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Sep 18, 2015

DealBook A.M. and P.M. Editions on September 18, 2015.

Friday, September 18, 2015
MARKETS MIXED AFTER FED DECISION Markets were a little rattled on Friday, after the Fed announced that it was leaving interest rates near zero, Neil Gough writes in DealBook.

Stocks in Japan closed 2 percent lower, ending a three-day rally. Shanghai stocks seesawed between small gains and losses, closing up 0.4 percent after a week of more volatile swings. Markets in Europe were off, falling more than 1 percent in morning trading. Oil futures edged down.

The immediate reaction from markets was muted, Peter Eavis reports in DealBook. The Standard & Poor's 500-stock index finished the day down just 5.11 points, or 0.26 percent, at 1,990.20.

Some investors had been betting that the Fed would not raise rates anyway, but the Fed decision could have worsened their fears about the strength of the global economy as well as raising new questions about the Fed's ability to respond to weakness around the world.

The Federal Reserve maintained that the United States economy is improving - 13 out of 17 Fed officials still expect an interest rate increase in 2015. However, inflation is still below its 2 percent target and there is still the question of how hard the slowdown in China will hit the United States.

Janet L. Yellen, the Fed's chairwoman, took care to point out that the Fed was not just responding to a few rough weeks for the stock market, Neil Irwin writes in The Upshot. It needs a little more reassurance from the United States economy. "What we can't know for sure is how much concerns about the global economic outlook are drivers of those developments," she said.

The challenge now is that 2015 may end without providing answers to the questions that the policy committee has. It can take many months for financial swings to ripple through the economy.

Stanley Fischer, the Fed vice chairman, said last month that if the Fed waits until it is absolutely certain it is time to raise rates, it will probably be too late. Fed officials will still have to make a decision based on their own forecasts, rather than hard evidence.
THE DOLANS SAY GOODBYE TO CABLEVISION The fractious clan that has loomed large over New York City and Long Island for decades is bidding goodbye to the company that made the family rich, Michael J. de la Merced reports in DealBook. The Dolan family agreed on Thursday to sell Cablevision, the empire started by Charles F. Dolan 42 years ago. They leave with a hefty payout. Their collective stake in Cablevision is valued at about $2.2 billion.

Cablevision was never much loved, earning only a mediocre customer satisfaction rating, but it has been the source of cable television and the Internet for millions in the tristate area for years.

The family was not popular either. The Dolans have presided over rises and falls in the company's fortunes. Its kingdom once stretched over 19 states, but now focuses on suburban New York. Over the years, it has waged bitter battles against content providers like Disney and Fox.

The Dolans tried to take Cablevision private for $10.6 billion nearly a decade ago, but shareholders revolted, arguing that the family was trying to buy the company on the cheap.

Fights have broken out within the family too. James Dolan, who was handed the reins in 1995, turned against his father and persuaded fellow directors to put Voom up for sale. The satellite operator, beloved by Charles Dolan, was meant to help transform Cablevision into a national service provider.

Despite leaving Cablevision, the Dolan presence is unlikely to fade. The family still controls the Knicks, the Rangers, Madison Square Garden and AMC Networks. Their stewardship of these entities has also been contentious. Fans of the Knicks, frustrated by a lack of championships since the family took ownership, have targeted James Dolan for meddling too much.
CITIC SECURITIES IN BEIJING'S CROSS HAIRS It fancied itself as the Goldman Sachs of China, but now Citic Securities, the brokerage arm of the biggest state-owned financial conglomerate, is in the cross hairs, Michael Forsythe reports in DealBook.

Beijing is looking into how the government's aggressive intervention failed to stem a rout in markets that wiped out nearly $5 trillion in stock gains and three Citic Securities executives, including its president, Cheng Boming, are being investigated on suspicion of insider trading.

That a financial company so embedded in the Communist Party elite has fallen on hard times highlights the uncertainty in Chinese stock markets and the political climate in Beijing, Mr. Forsythe writes.

