DealZone

GM IPO gassing up

It looks like the long-awaited return to market for GM is only weeks away. The listing could raise up to $20 billion, we’re told by a person with knowledge of the preparations. That would be quite a bit more than the $15 billion that has been talked about. But wait, there’s more!

What does a car company with a solid financing business do to keep the wheels moving? Sources tell us that GM is also in talks with JPMorgan Chase and Wells Fargo on deals aimed at providing improved access to consumers for auto loans at its U.S. dealerships.

GM Chief Executive Ed Whitacre and other executives have said they favor an IPO as early as this year. Bankers had expected a stock listing to raise between $10 billion to $20 billion by selling part of the U.S. government’s 60.8 percent stake in GM to investors.

Reinventing Glass-Steagall

With Congress already debating a sweeping overhaul of financial regulation, perhaps the most enduring regulatory stricture of the Depression era is again getting an airing in Washington. The venerable Glass-Steagall laws that barred large banks from affiliating with securities firms and engaging in the insurance business were repealed in 1999. Now, as the banks try to move on from the dreaded salary caps and the humiliation of TARP, lawmakers are wondering whether getting rid of Glass-Steagall was such a good idea.

Financial giants such as Goldman Sachs could be broken up under two bills introduced in Congress on Wednesday, one with the backing of former Republican presidential nominee John McCain. Both would reinstate Glass-Steagall. Passage of the Cantwell-McCain bill would force firms at the center of last year’s financial crisis — such as Goldman Sachs, Morgan Stanley, Citigroup, JPMorgan Chase and Wells Fargo — to spin off investment and insurance operations, according to Demos, a progressive think tank in New York. A similar measure was offered on Wednesday by six Democrats in the House of Representatives.

To be fair, many have wondered whether dumping Glass-Steagall was such a good idea. What’s odd is that the discussion about bringing it back comes as almost an afterthought to the massive regulatory reform bill now before Congress. Rather than start from scratch, it may have made more sense to try to reinstate laws that the marketplace was already familiar with, and add new bits around the edges.

Bank of America’s Chalice: Poison or Red Bull?

For months, as he endured hearings on Capitol Hill and fought off a series of lawsuits, Bank of America CEO Ken Lewis trudged through a post-apocalyptic financial landscape against a steady drumbeat of questions about his future. The deal he had called “the strategic opportunity of a lifetime” — his purchase/salvage of Merrill Lynch — had swung from an act of patriotism, keeping the American way of banking from utter ruin, to a scandal over Merrill losses and bonuses.

Perhaps he should have seen the writing on the walls of the vacant houses financed by Countrywide, the mortgage lender Lewis purchased/salvaged just six months before the Merrill deal. The two transactions may have been strategic gems, but they were laced with political poison as the economy floundered toward its dramatic deleveraging and taxpayers pumped $20 billion into Bank of America to fund the Merrill deal.

“It was only a matter of time,” Campbell Harvey, a professor at Duke University’s business school, told Jon Stempel. “There is too much collateral damage.” As Stempel reports, Lewis spent north of $130 billion on acquisitions, including FleetBoston Financial Corp, the credit card issuer MBNA Corp, LaSalle Bank Corp, Countrywide, Charles Schwab Corp’s U.S. Trust private banking unit, and Merrill. In buying Merrill, he added a giant investment bank to what was already the largest U.S. retail bank, credit card issuer and mortgage provider. (Wells Fargo & Co has since become No. 1 in mortgages.)

Stress-Test Expertise

NEWYORK-SPITZER/It seemed only a bit odd that media star Arianna Huffington was the guest host on CNBC the day the all-important stress test results were due. Not to play down her credentials in media or commentary circles, but where were the celebrated bank analysts, the corporate chieftains and the investment gurus who so routinely enjoy a dose of the limelight on America’s Business Channel?

