TheChek News Flow

Wang Jianlin is buying Hollywood, one piece at a time.

China’s richest man has gone on a shopping spree aimed at positioning his Dalian Wanda Group in every stage of the entertainment life cycle: cinemas, movie production, TV, marketing and more.

His latest target, Dick Clark Productions, would stretch Mr. Wang’s empire into Hollywood’s red-carpet glamour zone, giving him the company that puts on the Golden Globes, the American Music Awards and other shows brimming with celebrities and promotional opportunities.

This is all a prequel to his dream prize, one of Hollywood’s six major film studios. He was in talks to buy 49% of Paramount Pictures until the deal was scotched amid a shake-up at the studio’s parent company, Viacom Inc.

Other Chinese tycoons have invested in Hollywood, but Mr. Wang’s interests go far beyond buying access to glitzy premieres and lavish after-parties. After making a fortune in property development, Mr. Wang has publicly stated that he is on a mission to make China a dominant global force in entertainment.

The mogul’s current bid to buy Dick Clark Productions for about $1 billion would follow his 2012 purchase of theater chain AMC Entertainment Holdings Inc. for $2.6 billion and production company Legendary Entertainment this year for $3.5 billion. AMC, meanwhile, has announced plans to buy rival Carmike Cinemas Inc. for $1.2 billion, a deal that would make Mr. Wang’s holdings the biggest film exhibitor in the U.S., and the world.

The aggressive deal making is starting to draw attention from U.S. government officials and industry executives, who see both Mr. Wang and China as threats to Hollywood’s dominance in entertainment as a business and a cultural force.

On Sept. 15, 16 members of the House of Representatives wrote a joint letter asking the Government Accountability Office to consider expanding the scope of the Committee on Foreign Investment in the U.S. so it could review Chinese acquisitions of U.S. media companies under the same national-security rules it uses for sectors such as aerospace.

Dalian Wanda’s recent acquisitions, the representatives wrote, have heightened “concerns about China’s efforts to censor topics and exert propaganda controls on American media.”

China has proven adept at influencing the movie business even without splashy takeovers. China’s box-office market is expected to surpass the U.S. in the next few years, and the country’s ticket sales already weigh heavily on Hollywood decision-making. Sequels to movies like “Pacific Rim” are sometimes greenlit largely due to success of the earlier version in China, even if they disappointed in North America.

Producers and writers say studios are already nixing plot points in their big-budget films that might offend Chinese sensibilities, by, for example, avoiding topics such as homosexuality or the undead. They are increasingly looking to cast Chinese actors in supporting roles to broaden appeal—and win one of the 34 slots China’s government keeps open for foreign theatrical releases.

A judge in Milan on Saturday charged 13 former and current executives at Banca Monte dei Paschi di Siena SpA, Deutsche Bank AG and Nomura International PLC with a number of alleged financial crimes, people familiar with the matter said.

The decision by judge Livio Cristofano follows an investigation lasting more than 1½ years by Milan prosecutors into two complex financial transactions that Monte dei Paschi arranged with Nomura and Deutsche Bank, as well as other transactions that allegedly helped Monte dei Paschi misrepresent its financial situation.

Monte dei Paschi and Nomura spokespeople had no comment. A Deutsche Bank spokesman said, “We will put forward our defense in court,” declining further comment. Lawyers for the individuals either declined to comment or didn’t respond to requests for comment.

Deutsche Bank and Nomura are also to be defendants in the indictment, people familiar with the matter said. According to Italian law, companies can be charged with a direct liability for some crimes allegedly committed by their representatives. Monte dei Paschi requested a plea-bargain agreement in July. The court will decide this month whether to grant it.

In February, Milan prosecutors said that they were seeking the indictment of the executives after they said they had found evidence of the manipulation of Monte dei Paschi’s stock and falsification of its accounting, and some of the executives’ obstruction of the supervisory activity of Italian authorities, according to court documents seen by The Wall Street Journal.

