As 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.

Manitowoc said it had beaten out Illinois Tool Works in the official auction for British kitchen equipment maker Enodis. Manitowoc said it will pay 328 pence for each Enodis share, or about $2.45 billion, not including the assumption of about $249 million of the U.K. company’s debt. Enodis, which makes fast-food fryers, became the center of a takeover tussle between the two U.S. diversified manufacturers this spring. The two bidders saw Enodis, which counts Burger King and McDonald’s among its customers, as a way to play on rising demand for fast food in markets such as Asia.

Other deals of the day:

* Italy’s third-biggest refiner, Saras, said it has bought a 30 percent stake in an Italian wind power company from Australian investment firm Babcock & Brown.

* InBev stuck to its proposal to take over reluctant bid target Anheuser-Busch and said it would seek to give the latter’s shareholders a direct voice if the U.S. brewer still refused to talk.

* Norwegian recycling equipment maker Tomra said it bought Australian peer Ultrasort for 160 million Norwegian crowns ($31.48 million) in enterprise value.

* State-owned National Bank of Egypt has sold its holdings in six companies for a combined total of 5.29 billion Egyptian pounds ($993 million), the financial daily Al Mal said on Tuesday.

* Indonesia’s largest lender, PT Bank Mandiri, said it had acquired a 51 percent stake in automotive financing firm PT Tunas Financindo Sarana (Tunas Finance), for an undisclosed amount.

* U.S. pork producer Smithfield Foods Inc said that COFCO Limited, China’s largest agricultural trading and processing company, will buy a near-5-percent stake in the company.

* Israeli holding company Koor Industries said it has accumulated 100 million Swiss francs ($98.23 million) worth of shares in Credit Suisse Group.

* Major Chinese engine maker Weichai Power said it has agreed to take a stake in Beiqi Foton Motor under a deal to expand its business ties with the truck maker.

* British telecoms company Cable & Wireless said it was in talks with rival Thus Group about a potential 180 pence-per-share offer for the company.

* Malaysia’s TM International and Indian mobile operator Idea Cellular will launch an open offer on Aug. 22 to buy up to 20 percent of Spice Communications, their investment banker said.

* New Zealand rural services firm PGG Wrightson said it would pay NZ$220 million ($167 million) for a 50 percent stake in meat producer Silver Fern Farms (SFF), sending its shares lower.

* South Korea’s POSCO said it had agreed to buy a 10 percent stake in coal mining firm Macarthur from the Australian group’s shareholder Ken Talbot at A$20 a share.

(Picture: Director of the Swiss Federal Banking Commission, Daniel Zuberbuehler, at a news conference in Bern. 27/03/2007 - Reuters)

Once 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.

Other deals of the day:

* French insurer Groupama said it had bought Turkish insurers Guven Sigorta and Guven Hayat for 350 million lira ($287 million) from the TTKMB association of agricultural credit cooperatives.

* Telstra, Australia’s largest telephone firm, expects strong revenue and profit growth at its newly acquired Chinese online advertising websites.

* Mexico’s KOF, the world’s second-largest bottler of Coca-Cola drinks, said it acquired Brazilian soda maker and brewer Refrigerantes Minas Gerais Ltda for $364.1 million.

* New Zealand dairy cooperative Fonterra and National Foods have had talks about a possible joint bid for Australia’s Dairy Farmers, which is valued at up to A$1 billion ($961.5 million), a source familiar with the situation said.

* Russian mid-sized bank InvestTorgBank said its Russian owners had sold just under 40 percent of the bank in two stakes for a total of 5 billion roubles ($213 million).

* Australian-listed miner Herald Resources advised its shareholders to decide themselves on which of two rival takeover bids to accept.

Lehman 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.

Experts say stand-alone U.S. investment banks such as Lehman are likely going to have to find commercial bank partners to get access to a stable source of funds. That will help them deal with future shocks and to sustain growth even if regulators restrict leverage.

Fuld did keep the door open to potential suitors, saying if someone came up with an offer that made sense, “I clearly have the obligation to take that to the board.”

“If the model changes, so that … banks are the only way to go, then that is a model that has to be considered,” Fuld said. “But today, the power of this franchise, we can very much go it alone and be very strong.”

(Photo credit: Reuters)

Lehman Brothers‘ plan 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.

Other deals of the day:

** ArcelorMittal, the world’s largest steelmaker, said that it would acquire Bakermet, a Canadian scrap metal recycling firm.

** British education and training provider Nord Anglia Education said it had rejected a 450 pence-a-share bid approach from Baring Private Equity Asia, saying it did not reflect its growth prospects.

