Tuesday, July 31

Fender goes off-key, cancels its IPO

Fender goes off-key, cancels its IPO

Jimi Hendrix's 1965 Fender Stratocaster is displayed at the Idea Generation Gallery in London.

Fender Musical Instruments Corporation failed to strike a chord with investors. The famed guitar maker scrapped its planned IPO less than two weeks after announcing an offering price.

“Current market conditions and concerns about economic conditions in Europe do not support completing an initial public offering at what we believe to be an appropriate valuation at this time,” CEO Larry Thomas said in a statement. The proposed offering price of $13 to $15 would have valued the company at up to $395 million.

Analysts say Fender’s financials didn’t justify rock-star pricing.

"There wasn’t demand enough for the premium they wanted," said Francis Gaskins, president of IPO Premium.

In 2011, Fender turned a profit on the slimmest of margins, and analysts weren't expecting that to change much this year. "Investors are really looking for growth right now and Fender wasn’t providing that," said Greg Leffert, a research analyst at Renaissance Capital. "It sounds like they would’ve been able to get it done if they cut the price."

"There just wasn't demand at $14 or even at the low end," Gaskins said. Fender executives balked when underwriters suggested a $10 share price, he claimed.

Fender may have been hoping that classic rock fans would have snapped up the stock at its proposed offering price without caring as much about its financials, but the bungled Facebook IPO diminished appetite among retail investors for “brand name” stocks and sentiment-driven purchases.

The other sticking point was Fender’s problematic relationship with Guitar Center, on which it depends for roughly 15 percent of its sales. Despite $2 billion in annual sales, the retailer is saddled with $1.6 billion in debt, $650 million of which carries a 9.9 percent interest rate. Standard & Poor's Ratings Services changed its outlook from stable to negative in May, and its executive vice president of direct brands departed last week after an 18-month stint.

"Once people started looking at that, there were some warts they weren't expecting," Gaskins said. "Right now they’re damaged merchandise."

Monday, July 30

Zumba not only exercise, it is big business

Alberto Perez started out as a street performer and then an aerobics teacher in Colombia, making extra cash on the side teaching the wives of businessmen how to dance in nightclubs in his hometown, Cali.

Today, he stands at the center of the Zumba exercise craze, having helped transform Zumba Fitness, a private company, into a rapidly growing fitness empire with heavyweight investor backing.

"I'm not a businessman, but I knew this had the potential to be something special," said Perez, who along with two Colombian associates founded the Miami-based company.

Zumba, a Latin dance-inspired aerobic workout, has exploded from a Miami gym phenomenon to infomercial and DVD smash hit into a global craze with some 12 million people taking classes every week in at least 125 countries. Zumba Fitness now boasts being the largest branded fitness program in the world.

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Started on a shoestring budget in a Miami garage nearly 11 years ago, Zumba Fitness now has more than 200 employees, and a pair of New York investment firms are betting the craze has staying power.

What began as a company focused on fitness has evolved into a lifestyle and entertainment brand combining e-commerce, apparel and music, and a sought-after outlet for stars like hip-hop artists Pitbull and Wyclef Jean and reggaeton singer Don Omar who have turned to Zumba to promote their music.

The accidental instructor
Zumba got its start by chance in the 1980s.

Perez, who is known as Beto, was eking out a living as a street performer and salsa and merengue nightclub dancer known for his boyish model looks and muscular physique.

One day the owner of a nearby gym called and asked if Perez could stand in for an injured aerobics teacher. He agreed - but didn't mention he had never done aerobics and rushed out and bought a copy of Jane Fonda's Workout Book.

His fitness career was born.

Months later, getting ready for a class, Perez forgot his aerobics music. Instead, he put on his own merengue and salsa tapes and improvised dance moves for a workout, creating what today is known as Zumba.

It proved to be a hit and he quickly developed a loyal following before he moved to Bogota, where he briefly worked as a choreographer with pop star Shakira.

In 1999, Perez packed up and headed to Miami, speaking no English but hoping to make a breakthrough in the Latin-flavored U.S. city with his new dance exercise class.

He struggled before eventually building up a large, adoring fan base of mostly Colombian expatriate women, including the mother of Alberto Perlman.

Then a technology entrepreneur, Perlman lost his job in the dot-com bust two years later and was struggling with what career move to make next. He co-founded Zumba Fitness and is now its chief executive.

"My mom had been taking his classes for years," he said. "She would tell me about this amazing class but I never paid attention. When the bubble burst, I went to have dinner at her house and she kept saying 'Talk to Beto, maybe you guys could start a gym.'"

"I said I'd meet with him but I wasn't sure what I was going to do with him," Perlman recalled. But after watching a class, he came up with the idea for a new fitness video he hoped could be an infomercial success.

The men sought to put a name on the exercise, first thinking of the Spanish word rumba, which loosely translates as party, but realized it was already trademarked.

"We just went through the alphabet to see what rhymes with rumba," Perlman said. "We were getting nervous by the end, nothing sounded good - bumba, kumba. Then we settled on Zumba, it was perfect."

12 million and counting
Perlman said growing the instructor and student base is the firm's top priority, with a goal of one day reaching 100 million students, more than eight times the current number.

The company has also launched its own line of brightly colored clothing, Zumba footwear and a glossy magazine named "ZLife", all designed in its Miami office.

But it is also focused on developing TV shows, pushing into global markets, particularly Eastern Europe, Asia and Latin America, and exploiting a new business opportunity: fitness concerts.

"I see Zumba Fitness also as an entertainment brand," Perlman said. "It's becoming a music, TV and concert platform."

Fitness fads rise and fall. But two prominent investment firms have made bets Zumba Fitness will avoid going the way of workout has-beens like Jazzercise, Thighmaster and the Ab Rocket.

"You see a lot of feasts and famines in the fitness industry," said Richard Wells, managing director of New York-based Insight Venture Partners, a private equity and venture capital firm that has invested in Twitter and Tumblr.

The firm made a minority investment in Zumba Fitness earlier this year. "They are just scratching the surface of its potential," Wells said.

The Raine Group, a media and entertainment investment firm based in New York, also has invested in the firm.

Neither company would reveal the size of its investment.

Perlman said Zumba Fitness hopes to draw on the firms for media, entertainment and technology resources and has no plans to go public.

"While there isn't a lot we rule out at Zumba Fitness, this is not on our radar at this time," he said.

The Zumba ecosystem
Once Zumba gained exposure on infomercials, fans started asking for more. The company began receiving calls at all hours of the day from people saying "I want to be a Zumba instructor," said Perlman.

By 2005, the company decided to develop the global instructor network and Zumba took off. The instructors each pay $30 a month to receive regular installments of new music and dance and exercise steps.

"It's their ecosystem," said Wells, the investor.

The network has turned Zumba instructors in the United States and across the globe as far away as South Korea and Norway into entrepreneurs.

"It's become my small business," said Betsy Dopico, a native Cuban who moved to Miami from Mexico four years ago and now teaches Zumba classes.

On a recent night, around 60 people packed a downtown Miami dance studio for her hourlong class. Salsa and merengue rhythms throbbed on loudspeakers as the group of mostly 20-something and middle-aged women in sweat-drenched T-shirts and exercise tights spun around, kicked and jumped to the music.

A handful of men also participated, most of them mimicking Dopico's moves from the back of the class.

Mehdi Benhaddouch, a 32-year-old account executive at a financial company, said he had grown bored with gym workouts before settling on Zumba a few months ago. "It's like going to a nightclub, but you're exercising," he said.

The company has turned live concerts into fitness experiences where concert-goers follow Zumba instructors on stage while artists perform.

A concert in Orlando, Florida, last year drew thousands.

"My dream is to see fitness concerts all over the world, traveling shows, permanent shows in Las Vegas," Perlman said. "The artists love it too, because it's a new way of selling their music."

Success has also brought challenges. Pirated versions of Zumba Fitness DVDs and clothing have led the company to hire a staff of a dozen people to combat counterfeiting.

Perez, whose official title is "chief creative officer", said Zumba's explosive popularity is rooted in its simplicity of having a good time while trying to stay fit.

"Over the years, fitness became too complicated and difficult," he said. "The industry turned egocentric with an emphasis on instructors doing the exercises. It became a show."

He added: "They forgot about normal people - mothers, grandmothers and the housewives who want to stay in shape and have some fun. That's the essence of Zumba."

(c) Copyright Thomson Reuters 2012.

Sunday, July 29

Buzz: No pregnant pause for Marissa Mayer

Marissa Mayer made news this week when the longtime Google executive said she was taking the top spot at struggling Internet firm Yahoo, was pregnant and planned to work through her very short maternity leave.

Mayer told Fortune that Yahoo’s board of directors “showed their evolved thinking” by awarding her the top job even though she is pregnant.

But many Life Inc. readers questioned how evolved her thinking was when she then added that she’d only be taking a few weeks of maternity leave and would work throughout it.

“What this does is raise the bar for every female CEO. Maternity leave was a hard-fought battle for women in the workplace. ?Now every other woman in (a) high position may be held to the same standard. Bad move for women, in my opinion,” one reader wrote.

Many readers also said that while Mayer may think that now, she has no idea what it will actually be like once the baby comes.

“It's possible, I guess, but she's going to be in for a big, big shock if she thinks she can pull off work and life duties like those at the same time!” one reader wrote.

Still, others argued that if you’re the CEO and bringing home millions of dollars, chances are you can afford to have a nanny to help with the baby, a housekeeper to do those endless piles of laundry and a cook to make sure you eat something.

And some defended her choice, saying that a woman should have a right to choose how to spend their early days with their baby.

“I think this is great news! I worked through my pregnancy and soon after my son's birth. I love what I do so incorporating baby felt like a natural extension,” one reader wrote.

Saturday, July 28

Job-applicant background checks declining

There's some good news for job seekers who have been faced with financial issues, or have had brushes with the law.

