DealBook: Some Investors Bet on Return to Reverse Mortgages

Some private investors are betting that reverse mortgages, an investment product aimed at older people in need of cash, will make a resurgence as more homeowners reach retirement age in the coming years.

A reverse mortgage start-up based in New Jersey has raised about $230 million in a private offering managed by the investment banking boutique FBR Capital Markets. Investors in the private sale of shares of Reverse Mortgage Investment Trust included hedge funds, wealthy individual investors and customers of the investment firm.

The private placement in February sets the stage for a potential initial public offering for the company, which operates under the name Reverse Mortgage Funding, according to regulatory filings and conversations with people briefed on the details, but not authorized to speak publicly about the offering.

A public offering would make Reverse Mortgage Funding, which opened its doors last summer, one of the first stand-alone publicly traded companies that specialize in reverse mortgages, which provide government-guaranteed loans to homeowners based on the equity value in their homes in exchange for fees and interest payments that are paid when the loan comes due.

A successful debut in the public markets for Reverse Mortgage Funding could also encourage other players in this segment to hold their own public offerings.

"We ultimately want to be the public face of the reverse mortgage business," said Craig M. Corn, the firm's chief executive, who declined to comment on the company's future capital raising plans.

Mr. Corn and most of his executive team previously ran the reverse mortgage operation at MetLife. The insurance giant — and big banks like Wells Fargo — left the reverse mortgage business after the housing crisis. The market for reverse mortgages virtually dried up after the ensuing surge in loan losses and plunging home values made it impossible for most older homeowners to qualify for such loans.

But Mr. Corn and his team are banking on a revival in the reverse mortgage market with the recovery in home prices and the need for baby boomers to find additional income to support them in retirement.

He said that during the road show to sell the private placement, most of the investors with whom he met were more focused on the demographic trends that pointed to a rising demand for products like reverse mortgages than the fallout from the housing crash.

"If the housing market was in a free fall, it might have been a different conversation," said Mr. Corn, whose firm is based in Bloomfield, N.J., a suburban community about 19 miles from New York City. "The demographic story is this is a fast-growing, older American population that is completely unprepared for retirement."

Reverse Mortgage, which has organized itself as a real estate investment trust, or REIT, and sold 15 million shares at $15 a share, also intends to invest in securities backed by reverse mortgages. The company has lined up a well-connected board that includes Bradley D. Belt, former executive director of the federal Pension Benefit Guaranty Corporation; Brian D. Montgomery, former assistant secretary for the Department of Housing and Urban Development; and Mikhail Radik, a portfolio manager at BlueMountain Capital Management.

A spokesman for BlueMountain, a prominent hedge fund that has invested in other REITs before they went public, declined to comment on its involvement with Reverse Mortgage.

Still, given the industry's recent rocky performance, it is too soon to say whether the investor optimism in Reverse Mortgage Funding will be rewarded. Just six firms dominate the market — accounting for 66 percent of all the loans underwritten last year, according to Reverse Market Insight, an industry data and valuation company. Liberty Home Equity Solutions, a subsidiary of the mortgage servicer Ocwen Financial Corporation, posted a $6.3 million loss in the first quarter of 2014, a sign of continuing weakness in the industry.

The reverse mortgage market peaked in 2008, when the industry funded 114,923 loans, but fell off sharply in the following years, according to Reverse Market Insight. In 2013, 60,923 reverse mortgages were completed. This year, as of the end of April, firms funded just 19,015 loans, compared with 21,632 loans at the same time in 2013.

The industry has historically drawn its fair share of scorn for using older Hollywood actors to hawk their product on late-night television advertisements. Some consumer advocates have complained that the reverse mortgage business preys on the financially ill-informed, who might be better off simply selling their homes and banking the cash than entering into a transaction that pays a premium to a lender.

But for those over the age of 62 who want to stay in their homes and owe little to nothing on a mortgage, the investment product has its appeal. The loans, which are guaranteed by the Federal Housing Administration, often do not need to be paid back until borrowers either sell their homes or die. Borrowers can get a line of credit, a lump-sum payment, or monthly payments through a reverse mortgage, also known in the industry as a home equity conversion mortgage.

To limit the potential for losses, the F.H.A., a division of the Department of Housing and Urban Development, recently imposed restrictions that limit the amount an elderly person can borrow and make sure the borrower has enough money to continue paying for insurance coverage on a home and property taxes.

Daniel Alpert, managing partner of Westwood Capital, an investment firm that specializes in advising on real estate transactions, said much of the early "hucksterism" surrounding the reverse mortgage business had disappeared and the industry was becoming more mainstream and professional. But he said that even as reverse mortgages became a safer investment product, it was unclear just how big the market would be — even with baby boomers approaching retirement age.

"It presupposes that people have a preference to stay in their homes as opposed to selling those homes and downsizing," Mr. Alpert said.

Investors in Reverse Mortgage Funding's private REIT are betting a higher percentage of baby boomers will choose to remain in their homes if given the choice. In a private REIT, investors are typically paid a dividend based on the firm's earnings.

Reverse Mortgage Funding declined to discuss the number of reverse mortgages it has funded this year.

Mr. Corn and his colleagues are planning for the long haul. The firm, which also has an office in Melville, N.Y., on Long Island, has about 100 employees. And the company's headquarters in Bloomfield is in the same office space that Mr. Corn and his colleagues occupied when they were at MetLife.

In some ways, it is as if Mr. Corn and his colleagues never left. "It's the exact same office. The same furniture," Mr. Corn said.

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DealBook: Chinese Giant Alibaba Will Go Public, Listing in U.S.

Updated, 9:04 p.m. | The Chinese e-commerce behemoth Alibaba Group filed paperwork on Tuesday in the United States to sell stock to the public for the first time, in an embrace of the global capital markets that represents a coming-of-age for China's booming Internet industry.

"Alibaba is the fastest-growing Internet company in one of the fastest-growing economies in the world," said Sameet Sinha, an analyst with B. Riley & Company, a boutique investment bank in Los Angeles. "They are like an Amazon, an eBay and a PayPal."

In the filing, Alibaba said it intended to raise $1 billion in an initial public offering — a figure used to calculate its registration fee. But the company is expected ultimately to raise $15 billion to $20 billion, which would make it the biggest American I.P.O. since Facebook's $16 billion offering in May 2012.

When it makes its debut on the New York Stock Exchange or the Nasdaq market, Alibaba is also expected to have a share price that could value the company at roughly $200 billion — more than the market value of Facebook, Amazon.com or eBay, although still trailing that of Google or Apple.

