EADS, Rolls-Royce and Safran remainkey picks in civil aerospace on earnings growth and valuationupside, Citi says. • In defense, keeps buy on Thales on significant “self-help” margin upside, attractive valuation • Positive outlook on civil aerospace driven by ramp-up in production of new aircraft, rising production of legacy aircraft: Citi • Says stay cautious on defense, expect budgets in U.S., Europe to stay roughly flat over coming years
Revises forecasts on European building material companies after stock analysts cut ests., analysts Nitin Dias and Yuelin A Li write in note to clients. • Caution driven by consensus ests. that are too high for 3Q • Credit rating trajectory for sector has become tougher • JPM cuts Lafarge to neutral (from OW); Saint Gobain to UW (from neutral), CRH to UW (from neutral) and Italcementi to neutral (from OW). • Upgrades HeidelbergCement to OW (from neutral) and Buzzi to OW (from neutral) on relative attractiveness
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Nokia Record Cash Makes Alcatel Wireless Unit a Target: Real M&A 2013-10-20 23:00:00.12 GMT
(For a Real M&A column news alert: SALT REALMNA <GO>.)
By Adam Ewing and Marie Mawad Oct. 21 (Bloomberg) -- Nokia Oyj’s sale of its handset business is clearing the way for a 2 billion euro ($2.7 billion) takeover of Alcatel-Lucent SA’s wireless network equipment business. With Nokia receiving 5.44 billion euros next year for selling its handset unit to Microsoft Corp., the company’s cash is set to exceed 14 billion euros, its highest balance on record and the eighth-most among non-finance companies in Europe, according to data compiled by Bloomberg. At the same time, Alcatel-Lucent Chief Executive Officer Michel Combes is accelerating plans to scale down, including selling assets, to help the unprofitable French company survive. “This deal makes complete sense,” Sami Sarkamies, a Helsinki-based analyst at Nordea Bank AB, said in a phone interview. “Nokia will have the financial flexibility to do this kind of deal and Alcatel needs to slim down. There is a relatively high likelihood of this deal happening.” Nokia has evaluated options including a combination with Alcatel-Lucent’s mobile-phone networks unit, a person with knowledge of the matter said last month. An acquisition would open the U.S. market to Nokia, helping the Finnish company shrink the gap with market leader Ericsson AB. With analysts’ estimates for the cost of the wireless business ranging from 1 billion to 2 billion euros, Pohjola Bank said Nokia will also be able to resume paying a dividend of as much as 40 cents a share.
Microsoft Deal
Doug Dawson, a spokesman for Espoo, Finland-based Nokia, and Simon Poulter, a spokesman for Paris-based Alcatel-Lucent, declined to comment on the prospects for consolidation. “Alcatel-Lucent’s focus is on executing the Shift Plan as the means of managing our own destiny,” Poulter said, citing the company’s turnaround plan. Nokia’s sale of the mobile-phone business to Microsoft was announced Sept. 3 and is expected to be completed in the first quarter, handing the company cash of 3.79 billion euros for the phone division plus 1.65 billion euros for patents. A month earlier, Nokia took full control from Siemens AG of the Nokia Solutions and Networks business, which generates 13 billion euros a year and will account for more than 90 percent of sales after Nokia exits handset making. Buying Alcatel- Lucent’s wireless segment would add another 3.4 billion euros in annual sales, excluding services and software. The new entity would command 32 percent of the world’s wireless infrastructure market, based on data from Barclays Plc, overtaking Chinese competitor Huawei Technologies Co.’s 22 percent share and nearing market leader Ericsson’s 36 percent.
‘Huge Opportunity’
Nokia, Ericsson and Alcatel-Lucent are vying for contracts from wireless operators as they upgrade networks using fourth- generation technology to cope with data-hungry tablets and smartphones. The U.S. presents an opening as Shenzhen-based Huawei has been barred there on security concerns. “It’s a huge opportunity,” Janardan Menon, a London-based analyst at Liberum Capital Ltd., said in a phone interview. “The U.S. is the largest market in the world and Nokia doesn’t have any share there outside of T-Mobile. An acquisition of Alcatel-Lucent’s wireless business will give Nokia a much-needed footprint.” U.S. phone companies Verizon Communications Inc., AT&T Inc. and Sprint Communications Inc. together accounted for 35 percent of Alcatel-Lucent’s revenue last year, while making up less than 4 percent of Nokia’s, according to data compiled by Bloomberg.
