Richard Bove at Rochdale says JPMorgan is in pole position to benefit from a surge in dealmaking:

“A core theme in our banking thesis is that “Merger Monday” is back.

“There could be a surge in merger and acquisition (M&A) activity that may last two to three years. The dollar is weakening, the yield on junk bonds has plummeted, and the stock market is quite strong. The money is available. No company is better positioned to take advantage of this development than J.P. Morgan.”

Bove says JPM has tens of thousands of middle-market clients as well as long-standing relationships with the biggest U.S. companies, such as Mars and Black and Decker.

“In the third quarter, revenues from advisory activity were $384 million. I would expect the quarterly revenue from this source to reach $600 million by yearend 2010 and $800 million quarterly by yearend 2011. If this assumption proves to be correct, the advisory business could add $0.15 per share to 2010 earnings per share and another $0.13 per share to 2011.”

Not only that, he says but the bank can also rake in fees lending to buyers, divesting businesses, and helping newly wealthy sellers invest their proceeds.

Bove’s JP-focused bullishness chimes with wider M&A optimism in recent notes from Deutsche, UBS and SocGen.

Royal Bank of Scotland is talking to investors to gauge support for a “modest” equity placement of 3 to 4 billion pounds, a source tells us, as it tries to limit government control.  JPMorgan and Cazenove are thought to be close to agreeing a price for Cazenove’s share of their J.P. Morgan Cazenove joint venture before the end of the year, the Independent on Sunday newspaper says.

For these and other Reuters stories on deals, click here. And for Monday’s stories in other media (some of the links may require subscription):

German power giant E.ON is in advanced talks with potential partners to build new solar power plants in Andalusia, southern Spain, its chief executive tells Spanish daily Expansion.

Chinese industrial gas provider Yingde Gases Group aims to raise up to HK$3.58 billion ($462 million) in a Hong Kong initial public offering later this month, a Hong Kong newspaper reports.

Martindale, the UK’s leading maker of methadone, has attracted interest from a number of private equity groups, the Financial Times reports on Sunday.

Belgium’s KBC has put its London brokerage and corporate finance house KBC Peel Hunt up for sale, with the bank set for a huge loss, UK newspaper the Independent on Sunday said.

Thomson Reuters data for July show the so-called “mid-market”, of deals below $500 million, has come off slightly compared to the month before, and steeply compared to the same month a year ago.

Year-to-date, JPMorgan is the busiest bank by dollar value of deals, displacing Credit Suisse, which falls from 1st to 6th. Freshfields overtakes Clifford Chance as the busiest legal outfit. A few highlights from the report:

“Global Mid-Market deal activity for July at US$40.8bn from 2,940 deals, down 6% from US$43.3bn from 3,284 deals in June. Down 42% compared to US$70.2bn from 3,627 deals in July 2008

“EMEA Mid-Market M&A activity for July at US$10.6bn (26% of total global mid-market activity), down 8.5% from June’s US$11.6bn, but down 54% compared to July 2008.

“JP Morgan topped the European Mid-Market M&A rankings, up from second position for the same period in 2008.

“Freshfields Bruckhaus Deringer ranked top legal adviser with 5.2% market share, up from second position for same period 2008″

Two chunky bits of M&A research landed this week (both, incidentally, drawing on Thomson Reuters data).

Cass Business School’s recently established M&A Research Centre sounded a note of a caution about the merits of buying floundering companies, even if such deals are initially welcomed by the market.

“Companies who bought distressed or insolvent rivals over the past quarter-century suffered lower returns on equity and underperformed buyers of healthy firms, a study released on Monday showed…

‘Even though acquisitions of distressed firms are viewed as value-enhancing by the market — no doubt driven by low valuations — the integration process of a distressed target proves challenging for many acquirers,’ wrote the authors, led by Scott Moeller.” (Read the full Reuters story here.)

And JPMorgan looked at the changing face of M&A since 1990, drawing some intriguing contrasts between the current malaise and the bursting of the tech, media and telecoms (TMT) bubble at the start of the decade. JPM notes the dotcom years actually saw a larger M&A boom, relative to the size of the world economy, than the credit bubble:

“Looking back at the 1999-2000 peak, M&A as a percentage of GDP reached its upper limit after 7 years of continuous growth and stagnated for 2 years at 10% to finally collapse and return within 2 years to 4%. In contrast, between 2006 and 2007, whilst M&A was at an all time high level, the same ratio found a new upper limit at 8% and followed the same 2 year high-plateau pattern before suddenly collapsing with the credit crisis in 2008.” …

“Based on the hypothesis that the M&A/GDP pattern could repeat itself global activity as % of GDP could reach 3.6%, 3.7% & 4.5% in 2009, 2010 and 2011 respectively, mirroring the upturn of 2002, 2003 and 2004. When matched with IMF GDP forecast for the same years this could mean that M&A activity could return to slow growth as early as this year and next and eventually reach US$2,622bn by 2011.”

The millennial deal bonanza was both more focused and less cross-border than the last one. In ‘99, TMT dealmaking alone accounted for an astonishing 55 percent of overall M&A deal value, whereas deals involving private equity, the darlings of the latest bubble, peaked at 22 percent in 2006.

