Chinese fund takes $5bn Morgan Stanley stake

By Daniel Pimlott (Financial Times)

Morgan Stanley on Wednesday said it had sold a $5bn stake to China's new sovereign wealth fund and revealed that a total of $9.4bn in mortgage-related writedowns had driven it to a fourth-quarter loss, leading its chief executive John Mack to forgo his bonus for 2007. The bank said it had been forced to write off a further $5.7bn, on top of a previously announced $3.7bn charge already taken on its holdings of troubled structured credit products in the quarter. The deepening problems in the credit markets helped drive Morgan Stanley to a net loss of $3.59bn, or $3.61 a share, compared with a profit of $1.54bn a year ago. The company said it had negative revenue of $450m, down from $7.85bn a year earlier. Analysts had expected 39 cents of loss on positive revenues of $4.23bn.

The writedowns came because of "continued deterioration and lack of liquidity in the market for subprime and other mortgage related securities since August 2007", it said. Mr Mack added: "The writedown Morgan Stanley took this quarter is deeply disappointing. Ultimately, accountability for our results rests with me, so I've told our compensation committee that I will not accept a bonus for 2007." Last year Mr Mack was awarded $40m in restricted stock and options. He said the writedown stemmed from "losses by a small trading team in one part of the firm". The tabular content relating to this article is not available to view. Apologies in advance for the inconvenience caused. In order to "bolster" its capital position, the bank said it would issue about $5bn in new capital with mandatory conversion into stock to China Investment Corporation, a $200bn fund. In return CIC will be able to convert the investment into a stake of up to 9.9 per cent, but will remain a passive investor, with no role in managing the company. CIC's investment is the latest in a series of stake-building moves in Wall Street firms by Chinese groups. In June CIC bought a $3bn stake in Blackstone Group during the private-equity firm's initial public offering, while Bear Stearns in October agreed a deal with Citic Securities, China's largest listed brokerage, that will see the two groups invest $1bn in each other.

Among other significant foreign investments, Citigroup said last month it had taken a $7.5bn capital infusion from a fund owned by the Abu Dhabi government to shore up its capital after $11bn in writedowns on mortgage investments. Morgan Stanley said that $7.8bn of its losses came from subprime trading positions. It also had $1.2bn of writedowns related to European non-conforming loans, commercial mortgage backed securities, alt-A mortgages and other loans. The bank said that at the end of the quarter on November 30 it had $1.8bn in exposure to subprime, down from $10.4bn in August. Losses in its fixed income unit from the bets on the mortgage markets that went wrong were partially offset by stronger revenues from its equity trading segment, and higher fees in its investment banking advisory and wealth management services. Morgan Stanley shares were $1.59 or 3.3 per cent higher at $49.66 in mid-morning New York trading,

In Reversal, Fed Approves Plan to Curb Risky Lending

By EDMUND L. ANDREWS (New York Times)

WASHINGTON — The Federal Reserve, acknowledging that home mortgage lenders aggressively sold deceptive loans to borrowers who had little chance of repaying them, proposed a broad set of restrictions Tuesday on exotic mortgages and high-cost loans for people with weak credit. The new rules would force mortgage companies to show that customers can realistically afford their mortgages. They would also require lenders to disclose the hidden sales fees often rolled into interest payments, and they would prohibit certain types of advertising. Borrowers would be able to sue their lenders if they violated the new rules, though home buyers would be allowed to seek only a limited amount in compensation. “Unfair and deceptive acts and practices hurt not just borrowers and their families,” said Ben S. Bernanke, chairman of the Federal Reserve, “but entire communities, and, indeed, the economy as a whole.” The new regulations, expected to be approved in close to their proposed form after a three-month period for public comment, amount to a sharp reversal from the Fed’s longstanding reluctance to rein in dubious lending practices before the subprime market collapsed this summer.