Fewer employers are snooping into your criminal or credit background today.

Criminal background checks have become increasingly popular partly because technology has made it easier to dig up dirt and partly because hiring managers want any tools to help them weed through the many applicants, given the tight labor market.

But such reviews had a tendency to disproportionately hurt African-Americans and Latinos, according to many labor advocates. Not to mention the fact that lots of other job seekers from all groups who've faced unemployment, or underemployment, have faced money woes and may have had their credit histories impacted as a result.

Steps by the federal government and states to crack down on the practice have gotten everyone looking more closely at the process.

In April, the Equal Employment Opportunity Commission approved new rules for employers who use criminal background checks, calling for careful consideration of how and when such reviews can be used in pre-employment screenings and in the workplace because of their potential to be biased against certain groups, such as racial minorities.

A handful of states have moved to ban or curb credit history checks on jobs applicants, including Illinois that passed a law in 2010 prohibiting the use of such reviews. “A job seeker’s ability to earn a decent living should not depend on how well they are weathering the greatest economic recession since the 1930s," Gov. Pat Quinn said in signing the bill into law.

Employers are now scaling back their use as a job-screening tool.

"Some of the decline in the use of credit checks may be related to measures put in place by state governments and municipalities, as well as increased attention to the issue," said Mike Aitken, vice president of government affairs at the Society of Human Resource Management.
The organization just released its figures on such background checks and found:

More than one-half (53 percent) of respondents to a SHRM survey said they don’t use credit background checks in hiring. That’s an increase from 2010, when 40 percent of organizations reported not using credit checks, and from 2004, when 39 percent did not.

"Employers – through their HR professionals – are continually evaluating practices and programs. And this is no different," Aitken said.

The SHRM survey also found that:

Most employers focused on credit histories of two to seven years. Only 6 percent of organizations said that all years of credit history were equally important, a decrease from 17 percent in 2010.Of the 34 percent of employers that conducted credit checks on selected job candidates, 87 percent did so for positions with financial responsibilities and 42 percent used them for senior executive positions. More organizations saying that complying with state law requirements was among the primary reasons criminal checks were done, up 8 percentage points from 2010 to 28 percent.Fifty-eight percent of organizations allowed job candidates to explain the results of their criminal checks before the decision to hire was made.
"We think employers are looking more closely at these practices," he continued. "They want to ensure that any screening or evaluation tool used during the hiring process is related to the duties of specific positions and consistent with federal law prohibiting job discrimination."

Amen to that.

Friday, July 27

What part of the word vacation do you not understand?

What part of the word vacation do you not understand?

More than half of those surveyed said they will be working while on vacation.

A growing number of employers are giving workers paid vacation time these days. The only thing is, many of you don’t understand what vacation is all about.

Vacation means taking time away from work, relaxing and recharging. That means, not working.

Unfortunately, more than half of U.S. workers plan on working during their vacations this year including everything from checking emails to doing actual work tasks.

A poll released this week by software company TeamViewer and conducted by Harris Interactive in May, found that 52 percent of those surveyed will be working while on vacation, up from 46 percent the previous year.

Here’s how the workaholic’s vacation/work schedule breaks down, according to the survey:

Reading work-related emails – 30 percentReceiving work-related phone calls – 23 percentWanting access to a document on my home computer – 19 percentReceive work-related text messages – 18 percentWanting access to a document on my work computer – 13 percentBeing asked to do work by a boss, client or colleague – 13 percent.
The worst gender for this vacation offense are men with 56 percent saying they were more likely to work, compared to 47 percent among women.

And the one group that can’t seem to get a break is single working Americans, who expect to be asked to do work by the boss more often than their married counterparts, 15 percent versus 6 percent.

For many workers, the decision to keep working through R&R times, is about making sure jobs are secure and going above what’s expected in order to impress employers.

But that can be a recipe for disaster and may ultimately hurt your job performance.

"Rest and renewal ultimately increase our ability to be productive, it is essential to completely unplug when on vacation," said Susan Steinbrecher, a business consultant and author of "KENSHO: A Modern Awakening, Instigating Change in an Era of Global Renewal."

"Most people don’t take renewal seriously," she continued. "I believe our connected, always on, 24/7 society has lost the ability to recharge and renew without distractions. The minute you check an email or voice message while on holiday, you’re likely to get sucked right back in."

Some employers seem to realize the importance of vacation for their workers. The number of employers offering vacation benefits is actually on the rise.

Today, more than half of organizations now provide paid time off, including vacation days, compared to 42 percent in 2009, according to a report released in June by the Society for Human Resource Management.

And some firms are actually trying out unlimited vacation policies.

Alas, many workers still aren’t taking their vacation days seriously, or should I say, un-seriously.

"Today’s work environment of intense time pressures and limited resources means we are all required to put in extra effort, energy and time – which can create a lot of stress," Steinbrecher maintained. "This 'do more with less' work ethic means that if we don’t completely disengage when on vacation, we’re not fully recharging or refueling."

Thursday, July 26

Latest work perk: unlimited vacations

Latest work perk: unlimited vacations

More companies are experimenting with unlimited vacation policies. But is it really all a day at the beach?

By Eve Tahmincioglu, Today contributor
Sanket Naik took a six-week trip last year to Thailand and India to see his family, but he didn’t worry about using up all his alloted vacation time.

Naik, senior director of cloud operations at Coupa, a tech startup, doesn’t have to accrue days off, and he didn’t negotiate a plum deal with his employer. The company just gives him and its staff of 100 all the vacation days they want.

“There’s the flexibility to travel or fulfill personal commitments without violating HR policies. We don’t have to count anymore,” he said about Coupa’s vacation policy, which was implemented in January.

Welcome to the world of unlimited vacation days. Coupa is one of a handful of companies, including TheLadders and Netflix, that have decided to offer the perk to employees.

“This is an unusual benefit and not in the mainstream yet, but more companies seem to be looking at this as an option,” said Steven Miranda, managing director for the Center for Advanced Human Resource Studies at Cornell University ILR School.

"It's not a gimmick," said workplace change management consultant Matthew Stegmeier.

“Organizations that have had success with unlimited vacation, such as Netflix and Red Frog Events, rely strongly on accountability,” he said. “Employees must make sure all their responsibilities are covered prior to leaving, which often means counting on a colleague to pick up the slack. As such, excessive vacation usage will be frowned upon as it grates on colleagues.”

Indeed, unlimited vacation doesn’t mean you can spend your life at the beach. Most employers who offer the option still require workers to get permission for the time off from their managers. And many workers who are offered the benefit end up working during those so-called vacation stints.

During his long vacation in Asia, Naik estimates he worked remotely for Coupa for about two to three weeks, using online tools such as Skype and mobile broadband to get his work done.

When asked whether the mixing of work and leisure time takes away from the goal of a vacation, which is to recharge, Naik said, “That’s the reality. Even if you did not have unlimited vacation, you still have to deal with managing your personal time with work time -- a challenge anyone that works in a modern work environment needs to deal with.”

For Mark Verbeck, Coupa’s chief finance officer, the unlimited vacation policy was about freedom. “We want to empower our people to make the right decisions and be responsible without bogging us down with many pages of policies and rules.”

As for the potential to abuse the system, he said, “If you’re making sure people are getting the job done, then this policy can’t be abused.”

However, Cornell's Miranda said some employees may not take the time off they deserve.

Because there are no specified vacation days, some employees may not take time off, especially if they are worried about their job performance. "If the company has a culture where it's working people to the bone they’ve not eliminated an aspect of forcing people to take time off," he said.

TheLadders, with 200 employees, has had the unlimited vacation-time benefit for three years. The longest period of time anyone has taken off consecutively since it's been offered is about five weeks, said Angela Romano Kuo, vice president of human resources for the company.

“Our salaried employees aren’t given a bank of vacation days; they take what they need,” she said. “If there’s a long weekend or a longer vacation that they want to take, they simply need to get their manager’s approval for the specific time off. Managers will ask the requesting employee for a plan of what will happen to his or her work during the absence, and if they’re confident that the workload will be covered, the request is approved, which it almost always is.”

In the end, she said, “Our employees are responsible for the quality of their work, responsible for the hours they work, so they should also be responsible for the amount of vacation time they use.”

Wednesday, July 25

At the gym, the customer isn't always right

At the gym, the customer isn't always right

Photodisc / Getty Images file

No chatting, ladies. Fitness instructors say it can be tough to get help people get their money's worth.

Every small business owner knows the mantra that the customer is always right. But when it’s your business to get people to exercise, many say that, frankly, the customers don’t always know what’s good for them.

The news last week that a yoga instructor was fired after glaring at a student who used her cell phone during class struck a nerve with fitness professionals who say it can be a constant – and complex – struggle to keep their customers happy, but also in line.

Alice Van Ness, who teaches yoga in Northern California, told The Associated Press she was dismissed from her job teaching yoga at Facebook’s Menlo Park, Calif., campus because she glared at a Facebook employee who sent a text during class.

“That’s ridiculous. It’s stupid. I would be shocked,” yoga instructor Joy Keller said after reading about the student’s attempt at multi-tasking.

Keller, who teaches yoga in San Diego, Calif., said her first thought was that student could have hurt herself, or someone nearby, while focused on the phone instead of the pose.

Then there’s the fact that texting isn’t exactly conducive to a good yoga session.

“Yoga is all about connecting your body with your mind, and it’s hard enough to do that without a cell phone with your hand,” Keller said.

Keller has never actually had someone take a call from the yoga mat, although she has seen students get up and go to the side of the classroom to answer their phone.

But even with phones tucked safely away, she said she has trouble keeping her students focused.

“I can’t even get people to breathe. I say breathe and they don’t do that. They’re thinking about a zillion things,” she said. “They’re probably thinking about who they’re going to text.”

