Analysis: In ICE-NYSE deal, one CEO steps back, the other rises

(Reuters) - Duncan Niederauer, the chief executive of New York Stock Exchange operator NYSE Euronext, once boldly proclaimed that his company could not be acquired.
Last year, even when Niederauer was prepared to sell his company to Deutsche Boerse, he insisted that he be chief executive of the combined company. The deal ended up being quashed by German regulators.
But with the agreement by IntercontinentalExchange to buy NYSE Euronext for $8.2 billion, Niederauer has accepted he will have to at the very least play second fiddle. He will become president at the combined company, while still running the New York Stock Exchange, and report to ICE CEO Jeff Sprecher.
"In a sense he must be very frustrated because some of the big things he was trying to do did not work out," said Andre Cappon, president of CBM Group, a New York-based consultant for global exchanges.
To an extent, the world may have left Niederauer behind. His expertise was in stock trading, a business that now has razor-thin margins and is increasingly left to computers.
Sprecher, on the other hand, has ascended as derivatives have become a key part of financial markets and the financial crisis made listed derivatives relatively more important.
Born in Indiana near the Kentucky border, and raised in Madison, Wisconsin, he has a down-to-earth aura that belies his ambitious type-A personality, say people who know him.
Sprecher has not met with constant success, but when something goes wrong, he moves on.
"He's not afraid to fail," said one person who knows Sprecher well.
Among his misses: a failed bid to buy the Chicago Board of Trade in 2007, not to mention a failed joint bid for the NYSE with Nasdaq OMX Group Inc.
He made his move for the CBOT at the annual meeting of the Futures Industry Association, in Boca Raton, Florida, where CME Group officials had expected to deliver a progress report on their planned acquisition of their smaller rival.
Sprecher slipped the formal offer under the hotel doors of CBOT Chairman Charles Carey and CBOT CEO Bernard Dan, at about 6:30 in the morning of the conference's first day.
CME Group later raised its bid for CBOT and clinched the deal in mid-2007 - but Sprecher would still finish the year with two key acquisitions, the New York Board of Trade commodity market and Canada's biggest grains exchange.
This summer both Sprecher and Niederauer bid for the London Metals Exchange and lost. Within four months they were talking to each other about a much larger deal.
LETTING GO OF EGO
There was some bad blood between Sprecher and Niederauer last year, when Sprecher's ICE was part of the group that made an unsolicited bid for NYSE Euronext.
NYSE Euronext was instead focused on a different deal: selling itself to Deutsche Boerse. Sprecher admitted in an interview with Reuters that he tried to wreck the Deutsche deal by "calling out every wart and pimple" on the transaction.
The two men stopped talking for about six weeks.
But after ICE posted good fourth-quarter results in February, Niederauer extended an olive branch with a surprising three-word email to Sprecher: "Hey, great quarter."
"He and I had a preexisting friendship and I wondered if it was going to survive my trouble making," Sprecher told Reuters. Then the email arrived.
"He was very magnanimous and so I knew that he saw through what I was doing and we were still very cordial."
Niederauer took over as NYSE Euronext CEO at the end of 2007, just after his predecessor, John Thain, had completed the landmark deal to buy Franco-Belgian Euronext.
After a 22-year career at Goldman Sachs, mostly in equity trading, and just nine months as head of NYSE's trading operations, he took control just before the 2008 financial crisis triggered a seismic shift in the exchange world, one that seemed ill-suited to his background.
Equity investors, burned by scandals and volatility, were trading less and less; meanwhile new regulations would drive more derivatives onto exchanges like ICE and CME.
The answer, Niederauer thought, lay in Deutsche Boerse. But when regulators nixed the deal in February this year, he quickly laid out a new strategic plan for shareholders: clearing and technology - two areas in which ICE already excelled.
By June, Niederauer was saying it was "make-or-break time" for NYSE's nascent U.S. futures operation, which was clearly failing to thrive in the shadow of established rivals.
In working together at the merged venture, Sprecher and Niederauer may each find a comfortable way to co-exist, each playing to his respective strength, some say. But several people, including a NYSE investor and a board member of a rival exchange, questioned whether the partnership can last.
In an interview, Niederauer said he would remain at least through 2014 as an "important senior member" of Sprecher's management team.
He added: "People get too caught up in titles. Let's just worry about making it work and my guess is that if it's still fun for both of us in 2014, or 2015, or whatever, we will keep doing it."