The proposed changes, which do not apply to standard mortgages for borrowers with good credit, stopped short of banning all heavily criticized practices in subprime lending and did not go as far as many consumer groups had sought. But they won praise as worthwhile steps from some industry critics who had long complained that the Federal Reserve under its former chairman, Alan Greenspan, persistently ignored signs of trouble.

“Reading these proposals today is almost painful,” said Dean Baker, co-director of the Center for Economic Policy Research, a liberal research group in Washington. “These are all just simple, common sense regulation. Why couldn’t Greenspan have done this seven years ago?” If the measures had been in place earlier, they would have applied to as many as 30 percent of all mortgages made in 2006. Some advocacy groups that had warned for years about reckless practices said the Fed’s move was too little and too late.

“The Federal Reserve’s proposed guidance is riddled with loopholes and exceptions that will undermine its effectiveness,” said Deborah Goldstein, executive vice president of the Center for Responsible Lending, a nonprofit group in Durham, N.C. “The proposals fall far short of what was needed, and in some ways fall short of where the industry was already headed.” The new rules would do nothing to help the hundreds of thousands of people who are either already defaulting on subprime mortgages or are likely to lose their homes when their introductory teaser rates expire and their monthly payments jump by 30 percent or more. Soaring default rates among subprime borrowers have already caused a crisis on Wall Street, all but shutting down the subprime mortgage market since August because lenders could no longer raise the cash to make new loans. The Bush administration has pushed for voluntary agreements aimed at avoiding some, but far from all, of the foreclosures expected next year.

The American Banking Association praised the Fed’s action as “an important proposal that would make a significant difference in protecting mortgage borrowers.” But the industry group warned that some provisions might go too far. “We worry that replacing important lending flexibility with rigid formulas might also limit lending to some creditworthy borrowers.”

In Congress, leading Democratic lawmakers said the Fed had been too cautious. Representative Barney Frank of Massachusetts, chairman of the House Financial Services Committee, said the central bank showed it was "not a strong advocate for consumers." Senator Christopher J. Dodd of Connecticut, chairman of the Senate Banking Committee, called the proposal a "step backward." The House recently passed a bill last month that would impose even tougher restrictions on many subprime practices that the Fed addressed on Tuesday. The Senate has not acted on a bill, but Mr. Dodd recently introduced a measure with many of the same goals as the House bill.

Despite their limitations, the central bank’s new proposals would nonetheless cut a wide swath across the nation’s fragmented mortgage system. They would govern practices for all mortgage lenders, regardless of whether they are banks, thrift institutions or independent mortgage companies. And they would apply regardless of whether a lender is supervised by federal or state regulators. The most important indicator that the Fed wanted to throw down the gauntlet is in how it defined the mortgages that would be subject to special consumer protection. Under its existing rules, based on the Home Ownership Equity Protection Act of 1994, the Fed’s extra protections applied to less than 1 percent of all mortgages — those with interest rates at least eight percentage points above prevailing rates on Treasury securities.

The new rules, by contrast, invoked broader legal authority to apply to any mortgage with an interest rate three percentage points or more above Treasury rates. Fed officials said that would cover all subprime loans, which accounted for about 25 percent of all mortgages last year, as well as many exotic mortgages — known in the industry as “Alt-A” loans — made to people with relatively good credit scores. Under the new rules, such borrowers would have to document their incomes, supply tax returns, earnings statements, bank records or other evidence. Lenders would not be allowed to qualify a person based only on their ability to pay the initial teaser rate. The proposal would essentially end the practice of allowing those with poor credit to apply for “stated income” loans, often known as “liar’s loans,” which do not require borrowers to provide evidence of their incomes and assets. And it would restrict mortgages with future monthly payments beyond those that could be justified by a borrower’s projected earnings.

