Welcome to Market Makers, i Erik Schatzker. I am e stephanie ruhle, great to be back. Too, i had some great times last week. Alix steel sat in your chair. Almost as amazing as kanye west. Sitting next to me last week. It is a new week, lets kick it off. A busy news morning. Breaking economic news, existing home sales for the month of may are out. Who better to break down the numbers then michael mckee. What is the word . Whendont know whether you shopping for good news, existing home sales up more than forecast. 4. 9 for the month to a 4. 89 million annual sales rate. That is the best so far this year. Remember we were talking about how every buddy was buying condos and not singlefamily homes, that flip. Singlefamily homes up 5. 7 , condos and coops unchanged. Maybe people coming back into the markets right now. Numberting aspects, the of homes for sale, the mother supply falls in may. A little less supply and that has pushed the price of homes up to an alltime high, i have not ,000 is the 213 median price. More people buying houses. The lowest number of distressed sales since they started keeping that record in october 2008. We are no longer just throwing things out there underpriced and trying to get rid of it. This is actual increase and people buying houses because they want to move up. Thank you so much for giving us the latest. Erik . The packed schedule for Supreme Court. 11 cases to decide before the end of the month. Any minute we might hear from the justices on one or more with big implications to corporate america. Yang yang is outside the high court this morning. Remind us why they are so important. Like to handices out their most controversial and complicated decisions at the very last moment. This year is no different, just one week left before their term is over. Not begancases have to trickle out yet, we are awaiting those decisions. There are five that are of particular interest to the Business Community that i want to look into. As we await the courts decision. The Utility Air Regulatory Group versus the epa, questioning whether the Environmental Protection agency has authority to regulate stationary sources of Greenhouse Gases such as factories. The Obama Administration posture just the obama ministrations climate policy. Forwn for the win halliburton would make it easier for shareholders to group together. Huge steaks. We also have the hobby lobby cases. You have the cases that ask Profit Companies have religious rights and should be able to opt out of the Affordable Care act contraception rule. The first time the court has taken of the Health Care Law since 2012. Noel versus mil recess, the power of appointments and the lowly of the hundreds of rulings involving this Panel Members stop the case we have talked about the most, abc versus aereo. At stake is the future of the 24 billion to the broadcast industry. Still awaiting that decision. If it does not happen say we have wednesday, thursday and monday of next week. , a nice rundown of the cases that matter to business at the u. S. Supreme court. That is yang yang. Now another story we have been following. The case against bnp paribas. The french bank is close to a deal with the u. S. Government over allegations it violated sanctions against iran and sudan. Bnp would plead guilty as part of a deal and pay up to 9 billion to settle these charges. The settlement is not officially done yet and still change. Besides have a broad agreement in principle. I want to bring in Kerry Gardner keri geiger, who has been following the case for months. The hits keep on coming in terms of fines. 9 billion, the clo is stepping down. To getcase is going wrapped up. The unlike some of other banks, is going to feel a lot of pain. They are a smaller bank and they have smaller u. S. Operations. Here. Maller bank they are going to use their dollar clearing operations, that could cause customers to go elsewhere. There clo has resigned due to pressure from the new york state sky. Ing regulator ben law dozens more are on the chopping block. Being we talk about prohibited from conducting business in u. S. Dollars will stop has this ever happened before . Not in a case like this. There have been six other banks in the last few years find for sanctions violations that have not gone to the point where they cannot do dollar bearing in the u. S. This is a little bit of a new technique on behalf of regulators to try put some teeth to it. Pressure. The it is difficult to tell if the guilty plea really gets the impact that the regulators and prosecutors want. It does not seems that it deters bad behavior. What does this mean for bnp paribas . What i think about the business they do in the u. S. , it is not that big. There is speculation that if the pressure gets really really having on some of the smaller european banks, they cut off to step out of doing business with the u. S. Thats always an option. A 10 billion fine might not be worth it over the type of conduct we are talking about. A lot of banks have gotten in trouble for sanctions, bnp is paying more than we have seen. Doi am just looking they not generate that much of their revenue here, but they have a fair number of employees, a quarter of their workforce is in the americas. Principally the u. S. Throughout latin america as well. Good point. There are employee issues. And workforce issues that could come into play if the fines or the punishment is too much for them to bear for the u. S. Operation. The one thing i think about with bnp, we have covered this in previous conversations, every time we seem to talk about this bank or the next bank, we are talking about not an upgrade, a kinds of penalties. Once upon a time it was a monetary settlement. Then a monetary settlement and plead guilty. Now it is money plus guilty plea plus you cannot do business in u. S. Dollars. What is next . Good point. What, nation of fines, what firingtion of fines, people, getting individuals will make people happy and deter wrongdoing. Congress was not happy about the way the banks are being punished. What is going to make them happy . Mainstream wants to see things punished they dont know why. Is last couple cases have nothing to do with the financial crisis. It is a really complex formula that we have not really seen come up. The Credit Suisse deal, they got a lot of criticism because the guilty plea did not seem to have an impact on the bank. You know who i think is pleased . The coo who has been forced to step down, gets to walk out with his stock. Summer is here, he no longer has the bnp headache. Positive for him. A great . Agreed . In a perverse way. Keri giving us the latest on bnp. Makers, up on market plenty of m a activity. Private equity, where is a . On the sidelines. Im not crying for pe. Paradise. In what puerto rico is doing to attract investors. This is Market Makers on liver television. Streaming on your phone, tablet, bloomberg. Com and on amazon fire tv. Watching Market Makers, im Erik Schatzker with stephanie ruhle. The biggest year for mergers and acquisitions since the financial crisis. The dealmakers are nowhere to be found. Where is private equity . Blackstone, carlyle, kkr have raised billions of dollars but they are not spending it. Scott is ceo of greenhill and company, one of the biggest independent m a advisors. Where is private equity . Onmost are focusing liquidating the portfolio they have bought. It is a great time to sell assets, ipoing. They have shifted to other areas. Kkr and blackstone are active in real estate and hedge funds. Theyve raised a lot of money. They have hundreds of billions of dollars in commitments for private equity deal. Partners the limited one . The endowment, pension fund, does it went private equity to be spending the money or is it just as happy doesnt believe the money does not need to be spent until the David Rubensteins or Steve Schwarzmans can find something worth buying at the right price . The Smart Limited partners would rather have them wait until the opportunities are right and values are low and they can really get attractive transactions. Sometimes they fall into the trap of wondering why are you investing. The smarter ones realize that if prices are high, wait until they are lower. How have hedge funds worked out for private equity . They were racing to build hedge Fund Platforms for five years ago. If you look at performance in the Fund Industry it is not that good. We have been in a period where the s p 500 has done well. You would have done better to put your money in an index fund. People like the lack of volatility of those returns. I think it is great to be a hedge fund manager, i am not sure it is great to be a hedge fund investor. If you are a big firm like lack stone, which has more money in alternative assets than any other. Carlyle has almost 200 billion dollars. Kkr is north of 100 billion. ,hese are enormous institutions their funds are large, too. I hesitate to use the phrase law of large numbers, that refers to something else. But you need to do a lot of big deals to put capital to work. Win the Companies Went public, their incentives really changed. Their incident used to be as big again as you can and collect your 20 upside with interest. As you shift to being a Public Company, the Public Markets do not give them credit for interest. They want to grow management fees. Inherent conflict of interest between limited partners investing with the general partner, blackstone, and the public shareholders . For years, limited partners did not like the opportunity of investing in a fund that did anything out like a brokerdealer. Reason many investors have given money to places like blackstone, the bigger they are the more connected they are in more information they have. Theres a tradeoff and that is somewhat of a conflict of interest. They went to collect management fees, that is what gets value. Private equity firms do not seem to be in the m a space right now, it is just company to company. Are they missing the boat . Companies like google and massive transactions, should we start to say why dont we see blackstone in there . Prices are fairly high. The stock market is up a lot, a huge amount over the last couple years. The deals getting done are highly strategic with huge synergies between corporations. The immediate deal, everything you are saying has huge synergies. Private equity does not bring synergies. All they really bring his capital. And leverage. They try to offset the lack of synergy with higher leverage. Is it just not possible that even if you can get six or seven times leverage on your equity capital, it is not enough . Is very difficult. That is why even in the process we are running, theres not much private equity interest as there is strategic. They are not showing up. Clearly they are looking for things but it is hard to compete a deal where two parties have synergies because they have overlapping operations rather than my money is smarter than yours or i can put more money out. The appetite and private equity for europe . For the last three years, whether we are talking about northern or southern europe, pe firms are saying this is the moment. Is the moment here for europe . We are fairly optimistic about euro. It is the canary in the coal mine in a positive way for europe, real estate. There has been a tremendous flow of money into the market. Distressed real estate from banks and other parties. That is the forerunner of broader investment across europe. One of the flavors of the month, when it comes to europe, tax inversion. Are tax inversion deal something u. N. Greenhill want to be involved in . Yes, we have been and we would like to be. That is a remarkable future. You dont care about the political controversy. Im not sure there is much of a controversy. Really . There are two ways congress can deal with it. To pass a law that says you cannot merge with a foreigner if it causes you to move overseas. That is very difficult. We are an open economy, we buy companies and day by us. It is hard to put up banners between copies. Our Corporate Tax rate is very high. 8eenhill operates in 7 or countries. The highest rate we pay is in the u. S. That gives companies an incentive to try to earn their money to the extent they can overseas where there is a lower rate. What is the pipeline for inversion deals look like . People nlot of industries. You have seen mostly in pharmaceuticals, they are across the board. Where do they work well . Therey can work anywhere, is no industrial limitation. The rule is how much is owned by the foreigner versus the u. S. Happened in pharmaceuticals because there are other drivers for that. The r d pipeline, a salesforce that you can push our products through. Right now we have seen a lot of strategic regions and a lot of strategic reasons for companies to combine. If valuations stay this high, making it hard for Companies Find a reason to merge, might tax a marriage as the reason firsfor strategic m a. How are they can get that through . The reality is and many of the large transactions, tax is the driver. Sooner or later i think we need to reform our Corporate Tax to bring it down to a rate. Hold on. Yes, great idea. Lets be real. Could the u. S. Government, they cannot agree on is the sky is blue, really address Corporate Tax reform . Fallenorate taxes have in recent years in places like japan and the u. K. Much lower than germany. We have a vision and america that europeans and others tax much higher than we do. It is really the opposite. Something will need to be done. You are watching the law of unintended consequences. Very high tax rates so we are losing hughes amount of tax revenue overseas. Great to see you. Thank you so much. Ceo of greenhill and company, one of the biggest independent Financial Advisers on mergers and restructuring. When we come back, lots more. Some say he is the poster boy for corporate behavior. I just think he is nasty. American apparels dov charney fighting to hold onto his job as ceo. I wish he was holding onto his underpants in that video. No aereo decision today but other important rulings just came out. Back to the steps of the high court with yang yang. Decision today. We are looking to wednesday, thursday, or next monday. The final day of the term. In does a decisions five businessrelated cases i mentioned. The first was united air Regulatory Group versus the epa, the epa received a partial win. The u. S. Supreme court has epas their efforts, the authority to impose permit requirements but only for facilities that are expanding or building. Nothing on prior facilities only on ones to be expanded or built. This is a partial win for the epa, they have the authority to create rules. But for the businesses who were concerned that the epa permitting requirements would apply to millions of facilities, we are seeing the court has limited the scope to a few hundred facilities. A partial win on that. A symbolic win, saying the epas current work is constitutional and within its authority. N,lliburton versus erica joh can shareholders sue as a class. The court has created new , but it iss upholding the right to sue. When we come back, the island of debt. Puerto rico welcome back to Market Makers. Bloomberg tv is taking you to puerto rico. An island of debt, 70 billion to be exact. Going along with doubledigit unemployment and Energy Prices that are double the average rate in the u. S. Mainland. I traveled to the u. S. Commonwealth to look at what the government there is doing to help. One effort, tax incentives to attract investment from High Net Worth transplants with high levels of enthusiasm. San juan represents a great opportunity for my generation. Nick is betting on the promise of puerto rico. Not only making investments on the island, he has moved his office and family from greenwich, connecticut two san juan. Last year i spent about 10 days or 15 days outside of puerto rico. We are all in, we are not going home on the weekends. To attract investors, the government created acts 20 and 2 2, Tax Exemptions for businesses that export services from puerto rico to outside markets. The individuals who relocate to the islands. The government forecasts that investors will apply for the program to stop my phone rings three or four times a week. Local businesses are welcoming interest and investment. Are you seeing Company Start to move here . For sure. In aerospace and in other areas. People comeen more to puerto rico in the last two years than in a long time. One of the biggest advantages of acts 20 and 22 is not so much how many money is spent, it is putting puerto rico back on the map. Isthe new visibility attracting a wide range of investors. From the highend, john paul, who has not moved to the island but has committed hundreds of millions of dollars to remodel the historic vanderbilt resort. He has ambition and he is willing to put his money where his mission is. Puerto rican investors do not thee competition, capital is too important. If we didnt have these laws, they would not be here. They are only bringing incremental benefits to puerto rico. What are the options . Having Real Estate Development die or go away. We are seeing a lot of entrepreneurs. Our people creating jobs and we are really happy with the program. Juan, i hads in san a chance to speak with the governor. He told me more about his plans for overcoming the economic headwinds facing puerto rico. Everything can be sunny on the island but how are they going to get out from under the debt burden . I will be able to reduce the deficit, i am about to improve the first balanced budget in 20 years. I am balancing the budget without firing people. We have been able to reduce the on employment rate very heavily. The crime rate, we are improving. How