Remember the breathless reports concerning the record-breaking opening of "Harry Potter and the Half-Blood Prince" in July?

The sixth movie in the fantasy franchise surpassed "Spider-Man 3" to set new worldwide ($394 million) and foreign ($236 million) records, and its North American tally ($158.0 million) was $18 million higher than that of "Harry Potter and the Order of the Phoenix" two years earlier. (Note: Data are slightly different in the link as they were estimates, and the final figures were issued the following day.)

"Phoenix" ended up with $938 million worldwide, the seventh-biggest movie of all time before accounting for inflation. So it was only natural to assume that the new one might have a chance to become the first in the series to crack $1 billion.

Not so fast. It turns out "Spider-Man 3" ($891 million) was a better benchmark for the film. "Harry Potter and the Half-Blood Prince" has earned $905.4 million after opening at No. 1 during the weekend in its last market, Greece. It's the biggest movie of the year, the third-biggest in the series and the 12th biggest of all time. If it can squeeze out an extra $15 million, it will crack the top 10. BUT, it won't get to $1 billion.

The North American total of $294.3 million just passed "Phoenix" ($292 million) to trail only the $317.5 million haul for 2001's "Harry Potter and the Sorcerer's Stone," which ended up with $975 million worldwide. Its foreign total stands at $611.1 million, but that's quite a bit short of the $700 million forecast by Variety on the basis of that opening weekend.

Warner Bros. Pictures, which leads the studio field with eight No. 1 openings in North America this year, never publicly issued forecasts and an executive declined during opening weekend to discuss the billion-dollar possibility. Still, when studios trumpet record-breaking launches, boosted by ticket-price inflation, premium-priced IMAX screenings and simultaneous worldwide roll-outs, not even young wizards are immune to market forces for long.

Bloomberg’s Katya Kazakina has done the rounds of various real-estate appraisers, asking them how much Annie Leibovitz’s property might be worth, and it turns out that the real estate alone – never mind her life’s work – could well sell for substantially more than she owes Art Capital Group. But, as Kazakina says with delicious understatement:

Whether the appreciation of the real estate, in Manhattan and upstate New York, will offer the photographer a path out of her financial troubles is unclear.

For one thing, Leibovitz has to repay Art Capital the sum of $24 million, plus $2.9 million interest, plus fees, by September 8. As one appraiser told Kazakina, “It’s not going to sell in a week” – especially not her West Village live/work studio, renovated at enormous expense, and custom-designed to the specific needs of Annie Leibovitz. And there’s another major impracticality: according to Art Capital’s complaint against Leibovitz, she has refused to allow Art Capital’s real-estate brokers to show her property to interested potential buyers.

For there’s the rub: as part of the loan agreement, Leibovitz authorized Art Capital to act as the “irrevocable exclusive agent” for the sale of both her photography and her property. Neither Leibovitz nor anybody else can sell these properties, the liens on which are held by Art Capital. Only Art Capital can do that. And the way that Art Capital’s sales agreement with Leibovitz is structured, there’s very little incentive for them to sell any property before September 8. As Kazakina reported on August 18, quoting Art Capital spokesman Montieth Illingworth:

Goldman and Art Capital stood to gain 12 percent interest from their one-year loan to Leibovitz, Illingworth said. This means, Leibovitz would have to pay $2.9 million on top of the $24 million loan…

If Leibovitz doesn’t default, Art Capital would receive a 10 percent commission on copyright and real estate sales, Illingworth said. If she does, the commission would increase to 25 percent of the sale of the collateral (the higher rate includes 11 percent to 13 percent in legal, real estate and other fees, Illingworth said.)

How many people, working on commission, will sell an item at a 10% commission today if they know full well that the commission rate rises to 25% in little more than a week’s time?

