Depression-era tactics

January 16, 2009

USA/As economists talk increasingly of recession morphing into depression, it seems only natural that a Troubled Asset Relief Program should be built into something more substantial than a ground-covering sheet of plastic. Enter the Good Bank/Bad Bank model. Many a Wall Street veteran will remember this approach as the answer to the S&L crisis in the 80s. Fewer will recall its use in the 30s when the banking sector toppled like a line of dominoes. And markets are rising this morning, with huge injections of government cash going into Bank of America, and Citigroup preparing for its big split of good and bad assets.

Citigroup’s broad restructuring plan announced this morning is of this tried and tested Good Bank/Bad Bank design. It came with a fresh $8.29 billion fourth-quarter loss, the bank’s fifth straight quarter in the red.

“The history of Good Bank/Bad Bank is surprisingly positive,” said Michael Holland, founder of fund manager Holland & Co. “It worked a couple of decades ago, so I think it’s one of the first steps toward some positive news and the end of this nightmare. We have for the first time in a long time some reason to think positively.”

“The problem is, of course, if you start to get rid of what’s perceived to be noncore assets, who is going to buy them?” Peter Dixon, the UK economist at Commerzbank, asks in London – where they have plenty of experience with state aid for banks.

The idea of the ownership society seems to have come full circle. We can’t get our 401ks and pension funds to make any money in the markets, so we’ll suck up dud assets as taxpayers and put them in a deep freeze in the hope that some day they may be worth something. Why not? It’s worked before.

Other Deals News

* Swiss bank UBS said that it has signed an agreement with Barclays on the further sale of parts of its non-strategic commodities businesses.

* Ryanair will only pursue its second bid for Aer Lingus with regulators if it can get backing for the 750 million euro ($995 million) hostile offer from major shareholders in Ireland’s former state airline.

* Spain’s Indra, French defence electronics group Thales and private equity firms CVC and Cinven are preparing binding offers for Telvent, Expansion reported, citing financial sources.

* Shares in Norwegian road toll technology company Q-Free ASA surged as much as 21 percent after Austrian rival Kapsch TrafficCom AG said it bought a 20.5 percent stake in Q-Free at 10 crowns a share.

* U.S. private equity firm TPG is considering taking a stake in HeidelbergCement jointly with Goldman Sachs, a source familiar with the matter said, confirming an earlier report.

* Lazard Asset Management has sold its 5.3 percent holding in fraud-hit Indian outsourcer Satyam Computer Services for about 777 million rupees ($16 million), stock exchange data showed.

* Belgian technology firm Metris NV announced the spin-off of its Italian laser scanning activities, which would contribute to further cost cutting. The Italian operations will continue as an independent organization, the group said.

* China’s sovereign wealth fund has been buying shares in the country’s three largest commercial banks, the fund’s chairman Lou Jiwei told reporters.

* Property investment and heat energy supplying concern Kai Yuan Holdings said it would buy a steel manufacturing and trading venture for HK$5.2 billion ($666.7 million), a move to further diversify its business scope to expand income stream.

(Photo: A sign is pictured on Wall St. near the New York Stock Exchange in New York November 25, 2008. REUTERS/Lucas Jackson )

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