DealZone

Deals du Jour

Virgin Group is keen on buying long-running takeover targets Northern Rock and bmi and is open to discussions on both, its flamboyant president Richard Branson tells Reuters.

Branson said Virgin Money was open to a deal for nationalised bank Northern Rock, despite being rebuffed last year, and he also expects to have talks with German carrier Lufthansa over its British airline bmi.

For the main Reuters Deals news, click here. And in the newspapers on Tuesday:

Russian billionaire Vladimir Potanin is seeking control of metals giant Norilsk Nickel as he wants to buy 25 percent in it from tycoon Oleg Deripaska’s UC RUSAL, Vedomosti business daily reported. Click here for the Reuters story.

Indian mobile firm Aircel, 74 percent owned by Malaysia’s Maxis, is in talks to sell its 12,000 mobile towers valued at about $1.5 billion to raise funds, the Economic Times reported, listing several potential buyers.

Switzerland is making efforts to sell its stake in UBS as the country’s biggest bank makes progress under new leadership, the economics minister said in an interview in German daily Sueddeutsche Zeitung.

Japanese private equity firms Advantage Partners, Unison Capital and MKS Partners will sell a 60 percent stake in Kracie Holdings to hair-colouring products maker Hoyu Co, a source with knowledge of the matter told Reuters.

Flowers, TD also bid on BankUnited

Florida’s BankUnited drew bids from two other groups besides the winning consortium of private equity powerhouses in the FDIC-run auction. 

The other two bidding groups included J.C. Flowers & Co and Toronto Dominion bank, according to sources familiar with the matter.

Regulators seized the troubled Florida lender last month and sold it to a consortium that includes Wilbur Ross’s WL Ross, Carlyle Group, Blackstone and Centerbridge Partners.

Private equity firms have increasingly turned their attention to banking as the number of troubled U.S. banks and thrifts increases, although BankUnited was not the first failed bank to be bought by private investors.

Hedge fund and private equity investors, including Flowers, bought the assets of failed U.S. mortgage lender IndyMac earlier this year, for example.

Old faces, new roles

The financial crisis appears to be creating some jobs for at least one group of people – former banking executives.

As private equity firms turn their attention to banks, they are seeking out retired chiefs and other senior executives with banking experience to lead their investments and run the banks they buy. 

Besides their operational experience, these executives bring to the table a crucial quality that can sometimes make or break a group’s bid to take over a bank – street cred with U.S. banking regulators.

Credible management for the banks they oversee is one of the key concerns of regulators, who worry about the health of the industry and separation of banking and commerce. It becomes all the more crucial in the case of private equity groups that don’t already own banks and so have no recent track record for regulators to rely on.

John Kanas, a veteran of the banking industry and former head of North Fork Bank, made such a comeback with a successful bid for Florida’s BankUnited.

Kanas leads the management team for BankUnited, which was bought by a consortium of private equity investors including WL Ross, Carlyle and Blackstone. He was tapped early last year by Ross to explore just such a possibility.

In another deal expected to be announced Thursday, Fortress Investment, Crestview Partners and Lightyear Capital plan to install Gene Taylor, a former Bank of America executive, as CEO after injecting $800 million into Florida’s First Southern, according to the Financial Times.

Last week in columns

There’s been plenty of deal-related argument from the fast-expanding stable of Reuters columnists over the last week.

Anglo-Spanish dealmaking has a chequered recent history — look no further than Ferrovial’s (FER.MC) disastrous takeover of airports operator BAA. But this shouldn’t put British Airways (BAY.L) and Iberia (IBLA.MC) off fast tracking their planned tie-up to help stem losses, says Alexander Smith.

Tech columnist Eric Auchard says while Larry Ellison, Oracle Corp’s chief executive, “is not saying so directly yet … the unmistakable conclusion to draw is that he is ready to embark on a new wave of mergers to consolidate the business computer market, once the Sun deal closes.”

James Saft says the U.S. faces a lengthening series of request from industries and interests seeking shelter under the Troubled Asset Relief Program, most of which it should dismiss out of hand.

And Wei Gu says it’s time for Chinese banks to think local. Drawing on a Chinese idiom, she says “Chinese banks and their foreign strategic investors have been sleeping in the same bed but dreaming differently“.

