Deals wrap: Seeking clarity on Fannie and Freddie
The Obama administration will pick the brains of housing finance leaders on how to fix Fannie Mae and Freddie Mac, but made one thing is clear: there is no going back to their pre-crisis structure. *View article
BHP Billiton may see potash as an ideal fit within its portfolio but today Potash Corp’s board rejected BHP’s unsolicited $38.6 billion offer, terming it as “grossly inadequate.” *View article
Energy stocks ranked among the worst performers in the second quarter on jitters about a double-dip recession. What did the top fund managers do? They staked out the sector much like they did with financial companies earlier in the year. *View article
The rising yen is helping reignite a push by Japanese companies to snap up overseas assets and secure growth outside their sluggish home market. Japanese companies have a patchy reputation for dealmaking that stems from famously overpaying for trophy properties but executives are more worried about being left behind by hard-charging global rivals. *View article *View factbox on the yen
Deals wrap: Who’s interested in AIA?
AIG has started talks with potential investors to sell stakes in its Asian life insurance business AIA ahead of AIA’s planned IPO, sources say. *View article* In a related matter, Prudential says its failed bid for AIA, which collapsed in May, will cost less than first expected. *View article
General Motors posts its biggest quarterly profit in six years a day ahead of an expected IPO filing. *View article *View article
Private equity firms that benefited from Dubai’s boom years are now looking to the emirate for reforms needed to revive the sector, writes Nicolas Parasie and Dinesh Nair. *View analysis
Robert F.X. Sillerman is again making a bid for control of entertainment company CKX and “The Deal Professor” looks into the nitty-gritty of the deal. *View NYT article
In an Op-Ed piece, William Poole discusses the best way to put Fannie and Freddie to rest. *View NYT article
Broad Support for Citi
Given Citigroup stock’s dizzying tumble toward nationalization (wipeout) levels, it would appear Uncle Sam’s conversion of Citi preferred shares into common broadly supported anyone shorting the stock. The government did a deal to convert $25 billion of its Citi preferred stock, giving it a stake of up to 36 percent in the bank.Other moves announced this morning also have a decidedly more managerial tone. The bank’s board is to be reconstituted. Other major shareholders, including the government of Singapore, said Uncle too, getting on board with the Treasury plan, which supporters will argue is better than no plan at all. Singapore was an early adopter of the failed investment strategy of bailing out the bank.Where we are in this latest wave of the financial tsunami is difficult to calculate. Globally, this week has seen tremendous activity between governments and banks. Lloyds Banking Group is prepared to tap a 500 billion pound ($715 billion) insurance scheme concocted by Britain to cleanse risky bank assets. And a deal struck yesterday could raise the British government’s holding in Royal Bank of Scotland to 95 percent. Global development banks have launched a two-year plan to lend up to 25 billion euros ($32 billion) to shore up banks and businesses in crisis-hit Eastern and Central Europe.The problem with lenders of last resort is that they are a monopoly and their doors can never close. Notice the queue of seemingly defunct businesses lining up for ever more cash, whether it be Fannie Mae looking for another $15 billion, or the $30 billion GM says it needs to forestall a meltdown of industrial proportions.Deals of the Day:* The chairman of China Huiyuan Juice Group, the country’s top juice maker, said he would meet with Coca-Cola Co executives next week to discuss their $2.5 billion bid for his company.* Beckman Coulter, a maker of medical test systems, said it agreed to acquire the diagnostic systems portion of Olympus Corp’s life sciences business for about $800 million to broaden its clinical chemistry offering.* Britain’s BG Group sweetened its offer for Australian coal seam gas firm Pure Energy, now valuing the company at A$1.03 billion ($671.9 million), in a bid to eliminate rival bidder Arrow Energy from the race.* Commodities trader Noble Group launched a takeover bid for Australia’s Gloucester Coal, valuing the miner at nearly A$400 million ($261 million), looking to thwart Gloucester’s planned merger with Whitehaven Coal.* Indonesian coal miner, PT Indika Energy Tbk said it agreed to buy an 81.95 percent stake in engineering firm PT Petrosea Tbk from Clough International Singapore Pte Ltd for $83.8 million.* China National Petroleum Corp launched a friendly C$443 million ($357 million) offer for Verenex Energy Inc to give the state-owned oil company a stake in a Libyan oil concession.* Coal miner Caledon Resources said it has received an indicative approach “significantly in excess” of its current market price.* UK-based NeutraHealth said it received an unsolicited offer from India’s Elder Pharmaceuticals, at an indicative partial offer price of 5.5 pence per share.(PHOTO: Workers are reflected in the window of a Citibank branch in London January 16, 2009. REUTERS/Toby Melville)
Bank dealmaking circus=recruiting bait?