** Norwegian Eitzen Maritime Services has agreed to buy Dubai-based Seven Seas Shipchandlers for $115 million on a debt-free basis to boost its position in the ship supplies business, Eitzen said.

** Indonesia’s anti-trust agency, KPPU, said it may take legal action against Singapore’s ST Telemedia, over its plan to sell its stake in Indosat to its partner, Qatar Telecom.

** Private equity real estate firm Benson Elliot Capital Management has bought a 70 percent stake in Spanish developer Promobuilding SL in a bid to cash in on distressed housebuilding projects in Spain’s faltering economy.

** Russian gas export monopoly Gazprom has called off its long-anticipated joint venture to pool power and coal assets with energy major SUEK, the companies said in a joint statement.

** Indian drugmaker Cadila Healthcare Ltd said it has acquired 70 percent of South Africa’s Simayla Pharmaceuticals, marking the Indian firm’s second buy in less than a fortnight.

** Construction firm Sadbhav Engineering Ltd said a unit has acquired a 74 percent stake in Hong Kong-based Ocean Bright Corp Ltd, for an undisclosed sum.

** Great Offshore Ltd said it now planned to buy only one of the two rigs it was eyeing through an overseas acquisition of the firm that had ordered them.

** Iliad, the parent of French internet service provider (ISP) Free, said it was in exclusive talks to buy Telecom Italia’s Alice France ISP unit.

** Irish food group IAWS and Swiss baker Hiestand said they would merge to create ARYZTA AG, listed in Switzerland and Ireland and led by the chief executive of IAWS, which will own 83.3 percent of ARYZTA.

Lehman 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?”

Novartis has bought privately held biotech company Protez Pharmaceuticals in a deal worth up to $400 million, giving it rights to an antibiotic which could be used to fight superbugs. Protez has a broad-spectrum antibiotic given by injection that is currently in mid-stage Phase II development against drug-resistant infections, and Novartis hopes to submit it for regulatory approval in 2012. The Swiss group will pay $100 million immediately for the business, with a potential for up to $300 million of additional payments depending on the future success of the new drug with the catchy code name: PZ-601.

Corporate Express will open its books to U.S. office supplies retailer Staples, which has made an unsolicited bid for the Dutch office goods wholesaler, Het Financieele Dagblad reports. On Tuesday, Staples raised its offer to 9.15 euros a share, or 1.7 billion euros ($2.65 billion), on the condition that Corporate Express shareholders reject the company’s plan to buy privately owned French peer Lyreco. The paper added that Corporate Express will probably give a neutral recommendation to its shareholders about the bid.

Other deals of the day:

* Australia’s Warrnambool Cheese and Butter Factory said it and National Foods, owned by Japan’s Kirin Holdings, would jointly pursue a bid for Australian dairy producer Dairy Farmers.

* Chinese metals trader Sinosteel said it has raised its stake in Midwest Corp to 28.37 percent from 19.89 percent as it seeks to take over the Australian iron ore prospector.

* AXA Asia Pacific, unit of French insurer AXA SA, said it would buy the financial planning business of Challenger Financial Group for A$100 million ($95 million) and in exchange for AXA’s annuity portfolio.

Lehman 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.

Shares in Italian broadband operator Tiscali jumped more than 10 percent after a report that Britain’s Vodafone will bid for the company. Italian daily MF reported that bid will come in the next 24 hours, citing sources close to Vodafone. Although the price was being kept secret, a reasonable bid would be about 2.8 euros a share, the newspaper said. The market is largely buying the article, as shares rose more than 8 percent to 2.5975 euros. Tiscali said in a statement it had not yet set a price for itself and was still in talks with a number of companies.

Other deals of the day:

* Swiss private bank EFG International made its first move into the French market by acquiring French wealth manager Sycomore Gestion Privee for an undisclosed sum, it said.

* Swedish engineering group Alfa Laval said it had bought U.S. heat exchangers maker Standard Refrigeration.

* Indian telecom services provider Spice Communications has been approached by UAE-based Etisalat and others for a stake in the Indian company, chairman B.K. Modi told reporters.

* France’s Groupama denied a newspaper report it had made an offer for Banco de Sabadell’s insurance unit.

* Britain’s Taylor Nelson Sofres and Germany’s GfK have agreed a merger of equals to create the world’s second-biggest market research company with a market value of about $4 billion.

* Metcash, Australia’s largest grocery wholesaler, posted a stronger-than-expected 18 percent jump in full-year profit on strong growth in fresh food sales, and confirmed it has bid for a unit of Primary Health Care.

* Indonesian miner PT Aneka Tambang and its partner, China’s Shenzhen Zhongjin Lingnan Nonfemet, have raised their offer for Australian-listed Herald Resources, valuing the company at as much as $523 million ($499 million).