DealZone

Distressed investors say TGIF

Roman Catholics have fish Fridays. Boxing fans have Friday Night Fights. For distressed investors, like Jon Winick, president of Clark Street Capital, there’s Friday night Failure. 
 
“You can count on Friday failures for the next six to twelve months,” Winick said at a distressed investing conference in New York this week. He forecasts bank failures to rise to 200 through next year.
 
There have been 14 bank failures so far this year, according to the Federal Deposit Insurance Corp, with filings every Friday since Jan. 16 after the year end and New Year’s Day holidays.
    
The FDIC seized 25 banks last year. In just the first seven weeks of 2009, the 14 bank failures mean the FDIC is on pace to close more than 100 banks in 2009.
     
Distressed investors say they are expecting a record wave of bankruptcies this year, marking unprecedented opportunity for investors and a feeding frenzy on Fridays. The filings on Fridays are procedural, as the FDIC posts the failures at the end of the week. That allows the declaring bank to give regulators the weekend to sort things out, and it prevents a big run on the bank because branches are closed.
 
Brad Hunter, national director of consulting at Metrostudy, a housing industry research firm, thinks things are just getting started. He said bank takeovers ultimately could exceed 1,000. 
 
“Option ARM loans are coming due, and that will trigger another wave of foreclosure,” he said.

Who’s your boss, Mr. Liddy … and for how long?

Edward Liddy was appointed chief executive of insurer American International Group Inc within hours of a Sept. 16 government rescue, averting the 89-year-old insurer’s collapse.

On Monday, fifty-five days after stepping into the corner office, Liddy unveiled the company’s biggest-ever loss. Concurrently, the U.S. government restructured most elements of  its initial AIG bailout in favor of a new better-for-AIG scheme, overshadowing the bad quarterly news.

Under the revised plan, AIG gets easier repayment terms and, most importantly, the U.S. Treasury will sink $50 billion  into a fund that will buy and hold mortgage derivatives, including those underlying AIG credit default swaps — a thorny area that has led to massive losses for the insurer.

AIG says to report ‘earnings’. Really???

American International Group, the once giant insurer which has become best known as a sinkhole for government money, says it will report third-quarter results on Nov. 10.

Most notable was how AIG described what almost certainly was one of the ugliest reporting periods in financial history: “AIG’s earnings release and financial supplement will be available in the investor information section” of its website.

Earnings? According to the Merriam-Webster dictionary the use of the word “earnings” means money was earned during the quarter, or that the company will report there was money left in the coffer after pay outs. That is unlikely, at least based on analysts’ expectations.

Money for Nothing

ubs.jpgUBS said it made a huge loan to Blackrock so that the U.S. asset manager could buy $15 billion of distressed assets from the Swiss bank, easing the strain on UBS’s balance sheet, but not freeing it from the risk. This must have been a tough one for UBS’s credit department to swallow. Citigroup took a similar tack to offload subprime assets. UBS said it had provided 75 percent of the funding used by Blackrock to buy the portfolio. Blackrock raised $3.75 billion in equity from investors to pay for the rest of the package, UBS said. UBS’s stock was down about 4 percent, but traders said that was because of concerns the bank may have to increase the size of its rights issue.

Time Warner and Time Warner Cable said their boards agreed to split the companies, giving Time Warner $9.25 billion from a special dividend that it will use towards paying down debt. As part of the deal, Time Warner’s stake in the cable operator rises to 85.2 percent from 84 percent. The Wall Street Journal says Time Warner will slash its $34.6 billion debt load, by two-thirds. Time Warner Cable now has a more hefty debt load, borrowing to pay the dividend.

Dutch office supplier Corporate Express is said to be bolstering its defenses against a hostile Staples bid with a deal to buy French rival Lyreco for 1.4 billion euros ($2.2 billion) that the companies say would make it the biggest office supplier in Europe, but is spooking investors. Corporate Express shares fell almost 9 percent. Lyreco says the combined company would better weather weaker economic conditions and demand. “Volume and size helps in this business,” he told reporters. Staples formally launched its 1.5 billion euro unsolicited bid for Corporate Express on Monday, which the company rejected as too low.

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.