It’s not just the sales agreement which gives Art Capital an incentive not to sell the property. There’s the loan agreement, too: Art Capital’s Ian Peck told me in June, talking about his business in general rather than Leibovitz in particular, that his “commissions and fees are designed to be prohibitive” in the event that a borrower defaults on her loan. Come September 8, Art Capital won’t just be collecting a 25% commission on any real or intellectual property it sells on behalf of Annie Leibovitz. The amount which Leibovitz needs to repay Art Capital will also spike significantly: the interest rate on the loan will go up to some unknown penalty rate, from 12%, and Art Capital will almost certainly charge Leibovitz substantial (and also unknown) fees on top for going into default.

What’s more, since Art Capital is now working on a 25% commission, it’s also clear that it has every incentive to sell both the real estate and the intellectual property, rather than the real estate alone, since the best-case scenario for Art Capital involves maximizing its total sales commission.

The subtext to the Bloomberg article, as elucidated by the likes of Jessica Pressler, is that if she’s really lucky, Leibovitz might be able to pay off her whole loan just from real-estate proceeds, without having to touch her intellectual capital. But that seems improbable to me. Clearly, no real estate deal is likely to get done between now and September 8 -- so if and when the property is sold, Art Capital will take a 25% commission off the top. Using the high end but not the highest end of the estimates in the article, the Rheinbeck property could sell for $6 million, with the West Village property going for $24 million. That’s $30 million together, or $22.5 million after commission – not enough even to repay the loan principal, let alone the interest and any unknown default penalties.

Art Capital would, I think, then be fully within its rights to continue to shop Leibovitz’s full archive of photographs, which it values at $50 million, to the highest bidder – and to take its full 25% commission on any sale before repaying the balance of the loan plus interest. Let’s say it sold the archive for $30 million: again there would be that $7.5 million in sales commission, leaving $22.5 million to repay $1.5 million loan principal, plus interest and unknown penalties. Even with no penalties at all, there’s $2.9 million in interest already accrued: in the wake of her real estate and life’s work being sold off for a total of $60 million, Leibovitz would be left with just $18 million, or less. The rest of the proceeds ($42 million plus) would be kept by Art Capital. Oh yes, and Art Capital would also be entitled to a 25% commission on any income from photography which Leibovitz makes for two years after the loan is paid off.

How can Leibovitz get out of this mess? As I see it, she has two hopes. One is that Goldman Sachs, which owns part of the loan, takes pity on her and advances her the money to pay it off in full. The other, as sketched out by John Cook, is that she files for bankruptcy and throws herself on the mercy of a sympathetic bankruptcy judge:

Art Capital would still likely be able to force the sale and recoup some or all of its debt, but a judge might be convinced to reduce the amount, modify the interest rate, or alter the sales agreement under which Art Capital gets commission on the sale.

For Leibovitz, there’s a real risk that the bankruptcy strategy would gain her little and just end up diverting precious millions to two (or more) sets of bankruptcy lawyers. But I reckon it might well be her best hope.

Did Citi sell something? All signs point to yes, but beyond that it's hard to say.

Citigroup announced on Monday that it sold three credit card portfolios representing $1.3 billion in managed assets as part of a plan to unload weak businesses and troubled assets. The third-largest U.S. bank by assets did not disclose the terms of the deals, but said it will continue to service the portfolios through the first half of 2010.

Or, as New York Times chief financial correspondent Floyd Norris said as he bemoaned the lack of transparency from the taxpayer-funded bank:

I can’t remember a deal announcement when a company said it had sold undisclosed assets to an undisclosed buyer for an undisclosed price, resulting in an undisclosed profit or loss.

In a perfect world, we would simply ban leveraged buyouts. The vast majority of these debt-laden corporate takeovers are no less predatory and value-destroying to a company than a loan shark who charges usurious rates of interest.

Realistically, a prohibition on private equity deals will never happen, given the big dollars involved in these transactions and the sizeable campaign contributions that private equity chieftains shower on politicians from both parties.

So here's another way to prevent private equity firms from again saddling their corporate prey with too much debt: Prohibit banks from committing financing to any LBO where the private equity buyers are not willing to pony up at least 50 percent of the purchase price.