Also different this time round: acquirers from emerging markets are driving an ever-bigger share of cross-border deals, with 28 percent of overall volume in the year to date.

“Dear Timmy, we are happy to be able to pay back the $25 billion you lent us. We hope you enjoyed the experience as much as we did.”

That’s JPMorgan Chase CEO Jamie Dimon’s biting sense of humor on display yesterday as he read a  mock letter to U.S. Treasury Secretary Timothy Geithner before the Annual NYU International Hospitality Industry Investment Conference in New York. Dimon’s sarcastic tone shocked some participants and cheered others, according to sources who attended the meeting.

“I congratulate him not only for his candor but for his wit,” said Mark Grant, managing director of structured finance at Southwest Securities in Dallas. “The fact that Jamie Dimon had the self composure, the sense of humor and the fortitude to make such a statement in public not only made me smile but it reminded me of days seemingly long past when men stood up on their own two feet and played the Great Game with style.”

The Wall Street Examiner, a blog of financial analysis and commentary, characterized Dimon’s remarks in a different light, calling it “the new and taunting face of state capitalism in America. ”

Dimon, a combative executive who took up boxing lessons before he joined JPMorgan, has in the past referred to TARP funds as a  “scarlet letter” and also called the $25 billion that the Treasury forced JPMorgan to take as a “TARP baby.”

Dimon repeatedly has said the bank did not want to take the money. However, Wall Street banks including JPMorgan accepted the federal funds last year after the collapse of Lehman Brothers to help alleviate concerns about the health of bank balance sheets.

(Picture of Dimon at Business Council in Dallas by Reuters photographer Jessica Rinaldi; Geithner in China shown in pool photo)

Investors have welcomed the prospective £3bn (US$4.4 billion) sale of iShares by Barclays, which gives strong hope that the bank can avoid accepting a UK Government bailout and its implicit restrictions.

Since the deal announcement, Barclays’ shares have risen by 26 percent to 198.8p, their highest point since October, when a rescue £7.3bn financing was arranged with royal potentates from Qatar and Abu Dhabi. These Gulf investors agreed to subscribe for an effective 31percent stake through separate issues at 153.3p and 197.8p. Now, both slugs are “in the money”. However, that cash has not come cheaply.

The £4.3 billion of mandatorily convertible notes, which must be converted into shares at 153.3p by the end of June, receive a 9.75 percent coupon. And the £3 billion of reserve capital instruments pay 14 percent annually, or £420 million, for 10 years. They have warrants convertible at 197.8p.

The iShares proceeds could neatly pay off the holders of the reserve capital instruments. Removing that shackle is the aim of chief executive John Varley, and Barclays Capital boss Bob Diamond in particular. Then dividends could flow freely again. Diamond’s other goal is to make Barclays Capital an investment bank to challenge the few remaining serious players with global scope, such as JP Morgan, Goldman Sachs, Morgan Stanley, Deutsche and the Swiss banks.

The purchase of Lehman’s US advisory business, together with heavy recruitment across the Middle East and Asia, are helping Barclays catch up. But Goldman is extending its lead, after Monday’s strong first-quarter results and $5 billion share sale plans. The money Goldman raises will help pay back US Government funds. Barclays wants to pay off its Gulf rescuers too. However, the iShares sale will only add £1.5 billion net to Barclays balance sheet, bearing in mind iShares’ £1.5 billion book value.

So to pay off the reserve capital instruments and keep Tier 1 capital above the expected 7.2 percent, a higher bid needs to be found. The novel “go-shop” deal structure gives Varley and Diamond until June 18 to solicit such offers. However, a higher bid is unlikely. CVC has offered a generous 10 times historic EBITDA and Barclays is already putting up debt worth 70 percent of the sale price.

Selling all of Barclays Global Investors is an alternative. That could raise £6.73 billion on the same valuation as CVC’s offer for iShares, the smaller but higher margin part of the business.

Reporting by Chris Spink, from Acquisitions Monthly

(PHOTO: A video grab image shows Chief Executive Officer (CEO) of Barclays, John Varley, speaking to the House of Lords Economic Affairs Committee in London March 17, 2009.  REUTERS/Parbul TV via Reuters TV)

    JPMorgan is cutting 30 percent of its research department, according to two former employees, but the bank is keeping mum about its plans and declined to give details of the cuts.
    David DeRose and Leighton Thomas, co-founders of a Bear Stearns alternative research unit that moved to JPMorgan when that bank acquired Bear a year ago, said on Wednesday they sold the unit to an investment firm largely because they could not hire more staff under JPMorgan’s management.
    “If you stay under a research division that’s being cut 30 percent, we can’t get any headcount,” said DeRose.
    JPMorgan intends to shed 1,000 to 2,000 jobs from its investment bank this year, co-investment bank chief Steve Black said at the bank’s investor day in February.
    It was unclear whether the cuts DeRose mentioned are included in these figures and a JPMorgan spokesman declined comment.
    Research staff may be an easy target for cuts, since it is hard to quantify their contribution to the bank’s bottom line.
    And banks’ research divisions across Wall Street have been shrinking since the Securities and Exchange Commission in 2002 banned firms from using banking fees to pay analysts.

