DealZone

Sympathy for the devil’s banker

After a couple weeks of just trying to keep up with developments in the financial crisis, reporters and bloggers are taking halting steps toward describing the mythos of the investment banker.

It’s been a while since Tom Wolfe and Bret Easton Ellis popularized the bespoke-suited arrogance commonly associated with the financial world’s anointed — the easy millions, the casual disdain for the rubes and the marks in the lower classes and the single-minded pursuit of money. Depicting the carnivore in his or her habitat is beginning to come back into vogue as taxpayers who may soon be on the hook to bail out their social betters in the investment banking world wonder why they’re getting stuck with a bill they didn’t incur.

New York magazine ran a story called, “The Rage of the Previously Rich: A Lehman trader copes with the sudden onset of income shrinkage,” featuring this choice nugget:

The collapse of the world’s most powerful wealth-creating engine required everyone to take stock of their financials. One Lehman executive in Rye Brook, fretting about paying off a Hamptons summer house and a ski chalet in Vermont, panicked on Monday morning and laid off her nanny, who had been with the Westchester family for nine years. “The nanny called me crying,” says Marla Sanders, who runs Advance Nannies and staffs Lehman homes. “One of the children she had brought home from the hospital.” Sanders knows more cuts for her clients are on the way. “They’re going to have to sell homes. The question is, will the homes sell? They’re cutting some of the children’s activities out, dance class, acting class. Are they going to have flowers delivered every day to their homes? I don’t think so!”

On Wednesday, ivygateblog featured comments from the pseudonymous “George”:

At Lehman, a stunning loss leads to serious thought

lehman-1.jpgFrom the Iranian coffee cart guy to the Italian graduate student, almost everyone who walked past Lehman Brothers’ headquarters on a  windy Wednesday morning in New York seemed to stop and mull its future.

Philipp Steiner, a graduate student in entrepreneurship from Italy, walked up to Lehman’s offices at 50th St. and 7th Ave after reading news about the investment bank’s $3.93 billion quarterly loss on the famous news ticker a few blocks south in Times Square. There’s never such big news in Italy, he said. Still, he didn’t think Lehman bankers had too much to worry about, despite its troubles.

“I would see that as a good experience, and then move on to another job,” Steiner said.

Private matters

Lehman’s HeadquartersA day after Fox-Pitt Kelton analyst David Trone suggested Lehman Brothers Holdings Inc may be better off going private, the investment bank may be ready to do just that. Lehman Chief Executive Richard Fuld is considering ways to take the Wall Street bank private, but it’s not quite clear how such a move might work, the New York Post reported, citing sources. Lehman’s shares have plunged this year on the back of rumors and questions about its solvency. Talks of privatizing Lehman have got serious as a result, the papers said. The company’s shares closed down more than 14 percent on Monday, reaching their lowest level since August 1999. Lehman’s shares have fallen about 81 percent so far this year. Trone said on Monday Lehman may be better off going private to shake off short sellers that are spreading bogus rumors about the bank.

Those nasty rumors, if that’s what they are, may come back to bite some folks on the hindquarters. The Securities and Exchange Commission has sent subpoenas to more than 50 hedge-fund advisers as it investigates whether individuals spread false rumors to manipulate shares in Lehman and Bear Stearns Cos, The Wall Street Journal said, citing a person familiar with the matter. You remember Bear Stearns, right? You know, the one that initially sold for about $2 a share? No wonder Lehman may be thinking about getting out of the stock market limelight.

And now for something completely different (different from Lehman, anyway). Hong Kong phone company PCCW Ltd says it expects to shortlist bidders for its media and telecoms unit within a month. The deal could fetch more than $2.5 billion. Private equity firms are among those bidding for the newly formed unit, known as HKT Group Holdings, group managing director Alex Arena told reporters on Tuesday. Reuters reported on Friday that the Blackstone Group and Providence Equity Partners were among those pursuing a bid for HKT.

Restraining order

Zuberbuehler director of the Swiss Federal Banking Commission attends a news conference in BernAs if having the U.S. Justice Department on your back because your bankers may have been helping wealthy Americans avoid tax wasn’t enough, Swiss banking giant UBS also has to deal with grumpy regulators at home. The head of the Swiss Federal Banking Commission, Daniel Zuberbuehler (pictured), tells us that singling out UBS and Credit Suisse for tough treatment is justifiable and has laid down a tight timetable for new rules to restrain the two. The banks will be required to hoard considerably more capital, which will surely slow them down on Wall St. On Monday, the DOJ said it had asked a federal court in Miami to authorize the Internal Revenue Service to request information from UBS about U.S. taxpayers who may be using Swiss bank accounts to evade federal income taxes. Coughing up tax fraudsters to the IRS could make the sell-off of UBS’s U.S. wealth management backbone – once known as Paine Webber – a tad trickier, but perhaps no less necessary.

