DealBook: A Stock Exchange Expands Its Global Reach

Off the Charts: A Surprising Reversal for Emerging Stock Markets

There have been sharp falls this month in several markets, from India to Turkey, reflecting concerns about weakening currencies. But even before those declines, emerging markets were underperforming relative to developed markets to an extent not seen since the Asian currency crisis of the late 1990s.

As can be seen in the accompanying charts, the MSCI Emerging Market Index is down more than 10 percent this year, while the world index, covering all developed markets, is up an equivalent amount.

That disparity is not caused by one or two exceptional performers. The charts list the 10 largest emerging markets, as measured by the market capitalization of their stocks. Each has lost money this year. Among the 10 largest developed countries, all but two markets are up for the year, measured in United States dollars to adjust for currency fluctuations. The exceptions are Australia and Canada, which came through the financial crisis relatively well and until recently had been prospering from exports of raw materials to emerging markets, particularly China. And both of them are up when measured in local currencies.

The use of dollar figures hurts the reported performance of some emerging markets. The South African and Malaysian markets are up a little for the year, measured in local currencies, but down when measured in dollars. In India and Brazil, the local-currency market declines are less than half as large as the dollar-based figures shown.

The Asian financial crisis, in which developing countries that had maintained fixed exchange rates were forced to abruptly devalue their currencies, turned out to have a lasting effect. Countries decided that it was critical to run balance of payments surpluses and to build up foreign currency reserves. The willingness of the United States and Europe to run large deficits helped.

That stood the developing countries in good stead when the credit crisis erupted in 2008, but afterward, it became harder for the developing countries. Srinivas Thiruvadanthai, the director of research at the Jerome Levy Forecasting Center, notes that some of them, including India, Brazil and South Africa, are now running substantial deficits.

The world as a whole cannot, of course, have a surplus or deficit in its balance of payments. And last year the European Union ran its first annual surplus in more than a decade, while the deficit in the United States has declined.

After the Asian crisis, emerging markets did very well. The MSCI Emerging Markets Index, shown in the chart, outperformed the MSCI World Index in every year from 2001 through 2007. It did worse in 2008, when all markets crumbled, but again did better in 2009 and 2010 as it became clear that emerging markets had fared much better than developed economies.

For the decade from the end of 2000 through the end of 2010, the developed market index rose a scant 5 percent. The emerging markets index more than tripled during the same period. Since then, however, the developed markets have risen nearly 20 percent, while the emerging ones have fallen about the same amount.

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

Priceline Stock Flirts With Historic $1,000 Mark

NEW YORK — Priceline.com came close Friday to becoming the first stock in the Standard & Poor's 500 index to cross $1,000.

Investors jumped onboard after the travel booking company reported better than expected second-quarter earnings. The stock rose to almost $995 before leveling off. The stock closed at $969.89.

The company's stock hasn't been this high since it had an adjusted closing price of $974.27 on April 30, 1999, a month after going public in the heady days of the dotcom boom. The stock dropped below $10 just two years later.

Online travel sites like Priceline, Expedia and Orbitz have their roots in booking airline tickets, but have branched out because of a decline in commissions the airlines pay them. Priceline has been the most aggressive and successful in diversifying through several company-owned sites including Booking.com, Agoda, and Rentalcars.com.

Priceline got its start asking travelers to "Name Your Own Price" and bid on flights, hotel rooms and car rentals. Bidders didn't know in advance what hotel or flight they would be on, and the booking was non-refundable, but the savviest could save substantially as travel providers tried to fill unused rooms, cars or seats on planes. The company hired William Shatner as its pitchman, calling him "the negotiator." Priceline still offers its bidding service but has mostly shifted to more traditional bookings and travel packages.

The key to its success in the last quarter was overseas hotel markets. Domestic bookings grew at a respectable 12 percent in the second quarter, but international growth was red-hot, up 44 percent from last year.

The number of hotels that list their properties on the booking sites is growing. Booking.com now has 330,000 hotel properties, up from 295,000 reported last quarter, many of them added in Europe and Asia. The Norwalk, Conn. company is paid a commission for each room sold.

The number of rental car days booked from rentalcars.com and Priceline.com also grew at an impressive 46 percent.

The company also spent heavily on advertising, increasing its online budget by 47 percent.

Profit in the April-to-June quarter rose 24 percent to $437.3 million, or $8.39 per share, compared with the same quarter a year ago. Excluding one-time items such as acquisition costs and expenses related to paying employees with stock, earnings came to $9.70 per share.