Turnaround Plan
Alcatel-Lucent’s Combes, who took over as CEO in April, is trying to staunch a drain on cash as the first step toward renegotiating debt to get back the company’s patents that were previously pledged as loan collateral. To do that, Combes is speeding up a turnaround effort, including a tighter focus on more lucrative businesses. “We are going to focus on the areas where we can be one of the top three players in the world,” Combes said this week during a hearing at the French National Assembly. “Otherwise, it’s not worth it.” Alcatel-Lucent’s wireless assets may sell for 1 billion to 2 billion euros, according to the range of estimates from analysts at Nordea, Credit Suisse AG, Barclays and Kepler Cheuvreux France. No talks were under way between Alcatel-Lucent and Nokia as of Sept. 26, Bloomberg News reported at the time, citing people with knowledge of the matter. Nokia had 9.1 billion euros of cash and equivalents as of June 30. Adding the 5.44 billion euros in expected proceeds from the sale to Microsoft would potentially push the company’s cash pile to 14.5 billion euros. Nokia, which has a junk credit rating, has 5.4 billion euros of total debt.
Record Cash
On a Sept. 3 conference call, Timo Ihamuotila, Nokia’s chief financial officer and interim president, said that if the Microsoft and Siemens transactions had closed before the end of the second quarter, the company would have had gross cash of 14.9 billion euros. Nokia, which skipped a dividend payment this year for the first time in at least 143 years, will evaluate its three remaining units and then return excess cash to shareholders, he said. “Nokia will certainly have the firepower to do both M&A and resume its dividend,” Hannu Rauhala, an analyst at Pohjola Bank in Helsinki, said in a phone interview. “If Nokia pays around 2 billion euros for the Alcatel wireless assets and keeps a healthy balance sheet to keep carriers’ confidence, they would still have enough cash to pay a dividend of up to 40 cents. The deal would be a smart move for Nokia and its investors.”
M&A Setbacks
A purchase of Alcatel-Lucent’s wireless assets would entail at least 500 million euros of restructuring expenses, according to analysts’ estimates at Nordea, Credit Suisse and Barclays. The companies already have a track record of difficult deals. Nokia’s networks business was formed through a 2007 joint venture with Siemens, and led to 9,000 job cuts in the first year alone. The 2006 combination of Alcatel SA and Lucent Technologies resulted in more than $10 billion in cumulated losses and a reduction of about a third of the workforce. France, which owns 3.6 percent of Alcatel-Lucent, has already shown it is willing to intervene in the company’s strategy. President Francois Hollande’s Socialist government last week threatened to block Alcatel-Lucent’s plans for firings and in February considered buying a bigger stake in the company to protect its patents. Nokia may be pressed to act before Ericsson or Samsung Electronics Co. considers bidding, said Sarkamies of Nordea. While Barclays said in an Oct. 14 note that Ericsson may face regulatory hurdles in the U.S., Sarkamies said Samsung may view Alcatel-Lucent’s assets as a chance to become a player in wireless network equipment after overtaking Apple Inc. as the world’s largest smartphone vendor.
‘Good Fit’
Samsung is not considering an acquisition of Alcatel- Lucent’s assets, a representative for the South Korean company said in an e-mailed statement. Ericsson’s focus continues to be on organic growth, Ola Rembe, a spokesman for the Stockholm- based company, said by e-mail. “Alcatel-Lucent’s wireless business would be a good fit for Nokia and a deal definitely makes sense on paper, though execution would likely be tricky,” Sebastien Sztabowicz, a Paris-based analyst at Kepler Cheuvreux, said by phone.