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Stocks fall sharply after Republicans cancel vote

NEW YORK (AP) -- Stocks are opening sharply lower on Wall Street.
The big drop comes after House Republicans called off a vote on tax rates. That left federal budget talks in disarray 10 days before sweeping tax increases and government spending cuts take effect.
The Dow Jones industrial average is down 116 points at 13,195. The Standard & Poor's 500 index is off 13 points at 1,430. And the Nasdaq composite index is down 54 at 2,996.

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RIM shares fall at the open after earnings

TORONTO (Reuters) - Research In Motion Ltd fell in early trading on Friday following the BlackBerry maker's Thursday earnings announcement, when the company outlined plans to change the way it charges for services.
RIM, pushing to revive its fortunes with the launch of its new BlackBerry 10 devices next month, surprised investors when it said it plans to alter its service revenue model, a move that could put the high-margin business under pressure.
Shares fell 16.0 percent to $11.86 in early trading on the Nasdaq. Toronto-listed shares fell 15.8 percent to C$11.74.

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Stocks open sharply lower after GOP cancels vote

NEW YORK (AP) — Stocks opened sharply lower Friday on Wall Street after House Republicans called off a vote on tax rates and left federal budget talks in disarray 10 days before sweeping tax increases and government spending cuts take effect.
The Dow Jones industrial average fell 140 points to 13,171 in the opening minutes of trading, a decline of 1 percent. The Standard & Poor's 500 index fell 15 points to 1,428. The Nasdaq composite index fell 52 to 2,997.
The House bill would have raised taxes on Americans making at least $1 million per year and locked in decade-old tax cuts for Americans making less. Taxes will rise for almost all Americans on Jan. 1 unless Congress acts.
House Speaker John Boehner had presented what he called Plan B while he negotiated with the White House on avoiding the sweeping tax increases and spending cuts, a combination known as the "fiscal cliff."
But Boehner scrapped a vote on Plan B on Thursday night after it became clear that it did not have enough support in the Republican-led House to secure passage. He called on the White House and the Democratic-led Senate to work something out.
The House will not meet again until after Christmas, if then.
Technology stocks were among the hardest hit Friday in early trading. Tech stocks in the S&P 500 were down 1.5 percent as a group. Apple, the most valuable company in the country, fell $10.04, or 2 percent, to $511.69.
It was not the first time that Wall Street expressed worry about "fiscal cliff" talks.
On the day after the election, when voters returned divided government to power, the Dow dropped 312 points. On Nov. 14, when President Barack Obama insisted on higher tax rates for the wealthy, the Dow dropped 185 points.
Stocks closed sharply lower Friday in Asia after House Republicans canceled their vote. The Nikkei index in Japan fell almost 1 percent, and Hong Kong's Hang Seng Index dropped 0.7 percent. Stocks were also lower in Europe.
In the bond market, the yield on the benchmark 10-year U.S. Treasury note fell 0.06 percentage point to 1.74 percent, an indication that investors were moving money out of stocks and into safer government bonds.
The price of oil fell $2.02, or 2.2 percent, to $88.12 per barrel.

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Insight: Wall Street, facing fiercer watchdog, flees U.S. power markets

NEW YORK (Reuters) - When federal regulators proposed a six-month penalty on JPMorgan Chase & Co's electricity trading arm last month, they took aim at what is now a rare sight on Wall Street: a large and growing power sales business.
After five years of rapid and lucrative growth, the world's biggest investment banks are now dramatically scaling back their U.S. power operations, a Reuters analysis of electricity sales has found.
In 2008, when they were most active in the market, the 15 biggest banks sold enough electricity in the United States to power two out of every five residential customers for a year, Reuters found. By last year, their sales would only power about one out of every five customers.
The pull-back means fewer deep-pocketed players in an already shrinking $200 billion U.S. physical power market and strongly invites the question of who will fill the banks' role of cushioning the risks of buying and selling in one of the world's most volatile commodities.
"If big banks leave the market . . . it means that somebody else has to absorb those risks. And it could be utilities or consumers - those would be the two leading candidates," said Craig Pirrong, a University of Houston professor and expert in energy trade regulation.
Others cheer the exit as a potential win for consumers.
"All the banks are doing is feasting on overly complicated market rules to find vulnerabilities, which they pounce on to make large short-term profits," said Tyson Slocum of Public Citizen, a consumer advocacy group.
Regardless, some electricity buyers are already expressing nervousness about JPMorgan's penalty. The bank had been one of just four banks, alongside Bank of America Merrill Lynch, Australia's Macquarie Group and Germany's Deutsche Bank, to sell more electricity in 2011 than in 2008, according to quarterly data sellers are required to provide to the Federal Energy Regulatory Commission (FERC), the country's top power market regulator.
Others have pulled back sharply. Total power market sales reported by Goldman Sachs in 2011 fell to one-sixth of their peak in 2005. Total sales by the banks have continued to slide in the first nine months of 2012 and are almost half the level of a year ago.
There are many reasons for the decline. Power prices have fallen to 10-year lows across most of the United States thanks to an abundance of cheap natural gas. With decades worth of cheap fuel ahead, fewer utilities have been looking to hedge their output; tough new capital requirements and regulations banning proprietary deals have cut into commodity trading; and some European banks, facing a persistent debt crisis back home, have fled dollar-intensive businesses.
But many bankers and analysts see a more alarming cause for the pull-back by banks: the risk that a more aggressive FERC may target them for anything suggestive of nefarious trading.
BANKS' SLICE SHRINKS FASTER THAN PIE
While the total value of the U.S. physical power market has shrunk in recent years, the banks' share has fallen faster.
At their height in 2008, banks sold $46.2 billion worth of electricity across all products, or about 15 percent of the U.S. physical power market. In 2011, they sold $17.5 billion, or about 9 percent. In the first quarter of this year, their share was down to just under 7 percent, FERC data show.
Reuters gauged each bank's footprint in the power sector by analyzing quarterly logs of physical power transactions they have filed with FERC since 2002. Reuters shared the data with each bank represented in the filings, and while all declined to comment publicly for this article, none disputed the figures.
"The pie is definitely shrinking and has been for a few years," said the global head of one bank's power operations. "Our hope is that we are nearing the bottom."
Some of that gap has been filled by hedge funds or merchant traders not facing the same limitations as banks; but, say traders, some of that liquidity has simply evaporated.
ANXIOUS CUSTOMERS
FERC's stepped-up enforcement has grown increasingly apparent since 2005, when Congress beefed-up its penalty powers to help prevent another Enron scandal.
In November, the agency imposed the temporary ban on JPMorgan's physical power trading - over no more than a document discovery dispute in an investigation that is not yet finished. The ban will limit JPMorgan's ability to sell power at profitable rates for six months starting in April 2013.
Asked about the ban by Reuters, JPMorgan Chase CEO Jamie Dimon brushed it off this month as "not that big a deal" for the bank, which is contesting the punishment.
Not everyone is so blasé.
Several customers of the bank -- which includes a range of local utilities from Palo Alto to Seattle -- expressed worries about the impact on their routine power purchases.
"I don't think we are going to get any bid (from JP Morgan) because it takes away their vested interest in getting into these trades," said Yakov Levin, manager of the power department for the Town of Hudson, Massachusetts, which has bought power from the bank.
The California city of Palo Alto "took steps immediately to ensure we wouldn't set up any more deals with (JPMorgan) during the ban," said Debra Katz, who handles communications for the city's utility. It wasn't ideal since "we've been very happy with our transactions with JPMorgan in the past."
JPMorgan spokeswoman Jennifer Zuccarelli said the bank has been in contact with its clients regarding the ban and sought clarification from FERC to make sure it will not impact pre-existing contracts.
The bank's trading counterparties are also taking notice. One trader who has bought power from JPMorgan said any future deals with the bank must be "reviewed by our legal and regulatory departments".
FERC spokeswoman Mary O'Driscoll said the Commission is not worried about banks scaling back their electricity trading operations.
"Power markets ebb and flow and change all the time. Banks have their own reasons for leaving the market," she said.
BOOM AND BUST
Most banks entered the power sector after the California power crisis in 2000-2001, when several energy marketers like Enron were driven from the market by manipulation scandals, bankruptcy and other credit concerns. That left a financing gap in an industry that had recently become deregulated.
Wall Street sensed opportunity.
Between 2001 and 2005, FERC granted power marketing authority to at least eight banks. Others bought their way in: UK-based RBS launched a joint venture with trading powerhouse Sempra Energy in 2008.
"Everyone was seeing how much Goldman and Morgan (Stanley) were making," said one executive at a large bank that wound down its electricity operations after 2008. So banks started "chasing revenue" by poaching top traders from Wall Street's dominant duo and hiring promising up-and-comers from utilities, he said.
Banks make money in the sector by buying electricity from power generators or plants they own or operate. These often long-term agreements help make costs more predictable and projects more bankable for power providers. The deals also make sense to banks, who can then turn around and sell the power to utilities, cities and industrial users at a slight mark-up.
In all, the value of banks' physical power sales surged three-fold from 2003 to 2008, FERC data show. But the 2008 financial crisis - and its regulatory aftermath - accelerated Wall Street's retreat from the market.
RBS was forced to sell its Sempra Energy venture in 2010 after it was bailed out by the UK government. Bear Stearns and Merrill Lynch, both with large power books, were sold to rivals. Lehman Brothers went bankrupt.
Others simply found the costs exceeded the benefits of staying in the market. Credit Suisse lost over $100 million on Texas power trades that went sour at the peak of the financial crisis, according to a person familiar with the bank's operations at the time.
By 2009, Credit Suisse had decided to pull out of power trading because it was too capital intensive and as they faced restrictions on trading for the bank's own book, according to a person familiar with the firm's thinking.
'JIHAD' OR JUST BUSINESS?
Now, some in the industry worry the retreat is accelerating. Amid a glut of natural gas supply, the market's economics haven't improved much. But the potential costs have.
When FERC proposed fining Barclays for alleged market manipulation in October, the record $470 million penalty more than eclipsed all the bank's physical power sales revenue for the first nine months of 2012, FERC data show. Even Barclays' penalties for manipulating Libor - the global interest rate benchmark - were smaller.
"It used to be that they didn't have significant penalty authority. So if you messed up, whatever ill-gotten gains you got, you gave back," said Barbara Bourque, the former head of FERC's quarterly electric sales reporting, who helped Reuters analyze the agency's data.
"Now, they can put people out of business," said Bourque, who runs Energy Compliance Consulting in Phoenix, Arizona.
Besides Barclays and JPMorgan, FERC has also accused Deutsche Bank of market manipulation, though the agency is only seeking to impose a $1.5 million fine on the bank.
Deutsche Bank this month made deep cuts in its U.S. power trading division; Barclays stopped trading West Coast Markets a year ago. Both banks are contesting FERC's charges.
David Perlman, former chief counsel to Lehman's commodity trading business who is now a partner at the law firm of Bracewell & Giuliani, thinks the proceedings could further dampen banks' enthusiasm toward the power business.
"People are looking at the Deutsche Bank case and they are looking at the JPMorgan case and they are wondering what the rules are," Perlman said.
Former FERC Commissioner Marc Spitzer, now a partner at the law firm of Steptoe & Johnson, says the agency is simply doing its job.
"The argument that FERC is on a Jihad or a crusade against banks is not accurate," he said. Spitzer said FERC is just following up on tips it receives from the marketplace, which could come from regional regulators or even rival traders.
For now, at least, more cases like Barclays could be on the way. FERC has increasingly gone after market manipulators under the tenure of current enforcement chief Norman Bay.
During the last three years, 56 percent of 43 investigations opened by FERC involved market manipulation, according to a Reuters review of the agency's enforcement data. That compares with 42 percent of the 93 investigations opened by FERC in the three years prior to Bay's tenure.
Asked earlier this month by Reuters whether the agency is trying to push banks out of the power markets, FERC Chairman Jon Wellinghoff brushed off the suggestion.
"We're an equal opportunity enforcer.

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"Dancing with the Stars" Brooke Burke says she is cancer free

LOS ANGELES (Reuters) - "Dancing with the Stars" co-host Brooke Burke said on Wednesday that medical tests indicate she is free of thyroid cancer.

"I just got the results back from all of my tests and great news - the thyroid cancer has been removed from my body and all my lymph nodes are clear," Burke, 41, said in her blog on the website Modernmom.com.

"So I'm hoping that this is the end of the story. Woohoo!!! And thank GOD!" the former model added.

Burke, a former winner of ABC's popular celebrity ballroom dancing competition, underwent surgery just over a week after the season finale of "Dancing with the Stars" on November 27.

The mother of four posted a picture of herself in Wednesday's blog entry with a small bandage on her throat. She said the surgery will leave her with a large scar across her neck.

The thyroid is a gland in the neck that produces hormones that regulate vital body functions, such as heart rate and blood pressure.

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Pete Rose's TLC reality show gets premiere date

LOS ANGELES (TheWrap.com) - Pete Rose will take to the same playing field as Honey Boo Boo next month.

The former baseball great's reality series, "Pete Rose: Hits & Mrs." has been given a six-episode order from TLC, and will premiere Monday, January 14 at 10 p.m., the network said Tuesday.

The series will follow the 71-year-old Rose - who's been permanently barred from baseball due to gambling - and his new fiancee, former "Playboy" model Kiana Kim and their assemblage of kids from previous marriages. As the couple moves closer to marriage, they face various struggles: Will Rose's kids learn to accept the age difference between their dad and stepmom-to-be? Can Rose, who lives and works in Las Vegas, manage a long-distance relationship with Kiana, who lives in Los Angeles?

But perhaps the biggest question revolving around the series: How much indignity must Rose endure before he's welcomed back into the public's good graces?

"Pete Rose: Hits & Mrs." is produced for TLC by Creature Films, which seems appropriate, with Mark Ford and Kevin Lopez executive-producing.

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"Modern Family" star's dad granted control of her estate

LOS ANGELES (Reuters) - The father of "Modern Family" star Ariel Winter was given temporary control over the teenage actress' estate on Wednesday in a court-approved settlement in Los Angeles after allegations that her mother had abused her.

Winter, 14, who plays the brainy and precocious teenager Alex Dunphy on the Emmy-winning ABC comedy, will remain under temporary guardianship of her older sister, Shanelle Gray, under the settlement, court officials said.

Los Angeles Superior Court Judge Michael Levanas scheduled a hearing for March 29 in which he could hand permanent guardianship over to Gray and control of Winter's estate to her father, Glenn Workman.

Gray, 34, was first awarded temporary guardianship of the actress in October.

Winter's mother, Chrisoula Workman, has denied allegations, earlier submitted in court documents, that she verbally and physically abused her daughter.

Messages left with Winter's publicist and attorney seeking comment were not immediately returned.

"Modern Family" portrays the lives of three zany families and has won three consecutive Emmy awards as American television's best comedy series.

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Late BBC star Savile suspected of 199 crimes: UK police

LONDON (Reuters) - British television star Jimmy Savile is suspected of carrying out an unprecedented number of sex offences including 31 rapes, police said on Wednesday in their most comprehensive review of the scandal.

Revelations about Savile, who died last year, provoked outrage across Britain where he had been a household name since the 1960s.

News of Savile's crimes threw his main employer the BBC into turmoil, led to resignation of the BBC's director general just 54 days into his job and provoked awkward questions for his predecessor Mark Thompson, who recently took over as chief executive of the New York Times.

Detectives launched their inquiry 10 weeks ago following reports in a TV documentary that Savile had abused young girls on BBC premises and at hospitals where he did charity work.

Since then, 450 people had come forward with allegations about Savile, mostly dealing with sexual abuse, said police.

Savile was now a suspect in 199 crimes, the vast majority of them involving children or young people, the force added.

"These levels of reporting of sexual abuse against a single individual are unprecedented in the UK," the police said in a statement.

Detectives have been examining three categories of alleged offences: those involving only Savile, which make up the majority of cases; those involving Savile and others; and those which had no direct link to Savile.

So far six men have been arrested and another questioned by London police.

Those quizzed include Max Clifford, Britain's most high-profile celebrity publicist, former BBC radio DJ Dave Lee Travis and former glam-rock singer Gary Glitter.

They have all denied any wrongdoing.

"Our officers will continue to investigate allegations made against those who potentially can be brought to justice," the police statement said. "More arrests nationally will be forthcoming."

A one-time professional wrestler with a penchant for garish outfits, Savile became famous as a pioneering DJ in the 1960s before hosting prime-time TV shows until the 1990s.

He ran about 200 marathons for charity, raising tens of millions of pounds for hospitals, leading some to give him keys to rooms where victims now allege they were abused.

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HBO to develop "Game Change" sequel "Double Down"

LOS ANGELES (TheWrap.com) - HBO is going back on the campaign trail with Mark Halperin and John Heilemann.

HBO will develop Halperin and Heilemann's upcoming book "Double Down: Game Change 2012," about the 2012 presidential election between Barack Obama and Mitt Romney, a spokeswoman for the network told TheWrap.

HBO also adapted Halperin and Heilemann''s book "Game Change," about the 2008 election between Obama and John McCain. That adaptation starred Ed Harris as McCain and Julianne Moore as his running mate Sarah Palin.

Penguin Press announced that it will publish the sequel to the 2010 bestseller "Game Change" in fall 2013. According to a release issued by Penguin, the new book "will, of course, break news; but, more importantly, it will create the lasting story of the 2012 race for the presidency."

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