>>> US Close Dow-0,60% S&P-0,35% Nasdaq-0,14%

Closing Market Summary: Stocks Slump While World Bank Cuts Global Growth Outlook

The stock market ended the Wednesday session on a lower note with the Dow Jones Industrial Average (-0.6%) and Russell 2000 (-0.5%) leading the slide. The S&P 500 lost 0.4% with nine sectors in the red.

Equity indices spent the duration of the session in the red, while the Nasdaq (-0.1%) made a momentary appearance in the green. The tech-heavy index outperformed thanks to relative strength among chipmakers. However, the Nasdaq slumped back towards its low into the close as dip buyers were reluctant to step in and lift the overall market.

Today's retreat should not be all that surprising, considering the S&P 500 entered the session with a 4.2% gain since May 20. Meanwhile, the Russell 2000 began the day with an even more impressive 6.8% advance in that same timeframe.

With the major averages overextended on a short-term basis, the market was ready to take a step back at the sound of the first concerning headline and today's comments from the World Bank did the trick.

Specifically, the World Bank cut its 2014 global growth outlook to 2.8% from 3.2%, while also revising projections for several major economies. For instance, the growth forecast for the U.S. was lowered to 2.1% from 2.8%, while China's GDP expectations were taken down to 7.6% from 7.7%.

Fittingly, with growth concerns at the forefront, cyclical sectors like financials (-0.7%), industrials (-0.8%), and materials (-0.6%) saw noteworthy losses.

Most notably, industrials could not keep up with the broader market as defense contractors and transports weighed. Dow component Boeing (BA 134.10, -3.15) fell 2.3% after being downgraded to ‘Sector Perform' at RBC Capital Markets. The stock pressured the PHLX Defense Index, which lost 1.1%.

Transports, meanwhile, underperformed for the second day in a row. All five airline stocks that make up the transportation average lost between 1.3% and 5.2% with United Continental (UAL 45.26, -2.50) posting the largest decline after Deutsche Lufthansa slashed its guidance.

Elsewhere, the financial sector suffered from widespread losses, but Bank of America (BAC 15.59, -0.33) underperformed its peers with a 2.1% decline in reaction to reports the bank's settlement negotiations with the Justice Department have hit a snag.

Also of note, the technology sector (-0.3%) ended just ahead of the broader market, but chipmakers displayed strength, which underpinned the Nasdaq. Micron (MU 30.99, +1.48) jumped 5.0% after receiving an upgrade from Bank of America/Merrill Lynch, while the broader PHLX Semiconductor Index rose 0.5%.

The Nasdaq also received an intraday boost from biotechnology, but the iShares Nasdaq Biotechnology ETF (IBB 249.03, -0.27) slumped into the close, ending little changed.

Similar to biotechnology, the health care sector (-0.1%) settled near its flat line, while other countercyclical sectors posted losses. The utilities sector was particularly weak (-1.3%) after Exelon (EXC 35.75, -1.41) announced a secondary share offering.

Treasuries climbed in the morning, but surrendered the bulk of their gains during the afternoon. The 10-yr yield slipped one basis point to 2.63%.

Participation remained well below average and today's 520 million shares represented the lowest NYSE floor volume of the year.

Economic data was limited to two reports. The weekly MBA Mortgage Index surged 10.3% to follow last week's 3.1% decline and the Treasury Budget for May showed a deficit of $130.00 billion, which followed the prior deficit of $138.70 billion.

Tomorrow, weekly initial claims (consensus 315K), May Retail Sales (consensus 0.7%), and May Import/Export Prices will be released at 8:30 ET, while the Business Inventories report for April (expected 0.4%) will cross the wires at 10:00 ET.
  • S&P 500 +5.2% YTD 
  • Nasdaq Composite +3.7% YTD 
  • Dow Jones Industrial Average +1.6% YTD 
  • Russell 2000 +0.3% YTD

WSJ : Investors Face Tough Walk on Easy Street

Investors Face Tough Walk on Easy Street

Summertime, and financial markets are looking easy.

The Federal Reserve Bank of Chicago on Wednesday reported that its financial conditions index, with over 100 measures ranging from debt issuance to consumer surveys on credit conditions, showed America last week faced its easiest financial conditions in 20 years. Indeed, the last time the measure was so loose was in early February 1994, the point at which the Federal Reserve began a series of rate increases that would give stock and bond investors fits for the remainder of that year.

The Fed doesn't feel anywhere near the same urgency to tighten as back then. Indeed, a separate index from the Chicago Fed suggests financial conditions aren't especially easy after factoring in the recent performance of the economy. There will need to be more labor-market improvement, and probably higher inflation readings, before the central bank begins the process of raising its target for overnight rates.

Moreover, the easy readings on financial conditions aren't translating into wide credit availability. Mortgage rates are extremely low, for example, but the bar that first-time home buyers must clear to secure a loan remains very high. So, although some Fed policy makers worry the financial environment could lead to credit excesses, there are scant signs that is actually happening.

But while the Fed can afford to be sanguine about financial conditions, investors may want to be a bit more careful. The prices they have been paying are in many cases high. Yale economist Robert Shiller's cyclically adjusted price/earnings ratio shows stocks are nearly as expensive as they were at their 2007 peak. Meanwhile, the spread between junk-bond yields and comparable Treasurys has narrowed to 2007 levels.

The case for prices going higher is tantamount to a case for either financial conditions getting even easier or the economy getting much better. The former seems improbable, while the latter would give the Fed cause to tighten.

RTR - U.S. using JPMorgan penalty to speed cases against other banks

Link to article : {http://reut.rs/1uZibV3}

(Reuters) - The U.S. Justice Department is spending some of the $13 billion JPMorgan Chase & Co agreed to pay to settle claims stemming from mortgage misdeeds to speed up similar punishments against other lenders, possibly including Bank of America Corp and Citigroup, according to people familiar with the matter.

U.S. Attorney's offices that have been among the most active in probing banks over the toxic loans they bundled into mortgage securities and sold to investors have received funds to hire new civil prosecutors, the people said.

U.S. Attorneys in New Jersey, Colorado and the Eastern District of California, based in Sacramento, are among those most experienced in pursuing the probes, the people said.

The increased activity is a sign that President Barack Obama is trying to follow through on his 2012 pledge to hold more banks accountable for their role in the housing crisis, after prosecutors faced criticism for little high-profile action. Attorney General Eric Holder has also expressed a desire to wrap up more of mortgage securities-related cases this year.

"There is a widespread recognition that the banks have not yet been held fully accountable for their origination practices and the harm that did to borrowers, investors and the American economy in general," said Don Hawthorne, a partner with Axinn, Veltrop & Harkrider in New York who has represented clients in mortgage-backed securities litigation.

The Justice Department's portion of the JPMorgan settlement went to the U.S. Treasury, but the department can keep up to three percent of money it collects for other federal agencies to use for certain purposes. The DOJ settlement with JPMorgan also resolved lawsuits from other agencies, including the Federal Deposit Insurance Corporation.

In addition to Bank of America and Citigroup, the government has been investigating other banks, including Royal Bank of Scotland, Credit Suisse AG, and Goldman Sachs Group Inc, people familiar with the investigations said.

In the wake of the government's landmark settlement against JPMorgan last year to resolve probes into shoddy mortgage securities, authorities may reach settlements with both Bank of America and Citigroup this summer over similar charges, people familiar with the matter said. The JPMorgan settlement included about $4 billion to resolve claims from the Federal Housing Finance Agency.

Bank of America has discussed paying about $12 billion, with more than $5 billion of that going to help struggling borrowers, to resolve a range of federal and state probes, according to people familiar with the talks. That would be on top of the $6.3 billion the bank has already paid to resolve claims from the FHFA.

The Justice Department suggested a $17 billion settlement in the latest round of negotiations and did not view Bank of America's most recent offer as a serious one, one of the people said.

Reuters could not determine the range of penalties Citigroup is potentially facing, but one analyst estimated the bank could face a settlement of about $5 billion, including about $2 billion in consumer relief.

Bank of America spokesman Lawrence Grayson declined to comment on the investigations and negotiations. Representatives of Goldman, Citigroup, RBS and Credit Suisse declined to comment.

Representatives of the Justice Department and U.S. Attorney offices in New Jersey, Colorado and Sacramento declined comment.

As part of the effort to accelerate the probes, the Justice Department is also spreading the work among offices with experience in similar cases, and in some situations reassigning cases. An investigation into Goldman Sachs, for example, was moved from the U.S. Attorney's office in Philadelphia to Sacramento, which had worked on the JPMorgan case, according to two people familiar with the matter. Representatives of both of those offices declined comment.


MERRILL PROBE

The negotiations between Bank of America and the Justice Department, fueled by a threatened lawsuit against Merrill Lynch from civil prosecutors in New Jersey, have yielded back-to-back meetings in the past two weeks, one source said, though no meetings have yet been scheduled after the bank's latest offer.

The U.S. Attorney's office in New Jersey is drafting its complaint against Merrill, though does not have specific plans to file it yet, the person said. Bank of America agreed to acquire Merrill at the height of the 2008 financial crisis, along with some of its liabilities.

The probes date to 2012, when Obama directed the Justice Department to create a task force to investigate the packaging and sale of home loans. After earlier inquiries fizzled, the Justice Department took a more systematic approach, issuing more than a dozen subpoenas in early 2012 to financial institutions.

Civil fraud inquiries into banks including Citigroup and Merrill Lynch were prioritized, sources said. Holder took an active interest in the investigations, receiving regular briefings on developments.

Three U.S. Attorney offices divided the investigations into Bank of America and its units, with Los Angeles examining Countrywide, Charlotte taking on Bank of America itself, and New Jersey leading the probe of Merrill Lynch, sources said.

A magistrate judge earlier this year recommended dismissing a lawsuit the U.S. Attorney's office in Charlotte brought against the bank over fraud in the sale of mortgage securities, and a federal district judge considered the recommendation at a Wednesday hearing, a ruling in which could give the bank leverage in negotiations.

The talks also include the U.S. Attorney's office in Brooklyn, which has been investigating whether the bank properly submitted mortgage loans for government insurance provided by the Federal Housing Administration, people familiar with the matter said.

That probe has focused on loans the bank made after May 2009, since Bank of America paid about $500 million in 2012 to resolve liability over loans it sold earlier than that. Mortgage originations plunged in the aftermath of the 2007-2009 financial crisis, however, and it's unclear how much liability the bank faces through that inquiry.

The Justice Department's negotiations are being led by its No. 3 official, Tony West, who oversees the agency's civil efforts. Bank of America's team includes Meyer Koplow of Wachtell, Lipton, Rosen & Katz and the bank's general counsel Gary Lynch, sources said.

New York Attorney General Eric Schneiderman's office is also involved in negotiations, according to a person familiar with the talks. Schneiderman is one of four co-chairs of the working group that is coordinating the investigations.

His office also advised the bank months ago that it planned to recommend an action against Merrill Lynch, according to a February filing from the bank. A spokesman for Schneiderman declined comment.

The negotiations do not include a separate civil mortgage fraud case brought by the U.S. Attorney's office in Manhattan, which convinced a jury last October that the bank was liable for fraud through loans sold by its Countrywide unit. The government has asked for more than $2 billion in penalties but a judge has yet to rule on that request.


ADVERTISING FOR ATTORNEYS

Several U.S. Attorney offices including the Eastern District of California, which handled the JPMorgan investigation, recently advertised for new attorneys to work on its civil mortgage fraud enforcement cases and other types of fraud on the government.

A spokeswoman for U.S. Attorney Benjamin Wagner in Sacramento declined to comment on specific hires but said that the working group "has been very supportive" of the office. "We are currently in the process of evaluating our needs and determining how additional resources could best be utilized," the spokeswoman said.

A spokesman for U.S. Attorney Loretta Lynch's office in Brooklyn said it's also in the process of hiring new assistant U.S. attorneys but declined to discuss their roles. The new resources suggest the government may pursue cases tied to the financial crisis for several more years, and reflect the amount of work necessary to move the complicated cases across the finish line, sources said.

But observers say the government must do more than force big penalties, and should enforce standards and adequate disclosures for borrowers and investors, which some argue does not seem to be a priority.

"Even if we look at these settlements as punitive, we cannot look at them as corrective," said Joshua Rosner, managing director of Graham Fisher & Co., a New York based independent consultancy. "If you don't fix the system going forward, you may have extracted monies, but you haven't done anything to ensure this doesn't happen again in the future."

>>> The Major Labels Are Trying to Sell Spotify for $10 Billion, Sources Say

The Major Labels Are Trying to Sell Spotify for $10 Billion, Sources Say {http://bit.ly/SNJkMF}

In the wake of the highly-successful acquisition of Beats by Apple, major labels Warner Music Group, Sony Music Entertainment, and Universal Music Group are now focusing on the next prize: a massive Spotify acquisition or liquidity event. According to several sources inside and outside of the major label system who have agreed to speak with Digital Music News, the Beats sale is ‘simply small potatoes’ compared to the juicy prize that Spotify could represent, and labels are pulling as many strings as possible to make a ‘giant liquidation event’ happen.

