China’s October factory, services surveys show economy still wobbly – Reuters

Activity in China’s manufacturing sector unexpectedly contracted in October for a third straight month, an official survey showed on Sunday, fuelling fears the economy may still be losing momentum in the fourth quarter despite a raft of stimulus measures.

Adding to those concerns, China’s services sector, which has been one of the few bright spots in the economy, also showed signs of cooling last month, expanding at its slowest pace in nearly seven years.

As the first major indicators of business conditions in China released each month, the PMIs reinforced the view that the economy remains in the midst of a gradual slowdown which will require Beijing to roll out more support in coming months.

“While the PMI has stabilized, it is too early to confirm a bottoming out,” economists at ANZ Bank said in a note.

“As deflation risks intensify, a further RRR cut before end of this year is still possible,” ANZ said, referring to reducing the amount of reserves that banks must hold in order to free up more funds for new loans.

The official Purchasing Managers’ Index(PMI) was at 49.8 in October, the same pace as in previous month and lagging market expectations of 50.0, according to the National Bureau of Statistics(NBS). A reading below 50 points suggests an contraction.

New export orders contracted for a 13th straight month, though the sub-index for new orders – a proxy for both domestic and foreign demand – edged up marginally to 50.3, compared with September’s 50.2.

Faced with persistently weak demand, factory owners continued to lay off workers and at a slightly faster pace than in September.

“Because of the recent weak recovery in the global economy and downward pressure in the domestic economy, manufacturers still face a severe import and export situation,” Zhao Qinghe, a senior statistician at the NBS said in a statement accompanying the data.

Major Chinese construction machinery maker Sany Heavy Industry Co Ltd said on Friday it swung to a loss in the third quarter, affected by a glut of unsold equipment.

As for the services sector, whose growth has helped offset persistent weakness in manufacturing, the official non-manufacturing PMI fell to 53.1 in October from September’s 53.4. Though still a solid pace of expansion, it was the lowest reading since late 2008 during the global financial crisis, a similar survey showed.

SMALL FIRMS FACING BIGGER STRESSES

Despite authorities’ most aggressive policy easing campaign since the 2008/09 global crisis, small- and mid-sized Chinese firms are still starved for funds due to banks’ preferences to lend to big, state-owned companies.

Activity in small and mid-sized firms continued to contract in October, with more small firms seeing fund shortages compared to big ones, the official survey showed. Small companies account for up to 80 percent of urban employment and 60 percent of China’s GDP.

China’s economy grew 6.9 percent between July and September from a year earlier, dipping below 7 percent for the first time since the global financial crisis, though some market watchers believe real growth rates are much weaker than government figures suggest.

Chinese leaders have been trying to reassure jittery global markets for months that the economy is under control after a shock devaluation of the yuan and a summer stock market plunge fanned fears of a hard landing.

The government has cut interest rates six times since November and lowered the amount of cash that banks must hold as reserves four times this year. The latest cut in interest rates and banks’ reserve requirement came on Oct 23.

Beijing has also quickened spending on infrastructure and eased curbs on the ailing property sector. The latter have helped revive weak home sales and prices but have not yet reversed a sharp decline in property investment.

Many economists had expected economic growth would bottom out in the third quarter, with a modest improvement late this year and into early 2016 as additional stimulus measures gradually take effect.

(Reporting By Xiaoyi Shao and Nick Heath; Editing by Kim Coghill)

Fed looks at way to shift big-bank losses to investors – Business Insider

eapcontent.ap.orgFederal Reserve Chair Janet Yellen speaks during a meeting of the Board of Governors of the Federal Reserve, Friday, Oct. 30, 2015, in Washington. The meeting was to discuss a proposed rule establishing total loss-absorbing capacity and long-term debt requirements for global systemically important banking organizations, as well as a final rule on margin and capital requirements for uncleared swaps of prudentially regulated swap entities. (AP Photo/Evan Vucci)

WASHINGTON (AP) — In their latest bid to reduce the chances of future taxpayer bailouts, federal regulators are proposing that the eight biggest U.S. banks build new cushions against losses that would shift the burden to investors.

The Federal Reserve’s proposal put forward Friday means the mega-banks would have to bulk up their capacity to absorb financial shocks by issuing equity or long-term debt equal to prescribed portions of total bank assets.

The idea is that the cost of a huge bank’s failure would fall on investors in the bank’s equity or debt, not on taxpayers.

The Fed governors led by Chair Janet Yellen voted 5-0 at a public meeting to propose the so-called “loss-absorbing capacity” requirements for the banks, which include JPMorgan Chase, Citigroup and Bank of America.

The eight banks would have to issue a total of about $ 120 billion in new long-term debt to meet the requirements of the proposal, the Fed staff estimates.

If formally adopted, most of the requirements wouldn’t take effect until 2019, and the remainder not until 2022.

The new cushions would come atop rules adopted by the Fed in July for the eight banks to shore up their financial bases with about $ 200 billion in additional capital — over and above capital requirements for the industry. And they would be in addition to 2014 rules directing all large U.S. banks to keep enough high-quality assets on hand to survive during a severe downturn.

Combined with the regulators’ previous actions, the new proposal “would substantially reduce the risk to taxpayers and the threat to financial stability stemming from the failure of these (banks),” Yellen said at the start of the meeting.

Stricter capital requirements for banks were mandated by Congress after the financial crisis, which struck in 2008 and set off the worst economic downturn since the Great Depression. Hundreds of U.S. banks received taxpayer bailouts totaling hundreds of billions of dollars during the crisis, including the eight Wall Street mega-banks that became known as “too big to fail” in Washington.

The previously adopted capital and liquidity rules are the “belt” designed to reduce the likelihood of big banks failing, while the new proposal for transferring potential losses to investors is the “suspenders” in case banks do fail, said Oliver Ireland, an attorney specializing in banking law at Morrison & Foerster who was an associate general counsel at the Fed.

Investors will know that if a bank fails, “they will be on the hook” and likely won’t recover the full amount they put in, Ireland said. Higher interest rates paid by banks on the debt they issued beforehand would compensate for the investors’ risk.

The other banks subject to the requirements are Goldman Sachs, Wells Fargo, Morgan Stanley, Bank of New York Mellon and State Street Bank.

In its action Friday, the Fed was putting forward its piece of a plan proposed by international regulators in November 2014 for “loss-absorbing capacity” for the world’s 30 largest banks. Including the eight U.S. banks, they are considered so big and interconnected that each could threaten the financial system if they collapsed.

U.S. regulators won the power under the 2010 financial overhaul law to seize and dismantle big banks and financial firms that could topple and jeopardize the broader system. The Fed sees a mandate for loss-absorbing capacity as a key to enabling that process. It would put long-term debt into a bank’s holding company that could be converted to stock as an injection of capital — instead of taxpayer funds. If a bank failed under the regulators’ scenario, the holding company would be seized but subsidiaries would be allowed to continue to operate.

Also at their meeting Friday, the Fed governors set requirements for collateral to cover possible losses that banks have to post for trades in derivatives that are made outside of clearinghouses. The Fed joined other U.S. regulators who adopted the requirements last week.

