DealBook: Buffett’s Annual Letter Plays Up Newspapers’ Value

Over the last half-century, Warren E. Buffett has built a reputation as a contrarian investor, betting against the crowd to amass a fortune estimated at $54 billion.

Mr. Buffett underscored that contrarian instinct in his annual letter to shareholders published on Friday. In a year when Mr. Buffett did not make any large acquisitions, he bought dozens of newspapers, a business others have shunned. His company, Berkshire Hathaway, has bought 28 dailies in the last 15 months.

“There is no substitute for a local newspaper that is doing its job,” he wrote.

Those purchases, which cost Mr. Buffett a total of $344 million, are relatively minor deals for Berkshire, and just a small part of the giant conglomerate. Mr. Buffett bemoaned his inability to do a major deal in 2012. “I pursued a couple of elephants, but came up empty-handed,” he said. “Our luck, however, changed earlier this year.”

Mr. Buffett was making a reference to one of his largest-ever deals. Last month, Berkshire, along with a Brazilian investment group, announced a $23.6 billion takeover,of the ketchup maker H. J. Heinz.

Written in accessible prose largely free of financial jargon, Berkshire’s annual letter holds appeal far beyond Wall Street. This year’s dispatch contained plenty of Mr. Buffett’s folksy observations about investing and business that his devotees relish.

“More than 50 years ago, Charlie told me that it was far better to buy a wonderful business at a fair price than to buy a fair business at a wonderful price,” Mr. Buffett wrote, referring to his longtime partner at Berkshire, Charlie Munger.

Mr. Buffett also struck a patriotic tone, directly appealing to his fellow chief executives “that opportunities abound in America.” He noted that the United States gross domestic product, on an inflation-adjusted basis, had more than quadrupled over the last six decades.

“Throughout that period, every tomorrow has been uncertain,” he wrote. “America’s destiny, however, has always been clear: ever-increasing abundance.”

The letter provides more than entertainment value and patriotic stirrings, delivering to Berkshire shareholders an update on the company’s vast collection of businesses. With a market capitalization of $250 billion, Berkshire ranks among the largest companies in the United States.

Its holdings vary, with big companies like the railroad operator Burlington Northern Santa Fe and the electric utility MidAmerican Energy, and smaller ones like the running-shoe outfit Brooks Sports and the chocolatier See’s Candies. All told, Berkshire employs about 288,000 people.

The letter, once again, did not answer a question that has vexed Berkshire shareholders and Buffett-ologists: Who will succeed Mr. Buffett, who is 82, as chief executive?

Last year, he acknowledged that he had chosen a successor, but he did not name the candidate.

He has said that upon his death, Berkshire will split his job in three, naming a chief executive, a nonexecutive chairman and several investment managers of its publicly traded holdings.

In 2010, he said that his son, Howard Buffett, would succeed him as nonexecutive chairman.

Berkshire’s share price recently traded at a record high, surpassing its prefinancial crisis peak reached in 2007 and rising about 22 percent over the last year.

The company reported net income last year of about $14.8 billion, up about 45 percent from 2011. Yet the company’s book value, or net worth — Mr. Buffett’s preferred performance measure — lagged the broader stock market, increasing 14.4 percent, compared with the market’s 16 percent return.

Mr. Buffett lamented that 2012 was only the ninth time in 48 years that Berkshire’s book value increase was less than the gain of the Standard & Poor’s 500-stock index. But he pointed out that in eight of those nine years, the S.& P. had a gain of 15 percent or more, suggesting that Berkshire proved to be a most valuable investment during bad market periods.

“We do better when the wind is in our face,” he wrote.

For Berkshire’s largest collection of assets, its insurance operations, the wind has been at its back. We “shot the lights out last year” in insurance, Mr. Buffett said.

He lavished praise on the auto insurer Geico, giving a special shout-out to the company’s mascot, the Gecko lizard.

Investors also keep a keen eye on changes in Berkshire’s roughly $87 billion stock portfolio. Its holdings include large positions in iconic companies like International Business Machines, Coca-Cola, American Express and Wells Fargo. He said Berkshire’s investment in each of those was likely to increase in the future.

“Mae West had it right: ‘Too much of a good thing can be wonderful,’ ” Mr. Buffett wrote.

He also complimented two relatively new hires, Todd Combs and Ted Weschler, who now each manage about $5 billion in stock portfolios for Berkshire. Both men ran unheralded, modest-size money management firms before Mr. Buffett plucked them out of obscurity and moved them to Omaha to work for him.

He called the men “a perfect cultural fit” and indicated that the two would manage Berkshire’s entire stock portfolio once he steps aside. “We hit the jackpot with these two,” Mr. Buffett said, noting that last year, each outperformed the S.& P. by double-digit margins.

Then, sheepishly, employing supertiny type, he wrote: “They left me in the dust as well.”

A former paperboy and member of the Newspaper Association of America’s carrier hall of fame, Mr. Buffett devoted nearly three out of 24 pages of his annual report to newspapers.

While Mr. Buffett has been a longtime owner of The Buffalo News and a stakeholder in The Washington Post Company, he told shareholders four years ago that he wouldn’t buy a newspaper at any price.

But his latest note reflects how much his opinion has turned. His buying spree started in November 2011, when he struck a deal to buy The Omaha World-Herald Company, this hometown paper, for a reported $200 million. By May 2012, he bought out the chain of newspapers owned by Media General, except for The Tampa Tribune. In recent months, he continued to express his interest in buying more papers “at appropriate prices — and that means a very low multiple of current earnings.”

“Papers delivering comprehensive and reliable information to tightly bound communities and having a sensible Internet strategy will remain viable for a long time,” wrote Mr. Buffett.

Mr. Buffett said in a telephone interview last month that he would consider buying The Morning Call of Allentown, Pa., a paper that the Tribune Company is considering selling. But Mr. Buffett said he had not contacted Tribune executives.

“It’s solely a question of the specifics of it and the price,” he said about the Allentown paper. “But it’s similar to the kinds of communities that we bought papers in.”

Mr. Buffett has plenty of cash to make more newspaper acquisitions. To cover his portion of the Heinz purchase, Mr. Buffett will deploy about $12 billion of Berkshire’s $42 billion cash hoard. That leaves a lot of money for Mr. Buffett to continue his shopping spree for newspapers — and more major deals like Heinz.

“Charlie and I have again donned our safari outfits,” Mr. Buffett wrote, “and resumed our search for elephants.”

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Detroit Car Sales Climb Again

DETROIT – Sales of new vehicles in the United States rose modestly in February, as consumers continued to buy more fuel-efficient cars and as businesses replaced aging pickup trucks with newer models.

Auto executives said overall industry sales for the month would improve about 2 percent over the strong results reported in the same period a year ago.

The seasonally adjusted annual sales rate – a closely watched indicator for the industry – is expected to total about 15.5 million vehicles for February.

That seasonal rate bodes well for the industry going forward, as automakers ratchet up production to meet demand for their new products.

The Detroit auto companies all posted positive results during the month.

General Motors, the largest American automaker, said it sold 224,000 vehicles in February, a 7 percent increase from the same month in 2012.

All of G.M.'s domestic brands – Chevrolet, Cadillac, GMC and Buick – had higher year-over-year sales. Cadillac led the way with a 20 percent gain, primarily because of healthy sales of the new ATS compact sedan.

G.M. also reported increases in sales of its newest small cars, like the Buick Verano and the Chevrolet Spark. But its most prominent gains were in pickup trucks.

The company said that sales of the Chevrolet Silverado pickup rose 29 percent, and the GMC Sierra increased 25 percent. Executives attributed the performance to a surge in housing starts and the need for construction companies to replace older pickups.

“A significant tailwind for our industry is new home construction, which is creating jobs and fueling the demand for pickups,” said Kurt McNeil, G.M.'s vice president of United States sales operations.

The Ford Motor Company, the second-biggest Detroit auto company, said it sold 195,000 vehicles during the month, a 9 percent gain from a year ago.

Ford said that many of its gains came from sales of sport utilities such as the Escape and Explorer. The company’s redesigned midsize sedan, the Fusion, also had a good month, with a 28 percent improvement over last year.

Like G.M., Ford also benefitted from the surging demand for pickups. Ford said that it sold 54,000 F-series trucks during the month, a 15 percent increase from February of 2012.

Chrysler, the smallest of the Detroit automakers, saw its growth rate slow somewhat after several months of reporting double-digit increases.

The company said that it sold 139,000 vehicles in February, a 4 percent improvement over a year earlier. That is a smaller increase than Chrysler has reported in previous months.

“In spite of a cautious ramp-up of some of our most popular products, which limited inventory last month, we still managed to record our strongest February in five years,” said Reid Bigland, head of United States sales for Chrysler.

Chrysler’s best performers during the month were passenger cars such as the new Dodge Dart. Sales of its Ram pickup increased 3 percent, while sales of its Jeep SUVs dropped 16 percent.

The big Japanese automakers were to report results later Friday. Analysts expected Toyota and Honda to continue their steady comeback from inventory disruptions because of the earthquake and tsunami in Japan two years ago.