A detailed blow-by-blow of the death of Bear Stearns by Vanity Fair’s Bryan Burrough casts current market rumors rumbling about the health of Lehman Brothers in an eerie light. The author, who DealBook notes co-wrote “Barbarians at the Gate,” takes aim at CNBC and hedge funds as it works to uncover what it posits could be the “murder” of the country’s fifth-biggest investment bank. This morning, CNBC’s Charlie Gasparino and DealBook editor Andrew Ross Sorkin are talking about the prospects for Lehman being “taken out”.

High in the “priced to move” column, commercial lender CIT Group agreed to sell its home lending business to private equity firm Lone Star Funds for $1.5 billion in cash to increase liquidity, and said it would take a related second-quarter charge of $2 billion. CIT also agreed to sell its $470 million manufactured housing portfolio to Vanderbilt Mortgage and Finance for about $300 million. “These sales complete our exit from all home lending businesses, removing the uncertainty surrounding this asset class,” Chief Executive Jeffrey Peek said. Lone Star will also be taking on $4.4 billion of outstanding debt and other related liabilities. Home lending may not be that far off the path for CIT, but getting out of the business certainly helped tax preparer H&R Block, which announced strong results and a better outlook yesterday, so any price is clearly worth it – CIT’s stock was up over 11 percent in premarket trade.

Herd on the Street

Men herd cows and calves belonging to the Hogan family after branding near BoulderOnce upon a time, bank analysts were uniformly upbeat on investment banks. “Sell” ratings were nearly unheard of, and potholes in balance sheets were never as big as the huge, routine earnings beats. Now, with Goldman Sachs’s sector u-turn perhaps at the apex, there is plenty of mud to go around. Today’s hit list includes Barclays, the recipient of 4.5 billion pounds in balance-sheet aid this week. Citigroup says Britain’s third-biggest bank may need to raise a further 9 billion pounds and could take more significant write-downs. Lehman Brothers analyst Roger Freeman took aim at Merrill Lynch, saying the big broker will probably see $5.4 billion of write-downs in the second quarter, mainly from its exposure to monolines. Freeman raised his write-down view by $3 billion for Merrill, making his estimate the highest among Wall Street analysts.

Merger activity in the United States dropped 29 percent in the second quarter, faring better than the 40 percent global slump, as corporations filled the void left by buyout firms and targeted big consumer brands such as Anheuser-Busch and Wrigley. “Strategic buyers see an opportunity here due to the absence of the financial buyers. For the last 24 months, prior to the downturn, strategic buyers were getting outbid by financial buyers. That’s not happening now,” said Bob Filek, a partner with PricewaterhouseCoopers’ transaction services. During the first half of the year, private equity deal volume dropped 85 percent in the U.S. and 76 percent globally, according to Thomson Reuters data.

A couple more European banks have increased their China exposure. Deutsche Bank signed a deal with Shanxi Securities to set up an investment banking venture, a source with knowledge of the deal said on Friday. Deutsche planned to take 33 percent of the envisioned Beijing venture, the most allowed. Beijing this year re-opened its coveted but shuttered securities industry to foreign firms after a hiatus of more than a year to let local players merge and strengthen. Several banks, including BNP Paribas, have since expressed an interest in setting up local ventures. Chinese stock markets have shed nearly half their value this year, but foreign banks remain keen on securing a foothold there with an eye on the longer term. Royal Bank of Scotland has won approval from Chinese regulators to buy a nearly 20 percent stake in Suzhou Trust as it expands in corporate banking and wealth management services in China, sources with direct knowledge of the situation said. Suzhou Trust is a mid-sized trust and investment firm.

Being single

veil.jpgLehman Brothers CEO Dick Fuld is not giving up on the independent investment bank model despite predictions by pundits that brokerages will have to look for commercial bank partners to tide over future crises and sustain growth.

“I believe in the model. I believe the value of what we have created in the past for shareholders can be created again,” Fuld said on a conference call after Lehman’s quarterly results.

Lehman posted a quarterly loss of $2.8 billion, matching its forecast, after recording massive trading and hedging losses.

