Greek Deal Remains Elusive (WSJ)
A meeting among Greek Prime Minister Lucas Papademos, the parties supporting his coalition, and New Democracy, the opposition conservative party, broke up early Thursday morning without an agreement on economic overhauls sought by the European Union and the International Monetary Fund in exchange for lending an additional €130 billion ($170 billion) to the Greek government. A single issue was the sticking point: cuts in the Greek pension system.

Credit Suisse Posts First Loss In 3 Years (Bloomberg)
Credit Suisse fell the most in five weeks in Zurich trading after posting a net loss of 637 million Swiss francs ($698 million), compared with an 841 million-franc profit in the year- earlier period. That missed the 446 million-franc average profit estimate of nine analysts surveyed by Bloomberg. Credit Suisse Chief Executive Officer Brady Dougan said measures taken to accelerate a revamp of the investment bank hurt earnings in the quarter. Dougan, who lowered the company’s profit target and announced two rounds of job cuts last year, is scaling down the securities division as the European sovereign debt crisis and stricter capital requirements crimp earnings. Pretax profit at the private bank slumped 43 percent with “subdued” client activity in the fourth quarter.

BOE Adds 50 Billion Pounds to Stimulus (Bloomberg)
Bank of England officials pumped another 50 billion pounds ($79 billion) into the U.K. economy to protect a nascent recovery from the threat posed by Europe’s debt crisis. The nine-member Monetary Policy Committee raised the target for bond purchases to 325 billion pounds, more than a quarter of current outstanding gilts, according to a statement in London today. The increase was forecast by 34 of 50 economists in a Bloomberg News survey. Fifteen economists forecast a 75 billion- pound increase and one no change. The MPC also held its benchmark interest rate at a record-low 0.5 percent.

Accord Near on Foreclosure Abuses (WSJ)
Government officials are on the verge of an agreement worth as much as $26 billion with five major banks, capping a yearlong push to settle federal and state probes of alleged foreclosure abuses by lenders. The deal would represent the largest government-industry settlement since a multistate deal with the tobacco industry in 1998. The agreement covers five banks: Ally Financial Inc., Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co., and Wells Fargo & Co. Together, the five handle payments on 55% of all outstanding home loans, or about 27 million mortgages, according to Inside Mortgage Finance. Federal and state officials were planning to announce the accord Thursday morning, but the timing could be pushed back to Friday, as officials were still ironing out details in a series of conference calls late Wednesday. Among them: the precise wording of the agreement, its size and the number and identity of participating states.

Goldman looks on the bright side of Volcker rule (Reuters)
A harsh interpretation of the rule, which bans speculative trading by commercial banks, could help return-on-equity levels because banks would be able to demand more money from clients for executing trades, Goldman Sachs Group Inc Chief Financial Officer David Viniar said at a Credit Suisse conference in Miami. “Regulation will undoubtedly bring about new ways in which the industry must manage its operations and deliver its services to clients,” Viniar said, but regulatory challenges “must be effectively navigated in order to provide shareholders with acceptable returns.”

Warren Buffett: Why Stocks Beat Gold And Bonds (Fortune)
“My own preference — and you knew this was coming — is our third category: investment in productive assets, whether businesses, farms, or real estate. Ideally, these assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment. Farms, real estate, and many businesses such as Coca-Cola (KO), IBM (IBM), and our own See’s Candy meet that double-barreled test. Certain other companies — think of our regulated utilities, for example — fail it because inflation places heavy capital requirements on them. To earn more, their owners must invest more. Even so, these investments will remain superior to nonproductive or currency-based assets. Whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today), people will be willing to exchange a couple of minutes of their daily labor for a Coca-Cola or some See’s peanut brittle.”

Gary Busey files for Chapter 7 bankruptcy protection (Chicago Tribune)
Busey filed for Chapter 7 bankruptcy Tuesday, revealing debts that far outweigh his assets. In the papers, the actor — born William Busey — indicates that he has $50,000 or less in assets — while his liabilities are somewhere in the $500,000 to $1 million range. Busey, 67, lists various lawyers, the IRS, Wells Fargo bank, Santa Monica UCLA Medical Center, and a storage company as entities that he might owe money to. Carla Loeffler, who filed suit against Busey in November for allegedly tackling her at the Tulsa airport, is also listed among potential creditors.

