are stressed. Fresh turmoil in Russia therefore hasn’t helped. Add to that the prospect of the ECB inflating its balance potentially with sovereign QE which would exert downward pressure on the euro, and you end up with a major headache for the SNB.

Why? Well an overly strong currency crimps exporters’ revenues and has a deflationary effect on the economy. The Swiss National Bank declined to comment Friday on further policy action.

Evelyn Herrmann, an economist at BNP Paribas, predicts the SNB will cut its deposit rate by another quarter of a percentage point in March next year, if not before.

Kit Juckes, a macro strategist at Societe Generale, agreed further SNB action is on the cards. “With Fed tightening and further ECB easing both likely next year, this is not the last policy move we will see from the SNB as they try to hold the EUR/CHF floor,” he said.

“We believe the SNB is credible and [will] intervene to keep EUR/CHF above 1.20,” Morgan Stanley strategists wrote in a report published Thursday.

Much of this depends on how likely the European Central bank is to embark on QE.  “The ECB… has fired all monetary shots except QE. We are at the point now where QE is the most likely next step,” said Andrew Bosomworth, managing director at PIMCO, which manages $1.9 trillion of assets.

Swiss market watchers, you have been warned.

 

 

Categories: Transactions

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