Revenue rose 27 percent, to $1.68 billion, from $1.33 billion.

Analysts, on average, were expecting profit of $9.38 per share on revenue of $1.65 billion, according to FactSet.

In May, Priceline completed the purchase of search and booking site Kayak for in a $1.8 billion in cash and stock. Analysts predict that deal will eventually help drive more travelers to its other sites to make bookings.

"We believe that Priceline's market share gains will continue given its best-in-class hotel inventory, while the likely deployment of Kayak in more international geographies should open further avenues for growth over the next 12-18 months," Cantor Fitzgerald analysts Naved Khan, Youssef Squali and Kip Paulson wrote in a note to investors late Thursday.

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Scott Mayerowitz can be reached at http://twitter.com/GlobeTrotScott.

Google Settles Suit, Clearing Way for Stock Split

SAN FRANCISCO — Google has resolved a shareholder lawsuit blocking a long-delayed stock split, clearing the way for the Internet search leader to issue a new class of non-voting shares later this year.

The settlement announced Monday came on the eve of a scheduled Delaware chancery court trial that threatened to cast an unflattering light on Google co-founders Larry Page and Sergey Brin.

The class-action by the Brockton Retirement Board in Massachusetts and another Google shareholder, Philip Skidmore, alleged that Page and Brin engineered the stock split in a way that unfairly benefits them while shortchanging the rest of the company's shareholders.

Google denied the allegations and maintained that the proposed stock split announced 14 months ago would benefit shareholders by ensuring that Page and Brin would preserve the power that has enabled them to make the same kinds of bold bets on technology that has helped increase the company's market value by more than $260 billion during the past nine years.

The split calls for a new class of "C'' stock with no voting power to be issued for each share of an existing category of "A'' voting stock. The structure is designed to ensure that Page and Brin retain control over the company, even though they only currently own about 15 percent of Google's outstanding stock, combined.

Page, Google's CEO, and Brin, an executive who oversees special projects in the company's secret X Lab, hold 56 percent of Google's voting power through a "B'' class of stock that gives them 10 votes per share. By creating a new class of non-voting shares, Google will be able to keep rewarding other employees with more stock and financing potential acquisitions of stock without undermining the voting power of Page and Brin.

The co-founders began pushing for the stock split three years ago, according to court and regulatory documents. Google shareholders approved the split a year ago, but the lawsuit had prevented the company from issuing the new shares.

The settlement still requires final court approval after shareholders have an opportunity to file any further objections. That means it will be at least several more weeks before the split can occur.

The legal truce will require Google Inc. to compensate owners of the new class of if stock if it's worth less than the existing class of stock after one year of trading. If the Class C stock is one percent to five percent below the price of the Class A shares, investors will receive a fraction of the difference in cash or additional Google stock. The maximum payments will be made if Class C stock lags the Class A price by five percent or more.

Google's Class A shares rose $11.21 Monday to close at $886.25. Based on that price, the Class C stock would have to be trading at $841.94 or lower to receive the maximum payment outlined in the settlement. In this scenario, the Class C stockholders would receive $44.31 per share.

If the split takes place, the trading price of Google's stock will probably fall dramatically to reflect a nearly doubling in outstanding shares. Google is expected to issue more than 271 million C shares, based on how many Class A shares were outstanding as of April 18.

Google, which is based in Mountain View, Calif., is betting there won't be a substantial gap between the trading prices of the Class A and Class C shares because investors backing the company have always known Page and Brin had the power to trump all other shareholders. That arrangement seems to have worked out well, given that Google's A shares have risen 10-fold from their initial public offering price of $85.

Another provision of the settlement requires Google's board to do a special review assessing how Class A shareholders will be affected if a future company acquisition is financed with more than 10 million shares of Class C stock.

DealBook: In Stock Offering, Coty Seeks Up to $1 Billion

Dimitrios Kambouris/Getty Images for CotyCoty makes several celebrity-branded perfumes, including one by Katy Perry.

Coty sees plenty of investor appetite for celebrity-branded cosmetics, disclosing on Tuesday that it was hoping to raise as much as $1 billion from its forthcoming initial public offering.

It now plans to sell 57.1 million shares at $16.50 to $18.50 apiece, according to an amended prospectus filed on Tuesday. At the midpoint of that range, the company would be valued at about $6.7 billion.

The new filing suggests Coty is one step closer to becoming a publicly traded company, a year after it tried and failed to buy its much bigger rival, Avon Products. Despite having the backing of its wealthy parent, the German conglomerate Joh. A. Benckiser, and Berkshire Hathaway, Coty was unable to coax the embattled Avon into a deal.

Days after withdrawing its bid, Coty filed for an initial public offering, but whipsawing markets kept the sale on ice until the recent boom in stock prices.

Over its 108 years, Coty has grown from perfumes into a global purveyor of fragrances and high-end nail polishes, with products endorsed by the likes of Beyoncé, Sarah Jessica Parker and Jennifer Lopez. It has posted three years of consecutive sales growth, reporting $4.6 billion in revenue last year.

The company reported only a tiny rise in revenue growth for the nine months ended March 31, at $3.59 billion. But profit has jumped considerably in that period: Coty earned $258.1 million, up more than fourfold from the period a year earlier.

All shares being sold in the offering will come from Coty’s three main shareholders: Joh. A. Benckiser, the main investment vehicle of Germany’s wealthy Reimann family, and the investment firms Berkshire Partners and Rhone Capital.

The offering is being led by Bank of America Merrill Lynch, JPMorgan Chase and Morgan Stanley.

Bits Blog: For Zuckerberg, a Big Payout From Facebook Stock

Paul Sakuma/Associated Press Mark Zuckerberg, Facebook’s co-founder and chief executive.

Facebook shares may have been on a roller coaster ride in the year since they made their debut on Wall Street, but they haven’t been too shabby for its top executives. Mark Zuckerberg exercised stock options worth $2.3 billion, according to a proxy statement filed with the Securities and Exchange Commission late Friday — and sold about half, to cover his tax bill.

Sheryl Sandberg, the company’s chief operating officer, retained her spot as the company’s best-paid executive for two consecutive years. She received total compensation of about $26 million in 2012, down slightly from nearly $31 million the year before.

Mike Schroepfer, the engineering chief of the company, had almost $21 million in compensation, while Mr. Zuckerberg claimed a far more modest package of just under $2 million last year.

The proxy statement reported that Mr. Zuckerberg had spent $1.2 million on chartered aircraft for his personal travel.

Ms. Sandberg had vested stocks worth over $820 million, while David A. Ebersman, who as chief financial officer led the company’s public offering in May, had vested options worth just over $100 million.

Facebook came out of the box in May at $38 a share, and its value sank sharply over the next several months. It closed on Friday at $26.85.

The company also announced that Jim Breyer of Accel Partners, an early investor who personally made more than $100 million from his sale of Facebook stock, was leaving the board. He was one of the most prescient venture capitalists to back Facebook and had served as a director since 2005. He was recently elected a fellow of the Harvard Corporation, a governing board of the university.

DealBook: London Stock Exchange Revises Offer for Clearinghouse

LONDON — The London Stock Exchange Group said on Monday that it had revised the terms of its takeover proposal for LCH.Clearnet, citing the changing regulatory environment.

The London Stock Exchange provisionally agreed to pay 15 euros, or $20, a share for 60 percent of LCH.Clearnet, independent clearinghouse for financial transactions. In March, the London bourse offered 19 euros a share, plus 1 euro per share as a special dividend to be paid in five years.

The companies said the changes followed discussions over coming regulation that could force the LCH to raise more capital and crimp profits. European regulators have been proposing stricter rules for clearinghouses to safeguard their operations, forcing them to increase their reserves.

Like rivals, the London Stock Exchange has looked to deals in the face of increasing competition and weakness in its core equity business. With LCH, the London exchange may benefit from regulatory changes, capturing the increasing volume of over-the-counter derivatives that will move to clearinghouses. The stock exchange currently outsources clearing activities to LCH.

Such businesses have been especially attractive in the current conditions. Last week, the IntercontinentalExchange agreed to pay $8.2 billion for NYSE Euronext to create a trans-Atlantic trading giant with a major focus on derivatives.

Under the revised plan, the London Stock Exchange would pay 14 euros per LCH.Clearnet share on completion of the transaction and 1 euro per share in 2017, which would replace the special dividend, the two companies said. Both payments would be in cash. The firms also agreed on extending their takeover negotiations until Jan. 31 to finalize the details of the offer.

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DealBook: In Stock Market Rebound, a Windfall for Wall St. Executives

Harry Campbell

Some four years after the financial crisis, many are still feeling the ill effects. But big bank executives are not among this unfortunate group, compensation data shows.

