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.

Just goes to show that not everybody can fail a stress test and impress shareholders with massive ownership dilution. Regions’ trouble may be that aside from selling stock, it has far less to offer than bigger banks in terms of asset sales to make shareholders feel better about doubling down. If nothing else, the market reaction could put a scent in the air that might interest an acquisition-minded lender needing exposure in the U.S. Southeast. If such a creature exists, it might find many more stressed-out lambs in the U.S. financial pasture.

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.

(From Acquisitions Monthly)

The coming financial services new world order could unleash a wave of mergers and acquisitions as providers look to thrive under a regime of tighter regulation and diminished risk appetite. As such, the IBM Institute for Business Value calls into question some of the ideological shibboleths still held by many senior banking executives.

Whilst banks such as Citigroup, UBS and the UK’s Barclays cling to the notion of universal banking – effectively one stop shops – research by IBM argues that this particular model may not be fit for purpose anymore. The days of soaring profits from what it calls “pockets of opacity” such as over the counter derivatives are over.

“Some of the largest institutions may be required to downsize or dispose of business lines,” says IBM.  It predicts that outperformers will become much more specialist and aligned with their customers’ needs. Many universal banks were found to be more self-serving in outlook. “On average the specialists have seen their revenues grow 30 percent more than the universal banks and enjoy operating margins of 25 percent compared with the 16 percent universal banks command,” says the IBM Institute.

It sees the industry splitting into three segments: The first are utilities providing infrastructure to facilitate capital allocation and relying on economies of scale to drive down costs. The second are those that give advice such as wealth management firms and boutique M&A advisors. The last category, are those geared to investment outperformance such as private equity groups and hedge funds. Barclays for example might inadvertently be contributing to this trend with its disposal of passive fund manager, iShares for 3 billion pounds ($4.3 billion).

Basically the IBM Institute is suggesting there could be more disposals to come from the universal banks as the market forces them to streamline or investors seeking higher returns demand it.

Banks such as Barclays also face growing competition in retail banking with the likes of giant retailer, Tesco, planning their own banks. Their offerings threaten to be much more customer-centric and this will force the traditional banks to rethink their approach and as IBM predicts, possibly to specialise.

Reporting by Justin Pugsley, Acquisitions Monthly

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Deals of the Day:

* German insurer Allianz and U.S. credit card group American Express raised a combined $1.9 billion on Tuesday through the sale of share’s in Chinese banking giant ICBC.

* Japan’s Toshiba said it would set up a joint venture with U.S.’s Amkor Technology and Japan’s Nakaya Microdevices in October to assemble system chips. Toshiba, Japan’s biggest chipmaker, said the outsourcing move would help improve earnings in its battered chip business.

* Sumitomo Mitsui Financial Group has agreed to buy Citi’s Japanese retail brokerage and part of its investment banking operations here for more than $5.2 billion, sources said

* Qatar is in talks to buy a stake in Germany’s Porsche and may also invest in other carmakers as the Gulf gas exporter looks to park some of its sovereign wealth abroad, according to media reports.

* German Economy Minister Karl-Theodor zu Guttenberg is meeting senior representatives of Magna to discuss a possible investment by the car parts supplier in Opel, a unit of General Motors.

* Consumer goods exporter Li & Fung, which manages supply chains for retailers such as Wal-Mart and Target, expects to sign more outsourcing deals within months as cash-strapped retailers in the United States look to cut costs in the economic downturn.

(PHOTO: Flags fly outside the Citigroup headquarters in New York, November 24, 2008. REUTERS/Brendan McDermid)

EuroFresh, a leading producer of greenhouse tomatoes and cucumbers, filed for Chapter 11 bankruptcy protection Tuesday, partly blaming crackdowns on undocumented migrant workers for its woes.

In a bankruptcy filing in Arizona, where it is based, EuroFresh essentially said the government’s actions has raised demand for workers with legal papers, making them scarce.

“The pool of illegal immigrant labor in the area surrounding the Facilities shrank, creating higher overall demand for legal immigrant labor,” the company complained.

One might wonder whether this particular bankruptcy might prompt investors such as Apollo Investment Management, Barclays and JP Morgan, which hold millions of dollars to join the ranks of corporations such as Microsoft urging immigration reform including more visas.

