AA and US Airways reportedly near merger | Investors press for more LBOs like Dell deal | Boeing reportedly works on temporary battery fix for Dreamliner
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07 February 2013
CFA Institute: Financial NewsBrief
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AA and US Airways reportedly near merger
American Airlines and US Airways are working out final details of a merger that would create the world's biggest airline, according to media reports. Creditors of AMR, American's parent company, have reached agreement on the allocation of equity in the new entity, sources familiar with the matter said. US Airways Group CEO Doug Parker is expected to head the merged carrier, they said. Fort Worth Star-Telegram (Texas)/Sky Talk blog (06 Feb.), WFAA-TV (Dallas-Fort Worth) (06 Feb.), San Jose Mercury News (Calif.) (free registration)/Tribune Media Services (06 Feb.)
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Investors press for more LBOs like Dell deal
Facing surging demand for higher returns, banks and investors are trying to persuade private-equity firms to consider more leveraged buyouts, such as Dell's $24.4 billion deal with Silver Lake Partners. Financial Times (tiered subscription model) (06 Feb.)
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Boeing reportedly works on temporary battery fix for Dreamliner
Boeing is preparing battery design changes to get its grounded 787 Dreamliner back in the air, while it also works on a permanent solution to the battery problems, industry and government officials briefed on the matter said. U.S. and Japanese aviation authorities would have to approve Boeing's interim modifications to the way the 787s use lithium-ion batteries. The Wall Street Journal (tiered subscription model) (06 Feb.)
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Alcatel CEO reportedly will leave as turnaround stumbles
Ben Verwaayen, CEO of French technology giant Alcatel-Lucent, will step down May 7, Paris newspaper Le Monde reported. The board reportedly is dissatisfied with the pace of the company's turnaround and decided not to renew his contract. Bloomberg (06 Feb.), Telecom Lead (India) (07 Feb.), The Wall Street Journal (tiered subscription model) (07 Feb.)
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Morningstar Direct Whitepaper in CFA Institute Selected Content Newsletter
We are very pleased to have been included on this "recommended reading" list. The paper discusses ways to quantify the results from portfolio-level decisions like asset allocations, manager selections, timing decisions, and more. Click here to read our whitepaper.
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Reader Survey
Has implementation of behavioral finance precepts into your investment practice meaningfully improved your results?
No, we have not implemented behavioral finance precepts  48.33%
Yes, we have implemented with success  43.57%
No, we have implemented without success  8.10%
Poll analysis:
Earlier this week, readers were asked whether implementing behavioral finance principles in their investment practice has meaningfully improved results. Among the three possible answers given, 48.25% of 420 respondents indicated that they have not implemented behavioral finance at their investment firms. Although this may seem surprising, a consistent criticism of behavioral finance is its lack of a unifying theory. In other words, although behavioral finance observations of cognitive biases are descriptive, they do not necessarily suggest how to take advantage of these biases or how to avoid them. That said, a majority of respondents (51.75%) stated that they have incorporated behavioral finance tenets at their investment firms. Among this group, 44% reported success in implementation, whereas 7.75% stated that they have not achieved success. Perhaps recent works by Greg B. Davies and Arnaud de Servigny ("Behavioral Investment Management") and Daniel Kahneman ("Thinking, Fast and Slow") will not only increase implementation of behavioral finance but also improve results. Also, CFA Institute is hosting a forum, Behavioral Finance: From Theory to Practice, that may aid interested practitioners. -- Jason A. Voss, CFA, Content Director, CFA Institute
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Market ActivityAdvertisement
Asian-Pacific markets fall as Chinese holiday approaches
Most Asian-Pacific markets fell Thursday ahead of next week's Lunar New Year holiday in China. Japan's Nikkei 225 dropped 0.9%. Hong Kong's Hang Seng Index edged down 0.3%. China's Shanghai Composite gave up 0.7%. South Korea's Kospi slid 0.2%. India's Sensex was down 0.3% at midafternoon. Bucking the trend, Taiwan's Taiex rose 0.2%. Australia's S&P/ASX 200 gained 0.3%. MarketWatch (07 Feb.), The Economic Times (India) (26 Feb.)
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Analysis: India's hot stock market could be good for the country
The frothy prices on India's high-flying stock market will benefit the nation if they bring much-needed capital to banks, power generation utilities, steel makers, telecoms, property and infrastructure firms that need to bolster their equity, as well as the government when it sells shares in state-owned enterprises, according to The Economist. "Taking all these needs into account, India could quite happily gobble up $50 billion-100 billion of equity capital," the magazine notes. The Economist (tiered subscription model) (02 Feb.)
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Retirement plans seen making more use of target-date strategies
Defined-contribution retirement plans likely will increase use of target-date investment strategies, encouraged by features including auto enrollment, re-enrollment and default investment options, industry experts said. During the 12-month period that ended Sept. 30, investment in target-date strategies by defined contribution plans rose nearly 29%, according to Pensions & Investments' annual survey of the biggest retirement plans. Pensions & Investments (free access for SmartBrief readers) (04 Feb.)
