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.
The firms are filing suit against against Citigroup, Morgan Stanley, Credit Suisse, The Royal Bank of Scotland, Deutsche Bank and Wachovia.
Some of the allegations are that banks inserted poison provisions, pretext and misdirection, and even a re-cut of the deal as they faced $2.65 billion in losses (that figure according to WSJ).
This one may be a done deal for sure now. When buyers and sellers have to start suing lenders, it is not all that frequent that those providing the leverage get forced into it.
But on the flip side, those banks should have to pay severe business penalties via a break-up fee for backing away.
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.
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?
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.
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.
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.
"The Fed's moves do not mean we are out of the woods as far as further market corrections go; however, we do want to increase our exposure to the market, particularly top quality financial stocks," says Daniel Frishberg.
The host of BizRadio 1320 and editor of The MoneyMan Report is adding two stocks to his portfolio that he considers among the "best companies in the world" – the Blackstone Group (NYSE: BX) and Citigroup (NYSE: C).
He explains, "The market's action has been very impressive. Our Market-Ray indicator shows that demand was overwhelmingly positive and while supply dried up. That is a great recipe for higher prices."
He continues, "One thing that we believe is clear is that the Fed is more interested in global growth and the impact on Americans than the risk of inflation at this time. This will put a floor on certain asset groups such as financials."
One favorite financial holding, already in the advisor's portfolio, is Goldman Sachs (NYSE: GS). Now, to boost his exposure to the financial sector, Frishberg says, "We're adding two dominant stocks at cheap levels, Citigroup and Blackstone."
That loud thud you heard Thursday morning at 8:30 was Chuck Prince, CEO of Citigroup (NYSE: C), hitting the floor following the much-stronger-than-expected GDP report.
Citigroup, which has committed tens of billions of dollars to finance many of the larger private equity deals, will be stuck holding these loans on its books for much longer than it anticipated due to this report. The simple fact of the matter is the Fed will not be able to lower short-term rates with GDP growth of 4%.
Leaving short-term rates unchanged means the yield curve will not change for the better and could actually change for the worse. If rates start heading higher, this means the loans the money-center banks are holding will drop even more in value.
Yesterday's GDP report means this post-PE-bubble environment will be difficult to work through. Any easy fix of a slowing economy leading to the Fed dropping rates and a downward shift in the yield curve is not going to happen. Actually, it looks like the longer end of the bond curve was wrong in forecasting an economic slowdown, with the possibility of rates rising. This means it is too early to get back into the money-center banks.
You know the feeling. You've done a lot of shopping -- and used your credit card heavily. It's so easy, right? Of course, until the heavy interest payments pile up.
Simply put, that has been the story for big-time financiers, such as Goldman Sachs (NYSE: GS), Lehman Brothers (NYSE: LEH), Merrill Lynch (NYSE: MER), Citigroup (NYSE: C), JP Morgan (NYSE: JPM) and so on. They kept committing their balance sheets to provide loans to buy up companies. And, of course, private equity funds -- like KKR, TPG, Apollo, and Blackstone (NYSE: BX) -- were ready, willing, and able to take the largesse.
But now the bill is coming due.
Well, in this week's Barron's [a paid publication], there's an excellent story on this topic. In fact, the lenders were so eager to make these mega loans that they were loosey-goosey on the terms. For example, some loans even allowed for deferring debt payments (perhaps the subprime market was not the only crazy place, huh?)
Oh, the lenders also were willing to forgo escape clauses in loan agreements. Hey, wouldn't the gravy train last forever?
So what happens to the hundreds of billions in buyout debt? Barron's thinks that the lenders will sell the stuff at deep discounts. True, this will mean significant losses. But, if things are bad, might as well get everything written down now and then pave the way for a better future, right? Although, I have a feeling banks are going to be a little more circumspect when it comes to new buyout loans.
It was certainly nice that Blackstone (NYSE: BX) had a strong Q2 with net income jumping from $224 million last year to $774 million. The stock is up over 7% in the pre-market.
The company's June IPO was highly anticipated and was viewed as a proxy for the health and financial success of private equity firms. It bombed. Shares fell from $38 to under $23 in less than two months.
But, the second quarter is not the number that bears watching. It was undoubtedly a success, but it came ahead of the credit crisis that has sucked financing for big LBO and private equity deals out of the market. Analysts are worried that the disappearance of liquidity in that buyout market could hurt the results of large financial institutions like Goldman Sachs (NYSE: GS) and Citigroup (NYSE: C).
Based on early trading, Blackstone's shares may make it back to $28 today, but to move back toward $38, the firm will have to prove that it can turn in another big quarter in a very bad environment.
Laureate Education, Inc. (NASDAQ: LAUR) has certainly attracted a long list of top-notch investors, such as KKR, Citigroup, SAC Capital and even the company's CEO, Douglas Becker.
But the deal hasn't been easy -- that is, until the investors, led by Becker, started to boost the bid to take the firm private.
The latest boost was an increase from $60.50 to $62.00 a share (roughly $3.82 billion in all). And that was enough to get the approval of Laureate's board.
As we have seen in other deals -- such as with Clear Channel Communications, Inc. (NYSE: CCU) -- major institutional public shareholders are not potted plants. Instead, they are getting tough on shareholder approvals.
In the case of Laureate, T. Rowe Price was making lots of noise. In fact, the firm even wrote a letter to management and indicated that the offer was "significantly below the true long-term value of the company." According to its analysis, T. Rowe Price projects a stock price of $110 by 2010.
T. Rowe Price is not alone. Another major Laureate shareholder, Select Equity Group, was not pleased with the pricing.
To get the deal done, Laureate only needs to get a majority of the shareholder vote, and that looks likely now. On the news of the new offer, the company's shares increased 2.53% to $61.63.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
The problem is that shareholders hate the deal. Select Equity is going to vote "no," as will T. Rowe Price Associates. Now, there is another dissenter: BlackRock (NYSE:BLK), according to a story in TheDeal.com (subscription required.)
Basically, shareholders think Laureate still has lots of growth potential (especially in foreign markets) and that the $60.50 buyout offer does not reflect this. Counting up the votes for the three dissenters, it is still below 20%. But if a couple more shareholders join the mutiny, it could mean this deal falls apart.
Although Wall Street is not betting on that. Laureate's current stock price is $58.55. You may also check out Select Equity's analysis on the deal at the SEC website.
Tom Taulli is the author of various books, including The Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
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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. 
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Laureate Education, Inc.
Laureate Education (NASDAQ:
