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The Dark Arts of Investment Banking - The Wall Street Journal.
The Dark Arts of Investment Banking
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(BN) China Not a Currency Manipulator, Geithner Says in Turnaround From January
Geithner Refrains From Labeling China a Manipulator
April 15 (Bloomberg) -- U.S. Treasury Secretary Timothy Geithner refrained from labeling China as a currency manipulator, backtracking from an assertion he made during his confirmation hearings in January.
In its first semiannual report on foreign-exchange policies since Geithner became secretary, the Treasury said that while the yuan remains “undervalued,” no country “met the standards” for illegal currency manipulation during the period of the report, from July 2008 through December 2008.
The conclusion clashes with Geithner’s January 22 statement to a Senate panel that President Barack Obama “believes that China is manipulating its currency.” Today’s shift may anger U.S. lawmakers, companies and trade unions who have sought measures to punish nations perceived to have undervalued exchange rates.
“Clearly the Treasury has made more of a political decision than an economic decision here,” Republican Senator Lindsey Graham of South Carolina said in a Bloomberg Television interview. “The truth is the Chinese manipulate their currency.”
Senate Action
Graham was a co-sponsor of a 2007 measure that would have allowed U.S. companies to ask for steeper tariffs against goods coming from countries found to have misaligned currencies. Democratic Senator Charles Schumer of New York, another sponsor of that bill, said he would reintroduce it.
“We are relying on the administration, as market conditions clear up, to keep China’s feet to the fire on this issue,” Schumer said in a statement. “To continue the effort on this front, we intend to reintroduce our legislation.”
The U.S. Business and Industry Council, which represents domestic manufacturing companies, said the decision not to label China as a currency manipulator “breaks a major commitment candidate Obama made last year to fight Chinese exchange-rate protectionism.”
In its report, the Treasury said it “did not find that any major trading partner had manipulated its exchange rate for the purposes of preventing effective balance-of-payments adjustment or to gain unfair competitive advantage.”
Yuan Stagnates
China limits the yuan’s gains by purchasing dollars, much of which are invested in U.S. Treasuries. From July 1 to the end of last year, the yuan rose just 0.4 percent. Its value has been little changed since the beginning of the year, closing today at 6.8325 to the dollar.
Nicholas Lardy, an economist specializing in China at the Peterson Institute for International Economics in Washington, said that while China’s approach to financial management is “much more credible today” than it was during the Bush administration, “you’d have to be brain dead to say that this is a market-determined rate.”
By law, the Treasury has to enter direct talks with a country deemed to be manipulating its currency, and also seek redress through the International Monetary Fund. The department said today it would “use every opportunity” to engage the Chinese “to permit greater flexibility” in the yuan, also known as the renminbi.
The White House was consulted on today’s report, a Treasury official told reporters in Washington on condition of anonymity. The official also said that the administration isn’t satisfied with what the person termed the slight movement versus the dollar in recent months.
‘Appropriate Response’
Wang Baodong, a spokesman for the Chinese embassy in Washington, said his government will give an “appropriate response” to the Treasury report.
Geithner’s January remarks suggested a change in policy from the Bush administration, which had stopped short of using the term in criticizing China’s exchange-rate management. No country has been branded a manipulator since China in 1994.
At the time, People’s Bank of China Vice Governor Su Ning called Geithner’s allegations “untrue and misleading,” and China’s Commerce ministry suggested accusations of government tampering in foreign exchange would fuel U.S. protectionism.
Since then, Geithner has worked to repair relations with China, the U.S.’s second-largest trading partner. In February, he pushed finance ministers and central bankers from the Group of Seven industrial nations to soften criticism of China’s economic policies, according to a person briefed on the matter.
Need for ‘Flexibility’
In today’s report, released in Washington, Geithner said China “has taken steps to enhance exchange-rate stability,” and that “officials acknowledged in January the need for greater flexibility and the need to allow the exchange rate to adapt to an equilibrium level.”
The Financial Services Forum, which represents 17 major commercial banks, securities firms, and insurance companies, called Geithner’s change of heart a “prudent call.”
“The most effective way to achieve the goal of a flexible, market-based exchange rate in China is to maintain an engagement posture and open dialogue,” said Rob Nichols, the Forum’s president and a former Bush Treasury spokesman.
While China has enacted a large fiscal stimulus, which should help spur domestic demand, strengthening the currency, the Treasury said its low level of debt means it has “headroom to undertake further fiscal measures.”
The report noted that while the global recession has caused a record trade contraction and led a number of currencies to depreciate against the dollar, many emerging markets have used their foreign-exchange reserves to temper the effects. Demand for Treasuries has been “robust,” it also said.
