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Off the Charts: Investors in Europe See a Glass Half Full and Rising

Or at least investors seem to believe they are.

A survey of investor sentiment in the euro zone this month moved into positive territory for the first time since the summer of 2011. European stocks have been rising for more than a year, with bank stocks leading the way. The yields on Spanish and Italian government bonds — which were more than five percentage points higher than German bonds’ last summer — now have spreads half that level.

It was last summer that the European Central Bank took steps to get needed cash into the hands of banks, ending the immediate fears of a collapse of the euro zone. But much remains to be done.

The German elections next weekend have delayed a lot of decisions. The widespread assumption is that Angela Merkel will remain chancellor, but it is not clear if the current coalition with the Free Democrats will be able to survive. If not, she may have to turn to the opposition Social Democrats and try to form a grand coalition.

There is also wide speculation about the health of European banks. In the summer of 2012, the European Central Bank took steps to provide low-cost loans to banks to buy bonds issued by their own governments, and some did, particularly in Italy and Spain.

When there are new stress tests next year — conducted for the first time in the same way in all countries across the euro zone — some analysts fear that banks may be forced to hold more capital if they have such bonds. Conceivably, such a requirement may lead the banks to sell such bonds, driving prices down and yields up and damaging the confidence that has been growing.

But none of that has so far held back investor enthusiasm. An index of European bank stocks, shown in the accompanying chart, is up by almost half since the end of 2011, although it remains more than 60 percent below its 2007 peak.

The Sentix measure of investor confidence in the euro countries climbed into positive territory this month for the first time since 2011, and it did so largely because of optimism for the future. The measure is based on questions asked of investors, and it now finds institutional investors more confident than retail investors.

Sentiment regarding current conditions has risen, but it is still negative, according to the survey. But when investors were asked about conditions six months from now, the level of optimism has risen to the highest level since the spring of 2006, well before the recession.

It may be noted that all this enthusiasm has come despite continuing declines in gross domestic product in many countries in the zone, and despite high levels of unemployment. To some extent, it no doubt both reflects the improvements in the stock and bond markets and is a cause of them.

Does all this show foolish complacency? Or does it reflect an awareness that the worst is over for the peripheral countries in the euro zone, with recovery on the horizon? By next summer, we may have the answer.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

This article has been revised to reflect the following correction:

Correction: September 14, 2013

An earlier version of this article incorrectly identified the German party that formed a coalition with the Christian Democrats, Angela Merkel’s party. The coalition is with the Free Democrats, not the Liberal Democrats.

Drugs at Music Festivals Are Threat to Investors as Well as Fans

Since March, at least seven young people attending dance events around the country have died after exhibiting symptoms consistent with overdoses from MDMA and other so-called party drugs, often called ecstasy or molly. This month, the Electric Zoo festival on Randalls Island was shut down at the request of New York City officials after two patrons died, apparently from MDMA overdoses, officials said.

Executives say that deaths like these have the potential to scare off investors and the corporate sponsors that are eager to reach the genre’s young, affluent and technologically connected fans.

The ecstasy-related deaths come just weeks before an expected initial public offering by SFX Entertainment, a new company whose fortunes are predicated on sponsorship and media deals for electronic dance music, or E.D.M. According to its prospectus, SFX wants to raise as much as $300 million through its I.P.O., much of it to acquire promoters like Made Event, the company behind Electric Zoo.

Festivals draw tens of thousands or even hundreds of thousands of fans to see well-known D.J.’s like David Guetta, Tiesto and Deadmau5, with top festivals charging up to $300 for two or three days of music. Defenders of the dance world say they are being singled out by the news media. Drugs and overdoses, they say, have long been associated with popular music. For example, 10 people have died since 2002 at the Bonnaroo festival in Tennessee, many from drug-related causes.

“The scrutiny that this is going to come under because of the stock market deal with SFX, it’s like a magnifying glass that’s unfair,” said Amy Thomson, the manager behind Swedish House Mafia, one of the genre’s most successful acts.

Robert F. X. Sillerman, the chief executive of SFX, said in an interview that his company was committed to providing a safe environment, and that as dance music “has grown from uncontrollable rave parties to professionally run festivals and events, it in fact provides the opportunity to provide health and safety guidance.”

He declined to discuss business details, citing the mandatory “quiet period” before the I.P.O. But TomorrowWorld, a festival near Atlanta this month in which SFX is a majority partner, is working with DanceSafe, a nonprofit group, to provide educational information about the dangers of drug use, said Shawn Kent, one of the executives behind the event.

SFX seemed to anticipate the need for greater medical care when it appointed to its board Dr. Andrew N. Bazos, an orthopedic surgeon with experience in “comprehensive medical coverage for large-capacity venues,” according to its prospectus.

Drugs have been linked to the mythology and slang of dance culture for decades, and the current ecstasy scare reflects an earlier wave in the 1990s when cities around the country cracked down on illegal raves. Today, stars like Miley Cyrus and Kanye West allude to molly in songs, and the term turns up repeatedly at festivals, on T-shirts, banners or body paint.

Among the deaths in recent months is that of Matthew Rybarczyk, a 20-year-old from Staten Island, who collapsed with a 107-degree temperature at a Governors Island rave on July 14.

When Mr. Rybarczyk’s grandmother saw him in the hospital the next morning, he was contorted unrecognizably and was bleeding from his nose and mouth; he died 14 hours later. The medical examiner found methylone in his system, an ecstasylike drug sometimes sold as molly.

“It was the saddest thing of all to watch him die,” his grandmother, Peggy Rybarczyk, said. “He went to have a good time and he never came home.”

A growing history of drug-related deaths has not slowed the genre’s popularity. In 2010, a 15-year-old girl died from an overdose of ecstasy at Electric Daisy Carnival in Los Angeles, but the festival has since spread around the country and even to London. This year, Live Nation Entertainment, the world’s biggest concert company, bought half of Insomniac, the company behind the festival, for a reported $50 million.

In an interview, Pasquale Rotella, Insomniac’s founder, defended his company’s security measures, and said that dance promoters, to some degree, “inherit societal problems.”

But he and others in the industry admitted that the negative perceptions had kept away sponsorship money.

“If you look at dance festivals in general, you don’t typically see a ton of branding yet,” said Edward H. Shapiro, a lawyer who works with dance acts. “Part of that has been this notion that it isn’t an environment that is ripe for really big brands to participate in.”

Many of the most prominent branding deals in the electronic dance music world have been tied to artists, including Absolut Vodka with Swedish House Mafia, and Pepsi with the D.J. Calvin Harris. But for even the most popular dance festivals, the sponsor rosters are dwarfed by those of comparable rock and pop events, like Lollapalooza or Coachella.

The sponsors of Electric Zoo this year included Coors Light and Blue Moon beers, owned by Molson Coors; Vita Coco, a coconut water drink; and Hi-Chew, a fruit-flavored snack. Constellation Brands, whose Pacifico beer was also a supporter, said in a statement that its sponsorships “are focused on providing a peaceful, safe and responsible environment for fans 21-and-older to enjoy our product, and are made on a case-by-case basis.” Other sponsors have not commented.

Most major festival promoters have zero-tolerance drug policies, and their sites have security checks, free water stations, first-aid tents and ambulances on call. Such measures are essential for insurance purposes and are often required by state law for any large gathering.

No promoter can prevent all drugs from entering a festival site, nor can do they do anything about drugs consumed before an attendee walks through the gate. Yet many in the dance world think promoters and stars need to do more to discourage it.

“I don’t think we should be scared of saying ‘don’t do drugs,’ ” said A-Trak, a top D.J. “There is this sort of elephant in the room, where people are scared to say, ‘That stuff is dangerous and don’t mess around.’ ”

But Armin van Buuren, another popular D.J., said that Electric Zoo was one of the better-run festivals he had attended, with plenty of security and medical personnel.

“For some reason we have the stamp of drug misuse and I think that it’s unfair,” he said. “It ruins the party for a lot of other people.”

Investors Bet on Olympic Construction Boom

TOKYO — Ever since a group of out-of-work samurai pooled their pensions to found Onoda Cement 130 years ago, the company has had its ups and downs: industrialization, a crippling war, Japan’s postwar economic miracle.

But after domestic cement demand peaked in 1990, at the height of Japan’s bubble economy, Taiheiyo, the successor company, and the industry, fell into a seemingly permanent decline in a mature and shrinking Japan.

Tokyo’s victory on Saturday in the race to host the Summer Games for a second time, in 2020, is giving Taiheiyo a new lease on life.

On Monday, a day after Japan reveled in the good news, the stocks of general contractors, property developers and other long-suffering construction-related companies surged in Tokyo, as investors anticipated a construction boom before the 2020 Olympic Games.

Construction companies helped lead a 2.48 percent rise in the Nikkei index to 14,205.23, a one-month high. Taiheiyo’s stock jumped more than 7 percent to its highest level in six years, while Taisei, the contractor that built Tokyo’s Olympic Stadium in 1964, soared 14 percent. Both stocks continued their rapid ascent Tuesday morning.

“We expect Tokyo’s success in bidding for the Olympics to become a very positive catalyst” for Japanese stocks, Hiromichi Tamura, a strategist at Nomura, said in a note to clients.

Helping to elevate shares was a revision of Japan’s second-quarter economic growth figures to an annualized rate of 3.8 percent on the back of strong capital investment. Preliminary estimates had shown growth of 2.6 percent.

The government estimates that hosting the Olympics will increase the economy by 3 trillion yen over the next seven years, or 0.3 percentage points of Japan’s economic growth a year.

But that estimate is too modest, Robert Feldman, head economist for Japan at Morgan Stanley MUFG Securities, wrote in a report last week.

He said that the impact would most likely reach 6 trillion to 8 trillion yen over the next seven years, or 0.7 to 0.8 percent of gross domestic product.

The most visible impact will be in construction. Tokyo has promised to keep costs down by using as many as 15 “legacy” buildings, including three built for the 1964 Games. Still, it will build 22 more sites at an estimated cost of $3.1 billion.

Tokyo’s huge new Olympic Stadium, called the cycling helmet for its space-age design, will seat 80,000 people and cost at least $1.3 billion to build. It will feature a retractable roof – a first for an Olympic Stadium. The city also plans to spend $955 million on a waterfront Olympic Village complex capable of housing 17,000 athletes and trainers.

Naoki Inose, the governor of Tokyo, has called the project “Tokyo’s biggest housing development in decades.”

Investors hunted for more Olympics-related shares. Advertising and travel agencies gained on Monday, as did Japanese sports equipment makers, like Mizuno and Asics.

Sagami Rubber Industries, which says it makes one of the world’s thinnest condoms, with a thickness of only 0.022 millimeters, jumped more than 8 percent during Monday trade, and continued to climb Tuesday. Condoms have been distributed to Olympics athletes since the Seoul Summer Games in 1988. Last year, the London Games distributed more than 150,000 condoms to athletes, according to British media reports.

Taiheiyo Cement is also poised to be one of winners of the Olympic rally.

Analysts at Nomura said that building the stadiums for the Games would require more than three million tons of cement in 2016 through 2019. And total demand for cement could be even greater, as hopes for a tourist influx before the Games prompt developers to plow money into hotels and other commercial projects.

The tide is already beginning to turn at Taiheiyo, as it taps reconstruction demand after Japan’s tsunami and nuclear disasters.

For the fiscal year through March, Taiheiyo’s net profit surged 44 percent from a year earlier to 11.3 billion yen, or $114 million, and the company expects an additional 14.7 percent increase this year, to 13 billion yen.

But how long will an Olympics-fueled rally last? Strategists at Nomura, who studied market patterns after past Olympic announcements, are optimistic. Their analysis shows that stock markets tended to perform well over the longer-term after a successful Olympics bid.

“Once strong investor interest in Olympics hosting-related stocks wanes, the stock market as a whole appreciates,” Mr. Tamura said.

Strategies: For Investors, No Need to Duck. Just Diversify.

These two propositions may seem contradictory, but they’re not — at least in the view of David P. Kelly, chief global strategist at J.P. Morgan Funds.

“There are many problems in the economy and in the markets, certainly,” Mr. Kelly said in an interview. Short-term losses could easily be on the way, and they could be painful. “But the answer for a long-term investor isn’t to avoid risk,” he said. “It is to be extremely diversified — and to invest in equities. You’re likely to do much better that way than if you stay out of the markets.”

Still, he concedes, it’s very easy to make the case that the factors affecting the stock, bond, currency and commodity markets are spectacularly harrowing at the moment.

Just consider some of the more obvious problems.

The prospect of Western military intervention in Syria has rattled the markets, sending oil and gold prices higher, driving down the value of emerging-market currencies and stocks and unsettling the stock and bond markets in the United States.

In Washington, the fiscal clock is ticking toward two irksome deadlines. At the end of September, the federal government will run out of money unless Congress takes action, and even if it does, the government will hit its debt ceiling in mid-October, the Treasury says. At that point, unless there is a meeting of the minds in Congress and the White House, the United States won’t be able to pay all of its bills, and it could default on its debt.

And in mid-September, the Federal Reserve is widely expected to begin reducing its $85 billion monthly purchases of fixed-income securities, in a move known as “the taper.” Longer-term interest rates have already begun to rise in anticipation.

The prospect of Fed action has sporadically unsettled the markets, playing a role in the sell-off of emerging-market debt and raising fears of a vicious feedback loop, in which bond prices, currencies and the real economies in countries like India, Turkey and Indonesia plummet and threaten to spread contagion elsewhere around the world.

THIS is not a pretty picture, and Mr. Kelly doesn’t claim that it is. “We could have some very difficult moments,” he said. “The one thing you can expect is volatility.”

But in a trenchant summary of the prospects for investing under current conditions, Mr. Kelly said last week that the global economy had improved considerably since the collapse of Lehman Brothers five years ago. The economy is “more balanced” today, he said, with developed countries like the United States regaining strength and the world no longer needing to rely so heavily on growth in countries like China, India, Indonesia and Turkey.

Most important, relatively low interest rates have made stocks, as an asset class, more attractive than bonds. And he says “this should remain the case” even if interest rates rise over the next few years, as expected.

To be sure, people holding long-term Treasury bonds should expect to bear some losses if interest rates rise. (As I’ve noted recently, rates and bond prices move in opposite directions.) Ben S. Bernanke, the Fed chairman, has said that rates are likely to rise; that’s another way of saying that bond prices are likely to fall further, so investors should consider themselves forewarned.

But Mr. Kelly says that most investors shouldn’t be holding only long-term Treasuries — or only domestic stocks, or only cash, for that matter. “If you perceive that risk is rising, then you need to be extremely well-diversified, because no one can predict which asset will rise and which will fall in any given time,” he said in a conversation last week.

He advocates investing based primarily on valuation, buying assets that are cheaply priced and are likely to rise, rather than on momentum, buying assets whose prices are already rising. Momentum works for a while — until the momentum shifts, which could happen at any time, leaving investors with overvalued assets that they may have to sell in a market rout. “That’s not a very attractive strategy,” he said.

Current valuations suggest that developed-market equities are a better buy than developed-market bonds, Mr. Kelly said, and will remain so for several years even if interest rates rise. One valuation measure points this out: the difference between the yield on 10-year sovereign bonds, like United States Treasuries or German Bunds, and the earnings yield on equities. (The earnings yield is earnings per share divided by the current share price; it is the inverse of the price-to-earnings ratio, or P/E.)

Markets Close Lower as Investors Wait for Decision About Syria

American stocks fell in a thinly traded session on Friday as investors avoided making large bets before a long weekend with the situation about Syria still uncertain.

Afternoon trading was volatile, with indexes swinging between break-even levels and solid losses as Secretary of State John Kerry said in televised remarks that Syria’s government used poison gas against civilians and made the case for a limited military response.

“People are uneasy not knowing what’s going on,” said John Carey, portfolio manager at Pioneer Investment Management in Boston. “With that uncertainty and going into the Labor Day holiday, we’re seeing people step back.”

The Dow Jones industrial average was down 30.64 points, or 0.21 percent, at 14,810.31. The Standard & Poor’s 500-stock index fell 5.20 points, or 0.32 percent, at 1,632.97. The Nasdaq composite index was down 30.44 points, or 0.84 percent, at 3,589.87.

Trading was light ahead of the market holiday on Monday for Labor Day. About 3.99 billion shares changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, below the daily average so far this year of about 6.31 billion shares.

“I tend to view the weakness as a buying opportunity, barring some global crisis,” said Mr. Carey, who helps oversee about $200 billion in assets. “Syria isn’t the crisis in and of itself, but if we do take military action, there could be repercussions.”

It has been a tough month over all for stocks. The S.& P. 500 fell 3.1 percent in August and lost 1.8 percent for the week in a third decline in the last four weeks.

The Nasdaq fell 1.9 percent for the week while the Dow slid 1.3 percent in its fourth consecutive weekly loss. For the month, the Dow fell 4.4 percent and the Nasdaq lost 1 percent. Only one of the 30 Dow components, Microsoft, ended higher in August.

Almost 70 percent of stocks traded on the New York Stock Exchange closed lower on Friday, while 73 percent of Nasdaq-listed shares ended in negative territory.

Video game companies were among the Nasdaq’s biggest decliners on Friday. Electronic Arts fell 3.37 percent, to $26.64, while Activision Blizzard fell 2.57 percent, to $16.32.

The chip maker OmniVision Technologies tumbled 16.08 percent on earnings weakness. It forecast current-quarter adjusted profit largely below expectations as rising competition and a slowdown of smartphone sales in the United States led to an inventory pileup.

Salesforce.com, the best performer in the S.& P. 500, jumped 12.55 percent, to $49.13, after the company raised its fiscal 2014 sales outlook and reported better-than-expected revenue and earnings. The Apache Corporation, the oil and gas producer, climbed 8.95 percent, to $85.68. The company said it was selling a 33 percent stake in its Egypt oil and gas business for $3.1 billion to the state-owned Chinese oil giant Sinopec Group.

The price of the benchmark 10-year Treasury note fell 8/32, to 97 16/32, and its yield rose to 2.79 percent, from 2.76 percent late Thursday.

DealBook: With Huge War Chests, Activist Investors Tackle Big Companies

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DealBook: As Investors Jump Ship, SAC Looks to Cut Back

DealBook: Dell Adjourns Vote on Deal as Some Big Investors Start to Shift

Kimihiro Hoshino/Agence France-Presse — Getty ImagesMichael S. Dell, founder of the computer company that bears his name.

9:21 p.m. | Updated

Dell bought itself six more days to win backing for its proposed $24.4 billion sale to its founder, but the fight for additional support remained tough.

On Thursday, Dell, the computer maker, adjourned a meeting for shareholders to vote on the deal only minutes after opening the gathering. The vote is now scheduled for July 24 at 6 p.m.

Thursday’s decision, which many had expected, prolongs the drama surrounding the former giant of the personal computer industry. Dell has been shrouded in uncertainty for several months, as investors have questioned whether the $13.65-a-share bid by Michael S. Dell and the investment firm Silver Lake would succeed.

The meeting was adjourned after preliminary tallies showed that the deal would almost certainly have been defeated. With more time, a committee of Dell’s board and the company’s proposed buyers will try to twist more arms.

The two groups have already made headway. On Wednesday night, a number of big institutional investors switched their votes to “yes,” people who had been briefed on the matter said. Those investors included big asset managers like the Vanguard Group, BlackRock, the State Street Corporation, the Bank of New York Mellon and Invesco.

For the votes already cast, the race looks like a dead heat, one of these people said. But an estimated 23 percent of Dell votes have not been cast, effectively counting as no votes. And any votes can be changed before the new shareholder meeting, meaning that the landscape may change yet again.

The bar for approving the deal is high. More than 42 percent of Dell’s shares would have to be cast in favor of the deal. The billionaire Carl C. Icahn and Southeastern Asset Management, who have proposed an alternative to the leveraged buyout, together own almost 12.7 percent.

“It is unfortunate, although not surprising, that Dell’s board and special committee have delayed the date of the special meeting at which stockholders can vote on the Michael Dell/Silver Lake freeze out transaction,” Mr. Icahn and Southeastern said in a statement. “We believe that this delay reflects the unhappiness of Dell stockholders with the Michael Dell/Silver Lake offer, which we believe substantially undervalues the company.”

Instead, Mr. Icahn and Southeastern have proposed that the company buy back 1.1 billion shares for $14 each, and offer warrants to buy additional shares for $20 each. The two investors valued their plan at $15.50 to $18. But the committee of Dell’s board rejected the idea as too risky and not in the best interests of other shareholders.

Both sides have argued that Dell must continue to move away from personal computer manufacturing, which once propelled its profits but now weighs down its prospects. The embattled business is trying to build a more profitable corporate software and services operation.

But Mr. Dell and Silver Lake argue that such a transformation can only succeed if carried out in private, away from analysts and public investors. Mr. Icahn and Southeastern dismiss that contention, while arguing that the current offer is too low.

Many investors appear to hope that the prospect of defeat will force Mr. Dell into raising the bid. He acquiesced before, increasing the purchase price to its current level from $13.60.

The committee will try to persuade the bidders in raise their price again, the people briefed on the matter said. But people close to Mr. Dell and Silver Lake insist that no such increase is coming, given the declining financial health of the company and the overall weakness of the personal computer industry.

If that is the case, the Dell committee will likely seek a letter from Mr. Dell and Silver Lake confirming that $13.65 a share is their best-and-final offer, erasing any illusions about an increase. Shares in Dell rose 1.9 percent on Thursday, to $13.12, suggesting that investors feel somewhat more optimistic that the buyout will succeed.

Investors Wary of Alliance Talk for Peugeot

It would not, investors seemed to have decided Friday, as a rally in the shares of the French carmaker PSA Peugeot Citroën fizzled along with speculation about a stronger alliance with General Motors and its Opel unit.

According to such speculation, based on a report Thursday by Reuters, the Peugeot family was ready to cede control of the ailing French carmaker that bears its name. The family, which holds a 25.2 percent stake and about 38 percent of the voting rights in Peugeot, was prepared to give up control y if General Motors raised its stake from the 7 percent it already owned, Reuters reported.

Peugeot shares rose as much as 5.5 percent in Paris trading on Thursday based on the report, which also said that the Peugeot family had held talks with Dongfeng, a Chinese automaker. But Peugeot shares retreated on Friday after analysts said neither option was plausible. The shares were down about 3 percent Friday afternoon.

Neither Peugeot nor Opel, which uses the Vauxhall brand name in Britain, is selling enough cars to keep their factories busy. The plants, which cost money even when they are not being used, have contributed to large losses at both companies. In addition, Opel and Peugeot have suffered declining market share and are focused on the depressed European market, without enough sales in healthier regions like China to compensate.

“The business rationale doesn’t stack up,” said Paul Newton, an analyst at IHS Automotive, a market research firm. “They compete in all the same segments in the same markets.”

In both France, where Peugeot has most of its factories, and Germany, Opel’s home base, closing plants and laying off workers is extremely difficult because of labor laws as well as stubborn resistance from unions and political leaders.

“You’d really have to get to work and cut a lot of capacity,” Mr. Newton said. “It would be ugly really. I don’t know why they would want to do it.”

“There is no urgency about a capital increase,'’ a person close to the Peugeot family said, dismissing the reports of a G.M. or Chinese deal as “rumors.” The person, who asked not to be identified by name because he was not authorized to speak publicly on the matter, said the automaker “is always talking with its American and Chinese partners” as part of its normal business.

“But,” the person said, “the Peugeot family is very attached to its history and its stake in the firm.”

General Motors, which reported a loss of $200 million in Europe for the first quarter of this year, said it had no interest in raising its investment.

“Our position remains unchanged: we have no intention of investing additional funds into PSA at this time,” G.M. said in a statement. “We will not comment on speculation.”

But the fact that such talk was taken seriously underscores the perilous situation Peugeot is facing in a European market that continues to shrink five years after the financial crisis hit.

Peugeot, which reported a 6.5 percent decline in sales in the first quarter after a loss of 1.5 billion euros in 2012, is not big enough to finance new products as well as its competitors can or enjoy the same volume discounts on parts.

The automaker also suffers from its dependence on the dismal European market. Car sales on the Continent fell in May to their lowest level in 20 years, and analysts say there is little hope for a turnaround in the foreseeable future.

In Europe, the French company trails only Volkswagen in unit sales. But a vast gulf separates the two companies globally, thanks largely to Volkswagen’s international footprint, including in China, which has become the German carmaker’s largest market.

Peugeot also continues to be outperformed by Renault, its smaller French rival, largely because of Renault’s global alliance with Nissan Motor. The alliance gives Renault international reach that Peugeot, despite big gains this year in China and Latin America, cannot match.

Jack Ewing reported from Frankfurt.

DealBook: As Bond Market Tumbles, Pimco Seeks to Reassure Investors

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At Sony, Investor’s Challenge Brings Unwanted Suspense

Clockwise from top left, Suzanne Hanover/Columbia Pictures; Sony Pictures Animation/Columbia Pictures; Columbia Pictures; Kimberley French/TriStar PicturesSony's newest film include, clockwise from top left, “This Is the End,” a comedy with James Franco, Jonah Hill, Craig Robinson, Seth Rogen, Jay Baruchel and Danny McBride; “The Smurfs 2,” with the voices of Katy Perry and the late Jonathan Winters; “After Earth,” with Will Smith and his son, Jaden; and “Elysium,” starring Matt Damon.

NOWHERE is the opulence of Old Hollywood more palpable than on the Sony Pictures lot in Culver City. Arching just inside the front gate is an eight-story rainbow. This grand $1.6 million sculpture, a condition of a lot expansion, rose last year and became a symbolic link between past glories — “The Wizard of Oz” was filmed here — and current ones. Years of cutbacks have taken the shine off many studios, which now look like glorified factories. But Sony has preserved its lot as a perfect little movieland town: executive suites overflow with orchids, and cafes border a new park where employees sip lattes and stretch on the grass.

The mood extends beyond the walls of the 44 1/2-acre lot. Each year, Sony rents out the entire Ritz-Carlton Cancún Resort for an international press junket. Day after day, the studio flies in stars and hosts parties.

“What I love about Sony,” said Matthew Tolmach, a former executive at the studio and now a producer based on its lot, “is that they still love movies, and they are incredibly aggressive about making all kinds of them.” He added: “It’s why I want to live there.”

While competitors like Paramount, Disney and even Warner Brothers have gone through ferocious consolidation — all focusing more narrowly on blockbuster-style fantasies and superhero movies — Sony has been slower to give up the industry’s broad prerogatives. Its ambitions still stretch from R-rated romps to “The Amazing Spider-Man” to tiny foreign films to African-American comedies to Oscar-caliber dramas. That requires making a home not just for Mr. Tolmach but also for an extensive family of filmmakers and stars.

Sometimes it pays. Last year, Sony Pictures Entertainment generated about $4.4 billion in global ticket sales, the highest in its history, powered by nine No. 1 hits including “Skyfall,” “Men in Black 3” and “The Vow.” It had an Oscar contender, “Zero Dark Thirty,” started a new franchise, “Hotel Transylvania,” and revived an old one, “21 Jump Street.” It ended the year in first place in market share.

But in true Hollywood style, the Sony picture is not quite what it seems.

The truth is that Sony finds itself at a troubled crossroads. Its go-to stars — Adam Sandler and Will Smith — are now a generation older than the prime film-going audience. And its steep production and infrastructure costs burden Sony with one of Hollywood’s worst profit margins. Sony’s entertainment unit had an operating margin of 6.5 percent in its last fiscal year; the figures at Warner Brothers, Disney, Paramount and 20th Century Fox were all higher.

It is extremely hard to compare studios, analysts warn. Some make only movies, while others, like Sony, also make television shows. Financing arrangements and accounting vary. Sony does not divulge how much of its profit comes from movies and how much comes from its fast-growing television business.

In its last fiscal year, the studio reported operating income of $509 million, up 40 percent from a year before. That result looks fantastic until you consider that roughly 65 percent of the total, analysts estimate, came from a relatively small television arm that includes shows like “Wheel of Fortune” and “Breaking Bad” as well as overseas cable channels. Analysts complain that the giant movie side is holding back profitability.

The movie unit has also lost the man long seen as its protector inside Sony, the far-flung Japanese electronics behemoth. That man is Howard Stringer, who was Sony’s chief executive for seven years. Last year, he turned over the Sony helm to Kazuo Hirai. Mr. Stringer will retire as chairman next month.

But the truly startling plot twist came on Tuesday. Daniel S. Loeb, the activist hedge fund manager known for successfully engineering a shake-up at Yahoo, told Mr. Hirai in a letter that his Third Point investment fund had become Sony’s largest shareholder, with a 6.5 percent stake. With that announcement, Mr. Loeb proposed breathtaking changes at the company, including a spin-off of up to 20 percent of its studio and other entertainment holdings.

Overnight, Michael M. Lynton, the C.E.O. of both Sony Pictures and Sony Entertainment, and Amy Pascal, co-chairwoman of Sony Pictures, found themselves under a kind of weight rarely felt in Hollywood since the 1980s, when corporate raiders and high-yield bond peddlers like Saul Steinberg, the Bass brothers and Michael Milken delved into studios, looking for hidden value.

“The entertainment businesses are important contributors to Sony’s growth and are not for sale,” Sony asserted in response to Mr. Loeb. “We look forward to continuing constructive dialogue with our shareholders as we pursue our strategy.”

A spokeswoman for Mr. Lynton and Ms. Pascal said they had no comment. Several days before the disclosure of Mr. Loeb’s letter — in response to questions about the studio’s performance and its movie release lineup — Steve Elzer, a Sony spokesman, wrote in an e-mail, “We have been strong and steady not just for a year, but for longer than a decade.” He added, “We couldn’t be more confident in our slate this summer and through the year.”

Optimistic Investors Help Markets Make Up Ground

The stock market advanced on Tuesday as earnings season got under way, with the Dow Jones industrial average closing at another nominal record high on a rally in cyclical shares.

With the day’s advance, the Standard & Poor’s 500-stock index ended less than two points shy of its nominal record, recovering from steep losses last week.

The strength in the indexes indicates that investors are again using market declines as buying opportunities. The top sectors of the day, technology and energy, are groups that are closely tied to the pace of economic growth.

“It’s encouraging that we’re seeing cyclical sectors lead the rally,” said Joseph Tanious, global market strategist at J. P. Morgan Funds. “It’s a healthy sign — investors believe the market can continue to run higher.”

Among blue-chip technology stocks, Microsoft jumped $1.02, or 3.6 percent, to $29.61 as the Dow’s top percentage gainer. Intel shares shot up 66 cents, or 3.1 percent, to $21.75, and Hewlett-Packard rose 29 cents, or 1.3 percent, to $22.22.

The Dow industrials rose 59.98 points, or 0.41 percent, to close at 14,673.46. The S.& P. 500 gained 5.54 points, or 0.35 percent, to 1,568.61. The Nasdaq composite index added 15.61 points, or 0.48 percent, to 3,237.86.

While only 5 percent of S.& P. 500 companies have reported results so far, almost three-quarters of those have topped expectations, according to Thomson Reuters data. Still, profits are seen rising just 1.5 percent from the year-ago quarter, down from estimates in January for growth of 4.3 percent.

“Expectations have gotten managed down to the point where we could more easily see companies beat expectations, making it easier for us to pop,” said Kristen Scarpa, an investment strategist at Barclays.

Late Monday, Alcoa reported earnings that beat expectations, though revenue was below forecasts. Shares of Alcoa, which as part of the Dow is unofficially seen as setting the tone for the earnings season, closed flat on the day at $8.39.

First Solar, which surged $12.31, or 45.5 percent, to $39.35, was the S.& P. 500’s top gainer by far after forecasting 2013 earnings and revenue well above expectations.

The news lifted the solar sector, with Yingli Green Energy climbing 39 cents, or 21.1 percent, to $2.24, and Trina Solar up 56 cents, or 14.6 percent, at $4.40.

Recent reports have shown that the American economy is growing at a slow pace. The March employment report on Friday showed job creation was less than half of what economists had expected. Analysts said, however, that the market has the momentum to push indexes higher, even with the Dow industrials up 12 percent so far this year and the S.& P. 500 up 10 percent.

J. C. Penney was the S.& P. 500’s largest percentage loser, tumbling $1.94, or 12.2 percent, to $13.93 after the department store’s board ousted Ron Johnson as chief executive and replaced him with his predecessor, Myron E. Ullman.

Shares of Herbalife fell 3.8 percent to $36.95 after it said that KPMG had resigned as its independent accountant. One of KPMG’s senior partners in the firm’s Los Angeles office was accused of leaking secret information to a stock trader about Herbalife and the footwear company Skechers USA. The accounting firm said Monday night that it had fired the partner.

In the bond market, interest rates showed little change. The price of the Treasury’s 10-year note slipped 2/32, to 102 8/32, while its yield held steady at 1.75 percent.

BP to Return $8 Billion to Investors

The company completed the sale of its stake in the venture, TNK-BP, to Rosneft, the Russian state oil company, on Thursday for $12.48 billion in cash as well a 19.75 percent stake in Rosneft.

The $8 billion is roughly the equivalent of what BP originally paid for its 50 percent of TNK-BP in 2003. Over the last 10 years BP also received $19 billion in dividends from the venture, the company said.

BP said the remaining $4.48 billion from the stake sale would be used to reduce debt.

The buyback is about twice as large as analysts were expecting, said Andrew Whittock, an analyst at Liberum Capital in London, in a research note.

BP shares closed up 1.85 percent in London trading on Friday but remain about 30 percent below their level before the April 2010 Gulf of Mexico oil spill as investors worry about the company’s potential liabilities in the United States.

The company’s chief executive, Robert W. Dudley, who has led BP since October 2010, said in a statement that the buyback was expected to exceed what was required to offset the earnings-per-share dilution as a result of the TNK-BP sale.

He said the buyback also reflected the reduction in BP’s size after its $38 billion in divestments, excluding TNK-BP, over the last three years. BP has been selling assets as part of an effort to raise cash to pay for liabilities resulting from the Deepwater Horizon accident and oil spill in the Gulf of Mexico, which killed 11 people and spewed millions of barrels of crude oil.

At a news conference Thursday at BP’s headquarters in London, the two companies announced that Mr. Dudley would be nominated to join the Rosneft board. BP will also have an additional seat on the board.

Rosneft also bought the remaining 50 percent of TNK-BP on Thursday from a group of Russian oligarchs for $27.7 billion.

An ebullient Igor I. Sechin, Rosneft’s chief executive and an influential government official in Russia, said the two companies were already looking into what projects BP could collaborate on with Rosneft. “We are going to work definitely with BP offshore,” he said. “We are definitely going to avail ourselves of the experience and competencies of BP.”

Mr. Dudley said that Mr. Sechin had gone without sleep for about 40 hours in working to complete the transaction.

He said that the global oil and natural gas industry was changing and that new technologies gave Russia the opportunity to exploit “more expensive” methods to develop resources, like offshore oil, shale gas and tight oil, which is produced using techniques similar to those used to produce shale gas.

Mr. Dudley suggested that he was not troubled by the fact that Rosneft already had important strategic ventures in the Arctic with BP competitors — Exxon Mobil, Statoil and Eni. “We all applaud Rosneft’s progressive approach of strategic ties with international oil companies,” he said.

As a significant minority shareholder in Rosneft, BP will benefit from these ventures, Mr. Sechin said.

DealBook: After I.P.O. Drought, Brazil Is More Hospitable to Investors

Ricardo Moraes/Associated PressA branch of Banco do Brasil in Rio de Janeiro.

SÃO PAULO, Brazil — The nation’s main stock exchange here forecast at the start of 2012 that 40 to 45 companies would hold initial public offerings to list their shares. Only three did.

“Very few transactions got done, and very few got done well,” said Fábio Nazari, head of equity capital markets at BTG Pactual. Many issuers encountered “very difficult conditions.”

Some of the lackluster performance can be chalked up to investors nervous about the global economy, but much also had to do with government policies in Brazil.

Last year, the country changed regulations and applied pressure to reduce consumer prices in several sectors, including retail banks and electricity utilities. Those measures may succeed in reducing consumer costs, but investors complained about lowered profit outlooks and accused the government of changing the rules in the middle of the game.

The government also used taxes and regulatory measures to weaken the currency in the first half of 2012. The value of the country’s currency, the real, fell more than 18 percent from March 1 to June 1, increasing uncertainty for foreign investors.

In Brazil, tough economic conditions also hung over the markets last year. In the first three quarters of 2012, the country’s gross domestic product rose only 0.7 percent. The Bovespa index was up 7.4 percent in 2012 — a healthy return but not the double-digit yearly gains it often had a few years ago.

Going into 2013, however, both government agencies and the private sector are taking steps to encourage start-ups and growth industries to raise financing through the public markets. In addition, analysts say, the most disruptive policy changes are already in place, so companies will find a more hospitable climate for stock offerings.

“We don’t foresee more big moves from the government,” Mr. Nazari said. “The past has been priced into valuations, and economic growth should pick up this year.”

Brazil has only 365 publicly traded companies, and they do not fully reflect the strength and diversity of the economy, the world’s seventh-largest. Commodities producers dominate the main stock index, even though industries that serve the country’s growing middle class are growing faster. But Mr. Nazari said at least 30 companies were ready to list in the next 12 to 18 months.

Two big stock offerings are already on tap to be listed on the BM&FBovespa, the main stock and futures exchange in Brazil.

Banco do Brasil, the state-controlled banking conglomerate, has announced that it intends to spin off its insurance operations into a new company, BB Seguridade, which would then hold an I.P.O. in the first half of 2013. The deal, if it goes through, could raise 5 billion reais.

And local investment banks say Votorantim Cimentos, Brazil’s largest cement producer, is preparing for an I.P.O. this year that would aim to raise 6 billion reais.

Investors may also turn to I.P.O.’s to seek better returns. After decades in which investors could buy short-term government bonds and earn double-digit returns, interest rates in Brazil have dropped. Most traditional fixed-income investments now hardly keep up with inflation.

Jean-Marc Etlin, chief executive of Itaú BBA Investment Bank, said that in an environment of relatively low interest rates, Brazilian investors had incentives to increase their stock market allocations, potentially creating demand for new companies.

Mr. Etlin also said there were thousands of Brazilian companies, mostly family owned, that could provide the basis for sustained activity.

“Brazil’s equity capital markets literally restarted just 10 years ago, with the first I.P.O. under new governance rules. We are still in the early stages,” he said.

Since Brazil’s first modern initial public offering in 2002, 70 percent of financing has come from foreign investors, so the market in the near term is dependent on global trends.

Brazil had a banner year in 2009, when companies raised nearly 46 billion reais on the public markets, according to the BM&FBovepsa (that figure includes I.P.O.’s and follow-on offerings, when companies issued additional shares). That year included I.P.O.’s of the bank Santander Brasil, which raised 13.2 billion reais, and the credit card operator Visanet, which raised 8.4 billion reais.

Renato Ejnisman, managing director of Bradesco BBI, Banco Bradesco’s investment banking division, said the market this year was not likely to return to 2009 levels, but “two or three times as many deals as in 2012 is pretty doable.”

Facundo Vazquez, head of Latin America equity capital markets at Bank of America Merrill Lynch, said foreign institutional investors preferred larger deals because they were more easily traded on the public markets, while risk-averse investors were more comfortable putting money into big companies that dominated their sectors.

Conglomerates looking to spin off units will be “the sweet spot,” he predicted, as such operations are big deals with plenty of liquidity from well-known companies.

Mr. Nazari of BTG Pactual also said that bigger offerings attracted more interest. “Right now, it is easier to do a $2 billion deal than a $200 million one,” he said. “A lot of investors are sitting on cash, waiting for the new year and for opportunities.”

The government itself is taking measures to facilitate listings, although more for smaller offerings. The Comissão de Valores Mobiliários, Brazil’s main securities regulator, announced in November that it would consider, on a case-by-case basis, easing requirements for smaller I.P.O.’s.

The equity arm of the state-owned development bank BNDES has 108 billion reais invested in nearly 400 companies, some of which are publicly traded giants like Petrobras, but most of which are privately held.

The BNDES, short for Banco Nacional do Desenvolvimento (or the National Development Bank in English), said in October that it intended to encourage or even oblige its start-ups and other companies to hold I.P.O.’s or at least join the exchange’s access tier, Bovespa Mais.

The Bovespa Mais requires companies to meet the same governance requirements as public companies and to go public, with at least 25 percent of their shares listed, within seven years.

Linx, a midsize software firm in which the BNDES holds a 21.7 percent stake, filed paperwork with regulators at the end of December to hold an I.P.O. this year. Linx is expected to try to raise 500 million reais.

Both government and private sector entities are also working together to present by March a package of regulatory and tax measures to pave the way for smaller I.P.O.’s, though the measures probably would not be in place until 2014.

In general, the change in regulations and investor demand could finally help end Brazil’s drought in I.P.O.’s, analysts said.

“In 10 years or less, we could easily see the number of listed companies in Brazil double,” said Mr. Nazari of BTG Pactual.

With a Mall Boom in Russia, Property Investors Go Shopping

While it sounds like the Mall of America, this mall is outside Moscow, not Minneapolis.

“I feel like I’m in Disneyland,” Vartyan E. Sarkisov, a shopper toting an Adidas bag, said recently while making the rounds of the Mega Belaya Dacha mall.

Instead of bread lines, Russia is known these days for malls. They are booming businesses, drawing investments from sovereign wealth funds and Wall Street banks, most recently Morgan Stanley, which paid $1.1 billion a year ago for a single mall in St. Petersburg.

One mall, called Vegas, rose out of a cucumber field on the edge of Moscow and became, its owners say, larger than the Mall of America if the American mall’s seven-acre amusement park is not counted in the calculation of floor space.

A few offramps away on the Moscow beltway, another mall scored a victory by another measure: the Mega Tyoply Stan shopping center attracted 57 million visitors at its peak in 2007, well ahead of the 40 million annual visits reported by the Mall of America.

As American malls dodder into old age, gaptoothed with vacancies, Russia’s shopping centers are just now blossoming into their boom years, nourished by oil exports that are lifting wages.

“It’s 1982 all over again in Russia,” said Lee Timmins, the country representative of Hines, a Texas-based real estate group that is opening three outlet malls in Russia, referring to the heyday of the American mall experience. Russians, he said, love malls.

The mall boom illustrates an extraordinarily important theme in Russian economics these days. The growing crowds at malls, and the keen interest in Russian malls on the part of Wall Street banks, are signs that the emerging middle class that made up the street protests against Vladimir V. Putin in Moscow last winter is becoming a force in business as well as politics.

Investors, who with money at stake are a bellwether of the new trends, are not waiting for the next round of protests; they are already placing bets on the rise of a broad affluent class in Russia.

“Over the past 10 years, Russia has turned into a middle-class country,” Charles Slater, a retail analyst at Cushman & Wakefield, a commercial real estate consulting firm, said in an interview. “What better to do than go to an enclosed, warm environment with many things on offer, whether that be bowling, cinema or food courts, things the customers have not been used to in the past?”

Moscow now has 82 malls, including two of the largest in Europe, according to the International Council of Shopping Centers, a New York-based trade association. Both are owned by Ikea Shopping Centers Russia, the branch of the Swedish assemble-it-yourself furniture franchise that manages 14 malls here. In Russia, malls are still novel; the first Western-style suburban mall opened in 2000. They are now changing hands as developers sell to institutional investors, like Morgan Stanley, shedding light for the first time on their eye-popping values.

At the core of the attraction for investors is the rising disposable incomes of Russians, nudged along by policies favoring the middle class, lest their challenge to President Putin’s rule intensify.

Russia has a flat 13 percent income tax rate. Most Russians own their homes, a legacy of post-Soviet privatizations, and so pay no mortgage or rent. Health care is socialized.

Not surprisingly, then, Russians have become fanatical shoppers. Russians spend 60 percent of their pretax income on retail purchases, a category that includes food, according to Jones Lang LaSalle, a real estate consulting firm. The country in second place in Europe is Sweden, where retailing accounts for 40 percent of total private spending. Germans, by comparison, spend 28 percent of their salaries shopping, according to Jones Lang LaSalle..

Malls, where the secrets of Western capitalism were finally peeled open and laid bare, with fast food, clothes, ice rinks, electronics and appliances wherever the eye falls, have mesmerized shoppers here — much as they did in their early years in the United States, from the 1960s to the 1980s.

Olga N. Zaitsova, 55, who was in the Mega Belaya Dacha mall with her granddaughter Anastasia, said she came every weekend, drawn by the warm play area for toddlers. “It’s just not comfortable to be outside when it’s so cold,” she said.

When she shops, she said, “now we buy things we want, not things we need.”

DealBook: Concerns Mount That Investors Might Balk at Debt Buyback in Greece

John Kolesidis/ReutersThe offices of Greece’s finance and development ministries in Athens.

LONDON — The hedge funds holding Greek bonds may have become too greedy for their own good.

It’s just two days before the books close on a plan to reduce Greece’s debt load by having the country purchase its deeply discounted bonds from banks and investors. But bankers close to the transaction are voicing concerns that hedge funds might “blow up the deal” by holding out for a higher price.

If the buyback fails, they say, the consequences would be severe. Not only could the International Monetary Fund refuse to lend more money to Greece, but wealthy European countries, already skeptical about extending yet another round of loans to Greece, could withdraw their support. In that case, the 40 billion euro-plus lifeline that the country needs to remain solvent would be in jeopardy.

“People have fallen in love with their profits, and they have lost touch with the downside,” said Petros Christodoulou, a top executive at the National Bank of Greece who presided over the 100 billion euro private sector debt restructuring earlier this year as head of Greece’s debt management agency. “If this thing fails, there is total collapse, and the price goes to 20 cents.”

On Monday, Greece surprised the market by offering, in effect, to repurchase as much as 30 billion euros worth of bonds at an average price of 32 to 34 cents on the euro. That represents a roughly 5 percent premium to where the bonds were trading at the end of the previous week.

Having borrowed 10 billion euros, the net debt relief would be around 20 billion euros. European officials feel that would be enough to satisfy the I.M.F.’s demand that Greece try to bring its debt level below 110 percent of its gross domestic product by 2022.

But numerous hedge funds — many of which scooped up Greek bonds in the mid-teens this summer and are now sitting on fat profits — are telling Greece that they may not participate in the buyback. Instead, they are betting that the participation of Greek banks and short-term investors looking for a quick profit will be enough to get the deal done. In theory, the strategy would allow the hedge funds to cash out at prices of 40 cents and beyond when bonds rally in the aftermath.

Buying Greek bonds on the cheap has become one of the more popular trades of late in Europe. Hedge funds like Third Point, Brevan Howard, Greylock and others have accumulated significant amounts of the debt.

With the voluntary buyback deal in question, bankers are contemplating the use of sophisticated legal stratagems that could force investors to sell out at much lower prices.

One possibility would be for the government to buy back as much debt as it can at current prices. Then Greece would come back with another lower offer; as long as two thirds of investors agree to the deal, collective action clauses would kick in, forcing reluctant investors to accept the government’s terms. Reaching that percentage would be easier, bankers say, as this time more of the bonds would be in friendly hands and would vote accept the offer.

Legal experts have also pointed out potential loopholes in the contracts of the restructured bonds that would — if push came to shove — allow Greece to keep current on its bond payments to European governments while forcing private sector creditors to take a loss.

In a further reminder of Greece’s tenuous financial position, Standard and Poor’s lowered its rating for Greek debt to selective default in a response to the buyback action. The rating agency said that when the buyback is finished, Greece’s rating would return to its higher CCC level. Any move, however, by the country to deploy more forceful measures l would most likely result in Greek bonds keeping a selective default rating.

“I am shocked that hedge funds are taking this so lightly,” said a person with knowledge of the buyback discussions who spoke on condition of anonymity. “There is an 80 percent chance that the I.M.F. will walk if this deal does not work — these guys have become their own worst enemy.”

In a deal this sensitive and crucial, there is always a fair amount of chest puffing as opposite sides push for the best possible outcome. The threat by hedge funds to not participate may well be a bluff to force Greece to up its price. Greece, on the other hand, has little to gain by forcing a bad deal on foreign investors at a time when it is relying on them to drive the privatization process.

But, as in all games of chicken, the risk of collision — or, in this case, a botched deal that results in Greece not getting its desperately needed money — is never all that far away.

DealBook: Citigroup Investors Hope for Clarity on Bank’s Path, Quickly

Jemal Countess/Getty Images for TimeVikram Pandit did not overhaul Citibank fast enough, or aggressively enough, in many investors’ eyes.

As Michael L. Corbat takes up the reins at Citigroup, analysts and investors have a message for him: Shrink your bank fast, and be a lot more transparent as you do so.

Mr. Corbat takes over from Vikram S. Pandit as chief executive of Citigroup four difficult years after the financial crisis. In that period, Mr. Pandit steadied the banking behemoth and tried to focus Citi on the businesses he felt it could do best in. But, increasingly, many investors felt Citi’s overhaul wasn’t bold or quick enough.

“Citigroup has acted as if it’s too big to care,” said Mike Mayo, an analyst with CLSA, a brokerage firm. “That means that they are too big to be sensitive to shareholder concerns.”

Dissatisfaction with Citigroup’s progress motivated shareholders to vote against a $15 million pay package for Mr. Pandit in April. That vote came soon after the Federal Reserve turned down Citigroup’s plans to pay out capital to shareholders, a stinging indication that regulators still weren’t comfortable with the bank.

Since those expressions of discontent, Citigroup’s shares are sharply higher, though they are still down 89 percent since Mr. Pandit took over in December 2007. The stock trades at a pitiful valuation, reflecting two dominant views in the markets: Citigroup’s transformation has a long way to go, and its financial statements can be opaque.

The New York Times

Though relatively unknown to shareholders, Mr. Corbat starts with a reputation as an assiduous executive with a deep knowledge of Citigroup, where he has worked for nearly 30 years. He even got good reviews from people who have been skeptical about Citigroup and its management. Sheila C. Bair, the former head of the Federal Deposit Insurance Corporation, who clashed with Mr. Pandit, knew Mr. Corbat from interactions during the financial crisis.

“He was involved in several meetings with us,” said Ms. Bair, adding, “He was prepared and he knew his stuff.”

Now, some analysts believe Mr. Corbat could open the door to more radical moves at Citigroup.

“I think this is a real, long-term positive for Citi,” said Gerard Cassidy, a banking analyst with RBC Capital Markets.

Still, Mr. Corbat may have to impress quickly, given the pent-up frustrations among shareholders. His first public conference call as chief executive on Tuesday was not encouraging on that front. He seemed to disappoint analysts who wanted to hear Mr. Corbat express a greater desire to change things. Instead, he said, “Today’s changes do not alter the strategic direction of Citi, which we believe is a good one.”

In a memo to employees on Tuesday, Mr. Corbat sounded more emphatic. He wrote, “We must deliver sustained profitability, improved operating efficiency and shareholder returns.”

Part of Mr. Corbat’s job will be getting more out of Citigroup’s best-performing operations. Many of its international lending businesses do consistently well, and he may look for ways to make sure investors give greater recognition to this strength.

One idea may be to sell minority stakes in those operations in foreign stock markets, something that Spanish bank Santander has done recently with its Mexican unit. If those shares perform well, it would highlight the value in those businesses and perhaps lift Citigroup’s stock. Asked about this idea Tuesday, Mr. Corbat said, “I’ll look at those things and see what the numbers say.”

The burning question, though, is whether he has the resolve to get out of businesses that the bank doesn’t excel in, even if the near-term costs are high. Mr. Cassidy, the analyst, said Mr. Corbat should sell any business line that could not achieve the sort of returns that shareholders expected. Citigroup’s chairman, Michael E. O’Neill, aggressively reduced the size of Bank of Hawaii when he led it.

“He shrunk that bank by 30 percent; that’s what Citi has to do,” Mr. Cassidy said.

In particular, some investors would like Citigroup to be quicker about selling assets in Citi Holdings, the bad bank that Citigroup set up for its unwanted and loss-making assets. Mr. Corbat ran Citi Holdings until the end of last year. Faster sales might mean Citigroup would not get the best price possible for the $171 billion in assets in Citi Holdings. That could lead to higher losses when sales took place.

But selling assets more quickly could free up the capital the bank holds there. In turn, that could lead to a big improvement in Citigroup’s regulatory capital ratios, which investors watch very closely. Banks that can show they have little trouble meeting such ratios often get better valuations on their shares.

Citigroup’s investment bank is the other obvious target for shrinkage. Right now, it is enormous. The “securities and banking” division at Citigroup has $903 billion of assets. That’s only slightly less than Goldman Sachs’s assets. And Citi’s investment bank’s revenue has been uneven since the financial crisis.

The unit is also seen as a black box, something Mr. Corbat will have to tackle if he wants to regain investors’ confidence, analysts say. Citigroup’s disclosures aren’t as detailed as those of some other banks. For instance, each quarter, Goldman Sachs releases a critical number that shows how much profit it makes on its capital.

But Citigroup doesn’t do that for its investment bank; it simply doesn’t tell outsiders how much capital it has deployed in that unit. As a result, it could be making unproductive investments in Wall Street operations without shareholders knowing. This could be true in other business lines, as well.

The quandary for Mr. Corbat may be that, if he increases disclosure, investors may balk at any alarming numbers and dump the stock. Even so, he may have to risk that outcome.

“They have to open up the kimono,” Mr. Cassidy said.

Perhaps Mr. Corbat will become Citigroup’s quiet revolutionary, a leader who is prepared to make bold moves to win over, and win back, shareholders. He did offer up one button-down remark Tuesday that could provide a tidbit of hope to shareholders who are relying on him to redouble Citigroup’s remodeling. “I wouldn’t minimize the impact you can have on a place,” he said.

DealBook: Max Berger, Investors' Billion-Dollar Fraud Fighter

Tina Fineberg for The New York TimesMax Berger’s firm has represented investors in five of the 10 largest securities-fraud recoveries.

A few days after securing the largest shareholder recovery arising from the financial crisis — $2.43 billion from Bank of America — the plaintiffs’ lawyer Max W. Berger was not taking a victory lap.

“It makes me sad that in all of these scandals, no matter how good a job we do of getting results and inflicting pain, the government doesn’t seem to follow suit, and nobody learns, and it’s business as usual,” he said in an interview.

After a pregnant pause, Mr. Berger broke into a sly smile. He had another thought: “It gives us a lot of business, but it still makes me sad.”

With last month’s settlement with Bank of America, which resolved claims that the bank had misled shareholders about its acquisition of an ailing Merrill Lynch, Mr. Berger, 66, has now been responsible for six securities class-action settlements of more than $1 billion. His firm, Bernstein Litowitz Berger & Grossmann, based in Manhattan, has represented investors in five of the 10 largest securities-fraud recoveries. So far, it has recovered $4.5 billion for investors in cases connected to the subprime mortgage collapse.

“He is unquestionably one the giants of the plaintiffs’ bar,” said Brad S. Karp, the managing partner at Paul, Weiss, Rifkind, Wharton & Garrison, who represented Bank of America and has faced off against Mr. Berger in several other cases. “And what sets Max apart, beyond his talents as a lawyer, is that he’s a mensch, a person of real humility and integrity.”

There was a time, not too long ago, when the lions of the securities class-action bar were described in far less flattering terms. For decades, Melvyn I. Weiss and William S. Lerach, a pair of brash, crafty plaintiffs’ lawyers, dominated this lucrative pocket of the legal industry. Their firm, Milberg Weiss, revolutionized shareholder class-action suits by filing streams of cases against corporations, accusing them of accounting fraud. Critics called their aggressive tactics legalized blackmail. Congress passed laws aimed at reining in their practices.

The careers of Mr. Weiss and Mr. Lerach ended in disgrace in 2006, when their firm was indicted on charges that it had funneled illegal kickbacks to clients to induce them to sue. Mr. Weiss, Mr. Lerach and two other Milberg Weiss partners ultimately served prison terms. (It did not help the standing of the plaintiffs’ bar that at about the same time, Richard F. Scruggs, the Mississippi class-action lawyer, was imprisoned for trying to bribe a judge.)

“To be tarred by those brushes was very upsetting, but it was even worse to have everyone presume that we operated in the same way,” Mr. Berger said. “After they were charged, I can’t tell you how many people said, ‘Well, isn’t that what all of you do?’ “

Yet a half-decade after Milberg’s downfall, there has been a shift in the public image and reputation of the securities class-action bar. The Bank of America settlement, which is still subject to judicial approval, comes at a moment when plaintiffs’ lawyers are being praised for extracting stiff penalties from banks related to their actions during the housing boom and the subsequent economic collapse. At the same time, resource-constrained government regulators have been criticized for not being tough enough.

In several cases, private plaintiffs have settled lawsuits for amounts far greater than the government received in similar actions. Bank of America, for instance, paid the Securities and Exchange Commission just $150 million to settle the commission’s lawsuit connected to the Merrill acquisition. Judge Jed S. Rakoff reluctantly approved the S.E.C. settlement, calling it “inadequate and misguided” and the dollar amount “paltry.”

“The securities class-action bar has come under relentless assault over the years,” said J. Robert Brown Jr., a corporate law professor at the University of Denver. “Yet these suits, especially the ones tied to the financial crisis, actually have had real value in the capital markets because companies need to know that there is a heavy price to pay for their misconduct.”

There are still detractors who scoff at that notion. These critics view securities class-action lawyers as bounty hunters who file nuisance lawsuits against deep-pocketed targets and then force them to settle rather than engage in costly litigation. They argue that the settlements have little deterrent effect because the payments almost always come from the corporations, not the executives and directors running the companies.

And questions have arisen over plaintiffs’ lawyers’ campaign contributions to local politicians who control the selection of legal counsel for shareholder lawsuits filed by public pension funds.

But even the most vocal opponents of securities-fraud class actions acknowledge that a variety of factors, including a combination of federal legislation and court rulings, have curbed abuses in the system. Many of the weakest cases are now thrown out earlier, and large institutional shareholders like state pension funds and insurance companies have taken greater control of the lawsuits.

They are also reining in the lawyers’ fees. In the past, plaintiffs’ lawyers received 20 percent to one-third of the settlement amount. Today the average fee award as a percentage of the recovery is much lower. In Bank of America, for example, Bernstein Litowitz and two other firms — Kessler Topaz Meltzer & Check and Kaplan Fox & Kilsheimer — are expected to ask for about $150 million, or 6 percent of the settlement.

“Things have definitely improved,” said Theodore H. Frank, an adjunct fellow at the Manhattan Institute and a longtime critic of abusive class actions. “Is it perfect? No. Is it better? Yes.”

Legal experts say the class actions filed after the financial crisis highlight the improvements. The lawsuits were far more risky and complex than the template “strike suits” that plaintiffs’ firms once churned out every time a company’s share price plummeted. And unlike large corporate scandals like Enron or WorldCom, there were no balance-sheet restatements or criminal convictions to use as evidence.

“We never viewed these cases as easy but felt we needed to be in them in a big way, so we really doubled down,” Mr. Berger said.

Bernstein Litowitz’s recent settlements read like a who’s who of the “too big to fail” era. Wachovia and its auditor paid its bondholders $627 million to resolve charges related to its mortgage holdings. Merrill Lynch settled claims that it had misled buyers of mortgage products for $315 million. Lehman Brothers’ underwriters paid $426 million to end a lawsuit over its stock sales. Washington Mutual’s underwriters and insurers paid $205 million to investors in the now-collapsed bank.

The big mortgage-related settlements are expected to add up to hundreds of millions in fees for Bernstein Litowitz, a 52-lawyer firm. Mr. Berger and his three founding partners started the firm in 1983 after splitting off from Kreindler & Kreindler, a plaintiffs’ firm best known for its aviation-disaster litigation.

The Bank of America settlement is a boon for the firm, ending nearly four years of bruising litigation and coming less than a month before it was set for trial. The lawsuit accused Bank of America of concealing from its shareholders, who were voting on the Merrill acquisition, the billions of dollars in mounting losses at Merrill, as well as billions in bonuses being paid out to Merrill executives.

Bernstein Litowitz and two other firms represented five plaintiffs: two Ohio pension funds, a Texas pension fund and two European pensions. Working with Mr. Berger on the case were his partners Mark Lebovitch, Hannah Ross and Steven B. Singer.

“This case will now serve as Exhibit A for corporate directors tempted to withhold information from shareholders,” Mr. Berger said. “The message isn’t complicated: Just tell the truth.”

New matters, meanwhile, are coming in. Bernstein Litowitz was appointed lead plaintiffs’ counsel in a lawsuit against JPMorgan Chase related to the bank’s multibillion-dollar trading loss out of a unit in London. And it is involved in the litigation against Facebook and Morgan Stanley over the social networking company’s botched initial public offering of stock.

Mr. Berger said finding cases had rarely been a problem.

“I can’t predict the next scandal,” Mr. Berger said. “But I know that fraud is a growth industry, and so is greed.”

Greece Seeks Taxes From Investors in London Property

Real estate agents recall sifting the listings for some of the most prestigious, and expensive, properties in South Kensington, a favored area for London’s international set.

But the house hunter, Lavrentis Lavrentiadis, never made a purchase in the spring of 2011, agents say. Within months his failing institution, a small lender known as Proton Bank, was seized. The Greek government, suspecting that Mr. Lavrentiadis may have moved money out of the country, is now investigating his activities to determine whether he engaged in fraud and money laundering.

Greece, heavily in debt and desperate to track down money wherever it can, is leaving no stone unturned.

Mr. Lavrentiadis has denied the accusations, and his lawyer did not respond to questions about any interest his client might have had in London properties. But the Greek banker’s rumored flirtation with this city’s prime real estate market, and the frenzy it stirred among sales agents, is telling.

At the request of the Athens government, the British financial authorities recently handed over a detailed list of about 400 Greek individuals who have bought and sold London properties since 2009.

The list, closely guarded, has not been publicly disclosed. But Greek officials are examining it to determine whether the people named — who they say include prominent businessmen, bankers, shipping tycoons and professional athletes — have deceived the tax authorities by understating their wealth.

“These people have money and they are known — but it is not clear yet if they have violated any laws,” said Haris Theoharis, an official in the Greek Finance Ministry. Tax investigators have been examining the list to see whether there is any overlap between those who bought London properties and those already identified as being tax cheats.

The Greek government, under pressure from its international lenders to raise 13.5 billion euros ($17.4 billion) through tax increases and spending cuts, is intent on making the well-heeled share the burden. Studies have shown that the country may be forgoing as much as 30 billion euros a year in uncollected taxes, with a significant portion of that amount having been shipped out of the country as the affluent seek shelter from Greece’s financial storm.

This week, the government of Prime Minister Antonis Samaras opened an investigation into the bank accounts of more than 30 Greek politicians to determine whether they should be charged with tax evasion and the illegal accumulation of wealth.

The politicians on the list included the president of the Greek Parliament, Evangelos Meimarakis, creating an embarrassing distraction for Mr. Samaras’s coalition government. Mr. Meimarakis is a former defense minister who has also been implicated in accusations concerning a money-laundering network said to involve two other former ministers.

London, long a magnet for foreign real estate investors, has become a special focus for Greek officials trying to track down money taken from the country.

Bankers say that accounts in Singapore and even in the country of Georgia have become favorite destinations for fleeing funds, more so than the traditional haven of Switzerland, because the looser rules and regulations of those countries about accepting large sums of foreign money. But while Singapore and Switzerland have been reluctant to divulge information about its Greek clientele, the British government has been more cooperative in sharing its real estate records.

There is an air of desperation to this Athens fund-raising drive, which includes leasing out empty Greek islands and even putting up for sale the former residence of the Greek consul general in the tony London neighborhood of Holland Park. But with Greece’s membership in the euro at stake, every conceivable revenue-raising strategy is being pursued, even if it remains unclear how successful it will be.