For months, as he endured hearings on Capitol Hill and fought off a series of lawsuits, Bank of America CEO Ken Lewis trudged through a post-apocalyptic financial landscape against a steady drumbeat of questions about his future. The deal he had called “the strategic opportunity of a lifetime” — his purchase/salvage of Merrill Lynch — had swung from an act of patriotism, keeping the American way of banking from utter ruin, to a scandal over Merrill losses and bonuses.

Perhaps he should have seen the writing on the walls of the vacant houses financed by Countrywide, the mortgage lender Lewis purchased/salvaged just six months before the Merrill deal. The two transactions may have been strategic gems, but they were laced with political poison as the economy floundered toward its dramatic deleveraging and taxpayers pumped $20 billion into Bank of America to fund the Merrill deal.

“It was only a matter of time,” Campbell Harvey, a professor at Duke University’s business school, told Jon Stempel. “There is too much collateral damage.” As Stempel reports, Lewis spent north of $130 billion on acquisitions, including FleetBoston Financial Corp, the credit card issuer MBNA Corp, LaSalle Bank Corp, Countrywide, Charles Schwab Corp’s U.S. Trust private banking unit, and Merrill. In buying Merrill, he added a giant investment bank to what was already the largest U.S. retail bank, credit card issuer and mortgage provider. (Wells Fargo & Co has since become No. 1 in mortgages.)

Lewis plans to be gone by the end of the year and leaves no immediate successor, so Bank of America has only a few months to figure out who to anoint. Though his demise is a cautionary tale, odds are good that the bank’s worst days are behind it. An incoming chief can blame Lewis for any ill-conceived agreements surrounding Merrill. More importantly, with economic recovery apparently at hand, Lewis’ deals of a lifetime have a better chance than ever of paying off.

“Think about it. If you are a member of the union right now, you’re spending all your time negotiating about health care. You need to be spending some time negotiating about wages, but you can’t do it,” he said.

In fact, the UAW locked itself into a contract limiting wages and changes to health care, without the ability to negotiate with a threat of strike, until 2015. These stands were agreed to by the union at the prodding of the Obama administration, which demanded that union autoworkers accept lower wages — as a condition to the bailout that saved Lordstown — to match non-union workers at Toyota plants in Kentucky and Honda plants in Ohio.

Even so, Lordstown is something of a success story for both the UAW and GM, and Obama’s remarks were punctuated with enthusiastic applause.  After winning deep concessions from the UAW in 2007, GM agreed to invest $500 million to retool the plant to make a new fuel-efficient small sedan, the Chevy Cruze.

Obama had nice things to say about the Cruze, which GM expects to get more than 40 miles-per-gallon in highway driving.

“I just sat in the car,” Obama said of the Cruze. “I asked for the keys. They wouldn’t give me the keys. I was going to take it for a little spin. But it was nice sitting in there. It was a roomy car.”

Consumers will not get the keys to a new Cruze, either, until the middle of next year when it arrives in showrooms. In the meantime, Lordstown is stuck building the Cobalt, a budget-minded Chevy and vestige of the “old GM.” 

Consumer Reports in its October edition branded the Cobalt as one of the five “cruddiest cheap cars” on the market.

(Writing by Kevin Krolicki. Reuters photo by Larry Downing.)

This probably wasn’t what Lloyd Blankfein had in mind when he reportedly asked Goldman Sachs employees to cut back on conspicuous displays of consumption.

The New York Post, which screamed the news about Blankfein’s order to exercise restraint from its front page on Tuesday, reported on its Page Six gossip column Wednesday that his wife sent a rather different message at a charity event in the Hamptons last Saturday.

According to Page Six, Laura Blankfein and Susan Friedman, wife of Richard Friedman, a Goldman managing director,  “caused a huge scene” as they waited with lesser donors for the doors to open for a charity event for ovarian cancer research.

“Their behavior was obnoxious. They were screaming,” one witness told the Post, who added that Blankfein said she wouldn’t wait with “people who spend less money than me.”

Of course it’s not the first time that Wall Street wives’ high-falutin’ ways have gotten tongues wagging. Former Pan Am stewardess Susan Gutfreund, the free-spending wife of 80’s era Salomon Brothers CEO John, was gossip column fodder, as was Henry Kravis’ ex-wife, fashion designer Carolyne Roehm.

More recently, an anonymous Wall Street spouse penned a column for Portfolio.com entitled “Confessions of a Bailout CEO Wife” that bemoaned the inability to throw birthday parties at “Michelin hotspots” and other sad side effects of her vow of “financial abstinence.”