The Fed proposal would still leave some room for flexibility. Lenders would have to provide “reasonably reliable evidence” of a person’s income, a definition that Fed officials said would allow small business owners and others whose income may be erratic or difficult to confirm to arrange a subprime mortgage. The Fed also refused to prohibit the much-criticized subprime lending practice of big prepayment penalties. Prepayment penalties, which can cost thousands of dollars, often block people from switching to a cheaper mortgage for two years or longer. Mortgage lenders argue that prepayment penalties are often essential, because they provide investors with assurance of earning more than just the low teaser rates. But consumer groups have argued that the penalties can trap borrowers in expensive loans and that many home buyers do not properly understand them.

Under the Fed proposal, lenders would still be allowed to demand prepayment penalties, but the penalties would have to expire at least 60 days before a loan’s introductory rate was scheduled to reset at a higher level. The new rules would also make it more difficult for lenders to include hidden sales fees, which are usually paid to the mortgage broker. Many subprime lenders tell borrowers they will not have to pay any fees, or even any costs for services like appraisals, but include those fees in what is called a “yield-spread premium” on the interest rate. The Fed proposal would not prohibit yield-spread premiums but would require that a lender disclose the exact amount of the fees and have the borrower agree to the fees in writing. John Taylor, president of the National Community Reinvestment Coalition, a housing advocacy group, said simply disclosing the fees was not enough because home buyers were already inundated with a blizzard of disclosure forms to sign and can easily miss the significance of what they are approving. Borrowers “shouldn’t need to be a lawyer or financial expert,” Mr. Taylor said, “to protect themselves from unfair and deceptive lending.”

Dollar erases gains after grim home-builders survey

By Lisa Twaronite, MarketWatch

SAN FRANCISCO (MarketWatch) -- The dollar failed to maintain its early gains Monday, as sagging stocks and a weak home-builders index reading offset bullish U.S. fund inflow data and weak data from the euro zone. U.S. home builders remained extremely pessimistic in December, with the home-builders' housing market index at 19 for the third straight month in December, matching the lowest reading ever in the 22-year history of the index released by the National Association of Home Builders and Wells Fargo. The reading was in line with expectations. See Economic Report. "The NAHB housing market index remained at record lows in December, which won't help dollar bulls much," wrote analysts at Action Economics. The dollar started the U.S. session on firm footing, after Treasury International Capital data revealed stronger-than-expected foreign appetite for U.S. funds in October.

The TICS report showed net inflow into U.S. financial assets was $97.8 billion, compared with a revised $32.8 billion outflow in September, and the inflow into long-term assets was $114 billion. But analysts said the data weren't enough to herald a trend reversal. "While today's TICS report is unquestionably U.S. dollar-positive, the real question remains if and when foreign investment returns to U.S. deposits and short-term securities. Continued net outflow will be an ongoing drag on the greenback and limit any corrective upside potential," said Michael Woolfolk, senior currency strategist, the Bank of New York Mellon. Also Monday, data showed that the U.S. current-account deficit narrowed in the third quarter to $178.5 billion, or 5.1% of gross domestic product. See Economic Report. But a separate report from the New York Federal Reserve showed factory growth in the region slowed in December to its lowest reading since May.

The dollar index, which tracks the greenback against a basket of currencies, was at 77.390, down from 77.435 in late U.S. trading Friday.
The British pound was at $2.0200, compared with $2.0156 late Friday.
Against Japan's currency, the dollar was buying 112.93 yen compared with 113.35 yen Friday. The euro was trading at $1.4393, down from $1.4418 in late U.S. trading Friday, but off a session low of $1.4329.

