Deals du Jour

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.

Keeping score: JPMorgan leads the mid-market

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

M&A: lessons from history

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…

That’s Mr. Geithner to you, Jamie…

USA/CEO-SURVEY“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 ChUSA-CHINA/GEITHNERase 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.”

Barclays’ moves to escape bailout

BRITAIN-BANKS/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.

JPMorgan slashing research, ex employees say

NEWYORK-BEAR    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

Force Fed

lehman1.jpgThere 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.

Another credit hit

JPMorgan ChaseThe 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.

Layoff letters go out to Bear Stearns staff

ax.jpgThe 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.

Mr. Dimon goes to Washington

dimon.jpgJPMorgan Chase boss Jamie Dimon and New York Fed President Timothy Geithner are among the banking executives and regulators testifying before the Senate Banking Committee on Thursday about the Fed-backed takeover of Bear Stearns.

Click here to read Geithner’s prepared opening statement. He justified the Fed-funded J.P.Morgan buyout of Bear Stearns as the lesser of two evils, saying the risks of allowing the bank too fail were too great and unpredictable.

Click here to read Dimon’s statement, in which he says JPMorgan would not have offered to buy Bear Stearns if the Fed had not agreed to absorb billions of dollars in potential losses.