In particular, in requesting the indictment of the bank’s managers, prosecutors alleged Monte dei Paschi’s accounting was false between 2008 and 2012, with the bank’s actual earnings being as much as 88% lower than what it disclosed during that time.

The bank—the world’s oldest—has since been bailed out twice by the Italian government and has struggled to shore up its capital position and regain profitability. This summer, the Tuscan lender emerged as the worst capitalized among large European lenders in a continentwide health check conducted by the European Banking Authority. It said it would sell all its most toxic bad loans worth €28 billion ($31.5 billion) and raise as much as €5 billion in fresh equity.

However, the bank’s board recently ditched both its chairman and chief executive amid muted investor enthusiasm for the plan, which has been looking increasingly fragile, people familiar with the matter said. The bank had started to put the plan into action by testing investors’ interest, but it hasn’t made more progress.

The case is one of a raft of legal matters hanging over Deutsche Bank from years past. Prolonged litigation and regulatory matters have cost the bank billions of dollars, adding to its woes as a new chief executive and lineup of senior executives try to cut expenses and boost profits.

On Saturday, Judge Cristofano sent to trial five former Monte dei Paschi managers, including ex-chairman Giuseppe Mussari and ex-general manager Antonio Vigni. The former executives couldn’t be reached for comment. In the past they have denied any wrongdoing. A lawyer for Mr. Vigni declined to comment. A lawyer for Mr. Mussari didn’t immediately reply to a request for comment.

Former Deutsche Bank executives indicted Saturday include Michele Faissola, who formerly oversaw rates and commodity trading in Deutsche Bank’s markets business and who was head of asset and wealth management last year when he left the bank. Mr. Faissola and a lawyer representing him declined to comment. Mr. Faissola has denied wrongdoing in the past.

In addition, the Milan judge charged Michele Foresti, a fixed-income trading executive who left Deutsche Bank in 2014, and Ivor Dunbar, a former global markets executive. Their lawyers declined to comment. Mr. Foresti and Mr. Dunbar didn’t respond to requests for comment.

Matteo Vaghi, who also was charged, remains at Deutsche Bank, working in wealth management. He declined to comment. Mr. Vaghi is a managing director who previously oversaw the wealth management unit’s U.K. and Southern European operations.

Two other former Deutsche Bank managers and two former Nomura managers who were charged couldn’t be reached for comment.

The seasons may change, but the leading emerging market performers have been pretty consistent this year.

As the third quarter approached the wire, it looked like Latin American markets would take the two top spots. The MSCI Brazil index of mid- and large-cap companies was No. 1 year to date through last Thursday, rising 61%, as expectations grew for an end to the country’s recession in 2017 under new President Michel Temer. In second place was Peru, where the MSCI index jumped 49%. Again, a new president, former Wall Streeter Pedro Kuczynski, has raised hopes for the local economy. Another big boost for its performance was Peruvian gold miner Minas Buenaventura (ticker: BVN), up 230% this year as the metal’s price finally rose.

Ranking third was Russia, whose index was up 28%, fractionally better than Colombia’s and Indonesia’s. (See Shuli Ren’s Asian Trader column on Indonesia.) Improving commodity prices have helped the Russian economy, which is expected to emerge from recession in 2017.

This year’s story is mean reversion, with some of last year’s worst performers now the best, notes Alistair Way, a portfolio manager at Standard Life Investments, based in Edinburgh, which has about $2.5 billion in emerging market portfolios and $2 billion in Asia funds.

For smaller-cap stockpickers like Way, it has been tough to beat the benchmarks because traders recently have been betting on the iShares MSCI Emerging Markets exchange-traded fund (ticker: EEM) as a way to profit from fewer-than-expected interest-rate hikes from the Federal Reserve. The ETF, which is up roughly 15% this year, helps the underlying country indexes, which don’t include a lot of his holdings. A turning point came in June with Brexit. That brought “the realization that developed economies would keep monetary policy relatively easy for longer than thought,” says Way. Because many investors were underweight emerging market stocks, the indexes jumped still further after the news, he notes.

