DealZone

UBS dodges bigger bullet in tax pact

SWITZERLANDEmbattled Swiss bank UBS struck a deferred prosecution agreement with the U.S. Justice Department that will cost them $780 million. It could have been worse.

Though paying a hefty fine, the Swiss bank is paying ZERO punitive fines, despite conceding that they helped U.S. residents – estimated to number 250 — avoid paying income taxes over an eight year period.

The agreement announced on Wednesday specifies that UBS will give up $380 million of profit from eight years of cross-border business — of which $200 million will be paid to the U.S. Securities and Exchange Commission and $180 million to the Department of Justice — and $400 million for back taxes, tax penalties and restitution for unpaid taxes and interest .

But it will not pay a penalty. In addition to wining points for its cooperation, Uncle Sam evidently took pity on a bank that has already suffered billions of losses from fixed-income trades and investments during the credit crunch. Halfway down Page 3 of the agreement Reuters found this little nugget:

“In recognition of the current international financial crisis and after consultation with the Federal Reserve Bank of New York, the government will forgo additional penalties.”

Is the tide turning for Switzerland’s banks?

BANKING-SECRECY/SWITZERLAND

UBS and Credit Suisse both have strong wealth management businesses — and the new year seems to have brought new hope.

UBS, which has written down more toxic assets than any other European bank, says it has had an “encouraging” start to 2009, with inflows into both its wealth and asset management businesses in January. Credit Suisse says it had a “strong start to 2009″ and was profitable across all its units so far this year.

This could be music to the ears of the Swiss, whose country may be faring better than others in the downturn (so far, at least) but is particularly reliant on its financial sector.

Cloaked in transparency

harry-potter.jpgSovereign wealth funds meet this week to uncloak any political motivations that might lurk behind their rich capital infusions. The talks are focused on devising a code of ethics to allay Western fears and could help create transparency. Alas, most of substance is being debated behind closed doors. It is being held in Singapore, so perhaps we shouldn’t be surprised that transparency is not a particularly high priority. The funds, controlling an estimated $3 trillion in assets, are owned by national governments and often armed with cash piles from soaring oil prices and trade. They have sunk billions into Citigroup and UBS, which were reeling from the collapse of the U.S. subprime mortgage market. Goldman Sachs estimates U.S. and European banks may need a further capital infusion of more than $200 billion.

It’s a good thing for Anheuser-Busch that Bud Light is so popular. If Belgian-Brazilian brewer InBev manages to take over the company, it will probably put it on a serious diet as it aims to trim up to $1.4 billion of costs. Employees and union officials at InBev describe the tightest of budget controls: mobile phones taken back and returned only to employees who justified a need for one; new pens given out only in return for used ones; and an elevator at the global headquarters closed for several months. The elevator is back in use now, although signs in the lobby read: “Why not take the stairs?” InBev says many such measures, and notably larger water and energy conservation efforts, also serve sustainability targets and that its cost-saving push is simply one pillar of an overall strategy also focused on boosting beer volumes.

Shares in British retailer Marks & Spencer are up on market talk of possible bid interest in the retailer. Rival department stores owner Philip Green, who was linked with a stakebuild in M&S in January, was again mentioned as a possible suitor, traders said, but some attributed the bounce to expectations for upbeat news from an upcoming M&S annual general meeting. Boss Stuart Rose, lauded for reviving the landmark British retailer just a year ago, is battling to save his job after a big profit warning and bungled management changes.

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.

Qatar Hero

guitar-hero.jpgInvestors buying freshly diluted equity has become something of a refrain in Europe. Barclays raised 4.5 billion pounds ($8.8 billion) from investors including Qatar and Japan’s Sumitomo Mitsui to rebuild capital and pursue growth. That drove the London bank’s shares up more than 5 percent. Existing shareholders will get a chance to buy up to 4 billion pounds of shares at a discount, with outside “anchor” investors underwriting the fundraising. The fact that the capital raising was well-flagged and successfully completed was enough to encourage buyers.

Also rising 5 percent were shares of UBS, as the New York Post reported the Swiss banking giant has hired Lazard to conduct a strategic review, lending a touch more credence to the talk that the bank is looking to split its wealth management and investment banking businesses. UBS’s share could also be reacting to the Barclays news, which shows that sovereign wealth funds haven’t gone into hiding.

Qatar, which on Tuesday agreed to sell 25 percent of its stock market to NYSE Euronext, is in talks with London and German stock exchanges about new partnerships, according to Al Arabiya Television. Qatar, the world’s biggest exporter of liquefied natural gas, agreed to sell a stake in the Doha Securities Market for $250 million in a bid to become the booming region’s financial hub. “Qatar is in talks with the London Stock Exchange and the bourse in Germany to build new strategic partnerships,” Al Arabiya Television reported, citing Hussein al-Abdullah, executive board member for the $60 billion Qatar Investment Authority.

Oiling the Barclays machine

BarclaysWhen you need some fast cash, you can always count on oil money. Qatar’s sovereign wealth fund is reportedly considering backing a share issue by Barclays. You’ll recall that earlier this week Britain’s No. 3 bank said it would sell billions of pounds worth of shares to bolster its stretched balance sheet. The Financial Times quotes a person close to the Qatar Investment Authority as saying “We’re looking at it.” The QIA manages about $60 billion in assets and earlier this year bought under 2 percent of Credit Suisse. Qatar, which is the richest Arab country on a per capita basis thanks partly to high oil prices, is looking to spend between $10 billion and $15 billion over the next two years on bank stakes, Prime Minister Sheikh Hamad bin Jassim al-Thani told Reuters in February.

