Business Blog Posts

The dispute is between British financier Guy Hands' Terra Firma and Citigroup over Hands's $6.4 billion buyout of legendary music company EMI in 2007.

Hands's Terra Firma Capital Partners accuses Citi banker David Wormsley and Citigroup of duping Hands into thinking there was a rival bid in the offing by private equity firm Cerberus Capital Management for the EMI company he coveted. As it turned out, there were no other offers.

The Financial Times and Wall Street Journal reported that the judge presiding over the case on Wednesday threw out one of three premises that supported Terra Firma's claim for about $8 billion, and asked that the firm's lawyers withdraw another, reducing the amount of potential damages to about $2 billion.

According to a court document, the court determined on Wednesday that the methodology used by a Marianne deMario, listed in Terra Firma's witness list, as applied to the issue of lost profits from the investment was "insufficiently reliable" to allow her to testify about those kinds of damages.

The plaintiff also withdrew its proffer of testimony by her on the issue of "locked in damages," the document said.

DeMario had calculated 'lost profits damages' of 4.4 billion euros which it was claimed Terra Firma would have earned on the money it invested in EMI, had it been put to use elsewhere, a separate court document said.

Terra Firma has been seeking as much as $8 billion in damages for its fraud claim at the trial, which started on October 18 and is expected to end on November 5.

The deal has come to reflect some of the worst aspects of the credit boom, when companies were loaded with debt.

If Terra Firma loses at trial, it could be forced to hand over EMI to creditor bank Citigroup, which provided 2.6 billion pounds ($4 billion) in loans for the acquisition. The bank's reputation for facilitating such deals could suffer if the jury decides Hands was defrauded.

Terra Firma and Citi declined comment.

The case is Terra Firma et al v Citigroup et al, U.S. District Court for the Southern District of New York, No. 09-10459.

Business lobbies, worried Japan is lagging behind rivals such as South Korea in free trade deals, want Prime Minister Naoto Kan to offer to take part in the U.S.-led Transpacific Partnership (TPP) when he hosts the November 13-14 Asia-Pacific Cooperation (APEC) summit, which President Barack Obama will attend.

The government is set to announce basic guidelines for free trade deals this week ahead of the APEC summit. But many ruling Democratic Party lawmakers fear fallout from the TPP on Japan's long-protected and politically powerful farmers.

The Nikkei said the government would express its willingness to join negotiations for the TPP, which would eliminate tariffs on goods traded within the zone, in basic guidelines for Japan's free trade and economic partnership deals, for which it aims to get cabinet approval on Friday.

To address concern among farmers, the government also aims to compile a medium-term plan for reforms in agriculture and other key areas, details of which will be fleshed out after the APEC meeting, the newspaper added.

The government is expected to offer measures aimed at bolstering the international competitiveness of Japan's agricultural sector such as support for exports. It also plans to expand income subsidies to farmers, Nikkei said.

Even if Japan shows interests in participating in the TPP negotiations, it needs to get approval from other nations involved in TPP talks, including the United States, Singapore and Australia, to join talks.

Adding Japan, one of the world's largest economies, would greatly increase the potential market-opening gains of the proposed pact. But it could also complicate the negotiations because of U.S. industry concerns about lowering remaining tariffs on Japanese-made autos, and Tokyo's previous resistance to opening its rice and other agricultural markets.

(Reporting by Yoko Nishikawa; Editing by Chris Gallagher)

The central bank was designed to be above political influence. But its policy decisions are not completely immune to the political environment.

A more conservative Congress would reduce the already slim chance that more fiscal support will come, putting the burden squarely on the Fed's shoulders to shore up a limp economy.

Douglas Holtz-Eakin, an economist who advised John McCain during his unsuccessful 2008 presidential campaign, said normally the Fed keeps quiet around elections to avoid any semblance of political involvement.

This time, the central bank sent a clear signal that it intended to take action, and investors are convinced the move will come this week in the form of relaunching asset purchases. This week's policy-setting meeting lasts two days, so the Fed's announcement will come on Wednesday, just after the election.

"It looks to me a bit desperate," Holtz-Eakin said, adding that he was not convinced another round of money printing would do much to stimulate the economy.

"I would have liked to see them hold on to their ammunition in case we really need it."

President Barack Obama's Democratic party is expected to lose its majority in the House of Representatives, while the Democrat-controlled Senate may move closer to a 50-50 split.

Republicans have made opposition to last year's $814 billion stimulus package a central plank of their election campaign, tapping into voter dissatisfaction with the slow pace of recovery and weak job market.

The White House, recognizing there is probably not enough political backing, has said little about additional stimulus. However, two former Obama administration officials -- ex-Budget Director Peter Orszag and former Economic Adviser Christina Romer -- have pressed hard for more help.

"The necessary shifts in fiscal policy are extremely unlikely to happen," Orszag wrote in the New York Times last week. "So we're left relying on monetary policy ... which may create more problems than it solves."