Earlier Monday, a measure of economic output in countries that use the euro as their currency slumped to the lowest seen in more than two years. The RBS/NTC Economics flash euro-zone composite output fell to a reading of 53.3 in December from 54.1 in November, a 28-month low and the fifth drop in six months. See full story.
Stocks slump

On Wall Street Monday, stocks closed sharply lower, after Moody's Investors Services warned it could lower bond-insurer credit ratings because of subprime losses and as Alan Greenspan, the former Federal Reserve chairman, warned of a possible U.S. recession. See Market Snapshot.
Late Friday, Moody's warned that the Triple-A ratings of several leading bond insurers could be downgraded after it reviews the companies' exposure to potential subprime mortgage losses. See full story.
In televised interviews Sunday, Greenspan, the former Fed chairman, warned of the possibility of stagflation, when prices rise at the same time as the economy cools, and said there was a 50-50 chance of a U.S. recession. The U.S. Federal Reserve held its first Term Auction Facility on Monday, with the results scheduled to be released Wednesday. The minimum bid rate for the $20 billion 28-day loan was set at 4.17%, below the Fed's discount rate of 4.75%.
The auction was the first of three as part of a plan unveiled Wednesday last week, to add $40 billion in liquidity to global financial markets in coordinated steps from the European Central Bank, the Bank of England, the Bank of Canada and the Swiss National Bank. Treasurys rallied on Monday, sending yields lower.

Mullen reassures Israel on Iran

By Peter Spiegel, Los Angeles Times Staff Writer

TEL AVIV -- The top U.S. military officer attempted to reassure Israeli defense leaders Monday that the United States still views Iran as a serious threat to the Jewish state, even as the Israelis disagree with an American intelligence finding that Tehran ceased its nuclear weapons program in 2003. Adm. Michael G. Mullen, chairman of the Joint Chiefs of Staff, discussed the National Intelligence Estimate of Iran's nuclear program with Defense Minister Ehud Barak and the head of Israel's military in back-to-back meetings here, where the report has provoked widespread debate over American intentions. Participants in the meetings said Israeli officials took issue with the U.S. view that the weapons program had stopped, saying Iran's continued enrichment of uranium was aimed at developing a nuclear bomb. The U.S. assessment, issued last week, says the enrichment program has continued unabated, even as the weapons program was shut down. Iran has insisted that it is producing only low-grade uranium to drive civilian power plants, not highly enriched uranium for bombs. Mullen said after the meetings that both Barak and Lt. Gen. Gabi Ashkenazi, the new head of the Israeli defense staff, expressed a desire to work with the U.S. on analyzing American intelligence on the Iranian program. Mullen said he expressed similar U.S. concerns about the enrichment program, calling it the "center of gravity" of the Iranian program that needs to be stopped with the help of international pressure. He also reiterated American views that Iran continues to mislead nuclear regulators about the extent and intentions of its program.

"I wanted to reassure them that I still consider Iran a threat," Mullen said in an interview with The Times aboard his aircraft. "Their hegemonic views, their regime's rhetoric, still speaking to the elimination of Israel, is all very disturbing to me. I intended to leave the impression with them that I wasn't taking my eye off the mark."

The timing of the intelligence estimate, coming in the midst of Bush administration efforts to garner international support for a third round of U.N. Security Council sanctions, has forced the White House to scramble to reassure allies such as Israel that it has not changed its view of the Iranian government and remains committed to eliminating its enrichment program. Defense Secretary Robert M. Gates, during a weekend stop in Bahrain to address a group of Arab leaders, acknowledged that President Bush and his foreign policy aides felt frustration with the timing and content of the report, but noted that such decisions are made by intelligence professionals, not policymakers. "The estimate clearly has come at an awkward time," Gates said. "It has annoyed a number of our good friends. It has confused a lot of people around the world in terms of what we're trying to accomplish." Sunni Muslim-led states in the region have grown increasingly concerned about Shiite Muslim-dominated Iran's strengthening position in the Persian Gulf, fearing it is using chaos in Iraq to boost its influence.

UBS's Subprime Hit Deepens Credit Worries

By CARRICK MOLLENKAMP , EDWARD TAYLOR and ANITA RAGHAVAN

UBS AG became one of the biggest casualties of the U.S. subprime-mortgage meltdown yesterday, announcing that it would take a $10 billion write-down and sell a chunk of itself to the government investment arm of Singapore and an unnamed Middle Eastern investor.

