Day of reckoning

August 7, 2008


Citi‘s warm embrace of auction-rate securities has come back to haunt it. The bank, by far the largest underwriter of auction rate munis, a major subset of ARS’s, today agreed to buy back more than $7 billion worth of ARSs,and pay $100 million in fines. Other banks facing accusations of fraudulent marketing of the now unwanted securities, include Merrill Lynch and UBS, the Swiss bank.

American International Group shares tumbled another 17 percent on Thursday, the day after the insurer reported its third multibillion-dollar quarter loss. Total losses for the last three quarters now amount to $18 billion, fueled by a portfolio of mortgage-backed debt. The performance prompted AIG boss Robert Willumstad, a former COO at Citigroup, to say “a less complex AIG will be a better competitor.” He will reveal how much less at a September 25 shareholder meeting.
Deals of the day:
** Russia’s United Company RUSAL will not fully merge with Norilsk Nickel before conducting its own share float and has no desire for a triple merger with steel firm Metalloinvest, its majority owner said on Thursday.

** Japan’s top securities firm Nomura Holdings Inc is in talks with British mid-cap stock broker Collins Stewart on a possible buyout, sources familiar with the matter said on Thursday.

** South Africa-focused platinum producer Lonmin said it would vigorously contest a $10 billion bid approach from miner Xstrata, but gave little sign of what steps it might take in its defense.

** Dutch utility Essent, which is looking for a foreign partner, said on Thursday profit from continuing operations slipped 4 percent in the first half of 2008. Nuon, the second largest Dutch utility, is also looking for a foreign partner. Last year, the two called off a 24 billion euro merger, with local media saying they could not agree to the size of their respective stakes in a merged entity.

** Leading Turkish media group Dogan Yayin Holding said on Thursday its Smile Holding retail business and U.S. firm Brightstar Corp had agreed to form a joint venture.

** Salzgitter raised its stake in Europe’s largest copper smelter, Norddeutsche Affinerie, to 10.8 percent by acquiring the city of Hamburg‘s 5 percent holding, Germany‘s second-biggest listed steelmaker said on Thursday.

** British mail order company Flying Brands said it has received a “very preliminary” takeover approach from West Coast Capital, the buyout firm co-founded by retail entrepreneur Sir Tom Hunter.

** Germany‘s Continental is looking for allies in Asian emerging markets and Russia as a suitable white knight to fend off a hostile bid from rival Schaeffler, sources close to the matter said.

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