The aim is to cut down on the kind of risky trades that contributed to the 2008 financial crisis. Policymakers have blamed the $ 600 trillion global derivatives market, which was unregulated before the crisis, for hastening the financial meltdown. Derivatives are transactions whose value comes from an underlying investment — oil, for example, or currencies, interest rates or stocks. Farmers, airlines and industrial companies use derivatives to hedge against risks. But derivatives have also been used — sometimes recklessly — by financial firms to speculate.

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Week Ahead In FX: December Rate Hike Depends On US Jobs Report – Seeking Alpha

Biggest Economic Indicator Could Help Fed Decide if a December Hike is Possible.

Central banks were active in the last week of October. Some of their actions were unexpected like the Reserve Bank of New Zealand that held rates unchanged when a cut was a strong possibility. Others like the Bank of Japan sided with expectations and held stimulus programs unchanged awaiting the end of 2015.

The Federal Reserve held its monetary policy intact in October. No rate hike as expected, but it did surprise the market with a small change in the statement. The inclusion of “whether it will be appropriate to raise the target range at its next meeting” has boosted the chance of a rate hike during the December Federal Open Market Committee (FOMC) meeting. The Fed’s FOMC is a tough act to follow and the Reserve Bank of Australia and the Bank of England will do just that next week.

The RBA will publish its rate decision on Monday, November 2 at 10:30 pm EST. No change to the Australian benchmark rate is anticipated, but the RBA is expected to push dovish rhetoric to lower the AUD. The Bank of England will publish its inflation report and interest rate decision on Thursday, November 5 at 7:00 am EST. After being a frontrunner to be the first central bank to hike, the BOE has adopted a more patient stance on monetary policy. The minutes released at the same time as the rate will show a vast majority of the Monetary Policy Committee still see the current rate as appropriate with one known dissenter.

After mixed U.S. economic indicators, the latest being the lower-than-expected advance GDP at 1.5 percent, the Federal Reserve will be looking at an improvement in the jobs report due on Friday, November 6 at 8:30 am EST. The non-farm payrolls report has disappointed since summer even with the constant lowering of forecasts. The September report miss almost put the Fed rate hike out of the 2015 horizon. Only a strong NFP showing will have the market believing in a rate hike after the Fed’s latest timing hint.

Monday, November 2

10:00 am USD ISM Manufacturing PMI
10:30 pm AUD Cash Rate
10:30 pm AUD RBA Rate Statement

Wednesday, November 4

8:15 am USD ADP Non-Farm Employment Change
8:30 am CAD Trade Balance
8:30 am USD Trade Balance
10:00 am USD Fed Chair Yellen Testifies
10:00 am USD ISM Non-Manufacturing PMI

Thursday, November 5

7:00 am GBP BOE Inflation Report
7:00 am GBP MPC Official Bank Rate Votes
7:00 am GBP Monetary Policy Summary
7:00 am GBP Official Bank Rate
7:45 am GBP BOE Gov Carney Speaks
8:30 am USD Unemployment Claims

Friday, November 6

8:30 am CAD Employment Change
8:30 am USD Average Hourly Earnings m/m
8:30 am USD Non-Farm Employment Change
8:30 am USD Unemployment Rate

RBA to Stand Pat as Inflation Drop Not Enough to Force Cut

Last week’s Australian inflation numbers were softer than expected, prompting analysts to increase the probabilities of another rate cut by the Reserve Bank of Australia. RBA Governor Glenn Stevens has held rates for 5 straight meetings at a record low 2.00 percent, although it is expected that the central bank will be forced to cut before the end of the year. The AUD has fallen after the use of dovish rhetoric by Governor Stevens and with the help of the FOMC statement that rekindled the possibility of a December rate hike by the Federal Reserve.

The economic data since the last meeting has been mixed, but overall points to a growing economy. There is a concern that a rate cut could create a housing bubble, especially in the Melbourne and Sydney markets where prices have skyrocketed fuelled by low interest rates. The RBA has confidence in the regulation in place to avoid rampant speculation, but the central bank is still dependent on the economy improving despite the headwinds from a slowing Chinese economy and further easing from the central banks of Japan and Europe against the backdrop of the Fed’s inaction. All those factors could end up forcing the hand of Governor Stevens before the end of the year.

AUD events to watch this week:

Monday, November 2

10:30 pm AUD Cash Rate
10:30 pm AUD RBA Rate Statement

BOE in No Rush to Lift Rates But Dissent Would Send Positive Signal

The Bank of England (BOE) has held rates unchanged at record low 0.50 percent for 80 consecutive months. Governor Mark Carney has said that although there is a possibility, it does not mean a certainty that rates will be higher before the end of the year. The minutes that are released along with the rate statement show only 1 dissenter in the 9-person Monetary Policy Committee which makes it unlikely that the rate hike will come. The situation is similar to the Federal Reserve where even through members are hawkish in their statements, they haven’t exactly followed through with their MPC vote.

The GBP has risen against the EUR given the monetary policy divergence expectations. The European Central Bank easing has kept the EUR depreciated while the possibility (although Governor Carney reminds us, not the certainty) of a rate hike will keep the GBP bid.

Thursday, November 5

7:00 am GBP BOE Inflation Report
7:00 am GBP MPC Official Bank Rate Votes
7:00 am GBP Monetary Policy Summary
7:00 am GBP Official Bank Rate
7:45 am GBP BOE Gov Carney Speaks

NFP to Decide December Rate Hike Fate

The October FOMC did not have a press conference following it, so the language had to be more carefully crafted as Fed Chair Janet Yellen would not have a chance to explain to reporters while addressing their questions. The two major changes to the FOMC statement from September were the reduction of the emphasis on overseas factors which was changed from a paragraph into a sentence in another part of the document. The second change was the addition of “whether it will be appropriate to raise the target range at its next meeting”. The new line in the statement reads:

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress-both realized and expected-toward its objectives of maximum employment and 2 percent inflation.

The Jobs component had been the firmest pillar on the U.S. economic recovery argument, but after the summer, it has stumbled over increased expectations. Even before the Fed announced its plans to taper the quantitive easing program, forecasts around employment had become a problem for the Fed. Relying on the headline employment growth and rate that quickly recovered obfuscated the true health of the economy. Even with that knowledge, the Fed has not managed the market expectations well as all of 2015 have produced disappointing FOMC meetings as the Fed is not willing to confirm or deny if they will finally raise rates as expected.

The new line in the FOMC statement points to the possibility of a rate hike, but as BOE Governor Mark Carney mentioned over the weekend, it is not a certainty that the central bank will make a move. That uncertainty has kept the pressure on for several central banks and those that can afford to be patient will, while for others, it could mean easing monetary policy sooner rather than later, especially if they were counting on the Fed to make the first move.

The NFP is forecasted to come in at 179,000 new jobs. Last month when higher than 200,000 was expected, the jobs report shocked with 142,000 jobs added, and to make matters worse, the August figures were downgraded to 136,000. The market is now expecting less than 200,000 new jobs for the third time in a row. The fact that the job gains keep coming has reduced the unemployment rate which is now at 5.1 percent and not expected to change.

