At Virgin America, a Fine Line Between Pizazz and Profit

There were more convenient flights later that morning, but Ms. Wolaner’s affection for Virgin’s service, as well as for the Wi-Fi, leather seats and even what she called the “adorable” animated safety video, prompted her to get up earlier than was ideal. This despite the fact that she once flew American Airlines so often that she is “platinum for life.”

She spoke wistfully of a night in 1987 when a blizzard pounded Albany, and American, rewarding her loyalty as a frequent flier, got her a seat on one of the last flights out. “I’ll never forget that night,” Ms. Wolaner said, as if reminiscing about an old friend. But in the years since, she felt that American’s service had declined, her elite status devalued.

“I’m a Virgin convert,” she said.

She’s not alone. Virgin works hard to convey an easy vibe — a flirty package of self-awareness and charisma bathed in purplish mood lighting that has earned glowing consumer reviews and challenged the idea that an airline can’t wow its passengers.

But if the airline has worked for consumers, it hasn’t worked for its investors. Since it started flying out of San Francisco in August 2007, Virgin has lost $675 million. Last November, foreseeing intensifying losses, the airline announced a sharp retrenchment, killing plans for 10 new airplanes each year and modestly cutting capacity on existing service. Already one of the smaller airlines — at 53 airplanes, it is not even a tenth the size of the big carriers — it seemed destined to remain boutique, if it survived at all.

History is not on Virgin’s side: since airline deregulation arrived in 1978, all but a handful of roughly 250 new airlines have failed.

Virgin’s combination of consumer popularity and lack of profitability raises a question: Can it make money and still be beloved? A few — like JetBlue and Southwest — have managed that. But the tried-and-true method of most United States carriers has been to cut back on customer service.

At Virgin, which recently celebrated its sixth anniversary, there’s a glimmer of progress for its investors, including Richard Branson, the founder and entrepreneur in chief of the Virgin Group, the investment company that owns 25 percent of Virgin America (which is distinct from Virgin Atlantic, the international carrier). Last month, Virgin America posted a profit of $8.8 million for the second quarter and forecast stronger results for the current quarter, reflecting typically heavy summer travel. But it also posted a loss of $37.5 million for the full first half of the year.

Still, it’s progress that the company’s chief executive, David Cush, said had come none too soon. Virgin has worked for its customers, he said, but now it has to work for investors, too.

“We’re 22 years old in the life of a human,” Mr. Cush said in a recent interview. “We’ve had a lot of fun in life, and now it’s time to join the real world.”

His ambitions are bold. He wants to take the airline public in 2014 or 2015. Such a move could well serve its major investors — including Mr. Branson’s Virgin Group and Cyrus Capital Partners, a hedge fund — who in May agreed to convert $290 million of the company’s $800 million in debt financing to an equity position. If the company goes public, they could cash in.

And yet, some industry analysts say a solid financial quarter hardly proves the company can go where few start-up airlines have gone before — into long-term profitability. “They’re nowhere near out of the woods yet,” said Henry Harteveldt, a veteran travel industry analyst. “If pizazz were profits, Virgin would be the most successful airline, but there are fundamentals.”

And there is another catch. Joining the real world means doing things that can frustrate travelers. For instance, Virgin is tweaking prices to try to bolster the number of passengers on each flight, which could make boarding and deplaning more frantic and risk delays. It is also trying to attract more business customers, which could create hierarchies that undercut the airline’s more democratic feel. And it is charging more than the industry average on some established routes.

The other airlines have responded by doing some of the things for which Virgin was a pioneer: upgrading airplanes with amenities like mood lighting, Wi-Fi and advanced in-seat entertainment. They, too, have made viral safety videos, including one from Delta that, among other things, featured a man politely declining to sit in the exit row.

At stake are travelers like Ms. Wolaner. She is infatuated with Virgin but is open to the idea that it may not last, having been let down by airlines before. On the Monday when she was traveling to Seattle, executives from Virgin were involved in two important meetings — one about a new safety video and another about ticket prices — very different sessions representing the cultural and financial sides of Virgin, both trying to help marry popularity and profit. It is a razor’s edge that few airlines have been able to navigate.

DealBook: Bank of America to Pay $39 Million in Gender Bias Case

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Economic View: A Carbon Tax That America Could Live With

THIS summer, the Obama administration released the President’s Climate Action Plan. It is a grab bag of regulations and policy initiatives aimed at reducing the nation’s carbon emissions, which many scientists believe contribute to global warming.

This got me to thinking: What might I do to reduce my own carbon emissions? Here are some things I came up with. Think of them as Greg Mankiw’s Climate Action Plan.

• I could buy a smaller, more fuel-efficient car.

• I could swap my traditional car for one with new technology, like a hybrid or an electric vehicle.

• I could car-pool to work.

• I could use public transportation.

• I could move closer to my job.