Orszag warned that the Fed's easy money makes government borrowing unusually cheap, leaving Congress less inclined to tackle medium-term deficit cuts that he thinks are essential to a sustainable recovery.

OH YEAH, THE JOBS REPORT

This week brings a veritable feast for central bank watchers. In addition to the Fed, the European Central Bank and Bank of England hold their meetings on Thursday, and the Bank of Japan brought forward its next policy review to Thursday and Friday, heightening speculation that it may ramp up its own asset-buying program after the Fed's announcement.

No policy changes are expected from the ECB or the BoE, particularly after last week's surprisingly strong reading on Britain's third-quarter economic growth.

After a two-month rally in the stock market, some investors are about to see if they get what they wished for: more Republicans in Congress and lots of cheap money.

The U.S. stock market has priced in the Republicans gaining ground in Tuesday's midterm elections, an outcome widely seen as more business-friendly, as well as the Federal Reserve pumping billions into the economy through Treasury debt purchases. The Fed's statement on Wednesday afternoon at the end of its two-day policy meeting is widely anticipated for details of the central bank's economic stimulus plan.

Jobs will be a touchstone, with the high U.S. unemployment rate figuring into the campaign rhetoric of Democrats and Republicans alike in the midterm elections. The federal government's non-farm payrolls report, due on Friday, is expected to show a gain of 60,000 jobs in October, compared with September's loss of 95,000 jobs, according to economists polled by Reuters. The U.S. unemployment rate, however, is seen holding steady at 9.6 percent.

More earnings from S&P 500 companies and a steady stream of top-tier economic indicators will give investors more evidence of the economy's health throughout the week.

A series of foreign central bank meetings also is on tap.

But these numbers will serve mostly as backdrop to the outcome of the elections and the Fed meeting.

With so many variables in the week ahead, Wall Street professionals are unusually reticent to call the market,

Only one thing seems for sure: Volatility will play a major role.

Traders expect the week to end with a swing of around 2.5 percent in either direction, based on options activity in the SPDR S&P 500 fund (SPY.P). While that is not out of the ordinary, traders could see significant volatility during the week as events unfold.

"It will probably be a very volatile and very active market because there are a lot of moving parts," said John Praveen, chief investment strategist of Prudential International Investments Advisers LLC in Newark, New Jersey.

FIREWORKS AFTER THE FED?

If there are fireworks, they will probably come after the Fed's two-day meeting. On Wednesday, the meeting will conclude with a statement at 2:15 p.m. That could create a dead period for markets at the start of the week, especially if the elections' results are in line with predictions.

Expectations of the size of the Fed's purchases of U.S. government bonds have been coming down in recent days. That has kept the stock market locked in a tight range, but it has also opened the door for upside surprises.

"Two weeks ago, the Fed was definitely poised to disappoint the market," said Burt White, managing director and chief investment officer of LPL Financial in Boston. "Now, it's much more balanced, and maybe even leaning toward a slight surprise."

The three plans, which were filed Friday with Delaware's Bankruptcy Court, will compete for creditor support against the company's proposed plan.

Like the company's plan, the proposals allow for Tribune's businesses, such as the Los Angeles Times and Chicago Tribune, to exit bankruptcy while creditors fight over how to apportion blame for its bankruptcy.

Tribune, which also owns 23 television stations, filed for bankruptcy just a year after real estate developer Sam Zell bought the company with billions of dollars in debt.

Tribune has proposed a reorganization plan based on a settlement among lenders JPMorgan Chase & Co and hedge funds Oaktree Capital Management and Angelo, Gordon & Co.

Under their plan those three would end up controlling the company.

The Tribune plan tries to avoid many potential lawsuits by putting a value on legal claims and settling with bondholders, whose roughly $2 billion in investments were essentially wiped out by the bankruptcy.

A hedge fund holding a large portion of those bonds, Aurelius Capital Management, clearly has no intention of accepting Tribune's settlement offer and it filed one of the competing plans.

The other plans were filed a group holding senior loan claims and Marathon Asset Management LP and King Street Capital LP, which hold bridge loan claims.

The plans mainly differ from the company's by foregoing settlements and pursuing legal claims against lenders, particularly the banks that loaned the money for the second part of Zell's two-step leveraged buyout.

In July, a court-appointed examiner found the second part of Zell's buyout might be determined to be fraudulent.

LAWSUIT FILED

In conjunction with their bankruptcy plan, the group of senior lenders also filed a lawsuit against JPMorgan, Merrill Lynch, Citicorp and Bank of America. They said in the lawsuit the banks arranged $3.7 billion in Tribune loans in 2007 they knew the company could never repay.

"The Lead Banks knew that this financing was barred by the terms of the Credit Agreement and it was tainted with fraud and other misconduct," the lawsuit, which was filed late on Friday, said.

Representatives for the JPMorgan, Bank of America and Merill Lynch were not immediately available to comment on the lawsuit. Citicorp declined to comment.