DealZone

Reinventing Glass-Steagall

With Congress already debating a sweeping overhaul of financial regulation, perhaps the most enduring regulatory stricture of the Depression era is again getting an airing in Washington. The venerable Glass-Steagall laws that barred large banks from affiliating with securities firms and engaging in the insurance business were repealed in 1999. Now, as the banks try to move on from the dreaded salary caps and the humiliation of TARP, lawmakers are wondering whether getting rid of Glass-Steagall was such a good idea.

Financial giants such as Goldman Sachs could be broken up under two bills introduced in Congress on Wednesday, one with the backing of former Republican presidential nominee John McCain. Both would reinstate Glass-Steagall. Passage of the Cantwell-McCain bill would force firms at the center of last year’s financial crisis — such as Goldman Sachs, Morgan Stanley, Citigroup, JPMorgan Chase and Wells Fargo — to spin off investment and insurance operations, according to Demos, a progressive think tank in New York. A similar measure was offered on Wednesday by six Democrats in the House of Representatives.

To be fair, many have wondered whether dumping Glass-Steagall was such a good idea. What’s odd is that the discussion about bringing it back comes as almost an afterthought to the massive regulatory reform bill now before Congress. Rather than start from scratch, it may have made more sense to try to reinstate laws that the marketplace was already familiar with, and add new bits around the edges.

While the banks may think they are strong enough to shed TARP, it’s hard to see how they would survive the cleaving of Glass-Steagall at this stage of their recovery. Perhaps by forcing the sector to resplit itself, the remaining banks would be forced to go back on TARP. While that might have some political appeal, analysts say restoring Glass-Steagall is probably a non-starter because it would be seen as stoking unemployment. Going back to more Depression-era regulation would also be difficult to sell as a progressive approach to modern day problems.

DealZone Daily

Nomura (8604.Tis to buy Tricorn Partners, a London corporate finance boutique. The Japanese bank is making the acquisition to beef up its corporate broking business. It is currently corporate broker to eight British companies including Tesco. The value is not disclosed.

Abu Dhabi’s sovereign fund is serious about mitigating losses it faces from its purchase of securities in Citigroup (C.N) in 2007. Abu Dhabi Investment Authority has filed an arbitration claim against the US bank alleging  misrepresentation. It wants Citigroup to rescind on the investment agreement or pay more than $4 billion in damages.

In Australia, BHP Billiton (BHP.AXoffers to buy Queensland’s coal freight business. The state government of Queensland last week announced plans to float the business, a move which wasn’t popular with miners and rival rail groups who had expected the business to be separated.

R.I.P. Salomon Brothers

It’s official: Salomon Brothers has been completely picked apart.

Citigroup’s agreement to sell Phibro, its profitable but controversial commodity trading business, to Occidental Petroleum today puts the finishing touches on a slow erosion of a once-dominant bond trading and investment banking firm.

When Sandy Weill (pictured left) staged his 1998 coup – combining Citicorp and Travelers, Salomon Brothers was a strong albeit humbled investment banking and trading force. Yet little by little, a succession of financial crises, Wall Street fashion and regulatory intervention has whittled away at the once-dominant firm.

Not long after the Citigroup was formed, proprietary fixed income trading –  once the domain of John Meriwether, was shut down after the Asian debt crisis fueled losses that Weill could not stomach.

Citi selling its jewels

Occidental Petroleum is buying Citi’s commodities trading unit Phibro for roughly its net asset value. How much that is, exactly, is hard to tell. Occidental said its net investment in Phibro is expected to be about $250 million.

The bigger figure, of course, is the $100 million associated with star trader Andrew Hall. His pay package has been the subject of much hand-wringing at Citi and in Washington.

Phibro’s management team, headed by Hall, and its employees will remain with the unit after the sale, expected to close by year-end. Citigroup shares were fractionally lower in morning trading on the New York Stock Exchange, while Occidental shares were up about 1 percent.

DealZone Daily

On a quiet day for deals, worth noting that Royal Bank of Canada joins the growing queue of prospective buyers of a wealth management business. Read the exclusive Reuters story here. On a larger scale, Wynn Macau‘s strong debut in Hong Kong ups the ante for Europe, where bookbuilding for the IPO of Poland’s PGE starts next week. For more deal-related news from Reuters, click here.

Elsewhere:

* The U.S. Federal Deposit Insurance Corp is questioning the positive conclusions given to Citigroup Inc’s management team in a government-mandated review in the aftermath of the financial crisis, the Wall Street Journal says.

* A management buyout of Malaysia’s national carmaker Proton Holdings could be possible, the firm’s chairman was quoted as saying in the Star newspaper.

In asset management, it’s shedding season

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. 

Deals du Jour

Julius Baer will buy ING‘s private bank in Switzerland, the two have said (Reuters has long been reporting that Baer was the frontrunner to seal the deal).

The battle for Dutch retailer Super de Boer heats up, with Ahold now showing interest to buy 30 to 50 of its supermarkets. For these and other stories about deals, click here.

And two deal stories in other media:

Citigroup is working on a sale of its commodities unit Phibro in a move that could raise hundreds of millions of dollars, according to the Financial Times.

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>

Was that an asset sale?

Did Citi sell something? All signs point to yes, but beyond that it’s hard to say.

Citigroup announced on Monday that it sold three credit card portfolios representing $1.3 billion in managed assets as part of a plan to unload weak businesses and troubled assets. The third-largest U.S. bank by assets did not disclose the terms of the deals, but said it will continue to service the portfolios through the first half of 2010.

Or, as New York Times chief financial correspondent Floyd Norris said as he bemoaned the lack of transparency from the taxpayer-funded bank:

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.