Groupon Posts Positive Revenue, Misses on Earnings (Reuters)
On an adjusted basis, the company posted a fourth-quarter loss of 2 cents a share. The company also reported fourth-quarter revenue of $506.5 million, up 194 percent from the final quarter of 2010. Analyst had expected the company to deliver a profit of 3 cents a share on revenue of $475 million, according to Thomson Reuters.

5 European Nations Agree to Help U.S. Crack Down on Tax Evasion (NYT)
The United States and the five European countries said Wednesday that they would get around the secrecy problem by having financial institutions share data with their own governments, which would then share with Washington.

Falcone’s lulu loan (NYP)
Billionaire Phil Falcone’s hedge fund, which tumbled by almost half last year because of a troubled wireless venture, is paying a 15 percent interest rate for a $190 million loan, almost triple what the riskiest corporate borrowers pay, said two people with knowledge of the loan. Falcone borrowed the money from Jefferies Group Inc. after paying off a $400 million loan from UBS AG on Jan. 30. He received $160 million from Jefferies after fees, and will pay an annualized rate of 15 percent on the loan, which matures on Oct. 31, according to the people, who asked not to be identified because the fund is private. Interest on the loan will be paid monthly.

You Can Buy A Romney Condom Now (CBS)
Benjamin Sherman, founder of the New York-based company Say It With A Condom, has launched a new product line named after the Republican presidential candidate. The condom wrapper features a caricature of Romney on top of $100 bills with the slogan “Never Settle.” In 2008, his company rolled out Barack Obama condoms in packaging with a motto “Hope Is Not A Form Of Protection.”

$$$ Brokers suspended in Libor inquiry [FT]

$$$ Greek Party Leaders Fail to Agree on Bailout Package [CNBC]

$$$ Debt investors regain appetite for Europe’s periphery [FT]

$$$ Goldman Wins Auction for A.I.G. Assets [DealBook]

$$$ Youth Hockey Coach Makes Sick Yo Momma Burn [Deadspin]

$$$ States seek currencies made of silver and gold [CNN via Alea]

$$$ Goldman, on Both Sides of a Deal, Is Now in Court [DealBook]

$$$ Diamond Removes CEO, CFO Amid Probe [WSJ]

$$$ Groupon loss and weak sales clobber shares [Reuters]

$$$ SEC’s Hawke warns the young on insider trading [Reuters]

$$$ A judge handed down a novel sentence to a husband who shoved his wife in a domestic dispute rather than making him post a bond. … ‘He’s going to stop by somewhere and he’s going to get some flowers,’ Mr Hurley said during Bray’s bond hearing at the Broward County courthouse in Fort Lauderdale. ‘He’s going to get a card, he’s going to get flowers, and then he’s going to go home, pick up his wife, get dressed and take her to Red Lobster, and after that Red Lobster they’re going to go bowling.’ The unusual sentence prompted some tittering in the courthouse, particularly when a defence attorney asked the judge: ‘Does he have to let her win?’ [Daily Mail via TheJaneDough]

Actually, they can leave in three years but, true or false, the idea of spending three more years there is probably sounding like an eternity right about now?

UBS said the so-called “special plan” awards, which were disclosed in Tuesday’s annual results and will be awarded this year, will have strict forfeiture conditions attached. Only about 5 per cent of UBS’s 17,000 investment bankers will be eligible and executives will have to remain with the Swiss group for three years before they can cash in the bonuses, according to people familiar with the plan. On average, each recipient would receive around SFr350,000 in deferred shares, although awards will vary significantly. UBS wants to minimise potential departures from its senior ranks after slashing the investment banking division’s bonus pool by 60 per cent in 2011, in recognition of both weaker revenues and the $2.3bn in unauthorised losses allegedly racked up by a London-based trader last summer.

UBS Fights To Hang On To Key Staff [FT]

Last February, UBS awarded share-based bonuses that were due to vest in three stages in 2012, 2013 and 2014. However, under UBS compensation rules established in 2010, if a division posts an operating loss, the board can rescind between 10% and 50% of shares awarded to employees who earn share-based bonuses worth at least two million francs or $2 million.

UBS’s pay rules say that employees whose “total bonus exceeds CHF/USD 2 million will only vest in full if the business division to which the employee belongs is profitable.” On Tuesday, UBS disclosed the 2011 loss in its investment bank. In light of the loss, the board decided several weeks ago to use the maximum clawback power at its disposal under rules aimed at aligning compensation with long-term performance, the bank said. In opting for the maximum forfeiture, the board took a particularly tough line on who would share the pain of the trading losses. The bank informed employees of its decision Tuesday, according to a person familiar with the situation.