Wasn’t this the perfect day for a newsmaker rather than a news talker? The Huffington Post founder has been a good reality check on market cheerleaders who live on CNBC, but on Stress-Test Thursday, the less-than-casual viewer expects insiders with insight. It tasted like something strange and exotic had made its way into the DealZone coffee machine.

Then disgraced former New York Governor and Attorney General Eliot Spitzer joined the fray, and the slightly odd became surreal. Spitzer, who casually noted he was invited to the show (hint, hint), gave a spirited view from the nosebleed seats, far back from the federal policymakers’ bench.

Stress Management

SPAIN/Perhaps the best that can be hoped for from the upcoming week of stress test anxiety is that once it is over, a modicum of uncertainty will be gone as well. Sometime today, we should know how heavy the yardstick used in the tests was. The banks either already know or will soon find out whether they passed, and on May 4, expect all kinds of whooping and hollering outside the Deans’ office when the results are officially posted. Of course, there is a pretty good chance that as the banks find out the test results, the news will find a way out, so May 4 may turn out to be somewhat anti-climactic.

What happens next is still a bit vague. There is much talk about officials force feeding more funds to stressed-out banks. And despite the bad press on shotgun marriages — what with NY AG Andrew Cuomo stomping his feet over alleged pressure applied to Ken Lewis for Bank of America to take over Merrill Lynch — financial matchmakers will certainly look at the failures as prime candidates for synergistic harmonization.

But for the optimist, the market truism that the end of uncertainty is always a good thing could come as a welcome spring break for the troubled financial sector.

Nationalization Boogeymen

FINANCIAL/BAILOUT-CEOS(Updated with references from Paul Kanjorski’s office)

Lined up to pay their dues, Wall Street CEOs met their congressional inquisitors on Capitol Hill, sparking bouts of righteous indignation peppered with cringe moments worthy of The Office.

Pennsylvania Democrat Paul Kanjorski implored the posterboys for an era of high finance gone bad to “please find a way to return that money before you leave town,” referring to hundreds of billions of dollars in taxpayer bailout funds that officials believe were poured into unwarranted bonus payments instead of being used to revive the business of lending to America. At least he said please.

The message was clear. Though they may never have been instructed to lend the funds when they got them, that’s what Congress wanted. Bankers need to get back to the business of lending. That’s what they were being bailed out for. Never mind that the business of lending, conducted with adequate credit checks, was not what they were doing before, and that prudence in a period of high inflation would preclude much new lending today.

Wall Street bankers — so humble, so frugal!!!

BERNANKE/It is amazing how the prospects of a grilling in Washington can make Wall Street’s CEOs behave. Until a little while ago, these were the masters of the masters of the universe. An elite group of highly paid stars who rarely showed signs of vulnerability, who rarely seemed to doubt their place at the top of the heap. But take a look at the testimonies they have prepared for today’s hearing at the House Committee on Financial Services and it looks like they have begun to embrace the new era, the new religion.

You would be forgiven in thinking they had all also hired the same speechwriter. They mostly stress they are prudent, frugal, humble, though not quite yet apologetic — it will be interesting if that changes once the grilling begins. Here are some of the themes:

Public anger towards Wall Street is justifiable:
“It is abundantly clear that we are here amidst broad public anger at our industry. In my 26 years at Goldman Sachs, I have never seen a wider gulf between the financial services industry and the public. Many people believe — and, in many cases, justifiably so — that Wall Street lost sight of its larger public obligations and allowed certain trends and practices to undermine the financial system’s stability.” — Lloyd Blankfein, CEO of Goldman Sachs Group.

What’s in Citi’s Wallet?

Citigroup may be too big to fail, but is it big enough to close a deal? Soon after losing its bid for Wachovia to Wells Fargo, Citi turned it sights on Chevy Chase Bank, which while not as mighty as Wachovia, was at least closer to its east coast power base. This morning, Capital One Finance said it had agreed to buy the mid-Atlantic lender, right out from under Citi’s nose.
 
