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Jun 27, 2016

DealBook Today's Top Headlines on June 27, 2016: Markets Shaky As Political Chaos Continues in the Wake of 'Brexit' | In Private Equity's Hands, Public Services and Housing in Disarray Inbox

 
Monday, June 27, 2016
TODAY'S TOP HEADLINES
By AMIE TSANG
MARKETS SHAKY AS POLITICAL CHAOS CONTINUES IN THE WAKE OF 'BREXIT' The turmoil that roiled markets on Friday gave way to weak sentiment on Monday morning, as uncertainty created by Britain's vote to leave the European Union weighed on Asian stocks, Reuters reports.
The pound tumbled further, sliding 2 percent in Asia on Monday, but the extreme volatility of last week receded a little. The euro also remained under pressure, while European stocks started the week with a slump and continued to slide later in the day. As with last week, banking stocks were battered. Shares in Barclays and RBS fell so much that they were suspended from trading.

At the same time, the political chaos in Britain continued into Monday. The opposition Labour Party split into warring camps, while the governing Conservatives were drawing their battle lines, Steven Erlanger reports in The New York Times.

Speaking before the European market open, Chancellor of the Exchequer George Osborne said he expected more volatility, but noted that the British economy was "about as strong as it could be" and in a position to weather the effects of leaving the European Union, Jonathan Soble and Prashant S. Rao report in The New York Times. The pound pared some of its losses after his speech.

Premier Li Keqiang of China also noted on Monday that the referendum result had increased uncertainty in the global economy, Reuters reports. "Against the backdrop of globalization, it's impossible for each country to talk about its own development discarding the world economic environment," Mr. Li said at the World Economic Forum in Tianjin, China.

Their concerns over the uncertain outlook are shared across the world.

London became a world financial center after a wave of financial deregulation thirty years ago, but a cloud of uncertainty hangs over it now. On Friday, finance workers congregated at pubs in the City, as Britain's Wall Street is known, pondering where jobs might move, Danny Hakim and Prashant S. Rao report in DealBook. Paris, Amsterdam and Frankfurt seemed the mostly likely options, but few were excited about the prospect. Some worried about returning to financial crisis conditions.

Some experts have also raised the possibility that the British government could seek to save the financial sector by making the City more attractive as an offshore haven, Nelson D. Schwartz and Patricia Cohen report in The New York Times. "This could lead to London becoming even more like the Cayman Islands and other British territories, skirting around regulations, in a race to the bottom for the financial sector," Adam S. Posen, a former member of the rate-setting committee at the Bank of England and now president of the Peterson Institute for International Economics in Washington, said. "This potentially could leave pretty big holes in the financial safety net."

The art market is also fearful, Robin Pogrebin reports in The New York Times. London was regarded as the capital of the European art market, but lots may be withdrawn this week by nervous consignors. Experts predicted that fewer pieces would come to market in Britain because of the fall in the value of the pound, although some are bullish about this, saying that it makes prices more attractive to foreign buyers. Others still think that people's trust in hard assets will keep the market going.

Meanwhile, the world's central bankers are worried about how much action they can take should markets spiral, Landon Thomas Jr. reports in DealBook. Investors expect central banks to ride to the rescue if the vote sends global markets reeling, but some investors and economists fear that further intervention will worsen the sense of alienation and frustration at global elites that helped the "leave" side win the vote.

Moves like bond buying and lowering interest rates used to be seen as easy policy substitutes when governments did not take action themselves. But the recent sell-off is not the result of an event like the Lehman Brothers bankruptcy. When finance is hit by social and political crises, it becomes more awkward for central bankers to defend intervention. It is an acute concern for Britain, where, thanks to aggressive central bank policies, house prices have soared in London even as the inflation-adjusted average wage is still lower than it was before the financial crisis.

The Japanese authorities said on Monday that they were prepared to intervene to curb the rise of the yen, which can hurt Japanese exports. Shinzo Abe, Japan's prime minister, said he had instructed the finance minister, Taro Aso, to "coordinate with the Bank of Japan and be even more mindful of movements in the markets, including the currency market." The yen ticked down against the dollar after he spoke.

