PPIP’s Steep Tab, GM Swap Traders Adapt: Compliance

Lenders could lose $168 billion if banks sell loans into the Public-Private Investment Partnership at market prices instead of their balance-sheet valuation, Jamie McGee and Margaret Chadbourn of Bloomberg News report, citing estimates in regulatory filings.

It would erase the $75 billion that banks were told to raise by the Federal Reserve to withstand a deeper recession.

The imbalance helps explain why the Legacy Loans program, the Federal Deposit Insurance Corp.’s side of PPIP, is “stuck in the rut on the side of the road,” said Walter “Bucky” Hellwig, who helps oversee $30 billion at Morgan Asset Management in Birmingham, Alabama.

FDIC Chairman Sheila Bair signaled this week that participation in PPIP may be low, saying lenders may be reluctant to sign up because of “discomfort” that lawmakers could change the rules. She cited legislation that imposes conflict-of-interest restrictions on buyers and sellers.

Banks say they have enough capital after the Fed’s stress tests on 19 lenders this month and will profit by holding loans until they are repaid at full value. They have little incentive to sell loans at a discount to BlackRock Inc. and other investors that plan to participate in the $500 billion PPIP.

“Banks that have gone out and raised all this money are not going to be inclined to take that hit,” said Peter Boockvar, an equity strategist at Miller Tabak & Co. in New York. “You really only want to sell a distressed security if you have to.”

Bank of America Corp., the largest U.S. bank, has a $44.5 billion gap between the carrying value of its loans and their fair value, based on data included in a regulatory filing. It’s the widest variation of the top 19 banks, according to data compiled by Bloomberg.

JPMorgan Chase & Co. followed, with a $21.7 billion difference, and Citigroup Inc. was third, at $18.2 billion. All told, the gap at the banks was $168 billion. Some banks included other commitments and receivables with loan valuations.

For more, click here.

For a profile of Bair, click here.

FDIC Board Approves Interest Rate Limits for Weaker Banks

The Federal Deposit Insurance Corp. imposed interest rate limits for lenders with inadequate capital to boost liquidity and keep banks from taking on excessive risk.

The 3 percent of banks the FDIC deems less than “well- capitalized” will be barred from paying rates that exceed a national average plus 75 basis points, according to a rule the agency’s five-member board approved in a meeting in Washington. The rule goes into effect on Jan. 1.

The rule “ends some of the competition we’re seeing from weaker banks that perhaps are paying more than they should,” FDIC Chairman Sheila Bair said before the vote.

Regulators have closed 36 banks so far this year compared with 25 in all last year, speeding the pace of failures amid the worst financial crisis since the 1930s. The FDIC classified 305 banks as “problem” in the first quarter, the highest total in 15 years and a 21 percent increase from the 252 in the preceding three-month period, according to a May 27 report.

“Well capitalized” banks, those deemed by regulators to have adequate equity to withstand losses, must have a Tier 1 ratio of at least 6 percent. In the May 27 report, the FDIC said 97 percent of banks met the standard.

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GM Swaps Traders Prepare for Biggest Settlement Since Lehman

Traders of credit-default swaps on General Motors Corp. are preparing for the biggest settlement of the derivatives since last year’s collapse of Lehman Brothers Holdings Inc., Shannon Harrington and Abigail Moses of Bloomberg News report.

A bankruptcy by the biggest U.S. automaker, which the company is preparing to file June 1, according to people familiar with the plan, would trigger credit-default swaps protecting about $3.1 billion of GM debt. Unlike Lehman’s September bankruptcy filing, the market for months has been pricing in a high probability of default by Detroit-based GM as it tries to meet demands from President Barack Obama to restructure.

“I would doubt there are a lot of investors out there who still have exposure that is not marked to or close to where it should be,” said Philip Gisdakis, a Munich-based credit strategist at UniCredit SpA. “If there is someone who has not adapted yet, they deserve the loss.”

GM, which this week failed to persuade enough bondholders to exchange their bonds for equity in a streamlined company, faces a June 1 deadline to restructure its debt or lose the government loans that have kept it afloat. The company plans to file for bankruptcy protection June 1 and seek a sale of most of its assets to a newly formed company, people familiar with the plan said yesterday.

Credit-swaps traders have been pricing in all but certain odds of a GM default since the Obama administration said March 30 that it was giving the company 60 days to “fundamentally restructure.”