By Elinor Comlay

There was a rumor that an announcement on Lehman was coming this morning at 6. Not that it would have taken a day-break jolt to get newsrooms and trading floors buzzing over the embattled investment bank - heck, the echo of the last two days will last for months. Bids are due later today for Lehman’s asset management jewels, but with the U.S. government now playing the part of the 800 lb gorilla in the room, the fate of the entire bank is much more in question than just its best businesses.

It’s unlikely the US government will want to offer more support to a Lehman deal than it did to Bear Stearns buyer JP Morgan. In fact, there is probably less appetite for a bailout now, given the opening of the Fed’s liquidity window to investment banks seems to have kept money markets calm this time around, though it clearly hasn’t saved Lehman. And at the end of the day, that’s really what the Fed is responsible for - keeping the system safe with lots of liquidity when necessary. So if there is nothing more on the table, is Lehman likely to see less than a $2 bill taped to its front door?

Other deals of the day:

* Deutsche Bank is poised to swoop on rival Postbank in a two-part takeover valuing the retail lender at roughly $13 billion, sources with direct knowledge of the matter said.

* Shenyang Machine Tool intends to proceed with the sale of a 30 percent stake to U.S.-based Jana Partners, a subsidiary of the Chinese firm said, denying a media report the deal was dead. 

The latest in ten-digit red ink has landed, this time from JPMorgan, which said in a regulatory filing late on Monday that it had lost about $1.5 billion since July. It cited the usual culprits: turmoil in the credit and mortgage markets and wider credit spreads and lower levels of liquidity. JPMorgan’s shares were down more than 4 percent at the open. JPMorgan has written down a total of about $33 billion, and total write-downs since the credit crunch started have been about $341 billion.

Mitsubishi UFJ Financial Group, Japan’s largest bank, said it would bid $3 billion to buy the remaining 35 percent of California’s UnionBanCal, as it looks for growth beyond its softening home market. The purchase represents a significant bet by Mitsubishi UFJ, which is looking to increase its presence in the United States even as the world’s largest economy continues to stumble through the subprime mortgage crisis. Saddled with slow economic growth and a declining population at home, Japanese financials, which have avoided much of the subprime meltdown, are increasingly aiming to boost their small market shares in the West.

Other deals of the day:

* Italy’s Enel said it had bought 10 percent of PT Bayan Resources Tbk for about 138 million euros ($205.5 million) by taking part in the Indonesian coal miner’s initial public offering.

* Adecco said it wants a friendly takeover of British peer Michael Page as the world’s largest staffing firm posted a better-than-expected quarterly net profit and strong margins despite tough economies.

* Singapore steel products maker HG Metal plans to gain control of local rival BRC Asia from the UK’s Acertec, in a deal worth as much as S$100 million ($71 million), sources said.

* The brokerage arm of BNP Paribas, the largest listed French bank, is close to finalizing the acquisition of a Russian brokerage, Pierre Rousseau, chief executive of BNP Securities Asia, told reporters.

** One of the biggest shareholders in Spain’s Reyal Urbis has sold more than half its stake in the property group to Reyal’s chairman and the company itself, stock exchange records showed.

* HSBC Holdings has submitted an updated application to acquire a 51 percent stake in Korea Exchange Bank, South Korea’s Financial Services Commission said.

The other shoe — or is it an ax — is finally dropping for staff at Bear Stearns, with letters going out this week telling them whether they’ll keep their jobs when JPMorgan’s acquisition is complete.

One Bear employee who works in the emerging markets business in London has received confirmation he will be laid off, he told Reuters on Wednesday. Another in the same department said he was expecting to hear later in the day that he would be retained.

“Some individuals and some businesses are beginning to hear what their status is,” added a source close to the bank.

A third London-based staffer who does not work on a trading desk, but on the business side said: “I’m waiting for my letter from JPMorgan to see about a job offer. I’ve been told verbally there is a job for me, which is a great relief.”

The total number of layoffs is not yet known, but more than half of Bear Stearns employees are expected to lose their jobs. JPMorgan CEO Jamie Dimon has declined approximately one thousand times to give details.

Not that it will come as much consolation to axed Bear Stearns employees, but executives including co-head of fixed-income Jeffrey Mayer, co-heads of equities Steven Meyer and Bruce Lisman, and former CEO Ace Greenberg are known to have survived the purge. CEO Alan Schwartz, CFO Sam Molinaro, controller Jeffrey Farber and general counsel Michael Solender may also eventually accept employment with the bank, according to a U.S. Securities and Exchange Commission filing.

The New York Times reported over the weekend that Ace Greenberg, who started as a Bear Stearns clerk in 1949, is gifting $360,000 to 25 longtime mailroom and clerical employees — $200 a month over six years. Greenberg “has sold over $30 million in Bear stock since early 2007,” the Times reported.

Photo: A man holds a battle ax during three-day Highland Games Festival in Fehraltdorf near Zurich, REUTERS/Stefan Wermuth