For asset managers, the shedding season seems to have no end in sight.

More asset management units of financial institutions are likely to find their way into the market in the months ahead, as they look to separate distribution from product creation, Jefferies & Co’s financial institution group predicts. 

More than two-thirds of global asset management deal activity came from such divestitures in the third quarter, a record level in a three-month period, Jefferies said.

These included deals such as Bank of America’s agreement to sell the long-term asset management business of Columbia Management to Ameriprise, Bank of New York Mellon’s acquisition of Insight Investment from Lloyds, and the purchase by Sumitomo Trust & Banking of Citigroup’s 64 percent interest in Nikko Asset Management. 

“As larger financial institutions refocus on strategic strengths, we expect they will continue to separate asset management distribution from manufacturing,” said Aaron Dorr, a managing director.

There were 38 deals in the third quarter, down from  66 in the same period last year, but disclosed deal value climbed to $4.5 billion from $4.2 billion and managed assets transacted rose to $749 billion from $728 billion, Jefferies said.

Ken Lewis started at Bank of America 40 years ago, working his way up from junior credit analyst to the CEO suite. His employment contract at the nation’s largest banks obviously predates the government’s bailout of Bank of America. Yet pay czar Kenneth Feinberg may have a say on whether he cashes in on retirement benefits and accumulated compensation worth $125 million.

Some argue it is simply inappropriate for Feinberg to try to tackle Lewis’ retirement package.

“A fair reading of the situation would be he is getting what he is entitled to and game over,” said Alan Johnson, a Wall Street compensation consultant.

But to many, Lewis is a poster child for the crisis that struck Wall Street banks last year, nearly collapsing the financial sector and resulting in taxpayers spending hundreds of billions of dollars to bail out firms like Bank of America.

“The Obama administration has to use every tool at its disposal to fix the pay problem, particularly the golden parachute for failed executives,” said Richard Ferlauto, director of corporate governance and pension investments for the American Federation of State, County and Municipal Employees, one of the largest U.S. labor unions.

Should Lewis get his retirement package in full? Leave your answer in the comments section.

Is pay Czar Kenneth Feinberg going to name and shame?

At a speech yesterday in Washington, Feinberg said he planned to disclose the pay for the top 25 employees at Wall Street firms within the next 30 days, according to a research note by Jaret Seiberg, of Concept Capital. Seiberg saw Feinberg’s talk.

But it is not clear if names would be redacted from that disclosure, with perhaps only titles and salaries revealed.

Feinberg is charged with examining pay packages at companies that received government bailout money, including Citigroup <C.N> and American International Group Inc. <AIG.N>

Feinberg yesterday also indicated that he would like his work as pay czar to have staying power, according to Seiberg’s note, but it would be up to other regulators to “ultimately decide how broadly” his policies apply.

Seiberg also noted that Feinberg “seemed very uncomfortable” about using his power to claw back compensation already paid. But he also sugested egregious examples may warrant recoupment.

HSBC, perhaps the most Chinese of the big European banks, says it is in talks to set up an investment banking joint venture in China. Australia and New Zealand Bank and Asia-focused Standard Chartered have lined up opportunistic buys in Asia, picking up the pieces of imploded RBS. Even beaten-down Citigroup is talking about acquisitions … in Indonesia.

ANZ said it agreed to pay a smaller-than-expected $550 million to buy some Asian units from RBS. StanChart, just nine months after launching a 1.8 billion pound rights issue, unveiled a surprise 1 billion pound ($1.7 billion) share placement to give it firepower to grasp opportunities as Asia’s economies recover. The bank said it was in talks about small acquisitions in China and India likely to cost between $100 million and $200 million. We’re told those talks involve RBS assets.

HSBC’s move would allow it to expand into China’s domestic securities and debt markets, areas it is presumably well-placed to exploit, given its dominant role in Hong Kong finance. Asia chief Vincent Cheng said HSBC Hong Kong has enough capital for acquisitions, has looked into some RBS Asian assets but has found, in general, that Asian assets are too expensive. So it will focus on organic growth.

Bank of America-Merrill Lynch said just days ago it was moving to boost its position in China with the hiring of veteran banker Wang Bing to head its corporate finance business there. Last week, we reported that Bank of America planned to set up a wholly owned subsidiary in China to bolster its corporate, investment banking and wealth management businesses.