Stress-Test Expertise

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.

Forget all this stress test stuff — what about Spitzer’s attempt at resurrection? Anchor Joe Kernen asked whether Spitzer the AG would have prosecuted Spitzer the governor and Spitzer the guest legal expert answered no, arguing that issues of judgment are more important than issues of law.

This should be equally true for the banks, Spitzer said. But the banks’ transgressions were far more damaging to many more people than Spitzer’s own. It’s hard to believe moral suasion and limiting access to cheap funds would have been enough to persuade greedy bankers to act more responsibly. Certainly, shareholders would not have rewarded them for behaving better while others were making a killing selling toxic investments.

DealZone commends CNBC’s producers and guest bookers for creative thinking. While the stress test results are not due until late this afternoon, so much has been leaked already that the minutiae still to come will probably numb the minds of even the hardiest financial news junkies. With no news to break, the Huffington/Spitzer show turned out to be refreshingly watchable. Indeed, who understands a stress test better than Eliot Spitzer?

Deals of the Day:

Universal Banking questioned

(From Acquisitions Monthly)

The coming financial services new world order could unleash a wave of mergers and acquisitions as providers look to thrive under a regime of tighter regulation and diminished risk appetite. As such, the IBM Institute for Business Value calls into question some of the ideological shibboleths still held by many senior banking executives.

Whilst banks such as Citigroup, UBS and the UK’s Barclays cling to the notion of universal banking – effectively one stop shops – research by IBM argues that this particular model may not be fit for purpose anymore. The days of soaring profits from what it calls “pockets of opacity” such as over the counter derivatives are over.

“Some of the largest institutions may be required to downsize or dispose of business lines,” says IBM.  It predicts that outperformers will become much more specialist and aligned with their customers’ needs. Many universal banks were found to be more self-serving in outlook. “On average the specialists have seen their revenues grow 30 percent more than the universal banks and enjoy operating margins of 25 percent compared with the 16 percent universal banks command,” says the IBM Institute.

It sees the industry splitting into three segments: The first are utilities providing infrastructure to facilitate capital allocation and relying on economies of scale to drive down costs. The second are those that give advice such as wealth management firms and boutique M&A advisors. The last category, are those geared to investment outperformance such as private equity groups and hedge funds. Barclays for example might inadvertently be contributing to this trend with its disposal of passive fund manager, iShares for 3 billion pounds ($4.3 billion).

Basically the IBM Institute is suggesting there could be more disposals to come from the universal banks as the market forces them to streamline or investors seeking higher returns demand it.

Banks such as Barclays also face growing competition in retail banking with the likes of giant retailer, Tesco, planning their own banks. Their offerings threaten to be much more customer-centric and this will force the traditional banks to rethink their approach and as IBM predicts, possibly to specialise.

Bought a bank? Better tell its customers

A good way to keep customers from abandoning ship when a bank is acquired sounds simple — tell them about the deal. Yet, not many banks seem to do it nowadays, a new study shows.   A survey involving four of last year’s deals — JPMorgan Chase-WaMu, Wells Fargo-Wachovia, PNC-National City, and Capital One-Chevy Chase — showed fewer than half the customers of the acquired institutions reported receiving enough information from the bank about the deal.   Lack of communication could come back to bite the bank, though, as a deal increases by as much as three times the likelihood that customers will switch banks, according to the J.D. Power and Associates report on bank deals.    Moreover, customers who hear about the acquisition in the news or from family and friends are twice as likely to switch banks than those who hear about the deal from the bank itself, the report said. 

 About 75 percent of customers of the banks being merged said they received information about the deal from third-parties, according to the report. Some 12 percent of one bank’s customers said they first found out about the deal from the survey they received for the J.D. Power’s study. J.D. Power declined to reveal the name of the bank.   The report was based on responses from 3,111 customers evaluating 17 banks. The four more recent deals were chosen because the number of responses from customers of these banks were statistically significant.   “Overall, customers of acquired banks perceive that acquiring institutions are far less focused on customers’ interests and personal service than their previous bank,” said Rockwell Clancy, executive director of financial services at J.D. Power and Associates.   (Photo: REUTERS/Romeo Ranoco)

U.S. bank failures in 2009

As the U.S. government prepares to reveal the results of stress tests to asses the ability of the nation’s largest 19 banks to cope with worse-than-expected financial conditions, worries continue about the sustainability of recent better-than-expected results from banks.

