As if CIT didn't have enough problems digging itself out of a credit morass, now it has Carl Icahn to contend with. Troubled by what he sees as sweetheart deals between CIT and its largest creditors, at the expense of the little-guy bondholder, Icahn has offered to underwrite the $6 billion the small-business lender says it needs to survive. Icahn's offer sent CIT shares soaring by double digits ... to well above a dollar.

In a letter to CIT's board, Icahn said certain large bondholders are being offered an opportunity to purchase secured loans at prices well below their fair market value.

In the end, Icahn underwriting offer may serve more as a publicity stunt than a White Knight vanguard attempt to save CIT, which is busy searching for a new CEO -- presumably, a restructuring artist.

A week ago CIT CEO Jeffrey Peek told the company he would retire, thumbing his nose at a fresh one-year contract renewal and firming up market expectations that the company would soon seek bankruptcy protection. It's hard to accept that the 11 percent stock move this morning represents a serious shift in that expectation.

It's official: Salomon Brothers has been completely picked apart.

Citigroup's agreement to sell Phibro, its profitable but controversial commodity trading business, to Occidental Petroleum today puts the finishing touches on a slow erosion of a once-dominant bond trading and investment banking firm.

When Sandy Weill (pictured left) staged his 1998 coup -- combining Citicorp and Travelers, Salomon Brothers was a strong albeit humbled investment banking and trading force. Yet little by little, a succession of financial crises, Wall Street fashion and regulatory intervention has whittled away at the once-dominant firm.

Not long after the Citigroup was formed, proprietary fixed income trading --  once the domain of John Meriwether, was shut down after the Asian debt crisis fueled losses that Weill could not stomach.

The Salomon name disappeared long ago as investment bankers and underwriters were rebranded Citigroup Global Markets.

Now Phibro, the former Philips Brothers that merged with Salomon in the early 1980s, is to be cast off because its energy traders made too much money when the rest of the bank suffered losses and required a $45 billion of taxpayer bailout.

Turns out Goldman Sachs is a staunch advocate of going organic -- when it comes to the money management business.

As Barclays auctioned off its Barclays Global Investors unit this year, Goldman was widely seen as a likely acquirer. That is until Blackrock In under Larry Fink emerged as the buyer with a $13.5 billion deal.

Lots of other money managers are expected to be sold, as the industry consolidates and cash-strapped banks look for valuables to pawn. But Viniar told analysts Goldman's preference is to grow the business without deals, and appeared to question the very idea of money manager deals.

"If there were an acquisition that made sense financially for us to do, we would certainly consider it," he said, something he says every three months to calm down excitable analysts. "When we look at the prices of most of the acquisitions, we think that they haven't made sense in that you've had to assume really heroic growth rates that we don't think are realistic." 

Jefferies Putnam Lovell recently said it counted 35 management deals in the second quarter, compared with 52 deals a year earlier. Besides the BGI takeover, Aquiline Capital Partners acquired Conning & Co,  JPMorgan Chase bought the remainder of its Highbridge Capital Management hedge fund unit and Woori Finance purchased Credit Suisse's 30 percent interest in a joint venture.

Yet Viniar notes money management firm deals are tricky, since buyers have to pay a premium for the company and then put up more money to retain star managers. And even as billions of profits come sloshing into Goldman's coffers, Viniar apparently doesn't like to part ways with the firm's cash.

"It has taken a while, but we've grown (the asset management business) quite successfully, almost exclusively organically." he said. "And the high likelihood is that is the way we are going to continue to grow it in the future."

(Photo: A customer walks past organic products in an organic food chain store in Taipei/Pichi Chuang)

Despite objections, and a rival bid from PAI Partners, a group of three distressed debt investors proved successful in their aggressive bid to wrestle control of French roofing company Monier through a debt for equity swap.

The restructuring deal sees Monier’s 1.9 billion euro debt load halved in exchange for senior lenders taking full ownership of the firm.

Previous owner PAI had its fingers prised from a prized asset through a combination of its rivals’ tight focus and a collapse in Monier’s earnings, which helped propel lenders into the driving seat.