For Related News and Information: Alcatel-Lucent to Eliminate 10,000 Positions as Losses Mount NSN MUCZK56K50YJ <GO> Nokia Said to Weigh Alcatel Linkup to Boost Mobile Networks NSN MTR2GL6KLVRA <GO> Microsoft Will Buy Nokia’s Handset Business for $7.2 Billion NSN MSKHX66S972D <GO> Nokia deal news: NOK1V FH <Equity> TCNI MNA <GO> Real M&A columns: NI REALMNA <GO> Top deal news: TOP DEAL <GO>
--With assistance from Ville Heiskanen in Helsinki. Editors: Sarah Rabil, Beth Williams
To contact the reporters on this story: Adam Ewing in Stockholm at +46-8-610-0706 or aewing5@bloomberg.net; Marie Mawad in Paris at +33-1-5530-6290 or mmawad1@bloomberg.net
To contact the editors responsible for this story: Kenneth Wong at +49-30-70010-6215 or kwong11@bloomberg.net; Sarah Rabil at +1-212-617-5992 or srabil@bloomberg.net
Asian Market Update: Japan posts record H1 deficit, Asian shares broadly higher; traders await US data
***Observations/Insights*** - Asian markets were broadly higher with Australia's S&P/ASX hitting fresh five-year highs earlier in the session, tracking record gains on Wall Street, and on the possibilities that the US will further raise the chances more monetary stimulus. - Australia stocks surged above the 5,330 level to hit their highest levels since 2008 due to the strong performances in miners. - The Nikkei continued to be supported by a weaker yen after Japan posted a record trade deficit streak of 15 months. Shipments from Japan's largest trade partner China rose by 30.9% to a record high of ¥1.68T. The USD/JPY was around the 98-handle retreating from the lows of Friday, and raised some of the major exporters. - The markets will be carefully monitoring the slew of US data expected this week following delays due to the partial US government shutdown, with non-farm payrolls report scheduled for Tuesday.
***Economic Data*** - (JP) JAPAN SEPT MERCHANDISE TRADE BALANCE: -¥932.1B V -¥918.6BE; ADJUSTED MERCHANDISE TRADE BALANCE: -¥1.1T V -¥1.1TE - (NZ) NEW ZEALAND SEPT CREDIT CARD SPENDING M/M: -0.1% V +1.4% PRIOR; Y/Y: 5.2% V 6.6% PRIOR - (NZ) NEW ZEALAND SEPT NET MIGRATION: 2.7K V 2.2K PRIOR - (UK) UK OCT RIGHTMOVE HOUSE PRICES M/M: 2.8% V -1.5% PRIOR; Y/Y: 3.8% V 4.5% PRIOR
***Fixed Income/Commodities/Currencies*** - (CN) PBoC sets yuan mid point at 6.1352 v 6.1372 prior setting (new yuan high setting since July 2005 revaluation) - (CN) PBoC gauges demand for 7-day, 14-day reverse repos, 28-day repos and 91-day bill sales - (JP) BOJ offers to buy ¥400B in 5-10yr JGB and ¥140B in floating rate notes - (KR) South Korea sells 10-yr govt bonds, avg yield 3.455% v 3.495% Sept 15th
***Speakers/Political/In the Papers*** - (JP) Bank of Japan (BOJ) gov Kuroda: BOJ to continue easing until inflation rate 2% is stable - BOJ branch managers meeting - (JP) Japan restarts of nuclear facilities may be postponed to FY14 - Japanese press - (JP) S&P sovereign analyst Ogawa: Near-term economic prospects of Japan look fine - (JP) Japan Coast Guard sighted three China vessels near the disputed Senkaku Islands - Kyodo News - (JP) Japan LDP Sec Gen Ishiba: Yen on path to return to suitable level
- (CN) China needs further promotion of market reform for real estate industry - Chinese press - (CN) China Premier Li Keqiang: to strengthen economic reform and structural adjustment in Q4 - press - (HK) Hong Kong starts to trade first cross-border and cross-market ETF which can invest in stocks dual listed in Mainland and Hong Kong - press
- (KR) South Korea exports +2.9% y/y, imports +1.7% y/y in the first three weeks of Oct - (KR) South Korea to loosen policy on foreign stock short- selling - press
- (US) Moody's: US Q4 GDP may lose a few tenths of point on govt shutdown - financial press - (UK) BOE's Broadbent: Further inflation shocks possible not expected; rate hike only after recovery is on secure footing - financial press - (DE) German Finance Ministry releases monthly report: Sept industry output could be moderate; economy to grow in H2
***Equities*** Market Snapshot (as of 03:30 GMT): - Nikkei225 +0.6%, S&P/ASX +0.6%, Kospi +0.5%, Shanghai Composite +1.1%, Hang Seng +0.6%, Dec S&P500 +0.1% at 1,738, Dec gold +0.3% at $1,317, Nov crude oil flat at $100.85/brl
US markets: - JPM: JP Morgan and DOJ reach tentative $13B civil settlement agreement to resolve multiple investigations, the largest fine ever against an individual company - press - CCI: To acquire rights to approx 9,700 AT&T towers for $4.85B in cash; to contribute $245-255M to 2014 FFO adj - AAPL: Increases iPhone 5S output by 75% while lowering 5C output by 35% - tech blogs - BAC: FHFA said to be seeking $6B in penalties - FT - OMX: Office Depot, OfficeMax merger expected to be approved by the trade commission - financial press