Bankers will now receive half of the shares due this year, which vest on March 1.

Losing 1/2 of 1/3 of the share-based portion of your previous year’s compensation is harsh (is it?), but it’s called for by UBS’s compensation policy:

[T]he vesting of equity awards to certain categories of employees is subject to the fulfilment of specific performance conditions. This group comprises key risk-takers and controllers, around 200 individuals who can materially commit or control the bank’s resources and / or exert significant influence over its risk profile. Group Managing Directors and employees with total annual bonuses exceeding CHF / USD 2 million are also subject to this requirement. Deferred awards granted to employees in these categories will only vest in full if the employee’s business division is profitable.

And since UBS’s investment bank lost oceans of money in 2011, the board went with maximum clawback. Which makes sense – you should feel some pain if you’re a senior manager and you’re losing money for shareholders. In an age where banks are increasingly imposing clawbacks not only on traders who actually lose money and/or do illegal things, but also on their managers, UBS’s policy of collective blame takes it one step further to make sure that no one is rewarded if the shareholders lose. And in a world where nobody believes that clawbacks have, um, claws, seeing one enforced broadly* sends a strong message to Wall Street, or Bahnhoffstrasse anyway, that losing money has consequences.

And that’s all there is to say about that.

Except … I hesitate to call your attention to this because it’s so trivial but just a teensy little footnote:

There’s something funny about that number. Specifically the absence of parentheses around it. UBS’s investment bank was profitable in 2011. All those bankers with their negative bonuses got robbed. They should sue.

They won’t win though because I left out one footnote to that footnote:

See UBS’s investment bank wasn’t profitable in the sense that it “made” “money.” Just in the sense that it profited on its own credit widening by 80ish basis points over the course of 2011, i.e. from “debit valuation adjustment” gains. Some people think that booking a profit from your own credit deterioration is kind of bullshit, though I have argued half-seriously in the past that it is a “real” form of profit in some senses, and it is in any case the IFRS-sanctioned number that shows up on, say, Bloomberg. So if you were a UBS investment banker you could say “our division was profitable in 2011″ and not be lying, provided that you then walked away quickly and didn’t answer any questions.

All I can find on the UBS comp policy is that summary excerpted above, so I don’t know if it’s drafted to exclude DVA gains – though obviously that’s how the board interpreted it. I assume they’re right. But you could imagine the thought process of a UBS trading manager who was not clear on the details. “Hmm, I see Kweku has left us in the red for the year. Perhaps we could do some additional foolish things to drive up our CDS spreads and try to make it back on DVA.”

Loss Prompts UBS to Claw Back Bonuses [WSJ]

* Assuming for the sake of argument that lots of people at UBS make at least $2mm a year these days.

“Chris Christie was having dinner with Steve Cohen of SAC Capital at Quality Meats in New York last night. I received a tip; I went up there and talked to the waiters and other people. I heard they had steaks and wine. From what I understand, they were talking politics. Steve Cohen, like most hedge fund managers back in 2008, was a major Democratic campaign contributor…Clearly Christie is a huge supporter of Romney. It doesn’t hurt Cohen to be seen with a figure like Christie with a huge political reputation. I ran this by people at SAC Capital, they have no comment. Christie’s office has no media comment.”

[FBN]

That poses a quandary because nobody’s all that interested in hearing your arguments against the new rules, even if they’re good arguments and not 100% about your own personal remuneration. One thing you could do is get proxies to make your arguments. If you think that the Volcker Rule will reduce liquidity in foreign government bonds, you could suggest to foreign governments that it’s really important that they lobby against the rule on your behalf. You did that. Good work. Let’s see how it turns out. If it turns out well, the next step would be to get other clients to say “well, we want liquidity in our [stocks/bonds/rate swaps/whatevers] too,” since that would then be a more compelling argument.

I think that’s what’s going on in this sort of amazing FT article, but something has gone terribly wrong:

The cost of “tail hedging” has retreated from last year’s peak, when anxiety over the eurozone was at its highest, yet premiums remain elevated and investors are worried they could soon climb again.

The fear is that higher capital requirements for banks and the proposed Volcker Rule, which would prohibit banks from engaging in proprietary trading, will limit the ability of Wall Street dealers to support protection against risk and reduce liquidity in products such as variance swaps. …

Dealers warn that if the cost of capital for underwriting tail risk hedges is too high when proposed rules are finalised, they will have little choice but to step aside, raising costs for institutional investors managing funds on behalf of smaller clients.

