When the U.S. government started handing out taxpayer dollars to banks under TARP last fall, hundreds of banks lined up. To many, government money was cheaper than the terms they were getting in private and public markets.

“That really, in effect for several months, put a lot of our discussions with issuers really on hold,” said John Duffy, CEO of investment bank KBW, which specializes in the financial services sector.

Now, the pendulum may be swinging away from the government.

The Obama administration has made it clear that the recipients of more capital will have to live under dictates on what they can and cannot do with the money — dividend restrictions, executive compensation caps and such.  

And now the private market may be becoming more attractive to banks, despite private equity seeking better terms like asking for a more senior position than just common shares in investments, Duffy said.

“The longer this environment exists, the more there will be capitulation on the part of banks or potential issuers that the government is forcing them to go get that capital,” Duffy said on a conference call after announcing results. “And I think the capital out in the public or private markets is maybe more appealing than the terms attached on the latest government plan.”

(Photo: REUTERS/Romeo Ranoco)

Compensation consultants say that limiting executive pay at TARP-recipient banks will make the banks less competitive. They argue that nobody worth their (market) weight in gold wants to work for a bank where the only bonus beyond a half-million-dollar salary is restricted stock options that can’t be cashed in until taxpayers get their due. They may be right, though the market for pricey financial whiz kids and rocket scientists is hardly a rich one these days.

Whenever Uncle Sam steps in as lender of last resort, taxpayers had better concern themselves with the concept of Moral Hazard: that banks can invest recklessly because they know they will get bailed out in the end. The $500,000 pay cap is, in effect, a Moral Hazard roadblock, raising the cost of a bailout for would-be Wall Street gamblers.

But neither side in this argument should get too excited. With nearly $300 billion of TARP funds already out of the bag, and the new compensation rules applying only to future TARP tappings, most of the best executives (such as John Thain’s crew at TARP-funded takeover disaster Merrill Lynch) have already been paid off.

At this point, perhaps the best that free marketers and taxpayers alike can hope for is that executives of submerged financial institutions opt for the failure they have earned rather than a taxpayer lifeline.

Other Deals News:

* China Investment Corp, a $200 billion sovereign wealth fund, and state-owned China Development Bank are both in talks to buy into CITIC Capital Holdings Ltd, an official newspaper said.

* Vodafone has picked U.S. software firm Azingo to develop Linux-based applications, the latest sign the world’s largest wireless operator by sales is keeping Linux operating system LiMo as one of its key choices.

* Spanish construction and energy group Acciona said it will slow the pace of its energy investments if it does not sell its 25 percent of power utility Endesa to Italy’s Enel before 2010.

* Procter & Gamble Co is working with Goldman Sachs to identify potential buyers for its pharmaceuticals brands or find other ways to exit the business, people close to the matter said, the Financial Times reported.

* Shenzhen Zhongjin Lingnan Nonfemet, China’s third-largest zinc producer, said it had won Australian government approval to acquire a controlling stake in zinc miner Perilya.

* General Motors is holding discussions with major Chinese automaker FAW Group to form a partnership for light commercial vehicles, banking on government policy support to drive demand for pick-up trucks and vans.

* Chinese car manufacturer Geely Automobile Holdings Ltd has no plans to buy the Volvo car brand from Ford Motor, a Geely spokesman said.

* Mobile phone technology company 2 ergo said it will buy back former unit SMS specialist Broca in a 4.9 million pounds ($7.06 million) all-share deal.

* Charles Ergen’s EchoStar Corp has quietly accumulated a substantial portion of Sirius XM Satellite Radio Inc’s maturing debt in what could be the first salvo in an attempt to take control of the company, the Wall Street Journal said, citing people familiar with the matter.

* Russian gold producer Peter Hambro Mining will issue shares to raise 55 million pounds ($79 million) and is also close to an all-share takeover offer for iron ore company Aricom, the firm said.

(The 2008 White House Christmas Gingerbread house is seen in the State Dining Room in Washington, December 3, 2008.  REUTERS/Larry Downing )

Citi scrapped plans to buy a $50 million corporate jet after it raised eyebrows all the way to the White House. Politicians called the order, which was made in 2005, wasteful. 

True, Citi has been propped up by taxpayers, swallowing up $45 billion of capital since October. Its market value is now only about $17 billion. And it has lost more than $28.5 billion in the last 15 months.

But how unusual is it for a company the size of Citi, once the world’s largest bank, to have a corporate jet? 