Some in the financial industry apparently smell opportunity in the latest round of mergers and blood-letting among top banks.
Referring to the Wells Fargo takeover of Wachovia as the WWF and placing Bank of America CEO Ken Lewis atop a bucking Merrill Lynch bull are just a couple of the attention-getting devices financial sector recruiting firm RJ & Makay uses in its latest promotional You Tube video.
Branching out from a previous video aimed at Merrill Lynch brokers, the new “Billion Dollar Video” (the company claims assets from advisers brought to them via these viral recruiting tools represent billions of dollars) targets all financial advisers but specifically appeals to those currently at Merrill Lynch and Wachovia.
Those brokers are grappling with with the question of whether to accept a retention/transition package, move to another firm or go independent. RJ & Mackay is clearly hoping they’ll opt to walk and chose the firm to advise them on where to go next.
The just over four-minute short could help at least get their attention. It’s an equal opportunity stick poker, targeting all the big hits of this financial season. JP Morgan Chase, Bear Stearns, Fannie and Freddie are all in there along with Lehman, Buffett, Goldman, AIG, Morgan Stanley, Bernanke, Paulson, the government bailout, executive greed, executive kool-aide dispensers and dealing with those pesky gnats, known as recruiters.
Watch here:
Before the Bell: Buffett’s ball
There’s nothing like a belle to bring a festive mood to an otherwise gloomy ball, and today that honor belongs to Goldman Sachs, which has drawn attention – and money – from none other than Warren Buffett.
Stock futures are pointing up on news of the uber-investor’s plan to purchase a $5 billion stake in the bank. And Japanese media say that Sumitomo Mitsui Financial Group is also looking to buy in.
But the fate of the Wall Street bailout plan remains the $700 billion question. Congress is continuing discussions today, with Fed chief Ben Bernanke testifying before the House Financial Services Committee.
At the same time, CNN is reporting that the FBI is investigating potential mortgage fraud at Fannie Mae, Freddie Mac, Lehman Brothers and American International Group – the very companies at the heart of this financial services meltdown.
Oil prices are up ahead of weekly data expected to show the fifth consecutive decline in U.S. crude inventories.
The dollar is down against an index of major currencies. Longer-term U.S. Treasuries are higher.
Mr. Buffet is following his own mantra stringently buy low sell high. Now that the toxic assets will off the Goldman’s book, it’s definitely a good buy!!
http://vikramsjourney.blogspot.com/
This one’s a gusher
Once again the government has had to open up its check book to sort out a private sector problem, citing systemic risks to the global financial system. The GSEs may have been more obvious candidates than Bear Stearns, given their assets had carried an implied seal of sovereign support – support that it is now clear had never been meant for shareholders.
After weeks of burble about government takeovers and bailouts, management shuffles and a thrashing of their stocks, things seemed to have gone quiet on the Fannie / Freddie front. How much worse had things gotten by last week? What was Hank Paulson seeing from the windows at Treasury that forced him to take such dramatic action?
Markets are very excited - banking stocks around the world shot up overnight on, if not the bottomless wallets of the American people, then the end of some uncertainty. Early this morning, Paulson was at pains to emphasize that conservatorship would protect tax payers, not shareholders. Fannie and Freddie stocks are halted this morning after falling close to wipe out levels, so the latter part is clearly sinking in. Getting taxpayers to believe that the move protects them may be a harder sell. Warren Buffett told CNBC this morning taxpayers would suffer.
Other deals of the day:
* Origin Energy , fending off an $11 billion hostile bid from Britain’s BG Group, has partnered U.S. major ConocoPhillips to help develop its coal seam gas through a liquefied natural gas (LNG) project.