U.S. Jobs events to watch this week:

Wednesday, November 4

8:15 am USD ADP Non-Farm Employment Change

Thursday, November 5

8:30 am USD Unemployment Claims

Friday, November 6

8:30 am USD Average Hourly Earnings m/m
8:30 am USD Non-Farm Employment Change
8:30 am USD Unemployment Rate

*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

Pharmacist at center of Valeant scandal accuses drugmaker of ‘massive fraud’ – Los Angeles Times

Before the group of East Coast investors arrived late last year, Camarillo pharmacist Russell Reitz had been promoting his modest prescription-filling business as “your local pharmacy.”

That abruptly changed when he agreed to sell his pharmacy, in a quiet suburban office park, to the group for $ 350,000. As he continued as manager, Reitz began finding his store’s name and his national pharmacy license number on an avalanche of prescriptions nationwide.

Then a torrent of insurers’ money started flowing to his small shop, R&O Pharmacy — on pace to equal $ 230 million a year, according to invoices.

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Reitz now finds himself at the center of the national scandal enveloping Valeant Pharmaceuticals International, the once highflying Wall Street darling that in recent weeks had its stock price almost cut in half. The Canadian company said Oct. 14 that federal investigators were probing its operations, including how it prices and distributes drugs.

In the last two months, Reitz has filed papers in two Los Angeles courthouses laying out details of what he and his lawyer call “a massive fraud.”

“I saw personal risk to my future, so I had to take action,” the 64-year-old pharmacist said in an interview last week at his office.

Reitz had agreed to sell his pharmacy to a company created by Philidor Rx Services, a mail-order pharmacy with close ties to Valeant.

Valeant became one of the hottest healthcare stocks in recent years by buying other firms’ medicines and then swiftly hiking their prices by as much as 500%.

Specialty pharmacies such as Philidor are part of a little-known strategy by Valeant and other pharmaceutical companies to sell high-priced drugs that insurers otherwise wouldn’t pay for.

Many of Valeant’s expensive brand-name medicines — including Jublia for toenail fungus and Solodyn for acne — are similar to generic medicines available for far less. When patients fill those prescriptions at the pharmacy, insurers often require the druggist to switch to the generic — causing Valeant to lose the sale.

To get around that blockade, Valeant has been distributing coupons on the Internet and to doctor’s offices across the country that allow patients to lower or even avoid a co-pay — if they ordered the drugs through Philidor.

Until Reitz’s court filings, including a lawsuit he filed Oct. 6 in U.S. District Court in Los Angeles, few people knew about Valeant’s close ties to Philidor, even though the mail-order pharmacy was increasingly crucial to its bottom line.

Last week, under pressure from angry investors, Valeant revealed more about Philidor, saying it had an expanding “network of pharmacies” across the nation.

Another pharmacy in the Philidor network is West Wilshire Pharmacy in Los Angeles. Wilshire did not return a call seeking comment.

The concern among investors is that the giant drugmaker’s fast-rising sales growth is dependent on these mail-order pharmacies, which could be operating illegally.

“We did do a lot of business, but it wasn’t being done right,” Reitz said in the interview.

Wearing a burgundy T-shirt and jeans, Reitz seemed forlorn as he sat at a wooden desk, a crisp white pharmacy coat hanging from the back of his chair. He said he did not understand Philidor’s intentions when he agreed to sell the company his business.

Valeant said that Reitz’s lawsuit “is without merit.”

“We operate our business based on the highest standards of ethics, and we are committed to transparency,” J. Michael Pearson, its chief executive, said in a conference call with stock analysts last week.

In court papers, Reitz detailed how he had discovered that Philidor was using his national pharmacy identification number on prescriptions being filled at other pharmacies — and even on some that were filled and billed before he signed the agreement to sell R&O on Dec. 1.

He also found that, without his knowledge, a Philidor executive who had never visited the Camarillo pharmacy was answering questions about the pharmacy’s billing practices during an audit by an insurer.

As Reitz pressed executives at Philidor’s headquarters in Hatboro, Pa., for answers about the questionable practices, his emails became increasingly desperate.

“Time is of the essence,” Reitz wrote to Andy Davenport, Philidor’s chief executive, on July 20. “You must provide me with substantive responses immediately, as my license and professional reputation are at stake.”

What Reitz hadn’t known at the time he signed the sale agreement was that Philidor — and Valeant — were facing a hurdle in getting prescriptions filled in California, the largest market for medicines among the states.

State Atty. Gen. Kamala Harris’ staff had denied Philidor’s request for a California pharmacy license, charging that the company had falsified information in its application.

“Do you think I would sell to someone that was denied a permit?” Reitz said. “You’ve got to be kidding me.”

Reitz said he believes that Philidor had targeted his pharmacy because it needed access to his licenses, which he has in California and 33 other states, as well as to the contracts he had negotiated with insurers.

On July 21, Davenport and three other Philidor executives arrived unannounced in Camarillo, talking to Reitz for just 15 minutes before rushing off. Reitz said the executives answered none of his key questions.

The next day Reitz’s lawyer sent a letter to Philidor.

“Your continued silence indicates to us that Mr. Reitz’ suspicions are well-founded,” he wrote. “You appear to be engaging in a widespread fraud.”

By then Reitz had stopped sending Philidor the millions of dollars in checks that he was receiving from insurers for prescription shipments. His lawyer explained that Reitz had to protect himself from “massive potential” liability.

On Sept. 4, the drug giant Valeant sent a letter to Reitz — demanding $ 69 million that it said the small-town pharmacist owed.

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Until then, the pharmaceutical company had not corresponded with Reitz. Philidor executives had told him only that they “had a relationship” with Valeant to dispense its branded products, Reitz said.

A few days later, Reitz sued Valeant, asking the court to rule that he had no duty to the drug company and owed it no money.

Valeant’s shares plunged 38% on Oct. 21 when Andrew Left, a short-seller at Citron Research in Beverly Hills, released a report accusing the drug company of using the pharmacies in an Enron-like scheme of inflating profits.

Early last week, Valeant executives insisted that Philidor operated as an independent company. But they also revealed that in December, Valeant had paid $ 100 million to Philidor for an option to buy it.

Valeant executives said that prescriptions filled by Philidor and its network of pharmacies amounted to 6% of the company’s net revenue this year.

Yet on Thursday, Valeant’s stock fell again when the nation’s three largest drug-benefits managers — CVS Health Corp., Express Scripts Holding Co. and UnitedHealth Group Inc.’s OptumRx — said they were removing Philidor from their pharmacy networks.

On Friday, Pearson, Valeant’s chief executive, tried to distance his company from Philidor. He announced that Valeant was severing all ties to the mail-order pharmacy. Philidor was shutting down operations, he said.

“We understand that patients, doctors and business partners have been disturbed by the reports of improper behavior at Philidor,” Pearson said, “just as we have been.”

Valeant’s stock closed Friday at $ 93.81, down $ 17.69, or an additional 16%.

Reitz declined to say whether he had spoken to law enforcement or regulatory officials.

“A lot more is going to be coming out,” he said.

melody.petersen@latimes.com

Twitter: @melodypetersen

Stuart.pfeifer@latimes.com

Twitter: @spfeifer22

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ECB reveals capital hole in Greek banks as unpaid loans soar – Reuters

A Greek flag flutters in the wind above tourists visiting the archaeological site of the Acropolis hill in Athens, Greece July 26, 2015.

