When the global markets entered the credit crunch, sovereign wealth funds (SWFs) funneled billions of dollars into a variety of struggling companies, especially financial institutions like Citigroup (NYSE: C) and Merrill Lynch (NYSE: MER).
Alas, the transactions have shown tremendous losses.
True, SWFs are focused on the long-term, which may extend into decades. But the extent of the losses were certainly jarring.
So are SWFs backing off? Perhaps not. In fact, these funds are starting to write checks again. For example, the Qatar Investment Authority structured a $8.83 billion dollar capital infusion into Credit Suisse Group (this is according to the Wall Street Journal, a paid publication).
Interestingly enough, China Investment Corp. may even pony up more money into the Blackstone Group LP (NYSE: BX), even though it has sustained losses of more than 70%. The SWF now has the right to boost its equity stake from 9.9% to 12.5%.
While it's true that SWFs tend to invest early, the recent activity is nonetheless encouraging – and another sign that major investors are getting more and more confidence.
Citigroup (NYSE: C) is considering buying Washington Mutual (NYSE: WM), the nation's largest savings and loan. It sounds like Sandy Weill is back in charge and trying to create the kind of financial conglomerate he built in the 1990s and earlier this decade.
According toThe Wall Street Journal, "Citigroup and several other banks are reviewing the Seattle thrift holding company's books, which are packed with shaky mortgages."
Just a few months ago, Citi CEO Vikram Pandit was talking about cutting the big bank's expenses by 20% and selling off "non-core" assets. Now he is thinking about buying the most troubled large financial company in America.
Pandit would be better off staying with his first plan. There is a reason WaMu's stock got down to under $2. If mortgage defaults move up and housing prices move down, the mortgage company's financial situation could get much worse.
Pandit is proving to be a "flavor-of-the-month" CEO. Investors never know what he plans to do tomorrow, let alone what he wants to do with Citi over the next year.
After Citigroup (NYSE: C) and Merrill Lynch (NYSE: MER) reported earnings, there was at least some hope that the worst was behind the banking and brokerage industries. But that may not be true. Over the weekend Royal Bank of Scotland (NYSE: RBS) said it might have to raise $12 billion. Then there is today's news from big Midwestern bank National City Corp. (NYSE: NCC).
NCC will probably announce that it has raised over $6 billion. According to The Wall Street Journal, "the Cleveland-based regional bank was hammering out final terms of the transaction with a group of investors led by Corsair Capital LLC, a New York private-equity group."
Current NCC stockholders will be beaten to death. The new capital will come in at $5 a share. The stock trades at over $8 now. NCC's 52-week high is over $38.
The news is another example of how management at banks doomed their shareholders. Financial companies took on huge amounts of subprime-backed paper. The investments looked safe, but, on closer examination, they carried great risks if the housing market began to falter. The underlying assumption was that home prices would move up forever and that mortgages had been granted to consumers at reasonable rates. Both of those assumptions were wrong.
When something looks too good to be true, it usually is.
Douglas A. McIntyre is an editor at 247wallst.com.
Citigroup (NYSE: C) would like to get a number of troubled loans off its balance sheet before its reports earnings. Accordingly, it is close to selling $12 billion in leveraged loans and bonds to private equity firms Apollo Management, Blackstone (NYSE: BX) and TPG. The debt would be sold at "an average price slightly below 90 cents on the dollar," according toReuters.
Citi has, by its own calculation, about $43 billion of these loans on its balance sheet. It is anxious to get rid of as much of the exposure as possible. But the potential deal raises a point. If the haircut on the loans is only 10% and the smartest equity firms in the world want the paper, why is Citi so anxious to sell it?
The answer is panic. At this point American banks are taking so much risk off of their balance sheets that some assets, which are only modestly impaired, are being sold along with those which have relatively low inherent value.
In Citi's haste to solve its problems, the baby may be exiting with the bathwater.
CNBC's Charlie Gasparino was reporting early this morning on the ongoing Citigroup (NYSE: C) restructuring saga. Gasparino noted that new CEO Vikram Pandit has set a deadline of "May" for its full scale business unit review.
What is interesting is that Gasparino noted that the company is apparently not likely to unload its brokerage unit. There have been reports prior to this noting that a sale or spin-off of that unit may ultimately be in the works.
We already know about layoffs coming, but the question is just how much. So far Pandit's turnaround plan has yet to take hold and shares have not run up since Chuck Prince finally got the axe.
"No Exit" is a 1944 play by Jean-Paul Sartre, which contains the famous line, "Hell is other people." At this point, the title could also describe Delphi's current Chapter 11 problem.