Volkswagen, the German automaker that is rapidly expanding its American operations, said it sold 31,000 vehicles in February, a 3 percent increase from a year earlier.

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DealBook: For S.E.C., a Setback in Bid for More Time in Fraud Cases

The Supreme Court on Wednesday delivered a swift and decisive rejection of the Securities and Exchange Commission’s argument that it should operate under a more forgiving statute of limitations in pursuing penalties in fraud cases.

As a result of the decision, the agency will have to find a long-term solution to give itself more time to investigate cases.

In Gabelli v. Securities and Exchange Commission, Chief Justice John G. Roberts Jr. wrote in the unanimous decision rejecting the S.E.C.’s argument that a federal statute that limits the government’s authority to pursue civil penalties should commence when a fraud is discovered, not when it occurred.

The S.E.C. was hoping that the court would apply what is known as the “discovery rule.” In 2010, the Supreme Court endorsed this rule in a private securities fraud class-action suit, Merck & Co. v. Reynolds, stating “that something different was needed in the case of fraud, where a defendant’s deceptive conduct may prevent a plaintiff from even knowing that he or she has been defrauded.”

The discovery rule is an exception to the protection afforded by a statute of limitations, which puts an endpoint on potential legal liability for conduct. Unlike most cases, when fraud is involved, it may not be apparent to the victims that they were harmed because the primary goal of deceptive conduct is to keep it from being exposed.

In the Gabelli case, the S.E.C. filed fraud charges in 2008 against the mutual fund manager Marc Gabelli and a colleague, Bruce Alpert, saying they had violated the Investment Advisers Act of 1940 for permitting an investor to engage in market timing. Ten years ago, a major scandal erupted when it came to light that some advisers had permitted select investors to buy shares at favorable prices to take advantage of pricing disparities in the securities held by mutual funds.

In its complaint, the S.E.C. sought civil monetary penalties based on market timing that it claimed had taken place from 1999 to 2002, and resulted in the preferred investor purportedly reaping significant profits while ordinary investors suffered large losses. The defendants denied the charges and filed a motion to dismiss the case because it was not brought in time.

A federal statute, 28 U.S.C. § 2462, provides that “an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued.” The provision dates to 1839, and applies to any government agency.

A decision by the United States Court of Appeals for the Second Circuit in Manhattan allowed the case to proceed by applying the discovery rule to a governmental action. Coincidentally, that decision was written by Judge Jed S. Rakoff, who despite being an occasional thorn in the S.E.C.’s side, accepted the agency’s argument to avoid a strict application of the five-year statute of limitations.

The Supreme Court, however, saw things differently. This week, it issued its opinion less than two months after it heard oral argument in the case in January, a clear sign the justices found no merit in the S.E.C.’s contention that the agency should be treated the same as private plaintiffs in trying to get around the statute of limitations.

According to the Supreme Court, victims in securities fraud cases should have a longer period to file a claim – from when the fraud was discovered. “Most of us do not live in a state of constant investigation,” the court wrote. “Absent any reason to think we have been injured, we do not typically spend our days looking for evidence that we were lied to or defrauded.”

Chief Justice Roberts explained that “the S.E.C. as enforcer is a far cry from the defrauded victim the discovery rule evolved to protect.” One of the reasons the agency exists is to detect and penalize violations, with tools that the ordinary investor simply does not have, like the authority to compel testimony and the production of documents. The message is simple. When it’s your job to investigate fraud, you cannot argue that your failure to do so is a justification for not meeting a statute of limitations.

The Supreme Court’s decision puts increased pressure on the S.E.C. to pursue its investigations with greater alacrity and not let them gather dust, which can occur as a result of staff turnover or other pressing issues. The market timing case is a good example of how an investigation might get lost in the shuffle as corporate accounting frauds at large companies like Enron and WorldCom, which also came to light in 2002, strained the S.E.C.’s investigative resources.

There are a couple of options to deal with this issue in the long run, apart from a substantial increase in the agency’s budget – an unlikely prospect in the face of the looming federal budget sequestration deadline.

The S.E.C. can obtain an agreement to stop the statute of limitations, known as tolling, from those it is investigating, something it has done in the past. For example, in its insider trading and securities fraud case against Samuel E. Wyly, his now deceased brother, Charles J. Wyly Jr., and two other defendants, the S.E.C. got an agreement that let it pursue claims beyond the normal five-year limitations period.

A permanent solution would be to seek legislation from Congress that would give the S.E.C. a longer window to complete its investigations. The statute of limitations is not a constitutional protection, so Congress can amend it as it sees fit, which it has done in other areas involving fraud.

The limitations period for banking crimes, for example, was extended to 10 years during the savings and loan crisis because of the crush of cases that made it difficult to finish investigations in the five-year window to initiate criminal prosecutions. The Fraud Enforcement and Recovery Act of 2009 added mail and wire fraud affecting a financial institution to the list of crimes that get the benefit of the 10-year limitations period, again because of fear that cases would be lost because of the number of investigations taking place after the financial crisis.

The issue of the statute of limitations may even come up at the confirmation hearings of Mary Jo White, who has been nominated to be chairwoman of the S.E.C. That could be an early indicator of whether she would be willing to push for relief from the effect of the Gabelli opinion to help out the enforcement division.

In the short run, the Supreme Court’s decision will cause defendants in government enforcement actions to examine whether they might be able to take advantage of the five-year limitations period. Given how slowly the government has been known to move on occasion, it may be that some cases will fall by the wayside because of the Gabelli decision.

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DealBook: Obama’s Nominee for S.E.C. Tries to Allay Skepticism

Mary Jo White’s path to the Securities and Exchange Commission has reached a crucial juncture: the Congressional charm campaign.

Lawmakers are scrutinizing Ms. White ahead of her Senate confirmation hearing, raising questions about the former prosecutor’s lack of regulatory experience and the challenge of policing Wall Street firms she recently defended in private practice. But Ms. White is seeking to quell concerns about potential conflicts of interest.

She recently scheduled meetings with Senate Banking Committee members, who must clear her nomination, and answered a 20-page boilerplate questionnaire detailing her qualifications, according to a copy provided to The New York Times. The document sheds new light on her list of Wall Street clients, including little-known work performed for HSBC’s former chief executive. It also describes her ties to New York Democratic causes and laurels she earned both as a defense lawyer and federal prosecutor.

The questionnaire, created by the banking committee, focused significant attention on her movement through the revolving door between government service and private practice, a concern that has loomed since President Obama nominated Ms. White in January.

“As a government official, I believe I have an established track record and the reputation of being tough, but fair,” she said in the document.

Ms. White also offered a previously undisclosed concession, vowing “as far as can be foreseen,” never to return to Debevoise & Plimpton, where she had built a lucrative legal practice. To avert potential conflicts stemming from her work on behalf of Wall Street giants, Ms. White had already agreed to recuse herself for one year from most matters that involve former clients.

While Ms. White’s nomination is expected to sail through the committee before receiving full Senate approval, four Congressional officials who spoke anonymously warned that some Democrats have lingering reservations.

The Democrats note that her husband, John W. White, is co-chairman of the corporate governance practice at Cravath, Swaine & Moore, where he represents many of the companies that the S.E.C. regulates. They also question whether Ms. White’s recusals, even if well-intentioned, could cripple her ability to run the agency.

In a meeting on Tuesday with Senator Sherrod Brown, Democrat of Ohio, Ms. White did little to alleviate the fears.

“Senator Brown respects Ms. White’s credentials and experience, but is concerned with Washington’s long-held bias toward Wall Street,” his spokeswoman, Meghan Dubyak, said in a statement. “He pushed Ms. White,” to explain “whether her previous employment or her spouse’s current employment could cause her to recuse herself from key business facing the S.E.C.” The agency has already fallen behind in writing dozens of new rules for Wall Street.

Ms. White’s supporters counter that, before the White House announced the appointment, the Office of Government Ethics vetted her disclosures. The nonpartisan officials concluded that, even with her recusals, Ms. White could effectively run the agency.

Her supporters also trumpet her long tenure as a tenacious prosecutor. During stints as a federal prosecutor in Brooklyn and as the first woman United States attorney in Manhattan, she helped oversee the prosecution of the crime figure John Gotti and directed the case against those responsible for the 1993 World Trade Center bombing. The cases won her praise from several lawmakers.

Ms. White still has time to win over remaining skeptics. Her confirmation hearing is not expected until the week of March 11, Congressional officials briefed on the matter said.

Until then, Ms. White is blitzing through the halls of Congress, a routine practice for nominees. She began her charm offensive at the top of the banking committee’s roster, visiting this month with the Democratic chairman, Senator Tim Johnson, of South Dakota. A Congressional official briefed on the matter said Ms. White performed well at the gathering, and no major issues arose.

In the next round of meetings, she will face off with a more liberal arm of the committee known to scrutinize nominees. After meeting Mr. Brown, Ms. White is scheduled to see Senator Jeff Merkley, Democrat of Oregon. She also will meet Elizabeth Warren, the Massachusetts Democrat who is an outspoken critic of Wall Street, Ms. Warren’s office confirmed on Tuesday.

