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.

* 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.

Merrill Lynch: Don’t forget the salt


Analysts are applauding Merrill Lynch’s attempt to cut its losses and raise more capital, but investors may be forgiven if they take the company’s remarks with several large grains of sodium chloride. CEO John Thain repeatedly insisted that Merrill was well-capitalized over the last eight months, yet the bank still had to go back for another $8.5 billion.

Below are a selection of comments by Thain and other executives, in reverse chronological order.

“Right now we believe that we are in a very comfortable spot in terms of our capital.” (July 17, 2008 — Thain on a conference call after posting Merrill’s second-quarter results)

Owning Merrill

wallst.jpgFresh capital from wealth fund Temasek Holdings may do plenty to clean up Merrill Lynch‘s balance sheet, and has the potential to boost the Singapore wealth fund’s stake in the struggling investment behemoth to 15 percent. That could be an uncomfortable level for U.S. politicians, and breaches a previously informal agreement to refrain from owning more than 10 percent of Merrill, according to a source familiar with the fund. A Temasek spokeswoman said on Tuesday that a portion of the deal is subject to regulatory approval. Citigroup is the other big U.S. bank to have gone to foreign wealth funds for big buckets of bail-out funding. If it ends up having to take more CDO-related write-downs to match the new bargain basement price one assumes Temasek is paying for its new stock of Merrill shares (they aren’t saying what the price might be) this whole thing could turn very political just as the race for the White House enters the final stretch.

British Airways says it is in talks with Spanish carrier Iberia about a potential all-share merger, sending shares in the UK airline up nearly 9 percent. Britain’s flagship carrier said in a statement the discussions had the support of both companies, although it expected it would take several months before terms could be agreed. BA’s chief executive, Willie Walsh, said the move made sense in current market conditions. BA owns 13.15 percent of the Spanish carrier, while Iberia has taken a 2.99 percent direct stake in BA, on top of exposure to a further 6.99 percent through contracts for differences linked to the BA share price. BA said both parties were confident of securing regulatory approval, adding that the European Union had already allowed the duo to cooperate widely.

Other deals of the day:

* Japanese TV and media group Tokyo Broadcasting System said it would spend $195 million to buy a majority stake in retailer StylingLife Holdings from Citigroup‘s merchant banking unit in Japan.

Merrill cleans house

Michael BloombergIt looks like Merrill Lynch has made up its mind regarding its house-cleaning priorities. The investment bank is expected to announce on Thursday that it will sell its 20 percent stake in Bloomberg LP back to the news and financial data company for about $4.5 billion, a source familiar with the matter said. No one on either side is talking, but selling the Bloomberg stake could help Merrill Chief Executive John Thain raise capital to make up for write-downs related in part to subprime mortgages. It is not immediately clear what role, if any, New York Mayor and Bloomberg founder Michael Bloomberg (pictured), who still owns about 70 percent of the company, has played in the Merrill transaction. Merrill also owns a substantial stake in money manager BlackRock Inc, but BlackRock, the largest publicly traded asset management company in the United States, said on Thursday that Merrill had decided against selling the stake. Merrill reports earnings later in the day.

Shares in Teva Pharmaceutical Industries fell nearly 1 percent on Thursday after reports it was in talks to buy rival Barr Phamaceuticals for up to $7.5 billion. TheMarker and Globes financial newspapers reported online overnight that Israel-based Teva, the world’s biggest maker of generic drugs, was in talks to buy New Jersey-based Barr in what would be a further consolidation of the generic drugs industry. TheMarker put the price tag at $7.5 billion, citing capital market sources. That would make it Teva’s biggest acquisition, surpassing the $7.4 billion purchase of Ivax two years ago. Globes cited a price of $7 billion to $7.5 billion. Barr has a market value of $5.1 billion.

And it’s starting to get ugly in Europe. Continental Chief Executive Manfred Wennemer withdrew from the public eye on Thursday to plot his defense against an unwanted $18 billion bid from family-owned Schaeffler Group. If Schaeffler succeeds in buying the group, which is three times its size, it would be the first time a German family business has taken over a company listed on the country’s blue-chip DAX index. But Schaeffler’s advances have stirred resentment at Continental’s headquarters in Hanover, sparking a war of words between both sides. On Wednesday, Continental’s Wennemer hit back at the offer, saying it was too low and warning that the predator could ultimately dismantle Continental. Schaeffler, owned by German billionaire Maria-Elisabeth Schaeffler, countered it had no such plans, labeling Wennemer’s tone “incomprehensible”.

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.

Sovereign wealth investors growing fast

Sovereign wealth funds — the increasingly powerful investment arms of governments around the world — are growing at a rapid pace, according to the Preqin Sovereign Wealth Funds Review.    

There are currently 46 active sovereign wealth funds worldwide, with aggregate assets at $3.05 trillion, the study says, adding that assets have risen 51 percent from the end of 2006.    

The Middle East is the biggest region for SWFs in terms of value, with 41 percent of all capital centered there. Asia has 31 percent of the capital, with Europe laying claim to 19 percent, according to the study.