Since Asia’s biggest asset is its position as manufacturing base for the world, the banks’ moves can be seen as a leading indicator of confidence in recovery. Or they could just be bold bets.

Dennis Kucinich pointed out at a Congressional hearing Thursday that Merrill’s weekly losses in mid-November were greater than the losses in mid-December, and that Bank of America boss Ken Lewis got weekly updates on the investment bank’s losses. Lawmakers repeatedly said Lewis must have known much earlier than he claims about the heavy losses at Merrill, which lost $15.84 billion in the fourth quarter of last year.

That’s something that class action lawyers may latch on to, as they push their case over the Bank of America-Merrill Lynch deal, which hinges on what the bank disclosed and when.

Shareholders OK’d the deal on Dec. 5. Bank of America disclosed Merrill’s losses in January, after the deal closed. If shareholders knew of the losses before, the outcome could have been different.

Even just days before voting on the deal in December, shareholders appeared to doubt the likelihood of the merger going through on the original terms set in September. As of the close on Dec. 1, Merrill shares were still trading at an 8.3 percent discount to the Bank of America offer. 

At the Congressional hearing Thursday, Lewis said Ben Bernanke and Hank Paulson did not tell him what to tell shareholders. He said decisions on what to disclose to shareholders is made by “our securities lawyers and our outside counsel.”

But under questioning he also agreed with lawmakers that there was pressure from the government to complete the deal despite growing losses at Merrill. 

Clearly, Lewis was in a tough spot. But how would that play out in court?

If they could have printed money the way the government does, they probably would have. Instead Bank of America and PNC Financial Services Group plugged some of their government-identified capital shortfalls with one of the things they can print - stock.

The two banks are among 10 ordered by Uncle Sam to raise $74.6 billion of capital after failing stress tests of their ability to handle a deep recession. Top U.S. bank Bank of America was told to raise $33.9 billion, and number-seven PNC $600 million.

Bank of America said it has raised about $5.9 billion of capital by swapping 436 million common shares for preferred stock, and has raised close to $26 billion of capital since the stress test. PNC said it sold 15 million common shares in an “at-the-market” offering and said it plans “as soon as appropriate” to pay back the $7.6 billion it took from the Treasury Department’s Troubled Asset Relief Program. Bank of America took $45 billion from TARP.

When governments print money they risk devaluing their currency. For banks, these sales could well do the same for their shares, and the drop in value could be vertiginous.

News that top investment banks want to pay back their TARP funds is welcome news for the M&A market. Though the tens of billions of dollars in capital that will slosh out of the banks and into government coffers may sap the banks of the funds to make big buys, the fact that most post-stress-test capital-raisings have gone smoothly must be encouraging for dealmakers.

Plus, banks that are unable to pull themselves from the government teat will have a whole lot less pricing power. It was interesting to see HSBC commenting on Tuesday that it expects industry consolidation in the second half of this year and in 2010. Though they may be looking more closely at non-U.S. assets, given the burns on their fingers from their foray into the U.S. mortgage market, that big global may sit out the next round of mergers. Will they be missing the boat, particularly given the conviction of many analysts that the U.S. economy will be the earliest to recover?

A key question that could rain on any M&A party is asset quality, and the radiation emitting from the toxic assets still poisoning the financial system. While most of it has been moved to the bomb shelter balance sheet of the U.S. taxpayer, there is little conviction that valuations will have the golden glow of yesteryear, and plenty of lingering fear that the glow is the toxicity of the lost decade.

It seemed only a bit odd that media star Arianna Huffington was the guest host on CNBC the day the all-important stress test results were due. Not to play down her credentials in media or commentary circles, but where were the celebrated bank analysts, the corporate chieftains and the investment gurus who so routinely enjoy a dose of the limelight on America’s Business Channel?

Wasn’t this the perfect day for a newsmaker rather than a news talker? The Huffington Post founder has been a good reality check on market cheerleaders who live on CNBC, but on Stress-Test Thursday, the less-than-casual viewer expects insiders with insight. It tasted like something strange and exotic had made its way into the DealZone coffee machine.

Then disgraced former New York Governor and Attorney General Eliot Spitzer joined the fray, and the slightly odd became surreal. Spitzer, who casually noted he was invited to the show (hint, hint), gave a spirited view from the nosebleed seats, far back from the federal policymakers’ bench.

Forget all this stress test stuff — what about Spitzer’s attempt at resurrection? Anchor Joe Kernen asked whether Spitzer the AG would have prosecuted Spitzer the governor and Spitzer the guest legal expert answered no, arguing that issues of judgment are more important than issues of law.