* Cigarette maker Altria Group has agreed to buy Skoal and Copenhagen smokeless tobacco maker UST Inc for about $10.3 billion in cash.
* Australia’s St George Bank has recommended a sweetened A$17.9 billion ($14.8 billion) takeover offer from Westpac Banking in what would be Australia’s biggest banking takeover.
Under new management
Fannie Mae‘s executive shake-up seemed to help build a floor under the tumbling mortgage finance company, with debate still raging about whether the Treasury will take it over. Bloomberg’s report yesterday that Pimco, the manager of the world’s biggest bond fund, was building funds to buy as much as $5 billion in mortgage-backed debt is also a sign of budding investor interest. Often a change of the old guard at a listed company points to a potential merger or buyout, particularly if the incoming chiefs have merger experience. That doesn’t appear to be the case for Fannie – the new CFO is the old Controller. But if the feared nationalization does not materialize and more buyers for mortgage-related debt stick there toes in, could Fannie Mae or Freddie Mac – cheap as they are – become (gulp) – takeover candidates, barring any conflicts with their charters? You have to suspend disbelief and squint your eyes hard, but it’s not like there is nobody out there without any resource to buy a $6 billion company with an implicit (if somewhat tarnished) pledge of government support. Given their rough ride of late, $6 billion of investment into Fannie might seem to a risk-averse white knight, such as Warren Buffett, a slightly less secure investment than $6 billion in quarters in Las Vegas.
The shaky economy and sluggish jobs market have driven a big jump in applications to business schools, BusinessWeek reports. The magazine said in its online edition that the Graduate Management Admission Council said 77 percent of business schools surveyed reported an increase in application volume in 2008, up from 64% in 2007. They say it’s the second-largest surge in applications to full-time programs since 2002, and the highest level of increase in five years
Deals of the day:
* British engineer Bodycote has agreed to sell its testing business to U.S. private equity firm Clayton, Dubilier and Rice for 417 million pounds and will return 260 million pounds to shareholders.
* Nokia Siemens Networks said it has sold its 56.1 percent stake in Korean telecoms network company Dasan Networks to a group of Korean investors. Nokia Siemens sold the shares for 6,000 Korean won each, valuing the deal at $43.5 million, Reuters data showed.
* British motor insurer Highway Insurance has agreed to a takeover by mutual society Liverpool Victoria Insurance Company in a deal worth around 150 million pounds ($276 million), the companies said.
* Mitsubishi UFJ Financial will spend over $910 million to raise its stake in consumer lender Acom to more than a third, financial sources said — a move that would boost its business in the troubled but potentially lucrative sector.
Does this mean that Pimco will get the taxpayer bailout of the mbs owned by fannie and/or freddie?
How Fannie and Freddie work
Freddie Mac on Wednesday posted its fourth straight quarterly loss as it braced for a prolonged housing crisis by setting aside twice as much money for bad loans and setting plans to slash its dividend by at least 80 percent.
The worse-than-expected results come just three weeks after U.S. authorities orchestrated a sweeping effort to prop up the second-biggest provider of U.S. residential mortgage funding and its fellow government-sponsored rival, Fannie Mae.
Click the arrows below to understand how Fannie Mae and Freddie Mac work, and how their troubles could influence the economy and potentially cost taxpayers billions.
Back in 1990 when the S&L scandal was still in our minds (Banks went bankrupt then because of Real Estate..)
The only mortgage programs available were Federally backed by FHA and VA (changing mortgage insurance premiums to cover potential losses) and conventional programs (majority backed by Fannie Mae and Freddie Mac) with a required downpayment and a mountain of requirements.
Mortgages had to make sense. As time passed and the Republican congress of the late 90′s deregulated the mortgage backed securities markets, avalanches of new rogue mortgage programs flodded small and mid-sized mortgage companies, and the results were thousands of mortgages that did not make sense, waiting to default.
Add to this the fact that the economy has faultered since 2001 and you have a bad recepie of Millions of people living off their credit and the equity of their homes for almost all this decade.
It is not only a mortgage markets problem, is it the decimation of our economy and our way of living.
