merger

Latest victim of crunch: SPACs

Jim Kim — Wed, 12 Nov 2008 13:41:34 -0500

Not too long ago, people were buzzing about the new respectability of so-called special purpose acquisition companies, or SPACs. They had shed the "blank-check" persona and all of sudden constituted a growth area, as big name banks got involved in underwriting deals. But like much of the markets, SPACs have taken a tumble, reports TheDeal.com. The overall deal environment has soured to the point that many are failing to make acquisitions within the contractually stipulated period. They may have to be restructured. Many are now below their cash value. TheDeal.com notes that a few deals are being inked, but the list of canceled deals as of now is much lengthier.

For more:
- here's the article

What should banks do with TARP funds?

Jim Kim — Tue, 28 Oct 2008 19:00:37 -0400

All along, Treasury officials have been stressing that banks receiving TARP funds should be lending it. How else will the funds ease the credit crunch? Now, even the White House is telling TARP bank not to hoard the dough, but to lend it. The government, it should be noted, does not have any voting rights attached to their preferred shares. Loaning out the funds willy nilly may not be a good idea. Nearly 20 banks in the second round got $35 billion each. They are being asked to lend it in a really bad environment. How awful it would be if loaned TARP funds ended up in default. That certainly would be bad for taxpayers. Hoarding the capital, at least until good lending opportunities arise, makes a receivership less likely. And using the capital to make an acquisition has been blessed by the government in at least one case, PNC. My suspicion is we'll see more regional banks take over less healthy local banks. It would be hard to argue with that right now.

For more:
- here's an AP article

Are we in for a spate of regional bank deals?

Jim Kim — Sun, 26 Oct 2008 19:20:14 -0400

It seems like we've been predicting for a while now that more regional banks will be forced to merge. The real catalyst may be the availability of TARP funds. PNC's deal for National City--there had been talks going on even before the TARP was announced--was really made possible by federal funds. PNC will sell preferred shares worth $7.7 billion to the government. The proceeds will pave the way for the National City deal, allowing for "attractively priced" government assistance to help absorb the potential impact on PNC's balance sheet. U.S. Bancorp was in the running for National City, reports the Financial Times. It may be looking for another deal soon. You have to think that other banks are mulling their TARP options with expansion in mind.

For more:
- here's the Financial Times article

Vikram Pandit lashes out in merger mess

Jim Kim — Wed, 08 Oct 2008 12:03:57 -0400

Just when you thought that a measure of peace would prevail in the Wachovia-Wells Fargo-Citi mess, Citi CEO Vikram Pandit decides to shake things up. The Financial Times reports that in a "town hall" meeting with Citi's employees, Pandit lashed out at Robert Steel, Wachovia's CEO. Pandit says Steel told him two days before Wells's surprise offer that they had "a deal." Steel went so far as to advise Citi to start raising the $10 billion needed to fund the transaction. There's a sense that Wells may end up with most of the deposits, which would explain why Citi execs would be fuming. Citi of course has sued Wachovia and Wells for up to $60 billion. "We saved Wachovia from collapsing," Pandit reportedly told employees. "We have to be compensated for that. That is like somebody buying a $2 ticket, winning $10...and somebody says, 'I am going to come and steal it away from you for two-and-a-half bucks.'" Some have criticized Citi for actually signing some sort of agreement.

For more:
- here's the FT article

Goldman Sachs: Should it go private?

Jim Kim — Sat, 20 Sep 2008 21:21:31 -0400

This is not the first time Goldman Sachs has faced a crisis. Recall that in 1994, a bond market meltdown forced the partners to dig deep into their own bank accounts to finance a bailout. Breakingviews brings up the issue in the context of the current crisis, raising the notion of Goldman Sachs going private. Well, it would end the stock market route, but might do less to quell the CDS uncertainty. I agree with the article in that the world is different. What Goldman Sachs needs is access to capital that can support its current business model. That would suggest some kind of merger. It could survive alone, I believe. But it would have to scale back some operations, especially in the area of proprietary trading. Which wouldn't be such a bad thing. As the lone independent, however, it may be a too-lonely road.

For more:
- here's the Breakingviews article

Related Article:
More on the Goldman Sachs bailout

Is private equity deal making really dead?

