DealZone

The year-long ban BHP Billiton has had on revisiting a takeover of rival miner Rio Tinto will soon end, but it seems as if the moment has passed. Liberum and Investec said earlier this week that most of the synergies were captured anyway by the duo’s iron-ore joint venture.  If regulators nix that deal, analysts say a full takeover could be back on — but how that would pass muster if a JV doesn’t is not clear. On Friday, Credit Suisse joined the chorus of disapproval, saying a takeover would cut BHP’s return on equity (ROE) in half. From the CS note:

“We have re-run the numbers on an all scrip BHP Billiton takeover of Rio Tinto at a 30% premium (2.3 BHP shares for each RIO share). We see such a deal as materially EPS dilutive (by 12% even after year 3) and would significantly decrease BHP’s return on equity (from 25% to 12%).

“We do not see BHP making another takeover offer for RIO because: (i) The iron ore JV should capture many of the synergy benefits expected from the possible merger. (ii) If the iron ore JV fails on account of not passing regulatory hurdles similarly then we do not see a takeover receiving regulatory passage. (iii) We do not foresee shareholder support for the deal (and any such deal would use BHP script) with the potential EPS dilution and ROE erosion significant. (iv) Non-availability of sufficient credit facilities.

“We see a reinstatement of the buyback as a more preferable option for BHP shareholders than another tilt at RIO. A buyback of US$18bn in FY11 would be 7% EPS accretive and return gearing to a more normal level of 25% (BHP is debt free by end FY11 on our current forecasts).”

Interesting detail in a research note on Thursday from Credit Suisse, highlighting how it pays for bankers to sweat the small stuff in these lean times.

The bank’s own research and Dealogic data shows that deals worth less than $100 million have generated average success fees equivalent to nearly 1.2 per cent of the value of the transaction this year. Deals worth $1 billion or more have yielded just 0.2 percent.

As I wrote earlier, Credit Suisse also says that M&A may replace fixed income as a driver of investment banking revenues in coming quarters as the high-grade bond bonanza draws to a close.

(From Sarah Young at Acquisitions Monthly)

This week has seen policy-makers on both sides of the Atlantic contemplate the future of the banking industry.

Yesterday, Switzerland’s central bank joined the discussion. It is one country that truly knows the meaning of too big to fail – the combined assets of Credit Suisse and UBS were last year equivalent to six times Swiss GDP.

The restructuring and M&A activity that would come about should regulators introduce restrictions on the size of banks, or push for the division of investment and retail banking, must have deal advisers’ eyes watering with the thought of the fees that would be up for grabs.

Cars dominate headlines again, with a GM bankruptcy looming and Chrysler CEO Nardelli saying he expects a deal with Fiat on Friday. In other news, Chartered Semiconductor denies a newspaper report that Advance Technology Investment has bid for Temasek’s majority stake in the firm. For today’s headlines, click here.

And here is what we found of interest in newspapers:

Credit Suisse has begun a plan to sell its London property estate and raise up to 500 million pounds ($800 million), the Financial Times reported.

Terra Firma has been forced to inject more cash into EMI after the debt-laden UK music group missed targets imposed in banking covenants, the Financial Times said. The Wall Street Journal separately said Terra Firma had put up an additional 28 million pounds to bail out EMI.

UBS and Credit Suisse both have strong wealth management businesses — and the new year seems to have brought new hope.

UBS, which has written down more toxic assets than any other European bank, says it has had an “encouraging” start to 2009, with inflows into both its wealth and asset management businesses in January. Credit Suisse says it had a “strong start to 2009″ and was profitable across all its units so far this year.

This could be music to the ears of the Swiss, whose country may be faring better than others in the downturn (so far, at least) but is particularly reliant on its financial sector.

As if having the U.S. Justice Department on your back because your bankers may have been helping wealthy Americans avoid tax wasn’t enough, Swiss banking giant UBS also has to deal with grumpy regulators at home. The head of the Swiss Federal Banking Commission, Daniel Zuberbuehler (pictured), tells us that singling out UBS and Credit Suisse for tough treatment is justifiable and has laid down a tight timetable for new rules to restrain the two. The banks will be required to hoard considerably more capital, which will surely slow them down on Wall St. On Monday, the DOJ said it had asked a federal court in Miami to authorize the Internal Revenue Service to request information from UBS about U.S. taxpayers who may be using Swiss bank accounts to evade federal income taxes. Coughing up tax fraudsters to the IRS could make the sell-off of UBS’s U.S. wealth management backbone – once known as Paine Webber – a tad trickier, but perhaps no less necessary.

A detailed blow-by-blow of the death of Bear Stearns by Vanity Fair’s Bryan Burrough casts current market rumors rumbling about the health of Lehman Brothers in an eerie light. The author, who DealBook notes co-wrote “Barbarians at the Gate,” takes aim at CNBC and hedge funds as it works to uncover what it posits could be the “murder” of the country’s fifth-biggest investment bank. This morning, CNBC’s Charlie Gasparino and DealBook editor Andrew Ross Sorkin are talking about the prospects for Lehman being “taken out”.

High in the “priced to move” column, commercial lender CIT Group agreed to sell its home lending business to private equity firm Lone Star Funds for $1.5 billion in cash to increase liquidity, and said it would take a related second-quarter charge of $2 billion. CIT also agreed to sell its $470 million manufactured housing portfolio to Vanderbilt Mortgage and Finance for about $300 million. “These sales complete our exit from all home lending businesses, removing the uncertainty surrounding this asset class,” Chief Executive Jeffrey Peek said. Lone Star will also be taking on $4.4 billion of outstanding debt and other related liabilities. Home lending may not be that far off the path for CIT, but getting out of the business certainly helped tax preparer H&R Block, which announced strong results and a better outlook yesterday, so any price is clearly worth it – CIT’s stock was up over 11 percent in premarket trade.