Reuters/Ronen Zvulun

Greece’s banks need to raise more than 14 billion euros ($ 16 billion) of extra capital to cover mounting unpaid loans, the European Central Bank said on Saturday as it announced the results of stress tests intended to rehabilitate Greek lenders.

The capital hole has emerged chiefly due to the rising number of Greeks unable or unwilling to repay their debt, after a dispute over reforms between the leftist government and international lenders almost saw Greece leave the euro.

As controls on cash withdrawals have squeezed the economy, loans at risk of non-payment have increased by 7 billion euros to 107 billion euros.

That is roughly half of all the credit given by the country’s four big banks, according to the ECB. Almost 57 percent of the loans made by Piraeus Bank (BOPr.AT), the bank which fared worst, are at risk.

The fact, however, that the declared capital hole is smaller than the 25 billion euros earmarked to help banks in the country’s bailout may encourage investors such as hedge funds to buy shares.

Germany’s Deputy Finance Minister Jens Spahn said attracting investors would reduce the support needed from the euro zone’s rescue scheme, the European Stability Mechanism.

The lenders are currently kept afloat by central-bank cash but there is a rush to get the recapitalization finished.

If it is not done by the end of the year, new European Union rules mean large depositors such as companies may have to take a hit in their accounts.

Greece’s Finance Minister Tsakalotos said on Saturday he was optimistic that Greece’s banks would successfully recapitalize by the end of the year. [ID:nA8N12C019]

The stress tests looked at how many loans would go unpaid if the country’s economy performs as expected up until 2017 – the so-called ‘baseline’.

It also simulated a ‘stress’ scenario, where Greece dips further than expected. For this test, ECB officials assumed that the economy would shrink by more than 3 percent this year and next before growing modestly in 2017.

In checking the financial strength of the country’s four main banks – National Bank of Greece, Piraeus, Alpha Bank and Eurobank – the ECB determined that even should the economy perform no worse than expected, the banks would still need almost 4.4 billion euros.

In the check, National Bank and Piraeus fared worst. To see a chart of the results, click here: link.reuters.com/tuz85w [ID:nL8N12V0H4]

It is the performance of the banks under stress that determines how much capital is needed. The ‘baseline’ scenario, for instance, expects Greek growth of 2.7 percent in 2017 – far outstripping Germany now.

The ECB defended an earlier test that had given the banks a clean bill of health before the most recent political turmoil.

But Ramon Quintana, a director general in the ECB's bank supervision arm, cautioned that Greece’s economy needed to stay on track for the banks to hold steady.

“Any deviations from these scenarios means that reality can go beyond what is expected in the exercise,” he told journalists. “This is why it is very important to avoid any deviation from the economic growth expected.”

DEBT MOUNTAIN

Much of the focus so far in rehabilitating Greece has focused on the scale of its national debt, which is approaching double its economic output.

In comments to an Italian newspaper published on Saturday, ECB president Mario Draghi said that some debt relief may be required.

But the tests throw the spotlight on personal debt.

Banks have struggled most amid the months-long stand-off between leftist Prime Minister Alexis Tsipras and his country’s international backers – the International Monetary Fund and European Union.

The dispute led to the freezing of central-bank funding for Greece’s banks and forced controls on cash withdrawals. Although this stemmed a further hemorrhaging of savings, it squeezed the economy, making it harder for borrowers to repay loans.

Of an 86-billion-euro bailout of Greece, 25 billion euros is earmarked for banks.

To reach its outcome, however, the ECB counts into the calculation billions of euros of future tax rebates that the Greek government could pay its banks.

Greek bankers hope that private investors will buy shares in the lenders. But Greece’s future and that of its banks remains uncertain, despite the latest checks.

A fall of more than two thirds in the banks’ stock prices this year serves as a reminder of the risks.

(Reporting By John O’Donnell, Francesco Canepa and George Georgiopoulos; Additional reporting by Gernot Heller in Berlin; Editing by Raissa Kasolowsky)

Largest US banks face $120 billion shortfall under new rule – Reuters

A BNY Mellon sign is seen on their headquarters in New York’s financial district, January 19, 2011.

Reuters/Brendan McDermid

Six big U.S. banks need to raise an additional $ 120 billion, most likely in long-term debt, under a rule proposed on Friday by the Federal Reserve.

The requirements are aimed at ensuring that some of the biggest and most interconnected banks, which include Goldman Sachs Group Inc, (GS.N), JPMorgan Chase & Co, (JPM.N), and Wells Fargo & Co (WFC.N), can better withstand another crisis by turning some of their debt, particularly debt issued by their holding companies, into equity without disrupting markets or requiring a government bailout.

The banks are expected to meet the $ 120 billion shortfall by issuing debt, which is usually more cost-effective than issuing equity, according to Federal Reserve officials speaking at a background press briefing Friday. The rule proposed Friday, largely in line with banks’ expectations, concerns the lenders’ total loss-absorbing capacity.

It is one of a series of rules aimed at reducing risk in the banking system by determining how much debt and equity banks should use to fund themselves.

In a procedural vote, the Fed’s governors approved a draft of the proposal, meaning it will be submitted for public comment.

During a public meeting with Fed officials, one staffer who worked on the rule said banks should have an easy time complying, because many requirements overlapped with existing rules. Further, the bulk of the debt requirements can be fulfilled by refinancing existing debt, the staffer said.

Some requirements must be met by Jan. 1, 2019, while more-stringent requirements must be met by Jan. 1, 2022.

The requirements are most stringent for JPMorgan, followed by Citigroup Inc. (C.N) After that come Bank of America Corp, (BAC.N) Goldman Sachs and Morgan Stanley, (MS.N) all of which have the same requirement. Wells Fargo & Co’s (WFC.N) requirement is the next highest, followed by State Street Corp (STT.N) and finally Bank of New York Mellon Corp. (BK.N)

JPMorgan has more than $ 2 trillion in total assets, making it the largest U.S. bank by that measure.

The officials declined to say which two banks already meet the long-term debt requirements under Friday’s proposal.

The rules also apply to U.S. operations of foreign globally systemically important banks, establishing roughly parallel requirements as those for U.S. banks, Fed officials said.

Also announced was a draft final rule establishing minimum margin requirements for swaps that are not cleared through an exchange. The rule is identical to one proposed by other regulators.

A Wells Fargo spokesman said in a statement the bank is reviewing the proposal and it appears to be in line with expectations. Representatives from the other banks either declined comment or were not immediately available.

(Reporting by Dan Freed; Editing by Chizu Nomiyama, Dan Wilchins and David Gregorio)

Investor Ackman defends Valeant in 4-hour conference call – Los Angeles Times

Bill Ackman found himself in a familiar position on Friday — up against it.

The brash billionaire activist investor, best known in California for his scorched-earth campaigns against Herbalife Ltd. and the management of drugmaker Allergan Inc., staged a high-stakes conference call to defend his latest cause: his huge investment in Valeant Pharmaceuticals International Inc.