JP Morgan Chase had also been interested in Chevy Chase, a smallish, unlisted lender. The deal announced by Capital One was for $520 million – hardly the kind of blockbuster that makes or breaks a battered Wall Street monolith. 
 
It will be interesting to see if Citi, brimming over with TARP funds that the Treasury has all but begged it and others to spend on lending, stays on the prowl. Bank of America took its TARP money and boosted its stake in a Chinese lender, so there is some precedent for Citi to spend the funds on a deal.
    
But with Citi’s wallet stuffed with taxpayer cash, the impetus for growth may be less imperative. If it decides against bidding for the deposits of another regional bank, Citi will find itself with only financial assets to sell — in a seller’s market.
    
It agreed to sell its German retail business, which it put on the block over the summer with a price tag of around $8 billion, and at the end of November reports emerged it would try to sell its trust bank unit in Japan for more than $400 million. 
 
Deals of the day:

* Goldman Sachs said it has rejected an offer from Panasonic to buy its shares in Sanyo Electric because it believes the offer price is too low.

* Rio Tinto is in talks to sell its half of a Chinese aluminium joint venture to its partner, which is consolidating its assets to prepare for a takeover by another state-owned company, sources in the two Chinese companies said.

Just Walk Away

wachoviaexit.jpgCitigroup investors welcomed news the bank had abandoned its brief but acrimonious battle with Wells Fargo over Wachovia Corp, driving its shares up 15 percent in after-hours trade. 

When Citi announced last week that it was buying Wachovia’s banking operations, investors sent Citi’s shares higher, hoping the purchase would allow the bank to raise much-needed capital while expanding its branch network. But this week, investors cheered that Citigroup was walking away from a deal that could have proven more toxic than either Citi or Wachovia had thought. 

By this morning, the euphoria that followed the deal’s collapse had faded. Citi shares had lost all of those gains of yesternight and were trading back near 12-year lows. Dodging a bullet doesn’t seem to have done anything about the quicksand. 
 
Deals of the day: 
 
* Mitsubishi UFJ Financial Group, Japan’s largest bank, said it has no plans to pull out of a planned $9 billion investment in Morgan Stanley, even as shares of the U.S. bank continue to tumble. 

Feeding Frenzy

The German share price index DAX is seen at the Frankfurt stock exchange, October 7, 2008. REUTERS/Kai Pfaffenbach(GERMANY)Banks aren’t lending to each other, but they are buying each other. An interesting by-product of the deals: capital-hungry institutions are raising billions of dollars of fresh capital in a tumbling market.
 
Bank of America said yesterday its tier-one capital ratio would be 7.5 percent in the third quarter, down from 8.25 percent in the second quarter, spurring it to launch a $10 billion share offering and cut its dividend. On a conference call, it said it could raise even more to help manage the purchase of Merrill Lynch. Wells Fargo planned to raise $20 billion to fund its bid for Wachovia, while rival suitor Citigroup aimed to raise $10 billion to buy that bank. Those two are taking a three-day break from a legal battle over who gets what.  
 
If Citigroup loses out on Wachovia, Dan Wilchins points out, it will also miss out on a great chance to raise capital. Citi would likely have a much easier time raising capital to fund its growth than to patch holes on its balance sheet. The bank has raised $50 billion of capital in the last seven months, and its management has consistently said that it has raised more than it expected to need, he reports. But that could all change in a recession, as credit cards, investment banking, and retail brokerage businesses lose customers. 
 
Once the dust settles, ruthlessly diluting shareholders may show itself to have been absolutely necessary, and perhaps even unavoidable. But now with the markets in freefall, it’s more than a little scary. 

Deals of the day:

* Singapore state investor Temasek Holdings kicked off the sale of electricity generator PowerSeraya, in a deal that could fetch around $2.5 billion. To read more, please double click on 

* Icelandic investment firm Exista will sell its near 20 percent stake in Finnish insurer Sampo to reduce liabilities but will keep its other assets, the group said in a statement.