Even if Ms. White fails to satisfy lawmakers’ concerns, the meetings are an important step in clearing the way for her appointment.

“Senators will have a chance to size Mary Jo up, and I believe will come away with a great sense of comfort that she’s a candidate of true quality,” said Harvey Pitt, who passed through the confirmation process in 2001 to lead the S.E.C.

He noted that additional disclosures could bolster her candidacy. “I do think she will need to provide a level of comfort to the committee that she is aware of the issue, has a definitive plan for navigating through the potential conflict issues, and will be completely open about when she has a potential recusal issue, and how she has handled it,” he said.

Ms. White, a political independent, assured lawmakers in her questionnaire that she was “completely independent of political or personal influences.” She did disclose, however, $13,000 in campaign donations to Democratic candidates. She also served on the campaign committee of a Democrat who had run for New York attorney general.

Her ties to Debevoise — and its clients — are more significant; she represented JPMorgan Chase, UBS and Michael Geoghegan, the former head of HSBC.

Ms. White, 65, said this month said that she would retire from Debevoise after taking over the S.E.C. and would forgo the firm’s typical retirement perks: office space and a free BlackBerry. She also will sever financial ties to the firm during her term at the S.E.C., taking an upfront lump-sum retirement payment rather than collecting a monthly installment of $42,500.

Her husband has also offered concessions. He agreed to convert his partnership at Cravath, Swaine & Moore from equity to nonequity status and promised not to “communicate directly” with the S.E.C. about rule-making. Ms. White will not participate in a matter with a direct effect on his compensation.

In line with a standard move for federal appointees, Ms. White further agreed to recuse herself for one year from voting on enforcement cases involving Debevoise clients. There are limitations to the policy, though, in case it is “in the public interest” and a “reasonable” person would not object.

Some lawmakers dismiss questions about her potential conflicts, but still question her mastery of regulatory minutiae. While Ms. White is a skilled litigator, she lacks experience in financial rule-writing, unlike a predecessor, Mary Schapiro, a lifelong regulator who ran the S.E.C. for nearly four years.

In her questionnaire, Ms. White highlighted her role as a director of the Nasdaq exchange and other experiences that she said gave her “a firm grounding” in securities laws.

She also, inadvertently, drew a connection to Ms. Schapiro. Like Ms. Schapiro, Ms. White is an animal lover, currently serving as a board member of the American Society for the Prevention of Cruelty to Animals.

She agreed to step down from the board once she is sworn in at the S.E.C.

A version of this article appeared in print on 02/27/2013, on page B1 of the NewYork edition with the headline: Nominee For S.E.C. Tries to Allay Skepticism.

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Wall Street Sheds Morning Gains

After beginning the day with a partial rebound from Monday’s steep drop, stocks on Wall Street gave up some of their gains Tuesday in the course of Congressional testimony by Ben S. Bernanke, the Federal Reserve chairman.

In afternoon trading, the Standard & Poor’s 500-stock index was up 0.1 percent, while the Dow Jones industrial average rose 0.6 percent. The Nasdaq composite index was down 0.2 percent.

In his prepared testimony before the Senate Banking Committee, Mr. Bernanke defended the Fed’s bond-buying program and said the economy was growing at a “moderate if somewhat uneven pace.” Senators were questioning him on the prospects for a global currency war and the potential economic effects of the latest budget impasse in Congress.

The major indexes fell more than 1 percent on Monday, with the S.&P. 500 recording its biggest daily drop since November. The falloff came as investors fretted that if Italy does not undertake reforms, the euro zone could once again be destabilized. The Euro Stoxx 50 index was off more than 3 percent in late trading Tuesday.

Groups in Italy opposed to economic reforms posted a strong showing in the recent election, resulting in a political deadlock with a comedian’s protest party leading the poll and no group securing a clear majority in Parliament.

“We’ve gone to an environment of political stability to instability, and until we get some type of clarity over who is in charge, which could take days, the market will have renewed concerns,” said Art Hogan, managing director of Lazard Capital Markets in New York.

Still, market participants speculated that a coalition government would eventually emerge in Italy and ease worries about a new euro zone crisis.

The early market gains suggested the recent trend of investors buying on dips would continue. Last week, concerns that the Federal Reserve might roll back its stimulus efforts earlier than expected prompted a sharp two-day decline, though equities recovered most of the lost ground by the end of the week.

“Investors are taking advantage of the drop, and once some kind of coalition government is formed, most of our concerns will be put to rest,” Mr. Hogan said.

Home Depot reported adjusted earnings and sales that beat expectations, sending shares up more than 5 percent.

Macy’s rose 3.1 percent after stating it expected full-year earnings to be above analysts’ forecasts because of strong sales in the holiday period.

For the benchmark S.&P. 500, 1,500 points will be watched as a key benchmark after the index closed below it on Monday for the first time since Feb. 4, with selling accelerating after falling below it. An inability to break back above it could portend further losses.

Financial shares may be among the most volatile, as that sector is closely tied to the pace of global economic growth. Morgan Stanley was one of the top percentage losers on the S.&P. on Monday, dropping more than 6 percent on concerns about the company’s exposure to European debt. It was up 0.4 percent.

This article has been revised to reflect the following correction:

Correction: February 26, 2013

Because of an editing error, an earlier version of this article misidentified the Senate panel before which Ben S. Bernanke, the Federal Reserve chairman, was testifying Tuesday. It was the Banking Committee, not the Finance Committee.

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DealBook: Japan to Sell $10 Billion Stake in Cigarette Firm

TOKYO – The Japanese government is set to loosen its grip on Japan Tobacco, the world’s third-largest tobacco company, by selling a third of its stake in a sale that will net the country about $10 billion.

The Finance Ministry, which owns just over 50 percent of the former state monopoly, will sell 333 million of its shares in the cigarette manufacturer, according to a company statement issued on Monday.

The deal will be priced next month, from March 11 to 13, the statement said. In the run-up to the sale, Japan Tobacco will buy back up to 250 billion yen ($2.7 billion) of its shares.

Under laws passed in 2011 after a devastating earthquake and tsunami hit Japan, proceeds of the sale of Japan Tobacco shares will go toward rebuilding the country’s battered northeast coast. The reconstruction costs have threatened to weigh on Japan’s public finances at a time when public debt is twice the size of its economy.

It is an opportune time for the Japanese government to sell. Japan’s stock market has rallied since mid-November, and Japan Tobacco’s shares have tracked the market’s ascent, climbing 20 percent in the last three months.

Shares in Japan Tobacco closed 1.43 percent higher on Monday, at 2,901 yen, before the planned sale was announced. At that price, the government’s share sale would be valued at roughly 967 billion yen.

Japan has already been reducing its stake and involvement in the cigarette maker, which traces its origins to a Finance Ministry bureau set up in 1898 to create a national tobacco monopoly that lasted until 1985.

Even after the company went public, the Finance Ministry held two-thirds of its shares until 2004, when it reduced its stake to 50.1 percent, or roughly one billion shares. Other investors in Japan Tobacco include Mizuho Trust & Banking, Goldman Sachs and the Children’s Investment Fund Management.

The position in Japan Tobacco has put the government in a controversial position.

The government has squeezed more funds from its smokers, raising the price of a pack of cigarettes about 40 percent in 2010, its single largest increase in tobacco taxes. Still, cigarettes remain relatively cheap in Japan, at about $4.30 a pack.

But antismoking advocates have blamed the Japanese government’s continued ownership of Japan Tobacco – whose brands include Camel, Winston and Mild Seven – for the country’s delay in passing laws to protect nonsmokers from cigarette smoke, for example, and more stringently regulating of tobacco-related marketing.

In a 2012 report, the Washington-based Global Business Group on Health said Japan’s ownership of Japan Tobacco shares “leads to a national conflict of interest, in which the government treats smoking as a behavioral issue rather than a health concern.”

Though smoking rates have started to decline in recent years, the Japanese remain heavy smokers, consuming about 1,841 cigarettes a person, according to data compiled last year by the World Lung Foundation and American Cancer Society. That compared with about 1,000 cigarettes a person in the United States.

To make up for declining cigarette consumption at home, Japan Tobacco has aggressively expanded overseas, acquiring Britain’s Gallaher Group in 2007 for $15 billion, and adding the Silk Cut and Benson & Hedges brands to its portfolio. The company has also made a push into packaged foods and soft drinks, as well as pharmaceuticals.

The government’s sale of Japan Tobacco shares is part of a wider effort to raise money to finance reconstruction from the country’s natural and nuclear disasters in 2011. The government also plans to sell shares of Japan Post Holdings, which runs the country’s postal system and also acts as its biggest bank.

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Major Banks Aid in Payday Loans Banned by States

Major banks have quickly become behind-the-scenes allies of Internet-based payday lenders that offer short-term loans with interest rates sometimes exceeding 500 percent.

With 15 states banning payday loans, a growing number of the lenders have set up online operations in more hospitable states or far-flung locales like Belize, Malta and the West Indies to more easily evade statewide caps on interest rates.

While the banks, which include giants like JPMorgan Chase, Bank of America and Wells Fargo, do not make the loans, they are a critical link for the lenders, enabling the lenders to withdraw payments automatically from borrowers’ bank accounts, even in states where the loans are banned entirely. In some cases, the banks allow lenders to tap checking accounts even after the customers have begged them to stop the withdrawals.

“Without the assistance of the banks in processing and sending electronic funds, these lenders simply couldn’t operate,” said Josh Zinner, co-director of the Neighborhood Economic Development Advocacy Project, which works with community groups in New York.

The banking industry says it is simply serving customers who have authorized the lenders to withdraw money from their accounts. “The industry is not in a position to monitor customer accounts to see where their payments are going,” said Virginia O’Neill, senior counsel with the American Bankers Association.

But state and federal officials are taking aim at the banks’ role at a time when authorities are increasing their efforts to clamp down on payday lending and its practice of providing quick money to borrowers who need cash.

The Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau are examining banks’ roles in the online loans, according to several people with direct knowledge of the matter. Benjamin M. Lawsky, who heads New York State’s Department of Financial Services, is investigating how banks enable the online lenders to skirt New York law and make loans to residents of the state, where interest rates are capped at 25 percent.

For the banks, it can be a lucrative partnership. At first blush, processing automatic withdrawals hardly seems like a source of profit. But many customers are already on shaky financial footing. The withdrawals often set off a cascade of fees from problems like overdrafts. Roughly 27 percent of payday loan borrowers say that the loans caused them to overdraw their accounts, according to a report released this month by the Pew Charitable Trusts. That fee income is coveted, given that financial regulations limiting fees on debit and credit cards have cost banks billions of dollars.

Some state and federal authorities say the banks’ role in enabling the lenders has frustrated government efforts to shield people from predatory loans — an issue that gained urgency after reckless mortgage lending helped precipitate the 2008 financial crisis.

Lawmakers, led by Senator Jeff Merkley, Democrat of Oregon, introduced a bill in July aimed at reining in the lenders, in part, by forcing them to abide by the laws of the state where the borrower lives, rather than where the lender is. The legislation, pending in Congress, would also allow borrowers to cancel automatic withdrawals more easily. “Technology has taken a lot of these scams online, and it’s time to crack down,” Mr. Merkley said in a statement when the bill was introduced.

While the loans are simple to obtain — some online lenders promise approval in minutes with no credit check — they are tough to get rid of. Customers who want to repay their loan in full typically must contact the online lender at least three days before the next withdrawal. Otherwise, the lender automatically renews the loans at least monthly and withdraws only the interest owed. Under federal law, customers are allowed to stop authorized withdrawals from their account. Still, some borrowers say their banks do not heed requests to stop the loans.

Ivy Brodsky, 37, thought she had figured out a way to stop six payday lenders from taking money from her account when she visited her Chase branch in Brighton Beach in Brooklyn in March to close it. But Chase kept the account open and between April and May, the six Internet lenders tried to withdraw money from Ms. Brodsky’s account 55 times, according to bank records reviewed by The New York Times. Chase charged her $1,523 in fees — a combination of 44 insufficient fund fees, extended overdraft fees and service fees.

For Subrina Baptiste, 33, an educational assistant in Brooklyn, the overdraft fees levied by Chase cannibalized her child support income. She said she applied for a $400 loan from Loanshoponline.com and a $700 loan from Advancemetoday.com in 2011. The loans, with annual interest rates of 730 percent and 584 percent respectively, skirt New York law.

Ms. Baptiste said she asked Chase to revoke the automatic withdrawals in October 2011, but was told that she had to ask the lenders instead. In one month, her bank records show, the lenders tried to take money from her account at least six times. Chase charged her $812 in fees and deducted over $600 from her child-support payments to cover them.

“I don’t understand why my own bank just wouldn’t listen to me,” Ms. Baptiste said, adding that Chase ultimately closed her account last January, three months after she asked.

A spokeswoman for Bank of America said the bank always honored requests to stop automatic withdrawals. Wells Fargo declined to comment. Kristin Lemkau, a spokeswoman for Chase, said: “We are working with the customers to resolve these cases.” Online lenders say they work to abide by state laws.

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Many States Say Cuts Would Burden Fragile Recovery

States are increasingly alarmed that they could become collateral damage in Washington’s latest fiscal battle, fearing that the impasse could saddle them with across-the-board spending cuts that threaten to slow their fragile recoveries or thrust them back into recession.

Some states, like Maryland and Virginia, are vulnerable because their economies are heavily dependent on federal workers, federal contracts and military spending, which will face steep reductions if Congress allows the automatic cuts, known as sequestration, to begin next Friday. Others, including Illinois and South Dakota, are at risk because of their reliance on the types of federal grants that are scheduled to be cut. And many states simply fear that a heavy dose of federal austerity could weaken their economies, costing them jobs and much-needed tax revenue.

So as state officials begin to draw up their budgets for next year, some say that the biggest risk they see is not the weak housing market or the troubled European economy but the federal government. While the threat of big federal cuts to states has become something of a semiannual occurrence in recent years, state officials said in interviews that they fear that this time the federal government might not be crying wolf — and their hopes are dimming that a deal will be struck in Washington in time to avert the cuts.

The impact would be widespread as the cuts ripple across the nation over the next year.

Texas expects to see its education aid slashed hundreds of millions of dollars, which could force local school districts to fire teachers, if the cuts are not averted. Michigan officials say they are in no position to replace the lost federal dollars with state dollars, but worry about cuts to federal programs like the one that helps people heat their homes. Maryland is bracing not only for a blow to its economy, which depends on federal workers and contractors and the many private businesses that support them, but also for cuts in federal aid for schools, Head Start programs, a nutrition program for pregnant women, mothers and children, and job training programs, among others.

Gov. Bob McDonnell of Virginia, a Republican, warned in a letter to President Obama on Monday that the automatic spending cuts would have a “potentially devastating impact” and could force Virginia and other states into a recession, noting that the planned cuts to military spending would be especially damaging to areas like Hampton Roads that have a big Navy presence. And he noted that the whole idea of the proposed cuts was that they were supposed to be so unpalatable that they would force officials in Washington to come up with a compromise.

“As we all know, the defense, and other, cuts in the sequester were designed to be a hammer, not a real policy,” Mr. McDonnell wrote. “Unfortunately, inaction by you and Congress now leaves states and localities to adjust to the looming threat of this haphazard idea.”

The looming cuts come just as many states feel they are turning the corner after the prolonged slump caused by the recession. Gov. Martin O’Malley of Maryland, a Democrat, said he was moving to increase the state’s cash reserves and rainy day funds as a hedge against federal cuts.

“I’d rather be spending those dollars on things that improve our business climate, that accelerate our recovery, that get more people back to work, or on needed infrastructure — transportation, roads, bridges and the like,” he said, adding that Maryland has eliminated 5,600 positions in recent years and that its government was smaller, on a per capita basis, than it had been in four decades. “But I can’t do that. I can’t responsibly do that as long as I have this hara-kiri Congress threatening to drive a long knife through our recovery.”

Federal spending on salaries, wages and procurement makes up close to 20 percent of the economies of Maryland and Virginia, according to an analysis by the Pew Center on the States.

But states are in a delicate position. While they fear the impact of the automatic cuts, they also fear that any deal to avert them might be even worse for their bottom lines. That is because many of the planned cuts would go to military spending and not just domestic programs, and some of the most important federal programs for states, including Medicaid and federal highway funds, would be exempt from the cuts.

States will see a reduction of $5.8 billion this year in the federal grant programs subject to the automatic cuts, according to an analysis by Federal Funds Information for States, a group created by the National Governors Association and the National Conference of State Legislatures that tracks the impact of federal actions on states. California, New York and Texas stand to lose the most money from the automatic cuts, and Puerto Rico, which is already facing serious fiscal distress, is threatened with the loss of more than $126 million in federal grant money, the analysis found.

Even with the automatic cuts, the analysis found, states are still expected to get more federal aid over all this year than they did last year, because of growth in some of the biggest programs that are exempt from the cuts, including Medicaid.

But the cuts still pose a real risk to states, officials said. State budget officials from around the country held a conference call last week to discuss the threatened cuts. “In almost every case the folks at the state level, the budget offices, are pretty much telling the agencies and departments that they’re not going to backfill — they’re not going to make up for the budget cuts,” said Scott D. Pattison, the executive director of the National Association of State Budget Officers, which arranged the call. “They don’t have enough state funds to make up for federal cuts.”

The cuts would not hit all states equally, the Pew Center on the States found. While the federal grants subject to the cuts make up more than 10 percent of South Dakota’s revenue, it found, they make up less than 5 percent of Delaware’s revenue.

Many state officials find themselves frustrated year after year by the uncertainty of what they can expect from Washington, which provides states with roughly a third of their revenues. There were threats of cuts when Congress balked at raising the debt limit in 2011, when a so-called super-committee tried and failed to reach a budget deal, and late last year when the nation faced the “fiscal cliff.”