“When the next tail event occurs, pension funds and insurers will get hit hard as they have been unable to hedge that risk,” says [MIT finance prof Andrew] Lo. “This ultimately affects the consumer via the pension and insurance industries, who can’t use these instruments to hedge long-term risks.”

Oh noes but what? I’m sure I’m missing something here but where I come from:
(1) The best possible bearers of the sort of risk represented by things like ten-year S&P puts and variance swaps are pensions and insurance companies with giant pots of money and actuarially predictable liabilities that pay out over decades.
(2) Hedge funds are probably fine too, since they tend to have rich patient money.
(3) Possibly the worst bearers of that risk are investment banks funded by overnight repo.
(4) I mean, really! “Tail risk” like, definitionally, means “risk of the sort of environment where some investment banks stop existing.” What is the point of investment banks selling “tail risk” insurance? I’ve got your Lehman Brothers 10-year S&P puts right here.

The approach is sort of baffling but I think there are real arguments buried here. Apparently going long vol is a thing that investors are into, and there are new ETFs popping up to let them do it. More generally, making markets in volatility probably is a socially useful function for Wall Street dealers, since customers do have legitimate reasons for wanting to buy and sell volatility, and since dealers tend to be more able than their customers to replicate options by trading in the underlier.

I think that, anyway – but I suspect many others don’t, since “buying and selling volatility” doesn’t exactly sound socially beneficial. So as a PR strategy leading with “but where will our derivatives go?” seems off-base. And leading with “but where will our tail risk derivatives go if we can’t buy them dirt cheap from undercapitalized banks?” seems really, really crazy. If banks really are scaring their pension fund customers into going public with their concerns that they can’t buy enough long-dated out-of-the-money puts from dealers because of new capital rules – they should stop.

On the other hand, if I were a hedge fund looking to pick up some business selling variance swaps – where “the bid and offer is very wide, and when you want to monetise there is no market,” I’d be pretty psyched to see a story like this confirming everyone’s worst fears about investment banks taking risky gambles with investor money. I’d be particularly happy to see that, “While some say that hedge funds and other investors may fill the void left by dealers, the worry is these new entrants would not arrive until the cost of hedging had risen further.” Getting rid of the competition is a good start on that goal.

Cost of ‘tail risk’ protection to soar [FT]
Tail-Risk Hedges on Volatility Lure Money Even After Stocks’ January Surge [Bloomberg]

Learn a little something about the financial markets and notice if something huge happens on a given day, negative or positive. Things like the fact that Facebook is going public is not just financial news, it’s world news and you don’t want to seem clueless if you completely missed something like that. You don’t have to become an expert but at least if you know something you can participate in a conversation with your guy. Additionally, you need to be prepared that the volatility of the markets might make your guy’s mood unpredictable, especially on a day that his personal portfolio went down dramatically.

Obviously this one here is key but it’s not enough. If you’re serious about hunting big game, if you really want to impress him with the extent to which you’ve got your finger on the pulse, you must also:

* Call up Bloomberg and have them install a terminal in your apartment ASAP (3 screens if you’re looking for a casual fling, 15 if you uploaded your pictures to a “What will our baby look like” website after the first date; gotta spend money to make money)
* Print out his portfolio and dial into the companies’ earnings calls
* Station a courier at the courthouse so you’re the first to know when his firm is indicted
* Order the CFA test prep books and get cracking (if he’s studying for the Level 2 CFA, YOU’RE studying for the Level 2 CFA)
* Tap the phone lines of Merkel and Sarkozy; report any activity that might indicate imminent action
* Hire a private detective to follow Bernanke, study his every move (where is he eating? how kempt is his beard? does he cut people off on the freeway in the morning on the way to work? does he look irritable leaving the office at night?), and accurately predict future FOMC decisions

Clearly, these are just jumping off points–that should be followed to a T, unless you’re not actually serious about all this in which case, quit wasting our time–if anyone has any other helpful tips to share, please do so now.