(reporting by Steve Eder; photo by Reuters)

CIT, the small-business financing company that provides funding for airlines, railways, retailers and manufacturers, should have little trouble securing some kind of government aid, whether in the form of a short-term loan, as seems to be the most likely scenario, TARP or even the FDIC.

Public antipathy toward bailing out financial companies was pretty much exhausted months ago. Plus, with banks still skittish about lending, CIT serves a clientele that has both ready demand and strong support in conservative corners of Washington that have long touted small business as their base.

The more hearty free marketers say CIT clients will be able to find funds elsewhere if the company does go under. But in the current environment, might a government agency be just as likely to fill that role as the banking sector?

Investors have welcomed the prospective £3bn (US$4.4 billion) sale of iShares by Barclays, which gives strong hope that the bank can avoid accepting a UK Government bailout and its implicit restrictions.

Since the deal announcement, Barclays’ shares have risen by 26 percent to 198.8p, their highest point since October, when a rescue £7.3bn financing was arranged with royal potentates from Qatar and Abu Dhabi. These Gulf investors agreed to subscribe for an effective 31percent stake through separate issues at 153.3p and 197.8p. Now, both slugs are “in the money”. However, that cash has not come cheaply.

The £4.3 billion of mandatorily convertible notes, which must be converted into shares at 153.3p by the end of June, receive a 9.75 percent coupon. And the £3 billion of reserve capital instruments pay 14 percent annually, or £420 million, for 10 years. They have warrants convertible at 197.8p.

The iShares proceeds could neatly pay off the holders of the reserve capital instruments. Removing that shackle is the aim of chief executive John Varley, and Barclays Capital boss Bob Diamond in particular. Then dividends could flow freely again. Diamond’s other goal is to make Barclays Capital an investment bank to challenge the few remaining serious players with global scope, such as JP Morgan, Goldman Sachs, Morgan Stanley, Deutsche and the Swiss banks.

The purchase of Lehman’s US advisory business, together with heavy recruitment across the Middle East and Asia, are helping Barclays catch up. But Goldman is extending its lead, after Monday’s strong first-quarter results and $5 billion share sale plans. The money Goldman raises will help pay back US Government funds. Barclays wants to pay off its Gulf rescuers too. However, the iShares sale will only add £1.5 billion net to Barclays balance sheet, bearing in mind iShares’ £1.5 billion book value.

So to pay off the reserve capital instruments and keep Tier 1 capital above the expected 7.2 percent, a higher bid needs to be found. The novel “go-shop” deal structure gives Varley and Diamond until June 18 to solicit such offers. However, a higher bid is unlikely. CVC has offered a generous 10 times historic EBITDA and Barclays is already putting up debt worth 70 percent of the sale price.

Selling all of Barclays Global Investors is an alternative. That could raise £6.73 billion on the same valuation as CVC’s offer for iShares, the smaller but higher margin part of the business.

Reporting by Chris Spink, from Acquisitions Monthly

(PHOTO: A video grab image shows Chief Executive Officer (CEO) of Barclays, John Varley, speaking to the House of Lords Economic Affairs Committee in London March 17, 2009.  REUTERS/Parbul TV via Reuters TV)

(Corrected - Bank of America did not purchase Countrywide early this decade)

Now that the nation’s top public servant is wielding The Donald-like powers over chief executives of bailed-out companies, expectations are high that more heads will roll, and Bank of America CEO Kenneth Lewis is looking like the next contestant on a new economic prime-time drama: The Executive.

Rick Wagoner, ousted as General Motors CEO, had spent more than three decades in the company and had been in the driver’s seat for most of the last one. He also presided over the era of the energy-unfriendly Sport Utility Vehicle and is criticized for sticking with trucks far longer than he should have.

Lewis has been Bank of America CEO for about eight years. He bought CountryWide, the biggest lender after the market went crazy for real estate and was ultimately forced to buy Merrill Lynch as the salad days of Wall Street wilted.

By contrast, Citigroup’s Vikram Pandit has been running things for just about long enough to endure the worst of the crisis, and AIG’s Edward Liddy was installed by the government. Perhaps it’s the longevity of characters like Wagoner and Lewis that make them seem so deserving of a presidential pink slip.

Should investors brace for a wave of executive firings? Certainly any chief with enough stripes to remember the good times and who had his hand out for government aid is looking vulnerable.

It is interesting to recall the argument behind AIG’s odious retention bonuses: these are the guys who got their companies into those messes; they should be the best positioned to get them out. If Lewis does get a presidential veto, that argument will be pretty much lost.