Jim Kim — Wed, 03 Sep 2008 17:27:03 -0400

Merger volume is down, but not dead. And those who aren't afraid to adjust to the new reality will be the winners. In TheDeal.com, a Jones Day partner argues that some private equity firms aren't sitting around waiting for the heavy leverage halcyon days to return. Instead, they are embracing a new model. Lots of money is still being raised and it is being put to work in different ways, going to "where North America has enormous capital needs--sectors like infrastructure and alternative energy that require huge amounts of equity." This is riskier in a sense, smacking of venture capital. Of course, you have to wonder if there are enough of these kinds of deals to go around. I doubt it. But it does reflect some new thinking that's out there in deal land. Jones Day expects activity by volume of deal transactions to outpace expectations. "We have so much in the pipeline right now that we expect the back half of 2008 to be more active than the first half of last year."

For more:
- here's the column

JPMorgan raises $1.6 billion

Jim Kim — Fri, 15 Aug 2008 09:17:06 -0400

JPMorgan Chase was able to raise $1.6 billion to buttress its balance sheet, but the money did not come cheap. The preferred debt issue carries a whopping 8.7 percent interest rate. The Financial Times reports that this is the highest rate offered by the bank on preferred debt since the big merger in 2000, nearly 10 percent higher than JPMorgan's previous offering of hybrid securities in April (Dealogic). Let's face it, there's really no easy way of raising capital without punishing shareholders. The issue here is whether there are other capital raises in sight for JPMorgan. The banks is taking pains to underscore that the offering was not a response to the surprise $1.5 billion loss the bank suffered in July due to credit valuations. Still, some are growing a bit nervous, as we've noted, about JPMorgan's Alt-A and commercial real estate-backed portfolios.

For more:
- here's the FT article

Should Goldman Sachs buy a bank?

Jim Kim — Wed, 30 Jul 2008 13:42:02 -0400

People tend to assume Goldman Sachs wields extraordinary power over Wachovia. The recent appointment of Robert Steel, a former Goldman Sachs executive, as the troubled bank's new CEO only seemed to confirm the godly influence of the premier investment bank. So perhaps it was inevitable that rumors would crop up that Goldman Sachs was taking a look at buying Wachovia. TheDeal.com explores the issue a bit, noting among other things that such a deal might work as a massive defensive move. Merrill Lynch's Guy Moszkowski fanned the issue with a recent report that noted Goldman has internally discussed buying a commercial bank. No doubt it has taken an analytical look, but it's doubtful that the bank is convinced it needs a retail base of deposits to act as a buffer of sorts. Still, who knows? These are extraordinary times.

For more:
- here's the post on TheDeal.com

Could anyone buy Lehman Brothers right now?

Jim Kim — Wed, 16 Jul 2008 12:25:46 -0400

The news that Lehman Brothers CEO Dick Fuld is considering a leveraged buyout highlights to some just how unattractive the firm has become to potential buyers right now. JPMorgan Chase would be a logical fit, but it is digesting Bear Stearns. Bank of America is digesting Countrywide, which will likely give it gas. Citigroup is in no position to make a major (or even minor) acquisition. The sovereign wealth funds are gun shy right now. Some have seen their investments in U.S. financial services companies tank. A MarketWatch article suggests that Deutsche Bank may be an outside candidate, along with Barclays and HSBC. Hey, the dollar is cheap right now, so why not? I doubt any bidders will emerge. So the stakes are high for Fuld. Perhaps we'll hear more about an LBO soon, though the firm can only bear so much debt.

For more:
- here's the MarketWatch article

NYSE's SPAC move: Misguided?

Tue, 20 May 2008 06:59:56 -0400

We've spoken a lot about the rise of special purpose acquisition companies, or SPACs. They were all the rage over the past few years, as more top investment banks got involved with them. They were fees to be had, of course. But the deal environment has worsened obviously, and that is making it hard for some SPACs to invest their newly raised funds. Share prices have been under pressure, and there is speculation that some SPACs may have to return funds. So it is interesting to read, in Traders Magazine, that the NYSE's marketing has paid off: A SPAC will move to the Big Board from the Amex. That would mark a first. Some might say the NYSE's marketing efforts are too late, but perhaps the time to make a push is when things are at a trough.

For more:
- here's the Traders Magazine article