A 50 percent equity threshold would stop banks from giving in to their worst impulses, which are to do whatever they can to win favor with the private equity firms, in the hopes of rich fees and the promise of lucrative stock and bond underwriting deals down the road.

And it will force banks going forward to make more loans to companies looking to expand their operations and create jobs -- not destroy jobs, as is often the end result of an LBO.

Requiring a private equity firm to put up a dollar for every dollar in a financing that a deal needs to get done is not as extreme as it may sound.

In fact, at the end of the two most recent LBO booms, it was not uncommon for the small number of deals that did get consummated to involve equity commitments in excess of 40 percent, according to data compiled by Standard & Poor's Leveraged Commentary & Data.

Even in a dismal year for private equity deals like 2008, there were still more than 600 leveraged buyouts in the United States with a total value of $61 billion.

But with the credit markets sealed tight, the private equity players who orchestrated these takeovers had to dig deeper into their own pockets -- coming up with the funds to cover some 42.6 percent of the average purchase price, according to Standard & Poor's LCD.

By contrast, during the peak of the most recent LBO boom, the average equity contribution from private equity buyers was 33.6 percent in 2006. But there were some mega-deals -- Clear Channel Communications -- in which the private equity firms were able to put down as little cash as a subprime home buyer.

Now Clear Channel is struggling mightily with the mountain of debt the private equity firms loaded up on the company to complete the $19 billion deal. Overall, companies taken private by buyout firms are sitting on some $400 billion in debt, much of which needs to be repaid in the next five years.

Of course, the private equity firms will complain that a minimum 50 percent equity commitment will stymie deal-making and impact returns for buyout funds. That's no doubt true. It's a good thing, too.

By Brian Ellsworth and Denise Luna
BRASILIA, Aug 31 (Reuters) - Brazilian President Luiz Inacio Lula da Silva proposed legislation on Monday to boost the role of the state in managing huge new oil finds that could drive the country's development for decades to come.

The long-awaited proposal, which faces a tough battle for approval in Congress, boosts the government's role by creating a new state holding company to manage new projects and a contract system that gives the government a share of the oil.

For Brazil, the stakes are high. The overhaul could usher in a new round of investment in Brazil's oil sector if energy companies find the terms acceptable. But it could also leave billions of barrels of light crude trapped under the sea if the regulatory framework turns out to be too onerous.

Lula, a charismatic and hugely popular former union leader who has steered Brazil through an economic boom with a mix of market-friendly policies and social spending, hailed the unveiling of the oil legislation as a "new independence day" for South America's largest nation.

"We don't have the right to take the money we're going get with this oil and waste it," he said on Monday in his weekly radio address. "What we want ... is to use this oil to make Brazil a wealthier country, to make it more developed."

Under Lula's plan, the government's share of oil revenues would go into a development fund aimed at preventing the boom-and-bust cycles experienced by many other oil-rich countries in the developing world.

The fund would make regular transfers to the government's budget to be invested in poverty reduction, science and technology, the environment and improving an education system that lags much of the world despite Brazil's strong economic gains in recent years.

The plan would make state-run energy firm Petrobras the sole operator of new fields with a minimum 30 percent stake in all future projects in the so-called subsalt oil fields, the company announced.

It calls for a state capital infusion of about $50 billion in Petrobras to boost federal control over the firm, according to Romero Juca, the government's leader in the Senate.

The firm said it would call a shareholders' meeting to decide on the capitalization, which it said would be limited to the equivalent of 5 billion barrels of oil.

CONGRESSIONAL BATTLE LOOMS
Monday's proposal, part of a worldwide trend toward the nationalization of key natural resources by governments, seeks to give the state greater control over the oil without shunting aside foreign capital.

But critics say the changes inject too much political influence into Brazil's successful oil industry. The oil wealth is likely to be used as a major plank in Lula's campaign to get his chief of staff Dilma Rousseff elected as his successor in October 2010 elections.

Petrobras shares were down 4 percent in afternoon trade at 31.25 reais after the plan's details were unveiled. Investors have voiced concerns that its greater role in the development of the fields could overstretch its resources, while the capitalization could dilute shareholder value.

Some also say the government has played down the exploration risk of tapping the estimated 50 billion barrels of oil that lie below shifting sand and a thick layer of salt up to 5 miles (8 km) beneath the ocean surface.

The proposal gives an "absurd amount of power" to a cabinet level energy commission that could open the door to political interference in operational decisions, said Marilda Rosado, a Rio de Janeiro-based lawyer who specializes in energy.

Most noteworthy, Rosado said, were clauses letting the government assign fields directly to Petrobras without holding bids and to veto operational decisions of Petrobras' joint ventures with private companies.

The prospect of prolonged wrangling in Congress over Lula's proposal could also weigh on the company and on major foreign energy firms involved in exploration. The government leader in the lower house of Congress, Ideli Salvatti, said Lula had requested fast-track status for the bill, contradicting statements by Energy Minister Edison Lobao on Sunday.

"The government doesn't want to improve the oil model, this is obviously only for electoral purposes," said Luiz Paulo Vellozo Lucas, a deputy with the main opposition PSDB party.

"We will attack the proposal as a whole."

Under the proposal, the government will have the right to declare any oil region as strategic and implement a sharing system, Petrobras said.

The proposed overhaul focuses on vast new oil reserves that were discovered off Brazil's southern coast in 2007, giving the country the potential to become a major energy exporter. The Tupi oil find was one of the world's biggest in a decade and has opened up a new frontier in global petroleum exploration.

Lula is proposing switching to a production-sharing system in which the government owns a part of the oil produced. That is a shift from the current system in which companies participate in competitive auctions to win the rights to explore for oil in blocks. [nN31435447]

The government also wanted to change the way oil royalties are distributed to ensure a steady revenue flow to poorer states. But Lula backed off that proposal late on Sunday after the governors of the top three oil-producing states of Rio de Janeiro, Sao Paulo and Espirito Santo protested.

For a graphic on Brazil's deep-sea oil reserves, please click here.

For a Petrobras presentation on how oil production in the subsalt area works, please click here.

Vanity Fair scores another bullseye this month with Todd Purdum's 8,000-word article on what Hank Paulson was thinking over the course of the financial crisis, as revealed in a series of embargoed interviews he gave at the time -- VF has, improbably, become the home of the best financial journalism in the world of magazines.

There's more good stuff in this article than can easily be excerpted -- go read the whole thing, which kicks off with Paulson throwing up in his private bathroom and just gets better from there. Barney Frank comes out very well indeed -- better than Paulson, actually -- while Barack Obama's choice of Tim Geithner as Treasury secretary looks more than it did already like a vote for the continuation of the Bush administration's status quo.

This article is interesting in that it does somewhat back up the official side of the story as regards Treasury's (in)ability to bail out Lehman Brothers:

The meltdown at Lehman was catastrophic enough, and Paulson took enormous heat for its failure. Barclays, the British bank, had hoped to buy it, but British regulators blocked the deal, and Paulson saw no alternative. “Lehman Brothers was something that we had been focused on and worked on and worried about for a year. And we knew, and Dick Fuld [the Lehman C.E.O.] knew, and we kept telling him every way we knew how that if he announced earnings like he thought he was going to announce—right after he announced the second-quarter earnings—the company would fail. And when you’ve got an investment bank, no one had any powers to deal with that. I certainly didn’t have any powers to deal with that.”

It's not clear when exactly Paulson said this, which is important: the decision not to bail out Lehman went quite quickly from being seen as bold and decisive to being seen as utterly catastrophic, and the story about Treasury's hands being tied only really started to emerge after the latter view became conventional wisdom. But there's no doubt that Paulson is throwing Fuld under the train here. Which is the kind of thing which Henry Paulson, former CEO of Goldman Sachs, probably wasn't too upset about doing. Could Henry Paulson, Treasury secretary, really silence such internal thoughts? I doubt it, somehow.