Now, encouraged by the Monier deal, distressed debt investors will be running the rule over other firms, seeking out more “loan to own” opportunities amongst Europe’s heavily indebted corporates.

Until recently, many private equity firms’ strategy for such companies has been to stick it out and hope the recovery will come before banks call time on their underwater loans.

But if lenders see greater recovery prospects through a change in ownership, private equity companies may have to take a pro-active strategy to defend their investments.

Attendance numbers are down at this year’s Global Alternative Investment Management conference in Monaco. Fewer hedge fund salespeople, fewer investors, fewer stands.

It is not really such a surprise, and not only because the attendee list was visibly shorter this year than in 2008. Of the around 800 registered visitors, perhaps 500 have turned up.

On the eve of GAIM last year, when perhaps 900 of the 1200 registered actually made an appearance, the streets of Monte Carlo were filled with hedge fund types drinking cocktails at one of the town’s many chic bars. On Monday, those bars were largely deserted.

A cursory glance into the investors-only pre-conference cocktail and dinners also indicated numbers were down sharply.

Not that this is a surprise of course. We have, after all, just come through a financial crisis - or are still in the middle of one - and funds, fund service providers and investors are obviously being more careful with their money.

Gone are the hordes of attractively-dressed marketing staff, business development personnel and salespeople from the largest hedge funds. In their stead, a handful of executives from the same funds, with a long list of investors they want to meet.

There are other signs too that the crisis is biting, even in Monaco.

One conference attendee said he had decided a couple of months ago to book himself and his wife in at one of Monte Carlo’s more swanky hotels, but had initially delayed booking, only to remember when the conference was just days away.

“I thought I’d left it too late and would either not get a room or have to pay through the nose,” he said. “I was really surprised to find the price was 30 percent lower than when I first thought about booking.”

Even the owners of Monaco’s swankiest shops seemed a little more downbeat than I remembered them last year. As I passed the Bentley shop, I noticed the owner looked positively whipped.

And I could have sworn the prices of the Bentleys were much lower than last year, too.

Growing up can be a painful experience for teeangers with many battles and excesses along the way.

The once young and spritely hedge fund industry is now entering its problematic adolescent years and starting to face up to issues that once seemed fairly unimportant.

The good news, according to Jefferies International’s Kevin Pakenham, speaking at this week’s GAIM hedge fund conference in Monaco, is that while its list of problems may be long, they can be overcome.

“The (traditional) asset management industry is in effect a mature industry, with a revenue base threatened by developments such as indexation and ETFs, and the difficulty of producing alpha.

“Alternatives continue to be an industry of innovation … and has many of the characteristics of an adolescent industry. It has problems, but I suggest these are reputational and technical and can be solved.”

Pakenham lists six major challenges for an industry that has seen total assets practically halve, investors head for the exit and many firms close.

- restoring the economics or profitability of hedge funds

- arguing against too-tough regulation

- addressing ‘performance constraints’ that come from a lack of leverage or illiquid markets

- restoring the credibility of funds of funds

- the need for consolidation (”fine in theory, tough in practice due to uncertainties about valuation”, he says)

- restoring funds’ promise to investors on liquidity

He adds: “Hedge funds need an understanding that flair, promise and individual brilliance and everything that goes with that, such as opacity and a certain mystery, are not enough to build a long-term industry that the clients of managed funds really require.”

 It seems adulthood could be some way off yet.

Hedge fund manager John Paulson, who made a fortune currectly betting on the U.S. housing market collapse in 2007 and then the broader financial crisis last year, is starting to wield a Midas touch long associated with Warren Buffett.

Thanks to its bearish views, Paulson & Co over the past few years vaulted to the top ranks of the world’s largest hedge fund, multiplying its assets and earning Paulson a king’s ransom.

More recently, though, Paulson has been scooping up stakes in some beaten down companies. The latest winner: CB Richard Ellis. Earlier today the world’s largest real estate services firm said it sold $100 million of stock to Paulson & Co.  Shares surged 15 percent on the news.

Investors are poring over his holdings with the same fervor they track investment moves made by Buffett, widely known as one of the world’s most successful investors.

Earlier this year, Paulson was part of an investor group that acquired failed lender IndyMac Bancorp, providing a small vote of confidence in the recovery of the U.S. banking system.