The disclosures stoked anxiety about potential losses lurking on the books of other banks. That UBS, long known as a conservative lender, could take such a financial hit suggests that the wave of industry write-downs, which so far total about $50 billion, may be far from over.

In recent weeks, UBS began using a more conservative method for valuing complex debt securities tied to U.S. subprime mortgages. As a result, the bank said it might record a net loss for the year. The "ultimate value of our subprime holdings...remains unknowable," the bank said yesterday.

The news came as other financial institutions announced moves to shore up their balance sheets. Washington Mutual Inc. said it plans to cut its dividend, slash jobs and sell preferred stock to raise $3.7 billion in capital. Bond insurer MBIA Inc. said it will receive up to $1 billion from private-equity firm Warburg Pincus LLC.

Earlier this fall, as banks disclosed a first round of write-downs due to subprime problems, some investors expressed optimism that the worst was over -- that banks had used the third quarter as an opportunity to clean up their balance sheets. But the continuing erosion of the value of the mortgage securities now appears to be bringing another round of pain.

UBS, which had already taken a $4.4 billion third-quarter write-down, said that as mortgage data worsened, it changed the way it fed data into its model for valuing mortgage securities. Among other things, it began factoring in higher projections of homeowner defaults and comparing its loss projections with indexes that track the value of mortgage securities. It concluded that it needed to assign a lower value to its holdings.

UBS's decision to sell as much as 12.4% of the company to Singapore and the Middle Eastern investor for $11.5 billion is the latest in a string of deals in which state funds or banks in Asia and the Middle East have taken stakes in Western financial firms. Government "sovereign-wealth funds" have invested about $46.8 billion in European and U.S. financial firms since January 2006, according to Morgan Stanley estimates. The UBS deal comes just a few weeks after Citigroup Inc., also hobbled by subprime problems, received a $7.5 billion investment from the Abu Dhabi Investment Authority, which will ultimately own a 4.9% Citigroup stake.

"It is a further sign of how the balance of the world economy is changing," says Gerard Lyons, chief economist at Standard Chartered PLC in London. "Also it is a reflection of the current fragile state of the financial sector in the West."

At the heart of UBS's problems are collateralized debt obligations, or CDOs. These complex securities are created when pools of debt, some of it tied to subprime mortgages, are sliced into pieces carrying different levels of risk and return, then sold to investors. UBS's exposure is through a combination of internal, or proprietary, trading positions, as well as its underwriting business.

Like other banks, including Citigroup and Merrill Lynch & Co., UBS ended up with CDO slices considered the safest. But in recent weeks, banks have had to write down even those senior slices. Merrill Lynch and Morgan Stanley also took write-downs on such securities.

Using computer models to figure out how much such securities are worth is an inexact science. November mortgage data showed that mortgage delinquencies and defaults were increasing, which contributed to UBS's decision to take a large write-down.

Merrill, which has $15.2 billion in CDO exposure remaining, could also need to take a further write-down, as could Morgan Stanley, according to analysts. Merrill already disclosed a third-quarter write-down of $7.9 billion, and it has $20.9 billion in remaining exposures to CDO assets and subprime mortgages. Morgan Stanley has already taken a hit of $3.7 billion in the first two months of the fourth quarter, which could grow based on its $6 billion in remaining subprime and CDO exposure.

In a speech to Morgan Stanley employees last Monday, Chief Executive John J. Mack said the firm is still trying to clarify the extent of the subprime losses. The subprime losses, he said, aren't easy to quantify because the markets keep changing. He said the firm expects to have a better read in the next week and a half.
[From East to West]

Merrill Lynch and Morgan Stanley declined to comment.

As U.S. homeowner-default data worsened in recent weeks, it became clear that UBS might need to mark down its subprime assets further, which could in turn put pressure on its capital base. Starting about two weeks ago, it approached a handful of potential investors, says one person familiar with the situation. The Middle East was an obvious place to look, because many Gulf states and their ruling families have money at the Swiss bank. Asia also made sense because UBS's investment bank is active there.

