DealZone

In other numbers…

JAPAN-STOCKSWhen presented with stupefying numbers, it’s sometimes fun, and usually cathartic, to boil them down into more tangible figures, give them household values and nod our heads in wonder. Late last week, when word that AIG’s quarterly loss would come in at $60 billion or thereabouts, we started hitting the division key just to make ourselves feel better. Turns out, AIG lost $61.7 billion, but what’s another $1.7 billion when taxpayers are working up a $1 trillion borrowing spree?

AIG’s loss per day in the fourth quarter was $670.2 million. That’s a $27.9 million hourly loss. Divide again and again and you get $465,000 per minute and $7,750 a second. Though not really a GAAP measurement, assume for a moment that at rest a standard human breath takes about two seconds. So AIG’s quarterly loss was about $15,000 per life-giving gulp of air.

The heart of a Ruby-throated Hummingbird, the most common species of Hummingbird in the eastern half of North America, beats 250 times per minute at rest, so that’d be $1,860 per Hummingbird heartbeat of quarterly losses for AIG. When it’s feeding, the hummingbird’s heart beat races up towards 1,200 or more beats per second, deflating the value of each itty bitty beat down to around $274.

The $30.9 billion net loss GM reported for all of 2008 comes out to $84.7 million per day, or 1,085 top-end Hybrid Cadillac Escalades at today’s low low price of $77,000. It would have paid to be green, though, because the loss would only have bought 21.2 million gallons of gasoline at the $4 per gallon, or about 5.6 percent of what American’s consume in a day.

And one more for the record books, the 1.87 billion shares of Citigroup traded on the NYSE on Friday, a day when the stock fell 39 percent, appears to have set a new record for number of shares traded on a single stock in one day, beating out WorldCom’s 1.51 billion on a bleak day for that long-gone company back in 2002.

Ambiguity in Action

USA/Former AIG CEO Hank Greenberg has had plenty of nasty things to say about what he sees as government mismanagement of his once mighty empire. AIG’s slash-and-burn asset sales are finding only tepid interest in a global market struggling to keep its head above water. Michael Flaherty reports that only three potential bidders are still interested in a large stake in AIG’s $20 billion Asian life insurance unit, with the auction heading into its final week and hopes for a sale fading fast.

This should worry Citigroup shareholders concerned about the government’s intentions toward the bank. Reports are surfacing that Citi may sell its Japanese investment bank and brokerage as it looks to raise more cash from a sale of global assets. Having been taken to task for keeping the naming rights to the New York Mets’ new baseball park — something any big retail company might consider a reasonable marketing expense — Citi execs are reported scratching their heads, trying to figure out what hoops the government wants them to jump through. Markets hate uncertainty, so the current ambiguity about what Washington wants is particularly hard to stomach.

Like many a routine financial blog, DealZone has danced around the definition of nationalization. Reader Alan Macdonald argues we should refer to the process as “democratization.” Pundits are increasingly suggesting the process should be considered more a government receivership, which has a less onerous and deathly long-term tone than nationalization.

The Sum of All Fears

MARKETS-STOCKS/Many argue that U.S. banks need to be nationalized, perhaps temporarily, pointing to Sweden’s success in fixing its banking sector. But a growing group of experts is raising alarms, saying that any nationalization cure would be far worse than the banking crisis disease.

In today’s Wall Street Journal, William Isaac, who was chairman of the FDIC from 1981-1985, argues forcefully that nationalizing the biggest U.S. banks is not a viable option. He points out that Sweden is tiny compared with the United States and that the total nationalization effort there involved one bank that had already collapsed. He says that the problems at Citi, Bank of America and perhaps others are too big and difficult to be dealt with through drastic government intervention, particularly one labeled “nationalization.”

Dick Bove, a veteran bank analyst, also thinks government management is a mistake. Nationalized banks would not be dynamic enough to aid the economy in recovery, according to Bove. He also argues that the damage to shareholders would be catastrophic, though certainly in the case of Citigroup, shareholders have already taken most of the hit.

Merrill losses shocked Flowers

Merrill logoMerrill Lynch’s losses shocked even Christopher Flowers, the private equity guru who advised Bank of America on its purchase of the Wall Street firm last fall.

“Yes, I was appalled. Yes, I was shocked,” Flowers said during a panel discussion in New York when asked about what he thought of Merrill’s losses. Merrill lost a record $15.31 billion in the fourth quarter.

Merrill agreed to be bought by BofA in a weekend deal in mid-September as the financial crisis peaked. Lehman Brothers went bankrupt the same weekend, and the U.S. government had subsequently to rescue AIG.

Hank Quixote

SWEDEN/Former AIG strongman Hank Greenberg is keeping up his steady stream of bull-horn bravado against what he says are fire sales at his old firm, of which he still owns 10 percent. But is anybody listening? The bailout bill shot from $80 billion to $150 billion in just a couple of months. Greenberg’s latest complaint, dutifully lodged with the SEC (an organ of the same government that now owns 80 percent of his old firm), says the company plans to sell its HSB Group unit at a “distressed” price. He wants an explanation from the AIG board.

Hank really can’t be blamed for trying to make sure he gets the best return possible on his AIG investment. “Certainly, selling major assets at fire-sale prices is not a viable strategy for reviving the company or even repaying the government,” Greenberg, who ran AIG for 38 years, said in the letter.

Viewing the landscape for a moment, it’s clear AIG is selling into a buyer’s market, so there’s little reason to think it will have much price-setting power. And with the mandate to pay back what it can to taxpayers, a fire sale may be just the thing the financial market needs to cauterize the damage done to and by Wall Street.