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Read complimentary articles on 2013 U.S. and European bond interest rates, the 2013 global credit outlook, and factors affecting nonfinancial corporate credit stability.
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Economics
Democrats prepare bill to avert $1 trillion in cuts
U.S. Senate Democrats say they are putting final touches on legislation to prevent $1 trillion in spending cuts from taking effect March 1. Democrats say they expect Republicans to warm to the idea when layoffs and furloughs start sending federal workers home, affecting government operations. The New York Times (tiered subscription model) (06 Feb.)
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OECD calls on BoE to buy more debt if economy stays weak
The Organization for Economic Cooperation and Development is encouraging the Bank of England to purchase more bonds if the economy remains weak. "The U.K. has its own currency, its own central bank and its own monetary policy," OECD Secretary General Angel Gurria said. "Therefore, it has the capacity to go, if you will, the extra mile." Reuters (06 Feb.)
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Chinese central bank plans focus on consumer prices
In its quarterly report, the People's Bank of China says consumer prices are of particular concern. The shift to inflation marks a change from growth-focused policy. Financial Times (tiered subscription model)/Reuters (06 Feb.)
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Americans are pessimistic about economy, poll finds
Americans feel little optimism about the economic outlook, according to a poll by the John J. Heldrich Center for Workforce Development at Rutgers University. The availability of good jobs with good pay will never return or will not return for many years, 86% of participants said. The Washington Post (tiered subscription model) (06 Feb.), The New York Times (tiered subscription model) (07 Feb.)
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Advisers see increase in tax-identity theft
Financial advisers are hearing from more clients who have been victimized by tax-identity theft, a rapidly growing problem. The National Taxpayer Advocate, a watchdog of the Internal Revenue Service, received 55,000 requests last year for assistance related to tax-identity theft. The Huffington Post/The Blog (06 Feb.), The Wall Street Journal (tiered subscription model) (06 Feb.)
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Behavioral Finance: From Theory to Practice
7-10 April 2013
University of Virginia Darden School of Business
Charlottesville, Virginia, United States

Presented by CFA Institute / University of Virginia Darden

Register by 15 February 2013 and receive a US$200 discount.
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Geopolitical/Regulatory
U.S. revamp of credit rating agencies stalls
Four years have passed since top-rated mortgage-backed securities started going bad, jeopardizing the U.S. financial system, and the government's effort to reform credit rating agencies has bogged down. The longer the government waits to overhaul the credit rating system, the closer the nation comes to repeating the 2008 crisis, experts say. The Washington Post (tiered subscription model) (06 Feb.)
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Germany pushes ahead with ring fence
Germany is forging ahead with plans to separate investment and retail banking. "The precarious situation of single banks shouldn't be able to threaten the stability of the financial system," German Finance Minister Wolfgang Schaeuble said. The Wall Street Journal (tiered subscription model) (06 Feb.)
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RBS agrees to $612M penalty to settle Libor charges
Royal Bank of Scotland has agreed to settle allegations that it manipulated the London Interbank Offered Rate. The bank will pay $325 million to the Commodity Futures Trading Commission, $150 million to the U.S. Justice Department and about $137 million to the U.K. Financial Services Authority. Reuters (06 Feb.), The New York Times (tiered subscription model)/DealBook blog (06 Feb.), Financial Times (tiered subscription model) (06 Feb.), The Wall Street Journal (tiered subscription model) (07 Feb.)
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FINRA chief says "kill switches" aren't ready yet
Financial Industry Regulatory Authority CEO Richard Ketchum says better risk controls are still needed in automated trading. "I would hope that we are in a much better position on that issue in the next six months," he said. He expects companies to institute "kill switches" that can automatically stop trading if something goes wrong. Reuters (06 Feb.)
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Financial Products
Vanguard readies international bond mutual fund and ETF
Vanguard Group is working on an international bond fund that would be offered in two versions: a conventional mutual fund and an exchange-traded fund. The Total International Bond Index Fund and ETF would buy corporate and government bonds in the Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index. Vanguard expects a retail-market launch by the end of the second quarter. Barron's (free content)/Focus on Funds blog (06 Feb.), Benzinga.com (06 Feb.), Morningstar (06 Feb.)
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Ethics
HSBC's money-laundering settlement took a toll, CEO says
HSBC Holdings CEO Stuart Gulliver says he felt "absolutely no pleasure whatsoever" in settling with the U.S. Justice Department regarding money-laundering allegations in Mexico. "We've crushed our reputation with the Mexican events," he said. The settlement involved a $1.92 billion payment, and an independent regulator must monitor anti-money-laundering compliance at HSBC. Bloomberg (06 Feb.)
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