It looks like Merrill Lynch landed a winner when it signed up as a sole adviser to Royal Bank of Scotland, Fortis of Belgium and Banco Santander Central Hispano in their bid for ABN Amro. Merrill is set to make as much as $179 million in advisory fees, DealBook is reporting. And since Merrill is also arranging the financing for the deal, it stands to make an additional $150 million.
ABN Amro’s Feast of Fees [DealBook]
Banks
You knew this was coming. Apparently US prosecutors are investigating the two failed Bear Stearns hedge funds. The U.S. attorney in Brooklyn requested that Bear Stearns turn over information on the two failed funds hedge funds, whose failure cost investors $1.6 billion, said these people. This is just the beginning of course, no one has been subpoenaed. Yet.
While the Bear funds certainly made colossal mistakes, nothing we’ve heard so far has indicated criminality. Of course, creative prosecutors have found ways to criminalize business failure in the past, so don’t dismiss this investigation too quickly. There are people in jail right now who never could have known that what they were doing would be considerable a criminal offense by the courts.
Some will no doubt be happy that the guys who lost all that money may face criminal charges someday. But the less vengeful of us might want to think twice about enjoying the another instance of regulating finance through criminal prosecutions. How well has that been working out?
One thing is for certain: this will be red meat for shareholder plaintiff’s lawyers, who will seize upon the criminal investigation as a chance to file complaints about Bear Stearns. And, of course, hope to collect fees from an eventual settlement.
None of this is really surprising. But if we were slightly less hungover today, we might muster a bit more outrage over this.
Prosecutors Begin Probe of Bear Funds [Wall Street Journal]
In the last week, Citigroup, Deutsche Bank, and UBS announced that they wrote down $1.4 billion, $3.11 billion and $3.4 billion in the third quarter, respectively. In the land of reality, where sane human beings live, these numbers would be considered bad news. Rational people would perhaps take the opportunity to tell the banks, “Hey, you fucked up,” as a way of motivating them to do better. Instead, not only were the banks not given the smack in the face they so desperately need, but they were praised for being honest. “You screwed up big time, but we’re just so happy you’re telling us the truth for once!” has been the gist of it. Obviously those in charge of the truth-telling mission jumped on the back-patting bandwagon, and praised themselves, too. “It was about transparency,” said DB Chief Executive Josef Ackermann. “We did it, and several others — UBS, Citibank — did it as well. It was important to re-establish people’s trust in the products and in the markets.”
The best part is that, as the conspiracy theorists at the Journal point out, this whole coming clean shtick is more or less an elaborate lie. The banks have provided “clarity,” in so far as they admitted to BILLIONS in losses, but the clarity is only packaging in which to ship a box full of lies that will later help the people who “can’t tell a lie” tell more lies. And if you think about it, that’s just good business:
“If you’re a smart CEO, you’re going to write off everything and then some, maybe even to below-market prices, because you’re going to be hidden in the woodshed with everybody else,” says Daniel Genter, chief executive and chief investment officer of RNC Genter Capital Management, a Los Angeles-based investment firm that manages about $3 billion in bonds and stocks, mostly for high-net-worth individuals. “They’ll make it look a lot worse than it is, but that’s the smart move, because you’ve got little to lose and you might get some of it back in a quarter or two.”
But maybe we’re just being cynical assholes? Deutsche Bank promises that it “continues to apply accounting and valuation principles consistently with prior periods” and a UBS spokesman told the Journal that the bank’s writedowns are “appropriate and follow established accounting principles and industry standards.” Citigroup has “taken impairments in the third quarter based on a rigorous process applying appropriate accounting principles.” Goldman, which hasn’t even written anything down but is just so bursting with honesty that it had to tell someone about it, was in “constant contact over the summer with the Securities and Exchange Commission to discuss the way it was pricing tough-to-value securities.”
All this chest-bumping for telling the truth really gets in our craw because, to be honest (heh), we could care less about these mystical abilities in the sport of candor. Great—you’ve succeeded at being honest (though not really). How about now, you sharpen your skills at not losing billions upon billions of fucking dollars, which, not sure if anyone ever made this clear, is actually your main goal. Do that and your reward will be that you can tell as many lies as you want. Like this one: “Bear Stearns Seeing the Start Of a Rebound,” Executives Say. Yeah, that felt good.
Banks’ Candor Makes Street Suspicious [WSJ]
The bank that seems to be everywhere in New York city is being bought by TD Bank, creating the fifth largest bank—with $312 billion of deposits—in the US. TD Bank will pay $8.5 billion of cash and stock for Commerce.
Commerce Bank was the fast food chain of banking. It’s founder Vernon Hill, who is said to own the largest private house in New Jersey, started as a fast-food franchise owner before starting up Commerce Bancorp in 1973.