Buyers this year haven’t been so keen on the Hellenes. MSCI Greece, down 24%, is in last place. Economic growth is proving elusive, despite fresh bailout money, and another debt crisis is possible. Greece is in a depression that isn’t over, Evercore ISI researchers said last week. They noted that Greece’s real gross domestic product has plunged 27% from its peak, though they think it may grow at an anemic rate in 2017. Their forecast is less optimistic than most.

The MSCI China 50 index of the largest A shares, which trade in Shanghai and Shenzhen, have slipped 10%. The index is dominated by financial stocks, and the negative return reflects the country’s massive credit overhang and the weak currency. The MSCI Czech Republic index was down 5%.

As for bonds, the iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) and the VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (EMLC) have each produced a total return of roughly 14% this year; local bonds are paying a slightly higher yield, near 6%.

Did ConAgra Foods ’ Thursday rally whet your appetite to buy the stock?

Dig in.

The Chicago-based food company, known for frozen dinners, canned spaghetti and other packaged food, is working to slim down by focusing on higher quality and higher priced products that boast fatter margins.

These efforts, underway since CEO Sean Connolly arrived last year, have produced lumpy sales but significantly boosted profitability, as we saw early today when ConAgra (ticker: CAG) unveiled fiscal first-quarter financial results.

Hurt by lower demand for snacks and frozen foods, sales fell by a greater-than-expected 4.6% to $2.67 billion. But profit margins surged and per share earnings jumped to 61 cents from 41 cents last year, beating the 48 cents expected by analysts.

Wall Street ate up the news. ConAgra rose 7.3% Thursday to $46.26. Investors could be further rewarded as the company completes the spinoff of its frozen potato business, pursues acquisitions, and continues to strengthen profit margins.

Barclays analyst Andrew Lazar calls it “seeing the forest for the freezer.”

This is not the first time that Barron’s has developed an appetite for ConAgra, which sells brands such as Slim Jim, Hunt’s and Chef Boyardee. In May, Barron’s predicted that the stock, then $45.45, could reach $60 within two years.

With today’s rally, ConAgra is up 10% year-to-date, compared with the Consumer Staples Select Sector SPDR ETF (XLP) up almost 5%.

At 18 times projected 2017 earnings per share, ConAgra’s stock, which pays a market-beating 2.3% dividend yield, remains one of the cheapest packaged food companies in the Standard & Poor’s 500. Jana Partners has held a stake in ConAgra since shortly after Connolly became CEO and the company embarked on efforts to slim down, cut costs and expand margins.

ConAgra completed the $2.7 billion sale of its private-label food business to TreeHouse Foods (THS) earlier this year. Now ConAgra is buying gourmet brands one might find atWhole Foods Market (WFM) and has stopped selling products at steep discounts to drive volumes.

Those efforts are working. Fiscal first-quarter sales in the grocery and snacks segment fell 5.4% as volumes fell 6%, while sales in the refrigerated and frozen segment declined 8% with an 11% drop in volumes. Operating margins, however, climbed more than 500 basis points, according to Citigroup.

And Barclays’ Lazar says gross margins can rise further. Other analysts see ConAgra selling underperforming brands and returning cash to shareholders.

ConAgra did not issue a forecast for the current fiscal year, ending May 2017. However, a forecast and answers to questions regarding the spinoff of Lamb Weston may be forthcoming at a pair of investor meetings slated for October.

The Street now expects per share profit for ConAgra of $2.41 for the 2017 fiscal year, which could be at risk as consumer companies often lower profit expectations before they split up.

Still, ConAgra is showing discipline and focus and seems hungry for more gains.

What’s German for “too big to fail?”

There probably is some “alphabetic procession,” as Mark Twain described the multisyllabic monstrosities of mashed-up German words in his musings on “The Awful German Language,” to describe the status of the world’s biggest financial institutions. Perhaps even worse are the linguistic proclivities of 21st century bureaucrats, who have dubbed them G-SIBs, for globally systemically important banks.

Either in German or government-speak, too big to fail is how to describe Deutsche Bank,and that would be true even if didn’t share its name with its fatherland. But worries on that score, which had been a low rumble for months, have erupted in recent weeks. And recalling another of Twain’s aphorisms, history seemed to rhyme, if not repeat.

Deutsche Bank’s equity (ticker: DB for its American depository receipts) and debt securities plunged last week, amid reports that hedge funds had withdrawn money held as collateral at the bank for their derivatives transactions and other positions. That recalled the exodus by hedge funds from Lehman Brothers shortly before its collapse almost exactly eight years ago.

The storm had been brewing since the U.S. Justice Department was reported in mid-September to be seeking a $14 billion penalty for Deutsche Bank’s alleged transgressions in the mortgage bubble and bust. That brought a denial from Angela Merkel’s government that a bailout of the bank was contemplated. Given the long record of pronouncements in previous crises that there was no chance of an action—followed often by a bailout—markets heard the rhyme of Lehman’s history.

Friday brought some relief, however, as Deutsche’s chief, John Cryan, sent a message to his troops that the bank had “strong fundamentals” and that reports of hedge funds’ collateral withdrawals had aroused “unjustified concerns.” Perhaps even more importantly, an Agence France Presse story on Friday said the bank is close to settling with the DOJ for $5.4 billion—more than 60% less than the $14 billion penalty leaked earlier in reports. (Where did the latter number come from? There seems a coincidental symmetry with the 13 billion euro [$14.6 billion] tax bill the European Union sent to Apple [AAPL] in late August, which CEO Tim Cook described in straightforward English as “total political crap.”)

Coincidences abound in the whole Deutsche episode, which sent the bank’s shares tumbling to lows not seen in decades and yields on its bonds and the cost of insuring its debt soaring. It is an ill wind that blows no good, however. The Wall Street Journal reported on Friday that some hedge funds had handsomely profited by shorting Deutsche stock—including some of the very ones that were said to have yanked their collateral, news of which helped propel the stock lower. Another coincidence, no doubt.

Failure of Deutsche was never an option. As for the $14 billion supposedly sought by the DOJ, that number isn’t realistic. “U.S. regulators want to squeeze as much out of DB as they can, but it would make no sense for them to push DB into a capital crisis in the process of doing so, and no sense for DB to agree to such terms,” writes Kathleen Shanley of the razor-sharp and fiercely independent Gimme Credit.

That doesn’t mean investors in Deutsche Bank’s securities are off the hook. Its stock market capitalization totaled about $18.1 billion, even after a sharp 14% rebound on Friday, which no doubt was assisted by short-covering. Whatever the impetus, the pop in DB managed to push its market value above “troubled Twitter,” to about $16.3 billion, according to the ever-ebullient, if not bullish, Doug Kass, head of Seabreeze Partners.

Before the end-of-week rally, Deutsche’s common stock traded for around a quarter of its book value, weighed down by the market’s massive haircut from the stated value of its assets, as well as the uncertainty about how many pounds of flesh could be extracted by regulators.

That isn’t all. “The elephant in the room is DB’s $60 trillion derivatives book,” writes Michael Lewitt, editor of the Credit Strategist letter. This sum represents the gross exposure of the bank’s contracts, many of which are long positions that would be offset by short exposures, resulting in a much smaller net position. That’s in a perfect world, he contends. If, in a financial crisis, counterparties can’t meet their obligations, this netting of positions won’t occur. In any case, “DB’s net exposures are sufficiently large to blow up the financial system,” Lewitt warns.

The deep discount to book also reflects the potential for a highly dilutive capital issuance. In catch-22 fashion, that in turn makes it harder to raise needed equity to bolster the balance sheet. And politics also preclude a bailout. Germany, which has mandated austerity for other euro-zone countries, would find it difficult to bail out its biggest banks, Gimme Credit’s Shanley observes. All of these complications come back to the simple fact that, eight years after the financial crisis, some institutions remain too big to fail. Which also suggests that they’re too big to bail out.

ALL OF THIS STUFF ABOUT big European banks and their derivatives exposure would seem rather foreign back in the U.S.A., outside the leafy enclaves of Connecticut, where many hedge funds reside (and some of the biggest suckle on the public teat of taxpayer subsidies). But some U.S. homeowners stand to pay for the market roilings caused by Deutsche and other big, financially stressed European banks.

“Dollar funding stress is back,” according to Citigroup’s money-market research team. The negative headlines last week sharply pushed up European banks’ funding costs, resulting in the highest spike in dollar borrowings from the European Central Bank since the European crisis of 2012-13, they write.

To be sure, U.S. money-fund reforms set to take effect in mid-October have helped to push up short-term rates, notably the benchmark London interbank offered rate, as I’ve written previously (“Is the Market Doing Yellen’s Dirty Work?” Aug. 10). Libor is the base rate for many U.S. loans, including some home mortgages. Three-month Libor has risen by more than 50 basis points (one-half of a percentage point) over the past year, to 0.8456%, while the Fed has boosted its federal-funds target range just 25 basis points, to 0.25-0.5%.

That’s real dollars and cents for U.S. homeowners. In a commentary, David Kotok of Cumberland Advisors quotes Madeline Schnapp, whom he describes as a “superb economist and researcher of the housing market in the West”:

Taking a $700,000 adjustable-rate mortgage tied to Libor, a 25-basis-point rise in the loan rate to 3.5% from 3.25% would increase the monthly payment about $100, to $3,150, which would be “tolerable.” But if Libor jumps to 1.5%, the resulting rise in the adjustable rate mortgage to 4.25% would boost the monthly payment to around $3,500. “Yikes!” she writes. As for loans that were as much as 97% of the original purchase price, what happens to high-priced San Francisco Bay Area properties bought on that kind of shoestring?

She notes that sales there have been trending lower, on a year-over-year basis. And prices have rolled over in two Bay Area counties, with a third county flat, “suggesting that we may be at or near a top,” she adds. One month doesn’t make a trend, but back East, there also are well-advertised toppy signs at the high end.

If the rise in Libor impinges on the housing market, the Federal Reserve would have another reason to go slow on further rate hikes. A rate increase in December has a 59% probability, based on Bloomberg’s data on fed-funds futures. But odds are against a further boost in 2017. Indeed, the probability of the Fed’s target range remaining at the current 0.25%-0.5% are roughly equal to the chance of it hitting 0.75%-1%.

OCTOBER MEANS POSTSEASON BASEBALL and stock market volatility. To show that anything could happen on either score, this year could see a once-improbable matchup of the Boston Red Sox and the Chicago Cubs.

October has a fearsome reputation for stock investors from the crashes of 1929 and 1987, but, according to the Stock Trader’s Almanac by Jeffrey and Yale Hirsch, the month actually is a “bear killer.” October “turned the tide in 12 post–World War II bear markets: 1946, 1957, 1960, 1962, 1974, 1987, 1990, 1998, 2001, 2002, and 2011.” But the best Octobers followed horrid Septembers. The month just concluded managed to end basically flat on the S&P 500, with the boost from a nice 0.8% gain on Friday.

On Friday, shares of Deutsche Bank rallied as the beleaguered German banking giant received some good news for a change.

Shares of Deutsche’s ADRs (ticker: DB) gained 14% on reports that the bank was near a $5.4 billion settlement with the U.S. Department of Justice concerning the bank’s mortgage lending activities during the housing bubble leading up the 2008 financial crisis.

If true, the settlement would be well below a reported $14 billion opening bid by the DOJ in its talks with Deutsche, according to CNBC. Neither the bank nor the DOJ were commenting on the news of a possible settlement.

Even if true, the bank and its shares, which has fallen by half this year, are still under tremendous pressure with many arguing that Deutsche could end up failing like Lehman Brothers did eight years ago.

Like Lehman in 2008, Deutsche has been losing the confidence of its large financial clients, leaving many to wonder how much further the customer exodus could go. On Thursday, Bloomberg reported that about 10 hedge funds that are Deutsche clients in their prime brokerage business have decided to withdraw some cash and listed derivatives positions from the bank, according to a Bloomberg News report.

The New York Times has a story today discussing the ominous situation that the bank has gotten itself into and possible contagion effects that could lead to a second financial crisis in just eight years.

In addition to mortgage-lending transgressions, the Times wrote, there is the bank’s role “in the manipulation of a financial benchmark, claims of trades that violated Russian sanctions and a generalized sense of confusion about its mission. It heightens the sense that Deutsche — whose shares have lost more than half their value this year — needs to secure additional investment, lest it leave itself vulnerable to some new crisis.

“The biggest worries center on what happens if Deutsche falls apart to the point that it threatens the globe with a financial shock — and whether new rules and buffers put in place since the last crisis will keep the pain from spreading”

For readers who want to background themselves about the pressures befalling Deutsche Bank, U.K’s The Telegraph has a backgrounder explaining why “Deutsche Bank is now the biggest worry in the financial world.”

But the Wall Street Journal isn’t buying into the doom and gloom thinking about Deutsche Bank. The paper has had two articles in the past day that argue that Deutsche Bank is in a far better position to weather its problems than Lehman Brothers.

As Journal writer James Mackintosh puts it in his piece, “Lehman was particularly vulnerable, due to its reliance on the overnight repurchase, or repo, market and on hedge funds to finance itself. Billions of dollars of cash and other assets from its so-called prime brokerage business drained away in its final few days, while repos couldn’t be renewed and banks and other counterparties demanded extra collateral to back derivatives trades.”

By contrast, adds Mackintosh, “Deutsche is different. It has a far more diversified client base, sourced from German retail banking and multiple institutional business lines. It has a lot more liquidity, amounting to €220 billion ($246.8 billion) at the end of June, equal to 12% of assets, against the $45 billion Lehman had a month before its downfall, 7.5% of assets.”

Mackintosh concedes that Deutsche has a weak capital position made worse by weak profitability, “but its problems aren’t as critical as Lehman’s, where losses amounted to more than a tenth of shareholder equity in each of the final two quarters of its life.

“Most important, Deutsche has access to the European Central Bank as its house pawnbroker, meaning it can turn even fairly hard-to-sell assets into cash if it needs to,” Mackintosh adds. “Lehman was refused extra credit by the U.S. Federal Reserve on the basis that it didn’t have enough reliable assets to post at the bank.”

A

ston Martin boasts of a “rich and prestigious heritage”. But like most car companies its past is as much one of oily rags and dodgy finances as plush leather and James Bond. In its 103 years of existence, it has sold 70,000 cars, had various owners and periods of extreme distress, all the while turning out cars capable of making grown men whimper.

This week the company unveiled a 37-foot powerboat at the Monaco Yacht Show, built in collaboration with Quintessence Yachts. It is a fine-looking craft, sleek and powerful, with a coffee maker and lavatory, and is capable of 50 knots. You can instantly imagine Daniel Craig, the present 007, at the wheel. It is part of Aston Martin’s attempt to become a full-blown luxury brand, the Hermès of cars.

The prospect of a foreign takeover of the UK's biggest gas distribution network increased on Friday after the main British-backed offer was kicked out of the auction after being trumped by rivals.