• I could buy a smaller house that requires less energy to heat and cool.

• I could adjust the thermostat to keep my home cooler in winter and warmer in summer.

• I could put solar panels on my roof.

• I could buy more energy-efficient home appliances.

• I could eat more locally produced foods, which need less fuel to transport.

I could go on, but by now you get the idea. Every day, we all make lifestyle choices that affect how much carbon is emitted. These decisions are personal but have global impact. Economists call the effects of our personal decisions on others “externalities.”

The main question is how we, as a society, ensure that we all make the right decisions, taking into account both the personal impact of our actions and the externalities. There are three approaches.

One approach is to appeal to individuals’ sense of social responsibility. This is what President Jimmy Carter did during the energy crisis of the 1970s. He encouraged Americans to adjust their thermostats and insulate their homes. I can still picture Mr. Carter sitting in the chilly White House, wearing his cardigan sweater.

It’s true that as a socially responsible economist, I always weigh the global costs and global benefits before pushing the ignition button on my car. (Yes, my tongue is firmly planted in my cheek.) But expecting most people to act this way is unrealistic. Life is busy, everyone has his or her own priorities, and even knowing the global impact of one’s own actions is a daunting task.

THE second approach is to use government regulation to change the decisions that people make. An example is the Corporate Average Fuel Economy, or CAFE, standards that regulate the emissions of cars sold. The President’s Climate Action Plan is filled with small regulatory changes aimed at making Americans live more carbon-efficient lives.

Yet this regulatory approach is fraught with problems. One is that it creates an inevitable tension between the products that consumers want to buy and the products that companies are allowed to sell. Robert A. Lutz, the former General Motors executive, laments that CAFE standards are “a huge bureaucratic nightmare.” He says, “CAFE is like trying to cure obesity by requiring clothing manufacturers to make smaller sizes.”

Yet another problem with such regulations is that they can influence only a small number of crucial decisions. In a free society, the government can’t easily regulate how close I live to work, whether I car-pool with my neighbor or how often I don a cardigan. Yet if we are to reduce carbon emissions at minimum cost, we need a policy that encompasses all possible margins of adjustment.

Fortunately, a policy broader in scope is possible, which brings us to the third approach to dealing with climate externalities: putting a price on carbon emissions. If the government charged a fee for each emission of carbon, that fee would be built into the prices of products and lifestyles. When making everyday decisions, people would naturally look at the prices they face and, in effect, take into account the global impact of their choices. In economics jargon, a price on carbon would induce people to “internalize the externality.”

A bill introduced this year by Representatives Henry A. Waxman and Earl Blumenauer and Senators Sheldon Whitehouse and Brian Schatz does exactly that. Their proposed carbon fee — or carbon tax, if you prefer — is more effective and less invasive than the regulatory approach that the federal government has traditionally pursued.

The four sponsors are all Democrats, which raises the question of whether such legislation could ever make its way through the Republican-controlled House of Representatives. The crucial point is what is done with the revenue raised by the carbon fee. If it’s used to finance larger government, Republicans would have every reason to balk. But if the Democratic sponsors conceded to using the new revenue to reduce personal and corporate income tax rates, a bipartisan compromise is possible to imagine.

Among economists, the issue is largely a no-brainer. In December 2011, the IGM Forum asked a panel of 41 prominent economists about this statement: “A tax on the carbon content of fuels would be a less expensive way to reduce carbon-dioxide emissions than would a collection of policies such as ‘corporate average fuel economy’ requirements for automobiles.” Ninety percent of the panelists agreed.

Could such an overwhelming consensus of economists be wrong? Well, actually, yes. But in this case, I am confident that the economics profession has it right. The hard part is persuading the public and the politicians.

N. Gregory Mankiw is a professor of economics at Harvard. He was an adviser to President George W. Bush.

DealBook: America Movil Threatens to Pull Bid for Dutch Cellphone Operator

DealBook: Bank of America to Review Intern Working Conditions

DealBook: Government Sues Bank of America Over Mortgage Securities

New Leader for Al Jazeera America

Al Jazeera America, the coming international news channel financed by the emir of Qatar, on Monday named an ABC News senior vice president, Kate O’Brian, to be its president.

Ms. O’Brian, a 30-year veteran of ABC, has overseen all news gathering for the network news division since 2007. A spokesman for Al Jazeera said Ms. O’Brian would have full responsibility for the new channel’s strategy and operations.

Ms. O’Brian will report to Ehab Al Shihabi, Al Jazeera’s executive director for international operations, who has been overseeing the creation of the American channel in the absence of a president or senior leadership team. On Monday, he was named the interim chief executive, meaning that he will be responsible for everything but the editorial decisions, including all business functions. A news release said his appointment was effective “till further notice.”