On the way to getting out of Chapter 11, auto parts company Delphi ran into the credit environment. Its $6.1 billion exit package, which has been set up by a group of banks lead by Citigroup (NYSE: C) and JP Morgan (NYSE: JPM), is in trouble. With the current fixed income markets in lock-down, hedge funds and other institutions don't want the Delphi paper.
Still losing money by the billions, Citigroup (NYSE: C) has been scrambling to raise capital. Foreign investors have been welcome investors, and the bank has cut jobs and raised fees in a major effort to maintain liquidity. Today, Private Equity Hub is reporting that Citi may sell some of its private equity interests as part of that effort.
Apparently, Citi is considering selling two private equity holdings. The first involves $1 billion in investments held by Nikko Cordial, a Japanese brokerage firm that Citi acquired last year. The other private equity interest is in Court Square Capital Partners, in which it holds a roughly $400 million stake.
An interesting question about this is who will benefit most from this. Yesterday, Caryle's Louis Gerstner said that the current private equity slowdown offers the biggest players excellent opportunities to increase their investments as weaker investors panic and sell their stakes. Will panicked Citi be selling its investments on the cheap?
There's been a lot of talk about investments by sovereign wealth funds in the U.S. Some of the headline-grabbing deals have not worked out very well for the foreign buyers, at least in the short run. Abu Dhabi's investment in Citigroup (NYSE: C) a few weeks ago has been a loser so far, and it doesn't look any better for investment by various sovereign wealth funds in Merrill Lynch (NYSE: MER).
Many analysts are worried that the sale of chunks of U.S. corporations will hurt the country. Peter Cohan of BloggingStocks recently wrote that he is worried that "that the U.S. economy is at risk if these foreign investors use the power of their capital to sway U.S. policy in a way that weakens us politically or economically." This echoes widespread anxiety about American being 'for sale.'
In an interview with the The New York Times, famed banker Felix Rohatyn argues that the real driving force behind investments by sovereign wealth funds in the U.S. is indeed political. Short term economic results are secondary to questions of power and policy. While many of these investments will likely make sense economically in the long run, the real benefit for foreign investors is the growing power of their governments in determining the course of the global economy.
This increase in power of foreign governments frightens many Americans. And it's true that many of the foreign funds are owned by countries that could come into conflict with the U.S., including China and Russia, though probably not Norway and Singapore (click here for a list of the largest funds). But it's not clear that this will be a loss for the global economy, or even for the U.S. Much of the current market turmoil is driven by poor decisions by American bankers, and it's possible that outside influence could improve the performance of American banks. And since most of the large sovereign funds hold petrodollars -- the largest, in Abu Dhabi, holds $1.3 trillion -- it stands to reason that these investors want the same thing as American investors: solvent banks and a healthy economy that can keep those petrodollars moving.
The American consumer is not the only part of the US economy that's holding off on spending. So are institutional bond investors.
Based on a report from Bloomberg, it looks like Wall Street's premier investment banks -- including Citigroup (NYSE: C), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS) and JPMorgan Chase (NYSE: JPM) -- are slashing prices on their buyout debt backlog. In fact, some of the discounts are as much as 10% of the face value. Given that Wall Street is going to report horrendous financial results, it makes sense to deal with the problems now, right?
Interestingly enough, Wall Street had some help from failed deals, such as with SLM (NYSE: SLM). This trend has wiped out $51 billion in obligations.
Yet, there is still much to finance, such as Clear Channel, Harrah's, BCE and Alltel. So, we might also see some post-Christmas buyout bond slashing, as well.
BusinessWeek reports that The Bear Stearns Companies (NYSE: BSC), which reported earnings today, is behind $10 billion worth of Collateralized Debt Obligations (CDOs) at Citigroup Inc. (NYSE: C) and Bank of America (NYSE: BAC). It all comes down to yet another new word to add to your financial vocabulary -- Klio Funding -- a brand of CDO that enabled Bear to sell to the $2 trillion money market fund industry.
What is Klio Funding and how did it cause all this damage? Klio Funding is "an entity" that sells Commercial Paper (CP) -- short-term loans -- and uses it to buy higher-yielding long term investments. Since Citigroup had agreed to refund investors' initial stakes plus interest -- through liquidity puts -- money market funds that bought Klios thought they would get higher yields at low risk.
Meanwhile, Ralph Cioffi -- who headed up three Bear hedge funds which eventually folded -- used money raised from the Klios to buy CDOs and to lock in year-long financing for his hedge funds. This is significant because hedge funds typically can only borrow money for weeks at a time due to their risk. Cioffi's CDOs were popular, raising $100 billion.