It is not as if Citi placed an order for it in November, when it got the $20 billion emergency cash infusion. Cancelling the Dassault Falcon 7X order is actually going to cost money. The bank placed a deposit on the jet when it agreed to buy it. And it will likely have to pay a penalty for not buying the plane, the amount of which is being negotiated.

Citi is down. And the jet became an excuse to kick it, which is probably well-deserved. But should a bank really be micromanaged by popular vote?

DEALS OF THE DAY

** The world’s top oil seed processor Bunge is in talks to buy a strategic stake in sugar firm GMR Industries to gain entry into sugar making, a newspaper reported  citing an unnamed source.

** The heirs of the founder of Roche Holding have decided to extend their agreement to exercise a majority shareholding in the Swiss drugmaker, private bank Scobag said.

** Britain’s VT Group said it would sell its 45 percent stake in its BVT Surface Fleet naval shipbuilding operations to its joint-venture partner BAE Systems for a minimum 380 million pounds ($536 million).

**Israeli conglomerate Africa Israel Investments said it signed a memorandum of understanding to sell its 50 percent stake in the Gottex swimwear venture to its partners for $50 million. 

** Britain’s business support group Hargreaves Services bought the remaining 50 percent stake in Coal4Energy Ltd from UK Coal Plc for 9 million pounds ($12.70 million), the companies said.

** Norwegian engineering company Aker Solutions ASA said that it had bought the remaining 50 percent of the German drilling equipment firm WIRTH.

** Drug maker Piramal Healthcare Ltd said it had acquired the inhalation anaesthetic gas distribution unit of U.S.-based RxElite Inc for about $4.2 million in cash.

** A group of Spanish investors, Catalana D’Iniciatives, is finalising an offer for SAS unit Spanair, a spokesman for the Barcelona-based consortium said. 
     
** Dutch market maker All Options has agreed to buy Dutch proprietary trading company Saen Options to strengthen All Options’s position in Europe and Asia, All Options said.

** Shares in Veolia rose on Wednesday after a report in French weekly L’Express said U.S. funds were eyeing a stake in the French water and waste management group.

** Lanxess could buy Indian peer Gwalior Chemical Industries Ltd. or another small or mid-sized company on the subcontinent, a person familiar with the plans told Reuters.

** Shares in Satyam Computer Services rallied on Wednesday, extending gains to an eighth session, after the fraud-hit outsourcer’s new board said there had been wide bidding interest and a transparent process would be devised.

** British construction materials group Ennstone Plc’s shares were suspended on Wednesday after it said the chance of sales and refinancing talks concluding successfully had “diminished greatly”. 

(Photo: REUTERS/Alywin Chew)

First Bill Perkins likened the architects of the $700 billion U.S. bailout to communists. Now the Houston-based venture capitalist is going after the capitalists.

In his latest full-page ad in the New York Times, Perkins raises a question about the propriety of Goldman Sachs buying the majority of Constellation Energy’s London-based commodities business.

“Question #1: Does anyone else find it troubling that a government bailed out bank (Goldman Sachs) is buying a European Energy Speculation Outfit? It’s your money!!!”

A Barack Obama fundraiser, Perkins made a $1.25 million profit on volatile banking shares and decided to use the proceeds to campaign against the bailout, according to media reports.

As far back as Sept. 23, in a full-page Times ad that cost $130,000, Perkins accused then President George W. Bush, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke of being “new communists.”

Perkins attack on the use of TARP money comes as the House of Representatives approved a bill to impose new rules on the bailout program.

The House bill, authored by Massachusetts Democratic Rep. Barney Frank, calls for among other things limiting the use of TARP funds in bank buyouts.

(Photo: People enter and exit 85 Broad Street, headquarters of investment bank Goldman Sachs in New York, October 23, 2008. REUTERS/Brendan McDermid)

As economists talk increasingly of recession morphing into depression, it seems only natural that a Troubled Asset Relief Program should be built into something more substantial than a ground-covering sheet of plastic. Enter the Good Bank/Bad Bank model. Many a Wall Street veteran will remember this approach as the answer to the S&L crisis in the 80s. Fewer will recall its use in the 30s when the banking sector toppled like a line of dominoes. And markets are rising this morning, with huge injections of government cash going into Bank of America, and Citigroup preparing for its big split of good and bad assets.

Citigroup’s broad restructuring plan announced this morning is of this tried and tested Good Bank/Bad Bank design. It came with a fresh $8.29 billion fourth-quarter loss, the bank’s fifth straight quarter in the red.