The continued involvement of Mr. Al Shihabi, who is based in Doha, Qatar, was expected, but the appointment of Ms. O'Brian is a surprise; her name was not mentioned in any of the speculation about who Al Jazeera might pick to run the American channel.

“Kate’s arrival speaks volumes about what we intend to do and how we intend to do it,” said Mostefa Souag, the acting director general of Al Jazeera, in a statement. “She is a highly experienced and award-winning journalist who fully understands what Americans want to see and hear when they watch the news.”

The announcement of Ms. O’Brian’s appointment follows a personnel search that began shortly after Al Jazeera acquired Current TV — the low-rated channel co-founded by the former Vice President Al Gore — at an estimated cost of $500 million. That acquisition, announced in January, provided Al Jazeera with something it had been seeking for years: access to tens of millions of American viewers.

Now Al Jazeera has to persuade them to tune in.

Ms. O’Brian, whose start date has not been determined, will inherit a mostly-formed news organization, with hundreds of new employees in New York, Washington and elsewhere. Those employees have been producing practice newscasts and preparing news stories and documentaries that will be shown after the channel has its debut on Aug. 20.

The channel also has a partly-formed programming schedule, centered around “America Tonight,” a nightly broadcast that Al Jazeera says will distinguish it from other news channels.

No “America Tonight” anchors have been named, but the former CNN anchor Soledad O’Brien will be an occasional correspondent. She will also produce documentaries for the channel. Al Jazeera's other on-camera employees include Ali Velshi, formerly of CNN; Richelle Carey, formerly of CNN and HLN; and David Shuster, formerly of MSNBC and Current TV.

The channel also appointed three other television news veterans to top posts on Monday. David Doss, a CNN veteran known for his work on Anderson Cooper's prime-time program, was named senior vice president for news programming; Marcy McGinnis was named senior vice president of news gathering, a role similar to the one she held at CBS News for years; and Shannon High-Bassalik, formerly of CNN and MSNBC, was named senior vice president for documentaries and programs.

The three executives will be based in New York alongside Ms. O’Brian. Mr. Al Shihabi will also spend most of his time in New York, according to a spokesman.

When Al Jazeera acquired Current, it estimated that about 60 percent of its programming would emanate from the United States, with the remainder from Al Jazeera English, the international channel based in Doha. But since then the broadcaster has decided to focus more on the United States, and its promotional material now describes it as “a U.S. news channel that will provide both domestic and international news for American audiences.”

Perhaps foreshadowing what the American channel will look like, anchors and producers at Al Jazeera English repeatedly pointed out on Monday that they were electing to cover royal baby news much less than their competitors.

“As I bring everything I learned to this new role, I’m looking forward to showing the Al Jazeera viewers that there is a strong demand for the type of in-depth reporting for which Al Jazeera is so well known," Ms. O’Brian said in a statement.

Ben Sherwood, the president of ABC News, praised Ms. O’Brian in an internal memorandum on Monday afternoon, calling her both a mentor and a role model for the news division. “While we will miss Kate’s insights, judgment and humor, we know that she is stepping into an important role and we wish her very best with this new challenge,” he wrote.

Business Briefing | Legal/regulatory: Judge Approves Bank of America Settlement

Bee colonies have been dying in increasing numbers, and the latest suspect is a pesticide used to protect agricultural seeds.

It appears that cable TV may be in the early stages of a transition.

Fair Game: New York Fed Agreed to Testify for Bank of America

A.I.G., which is suing Bank of America to recover losses it suffered on those securities, has calculated the value of the fraud claims at $7 billion.

Late on Thursday, a copy of the actual agreement came to light. It was filed by Bank of America in a California court that is hearing the matter of who owns those fraud claims — A.I.G. or the New York Fed. The agreement was also filed by the New York Fed in a related lawsuit in the Southern District of New York, where the New York Fed asked that the court keep the agreement under seal.

A reading of the document makes it clear why.

The agreement spells out the terms of a deal in which the New York Fed received $43 million from Bank of America’s Countrywide unit. The money changed hands to settle a narrow dispute involving cash flows on several mortgage securities held by an investment vehicle, known as Maiden Lane II. That vehicle was created by the New York Fed as part of the rescue of A.I.G., which had held the Countrywide securities. The previously confidential agreement released Bank of America from all litigation claims on the securities held by Maiden Lane II.

But in exchange for that $43 million, the New York Fed did something else for Bank of America. It agreed to testify on behalf of the bank in its legal battle against A.I.G. over fraud claims.

In that matter, Bank of America has argued that A.I.G. has no right to sue it for fraud because A.I.G. sold the securities to Maiden Lane II and so transferred the litigation rights to the New York Fed. A.I.G., however, maintains that the Maiden Lane agreement never specified the transfer of the right to sue for fraud and that an explicit transfer is required by New York law, which governs the agreement. The New York Fed provided Bank of America with two affidavits supporting the bank’s view of who owned the mortgage securities’ fraud claims.