Fitness instructor Linda Taix has seen people text during workouts, chat through instruction or even slip on headphones while she’s leading group activities.

“I’ll watch people on the treadmill and they’re talking on the phone,” said Taix, who is mystified at how someone can get a good workout if they are focused on their conversation rather than getting their heart rate up.

But Taix, who runs a fitness studio as well as a series of Extreme Boot Camp fitness classes in Southern California, said that as a business owner it can be tough to get people to follow the rules without alienating them.

In her Extreme Boot Camp classes, she said she can get a little tougher because people are paying you to be their fitness drill sergeant. The instructors might give students “rewards” such as extra pushups or laps if they slip up in their fitness or diet regime.

But still, she said there are limits.

“We want to be friendly about it because obviously they are civilians, and they do pay you,” she said.

Still, at the gym she said she does sometimes feels insulted by people’s behavior, especially if they are carting their cell phone around during a personal training session or chatting with friends instead of paying attention.

“I’ll say, ‘Hey ladies, I’m sorry, this isn’t a tea party,’” she said.

Taix isn’t aware of losing a student over such a reprimand, but she said that’s partly because she is sensitive that not everyone can take the criticism.

“You have to know their personalities,” she said.

Anthony Wall, director of professional education for the American Council on Exercise, said that for fitness instructors, working with people’s personalities can be just as hard as working on their bodies.

“It’s definitely an area where our trainers trip up,” he said. “The exercise side is relatively easy.”

He said a common complaint is the person who shows up for a group class and then proceeds to do their own exercises, often while standing in the middle of the class distracting people who are trying to follow the instructor.

Gym instructors can lay ground rules at the beginning of class, and even talk to the offenders individually. But sometimes, he said, you have to consider whether it’s worth losing the bad player in order to keep everyone else.

“There are times when you have to fire the participant,” he said.

Keller, the yoga instructor in San Diego, said she has learned over the years that despite her best efforts, not all her clients are going to do what’s best for themselves.

“I had to learn to let go. I can’t be co-dependent,” she said. “I tell them what I tell them. I try to guide them and give them the best instruction, but I have to let go at some point.”

Tuesday, July 24

Coming to a city near you: Wall Street jobs

New York’s biggest investment houses are shifting jobs out of the area and expanding in cheaper locales in the United States, threatening the vast middle tier of positions that form the backbone of employment on Wall Street.

The shift comes even as banks consider deeper staff cuts here, which could undermine the state and city tax base long term.

“Places like New York or London will remain financial centers, but most of the players are taking a much harder look and asking whether they can move large numbers of jobs,” said James Malick, a partner at the Boston Consulting Group who advises banks on relocation. In addition to higher taxes in the New York region, employers face real estate and labor costs significantly above the national average.

Consultants say they have seen a sharp pickup in this trend, known as near-shoring, as opposed to offshoring overseas. Goldman Sachs, during a presentation to investors in late May, even boasted of the cost savings that relocating jobs can bring.

“Some functions need to stay in the United States, but they don’t need to be in New York City or near the client,” Mr. Malick said. And with most investment giants facing anemic revenue and more stringent regulation that cuts into trading revenues, relocation is more tempting than it was before the financial crisis.

Low-level jobs have already migrated to call centers and back offices overseas, while top-end traders and bankers are secure in the New York area, experts say. Instead, services like accounting, trading and legal support, and human resources and compliance are being shifted to places like Salt Lake City, North Carolina and Jacksonville, Fla.

Garry Douyon enjoyed his job helping process trades and working with clients and traders at RBS in Stamford, Conn., earning nearly $100,000 a year, but when the firm decided last fall to move his team to Salt Lake City with a salary of $60,000, he said he really didn’t have much of a choice.

“I didn’t even consider moving,” said Mr. Douyon, who founded a biofuels company, All-City Clean Energy, in Brooklyn with four partners. “I liked RBS but I have my roots here, I have a home, I have kids in school.” A few members of his team decided to go, he added, but most chose to stay in the New York area.

The potential shift has profound implications for New York’s tax base and economy because of Wall Street’s outsize financial profile. Last year, the industry contributed 14 percent of New York State’s tax revenue.

After peaking at 213,000 in August 2007, securities industry jobs in the state fell more than 15 percent in the wake of the financial crisis, according to the Bureau of Labor Statistics. Since then they have risen nearly 12,000, but at 191,200, employment is well below pre-crisis levels. By contrast, over the same period, Delaware gained 1,300 securities jobs while Arizona picked up 2,600.

The federal government does not specifically track securities jobs in Utah, North Carolina or Florida, popular locations for near-shoring. But data from firms illustrates the trend.

Since the end of 2009, Deutsche Bank’s work force in the New York area has fallen to 6,900 from 7,400 even as its staff in Jacksonville rose to 1,000 from 600. Credit Suisse’s staff in the New York region has dropped by 500 in the past four years, but the firm has added 450 positions in North Carolina’s Research Triangle, in the area of Raleigh, Cary, Durham and Chapel Hill. And last year, Bank of New York Mellon cut 350 jobs in New York City while hiring 150 people in Lake Mary, Fla.

New York’s status as a financial capital is not likely to fade, and the state’s share of securities jobs in the United States has held steady at about 24 percent in recent years. “Even as the securities industry goes through a difficult time, New York remains the financial capital of the world and I don’t see that changing anytime soon,” said Thomas P. DiNapoli, the New York State comptroller.

But regional offices perform more and more of the sophisticated work usually associated with Wall Street and nearby trading hubs like Jersey City and Stamford. This parallels a shift in some technology jobs away from Silicon Valley to Portland, Ore., and cities in Texas, said Michael Shires, a professor at the School of Public Policy at Pepperdine, who prepares an annual ranking of the best cities for employment.

Accleration expected
“I expect to see an acceleration,” he said, noting that while these middle-tier jobs may lack the salaries and glamour usually associated with Wall Street, “these are the support people that actually make the stuff work.” What’s more, there are many more positions in the middle of the jobs pyramid at Wall Street firms than at the top.

Deutsche Bank’s office in Jacksonville started out in 2008 as a back-office service center, according to bank officials. Since then, technology workers, legal and compliance staff members, and trading support jobs have been added. More recently, some traders who deal directly with clients are being located there. Lower costs and taxes are behind the moves, the officials said.

J. Keith Crisco, the North Carolina secretary of commerce, visits New York three to five times a year, meeting with executives from firms already in North Carolina, like Credit Suisse, while reaching out to prospects. Another trip is planned this month.

North Carolina provided Credit Suisse with roughly $14 million in incentives to bring it to the state.

Delaware, which announced in April it had lured up to 1,200 JPMorgan Chase jobs to the state, is set to pay the giant bank $10.1 million in cash incentives. Alan Levin, director of the Delaware Economic Development Office, estimates the typical salary for those jobs at $78,000 a year.

“These jobs will be here for a long time,” he said. “We want to create not just jobs but careers.”

The erosion of middle-tier jobs in the financial sector is not limited to New York. In a presentation to analysts in late May, the president of Goldman Sachs, Gary Cohn, described what he called the firm’s “high-value location strategy.” By looking outside hubs like New York, London, Tokyo and Hong Kong, he said, the firm could save 40 percent to 75 percent on job-related expenses.

Over a third of Goldman hires in 2011 and 2012 have been in cities like Bangalore in India, Salt Lake City, Dallas and Singapore, Mr. Cohn said. Utah, with looser regulation and lower taxes than New York, has been a particular area of growth for Goldman.

While Goldman’s work force in the New York area has been flat since the end of 2009 at just over 10,000, full-time employees in Salt Lake City have doubled to 1,400, making that office Goldman’s sixth-largest globally. In addition to its technology and operations staff, Goldman has expanded activities like research and investment management there.

These days, Mr. Douyon is building a refinery at the Brooklyn Navy Yard that aims to make biodiesel from waste products like vegetable oil and grease from restaurants. While he says it is a more flexible way of life and, he hopes, more lucrative, he still feels the tug of the trading floor.

“To be honest, I miss working on Wall Street,” he said.

Jessica Silver-Greenberg contributed reporting.

This story first appeared in the New York Times under the headline, "Financial Giants Are Moving Jobs Off Wall Street."

Copyright © 2012 The New York Times

Monday, July 23

The states that are dying for healthcare coverage

By Alexander E.M. Hess and Samuel Weigley, 24/7 Wall St.
The lack of medical coverage in America is a serious problem as approximately 50 million people were uninsured all through 2010. But the U.S. Supreme Court on Thursday ruled the Patient Protection and Affordable Care Act, which was passed in 2010, was constitutional. The legislation, once implemented in its entirety, is expected to cover 30 million Americans currently lacking coverage.

The lack of medical insurance has had grave consequences for individuals and the nation. In 2010 alone, 26,100 people died because they had no health insurance — that amounts to 502 preventable deaths a week. However, some states fared better than others. Based on the latest report by Families USA, a health care consumer advocacy group, 24/7 Wall St. identified the 10 states with the highest number of deaths per 100,000 people due to a lack of insurance.

Not surprisingly, nearly all of the states with the most residents dying due to a lack of insurance also had high numbers of uninsured residents. Seven of the states on the list were among the 10 states with the highest percentage of people without health coverage. Seven of the states were also in the bottom 10 for the lowest rates of private insurance coverage.

People without health insurance often forgo medical treatment for different reasons. According to Families USA, a supporter of President Obama’s health care reform law, uninsured adults are nearly four times more likely than insured adults to delay or avoid preventive care screening due to cost. Uninsured adults are also nearly seven times more likely to go without needed care due to cost than privately insured adults.

“You still see a very, very strong correlation between uninsurance and poor health-care outcomes — including mortality — and [that is] because people aren’t getting the type of care that they need,” Kim Bailey, the research director for Families USA, told 24/7 Wall St.