“The history of Good Bank/Bad Bank is surprisingly positive,” said Michael Holland, founder of fund manager Holland & Co. “It worked a couple of decades ago, so I think it’s one of the first steps toward some positive news and the end of this nightmare. We have for the first time in a long time some reason to think positively.”

“The problem is, of course, if you start to get rid of what’s perceived to be noncore assets, who is going to buy them?” Peter Dixon, the UK economist at Commerzbank, asks in London - where they have plenty of experience with state aid for banks.

The idea of the ownership society seems to have come full circle. We can’t get our 401ks and pension funds to make any money in the markets, so we’ll suck up dud assets as taxpayers and put them in a deep freeze in the hope that some day they may be worth something. Why not? It’s worked before.

Other Deals News

* Swiss bank UBS said that it has signed an agreement with Barclays on the further sale of parts of its non-strategic commodities businesses.

* Ryanair will only pursue its second bid for Aer Lingus with regulators if it can get backing for the 750 million euro ($995 million) hostile offer from major shareholders in Ireland’s former state airline.

* Spain’s Indra, French defence electronics group Thales and private equity firms CVC and Cinven are preparing binding offers for Telvent, Expansion reported, citing financial sources.

* Shares in Norwegian road toll technology company Q-Free ASA surged as much as 21 percent after Austrian rival Kapsch TrafficCom AG said it bought a 20.5 percent stake in Q-Free at 10 crowns a share.

* U.S. private equity firm TPG is considering taking a stake in HeidelbergCement jointly with Goldman Sachs, a source familiar with the matter said, confirming an earlier report.

* Lazard Asset Management has sold its 5.3 percent holding in fraud-hit Indian outsourcer Satyam Computer Services for about 777 million rupees ($16 million), stock exchange data showed.

* Belgian technology firm Metris NV announced the spin-off of its Italian laser scanning activities, which would contribute to further cost cutting. The Italian operations will continue as an independent organization, the group said.

* China’s sovereign wealth fund has been buying shares in the country’s three largest commercial banks, the fund’s chairman Lou Jiwei told reporters.

* Property investment and heat energy supplying concern Kai Yuan Holdings said it would buy a steel manufacturing and trading venture for HK$5.2 billion ($666.7 million), a move to further diversify its business scope to expand income stream.

(Photo: A sign is pictured on Wall St. near the New York Stock Exchange in New York November 25, 2008. REUTERS/Lucas Jackson )

“Too big to fail” are four words that should fill U.S. policymakers with dread. They imply a necessity for solvency beyond an institution’s ability to make good business decisions. They’re also a badge of achievement that commands a bit more swagger on Wall Street.

So when Bank of America, with $2.7 trillion in assets and 308,000 employees, says it needs more help in the form of billions of dollars from taxpayers, which we have set aside for just this kind of mess (the Troubled Asset Relief Program), you could argue that this is both economic blackmail and reward for a job well done.

What happens when a bank becomes too big to fail? It gets shrunk down to a size more collapsible. The titans of Wall Street know a thing or two about being in hock to the people. Take a look at Citigroup. It’s all well and fine for CEO Vikram Pandit to say the sale of his brokerage business to Morgan Stanley was not mandated by the government, which has lent Citi $45 billion to stave off failure. But it’s hard not to see a wink and a nudge in there somewhere. This was not some non-core, fringe business — it’s more like an arm or a leg.

The big restructuring plan Citi is expected to announce tomorrow is seen taking Sandy Weill’s “financial supermarket” down in size by about a third. That may still be too big to fail, but it’s getting a lot less so by the quarter. And what of Morgan Stanley, the purchaser of Citi’s arm or leg or whatever. Lehman Brothers was deemed not too big to fail; how does Morgan stack up, now that it’s getting bigger?

Oddly enough, outgoing U.S. Treasury Secretary Henry Paulson - yes, the guy holding the TARP strings — is reported by The Wall Street Journal to be driving the Bank of America talks out of concern that the bank might not have the money to complete the buyout of Merrill Lynch. Almost seems like insurance we the people are taking to make sure we can keep our biggest banks too big to fail.

In other Deals News…

* South Korea hopes to raise 4.6 trillion won ($3.4 billion) via state-run firms selling stakes in domestic companies, including Korea Life and GM Daewoo, in its latest move to reform state-run institutions.

* French bank BNP Paribas may bid for about 60 percent of custodian-services business Caceis, jointly owned by rival banks Credit Agricole and Natixis, La Tribune reported.