The U.S. needs China to sustain its purchases to fund billions of dollars worth of programs aimed at reviving the economy, about 70 percent of which reflects consumer spending. China’s holdings of Treasuries rose 0.6 percent to $744.2 billion in February, U.S. Treasury figures showed today.
To contact the reporter on this story: Michael McKee in New York at mmckee@bloomberg.net
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April 15 (Bloomberg) -- U.S. Treasury Secretary Timothy Geithner refrained from labeling China as a currency manipulator, backtracking from an assertion he made during his confirmation hearings in January.
In its first semiannual report on foreign-exchange policies since Geithner became secretary, the Treasury said that while the yuan remains “undervalued,” no country “met the standards” for illegal currency manipulation during the period of the report, from July 2008 through December 2008.
The conclusion clashes with Geithner’s January 22 statement to a Senate panel that President Barack Obama “believes that China is manipulating its currency.” Today’s shift may anger U.S. lawmakers, companies and trade unions who have sought measures to punish nations perceived to have undervalued exchange rates.
“Clearly the Treasury has made more of a political decision than an economic decision here,” Republican Senator Lindsey Graham of South Carolina said in a Bloomberg Television interview. “The truth is the Chinese manipulate their currency.”
Senate Action
Graham was a co-sponsor of a 2007 measure that would have allowed U.S. companies to ask for steeper tariffs against goods coming from countries found to have misaligned currencies. Democratic Senator Charles Schumer of New York, another sponsor of that bill, said he would reintroduce it.
“We are relying on the administration, as market conditions clear up, to keep China’s feet to the fire on this issue,” Schumer said in a statement. “To continue the effort on this front, we intend to reintroduce our legislation.”
The U.S. Business and Industry Council, which represents domestic manufacturing companies, said the decision not to label China as a currency manipulator “breaks a major commitment candidate Obama made last year to fight Chinese exchange-rate protectionism.”
In its report, the Treasury said it “did not find that any major trading partner had manipulated its exchange rate for the purposes of preventing effective balance-of-payments adjustment or to gain unfair competitive advantage.”
Yuan Stagnates
China limits the yuan’s gains by purchasing dollars, much of which are invested in U.S. Treasuries. From July 1 to the end of last year, the yuan rose just 0.4 percent. Its value has been little changed since the beginning of the year, closing today at 6.8325 to the dollar.
Nicholas Lardy, an economist specializing in China at the Peterson Institute for International Economics in Washington, said that while China’s approach to financial management is “much more credible today” than it was during the Bush administration, “you’d have to be brain dead to say that this is a market-determined rate.”
By law, the Treasury has to enter direct talks with a country deemed to be manipulating its currency, and also seek redress through the International Monetary Fund. The department said today it would “use every opportunity” to engage the Chinese “to permit greater flexibility” in the yuan, also known as the renminbi.
The White House was consulted on today’s report, a Treasury official told reporters in Washington on condition of anonymity. The official also said that the administration isn’t satisfied with what the person termed the slight movement versus the dollar in recent months.
‘Appropriate Response’
Wang Baodong, a spokesman for the Chinese embassy in Washington, said his government will give an “appropriate response” to the Treasury report.
Geithner’s January remarks suggested a change in policy from the Bush administration, which had stopped short of using the term in criticizing China’s exchange-rate management. No country has been branded a manipulator since China in 1994.
At the time, People’s Bank of China Vice Governor Su Ning called Geithner’s allegations “untrue and misleading,” and China’s Commerce ministry suggested accusations of government tampering in foreign exchange would fuel U.S. protectionism.
Since then, Geithner has worked to repair relations with China, the U.S.’s second-largest trading partner. In February, he pushed finance ministers and central bankers from the Group of Seven industrial nations to soften criticism of China’s economic policies, according to a person briefed on the matter.
Need for ‘Flexibility’
In today’s report, released in Washington, Geithner said China “has taken steps to enhance exchange-rate stability,” and that “officials acknowledged in January the need for greater flexibility and the need to allow the exchange rate to adapt to an equilibrium level.”
The Financial Services Forum, which represents 17 major commercial banks, securities firms, and insurance companies, called Geithner’s change of heart a “prudent call.”
“The most effective way to achieve the goal of a flexible, market-based exchange rate in China is to maintain an engagement posture and open dialogue,” said Rob Nichols, the Forum’s president and a former Bush Treasury spokesman.
While China has enacted a large fiscal stimulus, which should help spur domestic demand, strengthening the currency, the Treasury said its low level of debt means it has “headroom to undertake further fiscal measures.”
The report noted that while the global recession has caused a record trade contraction and led a number of currencies to depreciate against the dollar, many emerging markets have used their foreign-exchange reserves to temper the effects. Demand for Treasuries has been “robust,” it also said.