The executives who headed financial institutions in those uncertain times of early 2009, when markets and banks were being supported by the federal government, are now in line to receive windfall compensation in the hundreds of millions of dollars.

What did they do to deserve such a reward? It’s hard to justify and it goes a long way toward explaining the persistent anger toward Wall Street. And we have the government partly to blame for it.

A large part of the reason is simply lucky timing.

In the depths of the financial crisis in 2008 and 20009, when the Standard & Poor’s 500-stock index was touching below 700, bank executives were granted millions in options and stock incentives valued at incredibly low stock prices. The banks were encouraged to offer this compensation because of the restrictions in the Troubled Asset Relief Program, which in many circumstances prohibited the payment of bonuses other than in long-term restricted stock. As a result, companies awarded more equity than they otherwise would have at the time.

Since then, the stock market has returned to near the level it was before the financial crisis, making those options and stock very valuable.

To determine how large the windfall is, I asked Equilar, an executive compensation data firm, to compile the value of stock and options granted to the top five executives at each of the 18 largest American financial institutions — those that underwent stress tests in those years. (Ally Bank also received a stress test but was excluded because it was not public at the time). I also asked Equilar to determine what the packages were worth now, assuming the executives had held on to the stock and options.

It’s a stupendous amount.

The top executives at those 18 financial institutions received an aggregate of $142 million in stock and options from July 1, 2008, to June 30, 2009. It was a lot then, but these stock and options are now worth $457 million, an increase of $330 million, or 221 percent. On average, that is roughly $4 million per executive who received such compensation.

Individually, some of the gains are even more breathtaking. Take American Express and its chief executive, Kenneth I. Chenault. In 2007, before the financial crisis, American Express was trading for years at $50 to $60. Then the crisis hit, and in six months the stock fell below $10 a share.

In January 2009, American Express granted its top five executives stock options with a strike price of $16.71, which Equilar values at $7.63 million. According to American Express’s public disclosure, Mr. Chenault received the largest grant of 1,196,888 options.

American Express stock is now back to about $57 a share. And that equity package is up 1,097 percent and valued at $91.36 million. Mr. Chenault’s option package alone is now valued at almost $50 million.

That’s a nice payday. Can anyone argue that it is owed to the executive’s performance rather than to a recovery in the stock market?

American Express did not respond to requests for comment.

The biggest dollar winners are the executives of Capital One. According to Equilar, the credit card company’s top five executives received an incentive pay package granted in 2009 valued at $19.9 million. The package is now worth $114 million. The reason for the huge compensation package: Capital One’s options were granted at a price of $18.28 during the financial crisis. . Yet, Capital One’s stock price is trading at almost $60 a share, below its precrisis price of around $80.

A Capital One spokesman said that the compensation was justified because Capital One “delivered solid results in 2009.” The spokesman added that Equilar’s figures did not account for the fact that some Capital One executives had already exercised their options. According to Capital One, if these exercises were taken into account, the package’s value would be $87 million instead, still a fantastic amount.

All told, eight of these 18 firms, including Wells Fargo and SunTrust banks, gave executive pay packages during the financial crisis that are now more than 200 percent higher in value. Four of these financial institutions — BB&T, U.S. Bancorp, Capital One and American Express — awarded pay packages that are up more than 400 percent. Almost all of this value is attributable simply to the stock market’s recovery.

And some of these packages reward what frankly appears to be poor performance. The top five executives of Fifth Third Bancorp received a pay package that is now 253 percent higher in value despite Fifth Third’s stock being about a third its precrisis value.

How could this happen, you may ask?

The bank executives who stood to make the most were those who were paid more in options than in stock. Options provide greater gains when the stock goes up and so are increasingly in disfavor. For example, Equilar calculates that the options granted to the Capital One executives are up 838 percent, or almost $70 million, while the stock component is up only 212 percent, or about $25 million. You won’t be surprised to hear that American Express’s total 2009 incentive compensation was paid all in options.

Another explanation is that many of the financial institutions did not adjust the dollar amount of their financial compensation paid that year to take into account the stock market drop. In other words, the banks paid the same dollar amounts but had to grant more options and stock to meet this number because of the low price.

If you are shaking your head, you should know that these numbers are only for the top five executives at these companies. Lower-ranked employees who received equity compensation, which is largely undisclosed, may have also received such a windfall.

Indeed, The New York Times reported in 2010 that the partners and employees of Goldman Sachs had received a substantial equity grant of 36 million stock options during the financial crisis. And of course, this excess compensation was awarded at many other, smaller banks.