Many of the states with high death rates due to a lack of insurance also were among the poorest states in the country. The top seven states on this list also are among the 10 states with the highest poverty rates. Every state on this list is in the top half.

Poor health also appears to play an important role. States with high death rates due to lack of insurance had a high percentage of people with lifestyle-related risk factors for poor health. Of the states on our list, five of them have among the 10 highest percentages of smokers and among the 10 lowest percentages of people who eat vegetables at least three times a day. Four have among the 10 highest proportions of overweight or obese adults. Seven states on the list were in the bottom 10 in terms of life expectancy.

Based on Families USA’s report, “Dying for Coverage: The Deadly Consequences of Being Uninsured,” 24/7 Wall St. identified the 10 states with the highest number of deaths from being uninsured per 100,000 residents. 24/7 Wall St. reviewed the methodology used by Families USA, first developed in 2002 by the Institute of Medicine, to determine excess mortality from being uninsured. This method considers the proportion of people who are insured and uninsured, the mortality risks for the uninsured and the number of expected deaths from a hypothetical fully insured population. 24/7 Wall St. also identified poverty rates and median income by state, provided by the U.S. Census Bureau. The Kaiser Family Foundation’s website — Statehealthfacts.org — provided health-related data, including life expectancy, obesity and diabetes rate.

These are the 10 states dying for health coverage.

1. Mississippi
• Excess deaths from a lack of insurance (per 100,000): 15.82
• Percent of population uninsured: 18.2 percent (ninth highest)
• Percent living below the poverty line: 22.4 percent (tied for the highest)
• Life expectancy at birth: 74.81 years (The lowest)

Many residents of Mississippi cannot afford insurance. The state has the lowest median income in the nation and the highest percentage of residents living below the poverty line. As a result, Mississippi has the second-lowest percentage of residents with private health insurance coverage, at 56.49 percent. Exacerbating the problem, residents are especially unhealthy. Among all states, Mississippi has the second-highest obesity rate, the second-highest percentage of adults with diabetes and the fifth-highest percentage of adult smokers in the nation. Probably on account of both high uninsurance rates and poor personal health, Mississippi is the only state where life expectancy was below 75 years at birth in 2010. Mississippi’s excess death rate was the highest among all states and twice that of 28 states in 2010.

2. Louisiana
• Excess deaths from a lack of insurance (per 100,000): 14.94
• Percent of population uninsured: 17.8 percent (10th highest)
• Percent living below the poverty line: 18.7 percent (sixth highest)
• Life expectancy at birth: 75.39 years (fourth lowest)

Louisiana has one of the lowest life expectancies at birth in the U.S. at 75.4 years. Though much of this certainly can be attributed to poor health choices — the state has a higher number of smokers and its residents eat comparatively little fruit or vegetables — the inability of many residents to receive proper care due to lack of insurance is also a contributing factor. In Louisiana, 17.8 percent of the population goes without health insurance, despite the fact that 21.9 percent of the population qualifies for Medicaid — the fifth-highest proportion among all 50 states. The high uninsurance rate is partly due to the relative economic disadvantage of the state’s residents. With 18.7 percent of residents living below the poverty line — the sixth-highest rate in the nation — and a median income that is more than $5,000 lower than the U.S. average, just 58.39 percent of state residents have private insurance. That is the fourth-lowest such rate in the nation.

3. Arkansas
• Excess deaths from a lack of insurance (per 100,000): 13.49
• Percent of population uninsured: 17.5 percent (tied for 12th highest)
• Percent living below the poverty line: 18.8 percent (fifth highest)
• Life expectancy at birth: 76.09 years (sixth lowest)

According to the Council for Community and Economic Research’s ACCRA Cost of Living Index, Arkansas had the second-lowest cost of health care in the United States. However, with 18.8 percent of the population living below the poverty line and a median annual household income of just $38,307 — both among the lowest figures for any state — many Arkansans cannot afford private health coverage. As a result, just 58.78 percent of the population has private insurance, the sixth-lowest figure in the country.

4. South Carolina
• Excess deaths from a lack of insurance (per 100,000): 13.48
• Percent of population uninsured: 17.5 percent (tied for 12th highest)
• Percent living below the poverty line: 18.2 percent (seventh highest)
• Life expectancy at birth: 76.57 years (ninth lowest)

South Carolina is not a particularly healthy state: 67.4 percent of the state’s residents are either overweight or obese, just 23.3 percent eat proper amounts of fruit, only 22.9 percent eat proper amounts of vegetables and 10.7 percent are diabetic. All of these are among the highest rates in the country. Meanwhile, much of the cost of health care falls to private individuals. The state spent about $6,300 per person on health care in 2009, among the lowest levels, and just 51.9 percent of residents have employer-based health coverage. Unfortunately, South Carolinians have trouble affording insurance on their own: Median income was just $42,000 in 2010, significantly lower than the $50,000 national average, 18.2 percent of residents live below the poverty line and the cost of health care is higher than is the case in many states.

5. New Mexico
• Excess deaths from a lack of insurance (per 100,000): 12.15
• Percent of population uninsured: 19.6 percent (sixth highest)
• Percent living below the poverty line: 20.4 percent (tied for the highest)
• Life expectancy at birth: 78.21 years (20th lowest)

New Mexico has a fairly healthy population, with relatively low heart disease and obesity rates. However, just 55.8 percent of residents have private health insurance — the lowest rate of any state in the country. One possible reason is that few employers provide insurance — just 45.6 percent of the population has employer-based health coverage. The relative poverty of the state also means many residents cannot afford medical coverage. The median income in the state was just above $42,000 in 2010, far below the national median of about $50,000, while 20.4 percent of people live below the poverty line — the highest rate in the country.

Sunday, July 22

Stockton, Calif. files for Chapter 9 bankruptcy

SAN FRANCISCO — Stockton, California, became the largest city to file for bankruptcy in U.S. history on Thursday, after years of fiscal mismanagement and a housing market crash left it unable to pay its workers, pensioners and bondholders.

The filing by the city of 300,000 people followed three months of confidential talks with its creditors aimed at averting bankruptcy.

"We are now a Chapter 9 debtor," Marc Levinson, the lawyer who filed the city's voluntary petition in the Eastern District of California, in Sacramento (Case 12-32118) told Reuters.

Pleadings in support of Stockton's eligibility for Chapter 9 bankruptcy will be filed on Friday, Levinson said.

Stockton, which officially declared insolvency and its desire to restructure its debt, also filed a separate list of its major unsecured creditors.

The California Public Employees' Retirement System, which manages Stockton's pension plan, tops the list. The retirement system has a $147.5 million claim for unfunded pension costs.

Other top creditors include investors holding $124.3 million of Stockton's pension obligation bonds, $40.4 million of the city's variable rate demand obligations, $35.1 million of the city's public facilities fees bonds and $31.6 million of the city's parking garage debt.

Wells Fargo Bank NA is listed as the trustee for the investors.

"We are extremely disappointed that we have been unable to avoid bankruptcy," Mayor Ann Johnston said in a statement. "This is what we must do to get our fiscal house in order and protect the safety and welfare of our citizens."

Negotiations with creditors ended on Monday with Stockton failing to win enough concessions to help close its shortfall for the fiscal year starting on July 1. The city will also file a motion to request permission to share information from the confidential mediation process.

Healthcare to be phased out, pensions unchanged
The Chapter 9 bankruptcy filing, a rare event for U.S. municipal debt issuers, was left as the only option to close a deficit of $26 million in Stockton's budget for its the new fiscal year, according to city officials.

The budget approved on Tuesday by Stockton's city council suspends $10.2 million in debt payments and cuts employee compensation and retiree benefits by $11.2 million to help close the deficit.

About $7 million in savings would come from cutting retiree medical benefits for one year.

While the retiree medical benefits will eventually be eliminated, Stockton plans to leave its public pensions unchanged while in bankruptcy proceedings. Attempts to pare them would invite long and expensive challenges.

Stockton becomes the nation's most populous city to file for Chapter 9 bankruptcy. But Jefferson County, Alabama, remains the biggest municipal bankruptcy in terms of debt outstanding, as it had a debt load exceeding $4 billion when it filed in 2011. Stockton has about $700 million in bond debt.

Stockton has suffered a sharp drop in revenue since the collapse of its once red-hot housing market, forcing it to cut more than $90 million in spending in recent years.

The housing boom transformed the farming city into a distant bedroom community of the San Francisco Bay area, and the bust put it at, or near, the top of national foreclosure rankings in recent years.

Standard & Poor's Ratings Services downgraded Stockton to default from selective default on Wednesday, citing the city's move toward bankruptcy and expectations that it will not substantially pay all of its obligations as they come due.

Moody's Investors Service on Wednesday cut to 'Caa3' various general fund-supported debts of the city, putting the ratings in the "substantial risk" category, one notch above the "may be in default, extremely speculative" grouping. Moody's said its move was based on Stockton's bankruptcy budget.

(c) Copyright Thomson Reuters 2012.

Saturday, July 21

Ex-Citigroup VP gets 8 years for stealing $22M

NEW YORK (Reuters) - A former Citigroup Inc vice president who admitted to embezzling more than $22 million was sentenced on Friday to 8 years in prison, federal prosecutors said.

Gary Foster, 35, pleaded guilty in September to siphoning the money from his employer between 2003 and 2010, transferring the funds to Citigroup's cash account before wiring it into his own personal account at a different bank.

He was sentenced by U.S. District Judge Eric Vitaliano in Brooklyn federal court to 97 months on the bank fraud charge.

An attorney for Foster was not immediately available for comment. A spokesman for Citigroup declined comment.

Federal prosecutors said Foster "steadily and repeatedly enriched himself for many years at his employer's expense," according to a pre-sentencing court filing.