The U.S. needs China to sustain its purchases to fund billions of dollars worth of programs aimed at reviving the economy, about 70 percent of which reflects consumer spending. China’s holdings of Treasuries rose 0.6 percent to $744.2 billion in February, U.S. Treasury figures showed today.
To contact the reporter on this story: Michael McKee in New York at mmckee@bloomberg.net
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NYTimes: With Finance Disgraced, Which Career Will Be King?
From The New York Times:
With Finance Disgraced, Which Career Will Be King?
By STEVE LOHR
Public service, government, the sciences and even teaching look to be winners, while fewer shiny, young minds are embarking on careers in finance and business consulting....
http://www.nytimes.com/2009/04/12/weekinreview/12lohr.html
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(BN) Wall Street Merger Rainmakers Stay `Hopeful' in Worst Market in Six Years
Bloomberg News, sent from my iPhone.
M&A Rainmakers Stay ‘Hopeful’ Amid Worst Market in Six Years
March 31 (Bloomberg) -- Wall Street’s biggest dealmakers, from Evercore Partners Inc.’s Roger Altman to Morgan Stanley’s Robert Kindler, will be put to the test this year as they face the prospect of the slowest merger market since 2003.
Companies have announced $422 billion of deals since Jan. 1, down 16 percent from the same period in 2008, according to data compiled by Bloomberg. A U.S. survey in January showed chief executive officers are less confident than they’ve been in three decades, and only the strongest suitors can get financing.
“In M&A, people recognize that this is an incredibly difficult 2009 we’re about to face,” said Jeffrey Stute, co- head of North American mergers and acquisitions at New York- based JPMorgan Chase & Co., the No. 2 deal adviser this year. Stute advised Merck & Co. on its $45 billion takeover of Schering-Plough Corp., the quarter’s second-biggest deal.
The takeover business, traditionally one of the most lucrative for Wall Street firms, is reeling from the global financial crisis, which cut off funding for most leveraged buyouts and led to a 38 percent drop in deals in 2008. Signs of a stock market recovery may unleash more transactions later this year, driven by cash-rich companies seeking bargains in technology and natural resources, said Paul Parker, head of M&A at Barclays Capital, a unit of London-based Barclays Plc.
“While the dollar volume of deals this year is likely to be well less than in 2008, there are some hopeful signs that we will have a good level of M&A activity for the rest of the year,” said Kindler, head of mergers and acquisitions at New York-based Morgan Stanley, the No. 1 adviser in the first quarter.
Intel, Cisco
International Business Machines Corp. is in discussions about a $7.5 billion acquisition of Sun Microsystems Inc., people familiar with the matter said on March 23. Santa Clara, California-based Sun’s shares dropped 79 percent last year and IBM has $12.7 billion of cash. Intel Corp. and San Jose, California-based Cisco Systems Inc. are bolstering their war chests with stock and bond sales. In health care, Johnson & Johnson, the biggest maker of health-care products, and GlaxoSmithKline Plc have said they’re looking for takeovers.
While Kindler and Stute predict business will be slower this year, Altman said the pace of dealmaking will increase. Evercore, Altman’s New York-based advisory boutique, has already worked on takeovers worth more than all those it did in 2008, he said on a conference call last month, adding the firm will have “one of its pretty good years.”
The first three months of the year were dominated by pharmaceuticals takeovers. In addition to the Schering-Plough transaction, Pfizer Inc. agreed to buy Wyeth for $63 billion, and Roche Holding AG completed the $46.8 billion acquisition of Genentech Inc. after a nine-month takeover battle.
‘High Bar’
“The first quarter set a high bar that will be difficult to match,” said Alan Hartman, head of M&A for the Americas at Bank of America Corp. and an adviser to New York-based Pfizer.
Across all industries, CEO confidence in the fourth quarter was at its lowest level in the U.S. since the New York-based Conference Board began its surveys in 1976. The survey was released Jan. 16.
“What ultimately drives M&A activity is CEO confidence and the ability to finance transactions at a reasonable cost,” said Henrik Aslaksen, co-head of mergers and acquisitions at Frankfurt-based Deutsche Bank AG.
In Europe, the utilities industry will be one of the most active, Aslaksen said. Excluding bank purchases by governments, Europe’s biggest deal in the first quarter was Enel SpA’s accord to buy Acciona SA’s stake in Spanish power company Endesa SA for 11.1 billion euros ($15 billion).
Financing Out
Financing transactions may present another stumbling block for some deals. Potential buyers are wary of agreeing to mergers unless they’re allowed to back out if financing falls through, said John Finley, a partner at Simpson Thacher & Bartlett LLP in New York. Pfizer’s deal with Wyeth allows it to walk away by paying a $4.5 billion fee if its banks fail to lend.
