Federal and state authorities are stepping up efforts to fortify banks and brokerage firms after this summer’s cyberattack on JPMorgan Chase and a dozen other financial institutions, Jessica Silver-Greenberg and Matthew Goldstein report in DealBook. Top officials at the Treasury Department are said to be discussing the need to improve a critical area of cybersecurity: outside vendors, including law firms, accounting and marketing firms and even janitorial companies. Under discussion is a requirement that the banks put in place more stringent procedures and safeguards to make sure the outside firms have, at the least, basic defenses.
The push by government officials is a stark acknowledgment of the vulnerability of financial institutions to an attack if one of their vendors is not fully prepared, Ms. Silver-Greenberg and Mr. Goldstein write. The issue has even caught the attention of New York State’s top financial regulator, Benjamin M. Lawsky, who is said to be considering a new rule that would require banks to “obtain representations and warranties” from vendors about the adequacy of their controls to thwart hackers. Mr. Lawsky’s proposal is said to mirror some of the discussions underway at the Treasury Department. Other regulators, including the Securities and Exchange Commission, are also working to assess the readiness of financial institutions for cyberattacks.
“The latest scrutiny of vendors signals a new recognition that cybercrime represents one of the greatest threats to the stability of the financial system,” Ms. Silver-Greenberg and Mr. Goldstein write. The same overseas hackers who breached JPMorgan’s network also infiltrated the website for the JPMorgan Corporate Challenge, which is run by an outside vendor for the bank. The attack on JPMorgan’s network is said to have begun sometime in June and to have gone undiscovered by JPMorgan for about two months. Still, it remains unclear just how the hackers got into JPMorgan’s network, and the bank has determined that they did not gain access to JPMorgan’s computer systems through the Corporate Challenge website.
LESS PROTECTION FOR POOR BORROWERS | Lenders appear to have found some sympathetic ears. Over the last two years, lawmakers in at least eight states have voted to increase the fees or the interest rates that lenders can charge on certain personal loans used by millions of borrowers with subpar credit, DealBook’s Michael Corkery writes. The overhaul of the state lending laws comes after a lobbying push by the consumer loan industry and a wave of campaign donations to state lawmakers.
Lenders have argued that interest rate caps had not kept pace with the increased costs of doing business. Unless they can make an acceptable profit, the industry says, lenders will not be able to offer loans allowing people with damaged credit to pay for car repairs or medical bills. But a recent regulatory filing by Citigroup’s OneMain Financial unit shows that making personal loans to people on the financial margins can be a highly profitable business. Last year, OneMain’s profit increased 31 percent from 2012. Another large subprime consumer lender, Springleaf Financial, saw its shares increase 78 percent since it went public last October.
Across the nation, the industry’s lobbying efforts have been robust, particularly in states with large populations of military service members and borrowers with damaged credit and low incomes. In Maine, for example, a lobbyist for OneMain argued that subprime borrowers in need of loans were better off borrowing from regulated installment lenders than turning to payday firms, which are often outside the reach of most regulators. And in North Carolina, installment lenders saw their fortunes turn after newly appointed commanders appeared to become more willing to entertain an increase in the interest rate structure after opposing them previously. North Carolina lawmakers, meanwhile, collected hundreds of thousands of dollars in campaign donations from the consumer finance industry.
GOOGLE PLACES BIG BET ON AUGMENTED REALITY | Magic Leap, a start-up making augmented-reality technology, landed Google as its biggest investor on Tuesday, David Gelles and Michael J. de la Merced write in DealBook. Valuing Magic Leap at about $2 billion, the $542 million cash infusion from Google and other investors immediately vaulted the shadowy start-up into the upper echelons of young technology companies, they write. Here’s the rub: Magic Leap, based in the suburbs of Miami, has no revenue and no products currently on the market.
Details about Magic Leap’s plans remain sketchy, Mr. Gelles and Mr. de la Merced write. The company declined requests for an interview on Tuesday. On its website, the company has a few videos and images that depict rich animations displayed over what people see with the naked eye. Google itself has gone further than any other company to bring augmented reality to market with Google Glass, its interactive spectacles. But Magic Leap appears to have significantly broader aims, describing an ambitious vision for displaying rich interactive graphics alongside what people see naturally, using what it calls a dynamic digitized lightfield signal.