Taken together, this is a sobering view of executive compensation. It shows how compensation can have little to do with performance and more with stock market movements and the luck of having options granted instead of less valuable stock. More tellingly, it also shows how the government most likely enriched financial executives by pushing banks to award more equity compensation through TARP than they otherwise would have.

The sad thing is that these executives were compensated not because of the work they did at their firms, but because of a lucky rise in the stock market. It is anything but pay for performance. And yes, if the financial crisis had not occurred, they were likely to have been much poorer otherwise. It’s no wonder Main Street is still seething.

Equilar Analysis of 18 TARP Bank Equity Grants JPMorgan Chase plans to disclose part of the total losses on a bungled trade.

CURRENT VALUEGRANT-DATE VALUE% CHG.CURRENT VALUEGRANT-DATE VALUE% CHG.CURRENT VALUEGRANT-DATE VALUE% CHG.Includes all grants made between July 1, 2008 and June 30, 2009.

BlackBerry Maker Posts a Loss, but Stock Jumps in After-Hours Trading

Without naming the rivals to the BlackBerry 10 phone, Thorsten Heins, the company’s president and chief executive, acknowledged that Apple’s iPhone 5, new smartphones running Google’s Android operating system and Windows Phones will make life even more of a struggle for RIM before its rollout.

“There’s many new products coming in so the market is going to get tougher, more challenging,” Mr. Heins told analysts in a conference call Thursday, adding that that will most likely force RIM to cut prices further.

After twice delaying the BlackBerry 10, the company has promised to deliver the smartphone sometime next year.

Many analysts had expected nothing but bad financial news for the quarter long before Thursday. “The street is largely giving RIM a pass on this quarter as it readies the important BlackBerry 10 launch,” said Bill Kreher, an analyst at Edward Jones. “The fact of the matter is that the company has really placed all its bets on BlackBerry 10.”

There was no concealing how far RIM’s fortunes had declined. Its net loss for the second fiscal quarter, which ended Sept. 1, was $235 million — better than the $518 million loss in the previous quarter, but a steep fall from the net income of $329 million in the same quarter a year earlier. Shipments of BlackBerrys last quarter were 7.4 million, compared with 10.6 million a year earlier.

The company said revenue in the most recent quarter was $2.9 billion, up from $2.8 billion in the first quarter though down 31 percent from $4.2 billion a year ago. Analysts had expected a far steeper year-on-year drop in revenue of 41 percent and some feared that the company had dipped into its cash holdings. But RIM actually increased its cash thanks to sharp cost-cutting.

As a result, RIM’s stock jumped more than 20 percent in after-hours trading. In the regular session, before its announcement, it closed at $7.14 a share. RIM’s shares have been as high as $24.74 over the last year.

Several analysts said they were now focused on next year. The new smartphones will be based on a new and more sophisticated operating system and are promised for the first calendar quarter of next year.

“I don’t think anything good can come out until they release BB 10, aside from selling the company or something else in the strategic review,” said Peter Misek, an analyst with Jefferies & Company.

But Shaw Wu, an analyst at Sterne Agee, said the dominance of Apple and Android had closed the window of opportunity for RIM’s BlackBerry 10 strategy and turned the company’s last great hope into its biggest problem.

“It’s about survival now, it’s not about BlackBerry 10,” said Mr. Wu, who is based in San Francisco. “That’s almost secondary. The battle now is staying alive and looking after your current customers. It’s not really clear that their core customers are looking for BlackBerry 10.”

Unless BlackBerry 10 is an exceptional hit, which is far from certain, Mr. Wu said that RIM might be able to continue for only one or two more years. Some analysts had expected that the company would report that subscriber growth had stalled. At a developers’ conference earlier this week, Mr. Heins  said that the number of BlackBerry users had instead grown to 80 million, up from 78 million.

Unlike other smartphone makers, RIM continues to directly profit from every active BlackBerry handset long after its sale. RIM receives monthly subscription fees from carriers for every BlackBerry in exchange for routing the phone’s data through its own, closed network. Under normal conditions, the network allows RIM to provide high security for corporate and government users and it reduces the amount of wireless data consumed by all BlackBerrys.

But it became apparent in the conference call that growth was driven by sales in markets like South Africa and Indonesia where prices and service revenue are low.

“They’re pushing the subscriber base up by offsetting the loss of very high-value customers in markets where it’s critical to build momentum now,” said Charles S. Golvin, an analyst at Forrester Research. “It’s a matter of the market getting away from them.”