“You will continue to see innovative contractual provisions to ease the reluctance of buyers to commit to large cash transactions,” said Finley, whose firm is counseling Wyeth.
The end of a record-setting boom in leveraged buyouts has forced bankers to change how they seek buyers for companies, said John Studzinski, head of Blackstone Group LP’s advisory unit. Rather than casting a wide net to dozens of private-equity firms to spark a bidding war, sellers are offering themselves to just a handful of buyers, usually drawn from the ranks of their competitors.
“For really high-class assets, you still have one or two great buyers,” said Studzinski, who’s helping New York-based American International Group Inc. find buyers for assets after a $182.5 billion government bailout.
Bear Hugs
The Standard & Poor’s 500 Index has lost about half its value since its October 2007 record, prompting some companies to try to scoop up rivals at prices below their highs. Many are using so-called “bear-hug” letters, or acquisition offers that contain the threat of a hostile bid, said Eduardo Gallardo, a partner at Gibson Dunn & Crutcher LLP.
“For every hostile bid that has hit the news wires in the past 18 months, many more private bear-hug letters have been delivered to public companies and their boards,” Gallardo said in a note to clients.
Unsolicited bids made public this quarter include Tokyo- based Astellas Pharma Inc.’s $1.1 billion offer for CV Therapeutics Inc. and Agrium Inc.’s play for CF Industries Holdings Inc., worth more than $3 billion.
“Sellers are pretty reluctant to sell themselves at these levels,” said Mark Shafir, head of M&A at Citigroup Inc.
-- With reporting by Ambereen Choudhury in London and Serena Saitto in New York. Editors: Katherine Snyder, Dan Reichl.
To contact the reporter on this story: Zachary R. Mider in New York at zmider1@bloomberg.net
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M&A Rainmakers Stay ‘Hopeful’ Amid Worst Market in Six Years
March 31 (Bloomberg) -- Wall Street’s biggest dealmakers, from Evercore Partners Inc.’s Roger Altman to Morgan Stanley’s Robert Kindler, will be put to the test this year as they face the prospect of the slowest merger market since 2003.
Companies have announced $422 billion of deals since Jan. 1, down 16 percent from the same period in 2008, according to data compiled by Bloomberg. A U.S. survey in January showed chief executive officers are less confident than they’ve been in three decades, and only the strongest suitors can get financing.
“In M&A, people recognize that this is an incredibly difficult 2009 we’re about to face,” said Jeffrey Stute, co- head of North American mergers and acquisitions at New York- based JPMorgan Chase & Co., the No. 2 deal adviser this year. Stute advised Merck & Co. on its $45 billion takeover of Schering-Plough Corp., the quarter’s second-biggest deal.
The takeover business, traditionally one of the most lucrative for Wall Street firms, is reeling from the global financial crisis, which cut off funding for most leveraged buyouts and led to a 38 percent drop in deals in 2008. Signs of a stock market recovery may unleash more transactions later this year, driven by cash-rich companies seeking bargains in technology and natural resources, said Paul Parker, head of M&A at Barclays Capital, a unit of London-based Barclays Plc.
“While the dollar volume of deals this year is likely to be well less than in 2008, there are some hopeful signs that we will have a good level of M&A activity for the rest of the year,” said Kindler, head of mergers and acquisitions at New York-based Morgan Stanley, the No. 1 adviser in the first quarter.
Intel, Cisco
International Business Machines Corp. is in discussions about a $7.5 billion acquisition of Sun Microsystems Inc., people familiar with the matter said on March 23. Santa Clara, California-based Sun’s shares dropped 79 percent last year and IBM has $12.7 billion of cash. Intel Corp. and San Jose, California-based Cisco Systems Inc. are bolstering their war chests with stock and bond sales. In health care, Johnson & Johnson, the biggest maker of health-care products, and GlaxoSmithKline Plc have said they’re looking for takeovers.
While Kindler and Stute predict business will be slower this year, Altman said the pace of dealmaking will increase. Evercore, Altman’s New York-based advisory boutique, has already worked on takeovers worth more than all those it did in 2008, he said on a conference call last month, adding the firm will have “one of its pretty good years.”
The first three months of the year were dominated by pharmaceuticals takeovers. In addition to the Schering-Plough transaction, Pfizer Inc. agreed to buy Wyeth for $63 billion, and Roche Holding AG completed the $46.8 billion acquisition of Genentech Inc. after a nine-month takeover battle.
‘High Bar’
“The first quarter set a high bar that will be difficult to match,” said Alan Hartman, head of M&A for the Americas at Bank of America Corp. and an adviser to New York-based Pfizer.
Across all industries, CEO confidence in the fourth quarter was at its lowest level in the U.S. since the New York-based Conference Board began its surveys in 1976. The survey was released Jan. 16.