UBS Chairman Marcel Ospel called Singapore government officials he knows, according to another person familiar with the matter. The Asian city-state is an increasingly important market for UBS's core business of private banking for wealthy individuals. It took only about a week to put together the deal. The Government of Singapore Investment Corp. agreed to invest 11 billion Swiss francs ($9.75 billion) for a stake that could range from 7.3% to 10.5%, depending on the terms of the convertible-stock purchase. The deal makes Singapore UBS's largest shareholder.

UBS didn't disclose the name of the second investor, which it said will invest two billion Swiss francs for a stake of between 1.3% and 1.9%. One person familiar with the deal identified the second investor as one based in Saudi Arabia.

The bank is continuing to talk with other investors around the globe in an effort to raise additional funds, Mr. Ospel said yesterday.

For sovereign-investment funds, investing in banks and financial institutions is attractive because of their depressed stock prices. UBS shares, for example, are down 24% this year. Such deals also are opportunities to link with firms offering expertise in financial services such as private banking.

UBS joins a growing list of Western banks, including Barclays PLC and HSBC Holdings PLC, that have received capital injections from Asia and the Middle East this year. The sovereign funds "are really smart and are getting to see a huge number of opportunities around the globe at the moment," says Guy Cornelius, a managing director in Lehman Brothers Holding Inc.'s fixed-income department. "They see so many opportunities because they have the best growth in capital right now, are highly sophisticated and know that they can be in the driving seat."

Such deals, however, could spark more governmental inquiries in the U.S. and Europe. Last month, the U.S. Senate Committee on Banking, Housing and Urban Affairs held a hearing on sovereign-wealth funds. In addition, the Group of Seven leading industrial nations is taking steps to address the increasing influence of sovereign-wealth funds. G7 officials are concerned the funds may become a source of volatility in financial markets or cause national-security problems if they seek stakes in companies that are sensitive from a national-security standpoint.

Zurich-based UBS, formed from the 1998 merger of SBC Corp. and Union Bank of Switzerland, has about 83,000 employees and is one of the largest wealth managers in the world. Last year, it reported a net profit of 12.26 billion Swiss francs. But it has struggled with its identity in recent years. It pushed aggressively into investment banking, but at times its investment bankers chafed at the Swiss bankers' historically conservative culture. It reached a boiling point earlier this year when several high-level investment bankers left.

Soon after, losses began to mount at UBS's internal hedge fund, Dillon Read Capital Management. Chief Executive Marcel Rohner is now pulling back in some areas of investment banking, cutting bankers in fixed income and toughening its lending requirements to hedge funds and leveraged-buyout houses.

UBS has never posted a full-year loss, mainly due to the strength of its wealth-management operations, which in 2006 accounted for about 40% of the company's profits.

UBS's holdings tied to subprime mortgages eroded its core "tier 1" capital to about 10.6% at the end of September and came close to falling below a UBS internal target of keeping capital in double-digit figures. Traditionally, the bank has tried to maintain a high level of capital relative to peers because some of its wealth-management clients tend to be sensitive about its financial health, the bank said. The capital-raising measures announced yesterday will raise the bank's tier 1 capital to 12%, the company said in a statement.

In recent weeks, as the mortgage data deteriorated, the bank made changes to the way it crunched the numbers, including lowering the time it assumed it would take for a loan to default.

Mr. Ospel said UBS decided to "calibrate our models to an extreme distressed scenario." That ultimately led to the write-down.

"This is a very bleak outlook" for the U.S. housing market, Mr. Rohner said.

Washington Mutual Will Take $1.6 Billion Writedown

By Elizabeth Hester(Bloomberg)

Washington Mutual Inc., the biggest U.S. savings and loan, will write down the value of its home- lending unit by $1.6 billion in the fourth quarter and cut about 6 percent of its workforce as mortgage-market losses increase.