Of course, it’s not just the oil-rich out there poking around those struggling banks. Activist shareholder Olivant said on Wednesday it had raised its stake in Swiss bank UBS, which has been hit by massive losses on risky investments, to 2.5 percent. Olivant, headed by former UBS Chief Executive Luqman Arnold, said by taking a stake worth about $1.8 billion it was “demonstrating its belief in the potential restoration of shareholder value achievable through decisive action on the part of the UBS board”. Interpretation: We want change. How about splitting up the bank?

If banks aren’t your thing, there’s always Hollywood. Movie studio DreamWorks SKG is close to a deal with India’s Reliance ADA Group to form a new movie venture, the Wall Street Journal reported on Tuesday, citing people familiar with the talks. The Journal said a deal with Reliance would give movie director Steven Spielberg the cash to finance his DreamWorks team’s departure from Viacom Inc’s Paramount Pictures later this year.

Game, Google

google.jpgWith Google looking like the big winner after doing an ad search deal with Yahoo, pretty much everyone else involved is looking like a loser. Microsoft will have to take its mammoth war chest and try to find another way to make a meaningful stab at the coveted online ad space — or concede the market altogether. Though Yahoo is waving enhanced revenue and cash flow figures around, the deal is seen as better for Google, which is the undisputed heavyweight champion in ad search and just gets a juicy space to show how mighty it is. “Google has made an enormous gain strategically. This move might well have shut Microsoft out of the online space altogether,” said Sanford Bernstein analyst Jeffrey Lindsay. Speculation is rising that the Yahoo/Google deal could provoke antitrust scrutiny, and Carl Icahn still has his troops massing to oust Jerry Yang and the Yahoo board. But if he had any clout to force Yahoo into a deal with Microsoft, it wasn’t on show yesterday. Did he lose cred, or does he plan to keep fighting? He may say soon, but probably not on his blog.

With signs that its wealthy clientele are growing nervous, UBS has wrapped up a 16 billion franc ($15.4 billion) rights issue. Flows into its wealth management business slowed to a trickle in the first three months of the year, and this is the Swiss bank’s second effort to resuscitate finances ravaged by the global markets crisis. Dieter Ewald, a fund manager at UBS shareholder Frankfurt Trust, said such concerns had prompted him recently to pare back his investment in the Swiss bank. “UBS is handicapped,” he said. “We are worried that wealth management will be hit. We want to see that the new management can bring it back on track, and then we would invest more again.”

Pfizer may bid for Ranbaxy Laboratories, countering a $4.6 billion offer by Japan’s Daiichi Sankyo for the Indian generic drug maker, the Business Standard newspaper said. Ranbaxy’s shares jumped nearly 5 percent on the report while Daiichi Sankyo’s shares dropped 2 percent. Daiichi Sankyo and Ranbaxy are seeking to become a pharmaceuticals powerhouse that sells both branded drugs and generics. The newspaper added Pfizer had held talks with the Ranbaxy founders for a possible acquisition a year earlier.

Signs of sovereign life

ubs.jpgSovereign wealth funds were thought to be nearly extinct sources of capital for the crumbling western banks. But life finds a way. The Government of Singapore Investment Corp, one of the world’s biggest sovereign wealth funds, said it would subscribe to UBS‘s rights issue. A GIC spokeswoman declined to provide the value for the transaction but said it currently owns 0.4 percent in UBS common stock. It controls 9.54 percent of the voting rights in UBS. The fund invested 11 billion Swiss francs ($11 billion) in mandatory convertible notes in UBS last December, after the bank’s U.S. housing crisis losses. In January, GIC invested $6.88 billion in Citigroup. Its sister fund Temasek Holdings pumped $5 billion into Merrill Lynch. GIC says on its website that it manages well above $100 billion but some analysts estimate the figure is closer to $300 billion.

The U.S. Federal Reserve Board approved Bank of America Corp‘s acquisition of Countrywide Financial Corp, the nation’s largest mortgage lender. Bank of America agreed in January to pay $4 billion for Countrywide, a California-based firm that helped fuel a multi-year housing boom that went bust when risky loans to shaky borrowers began to fail. In a statement, the federal regulator said it considered many comments for and against the bank buyout and “has considered carefully the financial factors of the proposal.” The Fed also said that it vetted about 770 individual comments on the proposed takeover and the views of many other stakeholders.

Applied Materials has approached beleaguered Dutch semiconductor equipment maker ASM International to buy a significant part of its business for $400 million to $500 million. Shares in ASMI jumped as much as 23 percent to an eight-month high after the company said its U.S. rival had expressed interest in two of its businesses that make machines to deposit thin films of materials on silicon wafers. ASMI, which is locked in a dispute with activist investors who are trying to sack its chief executive, said a divestment would have major implications for its strategy.

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.

WaMu investors: “WhyMe?”

Washington Mutual’s long-expected capital infusion landed on Tuesday, with the nation’s largest savings and loan set to receive $7 billion from TPG Inc and other investors — well above the $5 billion figure that most expected last week. But the extra cash wasn’t enough to assuage shareholders, who punished the bank’s stock amid concerns about drastic cutbacks in mortgage operations and $3.5 billion set aside for loan losses.

The response stands in stark contrast to a week ago, when UBS’s $19 billion writedown and the departure of its chairman drove its shares up nearly 15 percent and sparked a global stock rally. But even after its eye-popping write-downs, UBS is a big big global bank, while WaMu – the incredible shrinking S&L – is not doing much to convince investors that its moves herald the end of the crisis.