“What ultimately drives M&A activity is CEO confidence and the ability to finance transactions at a reasonable cost,” said Henrik Aslaksen, co-head of mergers and acquisitions at Frankfurt-based Deutsche Bank AG.
In Europe, the utilities industry will be one of the most active, Aslaksen said. Excluding bank purchases by governments, Europe’s biggest deal in the first quarter was Enel SpA’s accord to buy Acciona SA’s stake in Spanish power company Endesa SA for 11.1 billion euros ($15 billion).
Financing Out
Financing transactions may present another stumbling block for some deals. Potential buyers are wary of agreeing to mergers unless they’re allowed to back out if financing falls through, said John Finley, a partner at Simpson Thacher & Bartlett LLP in New York. Pfizer’s deal with Wyeth allows it to walk away by paying a $4.5 billion fee if its banks fail to lend.
“You will continue to see innovative contractual provisions to ease the reluctance of buyers to commit to large cash transactions,” said Finley, whose firm is counseling Wyeth.
The end of a record-setting boom in leveraged buyouts has forced bankers to change how they seek buyers for companies, said John Studzinski, head of Blackstone Group LP’s advisory unit. Rather than casting a wide net to dozens of private-equity firms to spark a bidding war, sellers are offering themselves to just a handful of buyers, usually drawn from the ranks of their competitors.
“For really high-class assets, you still have one or two great buyers,” said Studzinski, who’s helping New York-based American International Group Inc. find buyers for assets after a $182.5 billion government bailout.
Bear Hugs
The Standard & Poor’s 500 Index has lost about half its value since its October 2007 record, prompting some companies to try to scoop up rivals at prices below their highs. Many are using so-called “bear-hug” letters, or acquisition offers that contain the threat of a hostile bid, said Eduardo Gallardo, a partner at Gibson Dunn & Crutcher LLP.
“For every hostile bid that has hit the news wires in the past 18 months, many more private bear-hug letters have been delivered to public companies and their boards,” Gallardo said in a note to clients.
Unsolicited bids made public this quarter include Tokyo- based Astellas Pharma Inc.’s $1.1 billion offer for CV Therapeutics Inc. and Agrium Inc.’s play for CF Industries Holdings Inc., worth more than $3 billion.
“Sellers are pretty reluctant to sell themselves at these levels,” said Mark Shafir, head of M&A at Citigroup Inc.
-- With reporting by Ambereen Choudhury in London and Serena Saitto in New York. Editors: Katherine Snyder, Dan Reichl.
To contact the reporter on this story: Zachary R. Mider in New York at zmider1@bloomberg.net
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(BN) Morgan Stanley May Pay Citigroup as Much as $3 Billion in Brokerage Merger
Morgan Stanley May Pay Citigroup $3 Billion in Merger
Jan. 10 (Bloomberg) -- Morgan Stanley may pay Citigroup Inc. as much as $3 billion for control of a venture that would combine their brokerage units and overtake Bank of America Corp. as the largest financial adviser to individuals, a person with knowledge of the discussions said.
Morgan Stanley, led by Chief Executive Officer John Mack, may get 51 percent of the new company and an option to acquire the rest over three to five years, according to the person, declining to be identified because the deal isn’t complete and the talks are confidential. The transaction may be announced as soon as tomorrow, the person said.
Citigroup, which reported $20 billion of losses in the past four quarters, would get cash for its Smith Barney brokerage, while Morgan Stanley would get recurring fee revenue and more potential banking customers. The joint venture would employ about 22,000 advisers, compared with the approximately 20,000 at Bank of America after its purchase of Merrill Lynch & Co. Morgan Stanley Co-President James Gorman, 50, may oversee the company, tentatively named Morgan Stanley Smith Barney, the person said.
“There’s been a lot of pressure for Citi to monetize some of their more valuable assets and Smith Barney is certainly one,” said Michael Nix, a money manager at Greenwood Capital Associates LLC in Greenwood, South Carolina. “There’s also been a lot of pressure for Morgan Stanley to look at how they can better lever their business units.”
Bailout
Spokespeople for Morgan Stanley and Citigroup declined to comment. Both firms are based in New York.
The worst financial crisis since the 1930s has recast rivals in the financial industry as merger partners and transformed the U.S. government into one of the biggest investors in Wall Street firms, including Morgan Stanley and Citigroup.
As Lehman Brothers Holdings Inc. sank into bankruptcy in September, crippled by the frozen credit markets, Merrill, then the biggest U.S. brokerage, agreed to be taken over by Charlotte, North Carolina-based Bank of America. Morgan Stanley converted from a securities firm to a bank holding company and Citigroup, led by Chief Executive Officer Vikram Pandit, took $45 billion of U.S. bailout money.