President Xi Jinping heads to the United States next week for the first state visit by a Chinese leader in more than four years and his government wants to restore confidence in its ability to manage the economy. But the state's panicked response to the stock market has caused concerns and in this environment, the usual rules don't apply.

Citic Securities's prime political connections have not provided any protection. Its chairman is the son of a former Chinese diplomat. The father of Liu Lefei, a vice chairman, is the Communist Party's propaganda chief and a member of the ruling seven-member Politburo Standing Committee.

Regulators have said little, but on Tuesday, they made clear that the president, as well as two other officials, were under investigation for "insider dealing and leaking inside information," the company said in a stock exchange announcement.

Citic Securities is an important member of the government-controlled "national team" that carries out the will of the state in financial markets. With the government trying to prop up the markets, this team is responsible for buying stocks to help stabilize shares.

Which stocks brokerages are buying and how those purchases are managed is veiled in secrecy. But some experts on China's financial system worry that such information could be leaking out.

The authorities are looking at the role of financial players in the market rout, adding to anxiety in the markets. The dearth of information is breeding rumors too, complicating matters for big players like Citic Securities.

In recent days, Chinese social media have swirled with speculation about a Shanghai private equity company called Zexi Investment. Xu Xiang, who is called "China's Carl Icahn" by financial news media, runs the company. Two of Zexi's funds, both partnerships with state-owned companies, have risen more than 300 percent this year through Sept. 11, defying the broader stock market slump.

Market chatter centered on a Shanghai-based clothing retailer, which reached a four-year high in August even though it was unprofitable in the first half of 2015. Zexi publicly denied allegations that it had told Citic Securities to buy a retailer so that its share price would rise, saying in a statement that it had sold its stake this year, well before the government's market intervention.

It is an uncomfortable new spotlight for Citic Securities. Global asset management companies have flocked to Citic Securities as the go-to broker for Chinese securities, a particularly complex market to navigate.
ON THE AGENDA The Conference Board releases the latest data in its Leading Economic Index at 10 a.m.
TRUMP LANDS BLOW IN CARRIED-INTEREST TAX LOOPHOLE Donald Trump has done more to close the carried-interest tax loophole in the last month than the Obama administration has in the last six and a half years, James B. Stewart writes in the Common Sense column.

It is not for want of trying by the White House, but the Trump phenomenon has given the issue plenty of airtime and presidential candidates have piled on. All the Democratic candidates are on record as being against it.

With the emergence of what seems a rare bipartisan consensus, the arguments against closing the loophole - both political and economic - seem to be crumbling.

Carried interest is the percentage of investment gains that hedge fund managers, private equity executives and venture capital partners take as compensation, usually in addition to a management fee. Because the "carry" is tied to performance, it is treated like an investment and subjected to the lower capital gains tax rate, rather than as ordinary income, even though most managers don't put any of their own money at risk.

The loophole taps into public insecurities over the fairness of the tax system. The issue has also resonated with Mr. Trump's supporters because it demonstrates that he isn't beholden to big-money interests - he can finance his campaign with his own money.

There's the prospect of a Mitt Romney campaign, too. He refused to release his tax returns before 2010 so it cannot be determined how much Mr. Romney benefited from the carried-interest loophole, but as a former Bain Capital partner, he received substantial carried interest - 31 percent of his 2010 and 2011 income.

It is unclear how much revenue closing the loophole would raise. The Treasury estimates it would raise $18 billion over 10 years; Victor Fleischer, a law professor at the University of San Diego, contends it would be 10 times that much, $180 billion.