In a matter-of-fact tone, Ackman spent more than four hours mostly defending the high-flying Canadian pharmaceuticals giant against allegations ranging from price gouging to presiding over an interrelated web of companies that resembles, in the word’s of a short-seller, “Enron part deux.”

“Even with very reputable companies, stuff happens,” said Ackman, who runs Pershing Square Capital Management. “The best thing about a company that goes through a scandal means they’re going to be that much more careful about this kind of thing going forward.”

Herbalife and Allergan can attest to Ackman’s brash style.

Amid much fanfare nearly three years ago, Ackman alleged publicly that Herbalife, a Los Angeles nutritional products company, was operated as a pyramid scheme and that its shares would fall to zero.

He shorted the stock in a $ 1-billion bet that shares would fall. They have risen instead and closed Thursday at $ 56.04, still above his since reduced short position.

Early last year, Ackman teamed up with Valeant in a bid to buy Allergan, the Irvine maker of Botox and other skin care products.

The bitter fight — including short-lived lawsuits — eventually sent Allergan into the arms of Irish firm Activis. Pershing Square walked away with a reported gain of more than $ 2 billion.

On Friday, Herbalife offered mock sympathy to Ackman over Valeant’s woes.

“Unfortunately we have a great amount of experience in dealing with activist short-sellers,” said Alan Hoffman, an Herbalife executive vice president. “We’re happy to give Ackman some advice if he needs it.”

In his long talk, Ackman answered nearly 200 questions sent by email from investors and reporters. But even as he talked, shares continued to fall. The stock has lost 63% of its value in the past three months, 48% of it this month. It lost $ 17.73, or 17.7% Friday, to $ 93.77 in U.S. trading.

Pershing Square’s roughly 6% stake in Valeant represents one the largest positions in the $ 16-billion New York hedge fund operation.

Ackman said Valeant erred mostly in being slow to respond to a barrage of bad publicity about its close and previously undisclosed ties to a mail-order pharmacy, Philidor Rx Services, at the center of the maelstrom. He backed Valeant’s embattled leaders, conceding they should have disclosed ties to Philidor earlier. Valeant severed those ties Friday.

Longtime Ackman-watchers said the conference call — so mobbed by investors and financial reporters that the call-in system suffered technical snafus — was emblematic of a high-risk, high-wire career made up of big bets punctuated by a series of dramatic public confrontations.

Ackman’s investing style, while often riveting, is also source of frustration for his investors, said Erik Gordon, a professor at the University of Michigan’s Ross School of Business.

“There are two Bill Ackmans,” he said. “The public sees him as a guy who’s obstinate to the point of ridiculous. Investors see him as a guy who can make them a lot of money. Their aggravation comes when they think about whether he could make them a lot more money if he wasn’t so obstinate.”

The Valeant fracas is part of a wider debate over Wall Street’s so-called activist investors who use large stakes in public companies to influence their direction, often through noisy publicity campaigns.

Activists, the heirs to corporate raiders of the 1980s, say they provide market discipline to complacent public companies resistant to change.

Opponents say they force companies to sacrifice long-term value for activists’ short-term gain.

The stakes are high, even by Ackman’s standards.

Federal prosecutors in New York and Massachusetts have issued subpoenas to Valeant for documents related to the company’s pricing decisions. And Sen. Claire McCaskill (D-Mo.) , the ranking member of the Senate Aging Committee, has sent letters demanding information about the Laval, Quebec, company’s business practices.

“Valeant’s questionable business practices extend well beyond price gouging,” McCaskill said this week.

The latest flurry of bad news was sparked by an Oct. 19 investigative story into Valeant’s related-party deals by the Southern Investigative Reporting Foundation. The sell-off was propelled two days later by a report from a short-seller, Citron Research, comparing fast-growing Valeant, which has made a series of rapid acquisitions, to scandalous energy trading firm Enron Corp.

On Friday, Citron said on its Twitter account that it would update its report Monday. “Dirtier than anyone has reported!!” it said. On Friday, Citron’s executive editor, Andrew Left, wouldn’t disclose what he planned to publish, saying “it’s more of a forward-looking thing.”

Steven Kaplan, a finance professor at the University of Chicago, said it’s far from clear that Ackman’s Valeant gambit will work out for his investors.

“Ackman and Pershing are very smart” he said “That said, they have winners and losers like everyone else. Valeant has been a winner for a while. But, nothing lasts forever in the stock market.”

The Valeant squabble has hurt Pershing Square, which had bought more than $ 2 billion worth of Valeant shares and was Valeant’s third-largest shareholder as of its latest Securities and Exchange Commission filing Sept. 30.

In response to the latest flap, Pershing bought 2 million more Valeant shares, for about $ 225 million, on Oct. 21.

Returns of Pershing Square’s closed-end mutual fund, seen as a proxy for Ackman’s overall hedge fund operation, were off 15.9% for the year through Oct. 27. It had been up as much as 11% in mid-August.

The 49-year-old New York area native started his first investment firm with a partner shortly after graduating from Harvard Business School in 1992, then started Pershing Square in 2004. He became known for placing a few out-sized bets based on meticulous financial research, often backed by political-style campaigns to sway other investors to his side.

One of his biggest successes involved a years-long campaign in the mid-2000s against most of the rest of Wall Street, warning that the $ 2.5 trillion bond-insurance industry was a catastrophe waiting to happen.

That warning was borne out when mortgage bonds began to collapse in 2007. A vocal Ackman campaign in 2005 to pressure Wendy’s International to sell its Tim Horton’s doughnut chain was considered an investment success. Another in 2010 to force major changes at J.C. Penney was not.

US Stocks Lock in Big Gains for October – Wall Street Journal

Updated Oct. 30, 2015 4:38 p.m. ET

The Dow Jones Industrial Average rose 8.5% in October, its biggest monthly percentage gain in four years as stocks around the globe rebounded from their late-summer lows.

Investors attributed the broad stock-market gains this month to global central banks, which have either talked up the prospect of further stimulus to boost sagging inflation and growth, or delayed interest rate rises that would tighten monetary policy.

Confidence in the markets was further bolstered by solid quarterly results from large companies.

In addition to the Dow industrials' big gain, the S&P 500 rose 8.3% during the month and the Stoxx Europe 600 climbed 8%, its largest monthly percentage gain since July 2009. Japan's Nikkei rose nearly 10%, the biggest percentage climb since April 2013.

On Friday, the Dow declined 92.26 points, or 0.5%, to 17663.54 and the S&P 500 lost 0.5%, weighed down by financial companies, which pulled back after rallying earlier in the week. The Nasdaq Composite edged down 0.4%.

The Stoxx Europe 600 fell 0.1%, while stocks in Asia mostly fell.

"The rally in October has been fantastic and extremely strong," said David Lyon, global investment specialist in San Francisco for J.P. Morgan Private Bank. "The volatility that reared up in August and September was really driven by two things, China and worries about the Fed and rate hikes," but both fears lessened in October, he said.