How To Date A Wall Street Man [CNBC]

The short version (with regard to McGee’s apparent inability to give Paulson an answer as to what, exactly, he intends to do about the company’s stock slide): “What are you going to do about it? What are you going to do about it, asshole? You’re fucking shit. Where did you learn your trade, you stupid fucking cunt, you idiot? Who ever told you that you could work with men? Oh, I’m gonna have your job, shithead.” The slightly longer version:

Your next question comes from the line of Marin Farley [ph] with Paulson and Company.
Q: Good morning. This is John Paulson [ph] speaking.
A: Hello, John.
Q: Liam, I want to go back to the Slide 17 talking about the potential separating the Life and P&C business. And the – I know you’re doing a strategic review but there’s no slide talking what about what the potential would be just that there’s challenges. So Goldman Sachs came out with I think a very good analysis a few months ago where they showed this – they estimate the upside to doing a tax free spin off of P&C could be over 70% of what the current stock price is trading at. Now, I agree that there’s going be challenges but isn’t your job to really overcome those challenges to achieve the maximum value for shareholders? Now, I would say that Hartford needs to do something drastic because the stock is the lowest valuation relative to book value of any major insurance company. Last year Hartford stock was down 38% while the P&C stocks were up 14% and even declined much more than the Life index which was down 21%. So what I’d like to see you do is not merely come back and saying yes, we’re looking at strategic options but there’s challenges to achieving them but what – first of all, do you agree that you could create as much as 70% value for your shareholders by spinning off – separating P&C? And secondly, is [indiscernible] incentive to overcome the challenges that it’s going to take to spin this off and how long do we have to wait to hear if there’s going be a positive recommendation to separate these two businesses?
A – Liam E. McGee: Thanks John for the question. First of all, the analysis and the intent of the comments was to acknowledge that the challenges are significant not to say that they could not be overcome. Second of all, our analysis including the frictional cost if you will that are then third category would suggest that a split would not create the kind of shareholder value that that particular report suggested. And third, in addition I think your sense of urgency about
realizing greater value for shareholders is shared by me and by this team. And so I hope I answered your questions distinctly and correctly…
Q: Partially, Liam, but if you share the interest all shareholders have in increasing shareholder value I’m surprised that as part of the discussion you don’t talk about how much value could be created by separating the P&C business from the Life business. And not the only slide you devote to it talking about that there’s some obstacles to overcome and not talking about the upside in weighing the upside other separation against what the obstacles are.
A: John…
Q: And better yet not just listing those obstacles but what I’d like to see is how you will overcome those obstacles to result in a more fair valuation for Hartford. Not that there’s obstacles but how you’re going to overcome the obstacles? That’s what I as a shareholder look for you as the management to do.
A: Thank you, John. And I – that is our mindset. Our purpose in the slide was to identify the hurdles. You can – if you heard our language we did not say they were not surmountable, number one. We said there were significant costs to surmount them in a number of areas, so we felt we owed shareholders that disclosure. Number two, we do not believe that splitting them in the current environment for the reasons that we cited will create shareholder value. And third, again I’ll reiterate, we have an incredible sense of urgency on looking at all ideas to create shareholder value.
Q: Well, I think you need to do a much better job of explaining that because Goldman’s report is a very good report at a path to separate the business and create what they estimate as a 70% increase in shareholder value. And then you merely say there’s some obstacles and you don’t equate what the costs are to the benefit and what value do you think could be created. Because right now with the stock performing as poorly as it has relative to both P&C and life companies, I think you need a better explanation of what you’re going to do to enhance shareholder value. Merely that you’re working hard and you’re committed but there’s obstacles. What we need you to do is overcome the obstacles to enhance the valuation for your shareholders. Not merely point out that there’s obstacles.
A: Okay, John. Thank you. I hear you loud and clear.
Q: I hope so.

Warning to the managements of Paulson’s current holdings- there’s a new JP in town, one who will no longer meekly stand by and accept subpar performance from you. God help you if you badly miss earnings estimates; if your margins narrowed in every goddamn segment; if you had to re-state past earnings (downward); if you disclose for the first time on your call that you’re 100% hedged on natural gas at $8. If you dare to dismiss speculation about how much value breaking up your company would produce for shareholders with nebulous comments about “obstacles”? Run and hide.

Paulson Tells Hartford CEO McGee to Do ‘Something Drastic’ [Bloomberg]

Kengeter offered to give up his bonus for 2011, Mr. Ermotti said, and the bank subsequently agreed. Mr. Kengeter will still receive his base salary. For 2010, Mr. Kengeter received total compensation of 9.3 million francs, including a base salary of 875,000 francs.

That’s right, UBS IBD Chief Bonus Watch ’12: ZERO. If you thought he took a harsh tone last year when dealing with “spoiled banker children” who “messed this place up” and “just don’t get it,” just wait. Any employees preemptively considering airing grievances in his direction are advised to put a sock in it.