Republican opposition to reform may be harder to sustain now that Mr. Trump and Mr. Bush have gone rogue on the carried-interest issue while also taking populist stances on other economic issues, Mr. Stewart writes.
Perrigo Urges Shareholders to Reject Mylan's Hostile Bid Perrigo said that the offer undervalued the company and did not adequately compensate shareholders for its "exceptional stand-alone growth prospects."
Banks Warn of Cost Cuts Ahead After the Fed decided to stand pat on interest rates, some lenders are warning they could have to cut expenses further to compensate for the revenue that would have come in if rates had ticked upward.
British Banks Confident They Can Cope With Ring-Fencing New reforms in Britain mean banks with more than 25 billion pounds of deposits must separate their consumer-facing business from riskier investment banking activities.
For the latest updates, go to
Edward Bramson's Second Attempt to Join Elektra Board Electra, the British private equity group, is heading for another governance tussle with its major shareholder, the New York activist investor Edward Bramson.
Hedge Funds Run by Women Outperform From 2007, hedge funds run by women have returned 59 percent against an average of 37 percent.
Alyeska Hedge Fund to Manage Money for University of Michigan The endowment committed $235 million to three new managers and more than $100 million to existing partner funds. The university has the third-largest endowment among public colleges in the United States.
Worldpay to List on the London Stock Exchange The private equity owners of Worldpay Group decided to pursue an initial public offering for the British payments processor to raise about $1.4 billion, rebuffing a bid by Ingenico Group of France.
China's Top Financial Firms Get Green Light for $3 Billion I.P.O.s China International Capital Corporation and China Reinsurance each received approval from the Hong Kong stock exchange to hold initial public offerings worth a combined $3 billion, The Wall Street Journal reports, citing people familiar with the deals.
Glencore Criticized for Breaking Pledge on Share Placing The Investment Association and the National Association of Pensions Funds, whose members manage nearly £6 trillion of assets for their clients, accused Glencore of breaking a pledge to give existing shareholders the right of first refusal in any stock offering.
Japan Post I.P.O. Investor Meetings Kick Off Managers of Japan Post Group's $11.6 billion initial public offering met with potential retail investors in Nagoya on Friday, the first in a series of gatherings to heighten interest in the country's biggest privatization since 1987.
After Alibaba I.P.O., Cracks Appear in China Tech Chinese technology companies are facing tougher questions from investors.
Technology Groups Warned on Financial Regulation The chairman of HSBC has said that regulators in China and elsewhere are starting to consider more seriously whether technology companies that provide financial services should, like banks, be regulated more heavily.
Harvard Endowment Ensnared by Shipper's Bankruptcy Harvard's endowment manager is taking a hit from the collapse of Global Maritime Investments Cyprus, a hedge fund turned dry bulk shipper that filed for bankruptcy protection this week.
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    Gretchen Morgenson: Vote Will Test Accountability of Bank of America's Board A decision on separating top roles at the bank is less about who is chairman and more about how shareholders' decisions are valued.
    • NYT »
      How Cablevision Shareholders Have Fared Since James Dolan took over in 1995, the total return on a share of the cable company, including distributions from spin-offs, is about 654 percent.
      In Debt: Ruling Will Encourage Debtor's Sales in Bankruptcy An appellate court's opinion suggests a flexibility in 363 sales that may not exist in traditional reorganization plans.
      A scene from
      Life@Work: Humanity as a Competitive Advantage As technology advances, people will need qualities such as empathy, care, attunement, self-awareness and generosity to get ahead.
      Lynn Tilton, a private equity financier, outside a courthouse in New York this week.
      U.S. Appellate Court Puts Hold on Action Against Lynn Tilton The private equity financier is challenging a decision by the S.E.C. to try her on a securities fraud claim before an administrative law judge.
      Donald J. Trump spoke at a campaign event in Rochester, N.H., on Thursday.
      Carried-Interest Tax Break Divides Again, After Trump Revives the Issue Donald J. Trump and Jeb Bush oppose a loophole that benefits a niche of the wealthiest Americans, but proponents of it are rallying to its defense.
      Offices of Deutsche Bank in Moscow. The company is closing its onshore corporate banking and securities operations in Russia.
      Deutsche Bank to Shrink Investment Banking Unit in Russia The move comes as John Cryan, the bank's new co-chief executive, is looking to reshape the German lender and improve its profitability.
      Worldpay Group Plans to Raise $1.4 Billion in I.P.O. The British payment processor is to seek a listing on the London Stock Exchange in October.
      A stock market board in Tokyo on Friday. Concerns over China's economic slowdown have shaken global financial markets.
      Fed's Decision on Rates Rattles Some Global Markets Stocks in Japan lost 2 percent, while markets in Europe traded lower.
      Buzz Tracker
      Petco Said to Begins Merger Talks With PetSmart Petco is exploring the possibility of being acquired by PetSmart, according to people familiar with the matter, in a merger that could create a company that accounts for more than half of the U.S. pet supply industry's revenues.
      Seeking Stability in Greece After a long summer of financial and political upheaval, Greeks will vote next Sunday in the second general election this year. The outcome will determine whether Greece returns to stability, after agreeing to terms of the country's third multibillion-euro international bailout last month, or enters a new period of uncertainty. The snap elections were called last month after the resignation of Prime Minister Alexis Tsipras, who came to power in January on a pledge to stop austerity, but capitulated to creditors' demands after months of grueling negotiations that destabilized the economy and led to the imposition of capital controls on Greek banks. Mr. Tsipras quit in a bid to consolidate his grip on power following a rebellion by radical leftist lawmakers who oppose austerity and have since formed their own party. Although Greek opinion polls gave Mr. Tsipras and his Syriza party a clear lead over rivals earlier this summer, many new surveys put Syriza virtually neck and neck with its main political opponent, the conservative New Democracy, which led the coalition government that preceded Mr. Tsipras's administration. - Niki Kitsantonis