Foster was able to evade detection for years by making false accounting entries that made it seem like the wire transfers were in support of existing Citigroup contracts, when they were actually being transferred to his account, according to the complaint. He used the money to fund a lavish lifestyle, purchasing luxury automobiles including a Ferrari and Maserati, and properties in Brooklyn, Manhattan and New Jersey, prosecutors said.

The fraud was uncovered during an internal audit of Citigroup's treasury department. Citigroup immediately informed the authorities and cooperated with the federal investigation, according to an affidavit from Thomas D'Amico, a special agent with the Federal Bureau of Investigation.

The government said it had seized cars and property from Foster worth approximately $14 million, which he forfeited pursuant to a plea agreement.

Foster, who worked for Citigroup for 10 years, was a vice-president in the treasury finance department when he left the company in January 2011. He was arrested in July at John F. Kennedy Airport.

He voluntarily returned to the United States from a trip to Bangkok after his family told him there was a warrant for his arrest, his lawyers said.

The case is U.S. v. Foster, U.S. District Court for the Eastern District of New York, No. 11-601.

For the U.S.: Michael Yaeger and Karen Hennigan.

For Foster: Isabelle Kirshner of Clayman & Rosenberg.

(Reporting by Jessica Dye)

(c) Copyright Thomson Reuters 2012.

Friday, July 20

Madoff's brother pleads guilty in Ponzi scam

By msnbc.com staff, WNBC, and news wires
UPDATED 12:15 p.m. ET: Peter Madoff, the brother of convicted scammer Bernie Madoff, pleaded guilty Friday to doctoring records to hide the Ponzi scheme orchestrated by his older sibling that swindled thousands of people out of billions of dollars and stunned the world in the throes of the financial crisis.

"I am deeply ashamed of my actions," he told a hearing in downtown Manhattan federal court on Friday morning, several hours after he was taken into custody by FBI agents at his lawyer's office in midtown Manhattan.

"I want to apologize to anyone who was harmed and my family. I'm here to take responsibility for my actions," Peter Madof

Peter Madoff, 66, had been arrested earlier Friday at his lawyer's office in midtown Manhattan and had been expected to enter the guilty plea for which he's expected to get 10 years in prison. He entered the plea in the same courthouse where his brother, 74, was convicted and sentenced in March 2009 to 150 years in prison for the largest Ponzi scheme ever.

"Peter Madoff enabled the largest fraud in human history. He will now be jailed well into old age, and he will forfeit virtually every penny he has. We are not yet finished calling to account everyone responsible for the epic fraud of Bernard Madoff and the epic pain of his many victims," said Manhattan U.S. Attorney Preet Bharara in a statement.

Federal prosecutors on Wednesday revealed in a letter that Peter Madoff had been criminally charged with participating in his brother's fraud. He and his brother are the only Madoff family members to have been arrested and charged in the Ponzi scheme.

The letter, filed in federal court in Manhattan, said Peter Madoff would plead guilty to charges of conspiracy to commit securities fraud and falsifying records as well as other charges. He agreed not to seek a sentence other than 10 years in prison, the letter said.

Peter Madoff also agreed to forfeit about $143.1 billion, including all real and personal property, the letter said. The amount is symbolic, being more than twice the estimated size of the fraud.

John Wing, a lawyer for Peter Madoff, did not immediately respond to a request for comment.

Peter Madoff was chief compliance officer at Bernard L. Madoff Investment Securities LLC when his brother was arrested on December 11, 2008.

Prosecutors have not said whether criminal cases are also being prepared against Bernard Madoff's son, Andrew, who was co-director of trading, or his niece, Shana, who was a compliance officer at the firm.

In May, Irving Picard, the trustee seeking money for victims of the Ponzi scheme, named members of Madoff's family in an expanded $255.3 million lawsuit, claiming they should have detected Bernard Madoff's Ponzi scheme at the firm that operated "as if it were their family piggy bank."

Besides Madoff's brother Peter, Picard sued Andrew Madoff, who was co-director of trading; the estate of son Mark, co-director of trading who committed suicide in December 2010; and Shana Madoff.

In the lawsuit, Picard described Peter Madoff as a savvy investor who once served as vice-chairman of the board of governors of the Financial Industry Regulatory Authority.

Picard is seeking $90.4 million from Peter, $81.3 million from Mark Madoff's estate, $73.8 million from Andrew and $15.3 million from Shana.

Lawyers for Andrew and Shana Madoff did not immediately return calls seeking comment.

Between 1993 and 2008, Peter Madoff was paid over $36 million in salary and bonuses, Picard said, and the firm funded his lavish lifestyle, including $140,000 for a Ferrari in 1995 and a home on Manhattan's upscale Park Avenue.

Peter Madoff is charged with one count of conspiracy to commit securities fraud and mail fraud as well as making false statements about the firm's compliance program and investment advisory business.

He is also charged with falsifying records.

About a dozen people have now been implicated in criminal wrongdoing related to the Madoff firm.

Five have pleaded not guilty: Annette Bongiorno, Daniel Bonventre, Joann Crupi, Jerome O'Hara and George Perez.

Frank DiPascali, the former chief financial officer often called Bernard Madoff's right-hand man, pleaded guilty in August 2009 and has been praised by prosecutors for his cooperation. He has yet to be sentenced.

Picard has estimated customers of the Madoff firm lost about $20 billion. On Monday, the U.S. Supreme Court let stand a lower court ruling on the trustee's methods for calculating losses. That decision could help Picard repay customers faster.

Reuters contributed to this report.

Thursday, July 19

RIM to cut 5,000 jobs, delay new phones

TORONTO — Struggling BlackBerry maker Research In Motion Ltd. said Thursday it will delay the launch of new phones deemed critical to the company's survival and revealed its business is crumbling faster than thought.

The Canadian company posted results for its latest quarter that were worse than analysts had expected. It's cutting 5,000 jobs and unexpectedly delaying the launch of its new phone operating system, BlackBerry 10, until after the holiday shopping season.

After several delays, the first phone with BlackBerry 10 was expected later this year. It will be delayed even longer, to the first quarter of next year, RIM CEO Thorsten Heins said.

The delay comes as North Americans are abandoning BlackBerrys for iPhones and Android phones. Analysts have long said the new BlackBerrys will come out too late to reverse RIM's fortunes. RIM was banking its future on the new BlackBerry 10 system, which is meant to offer the multimedia, Internet browsing and apps experience that customers now demand.

Now it will come out months after a new iPhone is expected to be released. Current and previous iPhones have made the BlackBerry look ancient.

Heins had vowed to do everything he could to release BlackBerry 10 this year but he said Thursday that the timetable simply wasn't realistic. He said RIM's top priority remains a successful launch of the new BlackBerrys.

"I will not deliver a product to the market that is not ready to meet the needs of our customers," Heins said on a conference call with analysts. "There will be no compromise on this issue."

The jobs cuts are part of a previously announced initiative to cut $1 billion in annual costs this year. They represent about 30 percent of RIM's workforce of about 16,500.

"It is necessary to change the scale and refocus the company," Heins said. "I fully understand the impact a workforce reduction of this size has on our employees and the communities in which we operate. I assure you that we wouldn't move forward with a change of this size if we didn't think it was critical for our future."

RIM shares tumbled $1.27, or 14 percent, to $7.86 in extended trading, after the release of the results. If they hold that level into regular trading Friday, they will set a nine-year low.

Heins acknowledged that he delivered "a lot of tough news."

"This was a challenging quarter for the company on many fronts," he said. "And I am not satisfied with the financial performance we are reporting today."

He said the company will release fewer models than in the past. He also said RIM will launch a BlackBerry 10 model with a physical keyboard close to the launch of a touch-screen model. RIM earlier said it would come out with the touch-screen model first, but didn't say when it would make one with a physical keyboard, a feature that many people stay with BlackBerrys for.

RIM has hired a team of bankers to help it weigh its options as it loses market share and its business erodes. Heins said they continue to study those options, but he declined to elaborate and said the board would have to approve any changes.

RIM lost $518 million, or 99 cents a share, in its fiscal first quarter, which ended June 2. That compares with a profit of $695 million, or $1.33 per share, a year ago.

Excluding impairment charges, the latest loss was 37 cents per share. Analysts polled by FactSet were expecting a loss of 3 cents.

Revenue fell 43 percent to $2.8 billion, well below analyst expectations at $3.1 billion.

RIM said it shipped just 7.8 million BlackBerry smartphones in the quarter, down 41 percent from 13.2 million a year earlier.

Heins said the company is expecting the next several quarters to be "very challenging." He said RIM is in the midst of a platform transition and faces an increasingly competitive environment. Research firm IDC says BlackBerry's U.S. market share has plummeted from 41.1 percent in 2007 to 3.6 percent in first three months of 2012.

Colin Gillis, an analyst with BGC Financial, said the results and news of a BlackBerry 10 delay is far worse than the horrible news he had already expected. He said the worst quarters are still in front of RIM and management is not reducing expenses fast enough to compensate for the revenue decline. He expects this to be the last quarter that RIM will see subscriber growth and said he would not be surprised if RIM announces more layoffs by the end of the year.

"When a technology gets old, it's not a slow fade. It's a sharp cliff," Gillis said. "There is very little market for old technology."

Michael Walkley, an analyst with Canaccord, called the BlackBerry 10 delay dire and problematic in a rapidly changing technology sector.

"The biggest disappointment is the delay of the BlackBerry 10," he said. "It's extremely challenging for them to turn around the business when their new smartphone is launching that late."

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Wednesday, July 18

Big banks targeted as rate-fixing probe widens

An international probe into alleged interest rate fixing that led to $453 million in fines against Barclays Bank is taking aim at four other banks, including Citigroup, UBS, HSBC and Royal Bank of Scotland, British officials said Thursday.

Investors were punishing bank shares amid worries that the banks will also be hit with hefty fines.