UBS Will Slice 60% From Bonuses As Net Sinks 76% [WSJ]
Related: UBS Investment Banking Chief Tries The Tough Love Approach

Concession Smooths Way Toward a Greek Debt Deal (WSJ)
The European Central Bank has made key concessions over its holdings of Greek government bonds, which will contribute to a reduction of the country’s debt burden and smooth the path toward a new bailout for the country, said people briefed on Greece’s debt-restructuring negotiations. The decision by one of the Greek government’s biggest creditors will narrow a gap in Greece’s finances, helping pave the way for a debt-restructuring agreement with Greece’s private-sector creditors and a new €130 billion ($170 billion) bailout from other euro-zone governments and the International Monetary Fund. But it is still unclear whether Greek politicians, facing public outrage, will accept the tough austerity policies pushed by European authorities and the IMF as the conditions to secure a deal.

Bernanke-Led Economy Shows Critics Clueless (Bloomberg)
More than a year after Republicans from House Speaker John Boehner of Ohio to presidential candidate Ron Paul of Texas warned that the Fed’s second round of asset purchases risked a sharp acceleration in prices, the surge has failed to materialize. The personal-consumption-expenditures price index rose 2.4 percent for the 12 months ending in December, near the central bank’s 2 percent target…Even though the economy is showing signs of strengthening and inflation appears in check, Republicans Mitt Romney and Newt Gingrich, who also are running for president, have said they wouldn’t keep Bernanke, 58, when his second four-year term as Fed chairman expires on Jan. 31, 2014. Gingrich said in September that Bernanke was “the most inflationary, dangerous and power-centered chairman” in the central bank’s history. “The criticism about the Fed being inflationary is not fact-based,” said Mark Gertler, an economics professor at New York University who has co-written research with Bernanke. “In terms of an inflation record, the facts are the Fed has been as close to impeccable as you can possibly get.”

Spain Plans to Burn Its Bridges to Keep Vacationers on the Job (WSJ)
Tatiana Restrepo has a vacation problem. The Spanish government thinks she takes too many of them. Every year, she, like many Spaniards, strategically deploys paid vacation days as puentes—literally, bridges—to skip town for an extra-long weekend whenever public holidays fall in the middle three days of a week. In that way, she figures that last year she was able to stretch her 36 legally mandated days off into more than 50 days of downtime, including weekends. But now the time-honored tradition is under threat. In one of several measures designed to boost productivity in a sagging economy, Spain’s unions and business associations have agreed to suppress three bridges by moving the holidays to Mondays. The two sides, which rarely agree on anything, say the bridges cost the Spanish economy hundreds of millions of euros in lost production, as they result in idle plants and half-empty offices. “It’s just horrible,” says Ms. Restrepo, a marketer for Rusticae, a network of rural hotels, who every January studies the calendar with her husband to start planning jaunts around bridges.

Fink: Investors Should Be 100% in Equities (Bloomberg)
“I don’t have a view that the world is going to fall apart, so you need to take on more risk,” he said in an interview with Bloomberg Television in Hong Kong today. “You need to overcome all this noise. When you look at dividend returns on equities versus bond yields, to me it’s a pretty easy decision to be heavily in equities.”

Fed Will ‘Protect the US’ From Europe’s Crisis: Bernanke (Reuters)
FYI: “We are in frequent contact with European authorities, and we will continue to monitor the situation closely and take every available step to protect the U.S. financial system and the economy,” Bernanke told the Senate Budget Committee.

Hotel Workers Would Get Panic Alarm Buttons Under Proposed Contract (City Room)
Nine months after a hotel housekeeper accused Dominique Strauss-Kahn, the French politician, of sexually assaulting her in his suite in Manhattan, hotels across the city have agreed to equip their employees with panic buttons that will summon help immediately. That provision, scheduled to be put in place within a year, is included in a new seven-year labor contract that the Hotel Association of New York City approved last week.

Boston gets Butterfinger candy in honor of Patriots loss to Giants (NYP)
Colorado-based online pawn shop Pawngo.com left 900 pounds of Butterfinger candy bars in Boston’s Copley Square on Tuesday to mock the New England Patriots. Patriots receiver Wes Welker dropped a pass late in the fourth quarter of Sunday’s Super Bowl XLVI against the Giants, costing his team a shot at the title in a game they lost 21-17. The website left a large placard near the giant pile of 8,000 candy bars that read, “Thank you Wes Welker.” Welker also was the likely target of Tom Brady’s model wife, Gisele Bundchen, who said Sunday on her way out of the game, “My husband cannot f–king throw the ball and catch the ball at the same time! I can’t believe they dropped the ball so many times!”