Commerce shareholders will get 0.412 shares of TD Bank and $10.50 in cash. That works out to a 6.6 percent premium, although some would argue that the bank was already trading at a premium after Hill resigned and speculators began whispering that the bank was in play.
TD Bank is Canadian. So, you know, blame Canada.
Deal Press Release [Newswire]
There’s no doubt that Planet LBO is a calmer place now than it was through much of the summer. But it’s not exactly terra firma yet. One of the shakiest deals in the pipeline is the buyout of real estate investment trust Archstone-Smith Trust. Lehman Brothers and Tishman Speyer are putting just $500 million of their own money into the $21 billion deal, with the rest coming in the form of bridge equity and debt.
Yesterday Lehman Brothers and Bank of America began their attempt to sell $3.15 billion of the $4.96 billion bank loans financing the debt. The loans consist of a $750 million revolver and a $2.4 billion term loan, each priced at 300 basis points over LIBOR. But word is that they are running into resistance from investors who are surprised the debt is not discounted more heavily.
Reuter’s Jonathan Keehner reports that banks are offering the term loan at 99 cents on the dollar, and this has some would be investors balking. As Keehner gently puts it, the one cent hair cut prices the loans substantially “above where other recent buyout financings have closed or been discussed.”
Not everyone is being so delicate.
“Archstone is a good company, it’s got great assets, and bankers probably thought they could sell at this price,” said a buyside analyst tells Keehner. “But my initial view is that a lot of deals are coming in at the mid-90s, and this is coming in at 99 cents on the dollar. It looks rich to me.”
We’re told the situation is beginning to look hopeless. And part of the problem may be Lehman’s conflicting interests. As both the buyer and one of the lead lenders—a dual role that many banks considered a win-win situation in happier times—Lehman may have put itself between a rock and a hard place.
Let’s go to the Keehner tape again, this time from Reuter’s Dealzone blog. “Either way Lehman takes a hit: as a principal, renegotiating on any terms could hurt potential profits. But by also banking the deal, Lehman otherwise risks having the debt clog its balance sheet or sold at a loss,” Keehner writes.
Archstone loans appear priced at pre-crunch level [Reuters]
Lehman’s double trouble in Archstone [DealZone]
Update: Yep. It’s over. This post has the honor of almost certainly being the last thing ever published on this deal before the world learned that it wasn’t happening. That’s special.
That’s what folks are wondering today. Now that First Data has closed and Harman International Industries and Genesco have fallen apart, eyes are on Sallie Mae. Which way will it go? Will the buyers call a MAC and bail on the deal?
The MAC speculation arises from legislation Congress passed this summer that expands financial aid to students while cutting back on subsidies to student loan lenders. But the odds of the deal falling apart went way up this morning when Bank of America chief executive Ken Lewis made comments that seemed to indicate that the legal changes were causing the buyers to re-evaluate the price they agreed to pay for Sallie Mae.
“We obviously have seen the change in the (education lending) laws. We are trying to assess the impact that might have on the price,” Lewis told the Charlotte Observer. Bank of America part of a group of investors led by buyout firm J.C. Flowers & Co. that agreed in April to by Sallie Mae.
Shares of Sallie Mae sunk on the news. And the price of bond insurance for Sallie Mae’s debt sunk to the lowest levels since July.
Things could get ugly. If the buyers do call a MAC, the sellers may well sue. This morning’s Deal Journal outlines the legal argument that Sallie Mae might make if the buyers tried to walk away. “At stake is the $900 million reverse break-up fee the buyers are on the hook for if they want to walk and can’t prove a MAC,” Deal Journal writes.
Sallie Mae shares fall on Lewis comments [Charlotte Observer]
Sallie Mae Credit Protection Costs Fall Amid Buyout Doubts [CNNMoney.com]
Sallie Mae CEO’s Counterattack Against Waffling LBO Buyers [Deal Journal]
First Data was supposed to be one of the big leveraged buyout deals teetering on the edge of extinction thanks to the credit crunch this summer. The debt load of the company was said to be at the outer limits, leaving it with razor thin margins for slip-ups. But last week investors snapped up its $5 billion buyout loan. In fact, the loan was over-subscribed by about $2 billion.
Last night First Data said the deal had closed. First Data has gone private, and its stock has been removed from the New York Stock Exchange.
Earlier this month, the buyout firm behind the deal, Kohlberg Kravis Roberts & Co, was said to be in a nasty negotiation with the seven banks involved in arranging the First Data transaction. The banks had become nervous about massive loans on their books, and were pressing KKR to renegotiate its deal. KKR eventually did offer one concession—a leverage ratio financial test in its bank loans that has been described as “toothless” and “mere optics.”