Deals of the Day:

* Raven Russia, a property company focused on warehouses in Russia, agreed to acquire property developer Raven Mount Group for 54.9 pence per share, or 60 million pounds, the companies said.

* Spains’ Santander said it had agreed to sell its 32.5 percent stake in Spanish oil company Cepsa to Abu Dhabi fund IPIC at 33 euros per share.

* Hungary’s government said it is injecting fresh funds into FHB, raising its stake in the mortgage bank beyond 40 percent and helping it compete better with foreign rivals in its home market.

* Australian miner OZ Minerals said it received an alternative rescue bid from Minmetals, after Australia last week blocked the Chinese state-owned firm’s $1.8 billion bid on national security grounds

* A Canadian pension fund has offered $930 million to buy Australian investment firm Macquarie Communications Infrastructure Group, sending MCG’s shares up over 58 percent.

(PHOTO: Donald Trump speaks during a news conference at an Aberdeenshire Council inquiry into the plans for his golf course resort in Aberdeen, northeast Scotland June 10, 2008. REUTERS/David Moir)

In retrospect, GM CEO Rick Wagoner’s demise was perhaps the most inevitable twist in the autos overhaul saga to date. The chance that he would present a radical plan to Obama this week, one dramatic enough to save his job, was slim at best. A more shocking result, one clearly less viable for Obama, would have been to make a few more threatening noises and hand out the cash that the company so desperately needs without demanding a very public pound of flesh - a head, in this case.

With only another 60 days to effect a U-turn in defiance of a skidding market, former GM COO Fritz Henderson doesn’t have a lot of room to maneuver. It’s hardly enough time for Washington to have installed a new crash-test chief executive.

The Chrysler bailout story is more intriguing. The private-equity owned car maker has been given 30 days to do a deal with Fiat, which has in deal talks to date pledged somewhere around zero in financial support. If that price was too much for the Italian auto maker, they may think that the ticking of the clock could give them some leverage to squeeze a few billion out of either Chrysler’s private-equity owners or U.S. taxpayers.

While Fiat managers may feel like kids in a Hot Wheels factory, they should probably temper their enthusiasm. Giving a foreign car maker U.S. taxpayer dollars would probably be politically poisonous to Obama, leaving bankruptcy a more viable option for the private-equity venture.

Deals of the Day:

* Turkey’s Sabanci family is buying a 15.3 percent in German airline Air Berlin, scooping up part of Len Blavatnik’s stake, more than two months after the U.S. billionaire sold the holding.

* Chinese car maker Geely Automobile Holdings will pay up to about A$58 million ($40.22 million) for its acquisition of Australian automatic transmission supplier Drivetrain Systems International (DSI).

* Reclusive, cash-rich Russian oil firm Surgutneftegaz made its first move on foreign markets, getting a foothold in eastern Europe with a surprise deal to buy 21 percent of Hungarian oil group  MOL.

* OTE, Greece’s biggest telephone company, has agreed to sell its Macedonian mobile phone unit Cosmofon and retail chain Germanos Telekom Skopje to Slovenia’s Telekom Slovenije.

(PHOTO: General Motors Chairman and CEO Rick Wagoner addresses the media during a news conference at GM world headquarters in Detroit, Michigan February 17, 2009.  REUTERS/Rebecca Cook)

Preliminary first-quarter data from Thomson Reuters on mergers and acquisitions (M&A) and capital markets are out. And unsurprisingly, spring has not sprung in investment banking, with the big exception of a record deluge of corporate bonds.

Fees across investment banking (M&A, loans, and debt and equity capital markets) halved, while fees for completed M&A topped that with a 68 percent fall. Overall announced M&A fell by a third, compared to the same period last year, to $444 billion.

And even that figure is flattered by two huge pharma deals, which bankers doubt will be followed by more of the same, and a flurry of bank bailouts.

Still, some houses will find reasons to be cheerful — Morgan Stanley, for example, which is no. 1 globally and in the United States, up from a dismal 10th a year earlier.

You can see a full round-down of previous quarters (and eventually of this quarter) here.

The Wall Street Journal appears to have gotten hold of a rather disturbing AIG memo implying an unseemly threat that angry Americans will undoubtedly feel fits the crime. Unless those who had the audacity to accept bonuses start returning the money, names of bonus recipients will be handed out to the angry mob by New York’s attorney general. On the other hand, if enough people join the giveback, the names won’t be released.

In Washington, the Senate is looking increasingly less likely to vote any time soon on a measure to tax the offending bonuses out of existence. Public ire over the bonuses helped send a similar measure zipping through the House quicker than Treasury Secretary Timothy Geithner can say “too big to fail.”

