Morning Agenda: Big Banks Fined in Currency Case

British, American and Swiss regulators fined five of the world’s biggest banks ‒ UBS, HSBC, the Royal Bank of Scotland, JPMorgan Chase and Citigroup ‒ a combined $3.3 billion on Wednesday for conspiring to manipulate the foreign currency market, the latest scandal to hit an industry facing increased scrutiny and mounting legal costs for its past sins, Chad Bray and Jenny Anderson report in DealBook. The fines come as regulators are increasingly targeting a business culture in the financial industry that they say encourages improper conduct by its employees. The banks could still face criminal charges in the matter.

On Wednesday, Britain’s Financial Conduct Authority said it had reached a so-called global settlement with the five banks worth a combined 1.1 billion pounds, or more than $1.7 billion, a record for the British financial authority. The Commodity Futures Trading Commission in the United States imposed $1.4 billion in penalties against Citigroup, JPMorgan, R.B.S., UBS and HSBC. Regulators in Switzerland penalized UBS about $138 million. Several lenders had set aside money for fines and other charges or revised their third-quarter results to reflect the potential deal.

By settling with the British and American authorities, the banks will have long-sought clarity about the potential effect of the inquiries. But the investigations will now enter a new phase, which could include criminal charges against individuals and financial institutions, Mr. Bray and Ms. Anderson write. About 30 traders were suspended or fired after internal inquiries at the banks. Several of those traders could face criminal charges. The Justice Department is conducting its own investigation into potential criminal misconduct at the banks and is aiming to file a case against at least one bank by the end of the year, according to people briefed on the inquiry.

Separately on Wednesday, a Bank of England committee published the results of an investigation into whether any Bank of England officials were involved in, or aware of, conduct issues in the foreign exchange markets between 2005 and 2013. Lord Grabiner, a prominent lawyer and Queen’s Counsel, determined that there was no evidence any Bank of England officials were involved in unlawful or improper behavior in the markets, nor in the misconduct of foreign exchange traders sharing confidential information, including aggregated information about client orders, which was then used for improper dealings.

FULL NEWS RELEASES | The Financial Conduct Authority’s statement can be found here. The Commodity Futures Trading Commission’s news release can be found here.

QUESTIONS RAISED | Some critics are questioning the outcome and speed of the foreign exchange investigation, pointing out that the Financial Conduct Authority relied on information gathered by the banks and their lawyers, The Financial Times writes. The authority has not interviewed some of the main individuals involved.

“If they can sub it out, get a speedy result and bring money into the coffers, it’s tempting to ask what more could you want?” said Brian Spiro, a defense lawyer at BCL Burton Copeland. “But some, myself included, ask: Where does due process enter the equation?” Another lawyer said, “The settlement seems largely drafted on the hoof over the last month or so.”

WHAT HAPPENED WITH BARCLAYS | On the eve of the settlement, Barclays is said to have informed regulators that it might not join in, making the British bank the lone holdout, DealBook’s Ben Protess writes. The prospect of a piecemeal resolution, a slow drip of regulatory settlements over the ensuing months, is said to have given the bank pause. Barclays also raised concerns about the collateral consequences of settling with just the Commodity Futures Trading Commission and Financial Conduct Authority.

SEARS CHIEF TURNS TO FINANCIAL ENGINEERING | Edward S. Lampert and his hedge fund, ESL Investments, have failed to find a strategy to turn Sears Holdings around, instead leaving it hemorrhaging cash and gasping for air. “But with Sears’s downfall, Mr. Lampert has stepped into an area he is familiar with: financial engineering. Sears is being broken up to cash in,” Steven Davidoff Solomon writes in the Deal Professor column. “In short, Mr. Lampert is busy dismantling Sears while the business declines ‒ voraciously eating all of the cash he raises. But he is positioning himself and his fund well for a bankruptcy or liquidation by taking positions on the other side.”

Mr. Lampert’s latest move came last week, with the announcement that the company might sell 200 to 300 stores to a real estate investment trust. The company’s stockholders would be entitled to buy shares in the REIT, and Sears would lease back the stores. Sears’s shares gained 31 percent, or more than $1 billion in value, on the news despite the fact that the company is on track to lose more than $3 billion in two years.

The announcement may have delighted investors, but “the deal seems to be only positioning Mr. Lampert to salvage his investment in a retailer that he does not yet seem prepared to dissolve,” Mr. Davidoff Solomon writes. “Instead, perhaps this is a sad lesson in the limits of financial engineering. Mr. Lampert seems adept at slicing and dicing Sears, but he has failed miserably at turning this business around.”

DETROIT STILL FACES PENSION RISK | Detroit’s court-approved plan to exit bankruptcy has been praised as a fresh start for the city. But trouble may yet be brewing. The pension system the settlement leaves behind has some of the same problems that got the city into trouble in the first place, Mary Williams Walsh writes in DealBook. Like many other public systems, it relies on a funding formula that lags behind the true cost of the pensions, and it is predicated on an investment return forecast that even the judge sharply questioned during the trial on Detroit’s bankruptcy plan. What is more, if Detroit finds itself confronting another fiscal crisis in the near future, it cannot tap the art collection at the Detroit Institute of Arts, which many saw as its top asset.

“These risks might not matter if Detroit’s pension obligations were just a marginal part of the city’s finances. But they are not,” Ms. Williams Walsh writes. “Even after the benefit cuts, the city’s 32,000 current and future retirees are entitled to pensions worth more than $500 million a year ‒ more than twice the city’s annual municipal income tax receipts in recent years. Contributions to the system will not be nearly enough to cover these payouts, so success depends on strong, consistent investment returns, averaging at least 6.75 percent a year for the next 10 years. Any shortfall will have to ultimately be covered by the taxpayers.”

Documents show that Detroit plans to continue its past practice of making undersize pension contributions in the near term while promising to ramp them up in the future. This plan will work if the city has recovered by the time its contributions are scheduled to increase. But it also has some experts worried that the city could find itself with an underfunded pension plan.

ON THE AGENDA | The wholesale trade report comes out at 10 a.m. 21st Century Fox holds its annual meeting of stockholders at 10 a.m. Pacific time in Los Angeles. Narayana Kocherlakota, president of the Minneapolis Fed, gives a speech at an economic outlook luncheon at 1:30 p.m. in Eau Claire, Wis.

DEALBOOK CONFERENCE 2014 | On Dec. 11, The New York Times will hold its third annual DealBook conference. This year, the daylong event will be at the new One World Trade Center. Confirmed speakers include Jeff Bewkes, Lloyd C. Blankfein, Kenneth I. Chenault and Mary Jo White. Invitation requests are available online.

| Contact: @melbournecoal | E-mail

Yahoo Buys Video Ad Platform BrightRoll for $640 Million | Yahoo announced on Tuesday that it had agreed to acquire BrightRoll, a platform for selling and delivering video advertising, for $640 million in cash, the Bits blog writes. The deal is Yahoo’s second-largest purchase ‒ behind its $1.1 billion acquisition of Tumblr last year ‒ since Marissa Mayer joined Yahoo as chief executive in mid-2012. NEW YORK TIMES BITS

Citic and K.K.R. Bid for United Envirotech | Citic and Kohlberg Kravis Roberts have offered $930 million to buy United Envirotech, a provider of water treatment services in China, Bloomberg News writes. BLOOMBERG NEWS

Comedy Website Funny or Die Weighing a Sale | Funny or Die, the comedy website founded by Will Ferrell, Adam McKay and Chris Henchy, has hired a financial adviser to evaluate options including a possible sale, Bloomberg News writes. The company is said to be seeking $100 million to $300 million, according to unidentified people familiar with the situation. BLOOMBERG NEWS

Custody Agreement Reached in Investment Banker’s Messy Divorce | In a statement, the wife of a Jefferies managing director said the two had reached an “amicable custody arrangement.” She also seemed to take back some of the lurid details reported in the media. DealBook »