While there are still questions about the financing—banks continue to look for ways to syndicate the nearly $24 billion in debt financing they committed to the deal—but fears that the credit crunch might derail the biggest deals, or leave a the financing banks with large losses, seem to be abating.
KKR completes $26 billion First Data takeover [Reuters]
Here’s JPMorgan’s latest brilliant propaganda video, which you can watch here. A walkthrough:
The video lets you know right from the start that “Elena is participating in JPMorgan’s Investment Bank 2007 Global Training Program.” You know Elena is still in training because she is still smiling. Elena is shown looking at slides, one of which has the heading “About our culture” and a subheading “PLAY” (and a disclaimer “may not be an actual slide”). Of course, that section of the training presentation is empty, and the video quickly moves on.
Some more text flashes on the screen – “Employees receive rigorous technical training and learn about JPMorgan’s culture,” as demonstrated by a still of a bunch of people taking out books from JPMorgan bags (the extreme biodiversity in the firm represented by the fact that one of them is bald), then a still of a blood orgy in the TMT group.
Elena complains that you learn about a bunch of different asset classes that have nothing to do with your future job, and that it’s difficult to get to know anyone because JPMorgan is always switching the seat assignments in the room.
Elena laments that it was also difficult to get to know anyone at the Outward Bound training offsite, because everyone had to climb these stupid ropes and row down a body of water with large blocks of wood.
Judging by what you just saw, JPMorgan admits that it has a shitty training program, but promises that by the time you sign up, it will be markedly better. That’s why the firm is proud to state that Vault voted JPMorgan the best training program out of all Investment & Commercial Banks for 2008. In the future, JPMorgan will be better. It swears.
Always one to top itself, JPMorgan saved the best for last. The last shot of the video is a black screen with an arrow pointing to the right and the phrase “This is where you need to be.” By “this,” JPMorgan either means “in total hopeless and all-encompassing darkness,” or, slightly to the right at UBS at 299 Park Ave.
Inside JPMorgan’s Global Training Program [Bankers Ball]
Malcolm Perry is suing Dresdner for $20 million, charging that the bank discriminated against his non-Germanic heritage. Perry, an Australian working in England, lost his job after Dresdner restructured its London office last year.
Actively involved in restructuring talks, Perry was surprised to hear from a more connected colleague (pictured) that “[Dresdner management] wants to turn it back to a German bank.”
One contentious point of the lawsuit is that Perry admits to leaving a restructuring meeting due to a hangover, at which point a series of unplanned discussions took place, including what to do with Perry’s drunk arse.
After the restructuring, Perry was canned, and six of the nine capital markets division managers were German (the remaining three just loved Hasselhoff, spoke German).
Dresdner insists that it is not trying to systematically eliminate non-Germans from its ranks, or the ranks of mankind.
In other news French banks are already surrendering their capital to Dresdner.
City banker not ‘German enough’ [BBC]
Last night the world learned that the Bank of England bailed out Northern Rock. And they’re blaming America.
How’s that work? You see, the whole world is angry that our subprime mortgage lending seems to be a bubble that broke the world. And every failing financial institution from Bombay to Barcelona is going to cite the subprime-led credit crunch as causing its problems.
So what’s really going on? Northern Rock was basically addicted to mortgage securitization. It was built on an insane “alternative” financial structure. Where most banks fund their loans with customer deposits, Northern Rock was hugely dependent on the market for securitizing those loans to generate cashflow. When the market for mortgage backed securities seized up, it discovered it couldn’t originate new lending business and risked defaulting on its own liabilities. Enter the Bank of England’s bailout.
So what’s next? Well, Northern Rock won’t go under but that’s only because it has friends in high places. Now the bank is a likely takeover target. The only way it will escape being acquired is if it finds a friend. Think Countrywide hitting up Bank of America.
European stocks drop on Northern Rock bailout [MarketWatch]
Nigerian banks reportedly use attractive women (and most likely a few additional services they may or may not provide) to “persuade” customers to open accounts. Some, including Nigerian Senate President David Mark, think that this practice isn’t in the true spirit of retail banking, which is pretty much the least sexy thing on the planet. Mark is calling for a ban of the practice.
The Nigerian central bank ordered the consolidation of the country’s banking sector in 2005, reducing the number of banks from 89 to 25. Part of the rationale for consolidation was that the banks would become “more efficient” and not have to use women to attract new business. Despite relative success on the Lagos stock market, Nigerian banks are in large part propped up by government agency deposits and do little retail business. That’s where the babes come in…
Hey, big boy! Any interest? [Reuters]
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