Cap in hand at Lehman

lehman3.jpgLehman Brothersplan to raise $6 billion in new capital wasn’t a shock, but the investment banks’ expected results for the second quarter were still a nasty surprise: A $2.87 billion loss, or $5.14 per share, compared with a Reuters Estimate forecast of a 38 cent-per-share loss. And you know there’s really trouble when net revenue is in the red — the company expects it to be negative $668 million, compared with positive $5.51 billion a year earlier, due to asset writedowns and trading losses.

Moody’s followed by moving its rating outlook on Lehman to “negative” from stable” and the bank’s shares were down 10 percent in pre-open trading. If nothing else, we can probably rule out a huge surge in pronouncements that the credit crisis is over.

Willis Group Holdings, the world’s third largest insurance brokerage, is buying smaller rival Hilb Rogal & Hobbs for $1.7 billion, looking to boost business as insurance rates soften, and expand its presence in the United States. Willis will also take on $400 million of HRH debt in a cash-and stock deal valued at $46 a share — nearly a 50 percent premium to HRH’s closing price on Friday. The acquisition is the largest transaction for this industry since Marsh & McLennan’s 1998 acquisition of Sedgwick Group, and if rates soften further, more consolidation could follow.

What goes around…

lehman3.jpgLehman Brothers is looking for fresh capital in South Korea, the Wall Street Journal reports. If the investment bank does end up tapping South Korea, it will have taken slightly over a decade for the 1997 multibillion loan from the IMF, backed by Wall Street and the Federal Reserve, to come full circle. The Journal says Lehman is looking to state-run Korea Development Bank and Woori Financial Group as it searches for funds to ward off a Bear Stearnsian crisis of confidence. The IMF demanded strict economic reforms for its money. A South Korean lender, like the Chinese and Arab investors bailing out Citi and Merrill Lynch, might just want a juicier cut.

The best part of waking up is Folgers in your cup — with a side of Smuckers jelly. The maker of Jif peanut butter and Crisco oil said it would buy Folgers from Procter & Gamble for stock valued at $2.95 billion plus the assumption of $350 million in debt. J.M. Smucker & Co also acquired Jif and Crisco from P&G.

Yahoo set its annual shareholder meeting for Aug. 1 in the heart of Silicon Valley, as it braced for a proxy showdown with billionaire activist investor Carl Icahn. Earlier, The Wall Street Journal reported that Icahn would seek to remove Jerry Yang as Yahoo chief executive, citing the company’s failure to reach a merger or partnership deal with Microsoft. Icahn had proposed an alternate slate of directors for Yahoo’s board, but until now had not directly targeted Yang. “It’s no longer a mystery to me why Microsoft’s offer isn’t around,” the Journal quoted Icahn as saying. “How can Yahoo keep saying they’re willing to negotiate and sell the company on the one hand, while at the same time they’re completely sabotaging the process without telling anyone?”

Back to the well?

lehman.jpgLehman Brothers stock took an early hit on a report in the Wall Street Journal that it may raise up to $4 billion in fresh capital. It’s not clear who might want to buy into the storied brokerage, particularly given the number of top banking heads that have recently rolled down Wall Street. Lehman may issue common stock, diluting current shareholdings, and will probably reveal its capital plans when it reports quarterly results the week of June 16, the report said. Two months ago, the bank sold $4 billion of preferred shares, and in early May, it sold $2 billion of 30-year bonds.

Staples raised its bid for Dutch office supply distributor Corporate Express by about 14 percent to 9.15 euros a share, or $2.65 billion, but in order to secure the deal Corporate Express would have to nix its plan to buy French peer Lyreco. Staples says it has the backing of about 23.3 percent of Corporate Express shareholders. The initial bid was met with a cool response. This time, Corporate Express is blushing a bit more warmly, saying it will carefully review the new offer and make a further announcement in due course. “The 9.15 euros is somewhat higher than we expected. We believe this offer is attractive,” said Rabo Securities analyst Philip Scholte.

China Merchants Bank has agreed to buy control of Wing Lung Bank for $4.66 billion in a deal that will provide China’s sixth-largest lender with greater access to the Hong Kong market. After initially dropping out of the auction, China Merchants Bank returned late in the process to beat front runners Australia and New Zealand Banking Corp and Industrial Bank of China, the world’s largest bank by market value. China Merchants said late on Monday it would pay HK$156.50 a share for a 53 percent stake in Wing Lung, confirming what people with direct knowledge of the matter told Reuters on Friday.