P2JW020000-5-C00100-1--------XA CMYK Composite CL,CN,CX,DL,DM,DX,EE,EU,FL,HO,KC,MW,NC,NE,NY,PH,PN,RM,SA,SC,SL,SW,TU,WB,WE BG,BM,BP,CC,CH,CK,CP,CT,DN,DR,FW,HL,HW,KS,LA,LG,LK,MI,ML,NM,PA,PI,PV,TD,TS,UT,WO MOVING THE MARKET C2 | MARKETS DASHBOARD C5 | MONEY RATES C6 Friends in High Places HEARD ON THE STREET C8 New Activist Fund Seeks CEO Backing GLOBAL FINANCE C3 © 2015 Dow Jones & Company. All Rights Reserved. DJIA 17511.57 Closed S&P 2019.42 Closed THE WALL STREET JOURNAL. ***** NASDAQ 4634.38 Closed 10–YR. TREAS. Closed yield 1.815% Tuesday, January 20, 2015 | C1 OIL $48.69 Closed Missteps in a Goldman Loan Espírito Santo Collapsed Weeks After Senior Executives Approved $835 Million BY MARGOT PATRICK AND PATRICIA KOWSMANN When Goldman Sachs Group Inc. arranged an $835 million loan to Banco Espírito Santo SA last summer, it was the result of a concerted, monthslong effort by senior Goldman officials to win business with the large Portuguese company, according to people familiar with the matter. Today, Goldman’s embrace of Espírito Santo has come back to haunt the Wall Street giant. Weeks after Goldman arranged the loan, Banco Espírito Santo collapsed amid allegations of fraud. Goldman now is in an unusual public fight with Portugal’s central bank, which bailed out Espírito Santo, over whether the loan should be fully repaid. Anticipated losses linked to the loan took a bite out of Goldman’s already weak fourth-quarter re- sults, the firm’s executives said last week. And the Goldman loan is under review by Portuguese regulators, which are trying to untangle the web of financial arrangements surrounding Banco Espírito Santo at the time of its implosion, a person familiar with the inquiry said. The situation highlights a series of missteps by the Wall Street bank. European Pressphoto Agency Don’t Count Out Nielsen Just Yet The loan was approved by at least three Goldman committees, which are composed of senior bank executives and are designed to rigorously assess transactions for their credit risk and their potential to harm the bank’s reputation, according to people familiar with the matter. And the Bank of Portugal moved the loan toward the back of the line for repayment because Goldman last Please turn to page C7 EURO $1.1608 YEN 117.57 See more on C4 and at WSJMarkets.com Price Matters Cheap stocks usually rise more than expensive ones. Annual average price gain for the S&P 500 over five-year periods, with stocks divided into 10 groups based on how expensive they are. Data back to 1945. MORE EXPENSIVE LESS EXPENSIVE 13.1% 11.3 9.6 8.2 6.7 6.2 6.3 Current market’s group 6.8 4.7 0.4 1 2 3 4 5 6 7 8 9 10 Note: P/E ratios use blends of five different earnings-calculation methods, including earnings for past 12 months, average 10-year earnings and others. Investor Bind: How Low Can Oil Go? Déjà Vu: Mounting Source: Goldman Sachs Private Wealth Management BY NICOLE FRIEDMAN AND ROB COPELAND Worries Hit Stocks The collapse in the oil market has been very good for Anuraag Shah. His hedge fund, Tusker Capital LLC, last spring made a bet that oil prices would fall and has since reaped big profits from their nearly 60% decline. But last Tuesday, Mr. Shah decided he had seen enough. He cashed out all of Tusker’s bets against oil, walking away for the moment from a market that has already fallen 8.6% this year. Tusker, which manages roughly $100 million from Manhattan Beach, Calif., saw returns of 17% in 2014 and 10% this month alone through the middle of last week. Oil prices have plunged from north of $100 a barrel in June to less than half that level now, the victim of a growing surplus brought on by booming U.S. production and weaker-than-expected demand. As prices have careened toward six-year lows, the market has become more volatile. That has given investors opportunities to score big profits by betting on further declines. But some traders say the market has fallen too far, too fast—creating the potential for an equally sharp rebound. “It’s bloody nuts,” said Mr. Shah, a veteran of trading giant Louis Dreyfus Commodities BV. He isn’t putting a figure on it, but after oil’s historic plunge, he doesn’t see much further room for bearish bets to go. “I’m not saying this is the low, but we’re not going to $20 or even $30 in the next month or two.” Seven months into a swoon that few saw coming, investors such as Mr. Shah are reluctant to call a bottom for oil prices. Analysts Please turn to page C4 BY E.S. BROWNING Investors are starting the year as they did in 2014: pushing U.S. stocks lower in a season when stocks usually rise. They are optimistic ABREAST OF for the longer THE MARKET term, but that hasn’t kept people from selling now. Once again, money managers fear stocks have risen too fast and that the global economy isn’t strong enough to support them. They worry about disappointing corporate earnings, coming Federal Reserve interestrate increases, weak December retail sales and soft December industrial production. They are alarmed to see disruptions not only in stocks, but in commodities, bonds and currencies. Mon- BY TELIS DEMOS Unpredictable When foreign-exchange broker FXCM Inc. was forced to seek a rescue last week following a surprise surge in the Swiss franc, a number of potential white knights surfaced, including private-equity firms and Leucadia National Corp. It soon became apparent, however, that the best-suited among them to pull off the lightning-fast cash infusion FXCM needed was Leucadia and its Jefferies Group LLC unit, which in recent years has honed its skills as a rescuer of firms succumbing to bouts of market turmoil. Jefferies bankers in about 36 hours put together a $300 million financing from its parent company that will keep FXCM in business. In addition to the 10% Friday 56.46 60 40 2014 '15 The Wall Street Journal Ryan Etter 20 AHEAD OF THE TAPE | By Spencer Jakab Oil Helps Delta Air Gain Altitude Say “delta” on Wall Street and traders will assume you mean one of two things—the resurgent airline or the jargon for rate of change. Both Delta Air Lines Inc. and the delta of analysts’ expectations have been something to behold in recent months. An already strong underlying business case was supercharged by collapsing oil prices. Delta’s shares are up more than threefold since the start of 2013 and by 15% since crude prices peaked last June. But competitors’ shares and earnings projections have rallied even more. That isn’t because investors expect bad or even mixed news from Delta when fourth-quarter results are released Tuesday. A preview the company gave on Jan. 5 shows it exceeded guidance on many measures. Analysts expect adjusted earnings per share to rise to 77 cents from 65 cents a year earlier. But unlike a rising tide that lifts all boats, a sinking crude price doesn’t benefit all airlines equally. On the one hand, Delta’s practice of operating older, cheaper aircraft makes it less energy efficient than peers, and should translate into a bigger bonus from cheap jet fuel. That is outweighed, though, by its hedging strategy. That includes traditional derivatives that benefit when oil prices rise, and suffer when they fall. Competitor American Airlines Group Inc. is essentially unhedged, while others such as United Continental Holdings Co. are less hedged. Nonetheless, Delta expects a Wheels Up Consensus earnings-per-share forecast for 2015 $10 Jan. ’14 8 June Friday 6 4 2 0 Delta Air American United Lines Airlines Continental Source: FactSet $1.7 billion earnings benefit from fuel alone in 2015 compared with last year. Delta’s other hedge is unique in the airline industry: In 2012, it bought an oil refinery and converted much of its output to jet fuel. That much-criticized move turned out to be pretty savvy. Until the final few months of last year, when the price differential vanished, Delta captured some of the extra profit between depressed U.S. benchmark crude and jet fuel, which is priced off of international varieties. Delta trades at a nearly 20% discount to the average multiple of enterprise value to earnings before interest, taxes, depreciation and amortization of four U.S. peers. That is too steep, given that the extent to which Delta will benefit or suffer from oil-price swings beyond the next several months is unknown. Meanwhile, its operational and financial health have kept improving impressively. Delta has plenty of room before hitting its flight ceiling. Email: [email protected] INDEX Financial Flashback............................................ C5 Heard on the Street.......................................... C8 Money Rates.......................................................... C6 Bonds, Rates & Yields............................... C5 Global Finance........................................................ C3 Markets Dashboard........................................... C5 Moving the Market............................................ C2 New to the Market...................................... C5 Ticker..................................................................... C2 initial annual interest the loan commands, Leucadia stands to reap an outsize share of any dividends FXCM generates and of proceeds from any sale of the company or its parts. Jefferies’s role in bailing out FXCM is reminiscent of one it played in 2012, when Knight Capital Group Inc. needed an emergency infusion to stay afloat after a slew of accidental stock orders put the trading firm on the verge of collapse. Jefferies, an investment-banking and securities firm, initially invested $125 million in Knight and is now sitting on a stake in its successor firm valued at $270 million. It also earned tens of millions more when Knight was acquired by a trading firm and in banking and financing fees. Please turn to page C7 investing for what ’s next ™ HELPING MILLIONS ACTIVELY INVEST FOR WHAT’S NEXT Whether it’s a college dream, a new home, or an active retirement, you’ll need smart investments to get there. For more than 65 years, our disciplined, risk-focused investment approach has helped millions of investors worldwide achieve what’s next. To learn more, contact your financial advisor or visit franklintempleton.com/WhatsNextForYou. You should carefully consider a fund’s investment goals, risks, charges and expenses before investing. You’ll find this and other information in the fund’s summary prospectus and/or prospectus, which you can obtain from your financial advisor. Please read a prospectus carefully before investing. All investments involve risks, including possible loss of principal. © 2015 Franklin Templeton Distributors, Inc. All rights reserved. P2JW020000-5-C00100-1--------XA CBOE/Nymex’s crude-oil volatility index 80 Source: SIX Financial Information day’s 7.7% drop in the Shanghai stock market, which had been one of the world’s top gainers last year, made things worse. With so many worries, “when we get disappointing economic news, people are more inclined to panic and do the kind of selling they typically do in times of uncertainty,” said Bruce McCain, who helps oversee more than $25 billion as chief investment strategist at Cleveland’s Key Private Bank. Last year, the S&P 500 fell 3.6% in January and didn’t rebound until February, eventually ending 2014 with a 13.7% gain including dividends. Mr. McCain forecasts that stocks will recover this year as well, finishing with perhaps a 9% to 10% gain for the S&P 500, but only “after a cloud Please turn to the next page Jefferies Reprises Role Of Market White Knight Some investors fear being caught wrong-footed on oil bets as price swings increase 0 The Wall Street Journal Composite MAGENTA BLACK CYAN YELLOW
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