DealZone

The “pay czar’s” name game

Is pay Czar KennKenneth Feinbergeth 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.

Asia’s allure

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.

BoA hearing: class-action fodder?

Ken LewisDennis 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.

Bank of America, PNC raise capital with stock

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.

Will UnTARPed Banks Boost M&A?

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.

Stress-Test Expertise

NEWYORK-SPITZER/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.

After March Madness, a little May Rage

SOCCER-ENGLAND/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.”

Universal Banking questioned

CITIGROUP/(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.

Stress Management

SPAIN/Perhaps the best that can be hoped for from the upcoming week of stress test anxiety is that once it is over, a modicum of uncertainty will be gone as well. Sometime today, we should know how heavy the yardstick used in the tests was. The banks either already know or will soon find out whether they passed, and on May 4, expect all kinds of whooping and hollering outside the Deans’ office when the results are officially posted. Of course, there is a pretty good chance that as the banks find out the test results, the news will find a way out, so May 4 may turn out to be somewhat anti-climactic.

What happens next is still a bit vague. There is much talk about officials force feeding more funds to stressed-out banks. And despite the bad press on shotgun marriages — what with NY AG Andrew Cuomo stomping his feet over alleged pressure applied to Ken Lewis for Bank of America to take over Merrill Lynch — financial matchmakers will certainly look at the failures as prime candidates for synergistic harmonization.

But for the optimist, the market truism that the end of uncertainty is always a good thing could come as a welcome spring break for the troubled financial sector.

Lewis Common Denominator

DEALS/Given his bank gobbled up the biggest broker on Wall Street and the biggest mortgage lender in the country, one can be forgiven for thinking Bank of America‘s Ken Lewis is talking his book. After all, going on CNBC and sounding confident is his primary role right now, with the days ticking down to the release of first-quarter results on April 20 and the bank’s annual meeting nine days later.

In the network’s lengthy interview, there wasn’t much said about shareholder pressure to unseat him after eight years at the helm of the bank. And, having taken $45 billion of federal bailout money and absorbed Merrill Lynch and Countrywide, he had little incentive to talk about bold measures at this point.

The Wall Street Journal says Lewis is set to sell the bank’s Columbia Management unit and may be looking to unload First Republic Bank, though it is not considering a sale of its stake in hedge fund BlackRock. While he spoke earnestly about repaying taxpayers, repeating his regret at having tapped TARP as heavily as he did, Lewis said it would be several quarters before the bank could do so.