* Spain’s Prisa cannot agree on a price to sell its Digital+ pay TV unit to potential buyers Telefonica and Vivendi and has pulled out of talks, Negocio reported citing sources close to the talks.

* Ahli Bank of Qatar said the Gulf state’s sovereign wealth fund would begin buying shares in the lender next week and would take 10 percent of its share capital by the end of 2009.

(Photo: Buckshot the bull is corralled in front of the New York Stock Exchange as part of a promotion, January 8, 2009. REUTERS/Brendan McDermid)

With the ink drying on Citi’s deal to sell Smith Barney to Morgan Stanley, the media bulls-eye is focusing on Citi CEO Vikram Pandit. “Citigroup’s board may have said it is standing behind CEO Vikram Pandit, but the general consensus on Wall Street is that he is running out of time,” CNBC’s Charlie Gasparino reported this morning. Pandit’s predecessor Chuck Prince certainly had boardroom support when the street turned against him, so tales of Pandit’s demise may not be too exaggerated, though they could not have been more callously timed. Today is Vikram Pandit’s 52nd birthday.

Of course, it’s a truism of corporate America that every CEO has the support of his board — until he doesn’t. And even if the current board is rock solid for Pandit, it’s an open question how safe the board’s own tenure is given the bank’s miserable track record — and the fact that Uncle Sam is now its top shareholder.

Citigroup, once the world’s largest bank, may announce plans on Jan. 22 to formally shed the “financial supermarket” approach once championed by former Chief Executive Sandy Weill, but which Pandit has now turned his back on.

Pandit is widely expected plans to refocus the bank on its core global banking business. But selling assets in Japan, China and Germany, as it has recently done, is no way to grow a global banking business. On top of that, the Wall Street Journal reported on Wednesday that the bank will focus on “large corporations and rich individuals.” But through the Morgan Stanley-Smith Barney joint venture agreed yesterday, it’s shedding a big chunk of its wealth management business. The question remains Pandit will need to answer, and quickly, is what exactly Citigroup is supposed to look like when the dust settles.

A person familiar with the plan tells us that Citi plans to adopt the equivalent of a “good bank, bad bank” structure, in which it would slim down to a business model recalling the former Citicorp. There’s another question. Who in their right mind is going to put money into bank for bad Citi assets? Why, the U.S. government, of course. If President-elect Obama was at all daunted by the resistance congress is showing to releasing the second $350 billion installment of TARP money, the direction Citi is headed may make selling TARP 2 even harder.

Will Citigroup CEO Vikram Pandit last in his job through the end of January?

Other Deals News

* Chrysler is in talks to sell key assets to Renault-Nissanand auto supplier Magna according to people with knowledge of the discussions, though the French automaker denied such talks were under way.

* The German government is set to take a stake in Hypo Real Estate, sources with knowledge of the matter said, a move that would mark the second part-nationalisation of a German bank this year.

* Japan’s Toshiba said it is in talks to buy Fujitsu’s hard-disk drive business, a deal that would create the world’s largest maker of small hard drives and is reportedly worth $340-$450 million.

* German bank B. Metzler seel. Sohn & Co Holding AG and Merrill Lynch have taken combined voting stakes of 35.75 percent in Continental, the German automotive supplier said.

* A subsidiary of Egyptian telecom giant Orascom Telecom has bought Namibian mobile operator Cell One in a $59 million cash deal, OT said.

* Swedish engineering group Alfa Laval said it had bought one company and signed a deal to buy another.

(Photo:Vikram Pandit of Citigroup, photographed in 2004 when he worked for Morgan Stanley. REUTERS/Peter Morgan)

Unsurprisingly, scandal-slammed Indian outsourcing firm Satyam says it may need some liquidity support to stay alive. Satyam founder and chairman Ramalinga Raju said he inflated his company’s reported cash and bank balances by more than 50 billion rupees ($1 billion). He seems to have taken to the Hyderabad hills — the company says it has no idea where he is. In a state known for its separatist tendencies, he may well stay disappeared for some time.

The interim CEO and company officers say they are committed to picking up the pieces. But this little “liquidity support” bombshell could prove to be a tricky one if it is directed at the biggest bail-out office currently handing out cash: the U.S. Treasury. Not being a U.S. company, Satyam probably doesn’t have the chutzpah to seek TARP funds directly. The company’s primary function as an outsourcing center would make the use of U.S. bailout funds politically repugnant to U.S. officials.