The Italian government is also considering measures to prop up its banking sector, as financial stocks come under more pressure after the vote, The Financial Times reports, citing bankers and officials. Prime minister Matteo Renzi may request a suspension of state aid rules to allow a government-sponsored capital injection.

The hedge fund industry has been comparatively placid about Britain's vote to leave the European Union,, although some were surprised by the result, Alexandra Stevenson reports in DealBook. Many fund managers watched the vote from the sidelines, and some had yet to recover from the turmoil created by Chinese stocks last summer.

It will take some time to determine the winners, but George Soros, known as the man who broke the Bank of England with a bet against the British pound in 1992, looked smart after taking long positions in gold through an exchange-traded fund. Whether he took any positions to profit from a vote for so-called Brexit is unclear.

In the meantime, Christine Lagarde, the head of the International Monetary Fund, has called for Britain and the European Union to move quickly to quell the uncertainty, The Financial Times reports. Ms. Lagarde noted the turmoil within Britain's political parties and said that European Union leaders had sent mixed messages on how Britain's exit from the bloc should be handled.

"At this point in time, policy makers both in the U.K. and in Europe are holding that level of uncertainty in their hands, and how they come out in the next few days is really going to drive the direction in which risk will go," she said on Sunday.

Prime Minister David Cameron of Britain is expected to lead an emergency Cabinet meeting on Monday, and John Kerry, the United States secretary of state, is visiting Brussels and London to address the fallout from the vote.
ON THE AGENDA The ECB Central Banking forum starts with a welcome address from Mario Draghi, the president of the European Central Bank, at 1:30 p.m.
IN PRIVATE EQUITY'S HANDS, PUBLIC SERVICES AND HOUSING IN DISARRAY Since the 2008 financial crisis, private equity firms have taken over a widening array of civic and financial services that are central to American life, Danielle Ivory, Ben Protess and Kitty Bennett report in DealBook. People interact with private equity when they call emergency services, pay their mortgage, play a round of golf or turn on the kitchen tap for a glass of water.

Unlike other for-profit companies, which often have years of experience in certain services, private equity's main skill is to make money. And in many of these businesses, it applied a sophisticated moneymaking playbook, cutting costs, increasing prices, litigating and lobbying, a Times investigation has found.

In emergency care and firefighting, this has created a fundamental tension when there is a push to turn a profit while caring for people in their most vulnerable moments. And the effects have been dire. Under private equity ownership, some ambulance response times worsened, heart monitors failed and companies slid into bankruptcy. In at least two cases, lawsuits contend, poor service led to patient deaths.

Cities and towns have struggled to pay for public infrastructure and ambulance services since the financial crisis and private equity stepped in. At the same time, private equity firms have moved in where banks have scaled back their mortgage operations. The shift has happened with relatively little scrutiny, and now private equity firms are repeating the mistakes that banks made during the housing crisis, Matthew Goldstein, Rachel Abrams and Ben Protess report. They are quick to foreclose on homeowners and are losing families' mortgage paperwork, much as the banks did.

Many of these practices were enabled by the federal government, which sold tens of thousands of discounted mortgages to private equity investors, while making few demands on how they treated struggling homeowners.

The Times examined the largest private equity firms operating in the housing industry to assess their impact on homeowners and renters. Lone Star Funds' mortgage operation has aggressively pushed thousands of homeowners toward foreclosure. Nationstar Mortgage, which leaped over big banks to become the fourth-largest collector of mortgage bills, repeatedly lost loan files and failed to detect errors in other documents. Its mistakes put borrowers "at significant risk of servicing and foreclosure abuses," according to regulatory records.

When it invests in real estate, private equity also needs to compete for middle-market renters to serve pension fund investors that have come to expect strong returns. As a result, it tends to focus on suburban communities where relatively few people hold federal subsidy vouchers. "These firms are going into markets which would have recovered anyway," said Alan Mallach, senior fellow at the Center for Community Progress, a nonprofit that advises communities on dealing with vacant and blighted homes. As a result, many of the working poor are being bypassed.