Washington Mutual, led by Chief Executive Officer Kerry Killinger, also slashed its quarterly dividend to 15 cents a share from 56 cents and forecast a loss for the quarter, according to a statement yesterday from the Seattle-based bank. Provisions for bad loans will be $1.5 billion to $1.6 billion, more than the $1.3 billion the company previously predicted. It plans to shutter 190 of 336 home-loan centers.

Fitch Ratings and Moody's Investors Service Inc. lowered Washington Mutual's credit rating, citing the firm's deteriorating mortgage assets. The bank has lost 56 percent of its market value this year, the worst performance in the 24- member KBW Bank index, amid declining U.S. housing prices and record home loan delinquencies. Washington Mutual said it plans to sell $2.5 billion of convertible stock to shore up capital.

``They're clearly concerned the industry will stay in a negative mode for an extended period,'' said Richard Bove, an analyst at Punk Ziegel & Co. in Lutz, Florida. ``The fact they're laying off so many people indicates they're concerned this is not just a one-time event.'' He rates the stock ``market perform.''

Washington Mutual fell 10 percent to $17.90 as of 11:40 a.m. today in Frankfurt trading. The stock rose 4.5 percent to $19.88 in New York yesterday before the announcement.

2010 Recovery

Fitch downgraded the firm's rating to A- from A, because of ``worsening asset quality,'' and ``extremely challenging conditions in the U.S. residential mortgage market.'' Moody's cut its rating two levels to Baa2 from A3. ``Credit losses from WaMu's mortgage operations will be noticeably higher than previously estimated,'' and the company's profitability won't ``begin to recover'' until 2010, Moody's said in a statement. Washington Mutual offered a bleak assessment of the mortgage market, estimating that industrywide home loan originations will probably shrink 40 percent in 2008 to $1.5 trillion, down from about $2.4 trillion this year. The company said it plans to cease lending through its subprime mortgage channel, and predicted that its provision for bad loans in the first quarter of next year will be $1.8 billion to $2 billion.

UBS, Citigroup

Mortgage losses have driven some of the world's biggest lenders to seek cash infusions. UBS AG, Europe's largest bank by assets, said yesterday that it would write down its subprime investments by $10 billion and raise 13 billion Swiss francs ($11.5 billion) by selling stakes to investors in Singapore and the Middle East. Citigroup Inc., the largest U.S. bank by assets, said last month that it would get $7.5 billion from the emirate of Abu Dhabi. Countrywide Financial Corp., the biggest U.S. mortgage lender, sold $2 billion of preferred stock to Bank of America Corp. in August. Washington Mutual said it would eliminate 2,600 jobs in its home-loans unit, or about 22 percent of that division. The remaining job cuts will come from corporate and support staff. The reductions will cost the bank about $140 million in the fourth quarter, according to the company's statement. The restructuring is expected to be completed by March 31, the bank said in a separate regulatory filing yesterday. Washington Mutual also plans to close WaMu Capital Corp., its broker-dealer business, as well as its mortgage banker warehouse lending unit. Lehman Brothers Holdings Inc., Morgan Stanley, Credit Suisse Group and Goldman Sachs Group Inc. are managing the convertible stock sale, Washington Mutual said.

Black Given Prison Term Over Fraud

By TIM ARANGO (NY Times)

CHICAGO, Dec. 10 — In the months since his convictions in July on fraud and obstruction of justice charges, Conrad M. Black, the fallen press baron who once presided over the world’s third-largest newspaper empire, was not above poking fun at himself as he waited to see how long he would spend in prison.

He received his answer Monday as Judge Amy J. St. Eve of United States District Court sentenced Mr. Black to 6 1/2 years in prison on three fraud charges and one charge of obstruction of justice for removing 13 boxes of documents from the Toronto offices of his media company, Hollinger International, an infraction caught on videotape.

“Mr. Black, you have violated your duty to Hollinger International and its shareholders,” Judge St. Eve told Mr. Black. “I frankly cannot understand how someone of your stature could engage in the conduct you did.”