This year through mid-August, before the stock market began its steep late-summer swoon, the S&P 500 had been up 2.1%, compared with a 1.7% gain by the Russell 2000 index for shares of small companies. From mid-August through Friday's close, however, the two indexes have sharply diverged. The Russell 2000 has lost 5.2% in that period, while the S&P 500 is only off 1.1%. The 100 largest companies in the S&P 500 are up 0.2%.

On Friday, shares of Chevron CVX 1.10 % rose 1.1% after results for the second-biggest U.S. oil company fell less than Wall Street had expected.

Shares of LinkedIn climbed 11% after the social networking company late Thursday reported a smaller-than-expected third-quarter loss and raised its guidance for the year.

Most of the gains over the past month have come from the largest publicly traded companies, including big moves from Apple, Alphabet–the parent company of Google–and Amazon.com. AMZN -0.10 %

"It's a combination of relief that the China troubles aren't going to cause a worldwide recession and decent earnings," said Don Townswick, director of equities at Conning & Co.

Also helping stock performance during the month were continued accommodative measures taken by global central banks. Central banks' ultralow interest-rate policies have boosted stock markets in recent years, and expectations that some central banks could keep the stimulus in place for longer have buoyed investors' appetite for equities.

Investors poured $ 14.6 billion into equity funds in the week ended Oct. 28, according to Bank of America Merrill Lynch, the largest weekly inflow in six weeks.

"Investors have been whipsawed, and I think they've come to the conclusion that, even with comments this week, the Fed is going to be on the sidelines for a while, money will continue to be cheap, and U.S. stocks are really the only place to be in investor eyes," said Paul Nolte, senior vice president and portfolio manager at Kingsview Asset Management.

The Federal Reserve delayed raising interest rates after financial market volatility in September, when many economists had expected the first increase in almost a decade. The Fed said a December rate rise was still on the table at its meeting Wednesday.

Elsewhere, the People's Bank of China cut interest rates last week to boost its slowing economy.

Also, European Central Bank President Mario Draghi last week said that the bank is prepared to expand its stimulus program and potentially cut interest rates further into negative territory as the bloc struggles with low inflation and a tepid recovery.

European stocks have climbed since Mr. Draghi first raised the prospect of further monetary stimulus in September. Sectors most sensitive to a slowdown in China, which saw sharp falls after Beijing weakened its currency in August, have led the recovery.

In Asian markets, Japan's Nikkei rose 0.8% to a two-month high Friday after the Bank of Japan 8301 2.22 % left the size of its bond-buying program unchanged, but lowered its growth and inflation forecasts.

–Chiara Albanese and Christopher Whittall contributed to this article

Write to Corrie Driebusch at corrie.driebusch@wsj.com

Corrections & Amplifications:
Japan's Nikkei Stock Average rose nearly 10% in October, and the Stoxx Europe 600 fell 0.1% Friday. An earlier version of this article misstated the moves. (Oct. 30)

Valeant says Philidor shutting down as it cuts ties – Reuters

The company logo of Valeant Pharmaceuticals International Inc is seen at its headquarters in Laval, Quebec May 19, 2015.

Reuters/Christinne Muschi

Valeant Pharmaceuticals International (VRX.TO) said on Friday that it is cutting ties with pharmacy Philidor Rx Services and that the pharmacy was shutting down.

The move was part of a defense to allay concerns about the downside of its dealings with that pharmacy the morning after big pharmacy chains said they would cut it from their networks.

Valeant also said it would bolster its internal investigation into the matter by adding to the team an outside lawyer who once worked in the U.S. Department of Justice.

The drugmaker’s move comes amid growing pressure from investors after Valeant disclosed two weeks ago that it was under investigation by the U.S. government over its patients’ assistance program and drug pricing and distribution.

Influential short-seller Citron Research was one of the first critics to call the company out on Philidor in an Oct 20 report, saying Valeant was using the pharmacy set-up to inflate revenue. Valeant has denied any wrongdoing.

Valeant disclosed this week that it had paid $ 100 million for an option to buy the business. Bloomberg on Thursday detailed wrongdoing in its processing of medical claims, building on earlier reports about business practices.

Later Thursday, three top U.S. drug benefit managers, who administer prescription medicine benefits for health plans, said they would no longer work with the pharmacy. Express Scripts (ESRX.O), CVS Health (CVS.N) and OptumRx, part of UnitedHealth Group Inc (UNH.N), said they made the decision after conducting audits of the pharmacy.

Philidor will be shutting down operations as soon as possible, Valeant said.

Bill Ackman, whose Pershing Square Capital Management has a 6.3 percent stake in Valeant, told investors on Friday that “life will go on” for the company as it continues to sell high-demand products like Bausch & Lomb contact lenses.

“We think the Valeant business is quite robust,” Ackman said on a widely attended conference call. He said shares are undervalued.

“One criticism of (Valeant Chief Executive Mike Pearson) has been that he is so disciplined on costs that he could be seen as being a little cheap on hiring on the PR side,” Ackman said.

The hedge fund swept up 2.1 million additional Valeant shares last week as the stock plummeted, making Pershing Square the company’s second-largest shareholder, leapfrogging asset manager T. Rowe Price.

Valeant shares fell 9.1 percent Friday and remained off during Ackman’s conference call, trading at $ 101.31. They have given up more than a third of their value since the company disclosed that Philidor pharmacy distributed drugs making up 6-percent of Valeant revenue this year, and are well off from their peak on Aug. 5 of $ 263.70.

Bloomberg reported on Thursday that Philidor has altered doctors' orders to wring more payment out of insurers, according to former employees and an internal document, which details how to proceed with a prescription for certain Valeant drugs after they have been rejected.

‘LOST CONFIDENCE IN PHILIDOR’

Valeant first disclosed less than two weeks ago that it was using a pharmacy called Philidor, which works with a network of pharmacies including one called R&O Pharmacy that is also involved in lawsuits with Valeant over nonpayment and other issues.

“We have lost confidence in Philidor’s ability to continue to operate in a manner that is acceptable to Valeant,” Chief Executive Michael Pearson said in a statement. “Operating honestly and ethically is our first priority, and you have my absolute commitment that we will make it right.”

Valeant said that former U.S. Deputy Attorney General Mark Filip had been appointed to advise a committee that it formed earlier this week to look into the allegations related to the company’s association with Philidor. Filip works for Kirkland & Ellis.

Philidor accounted for 6.8 percent of Valeant's total revenue in the third quarter and 5.9 percent so far this year. The drugmaker said it intended to develop a plan to ensure minimal disruption to patients’ access to drugs.

Valeant shares have lost more than half their value since September as the company has come under attack on several fronts. U.S. prosecutors are also investigating the company over drug pricing, a hot issue in the U.S. presidential campaign.

Valeant was until recently one of the most popular healthcare stocks among investors, with its model of rapid acquisition-driven growth. Its abrupt slide from market darling to a company under fire has weighed heavily on ValueAct Partners and Pershing Square, two well known U.S. activist funds.

Short-seller Citron Research tweeted Friday that the shares of Valeant have a better chance of going to zero than Herbalife Ltd (HLF.N).

Citron said: “$ VRX has a better chance of going to 0 than $ HLF EVER will. Citron to update full story on Monday. Dirtier than anyone has reported!!”