For more, click here.

New York Insurance Superintendent Dinallo Leaves for NYU Post

Eric Dinallo is stepping down as New York insurance superintendent, creating a vacancy in the most important U.S. regulatory post in the industry.

Dinallo will become a visiting professor at New York University’s Stern School of Business, Governor David Paterson’s office said in a statement yesterday. Insurance is regulated in the U.S. by states, giving the New York watchdog an outsized role with oversight in the country’s financial center.

Dinallo, 45, spoke out about the need for cooperation between state and federal regulators in the aftermath of the U.S. bailout of American International Group Inc. He testified in Congress about efforts to protect policyholders of AIG, once the world’s biggest carrier. When bond guarantors faltered, he engineered the entrance of Warren Buffett’s Berkshire Hathaway Inc. into the business of insuring municipal debt.

“Without a doubt he tried to set the agenda,” said Robert Haines, an analyst at CreditSights Inc. “He was putting ideas out there and was trying to address the problems much more so than a lot of the regulators out there that seemed to be trying to cover their” reputations.

Dinallo was appointed to the insurance post by then- Governor Eliot Spitzer in 2007. Dinallo assisted on probes of financial firms when he worked for Spitzer at the state attorney general’s office. The New York Times said May 27 Dinallo may be a candidate in the race to become attorney general. His resignation from the insurance post is effective July 3.

Marissa Shorenstein, a spokeswoman for the governor, had no comment on who would succeed Dinallo. Andy Mais, a spokesman for the New York insurance department, said Dinallo was unavailable for comment, and referred questions to Paterson’s office.

“We are living through one of the most challenging times in our country’s financial history,” Dinallo said in a statement. “Joining NYU gives me a great opportunity to continue to participate in critical financial issues from a new perspective.”

Dinallo helped bolster the business of insuring municipal bonds after companies including MBIA Inc. and Ambac Financial Group Inc. were overwhelmed by losses on securities backed by home loans. Dinallo in 2007 approved Berkshire’s entry into the business, then brokered deals to allow money-losing guarantors to make partial payments on insurance contracts with banks.

He also helped MBIA split its municipal bond insurance business from the mortgage-related debt guarantees that led to the loss of its top credit ratings.

“He used his office as a bully pulpit,” Sean Dilweg, Wisconsin insurance commissioner and a friend of Dinallo, said in an interview. “He really laid the groundwork for all the discussions we have now” about preventing the collapse of financial firms.

Target Shareholders Re-Elect Board, Reject Ackman Nominees

Target Corp. shareholders re-elected the retailer’s existing directors, rejecting a slate nominated by hedge-fund manager William Ackman after two months marked by dueling claims.

Target won with more than 70 percent of the vote, based on a preliminary tally, Chief Executive Officer Gregg Steinhafel said at a shareholder meeting in Waukesha, Wisconsin. The final results wouldn’t be made public yesterday, he said. Target also won a vote to cap its board at 12 seats, rather than the 13 proposed by Ackman, who heads Pershing Square Capital Management LP and controls the third-largest stake in the retailer.

Ackman nominated himself and four other candidates to the Target board in March, saying current directors lack expertise in credit cards, real estate and groceries and failed to position the company for the recession. Target, the second- biggest U.S. discount retailer, says Ackman ran to promote a plan to form a real-estate investment trust backed by the land under its stores, a proposal it had rejected earlier.

For more, click here.

PepsiCo Said to Rebuff Bottler Board in ‘Shot Across the Bow’

PepsiCo Inc. played a role in denying $16 million in stock awards for directors of its biggest bottler and withheld support for most of its directors, said people familiar with the matter, as it pressures the board to reconsider a $4 billion takeover bid.

PepsiCo abstained from voting on the re-election of eight of Pepsi Bottling Group Inc.’s directors at its annual meeting on May 27 in Somers, New York, said the people, who declined to be identified because PepsiCo’s votes won’t be disclosed publicly. PepsiCo also voted against the stock plan, they said.

PepsiCo, the world’s second-largest soft-drink maker, controls about 40 percent of the voting power of Pepsi Bottling. The bottler on May 4 called PepsiCo’s takeover offer “grossly inadequate.”

“Pepsi is in a good position to use their voting power to express their dismay,” said Elizabeth Nowicki, a former mergers and acquisitions lawyer at Sullivan & Cromwell LLP who’s now a professor at Tulane University Law School in New Orleans. Using votes as a negotiating tactic would be “a really interesting shot across the bow.”

