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
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
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
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 AGENDAThe 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 DISARRAYSince 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
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.
Intel Said to Consider Sale of Online Security BusinessIntel, 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
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.
Saudi Arabia Hires Banks for First Global Bond SaleSaudi 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.
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' JittersChina 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.
Volkswagen Faces Long Road Ahead, Even After a Civil SettlementA 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 CasesWhile 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.
Billionaire Lists Are Battling to Feed a Hunger for RankingsA lucrative
industry has grown up to measure and rank billionaires, and companies'
often wildly varying lists show how contentious valuations can be.