(Corrects spelling of “patients” in paragraph 4, makes clear in paragraph 16 disclosure came from Valeant, not Philidor)

(Additional reporting by Ben Hirschler in London and Shivam Srivastava in Bengaluru; Editing by David Goodman and Nick Zieminski)

Weak US data clouds December rate hike possibility – Reuters

A customer looks at merchandise in a Best Buy store in Denver May 14, 2015.

Reuters/Rick Wilking

U.S. consumer spending in September recorded its smallest gain in eight months as personal income barely rose, suggesting some cooling in domestic demand after recent hefty increases.

The Commerce Department data and another report from the Labor Department on Friday also showed weak inflationary pressures, which would argue against the Federal Reserve raising interest rates at the end of the year.

U.S. central bank policymakers this week put a rate hike in December on the table with a direct reference to their final meeting of the year. The Fed has kept benchmark overnight interest rates near zero since December 2008.

“It will be difficult for the Fed to justify a rate hike at a time when income, consumption, and inflation are trending lower, leaving a December rate hike less likely than prior to the data,” said Jay Morelock, an economist at FTN Financial in New York.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, edged up 0.1 percent last month after rising 0.4 percent rise in August. September’s consumer spending data was included in Thursday’s third-quarter gross domestic product report.

Consumer spending rose at a brisk 3.2 percent annual pace in the third quarter, helping to lift GDP growth to a 1.5 percent rate. Consumption has increased at a rate of more than 3 percent in each of the last two quarters.

Third-quarter growth was constrained by business efforts to whittle down an inventory bloat, a strong dollar and ongoing spending cuts by energy companies.

Stocks on Wall Street were trading marginally lower, while prices for longer-dated U.S. government debt rose. The dollar fell against a basket of currencies.

WEAK INFLATION

When adjusted for inflation, consumer spending rose 0.2 percent in September after increasing 0.4 percent in August, suggesting consumption will continue to support the economy through the rest of the year.

That view also was bolstered by a separate report showing the University of Michigan’s consumer sentiment index rebounded in October from September. Consumer spending growth, however, is unlikely to maintain the brisk pace witnessed in the second and third quarters in the absence of a significant rise in income.

Income ticked up 0.1 percent as wages and salaries fell last month, especially in manufacturing, after rising 0.4 percent in August.

“Stronger income growth is needed to support stronger consumer spending,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto.

With spending sluggish, inflation was weak last month. A price index for consumer spending slipped 0.1 percent, the first decline since January, after being flat in August.

In the 12 months through September, the personal consumption expenditures (PCE) price index rose 0.2 percent, the smallest increase since April, after increasing 0.3 percent in August.

Excluding food and energy, prices rose 0.1 percent for a fifth straight month. The so-called core PCE price index rose 1.3 percent in the 12 months through September after a similar gain in August.

Inflation has persistently run below the Fed’s 2 percent target. A report from the Labor Department showed the Employment Cost Index, the broadest measure of labor costs, increased 0.6 percent after a 0.2 percent gain in the second quarter.

In the 12 months through September, labor costs held steady at 2.0 percent, below the 3 percent threshold that economists say is needed to bring inflation closer to the Fed’s target.

“We are still in a modest compensation-gain environment and that implies inflation is not likely to accelerate sharply soon,” said Joel Naroff, chief economist at Naroff Economic Advisers in Holland, Pennsylvania.

“The labor market may be tight but firms appear to be in no great hurry to raise compensation.”

(Reporting by Lucia Mutikani; Editing by Paul Simao)

Bill Ackman Says Valeant Shares Have Upside Despite Scrutiny – Bloomberg

Valeant Pharmaceuticals International Inc.'s shares are trading at a steep discount and will take some time to recover, said Bill Ackman, the billionaire activist investor who has helped rally support for the drugmaker whose shares have sunk amid scrutiny of its business model.

The company made a “meaningful mistake” in spending too little on public relations and government relations, said Ackman, whose Pershing Square Capital Management was Valeant's third-biggest holder with 19.5 million shares as of June 30. On Thursday, Bloomberg News reported that Valeant's specialty pharmacy partner, Philidor RX Services, has altered doctors' orders to wring more reimbursements out of insurers, citing former employees and an internal document.

“We don't think the business model is broken,” Ackman said.

His presentation was little comfort to shareholders. Valeant shares fell 4 percent to $ 107.03 at 9:44 a.m. in New York, their eighth decline in the past 10 trading days. The stock has 89 percent upside at its current value today, Ackman said, assuming his projections for earnings growth, debt reduction and the loss of 50 percent of the Philidor business.

Short-seller Citron Research on Oct. 21 accused Valeant of recording fake sales, causing its stock to plummet. Ackman that day defended the drugmaker, saying he added 2 million more shares and hasn't sold a single one. Sticking with Valeant as its stock slid 57 percent since an August peak has come at a price: Pershing Square investments extended their losses over the past week to a 15.9 percent decline this year, based on weekly data reported Oct. 27.

Citron Research, in its report last week, said Valeant was using Philidor to store inventory and record those transactions as sales. Valeant, in response, defended its relationship with the specialty pharmacies that distribute its drugs and said sales are only recorded when drugs are sent to patients.

Changing Codes

Philidor workers were given written instructions to change codes on prescriptions in some cases so it would appear that physicians required or patients desired Valeant's brand-name drugs — not less expensive generic versions — be dispensed, Bloomberg reported Thursday, citing former employees of the pharmacy.

Valeant severed ties with Philidor on Friday, citing “recent allegations.”

"We understand that patients, doctors and business partners have been disturbed by the reports of improper behavior at Philidor, just as we have been," Valeant Chief Executive Officer Michael Pearson said in the statement. "We know the allegations have also led them to question Valeant and our integrity, and for that I take complete responsibility. Operating honestly and ethically is our first priority, and you have my absolute commitment that we will make it right."

On the call, Ackman said specialty pharmacies like Philidor can be good for patients because they gives them more convenient access to medications and eliminate the burden of the co-pay, which is often covered by the drugmaker.

Ackman isn't mounting a solo defense. ValueAct Capital Management, which helped design Valeant's business approach, doubled its membership on the company's board on Monday. The drugmaker's biggest investor — Ruane, Cunniff & Goldfarb, which manages the $ 8.1 billion Sequoia Fund — on Thursday said Valeant pushes boundaries but operates within the law. As of June 30, the investor held 33.9 million shares, or almost 10 percent of Valeant.

The drugmaker said Friday it hired former U.S. Deputy Attorney General Mark Filip, now with Kirkland & Ellis LLP, to advise an ad hoc committee of the board that's reviewing Valeant's business relationship with Philidor.

Valeant Says It’s Cutting Ties With Troubled Pharmacy Philidor – Bloomberg

Valeant Pharmaceuticals International Inc. will terminate its relationship with Philidor Rx Services, the closely-associated pharmacy that the drugmaker has used to distribute its products and that is under scrutiny for its business practices.

Philidor will shut down operations as soon as possible, Valeant said in a statement Friday, and the drugmaker will continue to ensure patients' access to treatments. The decision came after Bloomberg News reported that Philidor altered doctors' prescriptions to wring more reimbursements out of U.S. health insurers.