Jeff Dahncke, a Pepsi Bottling spokesman, declined to comment.

Even without PepsiCo’s support, the bottler’s directors were all re-elected. The stock plan was rejected, Pepsi Bottling said in a statement yesterday. The directors needed to receive more “for” votes than “against” to remain on the board, according to a regulatory filing. The stock plan would have authorized the issuance of as many as 500,000 shares for director awards.

For more, click here.

Directors Are Ultimate Arbiters on Executive Pay, Buffett Says

Warren Buffett, CEO and chairman of Omaha, Nebraska-based Berkshire Hathaway Inc., blames out-of-control executive pay on boards of directors who accede to CEO demands for multimillion- dollar compensation packages.

“Half of the directors I’ve met on corporate boards don’t know anything about business,” Buffett told shareholders during Berkshire’s annual meeting in May. “They are not going to do anything that not only gets them kicked off that board but that reduces their chances of getting on another one.”

Ultimately, it will be up to corporate boards, not the government, to put controls on executive pay, and it is by no means clear that they are willing to do so, says Stephen Davis, a senior fellow at the Millstein Center for Corporate Governance and Performance at the Yale School of Management.

“There’s a real question as to whether what we’re seeing is for show in the middle of a crisis, or is part of a long- lasting change,” Davis says. “What would really show that boards are serious is if they have dialogue and outreach with their shareholders, and there’s little sign of that so far.”

Davis is also principal of Madison, Connecticut-based consulting firm Davis Global Advisors.

Mark Borges, a principal at Compensia Inc., a San Jose, California-based pay consultant, says there was never a better opportunity for boards to take strong action to rein in pay. “But I don’t think it’s realistic to say it’s all going to turn on a dime,” he says. “It will depend on the backbone and gumption of the board compensation committees, and that will depend a lot on personalities.”

For Ian Katz’s story on executive pay, click here.

Mortgage Rates Cloud ‘Risk Appetite’ Return, Credit Suisse Says

A jump in interest rates on typical new U.S. mortgages to the highest since February may end a “two-month-old rebound in risk appetite,” according to Credit Suisse Group analysts.

Rates on 30-year loans climbed 0.37 percentage point to 5.34 percent yesterday, the New York-based analysts, who included Mahesh Swaminathan, wrote in a report yesterday. That’s because yields rose on so-called agency home-loan bonds as investors backed away from the debt and U.S. Treasuries sold off, partly because of mortgage-bond hedging that may continue, they said.

“If not reversed, the spike in mortgage rates has the potential to derail the two-month-old rebound in risk appetite by negatively affecting not just the consumer, but also financial institutions that are relying on elevated mortgage origination for earnings,” they wrote.

For more, click here.


Ex-NYSE Specialist Trader Finnerty Settles SEC Trading Charges

Former New York Stock Exchange specialist trader David Finnerty agreed to settle Security and Exchange Commission civil charges of improper trading, the Wall Street Journal reported, citing his lawyer.

Finnerty agreed to a $150,000 fine and ban from the securities industry, while neither admitting nor denying that he had violated his obligations as a trader by filling orders through proprietary trades rather than other customer orders, the newspaper reported.

Mark Cuban Sues SEC For Information on Insider-Trading Probe

Mark Cuban, the billionaire owner of the Dallas Mavericks basketball team, sued the U.S. Securities and Exchange Commission, claiming the agency is unlawfully withholding documents about an insider-trading probe of him.

Cuban’s complaint, filed yesterday in federal court in Washington, seeks a court order to force the SEC to give him documents he requested in December, including records of any investigations of Copernic Inc., formerly known as Mamma.com Inc., HDNet, his National Basketball Association team and other entities he owns or controls. It also seeks records of any internal probes of SEC Trial Counsel Jeffrey Norris related to his interactions with Cuban.

The suit is the latest salvo in the legal battle between Cuban and the SEC. On May 27, a lawyer for Cuban asked a federal judge in Dallas to dismiss the agency’s insider-trading suit, saying it failed to show that Cuban was barred from selling shares of Mamma.com in 2004.

For more, click here.

Former Kmart CEO Conaway Says He Didn’t Mislead Investors

Kmart Corp.’s former chief Charles Conaway said he didn’t withhold information about the company’s strategy of slowing payments to vendors to meet a cash crisis in the months before the retailer’s bankruptcy in 2002.