Two weeks ago, it was unclear why the New York Fed gave Bank of America the affidavits. But now, its promise to testify “as needed,” shown in the formerly confidential settlement, addresses that oddity. It was a contractual obligation.

Interestingly, the New York Fed did not tell the California court that its affidavits came about because of its deal with Bank of America. The affidavits came from James M. Mahoney, a vice president at the New York Fed, and Stephanie A. Heller, its deputy general counsel.

But those affidavits differ from the position taken earlier by Thomas C. Baxter Jr., the New York Fed’s general counsel. In a letter to A.I.G. in October 2011, Mr. Baxter said that he and his colleagues “agree that A.I.G. has the right to seek damages” under securities laws for the instruments it sold to Maiden Lane II.

Michael Carlinsky, A.I.G.’s lawyer at Quinn Emanuel Urquhart & Sullivan, said on Friday that he found it “disturbing” that the New York Fed made a contract to “assist Bank of America in its defense of A.I.G.’s lawsuit.”

Also on Friday, I asked the New York Fed why it had included this promise of legal support for Bank of America in the settlement agreement. Jack Gutt, a spokesman, said in a statement that the New York Fed had intended to hold the litigation rights and that the declarations were true.

“The New York Fed did not agree to provide the declarations to benefit B. of A., but rather because doing so helped the New York Fed obtain the best possible settlement” for Maiden Lane II, Mr. Gutt said. “In agreeing to this provision as part of what the New York Fed believed was a favorable settlement agreement, the New York Fed was concerned exclusively with advancing the taxpayer interest.”

I also asked a Bank of America spokesman whether the bank had paid more in the settlement because of the New York Fed’s promise to testify. He declined to answer that question, saying, “Countrywide provided fair value for a complete release of claims by the Federal Reserve Bank of New York, and the Fed agreed to provide testimony standing behind what it had formally represented to Countrywide regarding the assignment of claims from A.I.G.”  

DealBook: In Deal, Bank of America Extends Retreat From Mortgages

Correction Appended

Kevork Djansezian/Associated PressBank of America bought Countrywide in 2008.

9:00 p.m. | Updated

Bank of America is continuing a large-scale retreat from its costly expansion into the home mortgage market, a shift that concentrates more power in the hands of its biggest rivals and leaves fewer options for some home buyers.

The bank, which already has sharply scaled back in making mortgages, on Monday sold off about 20 percent of its loan servicing business as part of its agreement to pay the housing finance giant Fannie Mae more than $11 billion to settle a bitter dispute over bad mortgages.

The payment resolves claims that Bank of America made bad mortgages before the financial crisis that home buyers had a hard time repaying, and then sold those troubled mortgages to the government. When borrowers defaulted — sometimes within months of taking out a mortgage — the taxpayer-supported Fannie Mae suffered immense losses.

Less competition in the mortgage market could hurt consumers, potentially raising the costs of borrowing. The problems at Bank of America have cut down its mortgage ambitions; it accounts for 4 percent of the nation’s mortgage market, a slide from just over 20 percent in 2009, ceding market dominance to Wells Fargo and JPMorgan Chase.

“This is part of a broader consolidation of banks and that is something that we should all be very, very concerned about,” said Ira Rheingold, executive director of the National Association of Consumer Advocates. “Anything that leads to less competition can only be bad for consumers.”

Chris Keane/ReutersBrian T. Moynihan, Bank of America’s chief. The bank’s $4 billion acquisition of Countrywide has cost it tens of billions.

Also Monday, Bank of America and nine other lenders agreed to an $8.5 billion settlement with banking regulators to resolve claims of foreclosure abuses that included flawed paperwork and bungled loan modifications. While the two agreements were separate, they represented one of the biggest single days for government settlements with United States banks, totaling $20.15 billion, and illustrated the extent of the banks’ role in the excesses of the credit boom, from the making of loans to the seizure of homes.

While costly, analysts said, the settlements may reduce legal uncertainties for lenders and spur more banks to compete for home loan business.

In its agreement with Fannie Mae, which the government controls, Bank of America will pay the agency about $3.6 billion to compensate for faulty mortgages and $6.75 billion to buy back mortgages that could have resulted in future losses for the government. The bank also agreed to sell to other firms the right to collect payments on $306 billion worth of home loans.

“Bank of America is sending a clear message that the bank only wants to be the mortgage lender to a select, small group of people,” said Glenn Schorr, an analyst with Nomura.

Bank of America has been battered by a steady stream of losses after its 2008 purchase of Countrywide Financial, the subprime lender that has come to symbolize the reckless lending practices of the real estate bubble. Before Monday, the $4 billion Countrywide acquisition had cost Bank of America more than $40 billion in losses on real estate, legal costs and settlements. Most of the loans covered in the Fannie Mae settlement were issued by Countrywide from 2000 to 2008.