British Treasury chief George Osborne said the four banks were being probed for allegedly providing false figures on key interest rates upon which mortgages and consumer loans are priced.

On Wednesday, U.S and British regulators imposed the fines on Barclays for manipulating the so-called LIBOR — the London interbank offered rate — to its advantage from 2005 to 2009.

The probe is part of a multiyear investigation into whether banks manipulated the key rate during the financial crisis to help boost profits and hide their ailing financial condition. The Wall Street Journal, which initially raised questions about the rate in a series of stories in 2008, said the fine against Barclays was the biggest victory yet for regulators in the probe.

Barclays made the deal with regulators in the U.S. and in Britain.

"Banks were clearly acting in concert," said Andrew Tyrie, a British lawmaker, who is also chairman of the influential Treasury Committee in the House of Commons. "I fear it's not going to be the end of the story, that we are going to find that other banks have been involved."

Tyrie said his committee would summon Barclays chief executive Bob Diamond to explain what happened at the bank.

Diamond has decided to waive his 2012 bonus in wake of the fines and is facing calls to step down.

Prime Minister David Cameron, when asked whether Diamond should resign, said he thinks "the whole management team have got some serious questions to answer. Let them answer those questions first."

The massive fines are unlikely to be the end of the pain for Barclays. The cost of lawsuits related to the LIBOR scandal will likely be bigger, said Sandy Chen, banking analyst at Cenkos Securities.

"Since Royal Bank of Scotland, HSBC and Lloyds Banking Group have also been named in lawsuits, we expect they will also face significant fines and damages. We are penciling in multiyear provisions that could run into the billions," Chen said.

The LIBOR is an average rate set by banks each morning that measures how much they're going to charge each other for loans. That rate, in turn, affects rates on many loans for consumers and businesses.

The U.S. Justice Department said Barclays would not face criminal prosecution, subject to certain conditions, but individual employees or officers could be prosecuted.

Diamond waived any bonus for this year, as did finance director Chris Lucas, chief operating officer Jerry del Missier and Rich Ricci, the chief executive of corporate and investment banking. Diamond said the decision reflected "our collective responsibility as leaders."

Martin Taylor, who was CEO of Barclays between 1995 and 1998, said the bank's board will have to make a decision whether Diamond can carry on in his post.

Though Taylor does not believe Diamond ordered anyone to fiddle the rates, and thinks Diamond should stay if he can "help clean out the stables," he told BBC radio that only the board can make that judgment.

The traders involved in the manipulations worked in Barclays Capital, the investment bank which Diamond headed between 2005 and 2009.

Former Barclays chief Taylor said he was confident that Diamond hadn't sanctioned the misbehavior in the unit, but added that the company's culture might have been a factor behind the misdemeanors.

"Bob runs an extraordinarily competitive and aggressive ship, and that is one reason why Barclays Capital has been very successful in the first decade of the century," Taylor said.

"And I think that when people are pushed to go to the limit, you know what traders are like, they sometimes go beyond it. They don't need to have an instruction from headquarters to go beyond it, they think it is what the bank might expect, perhaps."

"Somebody at senior level somewhere will certainly have known. I can't believe that Barclays haven't identified who that is," Taylor added.

Reuters contributed to this report.

CNBC's Kelly Evans reports Barclays has serious questions to answer over an investigation on whether the banking giant manipulated interbank lending rates over several years.

Tuesday, July 17

News Corp. board OKs dividing company in two

CNBC's Andrew Ross Sorkin reports News Corp has announced it will separate into two businesses and Rupert Murdoch will serve as chairman of both companies.

By msnbc.com staff and news wires
Rupert Murdoch's News Corp said on Thursday it would pursue splitting the $60 billion media conglomerate into separate publicly traded publishing and entertainment companies.

Murdoch will be chairman of both companies and will be chief executive of the entertainment business. The company did not name a chief executive for the new publishing company. The company said it plans to put together management teams and boards for both businesses over the next several months.

News Corp's board, overseen by the 81-year-old Murdoch, met on Wednesday and authorized management to move ahead with the separation, the company said.

The publishing side is expected to be much smaller, with some analysts valuing it at about $5 billion, compared with the current market value for News Corp. as a whole of about $54 billion.

"There is much work to be done, but our board and I believe that this new corporate structure we are pursuing would accelerate News Corporation's businesses to grow to new heights, and enable each company and its divisions to recognize their full potential — and unlock even greater long-term shareholder value," Murdoch said in a statement.

Industry analysts say the faster growing pay-TV segment would be valued more highly by new investors not willing to buy shares in a company burdened by a newspaper industry in decline.

Under the current proposal, News Corp. shareholders will receive one share of common stock in the new company for each share of News Corp. that they currently hold. Each company would maintain two classes of stock.

A question remains about which entity would bear the financial risks of the ongoing U.K. probe into phone hacking and bribery. Besides legal costs, News Corp. also faces potential fines in the U.S. under the Foreign Corrupt Practices Act, which punishes companies that have bribed officials abroad.

British authorities have been probing allegations that News Corp. journalists at its now-shuttered News of the World and other papers hacked into phones and bribed public officials to gain exclusive information.

The splitting of News Corp. would be a symbolic turning point for its 81-year-old CEO. Murdoch's media empire was built on the foundation of a single Australian newspaper he inherited from his father.

Below, Murdoch tells CBNC's David Faber in an exclusive interview that he'll be an active Chairman in the new companies. He also says it remains to be seen if his children will want to fully take the reins of the businesses after he steps down.

Reuters and The Associated Press contributed to this report.

Monday, July 16

JPMorgan's trading loss could hit $9 billion — report

JPMorgan's trading loss could hit $9 billion — report

Yuri Gripas / REUTERS

JPMorgan Chase's CEO Jamie Dimon testifies before lawmakers.

The loss from JP Morgan’s botched trade could total as much as $9 billion, far higher than the original estimates of the shortfall, according to a report in The New York Times.

JP Morgan’s CEO Jamie Dimon estimated in May that the bank’s losses from the trade, which came as a result of a bad bet on credit derivatives, would be $2 billion, and might double within the next few quarters.

The Times’ story cites an internal report that JPMorgan made in April that showed the losses could reach $8 billion to $9 billion, in a worst-case scenario. But the newspaper also noted that because JPMorgan has already been unwinding its positions, some expect that the losses will not be more than $6 billion to $7 billion.

The newspaper also said the bank’s exit from its money-losing trade is happening faster than many expected. JP Morgan had previously said it hoped to clear its position by early next year, the Times said.

Dimon has appeared before lawmakers on Capitol Hill in recent weeks to explain the origin of the multibillion-dollar trading loss.

Lawmakers peppered him with questions about regulation and risky practices at the bank, but did not press him to give an update on the estimated trading loss.

Reuters contributed to this report.

CNBC's Kate Kelly reports that JPMorgan's trading loss is likely to be less than $9 billion.

Sunday, July 15

NYT: Sources say Airbus planning first US plant

Airbus, the European plane maker, plans to build its first assembly line in the United States in Mobile, Ala., in an aggressive foray into the world’s largest market for single-aisle airplanes, people with knowledge of the plan said on Wednesday.

The plan calls for an investment of several hundred million dollars in a plant on Boeing’s home turf that could eventually assemble dozens of Airbus’s popular 150-seat A320 jets each year. Details are expected to be announced as early as Monday, said the people, who spoke on condition of anonymity because the plan was still confidential.

In taking the plunge into the United States, Airbus is betting that American airlines, many of which have large fleets of aging jets, will be enticed to consider an A320 that was “made in America” over Boeing’s competing 737. By assembling the planes with nonunion American workers, and in using dollars, Airbus also stands to reduce production costs.

Globally, Airbus and Boeing split the market for single-aisle planes fairly evenly. But in the United States, Airbus holds a 20 percent share.

North America is the biggest market for single-aisle planes. Airbus has forecast that nearly 70 percent of new jet sales worldwide over the next 20 years — 19,200 aircraft worth $1.4 trillion by 2030 — will be of this type. Forty percent of those planes are expected to replace aging, less fuel-efficient aircraft.

“If this is confirmed, it is nothing short of a tectonic shift in the dynamics of the North American aerospace market, with strong ramifications for both commercial and defense,” said Michel Merluzeau, a managing partner at G2 Solutions, an aerospace consultancy in Kirkland, Wash.

“That Airbus is considering doing this suggests that they view investment in Alabama as a necessary tool to maintain their competitiveness in North America,” he said.

But the move to open an American factory could raise eyebrows in European capitals and among labor unions — particularly in France, where the new Socialist government of President Francois Hollande has said it will seek to punish companies that move jobs overseas with tax penalties and with the withdrawal of certain state subsidies. Airbus opened its first non-European assembly line in China four years ago.

Stefan Schaffrath, a spokesman for Airbus in Toulouse, France, said Wednesday that the company had “nothing to announce at this point.”

But Fabrice Bregier, the chief executive of Airbus, was quoted in a Spanish newspaper interview published on Wednesday as saying that an American assembly line was “part of a stream of ideas in our international development.”

“We are studying what we have to do to be close to our customers,” Mr. Bregier told the newspaper, El Economista.

It was not immediately clear when Airbus expected the plant to open or how many planes it would initially produce. Its plant in Tianjin, China, assembles three planes a month, 8 percent of Airbus’s global output of single-aisle planes.

Mr. Merluzeau estimated that it would be three to four years before a Mobile plant would be ready to begin operations.

An agreement to build an assembly line in Mobile would be the culmination of a seven-year on-again, off-again courtship between Alabama officials and Airbus’s parent company, European Aeronautic Defense and Space.

As long ago as 2005, EADS, which already has an engineering site in Mobile, proposed building a $600 million assembly line for its larger A330 aircraft as part of a bid for a $35 billion United States Air Force contract for aerial fueling tankers that was awarded to Boeing last year.