“I didn’t manage at that level,” Conaway testified yesterday under cross-examination in a trial in Ann Arbor, Michigan. He didn’t have details of the slow-payment program, he said. “I had no view of that at all.”

For more, click here.

SEC Sues 10 Brokers of Defunct Brookstreet Securities for Fraud

The U.S. Securities and Exchange Commission sued 10 former brokers of Brookstreet Securities Inc., a defunct California firm, for falsely selling derivatives based on mortgage-backed securities as safe investments for retirees.

The agency said the brokers, including seven Florida residents, enriched themselves with an estimated $18 million in commissions while investing $36 million belonging to more than 750 investors in risky collateralized mortgage obligations.

“These brokers disguised the risks of investing in these derivatives of mortgage-backed securities, exposing their customers to substantial losses as the subprime crisis emerged,” said Robert Khuzami, SEC enforcement chief. “They disregarded their customers’ needs and used deceptive and misleading tactics to enrich themselves.”

The SEC is seeking fines and repayment of the investors’ money. Broker-dealer watchdog Finra filed a separate fraud compliant against six former Brookstreet brokers.

Paris, London May Be Used for Madoff Court Settlement

London or Paris may become the hub for the resolution of dozens of lawsuits related to banks’ and investment funds’ exposure to Bernard Madoff’s Ponzi scheme, Luxembourg’s Treasury and Budget Minister Luc Frieden said.

“I urge all parties, whether they’re custodian banks, whether they are liquidators of relevant funds, whether they are investors, to accept an international settlement,” Frieden said at a conference dinner in Luxembourg May 28.

Madoff Trustee May Need Beyond 2019 to Find Assets

The trustee liquidating Bernard Madoff’s defunct money- management firm may take longer than 10 years to finish locating the company’s assets and paying back victims of Madoff’s $65 billion Ponzi scheme, said Stephen Harbeck, president of the Securities Investor Protection Corp.

Trustee Irving Picard has asked hundreds of victims to voluntarily return their “fictitious” profits from Madoff’s firm, and he sued some of the conman’s biggest investors for the same reason. The funds will ultimately be used to repay thousands of customers a percentage of their claims.

“This case is going to go on for a long, long time,” Harbeck said yesterday in an interview. “I would expect that the collection of assets might take longer than 10 years. Of course we hope to have all the legal issues figured out before that.”

So-called clawback lawsuits will be time-consuming, and some Madoff victims will prolong the process by suing for the right to file bigger claims in the bankruptcy case of Bernard L. Madoff Investment Securities LLC, according to Harbeck, whose Washington-based agency hired Picard. SIPC was formed by Congress in 1970 to liquidate bankrupt brokerages.

For more, click here.

Student Suing Peter Madoff Opposes Dismissal of Case

The law student suing the brother of convicted Ponzi scheme mastermind Bernard Madoff said his case shouldn’t be dismissed because Peter Madoff had a “unique” duty to him that was different from that for other defrauded investors.

Andrew Samuels claims that Peter Madoff lost his $470,000 inheritance while serving as his trustee by investing with Bernard L. Madoff Investment Securities LLC without permission, according to a complaint in New York State Supreme Court in Nassau County in March. Peter Madoff asked the court to dismiss the suit earlier this month, arguing that Samuels’s claims were “baseless speculation.”

Peter Madoff’s request to dismiss should be “denied in its entirety” Samuels’s lawyer, Steven Schlesinger, said in court papers filed with New York State Supreme Court Justice Stephen Bucaria in Nassau County.

For more, click here.

Merkin Judge to Approve Receiver for Madoff Feeder Funds

A New York judge said he will sign an order appointing a receiver for two fund groups run by J. Ezra Merkin, who was sued last month by state Attorney General Andrew Cuomo for investing clients’ money with Bernard Madoff.

State Supreme Court Justice Richard Lowe yesterday urged Beth Kaswan, an attorney for New York University, to negotiate with Cuomo’s office on revised terms of the receivership agreement for the Ariel and Gabriel funds. NYU, which sued Merkin in December over its investments in his Ariel funds, objected to provisions covering accountability and transparency.