This should be equally true for the banks, Spitzer said. But the banks’ transgressions were far more damaging to many more people than Spitzer’s own. It’s hard to believe moral suasion and limiting access to cheap funds would have been enough to persuade greedy bankers to act more responsibly. Certainly, shareholders would not have rewarded them for behaving better while others were making a killing selling toxic investments.

DealZone commends CNBC’s producers and guest bookers for creative thinking. While the stress test results are not due until late this afternoon, so much has been leaked already that the minutiae still to come will probably numb the minds of even the hardiest financial news junkies. With no news to break, the Huffington/Spitzer show turned out to be refreshingly watchable. Indeed, who understands a stress test better than Eliot Spitzer?

Deals of the Day:

* Anheuser-Busch InBev said it agreed to sell its South Korean Oriental Brewery to private equity firm Kohlberg Kravis Roberts & Co for $1.8 billion, allowing the world’s largest brewer to repay debt.

* Global miner Rio Tinto Ltd/Plc has not talked to Chinese state-owned metals firm Chinalco about revising a planned $19.5 billion tie-up, and still believes the deal makes sense.

* Australian blood-products and vaccines maker CSL said U.S. competition regulators had yet to make a decision on its proposed $3.1 billion takeover of smaller rival Talecris Biotherapeutics Holdings Corp.

* Australian brewer Lion Nathan, which has agreed to a $2.5 billion takeover by Japanese brewer Kirin, halted trade in its shares on Thursday on concerns the confidentiality of its talks with Kirin may have been breached.

* U.S. coal miner Peabody Energy and Anglo-Swiss miner Xstrata plan to bid for a majority stake in Indonesian coal miner PT Berau Coal in a deal that may be valued at around $1 billion, two sources with direct knowledge of the deal said.

* Porsche Automobil Holding SE stock fell as much as 17 percent after the sports car maker scrapped attempts to take over Volkswagen and agreed to explore a merger with Europe’s biggest carmaker.

* Magna International has so far presented a more concrete proposal on General Motors unit Opel to the German carmaker than Fiat, Opel’s supervisory board member Armin Schild told Reuters.

(PHOTO: New York Governor Eliot Spitzer stands next to his wife Silda Wall Spitzer as he announces his resignation at his office in New York March 12, 2008. REUTERS/Brendan McDermid)

With the end of the economic meltdown so tantalizingly close, and stock markets pricing in the spring thaw, The Consumerist’s annual Worst Company in America competition is just the tonic DealZone readers need to keep their prized sense of perspective appropriately tickled.

“It’s the bailouts versus the monopolies!” the Website’s news release rings out:

The annual 32-company battle royale has whittled itself down to the “final four”: Bank of America, Comcast, Ticketmaster and AIG. One of these disastrous companies will go on to join Halliburton (2006), RIAA (2007) and Countrywide (2008) as “The Worst Company in America.”

AIG and Ticketmaster face-off May 4th, Bank of America and Comcast face-off May 5th, the victors of those contests meet May 6th, and then the “winner” is announced May 7th.

The competition began with 32 companies separated into four brackets. Companies competed in head-to-head match ups and the winner of each match up was determined by the vote of Consumerist readers. The 32 companies included: AIG, Target, Peanut Corp of America, American Express, Walmart, HP, T-Mobile, Best Buy, Ticketmaster, TWC, Apple, United HealthCare, Verizon, Sprint, Home Depot, Citibank, Comcast, DirecTV, US Airways, Capital One, General Motors, United Airlines, Sears, Chase, eBay/Paypal, GE, Dell, Chrysler, AT&T, Circuit City, Starbucks, and Bank of America.

“AIG and Bank of America paved their way to the final four with exorbitant executive compensation packages, reckless management, and tax payer bailouts. Ticketmaster and Comcast drew the ire of voters because they were viewed as monopolies that consumers were forced to deal with,” said Meghann Marco, Consumerist.com.

Deals of the Day:

* French retail giant Carrefour has signed a preliminary memorandum of intent to buy 75 percent in Russia’s Seventh Continent and will make a final offer on May 15, a newspaper reported. Sources told Reuters last month that Carrefour had provisionally valued its takeover target at $1.25 billion.