While the sentence means Mr. Black could be nearly 70 when he is released, the amount of time he received was much less than hoped for by prosecutors, who at one time sought a sentence of 24 to 30 years.

Mr. Black, who will most likely serve his sentence at a federal prison camp at Eglin Air Force Base about 500 miles from his home in Palm Beach, Fla., was allowed to remain free on bail until March 3.

On the sidewalk outside the courthouse, he told the throng of reporters, “I think the fact we’re appealing speaks for itself.”

In some ways, Mr. Black is just another in a long line of white-collar criminals sentenced for corporate fraud. In other ways, he was — as he himself might say in casual conversation — sui generis.

Instead of keeping a low profile after his conviction, Mr. Black became even more public, if possible, in the last few months. He managed to publish and publicize a 1,152-page biography, “Richard M. Nixon: A Life in Full,” that contained at least one error: the brief author’s biography says that Mr. Black divides his time between London and Toronto. By the time the book was published, he had already turned over his passport and spent most of his time holed up his mansion in Palm Beach.

Still, that did not prevent Mr. Black from doing television interviews or from participating in a Toronto book signing, thanks to a high-tech device called the LongPen, which allowed him to sign books remotely. During the signing, one questioner even suggested a parallel between that video that sank Mr. Black and the recordings that doomed the Nixon presidency.

In a segment for the satirical Canadian television show “The Rick Mercer Report,” Mr. Black did his best Martha Stewart impression, teaching viewers how to properly wax a maple leaf for decorating. Pressing a maple leaf between two of the hefty biographies he has written, Mr. Black said, “Here we have a perfectly waxed maple leaf, a great solace to everyone and especially to those who, for complicated reasons, can’t at first hand observe the changing of the seasons this autumn in Canada.” (The segment has a second life on YouTube.)

But those fun and games are now largely over. It will now be almost seven years until Mr. Black, who was barred from leaving the United States after his conviction, can return to his native Canada.

In July, nearly four years after the case began, Mr. Black was convicted on four charges — three fraud charges stemming from taking improper noncompete fees and an obstruction of justice charge for removing boxes of documents from his Toronto office, an infraction that was caught on videotape. Mr. Black will have to pay a fine of $125,000.

Mr. Black’s downfall began in November 2003 when the board found that he and other executives had improperly taken about $32 million in payments. The jury, however, found that Black improperly gained $6.1 million, a figure he must now forfeit. Much of the case was centered on noncompete payments from selling newspapers that should have gone to shareholders but instead lined the pockets of Mr. Black and several other executives, who were to be sentenced later in the afternoon.

Mr. Black, who once declared he would “not re-enact the French Revolutionary renunciation of the rights of the nobility” when criticized for using shareholder money to pay for a vacation to Bora Bora, and charged a lavish birthday party for his wife at La Grenouille restaurant in New York to his company, was acquitted of charges stemming from those incidents.

The sentencing hearing lasted for more than two hours, as Mr. Black’s defense team cited letters testifying to Mr. Black’s character from friends like Elton John (whose AIDS foundation received a donation from Mr. Black), and the political columnist George F. Will, a longtime friend who wrote of Mr. Black, “He loves this country with a deeply informed passion.”

Mr. Black’s sentencing consultant, Jeffrey Steinbach, even mentioned a letter from a man, not famous, who was once drunk at a party and got a ride home from Mr. Black.

When Eric Sussman, the prosecutor, responded, he noted that the donation to Mr. John’s foundation came from the coffers of The Daily Telegraph.

“Does Elton John really know Conrad Black?” Mr. Sussman said. “The fact of the matter remains that when Mr. Black was asked to go in to his pocket he said no.”

Mr. Black, often described as a millionaire who lived like a billionaire, built a single newspaper in Sherbooke, Quebec, which he bought in 1976, into what was at one time the third-largest newspaper company in the world. Its flagship properties were The Daily Telegraph and The Chicago Sun-Times.