Facebook’s Zuckerberg may face $2 billion tax bill (Fortune)
Accountant nerds are super excited: “I personally have never seen a bill into the billions — close, but not quite,” said Anthony Nitti, a Colorado-based CPA and partner with Withum, Smith and Brown. “I talked to a few buddies of mine at the Big Four accounting firms, and it’s something not many people have seen.”

Hedge Funds Climbed 0.2% in January on Best Start for Equities in 18 Years (Bloomberg)
Hedge funds gained 0.2 percent in January as equities around the world had the best start in 18 years after U.S. economic growth showed signs of accelerating and European leaders moved closer to a solution for the region’s debt crisis…“We’re extremely pleased with how the portfolio’s been performing in 2012 to date,” said John Bailey, founder and chief executive officer of Spruce Private Investors LLC, whose Stamford, Connecticut-based firm advises investors holding about $3 billion of assets. “Investors will be looking for some measure of value added in hedge funds in 2012.”

Two Years After Spill, BP Profits and Plans (NYT)
On Tuesday, Robert W. Dudley, BP’s chief executive, told reporters in London that BP was “on the right path” as the company reported $7.7 billion in profit for the fourth quarter of 2011, a 38 percent increase from a year earlier. BP said production was up substantially from the previous quarter, and it expected its cash flow by 2014 to surge 50 percent past that of 2011, giving the company the financial strength to invest in exploration and pay even higher dividends.

Salvos Flying In Gupta Case (WSJ)
Federal prosecutors said they are planning to unveil previously undisclosed instances in which former Goldman Sachs Group Inc. director Rajat Gupta allegedly shared inside information when the criminal insider-trading case against him goes to trial later this year. Prosecutors announced their intentions at a court hearing in Manhattan federal court on Tuesday, as a judge granted defense lawyers’ request to delay the trial so they could have more time to prepare. The trial, which had been set to start in April, will now start six weeks later on May 21, U.S. District Judge Jed S. Rakoff said.

Citi Bullish on Retail Banking (WSJ)
By 2014, “people will really see a difference” in improved customer service and product sales at Citibank branches, said the bank’s U.S. retail and commercial banking chief, Cecilia Stewart, in recent interviews. “We’ll beat all our competitors in productivity and client satisfaction,” Ms. Stewart said, while revenue growth will make retail banking “much more profitable than precrisis.”

Iowa Police Seek Public’s Help In Armed Robbery Of $250 “Mega Masturbator” (The Smoking Gun)
In a bid to capture the armed robber who last month stole a $250 sex doll from an Iowa City adult store, police today released a surveillance photo showing the suspect making off with the item…Before releasing the store surveillance photo, cops pixelated it to obscure explicit images on the box of the “Fuck Me Silly #1” model “mega masturbator.” As previously reported, the stolen 20-pound sex doll is described by its manufacturer as “the most realistic piece of ass you ever fucked…Slap that big round ass and listen to the whack…it sounds and feels just like a real ass!” In return for information leading to the man’s arrest, Iowa City Area CrimeStoppers is offering an award of up to $1000.

$$$ Europe Bank Eases Way to Greek Deal [WSJ]

$$$ Yahoo chairman Roy Bostock, and three other board members, resigned [AllThingsD]

$$$ Glencore and Xstrata face blocking threat [FT]

$$$ Morgan Stanley,Goldman Clarify Clawback Policies [WSJ]

$$$ Prosecutors Broaden Charges in Insider Case [WSJ]

$$$ “A New York man who was chased away by a naked resident from the Greenwich home he burglarized was sentenced Monday in state Superior Court.” [Greenwich Time]

$$$ If your firm reads your emails and frowns upon swear words may we suggest “snozzcumber“? [Lists of Note]

$$$ Gupta Faces More Tipping Allegations as Trial Is Delayed [WSJ]

$$$ Prosecutor in Insider Crackdown Is Leaving U.S. Attorney’s Office [DealBook]

$$$ Rajaratnam Judge Announces Departure From Bench in Press Release [Bloomberg]

$$$ Greg Lippman’s LibreMax Capital has raised nearly $1.1bn [AR]

$$$ Prosecutors are asking for the maximum sentence — a year in jail — for the one-legged Manhattan millionaire convicted of pummeling a beautiful “naked masseuse” in an oddball misdemeanor assault-by-Rolex case. Thomas Hartmann was supposed to be sentenced today on last month’s jury conviction for striking Russian-born stripper Sophia Kandelaki with his gold-Rolex-clad wrist during a fight outside an Upper East Side restaurant in April. [NYP]

$$$ This is a thing that happened [@grandparentscom]