By Eadie Chen and Chen Aizhu
BEIJING, Aug 31 (Reuters) - A report that Chinese state-owned companies will be allowed to walk away from loss-making commodity derivative trades provoked anger and dismay among investment bankers on Monday as they feared it may set a damaging precedent.

The State-owned Assets Supervision and Administration Commission, the regulator and nominal shareholder for state-owned enterprises (SOEs), told six foreign banks that SOEs reserved the right to default on contracts, Caijing magazine quoted an unnamed industry source as saying in an article published on Saturday.

While the details of the report could not be confirmed, it was Monday's hot topic in financial circles from Shanghai to Singapore as commodity marketers feared that companies holding underwater price hedges could simply renege on the deals, costing banks millions of dollars in profit.

The warning from SASAC follows a series of measures from Beijing this year to crack down on the sale of derivative products by foreign banks to Chinese enterprises, principally big consumers, who bought protection against higher prices last year only to watch the market collapse -- leaving them with losses.

While many companies including top airlines have come clean on the losses, some analysts fear another wave may follow.

"I wouldn't be surprised if more state firms emerge with big derivatives trading losses, otherwise SASAC wouldn't come out with such a radical move," said a Hong Kong-based derivatives analyst, who like most other industry officials and bankers declined to be named due to the high sensitivity of the issue.

A SASAC media official said on Monday that he was waiting for the "relevant department's" official comment before he can clarify to media. A government official said that the Bureau of Financial Supervision and Evaluation under SASAC was handling the issue. The official declined to be named and did not elaborate.

Spokespersons at Goldman Sachs
and UBS
declined comment, and media officials at Morgan Stanley
and JPMorgan
were not immediately available for comment. All are major global providers of commodity risk management.
No bank were named in the Caijing report. The SASAC media officer also declined to identify any specific banks.
"It's a handful of companies who are being encouraged by regulators to re-negotiate," said a second banking source. "It's outrageous, but it's China, so everyone is treading very carefully."

DAMAGING PRECEDENT
For banks that are hoping to sell more derivatives hedges in China, the world's fastest-expanding major economy and top commodities consumer, the danger goes beyond the immediate risk to existing contracts to the longer-term precedent that suggests Chinese companies can simply renege on deals when they like.

The report follows an order from SASAC in July that required all central government-controlled state companies engaged in trading derivatives to make quarterly reports about their investments, including details of holdings and performance.

But the reported letter opened several important questions that could not immediately be answered.

"If we were among the banks receiving that letter, we would be very angry. But now the key is to find out more details on the letter: In whose name the letter was issued, the government or the corporate's? And under what was the reason for defaulting?" said a Singapore-based marketing executive with a foreign bank.

The source, whose bank did not receive a letter, said that Air China, China Eastern and shipping giant COSCO -- among the Chinese companies that have reported huge derivatives losses since last year -- had issued almost identical notices to banks.

"If it's in the name of the government, the impact will be very negative," said the source, who declined to be named.

Beijing-based derivatives lawyers said the so-called "legal letter" has no legal standing -- SASAC as a shareholder has no business relationship with international banks.

"It's like the father suddenly told the creditors of his debt-ridden son that his son won't pay any of his debt," said a lawyer from the derivatives risks committee of the Beijing Lawyers Association.

It's also unclear why Chinese state firms, which have complained that their foreign banks sometimes did not disclose full information of potential risks when selling them complicated products, did not seek redress through the courts.

"If that is the case, these firms should seek through legal measures to safeguard their rights, instead of turning to the authorities for political interference," said a different lawyer.

SASAC took over the job of overseeing SOEs' derivatives trading from the securities regulator in February after several Chinese firms reported huge losses from derivatives.