“These agreements are a significant step in resolving our remaining legacy mortgage issues, further streamlining and simplifying the company and reducing expenses over time,” the bank’s chief executive, Brian T. Moynihan, said in a statement.

Bank of America said it expected the settlement to depress its fourth-quarter earnings by $2.5 billion. Its shares, which doubled in 2012, on Monday essentially closed flat at just over $12.

While the settlement will resolve all of the lender’s disputes with Fannie Mae, which weighed on the bank, Bank of America still faces billions of dollars in claims from investors and federal prosecutors.

While the mortgage market is consolidating in the hands of a small number of banks, the housing market is showing signs of recovery. The Federal Reserve has spent hundreds of billions of dollars to stimulate the economy, driving down interest rates on 30-year mortgages to 3.34 percent. In the last year, this has helped lift house prices from their lows and prompted a boom in refinancings. At the same time, though, even borrowers with strong credit complain about onerous checks and backlogs in the application process. This suggests banks are still struggling to efficiently follow the higher standards introduced since the financial crisis.

Nearly all mortgages that banks make right now are transferred to the government, which guarantees that they will be repaid.

Most analysts agree that mortgage rates would be lower if banks were competing more vigorously for business. Because the settlements could ease legal uncertainties surrounding mortgage lending, a wider array of banks might be encouraged to lend more, eating into the market share of giants like Wells Fargo.

“Every one of these puts a little more distance between the banks and their subprime problems,” said Guy Cecala, publisher of Inside Mortgage Finance, an industry publication.

Wells Fargo made 30 percent of all new mortgages in the first nine months of 2012, far ahead of the second-place JPMorgan, which accounted for 10 percent of the market, according to figures from Inside Mortgage Finance. In 2007, Wells Fargo originated 11 percent of new mortgages.

“The markets are actually more competitive than ever,” said Vickee Adams, a spokeswoman for Wells Fargo Home Mortgage. She says smaller banks are making gains in some of the nation’s biggest urban markets.

Some mortgage analysts said the settlements did not provide the level of legal clarity that the banks crave. “We haven’t done enough listening to the banks,” said Christopher J. Mayer, a professor at Columbia Business School. For instance, he says, the banks need clearer rules on when they have to take back loans they have sold to government housing entities.

But a big problem may be that many banks are too poorly run to compete, a situation that may not quickly change even with greater legal clarity. Bank of America’s servicing operations have struggled for several years.

“It may be that Bank of America decided that it wasn’t good enough at servicing,” said Thomas Lawler, a former chief economist of Fannie Mae and founder of Lawler Economic and Housing Consulting, a housing analysis firm.

The bank is looking to refocus beyond the mortgage business. To that end, Bank of America agreed to offload the servicing rights on two million loans with an outstanding principal of $306 billion. Those rights were scooped up by specialty mortgage servicing firms, including Nationstar Mortgage Holdings and the Newcastle Investment Corporation, which collect payments from borrowers.

Jerry Dubrowski, a spokesman for Bank of America, said, “The strategy is simple: to focus on our core retail customers, to be able to provide an entire array of products and services to them, in which mortgage is an integral product, but not the only product.”

Correction: January 8, 2013

An earlier version of this article omitted one element of the settlement between Bank of America and Fannie Mae, and summaries of the article in some sections of nytimes.com consequently understated the total amount of the two mortgage-related settlements announced Monday. It is more than $20 billion, not $18.5 billion.

French Music Streaming Service Takes on the World, Sans America

The company, Deezer, is one of the biggest players in digital music streaming, trailing only the market leader, Spotify, in the number of paying customers it has attracted globally. Like Spotify, which is based in London, Deezer, with headquarters in Paris, offers subscribers unlimited access to millions of songs on demand, via PCs, mobile phones and other devices.

Deezer just got a big endorsement for its approach. Access Industries, the owner of Warner Music Group, pumped 100 million euros, or about $130 million, into Deezer this month, in what analysts described as one of the biggest investments ever in a French start-up.

“This shows that they think the music market is beginning to turn around,” Axel Dauchez, chief executive of Deezer, said in an interview.

Deezer, which started in 2007, has just moved into a slick new headquarters, where employees conduct business meetings on lawn chairs and on sofas disguised as musical keyboards. “Paint it black,” reads a neon sign on the somber-toned wall behind Mr. Dauchez. Like the Rolling Stones, Deezer is on a mission to blot out the color red — in this case, from the ailing music industry’s ledgers.

After a battle with piracy that has cut its sales in half in just over a decade, the music industry has high hopes for streaming, which is growing faster than digital purchases, as many listeners decide that ownership makes less sense than in the days of plastic and vinyl.

While Deezer and Spotify are still losing money, their sales are growing rapidly. Deezer generated about 50 million euros in revenue last year, and Mr. Dauchez has set a goal of 1 billion euros in sales in 2016.