One thing that we take very seriously here at Dealbreaker, starting now,* is the Visual Display of Quantitative Information, and this is known in the trade as “a graph made by lawyers.” Quick quiz: how much money went from Commodities Customers to Affiliates? Is it:
(A) $251M
(B) $3,043M
(C) $246M
(D) $1,198M

Pretty sure it’s indeterminate from that graph though guesses are welcome. I guess $23M is possible too. Anyway. The lawyers responsible for that monstrosity included it in a preliminary trustee’s report on the demise of MF Global and I don’t envy them the job since as the trustee puts it:

For three months our investigative team has worked to understand what happened during the final days of MF Global when cash and related securities movements were not always accurately and promptly recorded due to the chaotic situation and the complexity of the transactions.

So it’s impressive that they tracked all of this, though annoying that they graphed it incoherently. And that this report, strangely, is about cash flows and not securities flows, which I guess is part 2, still to come. Like, I would think that sometimes cash was exchanged for securities? I dunno.

Anyway the report seems to confirm that it was margin calls on MF Global’s portfolio of repo-to-maturity trades on European debt that mostly blew them up in the end, though I guess money’s fungible and if everyone takes their money out then who’s to say who precisely blew you up. But here’s Bloomberg:

MF Global Holdings Ltd., the futures broker that filed the eighth-largest bankruptcy in October, faced a $310 million margin call on its final day that exceeded its market value.

Calls for payments tied to bets MF Global made on European sovereign debt increased Oct. 24 and continued through Oct. 31, the day the futures broker formerly run by Jon Corzine filed for bankruptcy protection, according to a report yesterday from James Giddens, a trustee overseeing the brokerage’s liquidation. MF Global had a market value of $198 million on Oct. 28 as it held $6.3 billion in European sovereign-debt trades.

Here’s the trustee’s report – you can go see a graph if you want but it’s as terrible as the one above** so just look at this:

So on 10/31 MF had a $250mm in new margin requirements, on top of the $59mm that it hadn’t gotten around to posting over the weekend, which was more than its market cap and, more relevantly, more than it had lying around either in unrestricted cash or in cash in segregated customer accounts that it had been gleefully looting for several days, so it filed for bankruptcy and that was that.

One thing to think about is what triggered those margin calls. Note that the variation margin changes were relatively small, though not nothing – MF Global’s positions moved against it by $17mm during the course of its hell week. But the initial margin and “increase coverage” totaled almost $500mm. MF Global’s contingency plan prepared before the downgrade predicted about a $215mm additional margin on a downgrade to below investment grade (see slide 16), which happened on October 27. This data is a little unclear but it looks like that margin call was bled in from October 26 to 28.

So the extra $250mm the next Monday was a little unexpected bonus that put MF over the top. LCH.Clearnet, which was clearing the repo to maturity trades, helpfully explains the purpose of its initial margin:

LCH.Clearnet Ltd only faces market risk in the event of the default of one of its clearing members. In those circumstances, it is faced with closing out, hedging or transferring the defaulter’s portfolio within a short period. In doing so, it may make a loss because of adverse price moves (i.e. the market risk may be realised). It is this market risk and this loss from which initial margin protects the clearing house. It does not need to cover adverse price moves that occurred prior to the default as this is already covered by variation margin.

It’s not entirely clear to me why the repo counterparties would have thought this risk increased by $250mm over that last fateful weekend. Perhaps that call was just triggered by the final downgrade/bankruptcy filing – “well, heck, we’re screwed so let’s just ask for some more dough.” Or perhaps after a weekend of MF Global freakouts, the repo counterparties had revised dramatically upwards their estimate of how painful it would be to disentangle their positions. In any case, it’s not entirely clear to my highly untrained eye that these margin calls triggered the bankruptcy rather than the reverse. Perhaps we’ll find out in part 2.

The SIPA Liquidation of MF Global Inc. [epiq]
Trustee’s Preliminary Report [epiq]
The dramatic final days of MF Global [FTAV]
MF Global’s $310 Million Margin Call Exceeded Its Market Value [Bloomberg]
MF Global Trustee Traced $105 Billion in Cash Moves [Bloomberg]

* But excluding our own future efforts.

** Really! It depicts, like, three things in the same shade of gray. What would possess you choose a palette of green, orange, gray, gray, and gray?