ZURICH, Aug 31 (Reuters) - The United States has launched the formal process to get account details of 4,450 American clients of UBS suspected of tax evasion, the Swiss finance ministry said on Monday.

Switzerland agreed to reveal the names to U.S. authorities in a tax dispute settlement that pierced Swiss banking secrecy.

The finance ministry said the United States had asked for administrative assistance from Swiss authorities.

"In accordance with the agreement, the FTA (Swiss Federal Tax Administration) must now issue a conclusive decree on surrendering the information requested in the initial 500 cases within 90 days," the finance ministry said.

For the remaining conclusive decrees, there is a deadline of 360 days.

UBS must provide the client information mentioned in the request for administrative assistance and prepare it for processing by the FTA, the ministry said.

UBS had undertaken to do so in a separate agreement with the U.S. tax authority, it said.

The persons concerned had the right to appeal against the final decree, the finance ministry said.

The UBS dispute strained relations between the United States and Switzerland and challenged the latter's jealously guarded bank secrecy laws.

The row also weighed heavily on UBS, which is trying to rebuild its once powerful brand after record losses caused by the subprime crisis.

U.S. investor Capital Group Companies has taken a 4.38 percent stake in UBS, an announcement on the Swiss stock exchange website from Saturday showed.

For the full statement, please click here.

Automakers' monthly sales numbers, manufacturing and housing data are among the highlights expected on Tuesday.

*  Automakers are expected to report that August had the strongest U.S. monthly sales figures for the year, spurred by the U.S. government "cash for clunkers" program.

*  Expectations that the Institute of Supply Managers’ national manufacturing survey will go above the expansion level of 50 and will get stronger going forward rose after Monday’s Chicago purchasing managers index showed improvement.

*  The Commerce Department issues Construction Spending data for July, concurrently with the National Association of Realtors Pending Home Sales Index at 10 a.m. EDT.

PARIS, Aug 31 (Reuters) - France obtained the names of 3,000 suspected tax evaders with Swiss bank accounts from banks and unpaid informers, Budget Minister Eric Woerth said on Monday.

Woerth had revealed in a Sunday newspaper interview that France had secured the names of people suspected of holding undeclared assets worth some 3 billion euros ($4.3 billion), but had not said how the information was obtained.

He presented the list of names as a first in the battle against banking secrecy and said it would help enforce a new tax agreement signed last week by France and Switzerland, the world's biggest offshore banking centre.

"We have two sources of information. The first is the (French) department of fiscal investigations which has been searching for several months already for lists of names," Woerth said in an interview with France 5 television on Monday.

"We went looking ourselves for names and we have informers, who were not paid," he said.

"Secondly, there are banks, it is true, that also spontaneously gave us names in the course of our fiscal investigations -- banks that have a presence on French territory."

Woerth declined to name any of the banks.

He said the list of names, which has not been made public, would serve as an incentive to persuade any French tax evaders to declare their assets by Dec. 31 and then pay the tax they owed as well as some penalties.

From 2010, controls would become stricter and penalties for offenders would be harsher, Woerth said, adding that he would ask all banks with a presence in France to hand over details of cross-border transactions by French residents with foreign accounts.

He also said that the list of names would serve to enforce a new tax accord signed by France and Switzerland on Thursday. Under the agreement, Switzerland agreed to share banking information upon request from France's tax authorities, starting in January 2010. [ID:nLR262191]

"We need names because if we want to make the fiscal convention that we signed with Switzerland work ... we have to give names to the Swiss authorities. Otherwise it won't work," Woerth said.

Under pressure from the G20, Switzerland agreed in March to relax its prized bank secrecy and share certain client data with other jurisdictions, once bilateral tax treaties were ratified.

French President Nicolas Sarkozy has been one of the most vocal G20 leaders in calling for an end to banking secrecy.

The deal with France is the third such agreement signed by Switzerland in its campaign to be removed from the OECD "grey list" of tax havens which have agreed to improve transparency but have not yet signed the necessary deals.

Switzerland must sign 12 such deals to get off the list.