With more than two million paying customers, Deezer trails Spotify, which has more than four million. Spotify introduced an American version last year, and it has been growing quickly. But Deezer has turned its back on the United States and plans to use its new money to finance an expansion into more than 160 other countries.

“Like a canny general who decides to march around a heavily fortified stronghold and thus effectively leave it stranded behind enemy lines, so Deezer expects the streaming war to be waged on different shores,” Mark Mulligan, a music industry analyst, wrote on his Web site. “They are both right and wrong.”

Analysts say Deezer is right to worry about competition in the United States, where Spotify competes with services like Rhapsody, Pandora and Rdio, even though their business models all vary slightly.

Mr. Mulligan says there is room for growth in the United States, because premium streaming services remain too expensive for most consumers. But the field is less crowded outside the United States, where Spotify is the clear leader in streaming in many of the markets it has entered — except France, where Deezer reigns.

Spotify, too, is planning for the battles ahead. Several people briefed on the company’s plans said it had begun a new round of fund-raising, seeking to secure several hundred million dollars in new investment.

New financing is essential for Deezer and Spotify because they are burning through significant amounts of cash. To attract new listeners, both companies offer free versions of their services, subject to certain restrictions. Yet both companies must pay a royalty to a recording company every time someone listens to one of their tracks.

While streaming services sell advertising to cover some of the costs of free listening, Mr. Dauchez said raising revenue in this way had proved to be more challenging than expected. So Deezer now sees its free service primarily as a way to entice listeners into paying for its premium offerings, which include things like unlimited streaming and special content and recommendations, along with no ads.

This makes expanding into new markets expensive. While Deezer says it was profitable last year, it expects to lose money until 2014 as it enters new markets. The company set up sites in several other European countries in 2011 and accelerated its global expansion this month.

DealBook: Bank of America Ekes Out a Profit of $340 Million

Andrew Gombert/European Pressphoto AgencyA Bank of America branch in Manhattan.

Bank of America reported a slim quarterly profit on Wednesday, a small success for the bank after doling out huge payments to settle claims it misled investors about its takeover of Merrill Lynch during the financial crisis.

The bank reported $340 million in net income, a 95 percent drop from the $6.23 billion profit it posted in the period a year earlier. The results amounted to zero cents per diluted share, compared with 56 cents last year.

The bank’s revenue also dropped 28 percent, to $20.6 billion. The top and bottom line figures reinforced concerns that Bank of America, the nation’s second-largest by assets after JPMorgan Chase, had struggled to shed the legacy of the 2008 crisis.

Yet despite all the sharp declines, the results actually pointed to a small victory for the bank. The modest profit, padded by a $2.3 billion reduction in loan loss reserves, exceeded the estimates of analysts polled by Thomson Reuters, who had expected a loss of 6 cents a share. The bank also recorded improved investment banking income, which jumped 7 percent. Mortgage originations grew 18 percent, as interest rates remained at near record lows. And the bank’s wealth management unit continued its strong gains.

The otherwise bleak third-quarter results were widely expected. The bank announced a $2.43 billion deal last month to settle shareholders’ accusations that it had provided false and misleading statements about the health of Merrill Lynch as the Wall Street investment bank racked up huge losses in late 2008 amid turmoil in the markets.

“Our strategy is taking hold even as we work through a challenging economy and continue to clean up legacy issues,” Brian T. Moynihan, the bank’s chief executive, said in a statement.

The results reflect the murky nuances of Bank of America’s balance sheet. As the bank continues to cope with legal problems — and broader revenue concerns– it has introduced a sprawling cost-cutting overhaul, known as “New BAC.” The effort prompted the bank to shed assets and slash jobs by the thousands. The bank’s full-time headcount, for example, declined 5 percent in the third quarter to 272,594 employees.

Investors largely cheered the bank’s report on Wednesday, sending the bank’s shares up slightly in morning trading. Still, the market continues to struggle to find a coherent narrative in quarter after quarter of conflicting numbers.

In the third quarter, the bank racked up a $1.6 billion litigation expense paying for part of the Merrill Lynch settlement and other lawsuits. It also incurred a $1.9 billion charge on the perceived improvement in its debt, an accounting-related cost that actually indicated greater public confidence in the stability of the bank. A final charge from a British tax expense cost the bank $800 million.

Bank of America noted that most of the losses were baked into estimates, skewing the bank’s true performance. The litany of one-time expenses all told wiped out 28 cents a share from third-quarter earnings.

But the third quarter of 2011 told a misleading story as well. One-time gains, including the sale of unwanted assets, masked a modest overall performance.

The mixed results come as other banks report generally strong earnings. JPMorgan Chase and Wells Fargo posted major profit gains last week on the back of a booming mortgage business.