U.S. Stocks Tumble as Fed Sows Fear and Confusion: Wall Street at Close Report on September 18, 2015.

U.S. stocks tumble as Fed sows fear and confusion

Sue Chang, Anora Mahmudova
U.S. stocks sank Friday, with the S&P 500 and the Dow Jones Industrial Average closing down for the week, as Federal Reserve’s decision to leave interest rates unchanged fueled fears about global economic growth.
The central bank cited concerns about the global economy and a lack of inflation growth in its Thursday decision to leave interest rates unchanged.
“Many are confused by the outcome of the recent Fed meeting,” said Kent Engelke, chief economic strategist at Capitol Securities Management. “Markets hate confusion and lack of clarity.”
The S&P 500 SPX, -1.62%  skidded 32.16 points, or 1.6%, to close at 1,958.08 for a weekly loss of 0.2%. All S&P 500 sectors finished lower, led by energy shares.
The Dow Jones Industrial Average DJIA, -1.74%  dropped 289.95 points, or 1.7%, to close at 16,384.79 with all 30 components in the red. The blue-chip index edged down 0.3% for the week.
The Nasdaq Composite COMP, -1.36%  shed 66.72 points, or 1.4% to 4,827.23. The tech-heavy index is the only one of the three major stock barometers to finish out the week higher with gains of 0.1%.

European Stocks Slide the Most In Two Weeks After Fed Decision: European Markets at Close Report by MarketWatch on September 18, 2015.

European stocks slide the most in two weeks after Fed decision

Carla Mozee, Sara Sjolin
European stocks slumped on Friday, sending the regional benchmark lower for the week, as the U.S. Federal Reserve cited concerns about growth world-wide in its decision to leave interest rates at their record lows.
The Stoxx Europe 600 SXXP, -1.78%  fell 1.8% to close at 354.77, marking its biggest one-day percentage slide since Sept. 4. No sectors were moving higher, with basic materials, oil and gas and financials among the worst performing.
Among bank stocks, Credit Suisse Group CSGN, -3.99% CS, -3.76%  tumbled 4%, and HSBC Holdings PLC HSBA, -2.36% HSBC, -2.28% 0005, -1.31%  which has significant exposure to China, lost 2.4%. Deutsche Bank AG DBK, -4.19% DB, -4.53%  lost 4.4%.
Among the national indexes, Germany’s DAX 30 DAX, -3.06%  dropped 3.1% to 9,916.16, sliding into negative territory for the week, down 2.1%.
France’s CAC 40 PX1, -2.56% lost 2.6% to 4,535.85 for a 0.3% weekly slide. London’s FTSE 100 UKX, -1.34% dropped 1.3% to 6,104.11, sending it 0.2% lower for the week.
The U.K. index briefly fell more than 2% around 12:40 p.m. London time, or 7:40 a.m. Eastern time, due to what traders call a “fat finger” error.
U.S. stocks opened in deep red territory, adding to the pressure.