China shuts PE door on Greenberg

HONGKONG TUNG

the catastrophe of AIG aside for a moment, it’s hard to imagine what blemishes might have convinced Chinese authorities to shut the door on Hank Greenberg’s plan for China’s first half-foreign-owned private equity venture. Greenberg’s China credentials are legendary, and Beijing wonks say everything that gets done in the People’s Republic does so because of personal connections.

Hank’s investment firm, Starr International, had hoped to start the $145.5 million joint venture with China’s top brokerage, CITIC Securities. Could the problem have been CITIC, and its soiled investment plans in U.S. firms? It came close to dropping $1 billion into Bear Stearns and had $76 million in Lehman Brothers. Sources tell us that Chinese officials did not want to open the door to a rush of foreign private equity investment.

More specifically, one of the sources said: “The regulator doesn’t want to make it a unique case so that other foreign investors take it as a model.” Well, that certainly clears things up.

Bank dealmaking circus=recruiting bait?

Some in the financial industry apparently smell opportunity in the latest round of mergers and blood-letting among top banks.

Referring to the Wells Fargo takeover of Wachovia as the WWF and placing Bank of America CEO Ken Lewis atop a bucking Merrill Lynch bull are just a couple of the attention-getting devices financial sector recruiting firm RJ & Makay uses in its latest promotional You Tube video.

Branching out from a previous video aimed at Merrill Lynch brokers, the new “Billion Dollar Video” (the company claims assets from advisers brought to them via these viral recruiting tools represent billions of dollars) targets all financial advisers but specifically appeals to those currently at Merrill Lynch and Wachovia.

NY AG Cujo

New York Attorney General Andrew Cuomo is barking loudly at execs of American International Group, threatening “significant legal ramifications” if they take bonuses for a job well done at the bailed-out insurance behemoth. Expect him to start bearing his legal teeth soon: fines, legal costs, penalties …
 
“Please inform my office as soon as possible what AIG plans to do with respect to executive bonuses and pay raises this year,” Cuomo wrote in a letter to the company’s chief executive, Edward Liddy. “As you know, I believe AIG’s decision has significant legal ramifications.”
 
So there’s the threat. Now what?
 
Remember Dick Grasso? The state of New York sued the former head of the NYSE over his nearly $200 million pay package. Grasso said he would give back $48 million in deferred pay if he got an apology. Four years later, it’s still not clear just how much he has been forced to give up.
 
In 2004, Grasso’s sin was a sign of the times. The supply of corporate largess far outstripped demand for outrage as the credit and housing booms made us giddy. Now, with taxpayers coughing up $700 billion in relief for the financial sector and around $150 billion being thrown into the black hole at AIG’s credit default swaps department, law enforcement can be expected to take on this compensation creature with a sharper set of teeth. Smelling their own blood, chiefs at Goldman Sachs and UBS have sworn off bonuses.
 
Deals of the Day:
 
* Struggling British sweets-to-CDs retailer Woolworths is in early-stage talks to sell its high-street business for what one industry source said was likely to be for a nominal sum.
 
* UniCredit’s Bank Austria is close to selling for 1.2 billion euros ($1.5 billion) profit-sharing rights in a vehicle that owns stakes in Austrian industrial firms, the Der Standard daily reported. 
 
* United Internet has dropped its bid for rival freenet’s DSL broadband business, the company said. 
 
* China’s Bank of Communications wants to invest $100 million in Taiwan’s Taishin Financial, as China and Taiwan work on a deal to boost investment between their financial sectors, media reported. 
* Western Mining said it plans to purchase a 39 percent stake in Xining Special Steel Group from its parent for 1.1 billion yuan ($161.2 million).

(PHOTO CREDIT: Brendand McDermid/Reuters)

Who’s your boss, Mr. Liddy … and for how long?

Edward Liddy was appointed chief executive of insurer American International Group Inc within hours of a Sept. 16 government rescue, averting the 89-year-old insurer’s collapse.

On Monday, fifty-five days after stepping into the corner office, Liddy unveiled the company’s biggest-ever loss. Concurrently, the U.S. government restructured most elements of  its initial AIG bailout in favor of a new better-for-AIG scheme, overshadowing the bad quarterly news.

Under the revised plan, AIG gets easier repayment terms and, most importantly, the U.S. Treasury will sink $50 billion  into a fund that will buy and hold mortgage derivatives, including those underlying AIG credit default swaps — a thorny area that has led to massive losses for the insurer.

Giant Zombie Insurer on the Loose

A “one-off” second-round bailout for AIG tickled investors, who celebrated the further dilution of their stakes in this far-too-big-to-fail monster by driving its shares up more than 25 percent in premarket trade. The poster-ghoul for the credit crisis said “BOO” with its largest-ever quarterly loss – a $24.47 billion, $9.05-per-share shocker.
 
Taxpayers are buying another $40 billion of the company. “This is a one-off, created solely for AIG,” a Treasury official said, adding that the funds would not come from the $250 billion bank capital purchase program. The new rescue package will allow the Fed to cut to $60 billion from $85 billion the total available to AIG under a credit facility set up in September. But don’t let that fool you. The bill for AIG is now $150 billion, and could climb higher. 
 
The terms for AIG are very good; though compared to what is anybody’s guess. Certainly they can be credited with helping drive shareholder enthusiasm. AIG is getting a much lower interest rate on its government loans and will have special government-backed buyers for its distressed securities.
 
Good thing this is a one-off plan. The shock-and-awe value of new rescues in this era of crisis may start to wear thin as the price-tag for repairing Wall Street approaches a trillion dollars.  Which stock will rise the most in the month of December, AIG or GM?

Deals of the day:

* Less than a month after walking away from Wachovia, Citigroup is in discussions to acquire another U.S. bank, the Wall Street Journal said, citing people familiar with the situation.