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GLOBAL FINANCE C3 | MARKETS DASHBOARD C5 | BIGGEST 1,000 STOCKS C7
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DJIA 16695.47 À 112.13 0.68% S&P 1896.65 À 0.97%
CEO Pay:
Bank Size
Trumps
Results
THE STREET C10
THE WALL STREET JOURNAL.
****
NASDAQ 4143.86 À 1.77%
10–YR. TREAS. g 10/32, yield 2.657%
Tuesday, May 13, 2014 | C1
OIL $100.59 À $0.60 EURO $1.3757 YEN 102.12
Blue Chips and S&P 500 Hit New Highs
As Beaten-Down Shares Mount a Rally
Total shareholder return since 2010*
Wells Fargo
100%
State Street
58
J.P. Morgan Chase
47
Citigroup
45
Bank of New York Mellon
32
Morgan Stanley
10
Bank of America
2
Goldman Sachs Group
0
*From Dec. 31, 2009, through May 1, 2014
Source: Keefe, Bruyette & Woods
The Wall Street Journal
Color China Photos/Zuma Press
BY DAN STRUMPF
PEDAL TO THE METAL: Copper prices surged after China, the metal’s largest consumer, unveiled a plan
that investors hope will spark economic growth. Above, the Xinchen copper company in Nantong. C4
All-time
closing high
of 1208.65
1200
MONDAY
1133.65,
up 2.4%
1150
1100
Bouncing Back
Russell 2000 index
1050
J
Source: FactSet
F
M
A
M
The Wall Street Journal
vor lately as investors have
flocked to larger, more established companies. On Monday,
the Russell 2000 small-cap index
gained 26.43 points, or 2.4%, to
1133.65, its largest advance in
two months. It remains 6% below
its all-time high of 1208.65
reached in March, and was nearing a so-called correction—market parlance for a loss of 10%—
until Monday’s rebound.
The Nasdaq Composite Index
added 71.99 points, or 1.8%, to
4143.86. Despite the recent gains,
the technology-heavy index remains 18% off its record of
5048.62, reached at the height of
the dot-com bubble in 2000.
Despite Monday’s rise in
beaten-down technology stocks,
Please turn to page C4
SEC Wins Tax-Fraud Case Against Wyly Brothers
BY CHRISTOPHER M. MATTHEWS
The Securities and Exchange
Commission scored a victory on
Monday as a jury said the
wealthy Wyly brothers committed civil fraud using a complex
web of offshore trusts to hide
stock sales and reap $550 million
in profits.
The verdict, delivered in Manhattan federal court, came in a
case that tested SEC Chairman
Mary Jo White’s pledge to
toughen enforcement and take
more difficult cases to trial.
After 2½ days of deliberation,
the jury found entrepreneur Sam
Wyly and the estate of his de-
ceased brother, Charles, liable on
all claims brought by the SEC.
The trial follows an SEC loss
in a case against another Texas
businessman, billionaire Dallas
Mavericks owner Mark Cuban,
who publicly skewered the
agency after being cleared of insider-trading charges by a jury
last October.
Ms. White recently restructured the trial unit in hopes of
winning more courtroom battles
like these. The Wyly win will
help the agency “reclaim its
swagger” after the Cuban trial
and several other high-profile
losses this year, said Thomas O.
Gorman, a securities attorney at
AHEAD OF THE TAPE | By Spencer Jakab
Housing, Autos Could Damp Retail Sales
Maybe economists should
spend more time at the mall.
That isn’t because their
wardrobes are in need of a
revamp—just their collective
read on the state of the
American shopper. A month
ago, the government reported that retail sales in
March expanded at the fastest monthly pace in a year
and a half, far exceeding estimates. February’s data
were revised higher, too.
If economists polled by
The Wall Street Journal are
right, April’s monthly
growth, due Tuesday, wasn’t
as torrid. Year-over-year
growth is seen at 4%—a welcome rebound from a tepid
winter but nothing spectacular. Sales were growing that
rapidly back in November,
before the winter’s chill, and
last summer the year-overyear pace touched 6%.
There is some evidence
economists are being too
cautious again. For example,
data from MasterCard
SpendingPulse show that retail sales grew by 4.4% in
April compared with a year
earlier, up strongly from
Investors snapped up shares
of companies large and small,
driving major indexes to records
and reviving beaten-down technology stocks.
The Dow Jones Industrial Average climbed 112.13 points, or
0.7%, to 16695.47, notching its
second record finish in as many
sessions and its third new high
of 2014. The
MONDAY’S
Dow notched 52
MARKETS
records in 2013.
The S&P 500
added 18.17 points, or 1%, to
1896.65, squeezing out its ninth
record close of the year.
In large part, the gains were
driven by hedge funds piling
back into stocks that have retreated this year—likely reversing bearish positions they took
earlier this year—rather than by
big investors placing fresh bets
on the market’s future direction,
according to Wall Street traders.
Investors said there was little
news behind the stock upturn,
beyond a gradual warming in
economic and earnings data in
recent weeks.