Less comforting has been his views on gold, historically a hedge against inflation. In March gold miner Anglo American announced the sale of its remaining 11.3 percent stake in AngloGold Ashanti Ltd to Paulson for $1.28 billion. In his latest SEC disclosures, Paulson also reported large new positions in SPDR Gold Trust, Gold Fields and the Gold Miners ETF.

Gold futures and mining companies have surged as many investors share Paulson’s concern about inflation risks. For all our sakes, we’ll have to hope Paulson is wrong this time.

(Photo: Paulson testifies before U.S. House committee hearing in November 2008/By Jonathan Ernst)

David Einhorn again sent markets scurrying last week when he told investors he was shorting Moody’s Corp, but the Greenlight Capital manager’s latest thumbs down packed a weaker punch than his past, celebrated broadsides.

To be fair, Einhorn had a tough act to follow. A year ago, he boldly said Lehman Brothers was in much worse shape than its management would admit. Four months later — the bank went bankrupt and the shares were wiped out. It took more than six years, but his warnings about business lender Allied Capital also proved accurate and ultimately very profitable.

Last week, the soft-spoken Einhorn turned his sights on the parent of credit rating agency Moody’s Investors Service. Investors dutifully followed Einhorn’s lead and sent Moody’s shares down as much as 8 percent before they closed at $26.89.

Yet in the three trading days since, Moody’s stock has recovered its Einhorn losses and more. The shares traded at $28.66 a share Tuesday.

In a speech titled “The Curse of the AAA,” Einhorn said Moody’s credibility was wrecked after perfection-rated companies like AIG, bond insurer MBIA and Fannie Mae, not to mention the mortgage- backed securities market, all collapsed.

“Investors who bought AAA-rated structured products thought they were buying safety, but they instead bought disaster,” he said. “Investors have figured this out and many deny that they buy bonds based on rating, unless they are forced to by law.”

But that is hardly news to all the people who though Enron was a solid bet … until it went belly up. Einhorn told Reuters he has contemplated a ratings agency short since Pershing Square’s Bill Ackman publicly questioned the AAA rating of MBIA in 2002.

Einhorn declined to elaborate on the reasoning for his Moody’s short, though his speech indicates it boils down to a bet that the U.S. government changes the rules that created the Moody’s/Standard & Poor’s/Fitch Ratings oligopoly. He called on regulators to eliminate this system.

Compare that with his Lehman call, when Einhorn unleashed a barrage of details that showed Lehman’s financial statements were riddled with problems.

Einhorn, speaking last week to more than 1,000 hedge fund investors at the annual Ira Sohn Investment Research Conference, observed that Lehman made investors dig through tables and footnotes to find its exposure to CDOs – mortgage-related assets that had been the subject of scrutiny for months.

When the bank actually took write downs, he showed they were low-balled. He blew the whistle on a $1.1 billion discrepancy — positive to Lehman — between Level 3 assets in its 10-Q filing and former CFO Erin Callan’s description of them in a conference call with analysts.

He raised red flags when the bank booked a more than $400 million gain for a nonexistent round of capital raising and when it did not mark down Suncal, a large California land developer slammed by the housing slump.

Yes, Moody’s trades at a healthy 19 times earnings, but the stock is already down 61 percent from its 2007 peak — a fall twice as hard as the S&P 500 index.

So, David, we see the smoke, but where’s the fire?

(Einhorn, in an e-mail response, observed that short term stock movements are not the best barometer of the quality of an investment call. Lehman shares rose on the morning of November 28, 2007, the first time he spoke about his negative views on the bank, and continued to climb for months thereafter. Allied Capital, of course, saw its shares climb for five years before the credit crunch exposed its weaknesses in latye 2007.)

