DealZone

CIC braves U.S. distressed assets

China is no stranger to rolling the dice on risky U.S. investments. But like most big investors, it has been staying away from the tables for a while. Now we have word that its $200 billion sovereign wealth fund is pouring $2 billion into three funds focused on U.S. distressed assets. The funds are run by Goldman Sachs, Oaktree Capital and a third, as yet unidentified manager.

At only 1 percent of its portfolio, the balance of risk to Chinese wealth is small. CIC has pumped up its investment volume recently, buying a 14.5 percent stake in commodities trading firm Noble Group for $850 million just last week. Resources may seem like a better investment for a Chinese state-linked fund than distressed U.S. assets, given the country’s gaping hunger for commodities. But China’s macroeconomic exposure to the U.S. economy is at least as important to its future as its ability to source foreign raw materials. And with the dollar against the ropes, distressed U.S. assets may offer China a better bang for its buck.

CIC made a profit of $10 billion last year as it benefited from staying largely in cash and avoiding new investments in Western banks, a source close to the fund told us in February. But it lost over half of an initial $8 billion it ploughed into private equity firm Blackstone and Morgan Stanley when the fund was set up in September 2007.

CIC Chairman Lou Jiwei (pictured above) said in Hong Kong last December that he was “not brave enough” to invest in financial institutions at that time. He seems to have found his nerve.

from Commentaries:

Is Goldman’s Chinese convertible really a taxi?

BRITAIN/The number of London's trademark black taxis booked and waiting outside the European headquarters of Goldman Sachs -- meters running -- was once used by some as a barometer of the health of London's investment banking business.

When times were good, the queue was long and it was impossible for anyone else in the vicinity to hail a cab. But when the fees dried up, or markets turned, the cabbies who'd been at Goldman's beck and call suddenly had to find new customers.

Last year, Goldman was reported to have stopped free taxis home for staff working in the office after 9pm, extending this to 10pm.

Warren Wonka the Candyman?

Warren Buffett knows sweets. His Berkshire Hathaway is the largest shareholder in Kraft Foods, which made an unsolicited — and rebuffed — $16 billion bid for Cadbury. The Wall Street Journal reported that the trust that holds voting control of Hershey has hired Buffett’s favorite banker, Byron Trott, as it also weighs whether to pursue the British chocolate maker.

Trott, a former Goldman Sachs banker who runs his own firm now, is known for his expertise in candy as well as in advising family- and trust-owned companies. He convinced Buffett to pay $6.5 billion to help finance Mars in its $23 billion takeover of Wrigley last year.

Paritosh Bansal and Jessica Hall report that while Trott’s latest engagement may not have anything to do with Buffett, he may end up helping the billionaire investor. Sources previously told Reuters Hershey is unlikely to make a bid on its own for all of Cadbury. But Hershey may want to pick up pieces of Cadbury, which makes Dairy Milk chocolate, Halls cough drops and Trident gum. This could bode well for Buffett, some investors said.

Lehman and its aftermath, by the numbers

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With apologies to Harper’s Index, some collected statistics on the collapse of Lehman and the roller-coaster year that followed.

Add your own significant digits in the comments section.

***

Number of siblings who made up the original Lehman Brothers, founded as a dry-goods store in 1844: 3

Age of Bavarian immigrant Henry Lehman when he founded the business: 23

Percentage difference between the DNA of former Lehman CEO Dick “The Gorilla” Fuld and an actual gorilla:

Were Blankfein’s comments on compensation self serving?

Lloyd BlankfeinGoldman Sachs CEO Lloyd Blankfein’s recent comments on compensation may seem like a call for responsibility in the financial services industry, but they may also be self serving. 

Speaking at a conference in Frankfurt on Wednesday, Blankfein said that financial institutions that lose money should not pay outsized bonuses. 

That seems fairly reasonable, but if Wall Street really did embrace that policy, Goldman could benefit. Look at this year: so far Goldman has earned $5.2 billion, while Morgan Stanley has lost $1.8 billion. If Morgan Stanley refrained from paying big bonuses, which bank would be well positioned to hire its top talent?  

What green shoots?

European bankers may be having more conversations that could lead to M&A than six months ago, but this week’s deal figures from Thomson Reuters still make dismal reading.

So far this year, European M&A has been worth $356.6 billion, a 51% fall compared to last year at this time. Excluding government investments, merger activity in Europe totals $239.1 billion, a 67 percent decrease from 2008 levels.

Here is another of this week’s data points:

“Germany’s E.on has agreed to sell its natural gas distribution subsidiary, Thuega AG, to a group of German utility companies for $4.1 billion, topping the list of worldwide mergers this week. Goldman Sachs, which advised Thuega, and @visory Partners GmbH, which advised the consortium, could share an estimated $30 million to $35 million in advisory fees on completion of the deal.

Mixed messages from Goldman’s first family?

FINANCE/TARPThis probably wasn’t what Lloyd Blankfein had in mind when he reportedly asked Goldman Sachs employees to cut back on conspicuous displays of consumption.

The New York Post, which screamed the news about Blankfein’s order to exercise restraint from its front page on Tuesday, reported on its Page Six gossip column Wednesday that his wife sent a rather different message at a charity event in the Hamptons last Saturday.

According to Page Six, Laura Blankfein and Susan Friedman, wife of Richard Friedman, a Goldman managing director,  “caused a huge scene” as they waited with lesser donors for the doors to open for a charity event for ovarian cancer research.

Goldman’s Viniar: Why pay twice?

HEALTHFOOD-ASIA/Turns out Goldman Sachs is a staunch advocate of going organic — when it comes to the money management business.

As Barclays auctioned off its Barclays Global Investors unit this year, Goldman was widely seen as a likely acquirer. That is until Blackrock In under Larry Fink emerged as the buyer with a $13.5 billion deal.

Lots of other money managers are expected to be sold, as the industry consolidates and cash-strapped banks look for valuables to pawn. But Viniar told analysts Goldman’s preference is to grow the business without deals, and appeared to question the very idea of money manager deals.

Goldman Sachs breaks silence on alleged code theft

David ViniarAfter more than a week of silence, Goldman Sachs finally commented publicly on the alleged theft of computer codes by former programmer Sergey Aleynikov calling losses sustained as a result would be “very, very immaterial.”

Those words were spoken by David Viniar, Goldman’s Chief Financial Officer, in response to a Reuters question during a conference call with reporters to discuss the company’s robust second quarter earnings.

Aleynikov, a former Goldman computer programmer, was arrested on July 3.

“We still have all of the code,” Viniar said. “It is not like the code had been lost to Goldman Sachs. And even if it had been, it is a small piece of our business.”

Keeping score: H1 redux

Final, first-half M&A data from Thomson Reuters, released earlier on Thursday, filled out the picture painted by preliminary data last week — deal-making has shrunk dramatically, even as investment bankers find solace in a record flurry of bonds and rights issues.

One interesting wrinkle, compared to the earlier numbers, is the inclusion of Xstrata’s unwanted approach for rival miner Anglo American, valued by the number-crunchers at $42.5 billion. That helped propel Goldman Sachs to the global top spot for M&A advice, and boosted several other banks engaged on the deal.

Some other nuggets:

* Compared to the first half of 2008, announced M&A is down 40.2% to $941 billion, the slowest H1 since 2004.