Citigroup (NYSE: C) announced yesterday that it will acquire Metalmark Capital. Terms of the deal were not made public.
Metalmark has been independent since 2004. Before that date, it was owned by Morgan Stanley (NYSE: MS). The head of Metalmark, Howard Hoffen, managed Morgan Stanley Private Equity, which included Morgan Stanley Capital Partners. In the last 20 years, Metalmark has invested over $7 billion in mid-size companies, according to The New York Times.
Another piece in today's Timessuggests that banks are getting back into private equity after years of separating their banking and private equity functions due to concerns over conflicts of interest. Just last year, Citi spun off CVC Equity Partners, a domestic buyout unit, now called Court Square Capital. But the tremendous profits that continue to be generated by private equity are too attractive to ignore, no matter what the conflicts. Speaking of conflicts, the Times points out that with the acquisition of Metalmark, Citi will be managing some assets still owned by its rival, Morgan Stanley.
In another sign that the big banks and brokers are getting back into private equity, as well as the growing influence of executives trained in the world of private equity, Morgan Stanley announced today that it has hired two new directors for its global private equity arm. Andy Shinn, who worked for the Carlyle Group, and Aaron Sack, from Apollo Advisors, will join Morgan Stanley as executive directors.
Lately, a variety of veteran dealmakers such as Nelson Peltz have pursued blank check IPOs. Basically, these are shell corporations that raise money to purchase companies.
Well, today there has been another filing: MAFS Acquisition. And, the operator is Ronald Perelman, who wants to raise a cool $500 million.
Perelman got his start on Wall Street in the late 1970s. Since then, he has bought companies such as AlliedBarton Security Services, Harland Clarke, Scantron, Panavision and, of course, Revlon.
As for MAFS, Perelman plans to take an active role, such as with identifying, negotiating and structuring deals. What's more, he will be focusing on targets that have proven track records, strong free cash flows, and top management teams.
The lead underwriter on the IPO is Citigroup (NYSE: C).
You can find the prospectus at the SEC website. Also, if you want to find other recent IPO information, visit DealProfiles.com.
You may think the subprime mortgage mess is huge. Well, just around the corner a larger elephant is looming and its impact may be even more devastating than the current credit crisis.
While it sounded like good news when banks sold $30 billion of loans for leveraged buyouts last week, $26.4 billion of that was for the First Data buyout. That sale came with a big price tag -- banks agreed to sell the debt at 96 cents on the dollar, which means they locked in losses after their fees.
And then there was the problem of what to do with the other 90% of LBO loans in the pipeline.
The Wall Street Journal[subscription] reported today that Citigroup Inc. (NYSE: C), Credit Suisse Group and J.P. Morgan Chase & Co. (NYSE: JPM) hold $400 billion in debt they promised for financing purchases private equity firms have in the works globally. If they can't sell the debt, they're left holding the bag, which means a lot less money for other loans. If the economy slows as expected and corporate profits weaken, the only way the banks will be able to unload the debt they're holding will be a fire sale on that debt at even deeper discounts then the First Data deal.
The blind leading the blind. U.K. mortgage bank Northern Rock has almost gone under. If it were not for funds provided by the government, it might be gone already. But Northern Rock is still looking for help. In a twist of irony, that aid may come from Citigroup (NYSE: C), which has its own problems with mortgage instruments. The big U.S. bank said its earnings would drop 60% for the last quarter, some due to mortgage securities to write-downs.
According to a report in The Telegraph, there are several options being weighed to save Northern Rock. "One possibility being discussed by the Government and the company would see Citigroup, the U.S. bank advising Northern Rock, provide a funding line of up to £10bn to enable the board to run it for the long term."
The British government could also encourage a sale of the mortgage company to a hedge fund. U.S. hedge funds JC Flowers and Cerberus have expressed interest. But, a buyout from one of these firms is likely to be at a very low price that could wipe out public shareholders and some of the companies bonds.
If Citi does make the loan, it will be profiting from the mortgage problems of another company after taking a beating in the same market on its own. It would be a perverse twist of fate.
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When the global markets entered the credit crunch, sovereign wealth funds (SWFs) funneled billions of dollars into a variety of struggling companies, especially financial institutions like Citigroup (NYSE: C) and Merrill Lynch (NYSE: MER). 
Citigroup
The American consumer is not the only part of the US economy that's holding off on spending. So are institutional bond investors.
. He also operates 
Lately, a variety of veteran dealmakers such as Nelson Peltz have pursued blank check IPOs. Basically, these are shell corporations that raise money to purchase companies. 