John E. Nixon, the director of Michigan’s budget office, said that all the uncertainty made the state’s planning more difficult. “If it’s going to happen,” he said, “at some point we need to rip off the Band-Aid.”

Fernanda Santos contributed reporting.

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DealBook: Carlyle's Profit Fell in 4th Quarter as Growth Slowed

11:18 a.m. | Updated Most of the publicly traded private equity giants proudly reported glowing fourth-quarter earnings.

The Carlyle Group isn’t one of them.

On Thursday, the alternative investment giant disclosed a 28 percent drop in fourth-quarter profit from the period a year earlier, as the growth of its portfolio companies slowed. That sent the company’s stock down more than 8 percent by midmorning, to $33.70.

Carlyle reported fourth-quarter profit of $182 million, expressed as economic net income, compared with $254 million in the year-earlier period. That amounts to 47 cents per unit. Analysts surveyed by Capital IQ had expected about 66 cents per unit, on average.

And Carlyle’s distributable earnings, a measure the firm prefers because it tracks actual payouts to its limited partners, fell 24 percent, to $188 million. Using generally accepted accounting principles, Carlyle earned $12 million in net income.

The results fall short of those of rivals like the Blackstone Group and Kohlberg Kravis Roberts. Private equity firms in general have gained from improvements in the markets, which have lifted the valuations of their portfolios and bolstered their core business of buying and selling companies.

Carlyle attributed the decline in economic net income to a smaller appreciation in the value of its portfolio. It reported a 4 percent gain for the quarter, compared with a 7 percent increase in the period a year earlier.

The decision to delay reaping carried interest from its latest mainstay fund, Carlyle Partners V, weighed on distributable earnings. The company opted to hold off, given the relative freshness of the fund and the influx of new investments like the buyouts of the TCW Group and Getty Images.

Carlyle highlighted its strong fund-raising and gains from selling investments. The firm raised $4.6 billion in new money for the quarter and $14 billion for the year, compared with a total of $6.6 billion raised in all of 2011. It generated $6.8 billion in realized proceeds for the quarter and $18.7 billion for the year, compared with $17.6 billion in 2011.

“We had another excellent year,” David M. Rubenstein, one of Carlyle’s co-chief executives, said in a statement. “Our performance over the past two years was marked by steady, continuous progress across our business.”

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State of the Art: Sony’s RX1 Camera: Compact, Full-Framed and Expensive, Too

When you’re shopping for a camera, you have a million specs and features to consider. Size, weight, battery life, megapixels, zoom power. ... Can you guess which aspect consumers consider most important?

The color of the body. (“Ooh, I like the shiny red one!”)

The camera buyer for a national electronics chain told me that. We both slapped our foreheads.

Please. If you’re buying a camera, shouldn’t picture quality be the most important detail?

If so, what you should care most about is the flat, rectangular light sensor inside the “film.” In general, the bigger the sensor, the happier you’ll be with the results and the more you’ll pay.

At the low end, snapshot cameras with tiny sensors (0.4 inches diagonal) cost $150 but give you blurry, grainy low-light shots. At the high end, those professional, big, black S.L.R. cameras cost $2,000 to $6,000 but come with full-frame sensors. That is, these sensors are as big as an old piece of 35-millimeter film (1.7 inches). They deliver unparalleled low-light quality, richness of color, detail and soft-focused backgrounds.

(You can buy cameras with even bigger sensors — medium-format cameras that cost $20,000 and military cameras that cost millions — but let’s say you live in the real world.)

All of this explains why Sony’s 2013 camera/camcorder lineup is so startling. The company has put full-frame sensors into three new cameras, at prices and body sizes that nobody has ever attained.

For example, there’s the A99, which Sony says is the world’s smallest and lightest full-frame S.L.R. It’s meant to compete with professional cameras like the Canon 5D Mark III ($3,200) and Nikon D800 ($3,000) — for $2,800. (These prices are for the bodies only.)

The A99 is sort of homely, but it has a long list of distinguishing features: fast, continuous focusing, even while filming or shooting something running at you; two memory-card slots; built-in GPS function that stamps every photo with your location; 1080p, 60-frames-a-second high-definition video; microphone and headphone jacks; and an electronic viewfinder whose video shows you the results of your adjustments in real time.

Sony says the A99 is also the only full-frame camera with a screen that flips out and tilts.

Then there’s the VG900, Sony’s first full-frame camcorder. It costs $3,300 — about $10,000 less than any other full-frame camcorder, Sony says. And its sensor is about 45 times as big as a standard camcorder’s sensor.

Now, a huge sensor may not seem to make sense in a camcorder. One frame of hi-def video has only about two megapixels of resolution; what’s the point of stuffing a 24-megapixel sensor into the camcorder?

Answer: It’s about picture quality. A big sensor gives you amazing low-light video, gorgeous blurry backgrounds, greater dynamic range and better color.

Thousands of filmmakers use full-frame S.L.R. still cameras to shoot video, because of the superior quality and because they can use different lenses for different video effects. S.L.R-based camcorders like Sony’s VG900 offer the same features in a camcorder shape. They’re much more comfortable to hold, and their buttons are better placed for video operation.

The VG900 accepts Sony’s E-mount camera lenses, of which there are 13; they don’t quite exploit the full area of that jumbo sensor. But the camera comes with an adapter for the older, more plentiful A-mount lenses. Alas, those lenses don’t autofocus with that adapter.

The most astonishing new full-frame Sony, though, is the RX1. It’s the world’s first compact full-frame camera.

Now, you’re forgiven if you just spewed your coffee. “Compact” and “full-frame” have never gone together before. Everyone knows why: a big sensor requires a big lens, meaning a big camera. You can’t change the laws of physics, no matter how much photographers would love it.

E-mail: pogue @nytimes.com

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Obama to Turn Up Pressure for Deal on Budget Cuts

Doug Mills/The New York Times

President Obama spoke at a White House auditorium surrounded by emergency responders.

WASHINGTON — President Obama, back from his three-day golf getaway, on Monday made use of his bully pulpit, while Congress remains out all week, to turn up the pressure for a bipartisan agreement to avoid indiscriminate across-the-board budget cuts that will otherwise hit March 1.

Speaking in a White House auditorium surrounded by blue-uniformed emergency responders to illustrate some of the jobs threatened if the cuts were to take effect, Mr. Obama warned that military readiness and vital domestic services would be hurt “if Congress allows this meat-cleaver approach to take place.”

“Changes like this affect our responsibility to respond to threats in unstable parts of the world,” the president said. “These cuts are not smart, they are not fair, they will hurt our economy, they will add hundreds of thousands of Americans to the unemployment rolls. This is not an abstraction — people will lose their jobs.”

Some Republicans in Congress have proposed alternative savings that would spare any cuts in military spending but not in domestic accounts. Mr. Obama and Congressional Democrats are calling for a mix of spending cuts and additional tax revenues by closing some tax breaks for wealthy investors and corporations.

Mr. Obama’s comments were among his harshest toward Republicans, and reflected the political frame that he has devised to try to force Republicans into compromising with him by supporting some higher revenues — something they so far refuse to do.

“The ideas that the Republicans have proposed ask nothing of the wealthiest Americans or biggest corporations, so the burden is all on first responders or seniors or middle-class families,” Mr. Obama said, adding that those proposals would “slash Medicare and investments that create good middle-class jobs.”

“So now Republicans in Congress face a simple choice,” he added. “Are they willing to compromise to protect vital investments in education and health care and national security and all the jobs that depend on them, or would they rather put hundreds of thousands of jobs and our entire economy at risk just to protect a few special-interest tax loopholes that benefit only the wealthiest Americans and biggest corporations?”

Republicans, seeking to put blame on Mr. Obama if the cuts occur, have repeatedly noted that the White House proposed the sequester idea during debt talks in mid-2011. But both parties overwhelmingly supported the proposal as part of their deal. And as Mr. Obama said on Tuesday, the purpose of the sequester was to threaten something so unthinkable that the two parties would come together to agree on an alternative.

The president’s latest deficit reduction push comes as the heads of his 2010 deficit reduction commission — former Senator Alan K. Simpson and Erskine B. Bowles, a former chief of staff to President Bill Clinton — unveil a new plan that would reduce the deficit by $2.4 trillion through a series of spending cuts and an overhaul of the tax system.

When Congress returns from a winter recess next week, just days remain before the deadline for the so-called sequester of spending cuts, a deadline that already was moved once — at the start of the year — to allow more time for the two parties to negotiate.

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A First Step on Continent for Google on Use of Content

PARIS — Publishers in France say they have struck an innovative agreement with Google on the use of their content online. Their counterparts elsewhere in Europe, however, say the French gave in too easily to the Internet giant.

The deal was signed this month by President François Hollande of France and Eric E. Schmidt, the executive chairman of Google, who called it a breakthrough in the tense relationship between publishers and Google, and as a possible model for other countries to follow.

