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SUBPRIME AUTO LOANS SPUN INTO GOLDAcross the country, there is a booming business in lending to poor people with bad credit who need cars to get to work. But this market is "as much about Wall Street's perpetual demand for high returns as it is about used cars," DealBook's Michael Corkery and Jessica Silver-Greenberg report. "An influx of investor money is making more loans possible, but all that money may also be enabling excessive risk-taking that could have repercussions throughout the financial system."
As it did with mortgages, Wall Street is bundling together thousands of subprime auto loans and selling them to investors. Led by companies like Santander Consumer; GM Financial, General Motors' lending unit; and Exeter Finance, an arm of the Blackstone Group, such securitizations have grown 302 percent, to $20.2 billion since 2010, according to Thomson Reuters IFR Markets. Subprime securitizations increased 28 percent from 2013. In a time of low interest rates, investors are drawn to the relatively high returns of such securities, which ratings firms have nevertheless deemed as safe as some Treasury securities.
"Now questions are being raised about whether this hot Wall Street market is contributing to a broad loosening of credit standards across the subprime auto industry," Mr. Corkery and Ms. Silver-Greenberg write. The intense demand for subprime auto securities may also be fueling a rise in loans that contain falsified income or employment information. The Justice Department in Washington is coordinating an investigation among prosecutors' offices across the country into whether such faulty information ended up in securitization deals, according to people briefed on the inquiries.
SNOW DAYThe streets of Manhattan were quiet early Tuesday morning,silenced by the snowstorm that bore down on the Northeast region overnight. Many Wall Street workers left their offices early on Monday or chose to work from home. One private equity firm in midtown Manhattan allowed everyone to leave by 3:30 p.m., with the promise that they would be available to work remotely. State and local governmentsdelayed at least $1.3 billion of bond sales, including a $1 billion general obligation deal from Pennsylvania, because of the storm. Stock exchanges were expected to stay open on Tuesday.
New York City seemed to have been spared the brunt of the storm, but Long Island, Cape Cod and New England were battered by snow and high winds. As of Tuesday morning, driving bans were still in effect across New York City, New Jersey and Connecticut. Schools in New York City and New Jersey will be closed on Tuesday. A list of what's closed and what's open in the region is available here.
PAY RATIO RULE STALLSAlmost five years ago, a provision was passed as part of the Dodd-Frank financial reform act to try to quantify the ratio between the pay of chief executives at successful companies and the pay of their median workers. But a fierce debate over the disclosure requirement has delayed adoption of that section of the law, Andrew Ross Sorkin writes in the DealBook Column. Corporate America has resisted the rule as a politically motivated gimmick. And indeed, the A.F.L.-C.I.O. has said that disclosing the pay ratio would "shame companies into lowering C.E.O. pay."
The Securities and Exchange Commission has so far avoided ruling on how to put the requirement in place. And when the law is put into effect, it appears it will be "watered down and made so complicated as to be worthless," Mr. Sorkin writes. "With all the wiggle room that is expected to be allowed, companies may devise ratio numbers that are largely irrelevant. Investors, who actually could benefit, even if only marginally, from knowing the ratio will probably have an impossible time interpreting what the ratio shows."
"That's not to say the S.E.C. shouldn't force the disclosure of the ratio. It should, and soon. After all, it is a law and until and unless Congress decides to change the law, it should be enforced," Mr. Sorkin adds. "The big question will be in how it is used ‒ or potentially misused ‒ and how it may change corporate America."
ON THE AGENDAThe Federal Open Market Committee convenes its January meeting. Data on durable goods orders comes out at 8:30 a.m. The Standard & Poor's/Case-Shiller home price index for November comes out at 9 a.m. Data on new home sales is released at 10 a.m. The Conference Board's consumer confidence index comes out at 10 a.m.Apple and Yahoo report quarterly earnings after the market closes.
On the Hill: The Senate Banking Committee holds a hearing titled "Perspectives on the Strategic Necessity of Iran Sanctions" at 10 a.m. TheSenate Finance Committee holds a hearing titled "President Obama's 2015 Trade Policy Agenda" at 10 a.m.
AIMING AT BRITAIN'S GLASS CEILINGSLike Sheryl Sandberg, the Facebook executive, Helena Morrissey has become the face of women's advancement in business in her country. But suggest the comparison to Ms. Morrissey, a 48-year-old money manager, and she smiles politely and insists she is doing her own thing, Jenny Anderson writes in DealBook. Four years ago, Ms. Morrissey founded the 30% Club, an organization that seeks to increase the representation of women on boards to that number. Unlike approaches others have taken, Ms. Morrissey ‒ petite, charismatic and impeccably stylish ‒ has directed her focus on Britain's most powerful men.
"Working behind the scenes, she has persuaded 120 of the country's top chairmen that they want what she wants: more diverse boards that will produce better company returns," Ms. Anderson writes. "The approach has produced some remarkable results. Since 2010, the percentage of women on Britain's top boards has nearly doubled, to 23 percent, while in the United States, the figure has crept up a few percentage points to 17 percent."
She adds: "That Ms. Morrissey is credited with spearheading those results while raising nine children ‒ ages 5 through 23 ‒ could have made her the target of ire in a country that does not always celebrate success. Or it might have fueled the debate about whether a woman can or cannot have it all. It has done neither."
Dentons to Merge With Dacheng of China to Create World's Largest Law FirmThe new firm, with more than 6,500 lawyers in more than 50 countries, aims to take advantage of China's growing economic heft and the increasing number of deals being done overseas by its companies.
Merger of Packaging Makaers Can Face Cultural ChallengesAlthough stockholders in the packaging giants RockTenn and MeadWestvaco will share in the combined company evenly, mergers that look equal can still provoke business and cultural upheaval, Kevin Allison of Reuters Breakingviews writes.
Post Holdings Buying MOM Brands for $1.15 BillionPost Holdings, maker of classic cereals like Grape-Nuts, Honeycomb and Post Raisin Bran, said on Monday that was spending $1.15 billion to buy MOM Brands, the family-owned maker of Malt-O-Meal, giving it a portfolio of products free of additives and preservatives, The New York Times reports.
AT&T to Buy Nextel Mexico for $1.9 BillionThe deal, if completed, would be the second AT&T acquisition in Mexico since November, when the company bought the big wireless service provider Iusacell for $2.5 billion.
Politicians Use Ghostwritten Letters to Support Comcast MergerDocuments supporting the potential Time Warner Cable and Comcast merger reveal the cozy relationship between lobbyists and officials, The Verge reports.
Saint-Gobain Suffers Setback in Bid for Control of Swiss Chemical MakerSika said that it would restrict the voting rights of the Burkhard family, which controls the company's voting rights and has agreed to sell its controlling stake to the French conglomerate.
Heinz Sells $2 Billion of Bonds to Pay Down Loans H. J. Heinz, the ketchup maker owned by Warren E. Buffett's Berkshire Hathaway and 3G Capital, sold $2 billion in bonds to repay a portion of its term loans, the company said in a statement.
S.&P. Cuts Russian Debt One Notch to Junk LevelBetween Western sanctions on Russia and the sliding price of oil, the ratings agency Standard & Poor's cited narrowing possibilities for its government and companies to service their debt, The New York Times reports.
E.C.B. Pushes Big Banks to Increase Capital The European Central Bank's effort to raise bank capital well above formal regulatory requirements will probably translate into a wave of banks selling new shares or cutting dividends, The Wall Street Journal writes.
Blackstone Said to Set Up New Credit Fund for Oil AssetsThe Blackstone Group is said to be raising its first credit fund focused on energy, Reuters writes, citing unidentified people familiar with the matter. The move is the latest indication that private equity firms are seeking investment opportunities in distressed energy assets.
Apollo Pulls $400 Million Bond OfferA $400 million bond offering to help finance Apollo Global Management's purchase of Presidio, an information technology infrastructure solutions company, has been postponed, indicating how power in the junk bond market is shifting from issuers to buyers, The Financial Times writes.
Paul Singer's Fund, Elliott, Takes a Stake in InformaticaThough Paul Singer's Elliott Management was circumspect in describing its motivations in a regulatory filing, the hedge fund is likely to push Informatica, a specialist in data integration services, into selling itself.
I.P.O. Could Value Sunrise Communications of Switzerland at $3.7 BillionThe telecommunications provider is expected to price its I.P.O. at $65 to $88 a share, and to begin trading on the Swiss exchange in the coming weeks.
GrandVision Plans to Raise Up to $1.2 Billion in Amsterdam I.P.O.The Dutch operator of Vision Express in Britain and Générale d'Optique in France said it expected to price its stock at €17.50 to €21.50 a share, valuing it at up to about $6 billion.
China's Other E-Commerce Giant Follows Its Own PathLong overshadowed by its rival Alibaba, JD.com is basing its business on logistics and a promise to cater to shoppers from click to package delivery, The New York Times writes.
European Venture Capital Hits HighEquity financing for European venture-backed companies reached 7.9 billion euros, or about $8.9 billion, from €6.3 billion in 2013, the biggest amount invested since 2001, when companies raised €10.6 billion, according to data provider Dow Jones VentureSource.
Ocwen and Bondholders Clash Over Mortgage ServicesOcwen Financial is accusing a group of mortgage-bond investors of pushing for fast foreclosure and objecting to principal reductions on billions of dollars in mortgages.
New Leader In Greece Now Faces Creditors As Alexis Tsipras, the new Greek prime minister, turns to fulfilling his campaign pledge of renegotiating his country's bailout loans and reducing its staggering debt burden, he may find that Greece's international creditors will be harder to persuade than the country's voters, The New York Times writes.
The Business Side of Animal RightsAnimal-welfare advocates are courting proxy advisory firms as a new Wall Street ally as they take on big United States meatpackers. The pitch: Mistreatment of animals can pose a risk to business, The Wall Street Journal writes.