An earlier move into the United States yielded significant payoffs for the company. The American market share of EADS’s helicopter division, Eurocopter, doubled to around 50 percent after the company opened an assembly line in 2004 in Columbus, Miss., for its UH-72 Lakota and A-Star choppers.

European governments are likely to be wary of such a move by a company considered one of Europe’s industrial jewels. But according to one person with knowledge of the plan, the governments are likely to be persuaded that it could eventually create as many as 10 jobs in Europe — not only at Airbus, but also in its supplier network — for every one job created in Alabama.

This story, "Airbus Is Said to Plan A Factory in Alabama," originally appeared in The New York Times.

Copyright © 2012 The New York Times

Saturday, July 14

Small business gives health ruling thumbs up

Tammy Krings doesn’t understand what the fuss is all about.

The small business owner from New Albany, Ohio thinks the Affordable Care Act the U.S. Supreme Court upheld Thursday will help lower the cost of providing health care to the 160 employees at her corporate travel agency, TS24.

“I was very happy about it,” Krings said after the court's decision. ”It will be positive for our organization.”

That puts her in stark contrast to small business advocacy groups, which argue that it will raise costs, add uncertainty to their businesses and put a damper on job creation.

Not so, says Krings. She said her company’s health insurance premiums will rise much more slowly than the 30 percent a year increases she’s been paying in recent years. By prodding younger, healthier workers to sign up for coverage, she said, the law will help offset the cost of covering older workers who consume more care.

“We don’t have the balance of healthy people on our program,” she said. “Our little business is, I think, a very micro example of what the country faces at large.“

Business groups reacted viscerally to the news that the high court upheld the law.

“Small-business owners are going to face an onslaught of taxes and mandates, resulting in job loss and closed businesses,” according to Dan Danner, President and CEO of the National Federation of Independent Business, one of the plaintiffs in the suit, which sought to strike down the law.

“Left unchanged, (the law) will cost many Americans their employer-based health insurance, undermine job creation, and raise health care costs for all," said U.S. Chamber of Commerce President and CEO Thomas J. Donohue.

“This law will have a dramatic, negative impact on every employer and employee in the United States and further constrain job creation and economic growth,” according to Matthew Shay, CEO of the National Retail Federation.

With Thursday’s ruling, the 2010 health care law will continue to be phased in over the next five years. When fully implemented, it’s expected to provide health coverage to about 30 million currently uninsured people, extending coverage to more than 9 in 10 eligible Americans.

Some provisions are already in effect. Young adults can stay on their parents' insurance up to age 26. Insurers can't limit how much a policy pays to each person over a lifetime. Co-payments for preventive care have been eliminated.

For months, small business groups have complained that uncertainty about the health care law had produced a chilling effect on job growth, as employers postponed hiring decisions until the law’s legal foundation was settled.

To be sure, some uncertainty remains. Various specific regulations, for example, have yet to be written by the Department of Health and Human Services.

GOP vows to press for repeal
Republicans have vowed to continue to press for the law’s repeal, a prospect that will depend heavily on the outcome of the November election. Even if they fail in that effort, the sweeping scope of the law makes it likely that Congress will make changes in the next few years as its wider impact is felt.

"There have to be some tweaks,” said Mike McAllister, CEO of Humana, one of the country’s largest health insurers. “This is a big bill and in these cases there are things that have to be done in the next handful of years to make it better.”

One of those “tweaks” will likely center on the tax breaks the bill provides for the smallest businesses, who have complained loudly about the $2,000 per worker penalty that the law imposes on companies that don’t provide health coverage. That fee is partially offset by a tax credit for companies with 25 or fewer workers.

Some opponents of the bill have argued the tax credit provision could prompt very small companies to stop hiring once they reach 25 employees, or even fire workers to take advantage of the credit.

Under the health car law, all businesses with 50 or more employees must provide health care benefits to those employees by 2014. MSNBC"s JJ Ramberg joins NewsNation to discuss.

Krings said that argument doesn’t make much sense. “Maybe I’m just not as smart as these other guys,” she said. “But the fact is when I need people I hire them regardless of a tax credit or a tax break. A tax itself does not dictate how I manage my business.”

Newly created insurance markets are expected to make it easier for individuals and small businesses to buy affordable coverage.

The law also includes provisions to shift some of the cost of health care from employers to their employees, who will spend more of their own money when they seek medical care. The goal is to prompt patients to shop around for care rather than consume health products and services without regard for cost.

“People will have cost sharing, which they will manage out-of-pocket,” said Robert Kocher, a guest scholar at the Brookings Institution. “That’s going to lead to market-based competition and tools coming on the market that show you the price that you'll pay for different providers. Those will vary by as much as 300 to 400 percent. That allows consumers to move towards the lower-priced, better-quality providers.”

Krings said she expects that cost sharing will help contain the overall cost of care and save money for companies like hers.

“Once you create that kind of transparency, that’s going to cause the consumer to take pause and say 'Wow: why is this so expensive?'” she said. “That’s part of what is broken. There hasn’t been this transparency. There hasn’t been the personal responsibility to care so much about it."

Friday, July 13

Ex-employee offers insider take on Facebook's culture

From Facebook's company-obsessed culture to its rowdy parties, a former employee is airing some of the social network's dirty laundry in a book released Tuesday.

Katherine Losse, a former employee who worked in customer service and eventually became the ghostwriter for company CEO Mark Zuckerberg, wrote "The Boy Kings: A Journey into the Heart of the Social Network."

Losse, who worked at Facebook from 2005 to 2010, says in her book that Facebook employees were expected to be dedicated to the "the cause," a Facebook-centric way of life.

Employees would compete with their social profiles by rewarding the most-liked photos and posts with money, Losse says in her new book, according to a press release. Employees were also encouraged to live within a mile of the office and rewarded for doing so.

Losse also says employees would use a secret app built on the Facebook platform called Judgebook to quickly display images of Facebook users for company employees to score.

The Facebook culture seems to put an emphasis on attractiveness according to Losse, who says in her book during VIP parties in Las Vegas, Facebook employees would have bouncers bring women to their table, then turn them away for not being attractive enough.

Privacy is another subject Losse touches on in her book, claiming employees had access to every profile in the early days of Facebook.

Facebook did not immediately respond for comment.

Thursday, July 12

Analysts ‘liking’ Facebook’s long-term outlook

Andre Sequin, RBC Capital Markets, explains his 'outperform' rating on Facebook.

One month after Facebook’s tumultuous public stock offering, Wall Street analysts are unveiling their outlooks for the No. 1 social network — and most are sounding a note of muted optimism.

More than a dozen analyst reports on Facebook hit the street Wednesday, marking 40 days since the company’s first day of trading on May 18, when Facebook became the first U.S. company to debut with a market value of more than $100 billion. Under securities law, the 33 banks that took part in Facebook’s IPO had to wait that long before publishing their views.

In reports from banks such as Morgan Stanley and Goldman Sachs, analysts said they are generally upbeat about the long-term outlook for the company, given its 901 million users. Many of the analysts also said they think Facebook can grab a significant slice of the Internet advertising market.

However, there was also a note of caution about Facebook’s business model and its ability to make money from the growing number of users who log on to the service using a mobile device.

Oppenheimer analyst Jason Helfstein set a price target of $41 for Facebook’s stock price over the next 12 months, suggesting upside potential of 24 percent compared with its close of $33.10 on Tuesday.

Helfstein said a price of $41 was a reasonable target and not overly aggressive, adding that he thinks some of the estimates for Facebook’s stock price were too high. Still, Facebook’s stock will be attractive to long-term investors, he told CNBC.

“Are we saying buy the stock, make money tomorrow? No,” he said, adding that investors who hold on to it for a long time will likely make money.

Shares of Facebook fell to a low of $25.87 on June 6, down 32 percent from the company’s initial offering price of $38. But they have since recovered some of their lost ground and are up 27 percent from that early June low.

Facebook’s IPO was one of the most highly anticipated stock offerings of recent years, but it had an inauspicious start.

A first-day trading glitch delayed its first trades, leading to complaints of slow order confirmations and too many shares offered at too high a price. Subsequent lawsuits have alleged that the Nasdaq botched the offering and that deal underwriters Morgan Stanley and others failed to share lowered earnings forecasts with retail investors before the IPO.

Morgan Stanley, J.P. Morgan Securities, Goldman Sachs, RBC Capital Markets, Piper Jaffray, Oppenheimer and William Blair began coverage of Facebook with their top ratings, while analysts at BofA Merrill, Barclays Capital, Raymond James, Stifel Nicolaus, Lazard Capital Markets and Citi Investment Research & Analysis gave the company’s stock a less-sanguine “hold,” “market-perform,” or equivalent rating.

Goldman Sachs set a share price target of $42 for Facebook, while RBC said it expected a run to $40. BofA Merrill Lynch and Morgan Stanley pegged the shares at $38, and Citi and Barclays opted for a price $35.

However, BMO Capital Markets bucked the relatively upbeat trends and began coverage of Facebook with an “underperform,” -- its lowest -- and set a share-price target of $25.

Perhaps the greatest challenge to Facebook’s future growth is its ability to find a growing source of revenue, particularly from the growing mobile sector.

The social network appears to have already lost one potential source: Last week, Facebook agreed to a $20 million settlement in a California lawsuit claiming it publicized that some of its users had “liked” certain advertisers but didn't pay the users, or give them a way to opt out.

The so-called “Sponsored Story” feature on Facebook is essentially an advertisement that appears on the site and includes a member’s Facebook page and generally consists of another friend’s name, profile picture and a statement that the person “likes” that advertiser. Dumping the “Sponsored Stories” feature could cost Facebook $103.2 million in lost revenue.

On the mobile side, about 20 percent of Facebook’s current user base is in the U.S. and Canada, and half of those users are accessing the site using mobile devices, through which Facebook derives much less advertising revenue than through a desktop PC.