Notable movers by sector: - Consumer discretionary: Next Media 282.HK +6.8% (stops publication of free press) - Consumer staples: Yantai Changyu Pioneer Wine Co Ltd 000869.CN -0.4% (negative press comments) - Industrials: Zhuzhou CSR Times Electric Co Ltd 3898.HK -5.1% (issues shares; analyst action); CNR Co Ltd 601299.CN +4.4% (awarded contract); Suzuki Motor Corp 7269.JP +2.8%, Toyota Motor Corp 7203.JP +0.5%, Yamaha Motor 7272.JP +1.5% (Japan autos higher on weaker yen) - Materials: China Minmetals Rare Earth Co Ltd 000831.CN -1.7% (Q3 results); Yunnan Copper Co 000878.CN -3.7% (provides Q3 guidance); Jiangxi Copper Company Ltd 600362.CN +0.3%, Tongling Nonferrous Metals Group Co Ltd 000630.CN -0.7%, Shenzhen Zhongjin Lingnan Nonfemet Co Ltd 000060.CN +0.6% (Yunnan Copper provides weak guidance) - Energy: AusTex Oil Ltd AOK.AU +7.7% (issues shares to fast track project); WestSide Corp Ltd WCL.AU (quarterly results) - Financials: Wharf Holdings Ltd 4.HK +1.0% (FY13 guidance) - Utilities: TEPCO 9501.JP -1.5% (rain outflow at Fukushima) - Healthcare: Shanghai Fosun Pharmaceutical Group Co Ltd 2196.HK +13.5% (sells intellectual properties; receives positive comments)
L’Oréal is in talks with Shiseido Co. Ltd. to acquire the Carita and Decléor brands from the Japanese company for 230 million euros, or about $314 million at current exchange.
The two French-born skin-care brands are housed in the Shiseido Professional Division, and are distributed in both the professional and retail channels, particularly in Europe.
L’Oréal, the Paris-based beauty-industry leader, stated that together Carita and Decléor generated sales of approximately 100 million euros, or $138 million at current exchange, in 2012, which ranks the pair combined as number two in the global professional skin-care market across beauty institutes, spas and salons.
“This project is a wonderful opportunity for our division to become a major player in this strategic professional beauty market, complementary to hair salons,” stated An Verhulst-Santos, president L’Oréal’s Professional Products Division. “Decléor and Carita are two beautiful, prominent beauty-institute brands, particularly well established in Western Europe. Their growth perspectives, especially internationally, are very promising.”
Terms and conditions of the deal have not been finalized, but L’Oréal said an agreement could be reached within the coming weeks. The purchase of the two brands is subject to regulatory approval.
“It’s a very good acquisition,” said Eva Quiroga, an analyst at UBS. “They are great brands that are underutilized at Shiseido and have a great fit with the L’Oréal brands in the professional channel.”
The divestitures are part of Shiseido’s efforts to focus on the company’s largest brand and market opportunities. The company says its flagship brand Shiseido, along with Clé de Peau Beauté and Bare Escentuals are its three “global megabrands.” The company’s portfolio also includes Nars Cosmetics and the China-based Aupres, among others.
Shiseido acquired Bare Escentuals in 2010 for $1.7 billion to help expand its reach in the U.S. market. But the acquisition hasn’t been without its challenges. Bare Escentuals’ slower-than-expected sales caused Shiseido to post its first full-year loss in eight years, of 14.69 billion yen, or $177.87 million, for the fiscal year ended March 31. An impairment loss of 28.6 billion yen, or $347.1 million, on the goodwill associated with Bare Escentuals pushed it into the red for the year.
Still, Shiseido views the brand as key to its global expansion, and is working to revive its performance in North America, as well as in the U.K. and Japan.
In related news, Shiseido has updated its forecast for the first half of its fiscal year that will end March 31, 2014. The company expects net sales, on a consolidated basis, to remain the same as originally forecasted at 360 billion yen, or $3.68 billion at current exchange. Operating income and ordinary income are expected to exceed the original forecast, while net income is expected to decrease to 5.5 billion yen, or $56.2 million, down from the original forecast of 7 billion yen, or $71.5 million, as the company trims slower performing stockkeeping units from its inventory levels in an effort to “carry a fuller line of hot-selling products.”