The parties are due back in court June 1 for a hearing on the revised version of the agreement. Bart M. Schwartz, former chief of the criminal division of the U.S. Attorney’s Office in Manhattan, would become receiver for Merkin’s Ariel and Gabriel groups of funds under the order. Schwartz is now a partner at consulting company Guidepost Investigations & Security LLC.

For more, click here.

Ex-Tyco CEO Kozlowski, CFO Swartz Near SEC Pact, Records Say

Tyco International Ltd.’s jailed ex-chief executive officer, Dennis Kozlowski, and its former chief financial officer, Mark Swartz, are nearing settlements of a 2002 Securities and Exchange Commission lawsuit, David Glovin of Bloomberg News reports.

The lawsuit was filed on the same day the men were arrested for looting the company. They were convicted in 2005 of grand larceny for stealing about $137 million from Tyco, owner of ADT, the world’s largest maker of security systems, through unauthorized bonuses and the abuse of company loans, and for taking $410 million through illicit stock sales. The two men are in jail and may be eligible for work release next year.

“The parties have reached agreements on the general terms of settlements,” Supervisory SEC Trial Attorney Arthur Lowry wrote in a May 27 letter to U.S. District Judge Robert Sweet in New York, who is presiding over the case. Lowry said the SEC staff must submit the settlement to the full Commission for final approval, which may take up to six weeks.

The men are in upstate New York prisons.

Tyco, which is now based in Switzerland and run from New Jersey, agreed in 2006 to pay $50 million to settle SEC allegations that the company inflated results by more than $1 billion under Kozlowski.

For more, click here.

Countrywide Loses Bid to Dismiss Group Lawsuit Claims

Countrywide Financial Corp. lost a bid to dismiss most of a group lawsuit alleging the company, now owned by Bank of America Corp., steered borrowers into risky subprime mortgages.

U.S. District Court Judge Dana Sabraw in San Diego said in a May 18 ruling that borrowers could pursue racketeering and unfair competition claims against the company. Lawsuits against Bank of America and Countrywide have been consolidated into a single case in federal court in San Diego.

Bank of American in July acquired Countrywide, formerly the largest U.S. home lender, for $2.5 billion. Countrywide’s lending practices prompted investigations by attorneys general in California, Florida and other states, leading to an October settlement in which Bank of America agreed to modifications that could save 390,000 borrowers as much as $8.4 million.

“We are pleased that we are helping the ultimate victims of the mortgage scheme that has nearly destroyed our economy,” Joe R. Whatley, a lawyer for the plaintiffs, said yesterday in a statement. “We intend to continue to prosecute this action until those who obtained subprime mortgages from Countrywide are adequately compensated.”

For more, click here.

Conrad Black Co-Defendant Wins Bail Pending Appeal

John Boultbee, one of three Hollinger International Inc. executives convicted with former chief Conrad Black for stealing $6.1 million from the company, won release from prison while the U.S. Supreme Court reviews his conviction.

U.S. District Judge Amy St. Eve in Chicago granted Boultbee’s bail request in a hearing yesterday. The onetime chief financial officer for the newspaper publisher, now known as the Sun-Times Media Group Inc., is serving a sentence of two years and three months at a federal prison in Lompoc, California.

For more, click here.

SEC Filings, Interviews, Company News

Pimco’s Gross Says Harvard, Yale May Need to Alter Investments

Yale University and Harvard University may have to cut investments in hedge funds and private equity because the risks of holding the hard-to-sell assets outweigh the returns, said Bill Gross, co-chief investment officer of Pacific Investment Management Co.

The two Ivy League schools had more than half of their endowments in hedge funds, private equity, real estate and hard assets such as commodities at June 30. Gross, who manages the $150 billion Pimco Total Return Fund, the world’s biggest bond mutual fund, recommended in March buying securities that provide stable income this year rather than more speculative and illiquid investments, as slowing economic growth and higher unemployment depress returns.

“Everything in this ‘new normal’ world should be questioned in terms of the returns going forward,” Gross, 65, told the audience yesterday at Morningstar Inc.’s annual fund- industry conference.

“New normal” in the global economy means heightened government regulation, slower growth and a shrinking role for the U.S., Mohamed El-Erian, who shares the position of investment chief with Gross at Newport Beach, California-based Pimco, said earlier this month.

For more, click here.

Peltz Files Plan for Debt Fund Managed by Former Drexel Bankers

Billionaire Nelson Peltz is seeking to raise $300 million for a publicly traded fund that will be managed by a pair of former Drexel Burnham Lambert Inc. executives and will invest in corporate debt.