What’s more, markets where Facebook is growing most rapidly -- in Europe and Asia -- bring the company less revenue. Facebook brings in $3 per user in the U.S. and in Canada, but only $1.50 in Europe and just 50 cents in Asia.

In established markets, such as the U.S. and Canada, revenue growth from ads and other services is slowing. The company, which last year was more than doubling the amount of money collected every quarter compared with a year earlier, reported growth of 45 percent in the first three months of 2012, and revenue declined from the preceding quarter.

And in mid-May, General Motors very publicly yanked $10 million in Facebook advertising, saying paid advertising on the site isn't effective.

Facebook is due to issue its first earnings report as a public company in mid to late July.

However, Piper Jaffray analyst Gene Munster dismissed the revenue considerations as short-term concerns for Facebook. He said there outlook for Facebook, particularly in terms of revenue from e-commerce transactions, “looks bright.”

“All this negative perspective in the near term has been well known,” he told CNBC. “The key takeaway for us is we think next year there’s going to be accelerating revenue growth” when Facebook begins to monetize commercial transactions over its platform, he said.

“When they open up their platform it will change how people buy things,” he added.

BofA Merrill Lynch said it thinks Facebook’s user monetization rate is fairly low, despite expecting the company to bring in $4.8 billion in revenue in 2012 as new advertising formats drive up revenue growth in the second half of 2012.

Facebook has introduced a string of enhancements to its advertising service over the past few weeks, including a program that allows marketers to specifically target ads to users of Facebook on mobile devices. Another improvement shows Facebook users ads based on websites that they have visited.

“The company is in the midst of a mobile usage transition and we are cautious on Facebook’s revenue trends until new mobile ad revenue models start driving the top line,” BofA Merrill Lynch’s analysts wrote.

Reuters contributed to this report.

Wednesday, July 11

Apple wins order blocking sales of rival tablet

SAN FRANCISCO — A judge late Tuesday ordered Samsung Electronics Co. to halt sales of its Galaxy 10.1 tablet computer while the court considers Apple's claim the South Korean tech giant illegally copied the design of the popular iPad.

U.S. District Judge Lucy Koh said Apple Inc.'s lawsuit appeared likely to prevail.

"Apple has established a strong case on the merits," Koh said.

Koh had earlier said the two products are "virtually indistinguishable," but she declined in December to take the dramatic step of prohibiting sales of the Galaxy 10.1. She changed her mind after the U.S. Court of Appeals for the Federal Circuit told Koh to take another look at Apple's request for an injunction, ruling June 19 that it appeared the Cupertino-based company had a strong case. The Washington, D.C., court handles most patent appeals.

"Although Samsung has a right to compete, it does not have a right to compete unfairly, by flooding the market with infringing products," Koh wrote in her Tuesday order. She said Apple would be "irreparably harmed" if sales of the Galaxy 10.1 continued.

Samsung said it was disappointed with the court's decision.

"We will take necessary legal steps and do not expect the ruling to have a significant impact on our business operations, as we possess a diverse range of Galaxy Tab products," it said in a statement.

Koh ordered Apple to post a $2.6 million bond in case it ultimately loses the case.

The ruling is a small part of a much larger patent battle between the two tech giants, who are scheduled to go to trial next month in San Jose.

Apple filed its lawsuit last year, and the two companies are enmeshed in patent disputes around the globe revolving around smartphones and handheld computers. Samsung, with its Android-powered products, has emerged as one of Apple's chief rivals.

Apple also accuses the South Korean company of infringing patents related to the iPhone. Apple is seeking a similar injunction barring Samsung from selling one of its smartphones in the United States.

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Tuesday, July 10

Best Buy founder aiming to take retailer private

Best Buy founder aiming to take retailer private

© Shannon Stapleton / Reuters / Reuters/Shannon Stapleton

The entrance to the Best Buy store is seen in New York.

Richard Schulze, founder of Best Buy, is reportedly considering a bid to take the troubled electronics retailer private.

Schulze has started working with bankers from Credit Suisse to consider his move, according to a report in the New York Times, and he will probably team up with a private equity firm or another well-off investor, the report said.

The 71-year-old Schulze resigned from the company’s board this month after an internal investigation found he failed to inform the board about allegations that the then-CEO Brian Dunn, who resigned in April, was having an inappropriate relationship with a female employee. Schulze is Best Buy’s largest shareholder with a 20.1 percent stake.

BB&T Capital Markets analyst Anthony Chukumba is skeptical that Schulze can pull off a deal to take Best Buy private.

“I think the probability of this happening is very, very slim,” he told CNBC, noting that the financial backing for such a deal would be difficult to achieve, given the current state of the markets.

At its shareholders’ meeting last week, Best Buy made it harder for Schulze to orchestrate a deal to take the company private. It raised the ownership threshold for calling a special meeting related to a change of control to 25 percent from 10 percent.

Best Buy has struggled in recent quarters, its sales slipping as consumers opt to buy electronics from cheaper online retailers such as Amazon.com.

Brian Nagel, a senior analyst at Oppenheimer, said Best Buy remains the largest consumer electronics retailer in the U.S. and is solidly profitable; it’s still a dominant force in the industry, he told CNBC.

“But [Best Buy] faces much more challenging competitive landscape and a very weak product cycle, and I don’t think any of those problems are going to correct themselves any time soon,” he said.

Chukumba said he is waiting to see who the company will appoint as its new CEO, and what his or her turnaround plan will be, adding that he doesn’t think the company will go out of business, as some have predicted.

Click here to check Best Buy’s share price.

There's word the giant electronic retailer is exploring the idea of going private. Brian Nagel, Oppenheimer & Co. senior equity research analyst weighs in on the strategy.

Monday, July 9

Murdoch’s tough call: Split News Corp. to survive

Murdoch’s tough call: Split News Corp. to survive

Oli Scarff / Getty Images

Rupert Murdoch has reportedly been against splitting up his News Corp. media empire.

Rupert Murdoch’s driving ambition may have finally met its match.

On Tuesday, his News Corp. media empire confirmed reports that it is thinking of restructuring into two separate, distinct, publicly traded companies -- a move that would effectively bring to an end Murdoch’s decades-long drive to pull together the disparate strands of his empire into one coherent company.

Harder still for Murdoch would be the fact that a division of the media giant would almost certainly mean cordoning off the newspaper business that once was the core of his company, which he has grown from a single Australian newspaper he inherited in the 1950s.

“This is a sign of the times,” Barton Crockett, an analyst with Lazard Capital Management, told CNBC.

“A lot of us were surprised that they're actually taking this step, because Rupert’s ties to newspapers are so strong and so historical, I was doubtful they’d go there as long as he was calling the shots. But they are, and I think that’s showing he’s evolving with the times, and the company is,” he added.

The restructuring of News Corp. would, according to a report in The New York Times, likely cleave its more profitable entertainment unit -- driven by News Corp.’s movie studio and powerful television networks -- from the smaller, less profitable, publishing business that includes The Wall Street Journal, The Times of London, The New York Post and the HarperCollins book business.

Rob Enderle, an analyst with Enderle Group, said the main motivation for dividing News Corp. in two is likely the protection of the Fox movie studio and television networks that are now the most profitable parts of the media empire.

Murdoch is likely to want to insulate this part of the business from the fallout from the phone hacking scandal that has led to the closure of the News of the World tabloid in the U.K., halted Murdoch’s BSkyB takeover bid and prompted the arrest of several key figures, he said.

“There has been a lot of concern about how broad the company’s holdings have become, and that if something were to happen to any one part of it, it could bring down the whole of it,” said Enderle.

The split is also likely driven by shareholder unrest over the direction of the company.

Less concerned about journalistic ethics and more worried about the company’s bottom line, News Corp. shareholders have become more vocal since the hacking scandal broke, and they are more likely to want the company to focus on its more productive entertainment assets, which generated $23.48 billion in revenue in the year ended June 2011, nearly three times the $8.83 billion in revenue generated by the publishing business.

There were also concerns that the size of the company could raise antitrust concerns if it wanted to engage in corporate acquisitions, Enderle added. A split would realign the company and enable it to focus it on each core operation, he said.

“This split is clearly along functional lines,” Enderle said. “The resulting companies should be easier to manage and focus, because it really did look as if News Corp. was losing track of each unit’s focus.”

News of the potential plan to split the media empire in two has certainly won the approval of the market, with shares of News Corp. rising more than 8 percent in trading Tuesday.

Media conglomerate Viacom took a similar path in 2005 when it split into two companies, leaving the television company CBS as a standalone company. Both companies have thrived since the move.

Murdoch has reportedly been against splitting up News Corp., but may have been swayed by the views of his second in command, Chase Carey, who is said to regard the publishing industry as mature and unlikely to yield substantial profits. Earlier this year, Carey made it clear that the company’s management team has considered a split.

“For Murdoch it has been all about empire building, about maximizing power and control, but the only thing that leaves you with is something unmanageable,” Enderle said, adding that it’s rare to see someone like Murdoch, who is clearly oriented toward status and power, step in and break up a company.

“The board is subordinate to Murdoch, so it probably really took a real and present threat to the overall entity for him to step back and realize there’s a need to restructure,” he added.

The outlook for Murdoch’s beloved newspaper business remains gloomy, Enderle added.

“By providing more focus for the unit they might be able to turn it into something more profitable, or find a buyer that will do something else with it, but the trend right now is away from publishing,” he said.

Crockett noted that the phone hacking scandal presented an opportunity for News Corp. to rethink its operations and improve the situation for shareholders. A division of the business will lead to a stronger company, he said.

“We’ve gone from lemons to lemonade,” said Crockett. “I think it’s something that will make News Corp. a stronger business and a better stock.”

How would investors be impacted if News Corp. split?

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