As unsecured creditors, pretty much at the bottom of the totem pole, the three investors stand to lose $76.5 million, $47 million and $35 million respectively because of the bankruptcy.

(Updated with references from Paul Kanjorski’s office)

Lined up to pay their dues, Wall Street CEOs met their congressional inquisitors on Capitol Hill, sparking bouts of righteous indignation peppered with cringe moments worthy of The Office.

Pennsylvania Democrat Paul Kanjorski implored the posterboys for an era of high finance gone bad to “please find a way to return that money before you leave town,” referring to hundreds of billions of dollars in taxpayer bailout funds that officials believe were poured into unwarranted bonus payments instead of being used to revive the business of lending to America. At least he said please.

The message was clear. Though they may never have been instructed to lend the funds when they got them, that’s what Congress wanted. Bankers need to get back to the business of lending. That’s what they were being bailed out for. Never mind that the business of lending, conducted with adequate credit checks, was not what they were doing before, and that prudence in a period of high inflation would preclude much new lending today.

Kanjorski, chairman of the House subcommittee on capital markets and insurance, is himself the subject of a telling tale of befuddlement making its way around the Internet. In an interview on C-Span he said money market investors pulled $550 billion from their accounts, prompting the Fed to step in on Sept 15 and stop the panic by closing money market accounts. His estimation was that “$5.5 trillion would have been drawn out of the money market system of the U.S., would have collapsed the entire economy of the U.S., and within 24 hours the world economy would have collapsed.”

It looks increasingly like he didn’t have all his facts in presentable, working order. Felix Salmon of Portfolio.com says he can’t find any reporting of money market funds being closed by the government, and neither can we. Andrew Leonard at Slate.com also questions the numbers. Kajorski’s office pointed us to a September New York Post article citing traders as saying money markets were pushed to the wall with $500 billion in sell orders, about a fifth of the entire market, and comments the congressman made at a hearing with then Treasury Secretary Henry Paulson, apparently referencing this report.

Keeping in mind that Paulson was just one of a long list of Goldman Sachs grads to become a top policy maker it’s not terribly surprising that neither the rocket scientists of Wall Street nor angry congressional committees seem well suited to the job of restoring confidence in the financial sector.

Other Deals News:

* Chinese state-owned aluminum group Chinalco will invest $19.5 billion in miner Rio Tinto in a deal that will secure resource supplies for China and help cut Rio’s debts, but also raise regulatory scrutiny.

* Rio Tinto Ltd/Plc will sell nearly half its stake in the world’s biggest copper mine, nearly a third of its share in a major bauxite mine and sizeable stakes in key operations in Australia, Indonesia and the Americas in a $12.3 billion asset deal announced on Thursday.

* Spanish competition authority CNC has approved Gas Natural’s 16.7 billion euro ($21.58 billion) bid for Union Fenosa with conditions, a spokeswoman for the regulator said on Thursday.

* General Motors has been in talks with China’s SAIC Motor about the possible sale of a share of GM’s stake in their joint venture or other assets as the U.S. automaker races to raise cash, two sources familiar with the discussions said.

* Japanese video games maker Square Enix has agreed to buy the British firm behind titles such as “Tomb Raider” and “Championship Manager” for 84.3 million pounds ($120.8 million) to extend its reach in Europe.

* Satyam Computer Services Ltd’s board expects to outline the bidding process for a possible sale of the fraud-hit firm in the next 10 days time, Chairman Kiran Karnik said on Thursday.

* Thailand’s Bank of Ayudhya (BAY) said on Thursday it was in talks with financial institutions to buy more retail banking businesses following last week’s acquisitions from AIG.

* German retail and tourism group Arcandor is not in talks with Wal-Mart, the world’s biggest retailer, Thomas Middelhoff said on Thursday, pouring cold water on earlier market talk.

(PHOTO: Combination photograph of Wall Street bank executives testifying before House Financial Services Committee on Capitol Hill in Washington, February 11, 2009. Top row (L-R), are: Bank of New York’s Robert Kelly, JPMorgan Chase’s Jamie Dimon, Goldman Sachs’ Lloyd Blankfein and Wells Fargo’s John Stumpf. Bottom row (L-R), are: CitiGroup’s Vikram Pandit, Morgan Stanley’s John Mack, Bank of America’s Ken Lewis and State Street’s Ronald Logue.  REUTERS/Larry Downing)

JPMorgan’s Jamie Dimon may have enough on his plate - for now.