A major factor in this push is equity, a lot of equity.

According to multiple sources, the major labels now carry a collective ownership share in Spotify of roughy 20%, a multiple of the percentage held in Beats.
The shift is a result of some re-engineering by the major labels on how they profit from streaming services. In the older model, labels focused more on large, upfront guarantees in exchange for the rights to use their valuable catalogs. Rhapsody, for example, has bitterly complained about that approach in the past, but according to a pair of sources close to those deals, that has shifted considerably over the past few years. “[The big recording labels] decided they want equity more than payments, because there’s a market [for acquisition] now,” one source relayed.

“You’re talking about the difference between making millions right now, or billions in a few years.”
On that note, one source pointed to Spotify as a very, very juicy prize, with one target sale price pushing past $10 billion (you know, WhatsApp money).

One label attorney, who spoke on the condition of anonymity, pointed to massive telecommunications and mobile companies as targeted buyers. “The Verizons, the NTT DoCoMos, the Oranges, that group,” the source noted. “Spotify is a nice package for customers.”

Separately, sources also noted that Spotify’s investors are also getting more antsy for a sale, and pushing the agenda towards and initial public offering (IPO), acquisition, or other ‘liquidity event’. But an IPO could represent a difficult bet: just recently, VC superstar Fred Wilson questioned whether the prodigious Wall Street wellspring has already ended, and whether companies like Pandora were the last to cash in. “The combination of sky high valuations, equally high burn rates, and a disappearing IPO market is not a pleasant one,” Wilson blogged last month.

That may be better judged by Goldman Sachs, a massive Spotify investor and a shrewd Wall Street manipulator. It’s unclear exactly how much Goldman has sunk into Spotify, though overall investment in the streaming service is roughly $540 million.

FT : IMF sounds global housing alarm

IMF sounds global housing alarm

The world must act to contain the risk of another devastating housing crash, the International Monetary Fund warned on Wednesday as it published new data showing house prices are well above their historical average in many countries.

The warning from the IMF shows how an acceleration in global house prices from already high levels has emerged as one of the major threats to economic stability, with countries making limited progress in keeping them under controls.
Min Zhu, the IMF’s deputy managing director, said the tools for containing housing booms were “still being developed” but that “this should not be an excuse for inaction”.

House prices “remain well above the historical averages for a majority of countries” in relation to incomes and rents, Mr Zhu said in a speech to the Bundesbank last week, which was only released on Wednesday because it clashed with a European Central Bank announcement.
“This is true for instance for Australia, Belgium, Canada, Norway and Sweden,” he said.
In the wake of the global recession central bankers have cut interest rates to record lows, pushing house prices to a level that the IMF regards as a significant risk to economies as diverse as Hong Kong and Israel.

In Canada, for example, house prices are 33 per cent above their long-run average in relation to incomes and 87 per cent above their long-run average compared with rents. The figures for the UK are 27 per cent relative to incomes and 38 per cent relative to rents.
The IMF’s new global house price index shows a fresh acceleration, with prices up by 3.1 per cent on a year ago. House prices are rising fastest in emerging markets, with prices up more than 10 per cent on a year ago in the Philippines, 9 per cent in China and 7 per cent in Brazil.
“In some cases house prices are recovering from a sharp correction during the Great Recession,” Mr Zhu said. “In other cases, house prices have continued an upward march with only a bit of moderation during the Great Recession.”
House prices fell most heavily in peripheral European countries, down by 7 per cent on a year ago in Greece, 6.6 per cent in Italy and 5 per cent in Spain.

Mr Zhu said that even though the tools for controlling house prices are new, countries must start using them immediately. He pointed to options including limits on mortgage lending relative to house values and incomes; higher capital requirements for banks making risky loans; and stamp duties to damp foreign demand for investment properties.
“We need to move from ‘benign neglect’ to an ‘all of the above’ approach when it comes to policy choices,” said Mr Zhu, adding that policy makers could combat the shortcomings of different approaches with “the interlocking use of multiple tools”.
In the US, house prices are rising fast but not overvalued, coming in at 13.4 per cent below their long-run average relative to incomes, and 2.6 per cent above their long-run average relative to rents, according to the IMF’s numbers.