UniCredit Profit Jumps as Loan Losses Fall | UniCredit’s earnings report offers more evidence that it is healthy enough to provide badly needed loans to Italian businesses and individuals. DealBook »

BNP Paribas Could Make a Merger With Monte dei Paschi Work | BNP Paribas could find worthwhile synergies if it acquires Italy’s Monte dei Paschi di Siena, though buying the bank carries risks, Neil Unmack of Reuters Breakingviews writes. DealBook »

Welsh Carson Leads $100 Million Investment in Revel Systems | The private equity firm Welsh, Carson, Anderson & Stowe is taking a small equity stake in Revel Systems, a start-up that makes point-of-sale payment software for retailers, restaurants and grocery stores. DealBook »

Higher Counterbid Made for Club Med, With Help From K.K.R. | Andrea C. Bonomi, an Italian businessman battling a Chinese-French bid for Club Méditerranée, on Tuesday announced another increased offer for the resort company, this time with backing from Kohlberg Kravis Roberts. DealBook »

Apax and Bain Capital Make Offer for PT Portugal | The private equity firms Apax Partners and Bain Capital have made a joint bid to buy PT Portugal from its Brazilian owner Oi, The Wall Street Journal reports. The offer values the assets at an enterprise value of $8.8 billion on a cash and debt-free basis, Oi said in a statement on Wednesday. WALL STREET JOURNAL

Zoetis, an Animal Health Company, Says Ackman Has Taken a Stake | The activist investor William A. Ackman has acquired an 8.5 percent economic interest in Zoetis, the former animal health arm of Pfizer that is now a $21.8 billion publicly traded company. DealBook »

Chinese Buyer of Waldorf Astoria Said to Plan $2 Billion I.P.O. | The Chinese company Anbang Insurance Group, which is buying New York’s Waldorf Astoria hotel, is said to be planning an initial public offering that could raise about $2 billion, Bloomberg News reports, citing unidentified people familiar with the matter. BLOOMBERG NEWS

Alibaba’s Jack Ma Looks to Financial Services I.P.O. | Jack Ma, the executive chairman of the Alibaba Group, said the company’s finance services arm, which includes Alipay, would “definitely go public,” Reuters reports. Mr. Ma expressed hope that the unit would list on China’s mainland. REUTERS

Virgin Money Said to Price I.P.O. at Low End of Range | The British financial services company Virgin Money, partly owned by the billionaire Richard Branson, is said to be planning to price its initial public offering at the lower end of its range, Bloomberg News writes, citing unidentified people with knowledge of the matter. BLOOMBERG NEWS

Carlyle-Backed Axalta Coating’s I.P.O. Raises $975 Million | The paint company Axalta Coating Systems raised about $975 million in its initial public offering after pricing its shares at $19.50 each, the midpoint of its expected range, Reuters reports. The Carlyle Group bought Axalta for $4.9 billion in February 2013. REUTERS

Lyft Boasts of Fivefold Growth in Riders and Revenue | John Zimmer, co-founder and president of the ride-sharing platform Lyft, said his company had seen fivefold growth in revenue and ridership since the beginning of 2014, Fast Company writes. “The space is massive, it’s way bigger than people thought when we started,” Mr. Zimmer said. FAST COMPANY

Obama’s Call for Net Neutrality Sets Up Fight Over Rules | Nearly everyone agrees that some rules written to regulate telephone service should not apply to the Internet, but there are disagreements about what rules should survive, The New York Times reports. NEW YORK TIMES

In Net Neutrality Push, Internet Giants on the Sidelines | Companies like Facebook and Google have stayed away from mobilizing their users to support an issue that primarily affects smaller Internet upstarts, Farhad Manjoo writes in the State of the Art column. NEW YORK TIMES

U.S. and China Agree to Cut Tariffs, but Vie for Trade Blocs | An agreement reached at a meeting of Pacific Rim nations will reduce tariffs for technology products, but the United States and China remain at odds over new trade blocs for Asia, The New York Times writes.
NEW YORK TIMES