Trian Capital Corp. filed a registration statement with the U.S. Securities and Exchange Commission to sell common shares that will trade on the New York Stock Exchange under the symbol TCC. According to the filing, the New York-based fund will initially invest in senior debt that trades on the open market.

“Current market conditions have resulted in the secondary market for debt securities of leveraged companies providing more compelling investment opportunities than the origination or syndication markets,” Trian Capital said in the filing. “As business conditions permit, we may seek to increase our level of investment in lower parts of the capital structure.”

The fund will be overseen by a subsidiary of Trian Fund Management LP, the company that Peltz and partners Peter May and Edward Garden use to run activist hedge funds. It will also hire Trimaran Capital Advisers LLC, a firm controlled by Jay Bloom and Dean Kehler, to manage the assets.

Trian Capital is a closed-end fund, meaning it will issue a fixed number of shares. The fund also has the ability to issue debt to finance portfolio purchases.

Bloom and Kehler began working together in the 1980s, first at Lehman Brothers Kuhn Loeb Inc. and then at Drexel Burnham, Michael Milken’s former junk-bond firm.

For more, click here.

Einhorn Shorts Moody’s, Says System Should Be Dropped

David Einhorn, the hedge-fund manager who bet against Lehman Brothers Holdings Inc. four months before the firm collapsed, is shorting Moody’s Corp., whose flawed ratings on asset-backed debt helped fuel the credit crisis.

“Even Moody’s largest shareholder, Warren Buffett, has said he doesn’t believe in using ratings,” Einhorn, 40, said in a speech May 27 at the Ira W. Sohn Investment Research Conference in New York. “We are short Moody’s.”

Moody’s, whose founder created credit ratings in 1909, reported a 25 percent profit drop last month as the recession sapped demand for debt grades. Rating companies have been criticized by the European Union, members of the U.S. Congress and the U.S. Securities and Exchange Commission for ignoring conflicts of interest and risks that contributed to the worst financial crisis since the Great Depression.

Einhorn, who runs New York-based Greenlight Capital Inc., said regulators could improve the stability of financial markets by eliminating the formal rating system. He titled his speech “The Curse of the AAA.”

Moody’s spokesman Anthony Mirenda said the company’s research and credit opinions play an “important role” in the markets.

“Moody’s opinions are a vital source of information and continue to be widely sought by market participants of all types,” Mirenda said in an interview.

Greenlight, which Einhorn started in 1996, manages about $5.1 billion in assets. The firm’s Greenlight Capital LP fund gained 4.4 percent in the first quarter, after losing 23 percent last year. The fund has posted an average annual return of 20.8 percent since its inception.

“The truth is that nobody I know buys or uses Moody’s credit ratings because they believe in the brand,” Einhorn said. “They use it because it’s part of a government-created oligopoly and often because they are required to by law.”

For more, click here.

GM Bondholders Agree to Plan Clearing Bankruptcy Path

General Motors Corp. and the U.S. Treasury reached an agreement with some of the automaker’s largest bondholders to smooth the way through bankruptcy.

GM, contemplating a sale of its assets to a new company through bankruptcy, would give 10 percent of its equity to the old GM to pay bondholders and other creditors and issue warrants for as much as 15 percent more, the Detroit-based automaker said in a U.S. regulatory filing yesterday.

For more, click here.

Visteon, Metaldyne File for Bankruptcy as Sales Fall

Visteon Corp., the former parts-making unit of Ford Motor Co., and chassis manufacturer Metaldyne Corp. filed for bankruptcy protection after a global slump in vehicle sales reduced orders from U.S. automakers.

For more, click here.

AIG Files to Shed Majority Stake in U.S. Reinsurer

American International Group Inc., the insurer bailed out by the U.S., filed to sell a stake of almost $1 billion in its majority-owned reinsurer Transatlantic Holdings Inc.

AIG may sell 26 million shares, Transatlantic said yesterday in a regulatory filing. That holding is valued at about $985 million based on yesterday’s closing price of $37.87. The New York-based insurer holds about 39 million shares, or 59 percent of Transatlantic, the reinsurer said. The stake will be less than 20 percent after the sale, AIG said.

For more, click here.