The world’s cheapest housing market is Japan, where housing is 41 per cent below its long-run average relative to incomes and 38 per cent relative to rents. Germany and Estonia also appear cheap, with prices in both more than 10 per cent below their long-run average compared with incomes and rents.

(MergerMarket) Louvre Hotels lined up for jumbo 3Q sale with Deutsche Bank and G

Louvre Hotels lined up for jumbo 3Q sale with Deutsche Bank and Goldman Sachs advising

The auction pipeline for the second half of the year just got a large addition out of France. Starwood Capital is bringing to market its portfolio company Louvre Hotels Group, which could be one of the largest deals during 2H14, according to sources familiar with the situation.

The French budget hotel chain has mandated Deutsche Bank and Goldman Sachs to advise on the upcoming sale, which is expected to kick-off in September. Louvre Hotels’ annual EBITDA is in the region of EUR 125m, said the sources.

“Around EUR 125m EBITDA is the figure given but a lot of people are questioning that number since the company generated EUR 95m-105m over the last few years,” commented one of the sources.

Valuation is likely to come in the 8x to 9x multiple range.

Louvre Hotels operates 1100 hotels in 43 countries through six brands – Kyriad and Kyriad Prestrige, Campanile, Premiere Classe, Golden Tulip, Tulip Inn and Royal Tulip. Starwood acquired the group in 2007.

Louvre Hotels is particularly strong in France but less so in other regions, said the sources. Most of the group’s hotels are based in Europe (964), with the remainder in the Middle East (41), North and South America (35), Africa (34) and Asia-Pacific (39).

All large private equity firms such as the likes of Advent International, Apollo, CVC, Cinven, TPG and PAI Partners are expected to look at the asset when it hits the market. Trade players could also participate. Chinese groups looking to get a foothold in Europe such as HNA, which acquired a stake in Spain’s NH Hotels, or French group Fonciere des Murs could also show an interest, said the sources and a sector banker.

It is not clear how many of its properties Louvre Hotel still owns as it has already done some sale and leasebacks, noted the first source.

“I also wonder if there are any pension liabilities in the group,” added the sector banker.

WSJ : N.Y. Regulator Pushes BNP Paribas to Remove Senior Adviser

N.Y. Regulator Pushes BNP Paribas to Remove Senior Adviser
Justice Department Hoping for Over $10 Billion Settlement for Violating Sanctions

New York's top financial regulator has asked BNP Paribas SA BNP.FR -1.55% to oust a senior adviser at the French bank as part of a proposed settlement of BNP's alleged violations of U.S. sanctions, according to a person familiar with the matter.

Benjamin M. Lawsky, who runs New York's Department of Financial Services, is pushing the bank to remove Vivien Levy-Garboua, this person said. Mr. Levy-Garboua has served as head of compliance and internal controls for BNP in North America and currently acts as an adviser to senior bank officials.

Mr. Levy-Garboua, who joined a BNP predecessor in 1980 and is believed to be in his mid-60s, was in charge of compliance in North America from 2005 to 2008, a period during which BNP allegedly conducted transactions with Sudan, Iran and other countries subject to U.S. sanctions. Those transactions are now under investigation by New York and U.S. authorities.

The U.S. Justice Department is pushing BNP to pay more than $10 billion and plead guilty to settle the probe, according to people familiar with the negotiations. BNP has said it is cooperating with the investigations.

Mr. Lawsky's office has told BNP representatives that it wants the bank to remove at least a dozen executives, according to people familiar with the matter. In addition to Mr. Levy-Garboua, the New York regulator also has asked BNP to let go George Chodron de Courcel, a chief operating officer of the bank, people familiar with the negotiations said last week. Mr. Chodron de Courcel, 64, already was planning to retire from the bank, one of these people said.

Mr. Lawsky's office has a key role in the wide-reaching probe of BNP because his office oversees BNP's New York branch, which handled transactions under investigation. Mr. Lawsky's office provides BNP with a license to operate in the state.

Mr. Lawsky also wants to suspend BNP's ability to transfer money through its New York branch — which it does for clients in a business known as dollar-clearing — as part of a settlement. BNP is staunchly resisting this punishment, which executives fear could hurt the bank's operations with clients that want to transact in U.S. dollars, according to people close to the bank.

Inside BNP, the prospect of huge penalties has fanned tensions among executives, who have debated whether Chairman Baudouin Prot should step down, people familiar with the matter said last week. Mr. Prot hasn't commented.