DealZone

Citi still mum on Al Raya Investment

(Corrects spelling of Al-Braikan in third paragraph.)

citilogo-300x200Citi continues to refuse to discuss its 10 percent stake Al Raya Investment, four days after the Kuwaiti firm’s chief executive was found dead.

A New York-based spokeswoman for Citi declined to discuss how the investment came to be, what due diligence was done before the investment was made, and what the Citi plans to due with its stake in the embattled firm.

Al Raya chief executive Hazem Al-Braikan was found dead in an apparent suicide on Sunday after a whirlwind week in which he and two other finance firms were accused by the U.S. Securities and Exchange Commission of having improperly earning millions of dollars from trades in two U.S. firms.

Al-Braikan seemed to be at the top of his career just a year ago, Reuters correspondent Ulf Laessing reported earlier this week.

Last summer, Al-Braikan hosted then chairman of Citigroup Sir Winfried Bischoff, who was visiting Kuwait soon after Citi bought 10 percent of Al Raya. Al-Braikan lunched with Bischoff and even took him to meet Kuwait’s ruler.

Lending CIT a hand

An almost heart-warming effort is being mustered by CIT bondholders to keep the troubled lender from getting put under the TARP or stumbling into a much-anticipated bankruptcy. Some $3 billion in survival cash is seen in the pipeline — money that could strengthen CIT’s finances and allow it more time for a debt restructuring. An announcement is expected before the markets open this morning.

What kind of terms might bondholders extract from CIT? Before TARP was modified to target executive pay for those who sought its shelter, banks such as Citigroup and then-independent investment house Merrill Lynch paid what were seen as shockingly high terms on mandatory convertible debt. They were the kind of rates Citi customers paid on credit cards; nothing like traditional bank funding rates.

So, a CIT deal could, and perhaps should, come with a variety of stringent terms. If these are effectively passed on to desperate small and medium-sized businesses that CIT serves, the cost of this rescue could be blamed for stifling the recovery.

DB pulls off surprise

AIADeutsche Bank, the underdog in the race to run the IPO of a large AIG unit, has come out on top.

The German bank has been chosen as one of two global coordinators to run the IPO of American International Assurance (AIA), beating out Goldman Sachs and Citigroup, which ran the aborted auction of the Asian life insurer earlier this year.

Morgan Stanley, the other global coordinator, is no surprise. The bank has been advising the Fed since the September implosion of AIG, and on top of its own expertise, regulators wanted it in.

Crying Uncle (Sam)

While Wall Street banks pick themselves up from the mat and start putting together the billions they owe Washington for having saved the country’s financial system from utter ruin, the government’s long knives appear to still be plenty sharp for the two biggest casualties, Citi and Bank of America. Why not? These are also two of the least likely to quickly emerge from the bailout.

The FDIC is reportedly trying to unseat Citi’s CEO Vikram Pandit, Bank of America’s Ken Lewis is likely headed back to Capitol Hill next week for another grilling, and adding a little spice to the mix is news that the SEC has charged former Countrywide CEO Angelo Mozilo with fraud.

Countrywide was bought by Bank of America for $2.5 billion last July, after it appears Mozilo started dumping shares in his own company, of which he is alleged to have written, “We are flying blind on how these loans will perform in a stressed environment of higher unemployment, reduced values and slowing home sales.”

Deals du Jour

Abu Dhabi sells 3.5 billion pounds of shares in Barclays, making a handy profit, and sending the stock down well over 10 percent. In another share sale, wind turbine maker Gamesa is suspended after Iberdrola offloads 10 percent of the company in the market. Otherwise, cars still dominate: GM has filed for bankruptcy, Germany is to pay bridge financing to Opel today and a U.S. judge said overnight the sale of Chrysler will be effective on Friday. Here are today’s top deals headlines.

And in the newspapers:

British publishing group Pearson is in talks with Prisa over the possibility of buying a stake in Santillana, the Spanish media firm’s publishing house and market leader in school textbooks in Latin America, the Financial Times reported.
Prisa could be looking to sell up to 30 percent of the unit in a 315 million pound deal. Other bidders include Cengage Learning, Oxford University Press and Infinitas Learning, the paper says.

Citigroup Inc told about five former top executives they will not be paid tens of millions of dollars in promised severance payouts, the Wall Street Journal cited people familiar with the matter as saying.

Deals du Jour

Opel remains the biggest story of the day. Marathon talks to shield it from a looming bankruptcy ended with no results, a deal is now expected by Friday. In another bankruptcy-related story, Nortel Networks is looking for a buyer for its majority stake in a South Korean joint venture with LG Electronics. For today’s top headlines on deals, click here.

This is what we found of interest in the newspapers:

* Fortress Investment Group, a listed private equity and hedge fund company, is nearing an agreement to inject $800 million in fresh capital into First Southern, a Florida bank, with other investors, the Financial Times said.

* Eircom Holdings has started detailed discussions with three potential bidders to sell its 57 percent stake in Eircom, the former Irish state-owned telecoms company, the Financial Times said.

Post Traumatic Stress Test Order

A week ago, when the Fed and Treasury mesmerized the financial world with the results of “stress tests” and capital-raising targets for banks, nobody spent much time asking “what if they can’t raise the money?” There was a sense that authorities had washed away enough uncertainty in the sector to satisfy investors. In short order, healthier institutions started raising capital. Those that didn’t need any stepped up efforts to rid themselves of onerous state support.

Bank of America shares are on a tear after the bank raised nearly $13.5 billion through a stock sale. Along with money it raised by selling part of its stake in China Construction Bank, this put Bank of America about half way to filling its stress-test gap.

But when Regions Financial, a large U.S. Southeast regional bank that was stress-tested, announced plans this morning to raise $1.25 billion through stock offerings — also about half of what federal regulators told it to raise — investors balked, sending its stock down more than 8 percent.

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.

Did you just feel a bottom?

USA-FED/BERNANKENow that the stress test results are in and green shoots of economic promise abound, a great gush of lending is going to come spilling out of banks’ lending spigots, right? Wrong.

As Kristina Cooke reports, “While banks may be less hesitant to lend to each other if they feel their rivals’ books have been credibly vetted, that does not translate into confidence to make new loans to small businesses and consumers.”

Worse, although money is cheap at the Fed – well, cheap in terms of interest, if not terms – banks may be the only businesses that enjoy any thaw in credit conditions. Michael Feroli, economist at JPMorgan, says the still sickly state of the economy means many borrowers’ creditworthiness has dropped, while demand for new loans has waned.

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.