Under the deal being negotiated now, Morgan Stanley and Citigroup would contribute their brokerage units to the joint venture, two people with knowledge of the talks said. Morgan Stanley would also pay Citigroup $2 billion to $3 billion, or 20 percent of the total value of Smith Barney, to gain majority control, one of the people said. The venture may be led by Morgan Stanley managers and a board with a majority of Morgan Stanley appointees, the person said.
Rubin Resigns
The news came as Citigroup announced that former U.S. Treasury Secretary Robert Rubin, who joined the company in 1999 and has opposed calls to break it up, plans to quit the board.
Directors have also discussed replacing Win Bischoff, Citigroup’s chairman, the Wall Street Journal reported today, citing unidentified people familiar with the talks.
The U.S. government’s taxpayer-funded cash injections into the nation’s biggest banks may cause regulators to pressure some firms to break up or restrict activities that could threaten the financial system’s stability, analysts say.
Morgan Stanley, the second-biggest U.S. securities firm before converting to a bank in September, would draw on its existing cash to pay for the brokerage merger and wouldn’t raise new money for the deal, a person familiar with the matter said.
77 Percent Drop
Morgan Stanley received $10 billion from the U.S. Treasury last year. The firm, which lost 70 percent of its market value in 2008, has been trying to attract retail deposits from brokerage customers to help reduce its reliance on debt markets for funding.
Citigroup, which is expected to post a fifth consecutive quarterly loss when it reports fourth-quarter results later this month, has received $45 billion from the U.S. Treasury and $306 billion of government guarantees for troubled mortgages and toxic assets. The bank suffered a 77 percent decline in its stock price last year.
Citigroup was formed in 1998 by the $37.4 billion merger of Travelers Group Inc., led by Sanford “Sandy” Weill, and Citicorp, led by John Reed. Travelers, which owned brokerage Smith Barney Holdings Inc., had a year earlier paid about $9 billion for Salomon Inc., the parent of Salomon Brothers Inc., to form Salomon Smith Barney Inc.
Some analysts and investors have called for the company to be broken up, saying that Citigroup is too large to manage.
Breaking Up
“Morgan Stanley has been much more efficiently run because it really wasn’t a combination of so many different things,” said Richard Lipstein, a managing director at Boyden Executive Search in New York, which specializes in financial services. “Smith Barney was having difficulty getting their arms around the cost cutting on the broker side.”
Pandit, who has been Citigroup’s CEO for more than a year, told employees on a conference call in November that he didn’t plan to dismantle the company and didn’t want to sell Smith Barney.
He and Chief Financial Officer Gary Crittenden instead said they wanted to sell businesses that weren’t crucial to the bank’s main operations. In July the company agreed to sell its German retail bank, Citibank Privatkunden AG & Co., for $6.6 billion, and last month it sold a processing business in India with about 12,000 employees for $512 million.
In a memo this week, Crittenden said the firm had sold 21 businesses over the past year and that divestitures would “again be critical in 2009.”
Dean Witter
Pandit, 51, in September replaced Sallie Krawcheck, the head of the wealth-management division, which includes Smith Barney. Taking her place was Michael Corbat, a 25-year veteran of the bank. At Morgan Stanley, Ellyn McColgan was named president of the wealth management business in December 2007, reporting to Gorman.
Smith Barney has 14,133 financial advisers in about 600 offices in the U.S., according to Citigroup’s Web site. It had about 9 million U.S. client accounts as of Nov. 3, oversaw $1.32 trillion of client assets, and generated $7.94 billion in revenue during the first nine months of 2008.
Morgan Stanley gained its retail brokerage in the company’s 1997 combination with Dean Witter, Discover & Co. The business had 8,426 financial advisers at the end of November, $546 billion in total client assets, and generated $6.3 billion in revenue during 2008 when the gain from an asset sale was excluded, according to a company report last month.
To contact the reporters on this story: Christine Harper in New York at charper@bloomberg.net Bradley Keoun in New York at bkeoun@bloomberg.net .
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Jan. 10 (Bloomberg) -- Morgan Stanley may pay Citigroup Inc. as much as $3 billion for control of a venture that would combine their brokerage units and overtake Bank of America Corp. as the largest financial adviser to individuals, a person with knowledge of the discussions said.
Morgan Stanley, led by Chief Executive Officer John Mack, may get 51 percent of the new company and an option to acquire the rest over three to five years, according to the person, declining to be identified because the deal isn’t complete and the talks are confidential. The transaction may be announced as soon as tomorrow, the person said.
Citigroup, which reported $20 billion of losses in the past four quarters, would get cash for its Smith Barney brokerage, while Morgan Stanley would get recurring fee revenue and more potential banking customers. The joint venture would employ about 22,000 advisers, compared with the approximately 20,000 at Bank of America after its purchase of Merrill Lynch & Co. Morgan Stanley Co-President James Gorman, 50, may oversee the company, tentatively named Morgan Stanley Smith Barney, the person said.
