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Bond market not convinced by M&A boom
Investment bankers shouldn’t pin their hopes on a surge in mergers and acquisitions activity. That’s the message from the bond market in a recent survey by Bank of America Merrill Lynch.
Acquisitions can hurt bondholders because companies often take on debt when buying rivals, lowering their credit quality.
However, a recent survey by credit analysts at BofA shows bondholders aren’t too fussed. When asked how they were positioning their portfolios to deal with upcoming M&A, nearly 70 percent of respondents said they were doing nothing, and that M&A concerns were overdone for now.
Cazenove’s yield may muddy JP Morgan deal
As your friendly neighbourhood investment bank rarely tells you, something like 80 percent of deals don’t pay off. So why do one if you don’t have to?
That is the question facing the mighty City of London firm of Cazenove. Five years after Caz poured its investment banking business into a joint venture with the U.S. bank, JP Morgan <JPM.N>, it has to decide whether to go the whole hog and sell the remainder — or to hang on.
Squeeze is on for investment banks
Investment banks are facing a big squeeze. For an industry that was generating record revenues just months after the collapse of Lehman Brothers, this may seem unlikely. But the revival looks set to be short-lived. Increased regulation and greater competition means the super-charged returns the industry generated for most of the past decade are likely to prove elusive.
Analysts at JPMorgan believe 2009 will prove to be the high point in the investment banks’ relentless upward march. They expect revenues in 2011 to be no higher than in 2006. More significantly, the industry’s return on equity will fall to 10.8 percent, far lower than what they have got used to.
Investment banker admits: we overcharge
On the FT’s letters page, Robert Pickering tackles the familiar theme of bank profits and bonuses. The reason banks pay their employees so much, he argues, is because they make large profits. But why are their profits so large?Â
The real marvel is that customers, both corporate and institutional, continue to be willing to pay so much for essentially commoditised services in a ferociously competitive marketplace served by multiple providers, thus generating these outsized profits.
For Sale: Investment Bank, one troubled owner
So Deutsche Bank has written a large cheque to bail out Sal. Oppenheim — allowing the German private bank’s investors to subscribe to a 300 million euro share issue  which raises its equity capital to around 2.1 billion euros.
This is just part of the story though. The next step is apparently for Deutsche to take a stake in the 220-year-old private bank and for Sal. Oppenheim to sell off its investment banking business.
Bob Diamond in the red
Just how profitable is Barclays Capital?
At first glance, the answer would be: very. According to Barclays’ results, Bob Diamond’s investment banking empire made a £1bn profit in the first six months of the year, double last year’s figure. That’s despite continuing hefty write-downs on toxic assets.
Indeed, as other parts of Barclays succumb to the economic downturn, Barcap, buoyed by last autumn’s acquisition of the North American operations of Lehman Brothers, more or less appears to be keeping the bank afloat.
Deutsche Bank walks bad loan tightrope
   Deutsche Bank’s Josef Ackermann has bet that income from investment banking will more than cover bad debts buried in his balance sheet.
   Ackermann is as usual putting a brave face on things, but looking at the hefty charges Deutsche is taking to provision against credit losses, it’s going to be a close call.
   At the height of the financial crisis, Deutsche shifted assets from its trading to its banking book, thus avoiding mark-to-market write-downs and the need to raise more capital.
   But dodgy loans catch up with you even if you hold to maturity — the losses just take longer to work their way through the pipe as loans become impaired.
   Like Barclays in the UK, Deutsche’s sleight of hand may have helped it wriggle out of needing government help. But the Q2 charges have understandably rattled investors, with its shares down some 9 percent on Tuesday.
   The big fear is that these charges are only the beginning and there are other skeletons in Deutsche’s cupboard.
   But even if there is more bad news to come — and Ackermann is not overly optimistic in his outlook — the question is whether Deutsche can earn its way out. At first glance, it has successfully done this in the second quarter, beating estimates with a net profit of 1.1 billion euros ($1.57 billion) — helped by a lower tax bill — despite charges of 1.4 billion euros.
   There are a few serious caveats other than the rise in bad debt provisions. Deutsche’s profit before tax was actually lower than some estimates, as were the revenue figures for some businesses including investment banking. Costs rose 9 percent.
   Given that conditions for sales and trading and other investment banking activities could not get much better than they were in Q2, Deutsche is going to be closely watched.
   Deutsche can’t do much more about its previous lending decisions. By focusing on avoiding past mistakes and growing its profits it might still squeeze through with no need to raise new capital, a move Ackermann has staked his reputation on doing without.
   Deutsche has done well to bolster its capital ratios and cut risk weighted assets. But on the basis of these results, it’s going to be tight.
Credit Suisse pulls ahead of UBS
UBS has always looked down its nose at its cross-town rival, but Credit Suisse under Brady Dougan has turned the tables on the blue-bloods. As UBS remains mired in a potentially catastrophic legal tussle with America’s tax collectors, CS is winning market share across the board.
With its second quarter results, Dougan has shown that the storming first quarter was no flash-in-the pan. Stripping out various one-offs (including a counter-intuitive 1.1 billion Swiss franc loss thanks to an improvement in the value of its own debt), Credit Suisse’s net income increased 62 percent on the first quarter, to 2.5 billion Swiss francs. That is equivalent to a boom-like 27 percent-plus return on equity.
Bankruptcy-related M&A at 5-year high – more to come?
This week’s Thomson Reuters Investment Banking Scorecard shows bankruptcy-related M&A at a five year high.
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There were five bankruptcy-related M&A deals announced during the week, including the acquisition of venture-backed public company Nanogen by French investment holding company Financiere Elitech for $25.7 million.Â
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The Wall