But the idea of foreign companies applying for U.S. taxpayer support is not a new one. Financial institutions the world over, saddled with dud U.S. mortgage-backed debt, have grumbled that they should get the same consideration as U.S. investors.

Having invested a lot of time and energy firing Americans and outsourcing their work to companies like Satyam, U.S. companies would face some risk from a meltdown in the outsourcing business. Might it even cloud their chances for recovery, or - gulp - force them to reverse the outsourcing trend and start hiring at home again? Sounds like a recipe for economic recovery.

Other Deals News:

* Privately held bearings maker Schaeffler is poised to take control of larger auto parts rival Continental, when it collects the bulk of shares tendered after its 11.3 billion euro ($15.4 billion) bid.

* German utility RWE is the leading candidate to take over Dutch peer Essent, Dutch financial daily Het Financieele Dagblad reported, adding bids were around 10 billion euros ($13.6 billion).

* Land Securities Group is to sell its Trillium outsourcing unit for 750 million pounds ($1.13 billion) to property investment and services firm Telereal, streamlining Land Securities’ business and bolstering its balance sheet amid miseries in the UK property market.

* Aviva, Britain’s biggest insurer, said its joint venture with state-owned ABN AMRO in the Netherlands would continue after the Dutch government reversed a decision by ABN’s previous owner to end the deal.

(Photo: Labourers clean Satyam building in Hyderabad. REUTERS/Krishnendu Halder)

Unsurprisingly, scandal-slammed Indian outsourcing firm Satyam says it may need some liquidity support to stay alive. Satyam founder and chairman Ramalinga Raju said he inflated his company’s reported cash and bank balances by more than 50 billion rupees ($1 billion). He seems to have taken to the Hyderabad hills — the company says it has no idea where he is. In a state known for its separatist tendencies, he may well stay disappeared for some time.

The interim CEO and company officers say they are committed to picking up the pieces. But this little “liquidity support” bombshell could prove to be a tricky one if it is directed at the biggest bail-out office currently handing out cash: the U.S. Treasury. Not being a U.S. company, Satyam probably doesn’t have the chutzpah to seek TARP funds directly. The company’s primary function as an outsourcing center would make the use of U.S. bailout funds politically repugnant to U.S. officials.

But the idea of foreign companies applying for U.S. taxpayer support is not a new one. Financial institutions the world over, saddled with dud U.S. mortgage-backed debt, have grumbled that they should get the same consideration as U.S. investors.

Having invested a lot of time and energy firing Americans and outsourcing their work to companies like Satyam, U.S. companies would face some risk from a meltdown in the outsourcing business. Might it even cloud their chances for recovery, or - gulp - force them to reverse the outsourcing trend and start hiring at home again? Sounds like a recipe for economic recovery.

Other Deals News:

* Privately held bearings maker Schaeffler is poised to take control of larger auto parts rival Continental, when it collects the bulk of shares tendered after its 11.3 billion euro ($15.4 billion) bid.

* German utility RWE is the leading candidate to take over Dutch peer Essent, Dutch financial daily Het Financieele Dagblad reported, adding bids were around 10 billion euros ($13.6 billion).

* Land Securities Group is to sell its Trillium outsourcing unit for 750 million pounds ($1.13 billion) to property investment and services firm Telereal, streamlining Land Securities’ business and bolstering its balance sheet amid miseries in the UK property market.

* Aviva, Britain’s biggest insurer, said its joint venture with state-owned ABN AMRO in the Netherlands would continue after the Dutch government reversed a decision by ABN’s previous owner to end the deal.

(Photo: Labourers clean Satyam building in Hyderabad. REUTERS/Krishnendu Halder)

Wilbur Ross is still in the running for a bank, although his plans to buy one were delayed when the U.S. government stepped in with its $700 billion package to bail out the sector, the investor told CNN Money in an interview.

The rescue package delayed Ross’ plans by six to 12 months, the report said.

“We will end up with a bank, there is no doubt about that,” the report quoted Ross as saying.

In September, Ross told Reuters that he would like to buy a regional bank, but critcized the way the government was handling the bailout.

“I am disturbed about the slippery slope that we have gotten into, where if you’re stupid but really big the government will bail you out; if you’re stupid but medium-sized, you die. That’s going to encourage very bad behavior by very big institutions. I think that’s a terrible pattern to set.”

Ross made his fortune by buying distressed companies in the steel, coal and textile industries and nursing them back to health.

(Photo credit: Brendan McDermid, Reuters)