Read more about The Times investigations into broadening private equity ownership here.
MERGERS & ACQUISITIONS »
Intel Said to Consider Sale of Online Security Business Intel, the chip maker, is looking at options for Intel Security, including potentially selling the antivirus software maker formerly known as McAfee, which it bought for $7.7 billion almost six years ago, The Financial Times reports, citing people close to the discussions.
Bayer Chief Takes Risk in Bid for Monsanto "There are a number of investors who would have liked us to further strengthen our health-care business - particularly pharma," said Werner Baumann, the chief executive of Bayer, who has been selling the deal to wary investors.
Waldorf-Astoria Said to Be Headed for Renovation Anbang Insurance, the Chinese owner of the Waldorf Astoria, is planning to shut down the New York hotel for up to three years and convert as many as three-quarters of its rooms into private apartments, The Wall Street Journal reports, citing people familiar with the matter.
A Slice of Qihoo For Sale on China's Streets Wealth managers are selling investments linked to a $9.3 billion deal to take private Qihoo 360 Technology with the promise of cashing in on a future relisting in China.
INVESTMENT BANKING »
Saudi Arabia Hires Banks for First Global Bond Sale Saudi Arabia has hired JPMorgan, HSBC and Citigroup to help sell its debut international bond as the kingdom seeks to shore up finances hurt by low oil prices, The Wall Street Journal reports, citing people familiar with the matter.

For the latest updates, go to NYTimes.com/DealBook
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I.P.O./OFFERINGS »
Line Delays Setting I.P.O. Price Range Amid 'Brexit' Turmoil Line will proceed with pricing on June 28, the Tokyo-based company behind a popular messaging app said in a statement after the market closed. It had planned to set the price range on June 27.
China Logistics Said to Delay I.P.O. on 'Brexit' Jitters China Logistics Property Holdings, a warehouse developer based in Shanghai and backed by the Carlyle Group, will postpone the start of its $400 million Hong Kong initial public offering because of volatile market conditions, Bloomberg reports, citing people with knowledge of the matter.
LEGAL/REGULATORY »
Marjorie Shaw, a plaintiff in in the Volkswagen class-action suit.
Volkswagen Faces Long Road Ahead, Even After a Civil Settlement A broad settlement that is expected to dwarf all previous deals is taking shape in the United States, but the Justice Department is still investigating criminal charges and there are more inquiries at the automaker's home in Germany and in other countries.
British Disclosure Rules Tying Chief Executive Pay to Performance Not Working "We find that the new regulations did not appear to achieve their goal of greater transparency," said the author of a study by the University of Cambridge's Judge Business School and King's College London.
For Consumers, Injury Is Hard to Prove in Data-Breach Cases While breaches at companies like Target and Home Depot have spawned dozens of lawsuits from customers blaming them for shoddy computer security, judges have mostly dismissed these suits at an early stage, finding that customers couldn't show that the breaches caused them any actual harm.
Six years after spending $35,000 to learn Donald J. Trump's real estate secrets, Cheryl Lankford said she had a nagging sense that she was taken advantage of.
'We're an Easy Target': Taken In by the Trump Brand Several enterprises stamped with the Trump brand have been accused of preying upon desperation, inexperience or vanity.
Ingvar Kamprad, the founder of Ikea, is worth $42 billion according to Bloomberg. But Forbes says that because he has transferred his wealth to special structures
Billionaire Lists Are Battling to Feed a Hunger for Rankings A lucrative industry has grown up to measure and rank billionaires, and companies' often wildly varying lists show how contentious valuations can be.
Cornish game hens at the Ash-O-Ley Acres farm, which has been a producer for Perdue Foods for nearly 40 years.
Perdue Aims to Make Chickens Happier and More Comfortable The poultry producer's plans to improve conditions for its chickens could force competitors to adopt similar measures.