Dow Futures Fall More than 200 as Street Digests Fed Decision: U.S. Stock Market Future Indications by CNBC - September 18, 2015.

Dow futures fall more than 200 as Street digests Fed decision staff
A trader works on the floor of the New York Stock Exchange.
Getty Images
A trader works on the floor of the New York Stock Exchange.
U.S. stock index futures indicated a lower open on Friday as traders reacted to yesterday's decision from the Federal Reserve to hold off rising rates.
While markets had given low odds to a rate rise, about half of Wall Street's economists and strategists were expecting a hike in the cost of borrowing.
Dow futures were off more than 250 points, while S&P 500 and Nasdaq futures both implied an open of 1 percent lower.
London's FTSE 100 plunged 2 percent from its opening price Friday only to quickly recoup losses in what traders are calling a "fat finger" error.
Markets go into Friday with a new view of the Fed's path to higher rates, and the promise of super-low rates for a little while longer.

Odds have also risen that the Fed will now not hike rates until 2016, and RBS says the markets are currently pricing the first full rate rise for March but odds for December were still above 60 percent.
Fed Chair Janet Yellen commented in a briefing that, "In light of the heightened uncertainties abroad and the slightly softer expected path for inflation, the committee judged it appropriate to wait for more evidence, including some further improvement in the labor market, to bolster its confidence that inflation will rise to 2 percent in the medium term."

Asian Shares Rise After Fed Holds Fire, But Nikkei Lags: Asian Markets at Close Report on September 18, 2015.

Asian shares rise after Fed holds fire, but Nikkei lags

See Kit Tang
A businessman runs past an electric quotation board flashing the Nikkei key index in Tokyo, Japan.
Toru Yamanaka | AFP Getty Images
A businessman runs past an electric quotation board flashing the Nikkei key index in Tokyo, Japan.
Asian shares advanced on Friday after the Federal Reserve decided to hold off on its first rate hike in nearly a decade, but Japan's Nikkei 225 tumbled on the back of renewed strength in the yen.
The world's most influential central bank cited concerns over the global economy and financial market volatility among the factors that played a role in keeping interest rates near zero.
"The outlook abroad appears to have become less certain," Yellen said at a news conference after a two-day policy-setting meeting. "In light of the heightened uncertainty abroad ... the committee judged it appropriate to wait."
"In the grand scheme of things, the decision by the Fed to leave rates unchanged is indicative that the global economy and the U.S. economy is performing worse than previously projected," IG's market analyst Angus Nicholson wrote in a note.
Wall Street indexes gave up a 1-percent rally to end mostly lower overnight. The blue-chip Dow Jones Industrial Average and the S&P 500 slipped 0.4 and 0.3 percent respectively, while the Nasdaq Composite inched up 0.1 percent.


NIKKEINikkei 225 Index18070.21
HSI Hang Seng Index 21920.83
66.20 0.30%
ASX 200 S&P/ASX 200 5170.50
23.68 0.46%
SHANGHAI Shanghai Composite Index 3099.12
13.05 0.42%
KOSPI KOSPI Index 1995.95
19.46 0.98%
CNBC 100 CNBC 100 ASIA IDX 6471.66
57.72 0.90%
Nikkei loses 2%

The Nikkei index at the Tokyo Stock Exchange and the broader Topix index were among the hardest-hit in Asia, down 2 percent ahead of an extended weekend. Markets in Japan will be shuttered until next Wednesday.