“There’s been a lot of pressure for Citi to monetize some of their more valuable assets and Smith Barney is certainly one,” said Michael Nix, a money manager at Greenwood Capital Associates LLC in Greenwood, South Carolina. “There’s also been a lot of pressure for Morgan Stanley to look at how they can better lever their business units.”
Bailout
Spokespeople for Morgan Stanley and Citigroup declined to comment. Both firms are based in New York.
The worst financial crisis since the 1930s has recast rivals in the financial industry as merger partners and transformed the U.S. government into one of the biggest investors in Wall Street firms, including Morgan Stanley and Citigroup.
As Lehman Brothers Holdings Inc. sank into bankruptcy in September, crippled by the frozen credit markets, Merrill, then the biggest U.S. brokerage, agreed to be taken over by Charlotte, North Carolina-based Bank of America. Morgan Stanley converted from a securities firm to a bank holding company and Citigroup, led by Chief Executive Officer Vikram Pandit, took $45 billion of U.S. bailout money.
Under the deal being negotiated now, Morgan Stanley and Citigroup would contribute their brokerage units to the joint venture, two people with knowledge of the talks said. Morgan Stanley would also pay Citigroup $2 billion to $3 billion, or 20 percent of the total value of Smith Barney, to gain majority control, one of the people said. The venture may be led by Morgan Stanley managers and a board with a majority of Morgan Stanley appointees, the person said.
Rubin Resigns
The news came as Citigroup announced that former U.S. Treasury Secretary Robert Rubin, who joined the company in 1999 and has opposed calls to break it up, plans to quit the board.
Directors have also discussed replacing Win Bischoff, Citigroup’s chairman, the Wall Street Journal reported today, citing unidentified people familiar with the talks.
The U.S. government’s taxpayer-funded cash injections into the nation’s biggest banks may cause regulators to pressure some firms to break up or restrict activities that could threaten the financial system’s stability, analysts say.
Morgan Stanley, the second-biggest U.S. securities firm before converting to a bank in September, would draw on its existing cash to pay for the brokerage merger and wouldn’t raise new money for the deal, a person familiar with the matter said.
77 Percent Drop
Morgan Stanley received $10 billion from the U.S. Treasury last year. The firm, which lost 70 percent of its market value in 2008, has been trying to attract retail deposits from brokerage customers to help reduce its reliance on debt markets for funding.
Citigroup, which is expected to post a fifth consecutive quarterly loss when it reports fourth-quarter results later this month, has received $45 billion from the U.S. Treasury and $306 billion of government guarantees for troubled mortgages and toxic assets. The bank suffered a 77 percent decline in its stock price last year.
Citigroup was formed in 1998 by the $37.4 billion merger of Travelers Group Inc., led by Sanford “Sandy” Weill, and Citicorp, led by John Reed. Travelers, which owned brokerage Smith Barney Holdings Inc., had a year earlier paid about $9 billion for Salomon Inc., the parent of Salomon Brothers Inc., to form Salomon Smith Barney Inc.
Some analysts and investors have called for the company to be broken up, saying that Citigroup is too large to manage.
Breaking Up
“Morgan Stanley has been much more efficiently run because it really wasn’t a combination of so many different things,” said Richard Lipstein, a managing director at Boyden Executive Search in New York, which specializes in financial services. “Smith Barney was having difficulty getting their arms around the cost cutting on the broker side.”
Pandit, who has been Citigroup’s CEO for more than a year, told employees on a conference call in November that he didn’t plan to dismantle the company and didn’t want to sell Smith Barney.
He and Chief Financial Officer Gary Crittenden instead said they wanted to sell businesses that weren’t crucial to the bank’s main operations. In July the company agreed to sell its German retail bank, Citibank Privatkunden AG & Co., for $6.6 billion, and last month it sold a processing business in India with about 12,000 employees for $512 million.
In a memo this week, Crittenden said the firm had sold 21 businesses over the past year and that divestitures would “again be critical in 2009.”
Dean Witter
Pandit, 51, in September replaced Sallie Krawcheck, the head of the wealth-management division, which includes Smith Barney. Taking her place was Michael Corbat, a 25-year veteran of the bank. At Morgan Stanley, Ellyn McColgan was named president of the wealth management business in December 2007, reporting to Gorman.
Smith Barney has 14,133 financial advisers in about 600 offices in the U.S., according to Citigroup’s Web site. It had about 9 million U.S. client accounts as of Nov. 3, oversaw $1.32 trillion of client assets, and generated $7.94 billion in revenue during the first nine months of 2008.