The immense size of the offering means that Alibaba shares will probably find a home in a broad swath of mutual funds and pension funds — and thus indirectly in the portfolios of small investors around the world.

Wall Street has been eagerly awaiting the Alibaba I.P.O., seeing it as perhaps the best chance yet to buy into China's growth. Online shopping there is expected to grow at an annual rate of 27 percent, according to the iResearch Consulting Group, and Alibaba is the leader in that area.

Yet the offering will also divulge a company that is relatively unknown in the West and whose complex web of businesses and dealings may put off potential shareholders. Alibaba warned prospective investors that Chinese laws and regulations are difficult to understand and predict. In addition, the prospectus says that Alibaba's management and major shareholders will control the board, giving ordinary shareholders no power over the direction of the company.

In China, Alibaba's brands are household names. It operates an online shopping center, Tmall, where global companies like Walt Disney, Apple, L'Oréal, Nike and Procter & Gamble have set up virtual storefronts to sell products directly to Chinese shoppers. Another of its sites, Taobao, is aimed largely at small Chinese firms that want to sell items to Chinese consumers.

The company's digital payment affiliate, Alipay, not only handles transactions on its sites, but is also widely used as a mobile payment system on cellphones in China, much as credit cards are used in other countries. It handled $519 billion worth of payments last year.

Last year, the value of all merchandise sold on Alibaba exceeded $248 billion, more than the volume on eBay and Amazon combined. In the last three months of last year, nearly 20 percent of the purchases on Alibaba were made through mobile phones.

American companies like Google and eBay can only dream of making the kind of profit margin that Alibaba enjoys. In the 2013 calendar year, Alibaba had net income of $3.56 billion on revenue of $7.95 billion. That translates into a profit margin of roughly 45 percent. In comparison, eBay mustered a 17.8 percent margin.

Alibaba has much higher profit margins than American Internet companies, analysts say, because its costs are low. It doesn't own the merchandise sold on its sites, making money instead from the merchants that pay a commission for access or that buy ads to promote themselves. Alibaba also enjoys a low tax rate of about 10 percent.

Alibaba is one of China's top three Internet players, along with the search engine company Baidu and the media and gaming conglomerate Tencent, but is bigger and more profitable than those rivals.

Some investors have resorted to indirect routes to get a piece of Alibaba, like buying stock in Yahoo and SoftBank of Japan. SoftBank, the Japanese telecommunications giant, is Alibaba's biggest investor with a 34.4 percent stake. Yahoo is next, with 22.6 percent.

Jack Ma, Alibaba's founder, is the biggest individual shareholder, owning 8.9 percent of the stock; he is followed by his longtime lieutenant, Joseph C. Tsai, who owns 3.6 percent.

When Yahoo first bought a 40 percent stake in 2005, it valued Alibaba at just $2.5 billion. Six years later, when a consortium of investors took another stake, the company was valued at about $32 billion. Now, analysts estimate that Alibaba may be worth anywhere from $130 billion to $235 billion.

Many details of the offering, such as the share price and the number of shares to be sold, have not yet been set. Shares are not expected to begin publicly trading for several months, as the Securities and Exchange Commission reviews Alibaba's offering materials.

That time frame increases the risk that investors may be less willing to take a chance on an expensive Internet stock. Technology stocks have fallen sharply in the last few weeks after an impressive run, with some analysts saying that they are overvalued. The market's appetite for I.P.O.s has also cooled.

Alibaba amassed its multibillion-dollar fortune a little at a time, shrewdly capitalizing on two trends — the rise of the Internet and China's growing prosperity.

The company does some business overseas in markets like Russia and Brazil, and has invested in several American companies. It is also building an American online marketplace called 11 Main.

But in its prospectus, Alibaba emphasized that it planned to concentrate on the Chinese market, one whose potential it believes has not been fully tapped. It cited statistics showing that only about 45.8 percent of the country's population uses the Internet, significantly lower than in the United States and Japan. And only about 49 percent of customers in the country shopped online.

Yahoo, which currently owns about 22.6 percent of Alibaba on a fully diluted basis, is set to sell 208 million shares in the offering, leaving it with a roughly 13.6 percent stake. Other big shareholders, like SoftBank, the American private equity firm Silver Lake Partners and the Russian entrepreneur Yuri Milner, are considered unlikely to sell much stock.

The company was set up in 1999 by Mr. Ma, then a 34-year-old former English teacher, and 17 others who worked out of Mr. Ma's modest apartment in the eastern city of Hangzhou. Visitors to Alibaba's headquarters at the time recall being able to estimate the number of employees by counting the toothbrushes jammed into mugs in Mr. Ma's bathroom.

The company's first venture was Alibaba.com, a site designed to connect foreign buyers with Chinese manufacturers. The site was started just months before China joined the World Trade Organization. It eventually became a beneficiary and contributor to the explosive growth in Chinese exports in the ensuing years.

In 2003, Alibaba opened its second main business, Taobao.com, a retail site where individuals and small businesses can buy and sell goods throughout greater China. It was a direct play on Chinese consumption that arrived just as a substantial middle class was emerging in the country's wealthy coastal metropolises.

In 2008, Alibaba doubled down on its bet on the Chinese consumer with Tmall.com, a retail site where both local and international brands could set up virtual stores to market products directly to Chinese shoppers. With Tmall, Alibaba takes a cut of the transaction value, tying its profit directly to retail sales volumes.

Alibaba is by far the leader in the Chinese e-commerce market, which handled transactions worth 9.9 trillion renminbi, or $1.6 trillion, last year, according to iResearch.

The company's growth has not been without setbacks. Claims of fraud and poor quality products have dogged its various sites, and its partnership with Yahoo has been rocky at times. Its instant messaging service, Laiwang, has struggled to gain ground against the WeChat service from Tencent, a powerhouse on mobile phones.

Still, Alibaba keeps entering new businesses, from mobile phone service and banking to cloud computing and logistics.

"It's becoming a conglomerate," said Mr. Sinha, the American analyst. "It is going into all aspects of the Internet."

A version of this article appears in print on 05/07/2014, on page A1 of the NewYork edition with the headline: Chinese Giant Will Go Public, Listing in U.S. .

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India Ink: India Election Digest: May 7

What you need to know about India's elections on Wednesday: In the next-to-last phase of voting, seven states will go to the polls, with 897 candidates vying for 64 seats in the lower house of Parliament. The states participating in the eighth phase are: Andhra Pradesh (25 seats), Bihar (7), Himanchal Pradesh (4), Jammu and Kashmir (2), Uttar Pradesh (15), Uttarakhand (5) and West Bengal (6).

India Votes

News and analysis on the world's largest election.

The eighth phase of the elections is key to the two main national parties: The Bharatiya Janata Party needs to do well in the states of Uttar Pradesh and Bihar to become the single largest party in the lower house of Parliament, and the Indian National Congress party currently holds nearly half of the 64 seats up for grabs. (The Hindu)

People close to Priyanka Gandhi say her political future hinges upon how well her brother, Rahul Gandhi, does in Amethi in the state of Uttar Pradesh. (The Telegraph)

Some B.J.P. members contend that if their party comes to power in New Delhi, the B.J.P. would end up taking over the state governments in Bihar, Uttarakhand, Delhi and Jharkhand. (Business Standard)

The Election Commission is adding extra security and monitoring for the May 12 vote in Varanasi, where both Narendra Modi of the B.J.P. and Arvind Kejriwal of the Aam Aadmi Party are running. (The Times of India)

In the state of West Bengal, the elections arrive in the Maoist heartland. (Hindustan Times)

The so-called Modi wave has hit Uttar Pradesh, but it faces a number of obstacles. (The Indian Express)

Why you shouldn't hold your wedding on a polling day. (The Times of India)

A state-run Chinese newspaper said a Modi victory would strengthen ties between China and India. (The Times of India)

Young Bihar voters are more concerned about upward mobility than caste. (Mint)

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Sinosphere Blog: Another Violent Attack at Railway Station in China

At least six people were wounded in an attack at a railway station in Guangzhou on Tuesday, state media reported. It was the third such attack by multiple assailants at railway stations in China since March.

Guangzhou Daily, citing eyewitnesses at the scene, said there were four attackers, all wearing white caps. One was shot by the police, and another suspect was arrested, with the other two still believed to be at large. Among the six injured, one was hacked on head and neck and in critical condition, the newspaper said.

The attack was likely to further unnerve a nation that is struggling to cope with increasingly frequent attacks on civilians in high-profile public areas, including a daring assault last October at Beijing's Tiananmen gate that the authorities tied to the East Turkestan Islamic Movement and that left five dead.

Six people injured in a #knifeattack at #Guangzhou #RailwayStation. http://t.co/xZFjH6yMGQ http://t.co/eJiDUKpWia

— China.org.cn (@chinaorgcn) 6 May 14

The latest attack came just a week after assailants with explosives and knives staged an assault that left three people dead — two of them believed to be attackers — and injured at least 79 outside a railroad station in Urumqi, the capital of the western Chinese region of Xinjiang.

That burst of violence occurred just after China's president, Xi Jinping, had ended a visit to the restive area. After the assault he said that China must prepare itself for a long-term fight against what he called separatist forces in Xinjiang, where members of the Uighur minority feel increasingly alienated from wider Chinese society and where Han Chinese increasingly dominate.

On March 1, a group of ethnic Uighurs slashed and killed 29 people at a railway station in Kunming. An English-language editorial by Xinhua, the state news agency, drew connections between last week's blast and the attack in March.

The identities of the assailants in Tuesday's incident were not immediately available.

Photos posted online by Chinese media showed blood spilled in a plaza cordoned off with police tape. In another image, paramedics treated an injured person while a police officer patroled while holding a long staff with a semicircle at the end. Security personnel in China have recently been given instruction on how to help subdue attackers with knives.

Austin Ramzy contributed reporting, and Patrick Zuo contributed research.

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Sports: California Chrome Wins the Kentucky Derby

LOUISVILLE, Ky. — California Chrome, the speedy colt who established himself as the 5-2 morning-line favorite after winning four straight races by a combined 24 1/4 lengths, blew away the field in the 140th running of the Kentucky Derby on Saturday under blue skies and 70-degree weather at Churchill Downs.

Ridden by Victor Espinoza, California Chrome drew off at the top of the stretch and then held off Commanding Curve by one and three-quarter lengths to prove that he was indeed the horse to beat here. He completed the mile-and-a-quarter distance in 2:03.66 over a fast track and returned $7 on a $2 bet to win. Danza finished third.

He joins four other California-bred horses who have won the sport's most prestigious race. Previously, the last California-bred horse to win the Derby was Decidedly in 1962, and only three have accomplished the feat.

"I think we get along together very well," Espinoza, who won his first Derby in 2002 with War Emblem, told NBC after the race. "He's just an impressive horse, an amazing horse."

His 77-year-old trainer, Art Sherman, surpassed Charlie Whittingham as the oldest trainer to win the Derby. Whittingham was 76 when Sunday Silence won in 1989.

Earlier this week, Sherman visited the grave of Swaps, the 1955 Derby winner who he accompanied to Churchill Downs as an exercise rider. He said he said a prayer, asking that California Chrome run as well as Swaps did.

Swaps was a California-bred, just like California Chrome, who was the first foal for the owners Steve Coburn and Perry Martin. He came from the mare Love the Chase, who they claimed for $8,000, and the middling sire Lucky Pulpit.

But Coburn and Martin believed in the horse so much that when they sent him to Sherman's barn they included an email that with the subject: the Road to the Derby. After the race, tears flowed down the face of Coburn, who turned 61 on Saturday.

He had a message for the non-believers: If you don't believe in this horse now, "then you've got to have your head examined."

Signing off from the press room at Churchill Downs. We'll see you at the Preakness, where California Chrome will attempt to add the second leg of the Triple Crown. Joe Drape's race article can be found here. Also, check out this video on the fashion at the Derby.

7:23 P.M. Order of Finish

Jamie Squire/Getty Images

1. California Chrome
2. Commanding Curve
3. Danza
4. Wicked Strong
5. Samraat
6. Dance With Fate
7. Ride On Curlin
8. Medal Count
9. Chitu
10. We Miss Artie
11. General a Rod
12. Intense Holiday
13. Candy Boy
14. Uncle Sigh
15. Tapiture
16. Harry's Holiday
17. Vinceremos
18. Wildcat Red
19. Vicar's in Trouble

6:38 P.M. And They're Off!

The horses break from the gate. California Chrome and Chitu set the pace. It's been a slow pace so far. California Chrome in third. He makes his move. California Chrome pulls away. Runs away with it!

6:35 P.M. Heading to the Gate

The horses have reached the starting gate. "Ladies and gentlemen, it's post time for the Kentucky Derby," the track announcer says.

6:24 P.M. A Scandal Hangs Over the Proceedings

Steve Asmussen is the trainer with the second-most career victories in thoroughbred racing. He also is under state and federal investigation over accusations of various forms of cruelty, including administering drugs to horses for nontherapeutic purposes and having a jockey use an electrical device to shock horses into running faster.

The official scrutiny of Asmussen was prompted by a four-month undercover investigation by PETA.

On Friday, Asmussen saddled the winner of the Kentucky Oaks, Untapable. He will saddle the 15-1 choice in the morning line, Tapiture, in the Kentucky Derby. He spoke to NBC at length for Saturday's broadcast.

— Joe Drape

6:21 P.M. Second-Largest Attendance

The attendance was just announced in the press box at 164,906, the second largest in history. The largest was in 2012, when 165,307 were in attendance.

"My Old Kentucky Home" is being sung. Hardly a dry eye in the place. Gets them every time.

The horses are now on the racetrack.

Jabin Botsford for The New York Times

Statement necklaces are all the rage as ladies parade their Derby finest at Churchill Downs. Men are sporting jaunty fedoras and light-colored suits. Everyone busted a move when Pharrells "Happy" played over the speakers. The new giant HD television screen being called the Big Board appears to be a huge hit, enhancing the track side experience.

— Julie June Stewart

6:15 P.M. Turcotte Offended

Ron Turcotte, the Hall of Fame jockey who was paralyzed in a riding accident in 1978, said he decided against attending the Derby after he was denied a handicapped parking space last year.

"I wasn't allowed on the lot last year. I had to go park across the street," Turcotte said during a phone interview Saturday. "I didn't want to go through the hassle again."

Turcotte rode Secretariat to the Triple Crown in 1973. He accused Churchill Downs management of treating various members of the racing industry in a manner he finds "insulting." John Asher, a spokesman for Churchill Downs, said the track will make every effort to accommodate Turcotte in the future.

— Tom Pedulla

5:55 P.M. The Fans Known as Chromies

California Chrome's trainer, Art Sherman, calls him the rock star. "I'm just his manager," he says. That's certainly true at his home at Los Alamitos, where he would have the track to himself for a half-hour every morning.

Today, the track was transformed into the headquarters of California Chrome's fan club. But not to be outdone, Santa Anita sold tickets to the California Chrome Zone, which come with a T-shirt that says, "Bring It Home Chrome."

A lawn jockey at the famed Derby restaurant near Santa Anita Park was painted to feature the silks of California Chrome's owners. And signs of California Chrome's thrilling victory in the Santa Anita Derby can be found all over the racetrack.

Plenty of "Chromies," as his connections call his fans, showed up in Louisville as well. California Chrome gear was a popular choice, including for the star of the show "Horseplayers" on Esquire television, Christian Hellmers, who showed up at the Fillies and Stallions bash at Mellwood Arts Center in a silver-sequin suit that said Cali Chrome on the back.

5:48 P.M. The Walk Begins

An emotional Steve Coburn is among the owners who are making the walk with their horses from the barns on the backside to the paddock behind the track's iconic twin spires. Today is his 61st birthday.

His horse, California Chrome, is the first foal for he and his partner, Perry Martin, and he came from the mare Love the Chase, who they claimed for $8,000, and the middling sire Lucky Pulpit.

I asked him last week what a Kentucky Derby victory would mean to him on this birthday, and the confident rookie did not flinch.

"It will be probably the greatest gift I've ever had for my birthday when he wins the Kentucky Derby," he said. "This big, old man will probably shedding a few tears, that's for sure."

He added, "It's been an amazing, amazing ride, and we're going ride it clear to the finish line."

5:35 P.M. Caution: Horse Bites

Ride On Curlin, a 15-1shot in the morning line who will be ridden by Calvin Borel, has a sort of tenacity on the racetrack that carries to the barn, too. Outside his stall, there is a hand-drawn sign made by the owner Daniel Dougherty's 13-year-old daughter, Cookie, that reads: Caution Horse Bites.

Cookie, who rides hunter/jumper horses, found that out the hard way. Before Ride On Curlin raced in the Arkansas Derby, she was in his barn when he bit her on the arm when she had her back turned to him. She had a black-and-blue mark about the size of a baseball on her arm. She was mad that day, her father said, but she has since forgiven him. He's just got a lot of personality, he said. Besides, he's brought her to the Derby didn't he?

5:34 P.M. Sherman Flying High

There's no question that Art Sherman, the 77-year-old trainer of California Chrome, has stolen the show at Churchill Downs. But he also was the center of attention before he even got here. At Los Alamitos, where he trains California Chrome, the track restaurant features an Art Sherman special — petit filet, lobster and shrimp — one of the priciest items on the menu. And on his plane ride to Kentucky, his group overtook the plane.

He told the Churchill Downs media department:

So my wife Faye and I were flying on Southwest out of L.A. yesterday and wouldn't you know we wound up in a delay in Phoenix," he told the news media at Churchill Downs. "They had an issue with a plane and had to go and get us a new crew. But that all turned out great. We meet up with ( the trainer) Tom Proctor, (jockeys) Mike Smith and Gary Stevens and (the former jockey agent) Ronnie Ebanks. They were all headed to Louisville, too.

So we get on the plane, and we're all sitting together, and we're telling stories. And I mean to tell you this crew of guys can spin stories with the best of them. I can't tell you half the tales that were told, but there were some beauties. We are laughing and laughing and laughing. It was a riot. The people on the plane around us couldn't believe how much fun we were having.

And then, to cap it all off, as we're starting to come into Louisville, Ronnie jumps up and gives a call of the Kentucky Derby. It was terrific; the man should be a race caller. And he knew his audience. He had the race between California Chrome, Hoppertunity (Smith's mount before he was scratched) and Candy Boy (Stevens's mount). And he takes us right up to the finish as the plane's coming in and he says: 'And it's too close to call at the wire!' Oh, I'm telling you the whole plane loved it. Everyone was cheering. And it was the best plane ride I'd ever had.

5:19 P.M. Wise Dan Wins Again

Wise Dan, the two-time defending Horse of the Year, won for the 12th time in his last 13 starts when he edged Seek Again by a head in the Woodford Reserve Turf Classic on the Derby's undercard. The 7-year-old gelding was ridden by John Velazquez. He took his second race in as many starts this year, paying $3 for a $2 win wager.

— Tom Pedulla

California Chrome apparently brought some sunshine with him for his big day at Churchill Downs. It's 70 degrees and sunny with a light wind, a steady improvement from Oaks Day, which was overcast and a bit chilly. Still, both days clearly were marked improvements from last year, when rain pounded the grounds here, leaving revelers soaked. Orb still found a way to win, despite the sloppy track, delighting those who braved the conditions.

Today, the track is fast, which works in California Chrome's favor, because he has never raced on a wet track.

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Well: Helmets Do Little to Help Moderate Infant Skull Flattening, Study Finds

Pediatricians have long urged parents to put newborns to sleep on their backs to help prevent sudden infant death syndrome. While the practice undoubtedly has saved lives, it also has increased the numbers of babies with flattened skulls.

Roughly one baby in five under the age of 6 months develops a skull deformation caused by lying in a supine position. Now a study has found that a common remedy for the problem, an expensive custom-made helmet worn by infants, in most cases produces no more improvement in skull shape than doing nothing at all.

The new report, published Thursday in the journal BMJ, is the first randomized trial of the helmets. The authors found "virtually no treatment effect," said Brent R. Collett, an investigator at Seattle Children's Research Institute and author of an accompanying editorial.

Skull flatness at back of the head may be accompanied by facial asymmetry; one ear may be slightly farther back than the other, and sometimes the side of the head can flatten. Until now, less rigorous studies had mostly shown helmets did help normalize head shape.

The helmets are sometimes adorned with stickers, and are sometimes painted to resemble a pilot's helmet or with the logo of a beloved football team. "I was very surprised at the results," Dr. Mark R. Proctor, an associate professor of neurosurgery at Boston Children's Hospital, said of the new study, adding that it was "rigorous."

Still, the study leaves open the possibility that the helmets may still be useful for infants with severe skull flattening and those with tight neck muscles, which make it hard for infants to turn their heads, so they remain in one position. Researchers from the University of Twente in the Netherlands assigned 42 babies who had misshapen skulls, aged 5 to 6 months old, to wear a custom-designed helmet that allows flattened areas room to round out as the infant's skull expands.

Parents were instructed to have infants wear the helmets 23 hours a day for six months or so. Another 42 babies with similar deformities received no treatment. Infants with the most severe deformities were excluded.

After two years, a researcher who did not know which babies had worn helmets evaluated skull shape in the infants. The improvements were not significantly different between the helmet-wearers and the infants not wearing helmets.

"There are definitely cases of infants with mild to moderate skull deformation who are treated with helmet therapy, and this study confirms and reaffirms that this is not necessary," said Dr. James J. Laughlin, an author of the policy statement on skull deformities for the American Academy of Pediatrics.

Helmets to treat flattened skulls range in price from $1,300 to $3,000, and parents are told to make sure infants wear them around the clock. Dr. Laughlin said the paper provides pediatricians and worried parents "reassurance that not doing helmet therapy will give you the same results as doing helmet therapy, which is expensive" and can be "stressful for the family."

Makers of custom helmets questioned the study's results. Tim Littlefield, a spokesman for Cranial Technologies, called it "inherently flawed." William Gustavson, a spokesman for Orthomerica, called it "alarming" that nearly three-quarters of parents whose children received helmets in the study reported that the helmets shifted or rotated on their infants' heads.

"The value of this research is fully reliant upon the quality of the fit," said James Campbell, the vice president of the American Orthotic and Prosthetic Association, a trade group.

Some surgeons worried that the finding would be applied too broadly, jeopardizing insurance coverage for severely affected children who could benefit from helmets.

"What I fear happening is that children with a severe deformity are going to be denied helmets based on this evidence, which is really only talking about moderate cases," said Dr. Alex A. Kane, the director of pediatric and craniofacial surgery at UT Southwestern and Children's Medical Center in Dallas.

Courtney Reissig, 31, a stay-at-home mother in Little Rock, Ark., doesn't regret the eight months her son, Luke, wore a helmet. He had neck muscles so tight that he favored lying on his left side in bed, to the point that it "looked like the side of a toaster — flat, not round," Mrs. Reissig said.

He outgrew his first helmet, which cost $1,300, and required a second, she said. But wearing a helmet helped round out his head, and he now closely resembles his twin, Zach. "I do feel like the helmets were worth it," she said.

Only about a quarter of the babies in the BMJ trial made a full recovery by the age 2.

"This is a problem we created," said Dr. Proctor, of Boston Children's Hospital. "All parents are told is sleep the child on their back. They aren't told about flat heads and how to prevent it."

Some pediatricians and specialists advise parents to try repositioning an infant's head before considering a helmet.

Repositioning entails alternating to which side the infant's head turns once they are asleep on the back. That way, pressure isn't always squarely on the back of the head.

Repositioning isn't as feasible for infants with tight neck muscles, known as torticollis. They may benefit from physical therapy, said Dr. Chad A. Perlyn, craniofacial and pediatric plastic surgeon at Miami Children's Hospital.

In addition to repositioning, he advises parents to try more tummy time and to limit time spent in car seats. Use a baby carrier, he added, because "when the baby is awake, there's no deforming force on the skull."

Doctors noted that some helmet makers encourage parents to diagnose flattened skulls on their own, without a doctor's evaluation. It's important for a physician to rule out craniosynostosis, or bones fusing together prematurely, as a cause, they said. That much rarer condition requires surgery.

On the Web sites of some helmet manufacturers, assessment tools encourage parents to compare their infant's head shape to pictures.

"It's a bit like having the wolf guarding the henhouse," said Dr. Proctor.

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India Ink: India Election Digest: May 1

What you need to know on Thursday about India's elections: A selfie gets the Bharatiya Janata Party's candidate for prime minister into trouble, it's tough to pin down the reasons for the high voter turnout, and a village in Uttar Pradesh abstains from the vote out of protest.

India Votes

News and analysis on the world's largest election.

A selfie taken by Narendra Modi of the Bharatiya Janata Party outside a polling booth in Ahmedabad, Gujarat, prompts the Election Commission to order the local police station to file an initial complaint against him. (The Indian Express)

The record high turnout in this year's elections cannot be seen as a vote of anti- or pro-incumbency. (Mint)

All 378 voters of an Uttar Pradesh village decided to stay away from the polls to protest the lack of a road and electricity. (The Times of India)

Mr. Modi's comments about covert operations against terrorists raise the question of whether India is rethinking its security tactics. (The Hindu)

Arvind Kejriwal of the Aam Aadmi Party says in an interview that his party is offering the "power of truth." (The Hindu)

How Rajnath Singh, the president of the Bharatiya Janata Party, is trying to woo Brahmin voters in Lucknow, Uttar Pradesh. (Caravan)

The machine behind Mr. Modi's real-time responses to his critics. (The Times of India)

An Indian National Congress leader acknowledges his new relationship with a much-younger television anchor after photos of the couple circulated on social media. (The Telegraph)

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DealBook: Two Giant Banks, Seen as Immune, Become Targets

Federal prosecutors are nearing criminal charges against some of the world's biggest banks, according to lawyers briefed on the matter, a development that could produce the first guilty plea from a major bank in more than two decades.

In doing so, prosecutors are confronting the popular belief that Wall Street institutions have grown so important to the economy that they cannot be charged. A lack of criminal prosecutions of banks and their leaders fueled a public outcry over the perception that Wall Street giants are "too big to jail."

Addressing those concerns, prosecutors in Washington and New York have met with regulators about how to criminally punish banks without putting them out of business and damaging the economy, interviews with lawyers and records reviewed by The New York Times show.

The new strategy underpins the decision to seek guilty pleas in two of the most advanced investigations: one into Credit Suisse for offering tax shelters to Americans, and the other against France's largest bank, BNP Paribas, over doing business with countries like Sudan that the United States has blacklisted. The approach applies to American banks, though those investigations are at an earlier stage.

In the talks with BNP, which has a huge investment bank in New York, prosecutors in Manhattan and Washington have outlined plans to extract a criminal guilty plea from the bank's parent company, according to the lawyers, who were not authorized to speak publicly. If BNP is unable to negotiate a lesser punishment — the bank has enlisted the support of high-ranking French officials to pressure prosecutors — the case could counter congressional criticism that arose after the British bank HSBC escaped similar charges two years ago.

Such criminal cases hinge on the cooperation of regulators, some who warned that charging HSBC could have prompted the revocation of the bank's charter, the corporate equivalent of the death penalty. Federal guidelines require prosecutors to weigh the broader economic consequences of charging corporations.

With the investigation into BNP, the lawyers briefed on the matter said, prosecutors met in April with the bank's American regulators: the Federal Reserve Bank of New York and Benjamin M. Lawsky, New York's top financial regulator. The prosecutors who attended the meeting and are leading the investigation — Preet Bharara, the United States attorney in Manhattan; David O'Neil, the head of the Justice Department's criminal division in Washington; and Cyrus Vance Jr., the Manhattan district attorney — left largely reassured.

During the meeting at the New York Fed's headquarters in Lower Manhattan, the lawyers said, Mr. Lawsky said he planned to impose steep penalties against BNP and its employees but would not revoke the bank's license. The prosecutors secured similar assurances from the New York Fed, the lawyers said, though the Fed's board in Washington must still approve the decision about BNP, which has not been accused of any wrongdoing.

Depending on the regulator — American and European banks are divided among a patchwork of agencies in New York and Washington — the path to filing charges could still be difficult. While regulators might be philosophically aligned with prosecutors, some feel bound by rules that govern their response to criminal charges. At a meeting last September, a top federal regulator vowed not to interfere if Mr. Bharara obtained a guilty plea from JPMorgan Chase over its ties to Bernard L. Madoff, according to the lawyers and records of the meeting. But the regulator, Thomas J. Curry, a frequent critic of Wall Street, warned that federal law might require him to reconsider JPMorgan's charter if the bank was convicted of a crime.

The discussions with regulators, recounted in interviews with the lawyers and in records obtained through a Freedom of Information Act request, offer a lens into the political and legal minefields that prosecutors navigate when investigating big banks. The interviews also demonstrate that defense lawyers continue to push prosecutors not to act without assurances that regulators will keep a bank in business.

In a recent speech to Wall Street lawyers, Mr. Bharara said this dynamic created a "gaping liability loophole that blameworthy companies are only too willing to exploit."

He noted that regulators often possessed many of the same facts, including emails and documents, that underpin a criminal case. The prosecutors and regulators, he said, need to "work in concert."

His comments echoed concerns that Attorney General Eric H. Holder Jr. raised at a congressional hearing last year, when he said, "I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them" amid regulatory concerns that charges could imperil the economy.

The off-the-cuff remarks ignited a debate that reverberated through the Justice Department and the halls of the Capitol. Mr. Holder's concerns also reinforced the popular idea that Wall Street, once considered too big to fail, is now too big to indict.

The idea is born from painful experiences like Arthur Andersen, Enron's accounting firm, which went out of business after a 2002 criminal conviction. In the wake of the firm's collapsing, prosecutors adopted a more cautious approach when punishing big companies, imposing "deferred-prosecution agreements" that suspend charges against corporations in exchange for certain concessions.

Those fears helped shape the case against HSBC, accused of "stunning failures" in preventing money laundering. Prosecutors in Washington, unsure how regulators would respond to a guilty plea, imposed a record fine and a deferred-prosecution agreement.

Mr. Holder and Mr. Bharara are now signaling a change in course.

Mr. Holder's criminal division — which a week after announcing the HSBC case hosted a meeting with regulators to discuss "corporate resolutions," according to records — has held discussions with the New York Fed about securing a guilty plea in the Credit Suisse tax shelter case. While the criminal division might ultimately extract a guilty plea from Credit Suisse's main banking affiliate in Zurich, the lawyers briefed on the matter said, they have not ruled out charges against the bank's parent company. The case is expected to be announced before the action against BNP.

Representatives for BNP and Credit Suisse declined to comment.

Mr. Bharara, the lawyers said, has opened his own criminal investigations into a fraud at Citigroup's Mexican affiliate and other American banks. And in the recent speech, Mr. Bharara warned, "You can expect that before too long a significant financial institution will be charged with a felony or be made to plead guilty to a felony, where the conduct warrants it."

BNP has privately said that the consequences of a guilty plea could be dire. In a final bid for leniency, the lawyers briefed on the matter said, the bank is expected to meet with prosecutors next week in the Justice Department's headquarters in Washington. BNP, which has earmarked $1.1 billion to pay penalties in the case but might pay more, requested the meeting with Mr. O'Neil, Mr. Bharara and Mr. Vance after learning the prosecutors' intentions to force a guilty plea from the bank's parent company. The bank, which would be the biggest financial institution to plead guilty since Drexel Burnham Lambert in 1989, hopes that prosecutors will settle for a guilty plea from a BNP subsidiary.

The investigation into BNP has centered on whether the bank processed transactions for countries — including Sudan and Iran — that the United States government has placed under sanctions. The bank, which conducted its own internal investigation that "identified a significant volume of transactions that could be considered impermissible" between 2002 and 2009, may have improperly routed some money through its New York branches. Prosecutors decided that the conduct warranted more than a deferred-prosecution agreement. But leery of spurring a run on the bank, the prosecutors turned to regulators for assurances — which were largely provided at the April 18 meeting at the New York Fed.

Still, to be meaningful, a guilty plea would require some consequences. Mr. Lawsky told prosecutors that he would consider temporarily suspending the bank's ability to transfer money through New York branches on behalf of foreign clients, a move that could undercut the bank's revenue.

A spokesman for Mr. Lawsky declined to comment, as did the spokesmen for Mr. Bharara, Mr. Curry and Mr. O'Neil. The Fed and Mr. Vance's office also declined to comment.

In other cases, Mr. Bharara reached an impasse with regulators.

He first met with Mr. Curry, the Comptroller of the Currency, in September 2012 to discuss the potential fallout from criminal charges, records show. A year later, as Mr. Bharara's investigation into JPMorgan's business with Mr. Madoff was heating up, he made another visit to the regulator.

Joined by his top lieutenants — Lorin L. Reisner, Joon Kim and Richard B. Zabel — Mr. Bharara sought to clarify the potential repercussions of a JPMorgan guilty plea, according to the meeting records. Mr. Curry, flanked by his own top aides, Paul Nash and Daniel Stipano, was sympathetic to the dilemma.

But Mr. Curry stopped short of promising that JPMorgan's charter would be safe. He pointed to a federal law that requires the Comptroller's office to hold a hearing about potentially terminating "all rights, privileges and franchises of the bank." Ultimately, JPMorgan received a roughly $2 billion penalty from Mr. Curry and Mr. Bharara, but did not have to plead guilty.

Moving forward, Mr. Bharara is exploring ways around the automatic hearing, which applies only to money laundering convictions. Other charges, including wire fraud, do not automatically require a hearing.

"The revocation of a charter amounts to a death sentence for a bank," said Daniel Levy, a former prosecutor in Mr. Bharara's office, who is now a principal at McKool Smith. "Any rational prosecutor would want to know the consequences of a charge, if possible in advance."

A version of this article appears in print on 04/30/2014, on page A1 of the NewYork edition with the headline: Two Giant Banks, Seen as Immune, Become Targets .

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DealBook News Analysis: Bank of America’s Bad Accounting

The strange accounting that tripped up Bank of America is on its way to being changed.

That accounting rule, which has been around since 2007, has vexed investors in financial institutions ever since it began to be applied. The banks greatly enjoyed it at first because it had the seemingly perverse result of increasing their reported profits — or at least reducing their reported losses — at a time when the banks seemed to be in dire straits in 2008 and 2009.

Since then, the banks have liked it less because it reduced profits as their chances of survival appeared to increase.

The rule has provoked a lot of criticism about how ludicrous accounting results could be, and the people who write the standards have been moving to change the rule. Just last week, the Financial Accounting Standards Board tentatively agreed, on a 5-to-2 vote, to end that practice at a date to be determined.

People should not hold their breath. Changes in accounting rules happen at a glacial pace. The board has been discussing this change since 2010.

Had the expected new rule been in effect, it appears that Bank of America could not have made the mistake that was disclosed on Monday — a mistake that forced it to withdraw its capital plan submitted to the Federal Reserve and suspend a planned dividend increase and share buyback.

The existing rule applies to companies that adopt what is known as the "fair value option" for financial assets and liabilities. In practice, that mostly means large banks.

Under the rule, they mark certain assets and liabilities to market value each quarter and reflect the net change in their income statements.

That made sense when it was originally adopted in 2006, when the quality of bank credit was generally taken for granted. If a bank issued a bond that matured in 10 years and at the same time made a 10-year loan at a fixed interest rate, marking the asset — the loan — to current value might make no sense unless the value of the liability — the bond — was also changed. If interest rates rose, the market value of the loan would fall. Should that lead to a loss? No, because the value of the bond would also fall.

Then Lehman Brothers failed, and suddenly the assumption of unvarying credit quality among large banks no longer made any sense.

The result was that in 2008 and 2009, the market value of bonds issued by big banks fell, and their reported profits were increased. Then in 2010 and later, the banks appeared to be in better shape, and the market value of their bonds rose. That cut reported profits.

Bank regulators understood that — whatever the accounting rationale — it made no sense to raise or lower a bank's profits because its credit standing had changed. Banks would ultimately pay their liabilities in full or they would fail. So the regulators told the banks to disregard those adjustments in calculating capital. And Bank of America did that.

The bank said on Monday that while it got the net earnings right every year, it mishandled the adjustments to its capital.

And how did it err? It says that it properly raised its reported capital levels to offset the reported loss caused by unrealized changes in the valuation of the securities it had issued. But it also raised the capital levels to offset losses that had been realized, something it should not have done. The realized changes came when securities issued by the bank were paid at maturity or repurchased at an earlier date.

That mistake improperly increased its reported capital.

Bank of America did not explain how that the error came to happen or how it was repeated year after year. Nor did it explain why the error was discovered when the first-quarter financial statements for this year were being prepared.

The securities in question were complicated ones, known as structured notes. They were originally issued by Merrill Lynch before Bank of America bought the brokerage firm in 2009, during the financial crisis. Those notes had what is called an "embedded derivative," which means their eventual value at maturity would vary based on the performance of something else, perhaps a currency or a commodity or a stock index.

Under the current rules, any change in value because of a move in the underlying security — say a stock index — should be reflected in both earnings and capital. So should a change in value caused by changes in market interest rates. But the change in value caused by a change in the credit standing of Bank of America should be reflected only in earnings, not in capital.

If the change in rules tentatively endorsed by the F.A.S.B. were in effect, the latter change would no longer be reflected in earnings. So no adjustment would need to be made in calculating capital levels.

It is clear that Bank of America management should have caught the error. But it is less clear who else should have caught it. It was contained in the bank's submission to the Fed regarding stress tests, which the Fed said it carefully reviewed. A Fed spokeswoman declined to comment, but it perhaps should be noted that the submissions contained thousands of numbers, not all of which could be checked.

Bank of America's auditor, PricewaterhouseCoopers, also declined to comment. It is responsible for auditing the company's financial statements, which the bank says were correct, at least so far as the income and balance sheets go. But the company's 10-K annual report, which carried the auditor's letter of approval, also included a footnote regarding capital levels, which the bank now says were incorrect. One measure of capital was reported at $161.5 billion, when it should have been $157.7 billion. Auditors are supposed to review such footnotes, but either number showed the bank to be more than adequately capitalized, and it could be argued that the difference was immaterial to investors.

It was not, however, immaterial to the Fed, which forced the bank to revise its capital plan. And that fact was clearly material to investors. Bank of America stock lost 6.3 percent of its value on Monday, shaving more than $10 billion off the company's market capitalization.

It will be interesting to learn, if we can, just how the error was caught this year. It might be even more interesting to know which bank officials were supposed to review the calculations, and failed to do so, year after year.

A version of this article appears in print on 04/29/2014, on page B4 of the NewYork edition with the headline: Bank of America's Bad Accounting.

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DealBook: Pfizer Proposes a Marriage With AstraZeneca, Easing Taxes in a Move to Britain

Pfizer, the maker of best-selling drugs like Lipitor and Viagra and a symbol of business prowess in the United States for more than a century, no longer wants to be an American company.

