Merrill Lynch On Line

Theflyonthewall Unblocked, CoCos, Billing Rules, Jiau Verdict: Compliance

Barclays Plc (BARC) , Bank of America Corp. (BAC) ’s Merrill Lynch and Morgan Stanley can’t use New York law to block Theflyonthewall.com , an online financial news service, from issuing immediate reports about changes in their stock ratings, a federal appeals court ruled.

The appeals panel yesterday in Manhattan reversed a lower court ruling that had blocked Theflyonthewall.com, based in Summit, New Jersey , from reporting the upgrades or downgrades of stocks for two hours or until half an hour after the opening of the New York Stock Exchange.

The injunction U.S. District Judge Denise Cote in Manhattan issued last year relied on New York state law, which permits plaintiffs to sue based for the misappropriation of so-called hot news. Judge Robert Sack, writing for the three judge panel, concluded that a firm’s ability to make news by issuing a recommendation likely to affect the market price of a security “does not give rise to a right for it to control who breaks that news and how.”

In a statement, Theflyonthewall.com called the ruling “a complete victory in its long-running battle with the investment firms.”

Glenn Ostrager, lead counsel for Theflyonthewall.com, said in the statement that he is pleased the appeals court clarified the law governing the publication of hot news.

Merrill Lynch spokesman Bill Halldin and Morgan Stanley (MS) spokeswoman Sandra Hernandez had no immediate comment on the ruling. Barclays spokesman Mark Lane declined to immediately comment.

The case is Barclays Capital Inc. v. Theflyonthewall.com Inc., 10-1372, 2nd U.S. Circuit Court of Appeals (Manhattan).

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Danish Central Bank Opens Door to CoCos to Help Lenders

Denmark’s central bank is open to letting the Nordic country’s biggest lenders resort to contingent convertible bonds to help them meet extra capital requirements designed to prevent insolvency.

The comment was made by central bank Governor Nils Bernstein, 68, in an interview in Copenhagen yesterday.

The Basel Committee on Banking Supervision may let lenders use so-called CoCos, which convert into equity at a given trigger, to fulfill tougher capital rules, Lars Frisell at Sweden’s bank regulator and a member of the Basel committee said last month.

The securities have been criticized by Oswald Gruebel , chief executive officer at Switzerland’s biggest bank UBS AG (UBSN) , for diluting regular shareholders’ investments. Peter Straarup, the CEO at Denmark’s biggest lender Danske Bank A/S, has said he’s open to using CoCos. Nordea Bank AB (NDA) CEO Christian Clausen said in April the securities can be “good” if used “in the right way.

Merrill Lynch Probed for Role in Housing Bust | West Orlando News ...

Merrill Lynch Probed for Role in Housing Bust

The Securities and Exchange Commission is investigating whether Merrill Lynch short-changed investors and gave undue influence to the hedge fund Magnetar in the creation of a $1.5-billion mortgage-backed security deal.

The investigation, which was first reported by the Financial Times ($), appears to be the agency’s first probe of Merrill Lynch’s CDO business since the financial crisis. (Check our bank investigations cheat sheet for which other firms are being probed.) Here’s the FT:

The investigation is one of several SEC probes into banks that helped underwrite billions of dollars of collateralised debt obligations, securities comprised of mortgages or derivatives linked to them.

It also marks a broadening of the SEC’s investigation into the role of collateral managers, institutions that help select the assets included in CDOs.

The deal that the SEC is investigating—a collateralized debt obligation, or CDO, called Norma—was detailed both in our reporting last year and in a report by the Financial Crisis Inquiry Commission released in January. Norma was one of more than two dozen CDO deals done by Magnetar, whose bets against a number of CDOs earned it billions in the waning days of the housing boom.

As the FCIC detailed, Magnetar helped select the assets that went into Norma even though it had a $600 million bet that would pay off substantially if the CDO failed. As we reported, Magnetar often invested in the portion of the CDO that was riskiest and hardest for the banks to sell. Banks typically gave such investors—equity investors—more say in how the deal was structured. (Magnetar isn’t named as a target of the investigation and had no responsibility to investors. It has also maintained that it did not have a strategy to bet against the housing market.)

In the offering documents for Norma, there’s no mention of Magnetar’s role in asset selection, according to the FCIC. Investors were told that an independent collateral manager, NIR Capital Management, would be selecting the assets with their best interest in mind. The report concluded: “NIR abdicated its asset selection duties… with Merrill’s knowledge.”

Bank of America, which took over Merrill Lynch in 2008, declined our request for comment. The firm’s general counsel told the Financial Crisis Inquiry Commission that it was “common industry practice” for equity investors to have input during the asset selection process, though the collateral manager had final say.

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