* Commodity trader Noble Group raised its offer for Australian miner Gloucester Coal to A$490 million ($361 million), in a bid to scupper Gloucester’s planned deal with rival Whitehaven Coal.

* Sanofi-Aventis announced a 200 million euro ($265 million) plan to convert a factory to biotechnology, highlighting efforts by the world’s fourth largest drugmaker to penetrate the growing sector.

* Finland’s Metsaliitto said it will sell its 49.9-percent stake in state-controlled renewable energy firm Vapo to a consortium for 165 million euros ($218.4 million) to bolster its balance sheet.

* Azrieli Group said it submitted the winning bid to buy a 4.83 percent stake in Bank Leumi from Cerberus Capital Management and Gabriel Capital Corp.

* Zotye Auto, a Chinese maker of sport utility vehicles (SUV), is raising about 720 million yuan ($106 million) by selling a 20 to 30 percent stake to a private equity fund-led consortium, aiming for a Shanghai initial public offering later, sources said.

* Saab Automobile, the Swedish unit of struggling U.S. carmaker General Motors, said it was not in talks with Italian peer Fiat SpA about a takeover.

(PHOTO: Manchester United’s John O’Shea (R) celebrates his goal against Derby County during their English League Cup soccer match at Old Trafford in Manchester, northern England January 20, 2009. Photograph taken on January 20, 2009. REUTERS/Darren Staples)

(From Acquisitions Monthly)

The coming financial services new world order could unleash a wave of mergers and acquisitions as providers look to thrive under a regime of tighter regulation and diminished risk appetite. As such, the IBM Institute for Business Value calls into question some of the ideological shibboleths still held by many senior banking executives.

Whilst banks such as Citigroup, UBS and the UK’s Barclays cling to the notion of universal banking – effectively one stop shops – research by IBM argues that this particular model may not be fit for purpose anymore. The days of soaring profits from what it calls “pockets of opacity” such as over the counter derivatives are over.

“Some of the largest institutions may be required to downsize or dispose of business lines,” says IBM.  It predicts that outperformers will become much more specialist and aligned with their customers’ needs. Many universal banks were found to be more self-serving in outlook. “On average the specialists have seen their revenues grow 30 percent more than the universal banks and enjoy operating margins of 25 percent compared with the 16 percent universal banks command,” says the IBM Institute.

It sees the industry splitting into three segments: The first are utilities providing infrastructure to facilitate capital allocation and relying on economies of scale to drive down costs. The second are those that give advice such as wealth management firms and boutique M&A advisors. The last category, are those geared to investment outperformance such as private equity groups and hedge funds. Barclays for example might inadvertently be contributing to this trend with its disposal of passive fund manager, iShares for 3 billion pounds ($4.3 billion).

Basically the IBM Institute is suggesting there could be more disposals to come from the universal banks as the market forces them to streamline or investors seeking higher returns demand it.

Banks such as Barclays also face growing competition in retail banking with the likes of giant retailer, Tesco, planning their own banks. Their offerings threaten to be much more customer-centric and this will force the traditional banks to rethink their approach and as IBM predicts, possibly to specialise.

Reporting by Justin Pugsley, Acquisitions Monthly

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Deals of the Day:

* German insurer Allianz and U.S. credit card group American Express raised a combined $1.9 billion on Tuesday through the sale of share’s in Chinese banking giant ICBC.

* Japan’s Toshiba said it would set up a joint venture with U.S.’s Amkor Technology and Japan’s Nakaya Microdevices in October to assemble system chips. Toshiba, Japan’s biggest chipmaker, said the outsourcing move would help improve earnings in its battered chip business.

* Sumitomo Mitsui Financial Group has agreed to buy Citi’s Japanese retail brokerage and part of its investment banking operations here for more than $5.2 billion, sources said

* Qatar is in talks to buy a stake in Germany’s Porsche and may also invest in other carmakers as the Gulf gas exporter looks to park some of its sovereign wealth abroad, according to media reports.

* German Economy Minister Karl-Theodor zu Guttenberg is meeting senior representatives of Magna to discuss a possible investment by the car parts supplier in Opel, a unit of General Motors.

* Consumer goods exporter Li & Fung, which manages supply chains for retailers such as Wal-Mart and Target, expects to sign more outsourcing deals within months as cash-strapped retailers in the United States look to cut costs in the economic downturn.

(PHOTO: Flags fly outside the Citigroup headquarters in New York, November 24, 2008. REUTERS/Brendan McDermid)