Congratulations, fellow taxpayers, the US is now more than $17 trillion in debt! The number climbed by more than $300 billion on Thursday night the second President Obama signed into law the bipartisan government financing and debt ceiling increase legislation. I told you this was going to happen — that the existing $16.7 trillion debt limit was history even before Congress passed the debt ceiling legislation. Washington, as I’ve told you many times, never let the limit get in the way of its spending. The White House used “extraordinary measures” to get around the limit. My research found that Washington had already overspent by $16.964 trillion and that our leaders got away with going over the limit by taking money from a slush account called the Exchange Stabilization Fund and various government pension funds. There was more than $200 billion in these unusual borrowings as of Thursday. The US Treasury came clean on this Friday when it acknowledged the $300 billion-plus added debt on its website. According to USDebtClock.org, the amount of debt adds up to $53,715 per US citizen. If you count only those of us who pay taxes, the amount per capita triples to $148,629. Our nation’s debt has been on a tear even as the economy has been weak. In 2012 we owed “just” $16 trillion, which was up from $14.8 trillion in 2011, $13.6 trillion in 2010 and $11.9 trillion in 2009. The US surpassed the $10 trillion debt level for the first time in 2008 — the year the economy tanked. Wow, it seems like only yesterday. You can blame whoever and whatever you want for this incredible increase in indebtedness, but those are the numbers. Read them and, as they say, weep. And keep weeping because the debt is likely to jump even more rapidly over the next few months. As you’ve probably heard, Congress will be attempting to come up with a budget between now and Dec. 31, something it hasn’t done for years. When the battle over the debt began in earnest a few weeks ago, the goal was to raise the ceiling. Well, that isn’t what happened late Wednesday night when the two parties came to an agreement. The debt limit was, in fact, eliminated. That’s right, it’s gone. Between now and Feb. 7 the federal government can spend as much money as it likes. The sky is the limit. I’ll put this in a more colorful way. Let’s say there’s a bar full of drunken sailors. Someone says he’s going to cap the drinking — not after a certain level of drinking, but only at a certain time. Say 11 p.m. With no set limit, the sailors are likely to drink as much as they want until closing time. I hope I’m wrong, but without a debt limit Washington is going to spend and borrow as much as it possibly can before the bar closes on Feb. 7.
Free Volling: As VIX Plunges, Someone Bets $6.7 Million On Prompt Rebound
While last week's relentless panic buying has been extensively commented on, it was last week's nearly 50% plunge in near-term stock vol that the major news as the world went from risk off mode to risk on. It wasn't just stocks whose volatility imploded: as the following charts from Bank of America and associated commentary show, it was the implied near-term volatility of all asset classes that was hammered in the past three days.
Have a look interesting charts : {http://bit.ly/1eCnK3q}
BlackBerry issues letter; says 'We have substantial cash on hand and a balance sheet that is debt free. We are restructuring with a goal to cut our expenses by 50 percent in order to run a very efficient'
{http://us.blackberry.com/message.html?CPID=SOC_C_NA_FB1381783672}
To our valued customers, partners and fans,
You’ve no doubt seen the headlines about BlackBerry®. You’re probably wondering what they mean for you as one of the tens of millions of users who count on BlackBerry every single day.
We have one important message for you:
You can continue to count on BlackBerry.
How do we know? We have substantial cash on hand and a balance sheet that is debt free. We are restructuring with a goal to cut our expenses by 50 percent in order to run a very efficient, customer-oriented organization.
These are no doubt challenging times for us and we don’t underestimate the situation or ignore the challenges. We are making the difficult changes necessary to strengthen BlackBerry.
One thing we will never change is our commitment to those of you who helped build BlackBerry into the most trusted tool for the world’s business professional.
And speaking of those dramatic headlines, it’s important that we set the record straight on a few things.
Best in class productivity tool.
We have completely revamped our device portfolio this year with the launch of BlackBerry® 10. We have four BlackBerry 10 devices – two all touch and two hybrid (touch and QWERTY) – and all are running the third update of our new platform. If what you care about most is getting things done – taking care of your business -- we have the best range of devices for you. And we continue to offer the best mobile typing experience – no ifs, ands or buts about it.
Best in class security.
Governments all over the world, global corporations and businesses that simply cannot compromise on security choose and trust BlackBerry. Security is our heritage, and the industry recognizes that BlackBerry is the most secure when it comes to the device, server and, of course, our global data network. Have no doubt that you can continue to trust us to keep your communication safe and private.