Under the deal, Google agreed to set up a fund, worth €60 million, or $80 million, over three years, to help publishers develop their digital units. The two sides also pledged to deepen business ties, using Google’s online tools, in an effort to generate more online revenue for the publishers, who have struggled to counteract dwindling print revenue.

But the French group, representing newspaper and magazine publishers with an online presence, as well as a variety of other news-oriented Web sites, yielded on its most important demand: that Google and other search engines and “aggregators” of news should start paying for links to their content.

Google, which insists that its links provide a service to publishers by directing traffic to their sites, had fiercely resisted any change in the principle of free linking.

The agreement dismayed members of the European Publishers Council, a lobbying group in Brussels, which has been pushing for a fundamental change in the relationship between publishers and Google. The group criticized the French publishers for breaking ranks and striking a separate business agreement that has no statutory standing.

The deal “does not address the continuing problem of unauthorized reuse and monetization of content, and so does not provide the online press with the financial certainty or mechanisms for legal redress which it needs to build sustainable business models and ensure its continued investment in high-quality content,” Angela Mills Wade, executive director of the publishers council, said in a statement.

German publishers were also scornful, with Anja Pasquay, a spokeswoman for the German Newspaper Publishers’ Association, saying: “Obviously the French position isn’t one that we would favor. This is not the solution for Germany.”

Germany has been in the forefront of the push to get Google to share with online news publishers some of the billions of euros that the company earns from the sale of advertising. A proposed law, endorsed by the government of Chancellor Angela Merkel and working its way through the federal legislature, would grant a new form of copyright to digital publishers. If enacted, it could allow publishers to charge search engines or aggregators for displaying even snippets of news articles alongside links to other Web sites.

Mr. Hollande had vowed to introduce similar legislation this winter if Google and the publishers did not come to terms. It appears that Google, which had threatened to stop indexing French Web sites’ content if it had to pay for links, has sidelined the threat of legislation, at least for now; the agreement will be reviewed after three years, Mr. Hollande has said.

Under the deal, Google says it will help the publishers use several of its digital advertising services, including AdSense, AdMob and Ad Exchange, more effectively.

Publishers are already free to use these services, and it was not immediately clear how they would be able to generate more revenue from them; this part of the accord remains confidential, both sides say, because they are still negotiating the fine print.

“This agreement can help accelerate the move toward greater advertising revenues in the digital world,” said Marc Schwartz of Mazars, a consulting firm, who is serving as an independent mediator in the talks. “I’m not saying we have done everything, but it’s a first step in the right direction.”

More has been said about the planned innovation fund. Publishers will submit proposals to the fund, which will select ideas to finance and develop, with the involvement of Google engineers.

“The idea is that it would inject innovation into the sector in France,” said Simon Morrison, copyright policy manager at Google.

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Group of 20 Pledges to Let Markets Set Currency Values

MOSCOW — In a concerted move to quiet fears of a so-called currency war, finance officials from the world’s largest industrial and emerging economies expressed their commitment on Saturday to “market-determined exchange rate systems and exchange rate flexibility.”

In a statement issued at the conclusion of a conference here of the Group of 20, the finance ministers from the Group of 20 promised: “We will refrain from competitive devaluation. We will not target our exchange rates for competitive purposes.”

In its statement, the group also vowed to “take necessary collective actions” to discourage corporate tax evasion, particularly by preventing companies from shifting profits to avoid tax obligations. For instance, a number of big American companies, including Apple and Starbucks, have come under scrutiny recently for seeking out the friendliest tax jurisdictions.

Over all, the statement largely echoed one last week by seven top industrial nations pledging to let market exchange rates determine the value of their currencies. Currency devaluation can be used to gain competitive advantage because it makes a country’s exports cheaper.

“We all agreed on the fact that we refuse to enter any currency war,” the French finance minister, Pierre Moscovici, told reporters at the conference, which was held in a meeting center just a short walk from the Kremlin and Red Square.

In the statement on Saturday, the Group of 20 pointedly avoided any criticism of Japan, where stimulus programs backed by Prime Minister Shinzo Abe have kept interest rates near zero and flooded the economy with money — leading to a roughly 15 percent drop in the value of the yen against the dollar over the last three months.

The Japanese policies, which have reduced the cost of Japanese products around the world, were the primary cause of fears of a currency war.

In essence, the Group of 20 expressed a view that loose monetary policy, including steps that weaken currency values, are acceptable when used to stimulate domestic growth but should not be used to benefit in global trade.

Critics of that view say that it amounts to a distinction without a difference because loose monetary policies stimulate growth and bolster exports at the same time.

The United States has also used a loose monetary approach to aid in the economic recovery, in the form of “quantitative easing” by which the Federal Reserve buys tens of billions of dollars in bonds each month.

The chairman of the Federal Reserve, Ben S. Bernanke, who attended the conference in Moscow, gave brief remarks on Friday indicating support for Japan’s efforts.

Faster-growing, developing countries like Brazil and China have expressed concerns about the loose monetary policies of more established economies like Japan and the United States. The money created by policies like the Fed’s quantitative easing can prove destabilizing as it enters faster-growing economies.

The Group of 20 acknowledged this concern in its statement, saying: “Monetary policy should be directed toward domestic price stability and continuing to support economic recovery according to the respective mandates. We commit to monitor and minimize the negative spillovers on other countries of policies implemented for domestic purposes.”

As the three-day conference drew to a close, participants did not reach any new agreement on debt-cutting targets. Efforts to reach such a pact will continue at the annual Group of 20 summit meeting to be attended by President Obama and other world leaders in St. Petersburg in September.

But while the debt agreement was elusive, the Group of 20 leaders reiterated efforts to work together, promising to “resist all forms of protections and keep our markets open.”

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DealBook: Confidence on Upswing, Mergers Make Comeback

The mega-merger is back.

For the corporate takeover business, the last half-decade was a fallow period. Wall Street deal makers and chief executives, brought low by the global financial crisis, lacked the confidence to strike the audacious multibillion-dollar acquisitions that had defined previous market booms.

Cycles, however, turn, and in the opening weeks of 2013, merger activity has suddenly roared back to life. On Thursday, Berkshire Hathaway, the conglomerate run by Warren E. Buffett, said it had teamed up with Brazilian investors to buy the ketchup maker H. J. Heinz for about $23 billion. And American Airlines and US Airways agreed to merge in a deal valued at $11 billion.

Those transactions come a week after a planned $24 billion buyout of the computer company Dell by its founder, Michael S. Dell, and private equity backers. And Liberty Global, the company controlled by the billionaire media magnate John C. Malone, struck a $16 billion deal to buy the British cable business Virgin Media.

“Since the crisis, one by one, the stars came into alignment, and it was only a matter of time before you had a week like we just had,” said James B. Lee Jr., the vice chairman of JPMorgan Chase.

Still, bankers and lawyers remain circumspect, warning that it is still too early to declare a mergers-and-acquisitions boom like those during the junk bond craze of 1989, the dot-com bubble of 1999 and the leveraged buyout bonanza of 2007. They also say that it is important to pay heed to the excesses that developed during these moments of merger mania, which all ended badly.

A confluence of factors has driven the recent deals. Most visibly, the stock market has been on a tear, with the Standard & Poor’s 500-stock index this week briefly hitting its highest levels since November 2007. Higher share prices have buoyed the confidence of chief executives, who now, instead of retrenching, are looking for ways to expand their businesses.

A number of clouds that hovered over the markets last year have also been removed, eliminating the uncertainty that hampered deal making. Mergers and acquisitions activity in 2012 remained tepid as companies took a wait-and-see approach over the outcome of the presidential election and negotiations over the fiscal cliff. The problems in Europe, which began in earnest in 2011, shut down a lot of potential transactions, but the region has since stabilized.

“When we talk to our corporate clients as well as the bankers, we keep hearing them talk about increased confidence,” said John A. Bick, a partner at the law firm Davis Polk & Wardwell, who advised Heinz on its acquisition by Mr. Buffett and his partners.

Mr. Bick said that mega-mergers had a psychological component, meaning that once transactions start happening, chief executives do not want to be left behind. “In the same way that success breeds success, deals breed more deals,” he said.

A central reason for the return of big transactions is the mountain of cash on corporate balance sheets. After the financial crisis, companies hunkered down, laying off employees and cutting costs. As a result, they generated savings. Today, corporations in the S.& P. 500 are sitting on more than $1 trillion in cash. With interest rates near zero, that money is earning very little in bank accounts, so executives are looking to put it to work by acquiring businesses.

The private equity deal-making machine is also revving up again. The world’s largest buyout firms have hundreds of billions of dollars of “dry powder” — money allotted to deals in Wall Street parlance — and they are on the hunt. The proposed leveraged buyout of Dell, led by Mr. Dell and the investment firm Silver Lake Partners, was the largest private equity transaction since July 2007, when the Blackstone Group acquired the hotel chain Hilton Worldwide for $26 billion just as the credit markets were seizing up.

But perhaps the single biggest factor driving the return of corporate takeovers is the banking system’s renewed health. Corporations often rely on bank loans for financing acquisitions, and the ability of private equity firms to strike multibillion-dollar transactions depends on the willingness of banks to lend them money.

For years, banks, saddled by the toxic mortgage assets weighing on their balance sheets, turned off the lending spigot. But with the housing crisis in the rearview mirror and economic conditions slowly improving, banks are again lining up to provide corporate loans at record-low interest rates to finance acquisitions.

The banks, of course, are major beneficiaries of megadeals, earning big fees from both advising on the transactions and lending money to finance them. Mergers and acquisitions in the United States total $158.7 billion so far this year, according to Thomson Reuters data, more than double the amount in the same period last year. JPMorgan, for example, has benefited from the surge, advising on four big deals in recent weeks, including the Dell bid and Comcast’s $16.7 billion offer for the rest of NBCUniversal that it did not already own.

Mr. Buffett, in a television interview last month, declared that the banks had repaired their businesses and no longer posed a threat to the economy. “The capital ratios are huge, the excesses on the asset aside have been largely cleared out,” said Mr. Buffett, whose acquisition of Heinz will be his second-largest acquisition, behind his $35.9 billion purchase of a majority stake in the railroad company Burlington Northern Santa Fe in 2009.

While Wall Street has an air of giddiness over the year’s start, most deal makers temper their comments about the current environment with warnings about undisciplined behavior like overpaying for deals and borrowing too much to pay for them.

Though private equity firms were battered by the financial crisis, they made it through the downturn on relatively solid ground. Many of their megadeals, like Hilton, looked destined for bankruptcy after the markets collapsed, but they have since recovered. The deals have benefited from an improving economy, as well as robust lending markets that allowed companies to push back the large amounts of debt that were to have come due in the next few years.

But there are still plenty of cautionary tales about the consequences of overpriced, overleveraged takeovers. Consider Energy Future Holdings, the biggest private equity deal in history. Struck at the peak of the merger boom in October 2007, the company has suffered from low natural gas prices and too much debt, and could be forced to restructure this year. Its owners, a group led by Kohlberg Kravis Roberts and TPG, are likely to lose billions.

Even Mr. Buffett made a mistake on Energy Future Holdings, having invested $2 billion in the company’s bonds. He admitted to shareholders last year that the investment was a blunder and would most likely be wiped out.

“In tennis parlance,” Mr. Buffett wrote, “this was a major unforced error.”

Michael J. de la Merced contributed reporting.

A version of this article appeared in print on 02/15/2013, on page A1 of the NewYork edition with the headline: Confidence on Upswing, Mergers Make Comeback.

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DealBook: Switzerland to Require Banks to Hold More Capital to Offset Mortgages

LONDON – Switzerland said on Wednesday that Swiss banks would be required to hold additional capital for residential mortgages amid concerns that the country’s booming property market was overheating.

The country, which already has more stringent capital rules for its banks than other European nations, said lenders would be required to hold an additional 1 percent of risk-weighted assets to make the financial system more stable in light of an “excessive rise in prices in the real estate market and exorbitant mortgage debt.” Banks have until Sept. 30 to comply.

Property values in Switzerland have been rising as investors spooked by the uncertainties of the economic crisis in the euro zone sought a more stable places for their money.

Greater demand for Swiss homes has pushed up prices at a time of low interest rates and led many buyers to take on larger mortgages. The Swiss central bank has been unable to cool the market by increasing borrowing rates because of an overvalued Swiss currency.

An index created by the Swiss bank UBS measuring the likelihood of a Swiss property bubble was “clearly in the risk zone,” the bank wrote in a note to investors this month.

In the final three months of 2012, house prices soared to six times the annual average Swiss household income compared with about four times in 2000, according to the bank. It called the ever-rising demand for properties not intended for personal use “remarkable.”

The government said it was following a recommendation by the Swiss National Bank to increase the capital buffers. “The sustained growth in mortgage debt and rise in real estate prices of residential properties has led to imbalances which pose a significant risk to the stability of the banking sector and to that of the economy,” the government said in a statement.

Mortgage debt has been growing faster than the economy, and mortgage volume in relation to income has reached “risky” levels, the government said, adding that residential property prices had risen more than what was justified by fundamental factors.

UBS and Credit Suisse, Switzerland’s biggest banks, both said this month that they were working on increasing their capital buffers and that the suggested increase would not change their plans.

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DealBook: Barclays to Cut 3,700 Jobs in Overhaul

8:13 a.m. | Updated

LONDON – Barclays announced a major restructuring that will eliminate 3,700 jobs and close several business units, as the bank reported a big loss in the fourth quarter of 2012.

The overhaul of its operations comes after a series of scandals at the bank, including the manipulation of benchmark interest rates, which led to the resignation of the firm’s former chief executive, Robert E. Diamond Jr.

In a bid to reduce its exposure to risky trading activity, Barclays plans to close a number of operations in Europe and Asia, including a tax-planning unit that has been criticized for tarnishing the firm’s reputation.

“There will be no going back to the old way of doing things,” the chief executive, Antony P. Jenkins, told reporters at a news conference in London on Tuesday. “We will never be in a position again of rewarding people for activities inconsistent with our values.”

Despite the revamp of its operations and a new emphasis on values, the bank plans to retain the majority of its investment banking unit, particularly its operations in Britain and the United States. The division generated roughly 60 percent of the bank’s adjusted pretax profit in 2012.

Barclays will close four business divisions, while another 17 units will either be closed, sold or pared back in response to subdued market activity, Mr. Jenkins said. In total, the expected layoffs across the bank’s operations represent around 3 percent of the firm’s global work force.

The investment banking division is to be among the hardest hit, where about 1,800 employees are expected to be laid off. The job cuts will primarily fall on the bank’s Asian and European equities divisions, as well as its agricultural commodities trading operations. Almost 90 percent of the reductions already have been made, according to Christopher G. Lucas, the bank’s departing chief financial officer.

Mr. Jenkins refused to comment specifically on the position of Rich Ricci, the head of Barclays investment banking, whose name has surfaced in the inquiry into the bank’s role in the rate-rigging scandal.

“No one can predict the future, but I am confident in the team around me,” Mr. Jenkins said. “Who knows what could happen in a year’s time.”

The restructuring plan includes an additional 1,900 job cuts in the bank’s European retail and business banking unit, where Barclays plans to close roughly 30 percent of its Continental branch network.

The reductions have been focused in areas where Barclays does not compete globally with other international banks or where the firm could experience reputational damage like the recent rate-rigging scandal and the inappropriate sales of loan insurance to customers.

“Not much of this is surprising,” said Ian Gordon, a banking analyst at Investec in London. “They are not removing any of the material activities from the investment bank.”

The recent scandals that have engulfed the bank weighed down the firm’s fourth-quarter earnings.

Barclays posted a net loss of £835 million ($1.3 billion) in the last three months of 2012, compared with a profit of £356 million in the period a year earlier.
The results were hampered by the need to set aside additional capital to compensate costumers who were inappropriately sold loan insurance and for small businesses that were improperly sold complex interest-rate hedging products. Barclays also took a charge against the value of its own debt.

Excluding the adjustments, the bank’s pretax profit for the fourth quarter would have been £1.1 billion, almost double the amount in the period a year earlier.
For 2012, the bank reported an annual net loss of £1 billion, compared with a £3 billion profit for 2011. The annual loss resulted from provisions to cover legal costs related to the rate-rigging scandal and other improper activities.

The bank added that it would reduce annual costs by around 10 percent, to £16.8 billion, by 2015. Its share price rose almost 6 percent in afternoon trading in London on Tuesday.

Barclays said it had reduced bonuses across its operations by 16 percent for 2012, compared with the previous year. In its investment banking division, total bonuses fell 20 percent, with the average bonus in the unit standing at £54,100, a 17 percent reduction, according to a company statement.

The bank added that it had cut compensation awards because of risks facing several business units, including the rate-rigging scandal.

In a settlement with American and British authorities in June, Barclays agreed to pay fines totaling $450 million after some of its traders manipulated the London interbank offered rate, or Libor, for financial gain. Some of the firm’s managers also altered the rate to portray the bank in a healthier financial position than it actually was.

The investment banking division reported a pretax profit of £858 million in the fourth quarter, compared with a pretax profit of £267 million in the fourth quarter of 2011. Pretax profit at the bank’s retail and business banking unit rose 17 percent, to £732 million, while pretax profit in its corporate banking division almost tripled, to £107 million.

Mr. Jenkins acknowledged that some of the firm’s past actions had fallen short. He added that the investment banking division would remain at the heart of the firm’s future operations, though wrongdoing would not be tolerated.

“The old ways weren’t the right way to behave nor did they deliver the right results,” Mr. Jenkins said. “Individuals must take responsibility for their own behavior.”

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DealBook: Goldman Names Gregg Lemkau as New Co-Head of M.&A.

Goldman Sachs named Gregg R. Lemkau as a new co-head of global mergers and acquisitions on Monday, according to an internal memorandum reviewed by DealBook.

Mr. Lemkau, who has been based in London since 2008, will hold that title along with Gene T. Sykes, who has served as the sole co-head since the departure of Yoel Zaoui in April.

“Gregg will work closely together with Gene, as well as with Michael Carr, head of Americas M.&A., to lead this important client franchise, which is core to our investment banking business,” Goldman’s three heads of investment banking, Richard J. Gnodde, David Solomon and John S. Weinberg, wrote in the memo.

Mr. Lemkau is currently the head of mergers for Europe, the Middle East, Africa and Asia Pacific, and was previously a global co-head of the technology, media and telecommunications group. He was previously the chief operating officer of the firm’s investment bank and co-head of its health care banking group.

He also comes from a banking family of sorts. His brother Curt, known as Chip, is a wealth management executive at Goldman, according to Financial Industry Regulatory Authority records. And a sister, Kristin, is a senior media relations executive at JPMorgan Chase.

He will be succeeded as the head of mergers for Europe by Gilberto Pozzi, who currently is a co-head of Goldman’s global consumer retail group. Mr. Pozzi will in turn be succeeded by F.X. de Mallmann.

Here is the memo for Mr. Lemkau:

We are pleased to announce that Gregg Lemkau will become co-head of Global Mergers & Acquisitions alongside Gene Sykes. Gregg will work closely together with Gene, as well as with Michael Carr, head of Americas M.&A., to lead this important client franchise which is core to our investment banking business.

Gregg has been head of Mergers & Acquisitions for EMEA and Asia Pacific since 2011. Prior to this, he was global co-head of the Technology, Media and Telecom Group and served as chief operating officer for the Investment Banking Division. Gregg serves as co-chair of the Firmwide Commitments Committee and is a member of the Partnership Committee and the Investment Banking Division Operating Committee. He joined Goldman Sachs as an analyst in the Mergers & Acquisitions Department in 1992 and was named managing director in 2001 and partner in 2002.

Please join us in congratulating Gregg and wishing him continued success in his new role.

Richard J. Gnodde
David Solomon
John S. Weinberg

And here is the one for Mr. Pozzi:

We are pleased to announce that Gilberto Pozzi will become head of EMEA Mergers & Acquisitions. In his new role, Gilberto will strive to further deepen the dialogue with our clients on their M.&A. strategic objectives, continue to enhance our execution standards and share best practices across industry and country teams. Gilberto will retain responsibilities for many of his clients in the consumer and retail sector while sourcing and executing M.&A. transactions across various countries and industry groups in EMEA.

Gilberto has been co-head of the Global Consumer Retail Group since 2010. Previously, he was head of the Consumer Retail Group for EMEA. Gilberto joined Goldman Sachs as an associate in London in 1995 and was named managing director in 2003 and partner in 2008.

Please join us in congratulating Gilberto and wishing him continued success in his new role.

Richard J. Gnodde
David Solomon
John S. Weinberg

And here is the one for Mr. de Mallmann:

We are pleased to announce that F.X. de Mallmann will become co-head of the Global Consumer Retail Group alongside Kathy Elsesser. In addition to his new role, F.X. will continue to be responsible for Investment Banking Services (I.B.S.) in EMEA.

F.X. has been head of I.B.S. in EMEA since January 2012. Prior to this, he was head of the Financing Group in EMEA from 2008 to 2011. Before that, F.X. served as chief operating officer for the Investment Banking Division. From 2002 to 2007, he served as head of Investment Banking for Switzerland. F.X. joined Goldman Sachs as an analyst in London in 1993 and was named managing director in 2003 and partner in 2004.

Please join us in congratulating F.X. and wishing him continued success in his new role.

Richard J. Gnodde
David Solomon
John S. Weinberg

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Boeing 787 Completes Test Flight

A Boeing 787 test plane flew for more than two hours on Saturday to gather information about the problems with the batteries that led to a worldwide grounding of the new jets more than three weeks ago.

The flight was the first since the Federal Aviation Administration gave Boeing permission on Thursday to conduct in-flight tests. Federal investigators and the company are trying to determine what caused one of the new lithium-ion batteries to catch fire and how to fix the problems.

The plane took off from Boeing Field in Seattle heading mostly east and then looped around to the south before flying back past the airport to the west. It covered about 900 miles and landed at 2:51 p.m. Pacific time.

Marc R. Birtel, a Boeing spokesman, said the flight was conducted to monitor the performance of the plane’s batteries. He said the crew, which included 13 pilots and test personnel, said the flight was uneventful.

He said special equipment let the crew check status messages involving the batteries and their chargers, as well as data about battery temperature and voltage.

FlightAware, an aviation data provider, said the jet reached 36,000 feet. Its speed ranged from 435 to 626 miles per hour.

All 50 of the 787s delivered so far were grounded after a battery on one of the jets caught fire at a Boston airport on Jan. 7 and another made an emergency landing in Japan with smoke coming from the battery.

The new 787s are the most technically advanced commercial airplanes, and Boeing has a lot riding on their success. Half of the planes’ structural parts are made of lightweight carbon composites to save fuel.

Boeing also decided to switch from conventional nickel cadmium batteries to the lighter lithium-ion ones. But they are more volatile, and federal investigators said Thursday that Boeing had underestimated the risks.

The F.A.A. has set strict operating conditions on the test flights. The flights are expected to resume early this week, Mr. Birtel said.

Battery experts have said it could take weeks for Boeing to fix the problems.

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Fair Game: Credit-Rating Club Is Tough to Get Into

Ozier Muhammad/The New York Times

Ann Rutledge and her husband, Sylvain Raynes, of R&R Consulting, which has been trying to gain S.E.C. recognition as a debt ratings agency.

That was probably a common response to the news last week that the Justice Department had filed a civil suit against Standard & Poor’s, one of the two big credit ratings agencies that were so central to the mortgage boom and bust. The department said that S.& P. misled investors by presenting its ratings as the product of objective analyses when, the suit says, they were more about generating revenue to the firm. S.& P. denied the allegations, saying it was prepared to go to trial. 

Many people have been disappointed that S.& P. and Moody’s Investors Service, the big and powerful companies that are supposed to assess the creditworthiness of bonds, have escaped culpability. Not only do these companies still hold sway in securities markets, they’ve also hung on to their lush profits from the glory days of mortgage origination. During 2005 and 2006, for example, Moody’s made $238 million by rating complex mortgage instruments. Investors who trusted those ratings lost billions.

Given that the financial crisis began unfolding more than five years ago, it is discouraging to see how entrenched the large and established ratings companies remain. Ratings are still used to determine bank capital requirements, and investors rely heavily on them.

Over the years, lawmakers have tried to open up the duopolistic world of ratings agencies to greater competition and, therefore, better performance. Legislation in 2006 encouraged the Securities and Exchange Commission to let new companies into the ratings club. The commission set up the Office of Credit Ratings to register new entrants and to monitor all participants’ activities. Today, 10 credit ratings agencies are recognized by the S.E.C.

But gaining regulatory approval to join the ratings arena is exceedingly burdensome. That, at least, has been the experience of R&R Consulting, a firm with a stable of highly respected credit analysts and an enviable record of having predicted the mortgage mess in 2003.

R&R has been trying to get recognition as a credit rating agency since 2011. Frustrated by what it perceives as roadblocks erected by the S.E.C., its executives are beginning to wonder if the commission really wants increased competition.

The firm was founded in 2000 by Ann Rutledge and Sylvain Raynes, experts in structured finance who previously worked at Moody’s. It is a small shop, with seven employees, but its clients include investors, small and medium-size banks, financial regulators and other institutions. R&R’s specialty is risk measurement for all asset types.

R&R’s approach differs from traditional ratings agencies because, in addition to being able to rate new issues, it analyzes risks in securities that are trading in the secondary, or resale, market, after they are issued. By contrast, S.& P. and Moody’s became known for giving mortgage securities high ratings and downgrading them only when defaults were soaring. 

 “In the primary market, everyone prices a security around the credit rating,” Ms. Rutledge says. “In the secondary market, no one cares about the credit rating; what they want is valuation. We connect primary-market ratings with secondary-market valuations.”

THE R&R distinction between a rating and a valuation, however, seems to pose a problem when it comes to getting S.E.C. approval as a ratings agency, Ms. Rutledge says.

By law, many requirements must be met before a firm can become a ratings agency. Chief among them is that the applicant must provide letters from 10 “qualified institutional buyers” that have used the company’s ratings over the previous three years.

R&R has had difficulties with its letters. One was rejected because its writer identified the firm’s work as ratings or valuations, not simply as ratings, Ms. Rutledge says. Another letter failed to pass muster because it was from a German institution that characterized itself as the equivalent of a qualified institutional buyer. When a foreign institution could not get its letter notarized as required — notaries are not as common overseas — it was not good enough for the S.E.C.

And not all clients want to write such a letter for use by the S.E.C. Instead, some said they would discuss the company’s work by telephone. The S.E.C. rejected the idea.

“It’s extremely difficult for us to satisfy the ‘10 qualified institutional buyers’ requirement,” Ms. Rutledge says. “Proof that you’ve done business with them is not enough; it says you must have letters. And they have a suggested text for the letter. When we changed the text slightly they said it was not in conformity.”

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