On Monday, Pfizer proposed a $99 billion acquisition of its British rival AstraZeneca that would allow it to reincorporate in Britain. Doing so would allow Pfizer to escape the United States corporate tax rate and tap into a mountain of cash trapped overseas, saving it billions of dollars each year and making the company more competitive with other global drug makers.

A deal — which would be the biggest in the drug industry in more than a decade — may ultimately not be done. AstraZeneca said on Monday that it had rebuffed Pfizer, after first turning down the company in January. Nonetheless, the pursuit by Pfizer, founded in a redbrick building in Brooklyn in 1849, has made it clear that the company wishes to effectively renounce its United States citizenship.

Pfizer points out that it would retain its corporate headquarters here and remain listed on the New York Stock Exchange. It also says that the main rationale for the deal is broadening its portfolio of drugs, and saving money through combined operations with AstraZeneca.

Still, a deal would allow it to follow dozens of other large American companies that have already reincorporated abroad through acquiring foreign businesses. They have been drawn to countries like Ireland and the Netherlands that have lower corporate rates, as well as by the ability to spend their overseas cash without being highly taxed.

At least 50 American companies have completed mergers that allowed them to reincorporate in another country, and nearly half of those deals have taken place in the last two years.

But Pfizer is now the largest and best-known of them to try to expatriate.

"Pfizer is the Coca-Cola of health care. It's as American as apple pie," said Mark Schoenebaum, an analyst with the ISI Group. "If there is a deal that is going to start a real dialogue in Washington, it might be a company like this."

On Monday, some lawmakers on Capitol Hill expressed frustration over such corporate moves.

"It is a real problem when the tax code provides an incentive for U.S.-based companies to move overseas, often times taking good jobs with them," said Representative David Camp, the Republican Michigan who is chairman of the House Ways and Means Committee.

Senator Charles E. Grassley, Republican of Iowa, said, "Until we can reform our tax code so we have a more globally competitive system, businesses will seek ways to limit their taxes in the United States in favor of foreign tax systems."

Recent proposals from Mr. Camp and the previous chairman of Senate Finance Committee, Senator Max Baucus, Democrat of Montana, have taken aim at such deals. President Obama's 2015 budget proposal included language that would effectively ban them. By acting now, Pfizer is betting that it can complete a merger to reduce its taxes before any push to change the laws gathers steam.

There are several benefits of being effectively a British company. Pfizer currently pays an effective tax rate of 27 percent. Though it did not specify what the new rate might be, the British corporate tax rate is currently 21 percent and will soon fall to 20 percent.

Analysts at Barclays estimated that for each percentage point less Pfizer paid in taxes, it would save about $200 million a year by reincorporating. People briefed on Pfizer's discussions said that figure could be substantially higher. That means that Pfizer would be saving at least $1 billion a year in taxes alone.

And moving to a lower-tax jurisdiction would allow Pfizer to tap cash that it holds overseas without paying a steep tax to bring it back to the United States. Of the company's $49 billion in cash, some 70 to 90 percent of that is estimated to be held overseas. That would help pay for part of the takeover by Pfizer. By using those assets to buy a foreign company, the drug maker would avoid racking up the sort of big tax bill that would come from buying a domestic rival like Bristol-Myers Squibb.

Pfizer's offer for AstraZeneca, composed of cash and stock, was valued at 46.61 pounds a share ($78.37), roughly 30 percent above where the British company was trading at the beginning of the year.

And being based in a country with a lower tax rate would allow Pfizer to be more aggressive in acquiring other companies. On a call with analysts on Monday, Pfizer's chief executive, Ian C. Read, a Briton, said Pfizer found it was hard to compete with other acquirers while saddled with "an uncompetitive tax rate."

Still, he added that even as a reincorporated British company, "we will continue to pay tax bills" in the United States.

The chief executive said that it was his responsibility "to maximize return to shareholders, and I don't actually see that that conflicts with the interest of the U.S. government."

American businesses have long complained about the corporate tax rate, arguing that in today's global marketplace, they are left at a competitive disadvantage.

Many companies aggressively seek loopholes that lower their actual tax rates well below the 35 percent statutory rate. Some choose to reincorporate abroad.

Last year, several American drug makers, including Perrigo, from Allegan, Mich.; Actavis, from Parsippany, N.J.; and Endo Health Solutions, from Malvern, Pa., acquired foreign companies and began the process of moving overseas.

The result will be hundreds of millions of annual tax savings for the companies, and an equivalent amount of money lost to the United States Treasury.

The law allows companies to move overseas if, after a merger or acquisition, foreign shareholders own more than 20 percent of the company.

The rush of such deals, known as inversions, helped push deal activity to heights unseen since before the financial crisis of 2008. On April 22 alone, drug makers announced $74 billion worth of potential deals, including the potential takeover of the maker of Botox and a complicated series of asset swaps between Novartis of Switzerland and GlaxoSmithKline of Britain.

But Pfizer would be by far the best-known company to try such a deal.

"This would be one of the largest tax inversions, if not the largest, in more than 30 years of such transactions, and as an aside, could again reignite calls for U.S. corporate tax reform," said Alex Arfaei, an analyst at BMO Capital Markets.

For Pfizer, there are other motivations, besides taxes. AstraZeneca makes an attractive target because of its portfolio of cancer drugs, an area that Pfizer has also made a priority as it seeks to restock its product pipeline.

Sales of many of Pfizer's top-selling products, such as the pain drugs Celebrex and Lyrica, are expected to fall rapidly over the next few years because the drugs will lose their patent protection and enter into competition with cheaper generic versions.

Mr. Read said a combined company would save money and would be able to invest more in research, especially in cancer treatments, that each company could not achieve on its own. One example could be in creating combination therapies, or drug cocktails, to treat cancer in the same way that such drugs have revolutionized treatment of patients with H.I.V.

While obstacles to completing a merger remain, shares of Pfizer surged 4.2 percent on Monday, signaling investor appetite for such a deal. And Mr. Read of Pfizer said he would continue to pursue AstraZeneca.

"We've never had a company of this size and stature do an inversion," said Robert Willens, an independent corporate tax adviser. "It may be that this is the transaction that creates a lot of controversy and calls so much attention to the technique that the legislators get involved and rein these transactions in."

On Monday, Mr. Read acknowledged as much, saying, "At some point the U.S. government will need to deal with how to make global companies competitive from the U.S."

Katie Thomas contributed reporting.

A version of this article appears in print on 04/29/2014, on page A1 of the NewYork edition with the headline: Pfizer Proposes a Marriage and a Move to Britain, Easing Taxes .

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