“It’s the sectors and names
that have gotten beaten up the
most that are coming back the
most,” said Reed Choate, a portfolio manager at New York
money manager Neville, Rodie &
Shaw, which manages $1.4 billion.
The upturn was most notable
in the shares of smaller companies, which have fallen out of fa-
Tapping the Brakes
Change from a year earlier in retail
sales, three-month trailing average
30%
20
New-car Overall Building
dealers
materials
10
0
–10
–20
–30
2007 ’08 ’09 ’10 ’11 ’12 ’13 ’14
Source: Commerce Department
March. Likely reasons for a
positive surprise are pent-up
demand from the winter and a
pickup in use of credit cards.
Even so, despite recent momentum, it is precisely the
most interest-sensitive areas of
retail sales that threaten to
create a slowdown in coming
months. Housing and autos
bore the brunt of the recession’s slump in consumer borrowing. They also have led the
recovery in retail sales. As recently as last summer, sales of
new cars were growing by 10%
to 13% year over year while
sales of building materials
were expanding by more
than 8%.
Both have slowed significantly in recent months.
April auto-sales data were
below forecasts. Meanwhile,
new-home sales in March
were abysmal, registering
the sharpest year-over-year
drop in almost three years.
With short-term rates
near zero, long-term ones
historically low and the employment situation improving, housing and autos ought
to be stronger. The issue
may not be borrowing costs
but affordability in the case
of housing and saturation
for autos as sales approach
prerecession levels.
Long-term rates are expected to rise as the Fed
continues tapering its bond
purchases this year, and
short-term rates are forecast
to increase next year. Given
that, both housing and autos
could become a drag.
Recently buoyant retail
sales may soon be in need of
a new driver.
Email: [email protected]
INDEX
Dividend News...................................................... C6 Heard on the Street.......................................... C8 Money Rates.......................................................... C7 Stock Listings.................................................. C7
Bond Tables...................................................... C9 Exchange-Traded Funds................................ C6 Key Rates.................................................................. C7 Mutual Funds......................................................... C6 Stocks in the News..................................... C4
Cash Prices........................................................ C6 Futures........................................................................ C3 Lipper Indexes........................................................ C6 New Highs & Lows............................................. C6 Syndicated Loans......................................... C6
Dorsey & Whitney LLP in Washington.
In the Wyly case, the SEC accused the brothers of using a
“scheme of secrecy,” including
trusts and other entities in the
Isle of Man and Cayman Islands,
to secretly sell large portions of
shareholdings in four companies
over a 13-year period starting in
March 1992 without disclosing
the sales in filings with regulators.
The SEC said it wants the
Wylys to forfeit $550 million in
what it considers ill-gotten profits, a request that the presiding
judge, U.S. District Judge Shira
Scheindlin, will rule on after a
separate trial set for August.
If approved, it would mark
one of the biggest disgorgement
actions against individuals in
SEC history.
“We proved that the Wylys
used a system of offshore trusts
to conceal their transactions as
directors of publicly traded companies,” SEC enforcement director Andrew Ceresney said in
statement.
One of the transactions involved in the complaint against
the Wylys also violated insidertrading laws and yielded a profit
of $31.7 million, the agency alleges. That claim will be decided
separately this summer by Judge
Scheindlin.
“We are deeply disappointed
by the jury’s decision today,”
Stephen D. Susman, a lawyer for
the Wylys, said. “Despite this
setback, we maintain that Sam
and Charles Wyly acted in good
faith. We will continue to fight
for justice through the next
phases of the legal process.”
Sam Wyly, 79 years old, testified during the trial. He suffers
from several medical conditions
and wasn’t present Monday as
the verdict was read. Charles
Wyly died in a car accident in
Aspen, Colo., in 2011.
Lawyers for the Wylys had arPlease turn to the next page
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P2JW133000-4-C00100-1--------XA
Pain and Gain
Performance of large banks has
varied sharply this decade.
See more on C5 and at WSJMarkets.com
Small Stocks
Fuel a Run
To Records
Copper Hits a 2-Month High on China Optimism
BY FRANCESCO GUERRERA
If you pay
peanuts, you
get monkeys.
The adage is often heard when
discussing executive pay on Wall Street.
But what happens if you
don’t pay peanuts but millions
of dollars a year, as many large
U.S. banks do? You should get
superior stock-price performance.
Unfortunately, new research
suggests pay is much more
linked to a bank’s size than its
performance—a
CURRENT
finding that
ACCOUNT
could complicate regulators’
efforts to shrink financial
groups.
The issue of pay will be
front and center in the next
two weeks when shareholders
participate in nonbinding votes
on executive pay at Goldman
Sachs Group Inc., Morgan
Stanley and J.P. Morgan
Chase & Co. One of the two
main firms that advises pension funds on these matters,
Glass, Lewis & Co., has recommended “no” votes on all
three, arguing that the banks’
performance doesn’t justify the
2013 pay packages. (The other
one, Institutional Shareholder
Services Inc., is urging “yes”
votes.)
The question of how much,
and how, to pay Wall Street exPlease turn to the next page
European Pressphoto Agency
Corporate Cash
Breaks the Buck
Composite
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