Best in class enterprise mobility management.
We changed with the market, embracing BYOD because we understand that as iOS and Android™ devices become common in the workplace, businesses still need to manage all of these different platforms seamlessly and securely.
This is not a trivial task. While there are a number of startup companies that make bold claims, BlackBerry has more software engineers and the most resources dedicated to developing the most innovative solutions to address this complex challenge.
And our customers know it. Over the past quarter, our BlackBerry® Enterprise Service 10 server base grew from 19,000 to more than 25,000. Corporate clients are committed to deploying and testing the latest enterprise technology from BlackBerry. We are committed to evolving with our customers. That will never change.
Best in class mobile social network.
We are bringing the most engaging mobile messaging platform to all, with our BBM™ launch for Android™ and iPhone. There are already around six million customers pre-registered to be notified of our roll out. This number is growing every day, and speaks to the tremendous opportunity we have to expand BBM beyond BlackBerry® smartphones to make it the world’s largest mobile social network.
Yes, there is a lot of competition out there and we know that BlackBerry is not for everyone. That’s OK. You have always known that BlackBerry is different, that BlackBerry can set you apart. Countless world-changing decisions have been finalized, deals closed and critical communications made via BlackBerry. And for many of you that created a bond, a connection that goes back more than a decade.
We believe in BlackBerry – our people, our technology and our ability to adapt. More importantly, we believe in you. We focus every day on what it takes to make sure that you can take care of business.
You trust your BlackBerry to deliver your most important messages, so trust us when we deliver one of our own: You can continue to count on us.
Sincerely, The BlackBerry Team
J.P. Morgan Reaches $13 Billion Tentative Deal with Justice Department
WASHINGTON— J.P. Morgan Chase JPM +0.17% & Co. has reached a tentative deal with the Justice Department to pay a record $13 billion to settle a number of outstanding probes of its residential mortgage-backed securities business, according to people familiar with the decision.
The deal, struck Friday night, doesn't resolve a continuing criminal probe of the bank's conduct, which could result in charges against individuals or the bank itself and possibly increase the penalty tab. The two sides continued to disagree over an admission of wrongdoing that would end the criminal probe and decided instead to resolve the civil allegations related to the mortgage securities.
The deal includes $4 billion to settle claims by the Federal Housing Finance Agency that J.P. Morgan misled Fannie Mae FNMA +0.65% and Freddie Mac about the quality of loans it sold them in the run-up to the 2008 financial crisis, another $4 billion in consumer relief, and $5 billion in penalties paid by the bank, according to people familiar with the decision. How the consumer relief and penalties get dispersed and distributed is largely up to the government, and those details are still unclear, these people said.
More Current Account: A Tentative Settlement Neither Side Can Be Happy About Where J.P. Morgan's Settlement Sits in History of Corporate Fines The agreement hasn't been completed and some particulars are still being discussed, such as the final wording, these people said. If completed, the deal would represent the largest settlement the U.S. government has reached with a single company. The deal would also resolve a separate suit brought by New York state's attorney general, Eric Schneiderman, the people said.
J.P. Morgan disclosed last week that it set aside $9 billion additional legal reserves in the third quarter, giving it a total of $23 billion to absorb future settlement and lawsuits.
The general terms of a deal were struck Friday night in a phone conversation between Attorney General Eric Holder, his lieutenant Tony West, J.P. Morgan CEO James Dimon and the bank's general counsel, Stephen Cutler, a person familiar with the matter said. However, another person close to the talks said the two sides had decided earlier in the week that they would probably not reach an agreement on the criminal prosecution.
Once the two sides agreed to general terms—and decided they weren't going to agree on how to resolve the criminal investigation of the bank—Mr. Holder and Mr. Dimon got off the phone, and Mr. West and Mr. Cutler continued to negotiate specific language of settlement documents. Those discussions will continue, and it wasn't clear how long it would take to get a final deal in place.
Mr. Dimon cleared the proposed deal with the bank's board before the Friday night phone call, according to one of the people close to the talks.
The bank ultimately decided to proceed without a pledge to drop the criminal probe in part because it does not think the government has a strong case, according to a person familiar with the negotiations.
The tentative settlement comes as J.P. Morgan tries to put as many legal woes behind it as possible.