Google’s role as the lead investor is significant as it jockeys for position in a rapidly shifting technology industry. Just seven months ago, for example, Facebook surprised Silicon Valley when it agreed to buy Oculus, a virtual reality company, for $2 billion. As people become more comfortable with wearable technology, technologies like Magic Leap are likely to become more commonplace. The investment in Magic Leap nevertheless represents a huge bet by Google and its consortium of investors, who are all betting big money on “an eclectic group of visionaries, rocket scientists, wizards and gurus from the fields of film, robotics, visualization, software, computing and user experience,” as Magic Leap describes itself on its website.
ON THE AGENDA | The Consumer Price Index for September comes out at 8:30 a.m. Gary D. Cohn, president and chief operating officer of Goldman Sachs, is on CNBC at 7:30 a.m. The Federal Reserve’s Board of Governors holds an open board meeting to discuss a rule on credit risk retention at 3:30 p.m. Boeing announces third-quarter results before the market opens. AT&T reports third-quarter earnings after the market closes.
AMGEN UNDER PRESSURE | Third Point, the hedge fund run by Daniel S. Loeb, has jumped on the corporate breakup bandwagon. On Thursday, Third Point suggested that the drug giant Amgen should consider splitting itself into two businesses, DealBook’s Michael J. de la Merced reports. Under his vision, one business would be a faster-growing entity whose products require heavy amounts of research spending, nicknamed GrowthCo. The other would be a slower-growing company with more mature products that can afford to pay out a hefty dividend, known as MatureCo.
By Mr. Loeb’s reckoning, a breakup could yield significant results. Given its current corporate self-help plan, Amgen appears set to improve its stock’s valuation to $189 a share by the end of 2016. But if the company splits itself in two, the hedge fund manager contends, the company’s stock could rise to almost $249 a share ‒ or 81 percent higher than where the stock closed on Monday. In a statement, Amgen said that it appreciated hearing from investors, including Third Point, and that its management team continued to study ways to improve the company’s stock price. Executives plan to provide an update on their strategic plan on Oct. 28.
Mr. Loeb also disclosed that his hedge fund had sold off its investment in Sony, more than a year after urging the Japanese electronics giant to partially spin off its American entertainment business. Third Point generated a nearly 20 percent return on its investment before selling out.
| Contact: @melbournecoal | E-mail
Mergers & Acquisitions »
Proxy Advisory Firm Glass Lewis Opposes Chiquita’s Deal for Fyffes | The recommendation from Glass Lewis came a day after Chiquita won the support of the other big proxy advisory firm, Institutional Shareholder Services, for its plan to acquire its Irish rival and reincorporate abroad. DealBook »
BGC Partners Starts $675 Million Hostile Bid for GFI Group | BGC Partners is trying to wrest the New York brokerage and clearing firm GFI Group from the CME Group, which operates the Chicago Mercantile Exchange, the Chicago Board of Trade and the New York Mercantile Exchange. DealBook »
Growth for Yahoo, but Strategy Is No Clearer | Yahoo reported strong third-quarter results on Tuesday, breaking a pattern of revenue declines, The New York Times writes. But Marissa Mayer, Yahoo’s chief executive, did not address the biggest concern on the mind of investors: How does Yahoo take advantage of its $43 billion in stock holdings in the Alibaba Group and Yahoo Japan? NEW YORK TIMES
EMC Said to Acquire Much of Cisco Stake in VCE Joint Venture | The data storage provider EMC is said to be buying much of Cisco System’s stake in their joint venture VCE, Bloomberg News writes, citing unidentified people familiar with the situation. Cisco will remain an investor in the VCE business, but at a reduced stake, one person said. BLOOMBERG NEWS
Morgan Stanley Considering Sale of Gas Business | Morgan Stanley is weighing a sale of a fledgling natural gas export business after the Federal Reserve raised concerns about the risks of shipping compressed gas to the Caribbean, The Financial Times reports. FINANCIAL TIMES
Lufthansa Near Deal With IBM for Infrastructure Unit | The German airline Lufthansa is close to a deal to sell its information technology infrastructure unit to IBM as it looks to shake up its technology activities, Reuters writes. A final price for the sale is still being negotiated. REUTERS