AIG plans to float its Asian crown jewel, Volkswagen halts talks with Porsche, Nomura hires for a massive push in U.S. equities, and more. Here are the latest deal-related stories:

AIG to launch IPO for Asia crown jewel

Volkswagen halts tie-up talks with Porsche

Nomura hires for massive U.S. equity push

Cubs' offer won't be voted on next week: sources

Babcock & Brown infrastructure fund gets acquired

China pension fund plans foreign PE deals: sources

China government OKs Minmetals' OZ Minerals deal

Daiwa SMBC to buy unit of Britain's Close Brothers

Whitehaven says to drop merger deal with Gloucester

Metro to present Karstadt deal outline: sources

And in Europe's morning papers:

* Hedge fund manager Noam Gottesman, co-chief executive of GLG Partners Inc (GLG.N), plans to move to New York from London to build up the fund's U.S. assets, the Daily Telegraph said.

* Alan Miller, former fund manager at New Star, plans to launch two new funds in a joint venture with Alexander Spencer Churchill, the Daily Telegraph said.

* Britain's Financial Services Authority is investigating potential insider dealing in shares of pub companies Punch Taverns (PUB.L) and Enterprise Inns (ETI.L), the Daily Telegraph reported. Reuters story here.

* Societe Generale (SOGN.PA) CEO Frederic Oudea has said that further writedowns are possible at the bank, depending on market conditions, Le Parisien newspaper reported. Reuters story here.

One of the more striking aspects about the Madoff affair is the large number of people who appear to have been ‘hooked’ on Madoff products.

Money managers were drawn by Madoff’s air of mystique, his stellar reputation as a market timer, the apparently steady returns with rock bottom volatility and the absence of fees, which some collected from clients anyway.

Those wanting more could simply have increased allocations but some chose to create new investment vehicles instead. Behind the banks and asset managers which lost money, some names appear again and again.

Take the circle of managers revolving around Sandra Manzke, founder of Tremont, whose Rye unit lost substantially all of its roughly $3 billion in assets.

Tremont and Bermuda-based Kingate Management also set up Kingate Global, a Madoff feeder which lost $2.7 billion, and Manzke was on the board of the fund, the Financial Times reported earlier this year.

Manzke’s presence at the founding of Kingate was confirmed by a source close to Kingate who asked not to be named.

In 2006 Manzke left Tremont to found Maxam Capital, a Madoff feeder widely reported to have lost $280 million.

Returning to Kingate, there were other less well-known names who were also caught out by the Madoff bug. One was Christopher Wetherhill, president and director of Kingate Management and a director of Kingate Global and of another Madoff feeder, Kingate Euro.

Wetherhill was also founder and, until 2000, chief executive of Hemisphere Management Ltd, once reputedly the third-largest hedge funds administrator in the world, overseeing assets of over $51 billion, including those of the Kingate funds.

Thus Wetherhill could know how and where Kingate money was invested, as well as what happened to the commissions the company took in over the years.

Former Kingate clients are anxious to locate these commissions, one lawyer acting for them has told Reuters. He estimated they could total as much as $500 million.

The bulk of Kingate’s assets were sourced through its consultant, FIM Advisers, a London-based asset manager founded by Carlo Grosso and Federico Ceretti.

FIM has played down its relationship with Kingate but two sources familar with the situation have told Reuters that Grosso and Ceretti were synonymous with Kingate and had been present at its founding.

When Wetherhill left the helm of Hemisphere, he was replaced by Tom Healy, who later became chief operating officer and a board member of FIM.

Wetherhill is also the named by Madoff Trustee Irving Picard as the contact point for Whitechapel Management Ltd, a Bermuda-based firm which appears on Picard’s long list of Madoff clients.

Another ubiquitous presence in the FIM-Kingate-Tremont triangle is New York lawyer Michael Tannenbaum, a founding partner of the law firm Tannenbaum Helpern Syracuse and Hirschtritt LLP.

Kingate’s fund offering documents say Tannenbaum, an outside director of the manager since 2000, is a senior partner of a law firm that advises both funds, the manager (Kingate) and the consultant (FIM), a potential conflict of interests.

Tannenbaum’s firm is also legal counsel for affiliates of Tremont and Rye.

Perhaps understandably, none of those named is keen to revisit their Madoff experience, nor their links with each other.

Wetherhill offered a no comment, as did a spokesman for Manzke. Calls and emails to Tannenbaum went unanswered.

Numerous calls to FIM have not been returned, and questions on the relationship between Kingate, FIM and Hemisphere emailed to the company’s general counsel Philip Niel remain unanswered.