"The newest allegations about activities at Philidor raise additional questions about the company's business practices," Michael Pearson, Valeant's chief executive officer, said in the statement. "We have lost confidence in Philidor's ability to continue to operate in a manner that is acceptable to Valeant and the patients and doctors we serve."

Valeant and Philidor have a close business relationship. Valeant said that it paid $ 100 million late last year for an option to buy Philidor for nothing at any time in the next 10 years. The drugmaker has some oversight over Philidor's operations, and consolidates its financials on Valeant's balance sheet. Philidor makes up about 6.8 percent of Laval, Quebec-based Valeant's revenue, according to the drugmaker. Such an arrangement is rare in the industry.

'Improper Behavior'

"We understand that patients, doctors and business partners have been disturbed by the reports of improper behavior at Philidor, just as we have been," Pearson said in the statement. "We know the allegations have also led them to question Valeant and our integrity, and for that I take complete responsibility. Operating honestly and ethically is our first priority, and you have my absolute commitment that we will make it right."

Before it came under scrutiny by prosecutors and investors, Valeant was one of the most popular health-care stocks on Wall Street. That's no longer the case. Valeant has lost almost $ 10 billion in market value since a Wall Street short-seller on Oct. 21 suggested it was using Philidor to artificially pump up retail sales and engage in Enron-style accounting tactics. Valeant denied those allegations at the time.

Following questions about Philidor, U.S. prescription drug benefit managers that oversee drug prescriptions cut ties with the pharmacy. CVS Health Corp. and Express Scripts Holding Co., the nation's two largest drug-benefits managers, said Thursday that they were removing Philidor from their pharmacy networks and reviewing its practices. OptumRx, UnitedHealth Group Inc.'s pharmacy benefit management unit, did the same.

Bill Ackman, whose Pershing Square Capital Management was Valeant's third-largest shareholder as of June 30, said he will discuss the firm's investment in Valeant on Friday. Ackman has been a booster of the stock before the most recent questions about Philidor. An outside spokesman for Ackman didn't immediately respond to a request for comment about the latest accusations and Valeant's proposed remedy.

Valeant shares fell 4.7 percent to close at $ 111.50 in New York trading Thursday. They were down 7.2 percent to $ 103.50 at 5:43 a.m. New York time Friday in trading before the market opened.

Understanding Ted Cruzs Jedi Debate Skills – Daily Beast

Marco Rubio may have stood out in the Republican debate, but if you ask competitive debaters, Ted Cruz was the hands-down winner.

Ted Cruz did well last night's debate because he knows how to debate—literally.

Though the emerging pundit consensus seems to be that Marco Rubio won the night, Cruz nabbed what was arguably the biggest stand-out moment of the evening when he squared off with moderator Carlos Quintanilla and questioned the entire premise of the evening's event. Whether he was conscious of this or not, the Senator used a risky and controversial tactic used by high school debates champions the world over to deflate the moderator, win the crowd, and change the tenor of the evening.

The strategy he used is called running a kritik. Depending on what style of debate you're doing and what league you're in, kritiks can operate in a host of ways. The basic gist, though, is this: A kritik is an a priori argument, which means it has to be addressed before either side of the debate can move on to talk about anything else. The term "kritik" didn't come into the common debate lexicon until the 90's—long after Cruz's days as a parliamentary debate champion were over. But the strategy existed and was fairly common during his time in academic debate.

Anyway, a debater who runs a kritik (or that style of argument) argues that the entire premise of the debate round is fundamentally flawed. For example, in 2013, two African-American college students—Ryan Walsh and Elijah Smith—won the Cross Examination Debate Association's national championship in part by deliberately ignoring the tournament's stated resolution and, according to The Atlantic, arguing instead that "the framework of collegiate debate has historically privileged straight, white, middle-class students."

In other words, they argued that the entire terms and structure of the debate were unfair. Cruz took a similar approach last night about a third of the way into the CNBC debate. Quintanilla set him off by asking if his opposition to a deal House Republicans recently made to raise spending and avert government shutdowns until March of 2017 shows that the Senator was "not the kind of problem solver American voters want?"

At this point, Cruz could have answered the question on its merits, explaining as he's done a million times already that Americans want someone who will fight to shrink the government, even if it means refusing to compromise with Democrats and risking shutdown. But that isn't what Cruz did. Instead, he questioned the moral authority of Quintanilla to question him.

"You know, let me say something at the outset," the senator replied. "The questions that have been asked so far in this debate illustrate why the American people don't trust the media."

The crowd cheered.

"This is not a cage match," the senator continued, reiterating his criticism of CNBC's management of the event. "And, you look at the questions—'Donald Trump, are you a comic-book villain?' 'Ben Carson, can you do math?' 'John Kasich, will you insult two people over here?' 'Marco Rubio, why don't you resign?' 'Jeb Bush, why have your numbers fallen?'

How about talking about the substantive issues the people care about?"

Quintanilla sputtered.

"Does this count?" he interjected, over the roaring crowd. "Do we get credit for this one?"

"And Carl, I'm not finished yet," he continued. "The contrast with the Democratic debate, where every fawning question from the media was, "Which of you is more handsome and wise? Let me be clear. The men and women on this stage have more ideas, more experience, more common sense than every participant in the Democratic debate. That debate reflected a debate between the Bolsheviks and the Mensheviks."

When student debaters make this kind of argument, one criticism they hear is that they undermine the educational value of the debate round, shifting its focus from the legal or policy issues at hand to loftier, more abstract concerns about language, philosophy, and ethics.

And that's the criticism Quintanilla levelled at Cruz: How dare the Senator redirect the debate to the abstract question of media bias, at the expense of a discussion on the concrete issue of the debt limit?

But Quintanilla's criticism fell flat. Cruz benefitted hugely from the exchange because the debate audience, judging by their loud and lengthy applause, thought his a priori rejection of the terms of the debate was a valid concern that needed to be aired before the debate itself could continue. And that's why he won the night.

Don't believe me? According to Wall Street Journal analysis, that particular moment generated the most conversation on social media—more even than Jeb Bush's awkward "warm kiss" comment and Donald Trump's boast about getting the network to cut down the debate time.

And according to CNBC, Cruz was mentioned on social media during the debate more than any other candidate—including nearly 5,000 times in just 60 seconds after he tore into Quintanilla. No other candidate got that many mentions in such a short period of time.

Cruz didn't just impress the Republican base, though. He also won plaudits from at least one academic debate expert for his strategy.

"One of the things Cruz seems to have learned from his debating experience is that it's powerful to identify shared assumptions with the audience and then use those shared assumptions to your advantage," said Kate Shuster, co-director of the Middle School Public Debate Program who once coached a team to the championship of the National Parliamentary Debate Association.

"It seems like he's got a good intuition for executing those kinds of tactics," she added.

And she noted that Cruz's use of this particular tactic was much more successful than Donald Trump's. The real estate mogul tried to pull off a similar feat in the first Republican presidential debate, tearing into moderator Megyn Kelly for questioning him about his history of sexist remarks. But Trump's attack was clumsy and ham-handed, generating as much disgust as approbation. Cruz, on the other hand, knew what he was doing. And from the right, he won universal praise.