The mortgage business was a bright spot for Bank of America, as well. The improvement was owed to surging higher mortgage banking income and smaller provisions for credit losses. But the division was still dogged by mortgage delinquencies and defaults. The consumer real estate unit’s losses continued, but slowed to $877 million, a 20 percent decline compared to last year.

Bank of America’s legal woes, growing from bad mortgages created during the crisis era, have stalled the banks revival. The real estate division remains a money pit, as investors and government agencies push the bank to repurchase soured mortgages, arguing the mortgages were inappropriately created and sold. Much of the damage was done at Countrywide, the subprime lending specialist that Bank of America bought during the crisis.

Bank of America this year was also ensnared in with four other banks in $26 billion settlement related to improper foreclosure practices. The deal arose from a federal and state investigation into the mortgage servicing practices that revealed how banks evicted homeowners without proper documentation.

“I think we’ve clearly begun to turn a corner and at the same time you have to remain a little bit cautious,” Bruce R. Thompson, the company’s chief financial officer, said on a conference call.

DealBook: Julius Baer to Cut 1,000 Jobs After Deal for Bank of America Unit

Arnd Wiegmann/ReutersBoris Collardi, chief of the Swiss bank Juluis Baer.

LONDON — The Swiss bank Julius Baer announced on Tuesday that it would eliminate about 1,000 jobs to reduce costs.

In August, Julius Baer reached a deal with Bank of America Merrill Lynch to buy its private banking operations outside the United States and Japan for around $880 million. As part of its plan to integrate the business, Julius Baer said it now expected to reduce the bank’s combined 5,700 work force by 15 to 18 percent.

The layoffs, which could total 1,026 staff members, are expected to begin after the deal closes early next year.

The deal for the Bank of America unit is part of Julius Baer’s expansion into new markets as it looks to keep pace with Swiss rivals including UBS and Credit Suisse.

The acquisition would give Julius Baer up to an additional $74 billion of assets, which primarily come from wealthy clients in developing economies.

“This acquisition brings us a major step forward in our growth strategy and will considerably strengthen Julius Baer’s leading position in global private banking by adding a new dimension not only to growth markets but also to Europe,” the company’s chief executive, Boris Collardi, said in August.

The expected job cuts are an effort to reduce costs at the new unit, which reported a $30 million net loss in the first half of the year, according to an investor presentation released on Tuesday.

Julius Baer also said on Tuesday that its total assets under management as of Aug. 31 had risen 8 percent, to 184 billion Swiss francs ($196 billion), since the end of 2011.

Shares in Julius Baer fell less than 1 percent in morning trading in Zurich on Tuesday.

DealBook: Bank of America to Pay $2.43 Billion to Settle Class Action Over Merrill Deal

Bank of America announced on Friday that it would pay $2.43 billion to settle a class-action lawsuit related to its acquisition of Merrill Lynch, as the legal woes continue for the financial institution.

In 2009, shareholders accused Bank of America of making false and misleading statements about the health of the two companies. In part, the plaintiffs accused Bank of America of hiding a major loss at Merrill Lynch just shortly before shareholders were set to vote on the deal.

While Bank of America denied the allegation, the institution said it decided to settle to put the litigation to rest. As part of the proposed settlement, Bank of America also agreed to institute new corporate governance policies.

“Resolving this litigation removes uncertainty and risk and is in the best interests of our shareholders,” Brian Moynihan chief executive said in a statement. “As we work to put these long-standing issues behind us, our primary focus is on the future and serving our customers and clients.”

Early in the financial crisis, Bank of America looked to be one of the winners. As other banks struggled to stay afloat, the firm swooped in to buy Countrywide Financial, the mortgage lender, in 2008. Later that year, Bank of America agreed to purchase Merrill Lynch, the beleaguered investment bank.

But both deals are proving to be a legal albatross.

Countrywide’s mortgage problems have weighed on profits for awhile. In the second quarter of 2011, the bank reported an $8.8 billion loss, mainly related to a settlement with mortgage investors. Earlier this year, Bank of America and four other banks agreed to a $26 billion settlement related to their foreclosure practices.

Now, it faces a similar burden from the Merrill Lynch deal. Bank of America said it would take a $1.6 billion hit related to the settlement. The insititution also agreed to enhance its corporate governance, including those related to “say-on-pay” shareholder votes, the independence of the board’s compensation committee and policies for committees focused on acquisitions.

The settlement won’t be the only black mark on the bank’s financials this quarter. On Friday, the company said that profits would be hurt by a $1.9 billion adjustment related to the value of its debt. It also faces an $800 million charge related to a income tax expense.

In all, Bank of America said earnings would be cut by 28 cents a share. The company is set to report earnings on October 17.

Today's Economist: Uwe E. Reinhardt: Redistribution of Wealth in America

Uwe E. Reinhardt is an economics professor at Princeton.