Earlier this week, J.P. Morgan agreed to pay $100 million and acknowledge wrongdoing to settle allegations by the Commodity Futures Trading Commission related to its botched "London whale" trades. Last month, the bank agreed to pay $920 million to settle similar charges with U.S. and U.K. regulators related to that 2012 trade.
In the past month, J.P. Morgan also agreed to pay more than $1 billion to end an array of investigations into a 2012 trading debacle that cost the bank more than $6 billion and raised questions about governance and oversight.
Now the bank is trying to end a large number of cases that revolve around residential mortgage-backed securities that J.P. Morgan, Bear Stearns Cos. and Washington Mutual Inc. issued between 2005 and 2007. J.P. Morgan purchased Bear Stearns and the banking operations of Washington Mutual during the 2008 financial crisis.
Those purchases—encouraged by U.S. regulators five years ago—are now costing J.P. Morgan as investigators examine whether mortgage bond investors were misled about the quality of loans made during the housing boom. In 2011 FHFA sued J.P. Morgan and 17 other banks, taking issue with the quality of nearly $200 billion in mortgage investments sold to Fannie and Freddie.
The agencies bought the securities when they offered rich returns. But the investments produced large losses once the housing downturn hit. Fannie Mae and Freddie Mac had to write down those investments sharply in 2008 when they were taken over by the federal government.
J.P. Morgan had the second-largest exposure of the 18 financial institutions sued by the FHFA, with $33 billion of the $200 billion at issue. Bank of America Corp had the largest, with $57.5 billion. Not counting J.P. Morgan, three other institutions have reached settlements with the FHFA thus far. The regulator announced pacts with Citigroup Inc in May and with General Electric Co. in January but didn't disclose the amounts. In July it reached a $885 million settlement with UBS AG.
The settlement with the Justice Department is remarkable not just for the record-setting dollar amount, but for the fact that it still leaves a major potentially costly issue still unresolved—the criminal probe. That probe grew out of a broad investigation launched last year by an Obama administration task force charged with looking into banks' handling of residential mortgage-backed securities. When the value of such securities dropped with housing prices in 2007 and 2008, it sparked a crisis in the financial system.
The task force issued a series of subpoenas to various financial companies, seeking internal documents. Those documents held a number of promising leads, one of which was assigned to federal prosecutors in Sacramento.
Investigators in that case discovered an email by a bank employee, warning her higher-ups that the bank was vastly overstating the value of the mortgages being securitized, according to people familiar with the probe. That employee, who has since left the company, has been cooperating with federal prosecutors, who expect to call her as a witness if the case ever goes to trial, according to people familiar with the case.
While the Justice Department considers the evidence in that case to be strong, officials at the bank strongly disagree, according to people familiar with the negotiations.
In August, Mr. Holder signaled in an interview with The Wall Street Journal that decisions would be made in a matter of weeks on major cases involving conduct in the financial community that contributed to the 2008 financial crisis. While he wouldn't specifically address the J.P. Morgan cases, the attorney general emphasized he would be taking action soon.
In late September, as the Justice Department neared its own deadline to file a civil lawsuit in the case, the bank offered $3 billion to settle the case. Attorney General Eric Holder rejected that offer, and government lawyers prepared to file the suit. The bank then offered billions more, if the government was willing to throw into the settlement separate cases, raising the total price and resolving more of the bank's legal headaches.
As the negotiations intensified in September, Mr. Dimon sought a face-to-face meeting with Mr. Holder to try to resolve the remaining sticking points. The two met Sept. 26 at the Justice Department, but the meeting failed to settle the outstanding issues. As talks continued over the remaining weeks, the size of the deal swelled, but the two sides continued to disagree over an admission of wrongdoing that would end the criminal probe.
On Friday night, Mr. Dimon and Mr. Holder decided they were just not going to come to terms on the criminal issue—and take the deal on the terms where they did agree.
Diesel may consider buys
Diesel, the privately owned, Italian clothing company, is looking for acquisitions, Il Corriere del Veneto reported. The item cited Chief Executive Officer Renzo Rosso who said it was the right time to make buys and that Diesel was examining dossiers.
The item cited Renzo as saying that Diesel was interested in "alternative" rather than "institutional" brands. The report said that Diesel would also look at non-clothing brand in order to expand into jewelery where Renzo said Diesel lacks know-how, and to improve its presence in accessories.
The report noted that Diesel closed 2012 with turnover of EUR 1.5bn, up 9.9% on 2011.
Source Il Corriere del Veneto