Bank of America reported a big increase in troubled loans, and shares of Citigroup tumbled after analysts at Goldman Sachs said credit losses at the bank continued to grow at a rapid rate.

Regulators closed banks on Friday in Missouri and Nevada, bringing the total of U.S. bank failures this year to 25 and matching the number that failed throughout all of 2008, as the struggling economy and falling home prices take their toll on financial institutions.

The following is a list of U.S. bank failures so far this year, according to the Federal Deposit Insurance Corp.

Details about each bank closure are posted at the FDIC website.

U.S. BANK FAILURES IN 2009* (assets, deposits in millions of dollars)

* Table does not include two corporate credit unions that were placed into conservatorship on March 20. The U.S. Central Federal Credit Union in Kansas and the Western Corporate Federal Credit Union in California, which provide products to the overall credit union system, are insured by the National Credit Union Administration.

Another deal in healthcare: what’s the magic pill?

As dealmakers everywhere struggle to get deals done, the healthcare industry seals yet another one.

Express Scripts has agreed to buy health insurer WellPoint’s prescription business for $4.68 billion in a significant expansion for the U.S. pharmacy beenfit manager. The deal will be a concoction of cash and up to $1.4 billion in common stock, and will generate more than $1 billion of incremental EBITDA.

This comes on the heels of Pfizer’s $68 billion acquisition of Wyeth, Merck’s $41.1 billion takeover of Schering Plough and Roche Holding’s $46.8 billion buyout of Genentech. Granted, this isn’t a pharma deal, but it still falls under the umbrella of the healthcare sector.

And in a market where deals aren’t getting done — mainly due to tight credit conditions and partly due to value gaps between buyers and sellers (due to the huge declines in stocks late last year) — you’ve gotta ask: what’s the magic pill?

Deals of the day:

* Indian mid-sized IT outsourcer Tech Mahindra won a bidding auction for a majority stake in fraud-hit Satyam Computer Services Ltd, edging out Larsen & Toubro, seen by some analysts as the favourite bidder.       * India’s Larsen & Toubro, which has built up a 12 percent stake in Satyam Computer Services, plans to hold on to the stake, its chief financial officer said on television channel NDTV Profit.       * Pakistan’s Habib Bank Ltd. (HBL) and MCB Bank are interested in buying the operations of Royal Bank of Scotland (RBS) in the South Asian nation, the two banks said in separate statements on Monday.       * A bid by Japan’s Mitsubishi Rayon Co for unlisted British chemicals maker Lucite International has hit a hurdle in China where regulators have delayed the acquisition, two sources briefed on the matter said. 

* Orascom Telecom said on Monday it was proposing to extend the deadline to April 15 for implementing a court order for the Egyptian firm to sell its shares in mobile firm Mobinil to France Telecom.

JPMorgan slashing research, ex employees say

    JPMorgan is cutting 30 percent of its research department, according to two former employees, but the bank is keeping mum about its plans and declined to give details of the cuts.     David DeRose and Leighton Thomas, co-founders of a Bear Stearns alternative research unit that moved to JPMorgan when that bank acquired Bear a year ago, said on Wednesday they sold the unit to an investment firm largely because they could not hire more staff under JPMorgan’s management.     “If you stay under a research division that’s being cut 30 percent, we can’t get any headcount,” said DeRose.     JPMorgan intends to shed 1,000 to 2,000 jobs from its investment bank this year, co-investment bank chief Steve Black said at the bank’s investor day in February.     It was unclear whether the cuts DeRose mentioned are included in these figures and a JPMorgan spokesman declined comment.     Research staff may be an easy target for cuts, since it is hard to quantify their contribution to the bank’s bottom line.     And banks’ research divisions across Wall Street have been shrinking since the Securities and Exchange Commission in 2002 banned firms from using banking fees to pay analysts.

By Elinor Comlay