A recent article in The Washington Post and an audio clip accompanying it on the Web featured an excerpt from a speech in 1998 by Barack Obama, then an Illinois state senator, at Loyola University Chicago.

Perspectives from expert contributors.

In that speech he remarked, “I actually believe in redistribution, at least at a certain level, to make sure that everybody’s got a shot.”

The article then quotes Mitt Romney: “I know there are some who believe that if you simply take from some and give to others then we’ll all be better off. It’s known as redistribution. It’s never been a characteristic of America.”

Really?

Aside from hard-core libertarians, who view the sanctity of justly begotten private property as the overarching social value and any form of coerced redistribution as unjust, how many Americans on the left and right of the political spectrum would disagree with Mr. Obama’s very general and cautiously phrased statement?

In fact, I wonder whether even Governor Romney actually disagrees with that general statement, aside from some dispute over “the certain level” at which redistribution takes place. After all, he has promised elderly voters to protect the highly redistributive Medicare program, which would remain highly redistributive, or become more so, under proposals by his running mate, Representative Paul D. Ryan, for restructuring Medicare.

The fact is that redistributive government policy — mainly through benefits-in-kind programs, agricultural policy and the like — has been very much a characteristic of American life, just as it has been in every economically developed nation, albeit at different levels.

Start at the local level. Through property taxes, local governments all over the United States routinely take from high-income Americans living in expensive houses to subsidize the education of children from lower-income families. It is the American way, based on the widespread belief that doing so will make society as a whole better off. Is there a significantly large constituency for abolishing this form of redistribution at the local level and instead letting every family fend for itself, with its own budget, in a private market for education?

The same can be said, at the local level, for fire and police protection. One could imagine a world in which every family cuts a deal with private contractors to provide fire and police protection — leaving poor neighborhoods to fend for themselves — but that is just not an American characteristic. Is there a sizable constituency in America for completely privatizing local fire and police protection?

At the state level, consider Medicaid. By design, Medicaid is purely redistributive. It takes from higher-income people at the state and federal levels and pays fully for the health care of low-income people. Is there a strong constituency for abolishing Medicaid and letting the poor, when they are ill, fend for themselves in the market for health care?

Or take public colleges and universities. Although tuition has increased in past years, these institutions are still heavily supported by the states and charge tuition much below the full cost of the education they impart.

At the federal level, Social Security and Medicare were deliberately structured by their designers to be in part redistributive. As Eugene Steuerle and Adam Carasso of the Urban Institute’s Retirement Project have reported, both programs redistribute from retirees who had been high-income earners in their work years to those who had been low-income earners.

Would elimination of this redistributive feature inherent in Social Security and especially in Medicare have much of a political constituency today? Would any politician dare propose openly — and I stress openly — that Medicare beneficiaries who had been high-income earners in their work years should have a health care experience superior to those who had low incomes in their work years? Would that proposal be a winner this year?

By the way their benefits and the financing of these benefits are structured, Social Security and Medicare also redistribute income from the current working population collectively to the currently retired population collectively. Is that fair?

In thinking about this issue, keep in mind that a young generation about to enter the workplace has, for a fifth to a quarter of a century, been the beneficiary of huge transfers of human and nonhuman capital. Overwhelmingly, they have taken from society and not contributed to it.

By human capital economists mean the education and training that foster in the young marketable skills that can be traded for cash at the workplace. Although, unlike students in many other countries, American students do contribute significantly to the financing of their human capital — at the college and postgraduate levels — the production of their human capital remains very heavily subsidized by the preceding generational cohorts. Charge the total value of that transfer to an intergenerational account.

Charge to it next the nonhuman capital transferred to the young. This includes the vast array of physical structures built and largely financed by preceding generations, transferred virtually free of charge to the younger generation for its use, along with the scientific knowledge and the blueprints for applied technology developed and financed by previous generations but available, again largely free of charge, as an economic platform for the younger generation.

I believe the designers of Social Security and Medicare were mindful of this vast redistribution of assets to the young when they embedded in these programs a social contract creating a reverse redistribution from the young to the old during the latter’s retirement years.

These designers seem also to have kept in mind that future generations benefit greatly from the secular increase in overall productivity in the economy. It can reasonably be assumed that future long-run growth in real gross domestic product per capita will be 1 to 2 percent a year. At only 1 percent, real G.D.P. per capita in 2050 will be about 46 percent larger than it is today. At 2 percent growth, it will be more than twice as large.

At issue between the two political camps in this election season, then, is not redistribution per se, which is as American as apple pie. Rather, at issue is the “certain level” to which that redistribution is to be pushed. An honest and thoughtful debate on that would certainly be useful at this time. It would be useful at any time.

To be respectful to voters, such a debate should proceed at a level concrete enough to allow voters — or at least researchers and news organizations — to estimate fairly precisely how different families would fare under the different visions of that “certain level.”

It is the minimum voters ought to expect from political candidates.