Morgan Stanley gained its retail brokerage in the company’s 1997 combination with Dean Witter, Discover & Co. The business had 8,426 financial advisers at the end of November, $546 billion in total client assets, and generated $6.3 billion in revenue during 2008 when the gain from an asset sale was excluded, according to a company report last month.
To contact the reporters on this story: Christine Harper in New York at charper@bloomberg.net Bradley Keoun in New York at bkeoun@bloomberg.net .
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(BN) Obama Says Sacrifice Needed to Fix Economy, Some Promises Must Be Delayed
Obama Calls for Sacrifice, Scaling Back Campaign Promises
Jan. 10 (Bloomberg) -- President-elect Barack Obama said turning around the U.S. economy will require cutting back on some campaign promises and personal sacrifice from Americans.
“I want to be realistic here, not everything that we talked about during the campaign are we going to be able to do on the pace we had hoped,” Obama said in an interview on ABC’s “This Week” program, scheduled to air tomorrow. ABC posted excerpts of the interview, Obama’s first since returning to Washington as president-elect, today on its Web site.
Obama is pressing Congress to act quickly on a two-year economic stimulus plan of about $775 billion that includes new government spending and tax cuts. In appearances last week the president elect warned that failure to pass legislation enacting his proposals within the next few weeks risks letting the U.S. fall into a deeper and more prolonged recession.
The Labor Department reported yesterday that the U.S. lost almost 2.6 million jobs in 2008 and that the unemployment rate jumped to 7.2 percent in December, the highest level in almost 16 years. The losses were widespread, with manufacturers, builders, retailers and temporary-help agencies axing positions.
All Americans will have to sacrifice to put the economy back on track, Obama said.
“Everybody’s going to have to give,” Obama said. “Everybody’s going to have to have some skin in the game.”
Even before the stimulus plan is crafted, the Congressional Budget Office forecasts that the recession and government outlays for bailouts will push the budget deficit to at least $1.18 trillion this year. Obama said Jan. 6 that he expects similar shortfalls “for years to come.”
Some congressional Democrats have criticized the portion of the plan devoted to tax cuts, while Republicans have voiced concern about the size of the proposal and its effect on the deficit.
To contact the reporter on this story: Edwin Chen in Washington at Echen32@bloomberg.net . Angela Greiling Keane in Washington at agreilingkea@bloomberg.net
Find out more about Bloomberg for iPhone: http://bbiphone.bloomberg.com/iphone
Jan. 10 (Bloomberg) -- President-elect Barack Obama said turning around the U.S. economy will require cutting back on some campaign promises and personal sacrifice from Americans.
“I want to be realistic here, not everything that we talked about during the campaign are we going to be able to do on the pace we had hoped,” Obama said in an interview on ABC’s “This Week” program, scheduled to air tomorrow. ABC posted excerpts of the interview, Obama’s first since returning to Washington as president-elect, today on its Web site.
Obama is pressing Congress to act quickly on a two-year economic stimulus plan of about $775 billion that includes new government spending and tax cuts. In appearances last week the president elect warned that failure to pass legislation enacting his proposals within the next few weeks risks letting the U.S. fall into a deeper and more prolonged recession.
The Labor Department reported yesterday that the U.S. lost almost 2.6 million jobs in 2008 and that the unemployment rate jumped to 7.2 percent in December, the highest level in almost 16 years. The losses were widespread, with manufacturers, builders, retailers and temporary-help agencies axing positions.
All Americans will have to sacrifice to put the economy back on track, Obama said.
“Everybody’s going to have to give,” Obama said. “Everybody’s going to have to have some skin in the game.”
Even before the stimulus plan is crafted, the Congressional Budget Office forecasts that the recession and government outlays for bailouts will push the budget deficit to at least $1.18 trillion this year. Obama said Jan. 6 that he expects similar shortfalls “for years to come.”
Some congressional Democrats have criticized the portion of the plan devoted to tax cuts, while Republicans have voiced concern about the size of the proposal and its effect on the deficit.
To contact the reporter on this story: Edwin Chen in Washington at Echen32@bloomberg.net . Angela Greiling Keane in Washington at agreilingkea@bloomberg.net
Find out more about Bloomberg for iPhone: http://bbiphone.bloomberg.com/iphone
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2009 New Year Solution 1: Kernel Panic Solved
I got a lot of Kernel Panic on my MBP recently after upgrade to 10.5.6. (when battery is used)
I tried every possible solution including EFI firmware update, SMC reset, RAM verification, Apple hardware test etc, but in vain...
The solution I found today is quite simple:
Swap out the newly changed battery and place back the old one (full charge capacity 1362 mAh after only 79 Cycle!!!)
Luckily, the new MBP 17'' doesn't use the battery manufactured by Sony...
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