INVESTMENT BANKING »
JPMorgan’s Dimon Speaks on Cancer Fight | “I think it’s a journey and I’m still going through the journey,” Jamie Dimon, the chairman and chief executive of JPMorgan Chase, said on Tuesday at a conference in New York hosted by the Urban Land Institute. BUZZFEED
New York Fed Let JPMorgan’s London Whale Go | “The Whale was bad enough to change behavior, but not bad or correlated enough to be an actual problem. It couldn’t have been better for regulators if they’d invented it themselves,” Matt Levine of Bloomberg View writes. “But then they went and dimmed the luster a bit by calling attention to their own shortcomings.” BLOOMBERG VIEW
JPMorgan and Global X Jump Into Tactical E.T.F.s | Global X Management and JPMorgan Chase have created two exchange-traded funds that aim to compete in the growing market for managed E.T.F. portfolios, The Wall Street Journal reports. Both funds are set to begin trading on Thursday. WALL STREET JOURNAL
4 Banks, Including JPMorgan, Fined in Europe Over ‘Cartel’ Behavior | The European Commission on Tuesday fined several global financial institutions a total of about $120 million over two types of activity that it deemed cartel behavior. DealBook »
Bloomberg Hires Joseph Weisenthal, Business Insider’s Executive Editor | Joseph Weisenthal, the executive editor of the finance and technology news site Business Insider, will join the Bloomberg Media Group to build a markets and finance news site and host a television show on the topic, The New York Times reports. NEW YORK TIMES
Market Volatility Merely a Symptom of Larger Issues | Recent worries about the global economy, including monetary policy, geopolitics and Ebola, have exposed the fragility of some widely held assumptions, Rob Cox of Reuters Breakingviews writes. DealBook »
PRIVATE EQUITY »
Apollo Said to Plan New Natural Resources Fund | Apollo Global Management is said to be planning to begin raising $2 billion to $3 billion for a second natural resources private equity fund, Reuters reports, citing unidentified people familiar with the situation. REUTERS
Investments in Africa More Than Doubled in First Half | Investments in Africa by international private equity firms more than doubled in the first half of the year, to $1.5 billion, compared with $621 million during the period a year earlier, The Wall Street Journal writes, according to data from law firm Freshfields Bruckhaus Deringer. WALL STREET JOURNAL
HEDGE FUNDS »
Spinoff Bets Falter for Some Hedge Funds | Some hedge funds that sought to profit from, and sometimes pushed for, corporate breakups have suffered, as a number of big bets have gone bad after companies announced plans to split up, The Wall Street Journal writes. WALL STREET JOURNAL
I.P.O./OFFERINGS »
Daimler Expects $780 Million Gain on Sale of Tesla Motors Stake | The German automaker Daimler, which first took a stake in Tesla in 2009, said it would continue to partner with the maker of electric cars on development projects. DealBook »
Brazil’s First I.P.O. of 2014 Rises Slightly in Trading Debut | A veterinary medicine company, Ouro Fino Saúde Animal Participações, made its debut on Tuesday amid a weak economy and political uncertainty in Brazil. DealBook »
VENTURE CAPITAL »
Indonesian E-commerce Firm Tokopedia Raises $100 Million | SoftBank announced on Wednesday that it would lead a $100 million investment round in the Indonesian e-commerce giant Tokopedia, Reuters writes. Sequoia Capital also participated in the financing. REUTERS
LEGAL/REGULATORY »
U.S. Regulators Approve Eased Mortgage Lending Rules | The new regulations aim to strengthen the vast market for bonds that are backed with mortgages and other loans. DealBook »
Spanish News Agency Says 11 Banks Could Fail European Stress Test | The Spanish news agency Efe reported that at least 11 banks from six European countries were set to fail a regionwide financial health check this weekend, Reuters writes. REUTERS
New York Says Ocwen Backdated Foreclosure Letters | New York State’s top banking regulator, Benjamin M. Lawsky, said on Tuesday that the mortgage provider Ocwen Financial might have harmed hundreds of thousands of borrowers by sending backdated letters about loan modifications and foreclosures, Reuters writes. The news resulted in a sell-off in the company’s shares. REUTERS