The AIG memo could be seen as more evidence that the case against the bonuses is flimsy at best. Not that authorities have no right to make this kind of threat - but isn’t it kind of seedy that they think they have to?

As DealZone has argued before, all this political gangsta rap is just tapdancing around the issue that AIG and its attendant contracts could have been legally restructured in a bankruptcy and that, having bailed out AIG, Americans must come to grips with the fact that the company was saved so it could stay in business and honor its contracts, no matter how odious. Either that, or kiss the $180 billion rescue goodbye and put bankruptcy back on the table.

Christopher Kaufman; DealZone Editor

Deals of the Day:

* Swiss drug maker Novartis said it had made an open offer to acquire up to an additional 39 percent in its unit Novartis India at 351 rupees per share.

* U.S. restaurant operator Yum! Brands said that had it agreed to buy about 20 percent of China hot-pot chain operator Little Sheep for $63 million from U.K. private equity firm 3i Group and other sellers.

* The New York Times, which is trying to lighten its debt load as advertising revenue falls, plans to sell the Times Daily newspaper of Florence, Alabama to a regional publisher.

* German retailer Metro AG has taken a controlling stake in Britain’s 24-7 Entertainment, which supplies technology used in music downloads, Metro said.

* When the world’s biggest concert promoter and largest ticket seller announced they would merge last month, it seemed unlikely that antitrust enforcers would approve the creation of such an entertainment giant.

* State-run Indian Oil Corp said the government had approved a proposal to absorb its subsidiary Bongaigaon Refinery & Petrochemicals (BRPL). Indian Oil will issue four shares for every 37 shares in BRPL, it said in a statement.

(PHOTO: Pastor Mary Huguley tries to deliver a letter to a security guard in front of the home belonging to Douglas Poling, one of numerous executives who were recipients of a bonus from American International Group Inc. (AIG) in Fairfield, Connecticut March 21, 2009. REUTERS/Eric Thayer)

So AIG is honoring its contracts using bailout money. Pundits, sputtering with rage that the corporate world engaged in contractual bonuses, are basically rehashing the argument about whether AIG should have been allowed to go bankrupt. After all, the government decided that allowing AIG to pay its bills was better for the world than letting it break or renegotiate its contracts.

French bank Societe Generale has gone public defending the fact that it got $11.9 billion in bailout funds from AIG. France’s third-biggest bank by market value said it had acted within its rights to call on AIG for cash. This speaks directly to the rationale for the bailout — if AIG had been allowed to fail, a global systemic collapse in payments would have followed.

Keep in mind, too, that if it had resisted paying the contractual bonuses, AIG likely would have been dragged into court, spent millions on legal fees, and then been forced to pay up anyway. However ludicrous the concept of a contractually guaranteed bonus may be, they were legally binding contracts.

So what to do with all this political outrage? The Obama administration has made no bones about building up government task forces and bureaucracy to deal with corporate malfeasance. Would it be too much to expect a new office of contract approvals, where companies can have some of their more bizarre practices exposed to common sense stress tests? Maybe we could require boards to be licensed to enter into commercial and employment agreements, and put the new office next door to the DMV.

Deals of the Day:

* Australia extended its review of Chinese aluminium maker Chinalco’s $19.5 billion investment in global miner Rio Tinto.

* BG Plc moved closer to buying Australian coal seam gas producer Pure Energy Resources for A$1.03 billion ($673 million) after rival bidder Arrow Energy decided to let its offer lapse.

* Astellas Pharma, Japan’s second-largest drugmaker, said on Monday it has decided to withdraw a hostile bid for U.S. biotechnology firm CV Therapeutics.

* Italy’s Banco Popolare will launch a buyout offer for affiliated Banca Italease at 1.50 euros a share and delist it as part of a reorganisation, Popolare and other shareholders said.

* Swiss drugmaker Roche Holding said it is buying Innovatis AG, a privately held cell analysis company based in Bielefeld, Germany, for 15 million euros ($19.31 million).

* HSBC, Europe’s biggest bank, wants to increase its stake in Vietnam’s Bao Viet Insurance to 18 percent despite tough global economic times, a senior company official said.

* German graphite specialist maker SGL Group said on Monday that BMW shareholder Susanne Klatten, Germany’s wealthiest woman, owns options to lift her stake in SGL to almost a quarter of shares.

* Norilsk Nickel is in talks to sell its Cawse nickel operation in Western Australia to exploration firm Poseidon Nickel <POS.AX> after suspending all of its Australian operations due to the global financial crisis.

(PHOTO: A man walks past a signboard of AIG in Tokyo March 3, 2009. REUTERS/Issei Kato)