Mandel Buys Strayer Education as Chanos Advises Shorting It

Stephen Mandel, who runs the hedge fund Lone Pine Capital LLC, told investors at a conference in New York yesterday to buy shares of for-profit college Strayer Education Inc. Ten minutes later, Kynikos Associates LP’s Jim Chanos advised shorting the industry.

Mandel, 53, and Chanos, 51, were among 11 speakers at the Ira W. Sohn Investment Research Conference. Other investors, like William Ackman of Pershing Square Capital Management LP and Highside Capital Management LP’s Lee Hobson, touted shares of General Growth Properties Inc. and Millicom International Cellular SA.

Mandel, who used to help pick stocks for Julian Robertson’s Tiger Management LLC, predicted Arlington, Virginia-based Strayer will expand beyond the U.S. East Coast, becoming a nationwide system of 300 campuses. The investor is ranked as the 227th-richest American by Forbes magazine.

Schwab Breaks With Fidelity by Cutting Retirement-Fund Stocks

Charles Schwab Corp. cut the amount of stock held by its target-date funds as investors approach retirement, breaking with competitors who say record market losses don’t warrant changes to how the accounts are managed.

For more, click here.

Pequot Funds Folding Amid Trading Probe Hold Illiquid Assets

Arthur Samberg, once the world’s biggest hedge-fund manager, said a federal insider-trading investigation is forcing him to shut Pequot Capital Management Inc.

For more on Pequot folding, click here.

For Kotz’s Pequot report, click here.

For insider-trading scandal at SEC, click here.

Comings and Goings

CIBC Promotes Investment Banker Nash to Head Merchant Banking

CIBC World Markets promoted Ted Nash, who oversees the firm’s mergers and acquisition business, to head of strategic merchant banking.

Michael Boyd will replace Nash as head of mergers effective June 29, the company said yesterday in a memo. Nash, 45, who has been with CIBC since 1994, led the mergers team for four years.

CIBC World Markets is the investment banking business of Canadian Imperial Bank of Commerce, the country’s fifth-biggest bank. Boyd previously worked at the Toronto office of Merrill Lynch, a unit of Bank of America.

GMAC Appoints Final Three Board Members After Bailout

GMAC LLC, the auto and home lender that’s received $13.5 billion in government funds, named the final three members of its new board, including Franklin “Fritz” Hobbs as non- executive chairman.

Hobbs, an adviser to One Equity Partners LLC, is joined by Michael Carpenter, chairman of Southgate Alternative Investments, and Mayree Clark, an affiliate of Aetos Capital Asia, Detroit-based GMAC said yesterday in an e-mailed statement.

As part of its agreement with the government to become a bank holding company, GMAC had to remake the board to include more independent directors and government representatives. The other members of the board are GMAC Chief Executive Officer Al de Molina, Cerberus Capital Management LP founder Stephen Feinberg and two U.S. Treasury appointees.

Before joining buyout firm One Equity Partners, Hobbs was CEO of Houlihan Lokey Howard & Zukin Capital Inc. and before that was chairman of UBS AG’s Warburg Dillon Read unit.

Former GMAC Chairman J. Ezra Merkin resigned in January after his hedge funds lost billions of dollars tied to Bernard Madoff’s Ponzi scheme.

International Compliance

Airbus CEO Questioned by French Police in EADS Probe

Airbus SAS Chief Executive Officer Tom Enders was questioned by French police as part of a criminal probe into insider trading at European Aeronautic, Defense and Space Co., the planemaker’s parent company.

Enders, 50, was questioned on May 20 and released the same day without being charged, Stefan Schaffrath, a spokesman for Toulouse, France-based Airbus, said yesterday by telephone.

The French investigation is focused on executives who sold EADS stock options between late 2005 and June 2006, when the announcement of a delay to the A380 superjumbo model caused a record drop in the shares. Enders served as co-chief executive of EADS from 2005 before taking over at Airbus in August 2007.

The police probe centers on what managers knew of problems Airbus was experiencing with the A380 and parallels a civil inquiry led by French market regulator Autorite des Marches Financiers. The AMF last year referred 17 current and former EADS executives and shareholders Lagardere SCA and Daimler AG to its sanctions committee for punishment for insider trading.

For more, click here.

To contact the reporter responsible for this report: Lisa Brennan in New York at lbrennan1@bloomberg.net.

To contact the editor responsible for this report: David E. Rovella at drovella@bloomberg.net.

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