With the bank still digesting its two major purchases from last year — Washington Mutual’s banking operations and Bear Stearns — Dimon seems ready to take a break from deals and focus on integration.  

A worsening economy is also keeping the industry on edge. “Common sense tells you it will get worse and we should prepare for that,” Dimon said on a conference call after the bank announced lower fourth-quarter profit. He said 7.5 percent to 8 percent unemployment is “the minimum we’ll see.”

JPMorgan is “not out there looking” for an acquisition. And there is nothing that the bank is looking to divest, Dimon said.  

But Dimon is leaving the door ajar in case opportunity knocks yet again. “We would never say never.”

(Photo: REUTERS/Jonathan Ernst)

Citigroup may be too big to fail, but is it big enough to close a deal? Soon after losing its bid for Wachovia to Wells Fargo, Citi turned it sights on Chevy Chase Bank, which while not as mighty as Wachovia, was at least closer to its east coast power base. This morning, Capital One Finance said it had agreed to buy the mid-Atlantic lender, right out from under Citi’s nose.
 
JP Morgan Chase had also been interested in Chevy Chase, a smallish, unlisted lender. The deal announced by Capital One was for $520 million - hardly the kind of blockbuster that makes or breaks a battered Wall Street monolith. 
 
It will be interesting to see if Citi, brimming over with TARP funds that the Treasury has all but begged it and others to spend on lending, stays on the prowl. Bank of America took its TARP money and boosted its stake in a Chinese lender, so there is some precedent for Citi to spend the funds on a deal.
    
But with Citi’s wallet stuffed with taxpayer cash, the impetus for growth may be less imperative. If it decides against bidding for the deposits of another regional bank, Citi will find itself with only financial assets to sell — in a seller’s market.
    
It agreed to sell its German retail business, which it put on the block over the summer with a price tag of around $8 billion, and at the end of November reports emerged it would try to sell its trust bank unit in Japan for more than $400 million. 
 
Deals of the day:

* Goldman Sachs said it has rejected an offer from Panasonic to buy its shares in Sanyo Electric because it believes the offer price is too low.

* Rio Tinto is in talks to sell its half of a Chinese aluminium joint venture to its partner, which is consolidating its assets to prepare for a takeover by another state-owned company, sources in the two Chinese companies said.

* Japanese insurance group T&D Holdings may bid for two Japanese life insurers put up for sale by American International Group, the Asahi newspaper reported.

* Nippon Oil, Japan’s biggest refiner, is merging with smaller Nippon Mining Holdings in a move to cut capacity and costs as a global slowdown hits demand for oil products.

* Private equity firm Apax Partners is considering an investment in Bank of Ireland as interest in Irish banks by buyout groups continues to grow, the Financial Times reported.

* Media mogul Sumner Redstone has agreed with his daughter, Shari Redstone, to sell some of National Amusements’ 1,500 cinemas rather than the entire division, the Financial Times said citing people familiar with the matter.

* Global Investment House, Kuwait’s biggest investment bank, is in talks with several local banks to get $1 billion worth of loans, while seeking a quick sale of its stake in a Bahraini lender, it said.

* Dutch dredging group Boskalis Westminster dropped its bid to buy maritime services company Smit, saying it would be difficult to take it over without management’s cooperation.

* Wm Morrison, Britain’s fourth-biggest grocer, beat third-quarter sales forecasts and said it had agreed to buy 38 stores from the Co-operative Group for 223 million pounds ($329 million).

* Aerospace parts supplier Umeco said it bought Italy-based Industria Plastica Monregalese (IPM) for 16.8 million euros ($21.3 million) as part of its plans to develop a wider global presence in the wind energy market.

* Italian energy group Enel SpA denied a media report it had offered Acciona 12 billion euros ($15.2 billion) for the Spanish builder’s 25 percent stake in Endesa.

(Photo: Reuters/Fred Prouser)

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: