The Investment Blog from Advantage 'zyaada'

BNP Paribas, the largest French bank, said on Tuesday that it would raise €4.3 billion from investors to repay government bailout funds, The New York Times’s David Jolly and Chris V. Nicholson reported.BNP Paribas, based in Paris, said its board had decided to repay, within the next month, the €5.1 billion, or $7.5 billion, it borrowed from the state March 31. The government would also receive a payout of €226 million on the nonvoting preferred shares it purchased.Baudouin Prot, BNP Paribas’s chief executive, said in a conference call that the G20 meeting in last week in Pittsburgh, where world leaders agreed in principle that banks should raise more capital, had influenced the timing of BNP’s decision to issue shares, as had the lender’s share price, which is up more than 92 percent this year.Christophe Nijdem, a banking analyst at Alphavalue in Paris, called the stock issue’s timing “judicious.”“They had a window of opportunity,” he said. “A lot of banks will turn to the market in the months to come, and it’s first come, first serve.”Mr. Nijdem added that, compared to American banks, European banks were more leveraged, and had to play catch up. Major Western banks are forecast to post losses of almost $2.5 trillion for the period 2007-2010, according to the International Monetary Fund.

via BNP Paribas to Raise $6.27 Billion to Repay Bailout – DealBook Blog – NYTimes.com.

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The New York Life Insurance Company, 9th till last year, jumped to No. 2 in market share behind Metlife with a near 6% market share in Life taking a leaf out of the book of the World’s best. AIG dropped just 4 places in the whole melee of the stimulus and this continuing depression. New York Life simply ‘educated’ prospects about how it was properly capitalised and fully ready in case of any further financial breakdown, bringing it a whole lot of new business ( see story: Slump spurs grab for Markets)

NY Life always had a vibrant sales force and with its diligent processes and adequate attention to current relationships, it has also managed to keep its existing customers happy, increased its share in market friendly Variable Life plans and kept its leadership in Whole Life plans for more than a decade. There is definitely one underlining factor that believers in the risk driven markets model do not realise. The underlying fact in winning is sanity in leadership and focus on the good pieces of business. It is not about Richard Branson and other half baked half thinking brazen tomfoolery like at BofA after the purchase of Merill ( there are some Indian examples that you can also read at http://zyaada.info Or http://india.advantages.us ) or the GOP reaction to Obama’s healthcare plans. ( And how is Obama’s plan going to make insurance cheaper? It does not seem to be the issue at all!!)

New York Life also lost $3.5 billion on its investment portfolio like the other big banks and AIG but Metlife having taken all of the business headed for AIG ended up with a sky rocketing 12% market share and NY Life managed to increase market share by a further 180 basis points. True, NY Life is but a can of soup for those hit by the recession opportunity..because there are other ways to beat the old leaders in the recession.

One of these popular ways this time has been to give jobs to out of work investment bankers from Goldman Sachs, Lehman and others at Deutsche Bank and some boutiques, that were not owned by these ex bankers.  However, Deutsche Bank has already been caught in trying to beat the losers of the recession, continually facing funds shortages in the market and hungry for Capital after market adjustments caught up with its losses.

Yet it is relatively easier, and thus there is an opportunity during a bad recession to catch up with the falling Joneses and come up ahead in the race. It visibly happens in retail in the Coke vs Pepsi and the P&G vs others wars (Unilever in Asia and Europe) or in GM vs Ford, but is equally vehement in markets in banking and insurance. Competition is the life blood of the economy and without such acts it is very difficult to beat any recession.

On a relatively obscure note, that is also why banks running away from Asia are unlikely to survive in the coming decade, as the growth and the money here ensure that the growth is sustainable, and Life and P&C entrants in this market would also do well to learn more regulatory control from the economies in Asia that remained capitalized and capable despite investments sinking..but then that is another article altogether.

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This story is draft.

Religare has ramped up its AUM to Rs 10000 Crores after picking up the flailing Lotus Mutual Fund. Its recently launched Fund schemes have not had extremely positive reviews from the market but it has managed to climb to a Top 15 position in this boom season for Mutual Funds. Its bid for AIG investments, currently at $300 million, may be seen positively by the promoters in this light. However AIG investments had only Rs 1500 Crores when news of its sale started in India making it expensive at anything more than Rs 300 Crores ( $62.5 million).

As a comparison in the global market the ETF specialist BGI was sold for only 1% of its assets a couple of months back and the market has not moved much since, effectively retracing all talk of it being sold at a discount in the next three months. While the fund values for AIG Investments are of the order of $85 billion, they are nowhere in the Top 20 and are one fourth the size of the top industry AUM grabbers led by Blackrock Global Investors and State Street and the valuations beyond $425 million would seem stretched at this stage. The final purchase price of $600 million may not be comparable to what a Fund manager of Blackrock’s calibre paid for Barclays as the latter is much more sure-footed and is already delivering results getting a plug n the run on its funds and managing $44 billion in additions in May 2009

Sunil Godhwani may also have his hands full from initiating the Macquarie JV in Wealth and the Aegon JV in Insurance which are already spread across 450-550 towns. The bid may be a tough one with Crestview and FT/Temasek having come in early and brought expectations to $300 million, but neither the fund performance in all retail and institutional sectors except Private Equity, nor AIG’s current frenzy to get rid of $80 billion of equity and Another $100 billion in stimulus and equity funds from the government  can be discounted away for a higher price from Religare at this juncture.

Malvinder and Shivinder have their pockets lined with cash after the sale to Japanese pharma company Dai Ichi. With AIG having taken its investment out of the outsourcing unit (sold to Mphasis) and the other 5-6 sales completed in the last 6 weeks, AIG will have to slow down its bids for sale in AIA ( Asian Insurance business) and Chartis ( 20% stake up for sale) and probably the Global Investments unit

On the other hand out of the $2.2 bilion the brothers received, they have already spent a $100 million on the purchase of a London based Financial Advisor, paid their taxes of around $200 million, and set up the Life Insurance and Wealth management Companies which may each require well over $400 million for their expansions in the targeted 500 odd towns in India. This purchase is the likely crown jewel along with the other purchases for Religare Enterprises and Vistaar Entertainment and other investments like Religare Technova ( Asian CERC Content and IT platform businesses) together would account for almost all their cash. Depending on the IPO market would anyway be required at a later stage in the expansion of these services. I would assume they would like to keep at least 30% or $600 million of their cash safe for such expansion later.

They have to think – Does $2 billion make a new Financial Services Empire? Can they afford to start with an empty pocket overnight?

AIG on the other hand has been stuck with proposals to sell $20 billion worth of AIA and ALICO Life Insurance in Asia, and another 20% in its restructured Chartis business (P&C) and is not likely to get a price that will pay off the expected debt out of the $80 billion outstanding. They have however made proprietary profits to pay off $2.67 billion in the 2nd Quarter, which is not much considering its global assets in life are $560 billion !!

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The recent laundry list of asset sales planned by AIG (see here) continues to find conflict of interest in almost each of its deals, as AIG remains the buck stopper of the entire industry’s claims good or bad..

Bloomberg reports that Morgan Stanley’s (NYSE:MS) private equity fund pulled out of the bidding group Chinatrust Financial Holding Co. is leading. Morgan Stanley’s private equity fund apparently dropped out of the bidding due to a perceived conflict of interest because Morgan Stanley is advising and funding costs for AIG and the sale of the Nan Shan Life Insurance Co. auction along with Blackstone Group LP (NYSE:BX). Morgan Stanley owns 9.9% of Chinatrust.

So is Chinatrust still in the bidding? It was in a bidding group that also included Bain Capital LLC and Oaktree Capital Management LLC, according to the Bloomberg report. Reuters reports that Chinatrust may still ready to bid.

“We are capable of running Nan Shan,” said chief investment officer Daniel Wu in response to questions from reporters. “But I’m not going to say if we have an interest (in acquiring it) or anything else.”

The sale of the unit is expected to bring in about $2 billion, but it could have trouble hitting that price target as the unit is under as much financial pressure as its parent. Nan Shan was forced to raise $1.45 billion in a rights offer last year to avoid slipping below a regulatory capital requirement as unprofitable policies eroded its reserves.

So who else is in the bidding for the unit?

Carlyle Group, which joined Fubon Financial Holding Co.

Cathay Financial Holding Co.

China Strategic Holdings Ltd. may have joined Primus Financial Holdings Ltd.

Binding offers are due for submission on Aug. 28, according to the reports. – Maria Woehr

via Morgan Stanley, ChinaTrust to drop AIG unit bid? (Dealscape – Private capital).

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Citigroup plans to sell 20 businesses in consumer finance area, many of them located in Europe, its CEO Vikram Pandit said in an interview with Singapore’s Business Times.

He said the move was due to the shift in the consumer finance market where “there is less funding availability and they are probably less robust as businesses.” Pandit also said that the group’s capital position following the completion of the exchange of preferred shares for common equity in July, reflected an “incredible financial strength.” “On the completion of our exchange offer, we had 12.7 percent tier 1 capital and more than 9 percent tier 1 common capital,” Pandit said during his recent trip to Singapore.

The New York-based bank has said in July investors have agreed to swap $32.8 billion of preferred securities for common stock, and the US government, which will officially take a 34 percent equity at the bank and become its largest shareholder, will swap $25 billion. The US third-largest lender conducted the offers after heavy credit losses and writedowns prompted a series of bailouts, including a $45 billion injection of taxpayer funds from the Troubled Asset Relief Program.

Citigroup reported a quarterly profit of $4.28 billion, compared to a year-earlier loss of $2.5 billion. However the second quarter was boosted by $6.7 billion gain from the sale of its Smith Barney brokerage. Without that one-off gain the lender would have reported a $3.7 billion loss.

via Economic Times – Pandit in Singapore

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Citigroup has been garnering investor interest amid optimism on Wall Street that the worst is over for the beleaguered banking company.

Citi shares have been pounded in the past two years, falling to around $3 from $55 because of heavy losses and a huge increase in its shares outstanding as a result of a $58 billion preferred-stock exchange offer designed to shore up the company's equity capital base.

Citi stock is down 50% this year alone, while J.P. Morgan Chase shares have risen 20%, to a recent $38, and Goldman Sachs has surged 90%, to a recent $162.

The Worst Is Past

The bullish case for Citi is that it has put concerns to rest about its viability and capital adequacy.

And, based on tangible book value, a conservative measure of shareholder equity, its stock looks inexpensive. (Book value is the value at which assets are carried on a company's balance sheet — or the value of a company if it sold off all its tangible holdings.)

Citi has been trading at about 70% of its book value of $4.30 a share, pending completion of the preferred exchange offer that probably will boost its share count to 23 billion from the current 5.5 billion.

In contrast, J.P. Morgan and Goldman fetch about 1.6 times tangible book; Wells Fargo commands twice its book value.

“Citi is the one stone that investors haven't turned over,” says John McDonald, a banking analyst at Sanford Bernstein who carries a price target of $4 on Citi shares.

via Tarnished Citigroup Looks Like It Could Shine Again – WSJ.com.

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Note:This is post the $3 b sign up with JPM/GS and the share was down 16% in trade. Last week, before the $3b signup, it cost $2.5 million to save (blah blah..insure..blah blah) $10b of its outstanding debt. This is where Wall Street and London made all the money from 2001 till early last year..

Advisers to large bondholders of CIT Group Inc (CIT.N: Quote, Profile, Research) are pushing to allow the company to restructure its debt with a prepackaged bankruptcy option if later debt exchanges fail to attract enough creditors, a source close to the negotiations said on Thursday.

The prepackaged option would explicitly open the door for CIT to file for bankruptcy if not enough bondholders tender their notes, said the source, who declined to be named as discussions were private.

The lender to 1 million small and middle-size companies clinched $3 billion in emergency financing from large bondholders this week to restructure its debt and avoid bankruptcy, after the collapse of rescue talks with the U.S. government.

CIT said estimated funding needs for the year ending June 30, 2010, include $7 billion of unsecured debt. The firm has about $40 billion of long-term debt, according to independent research firm CreditSights.

In a first step, CIT is offering 82.5 cents on the dollar for $1 billion floating-rate senior notes due Aug. 17, but the company said it could be forced to file for bankruptcy.

via UPDATE 1-CIT creditor advisers seek bankruptcy option-source | Industries | Financial Services | Reuters .

July 16: Default Swaps, Shares

Credit-default swaps on CIT jumped as much as 17 percentage points to 51 percent upfront before falling back to 47 percent upfront at 8:16 a.m., said broker Phoenix Partners Group. That’s in addition to 5 percent a year, meaning it would cost $4.7 million and $500,000 a year to protect $10 million of CIT debt for five years.

The lender gained 1.9 percent to $1.64 yesterday before trading was halted by the New York Stock Exchange. When trading resumed today, the stock plunged as much as 99 percent, and was down $1.27, or 78 percent, to 37 cents as of 10:34 a.m.

The stock, which fell 64 percent this year, sold for more than $60 in February 2007. Common shareholders typically get little or nothing in a bankruptcy unless creditors are paid first. CIT employed about 4,800 people at the end of March.

“Even during periods of financial stress, we believe that there is a very high threshold for exceptional government assistance to individual companies,” the Treasury said in a statement yesterday.

Geithner Monitoring

Treasury Secretary Timothy Geithner declined to comment directly on CIT today, saying only that his team has “been working very closely with the FDIC and the Fed and monitoring” the situation.

via Bloomberg

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When May 2009 began, the stress test results more or less indicted Bank of America asking it to raise $34 billion in fresh equity to cover its gap. This came on the heels of its questionable act ( Kenneth Lewis is still responding to the resulting enquiries) in first accepting and then trying to finagle out of the Merrill Lynch takeover using the MAC clause. But all that is past as BofA successfully raised the required capital and closed the second quarter with exceptional trading profits of $6.7 billion and a top line of $33.9 billion showing its old magic and leaving the markets with a lot of positive expectations. The market reaction has not been that positive in terms of actual stock performance as people wait for the next few steps to show and prove that this is indeed the best investment american investor should make.

Wells Fargo had a far worse business performance but they were only $17 b short in the stress test, as BofA was one of the biggest mortgage and trading players, not good old WFC. Probably that image gap is the first thing BofA must prioritize for 2010. Where it was the strongest retail brand in the US after its 2001 takeover of Fidelity in the east, today it looks like it may be playing second fiddle to others. Not only because it had to cough up more capital, but also because it is one of the very few who sold their crown jewels outright in China and other Emerging Markets and whose global presence is now severely in question.

While the US Economy suffered a 6.1% deceleration in Q1 of 2009 and passed a shaky $3.9 trillion Budget for 2009 after much soul searching, Non Performing assets continued to grow at the bank rising to $31 billion at June 2009. The bank is currently on its way to sell Columbia Asset Management for an expected $2 b in pre tax gains and will likely report $12-13 b in pre tax profits in each of the remaining two quarters thus maintaining profitability after paying preferred dividends to the Government and even paying off some of the $45 b it had to borrow from the government. It is also selling the Asian real estate investing business of erstwhile Merrill Lynch. (Merrill’s Asian Business Drawing Strong Interest)

Will BofA therefore be able to act as the Market Leader American Investors expect it to be from here? There is no other way. However, it cannot sell all the banking businesses it acquired albeit in the last 5 years like MBNA (2000-1) and hope to do so. The Merrill Lynch units in Asia and at home in North America also have to turn in a good performance as the investment banking business becomes the most profitable at current valuations. It’s higher fees on retail accounts by itself will not be able to absorb rising credit losses as retail customers implode on current accounts ( overdrafts) , cards and mortgages.

To quote Ken Lewis at a recent Town Hall meeting in LA where he was addressing the Countrywide/Mortgage issues – “The bad news is that consumer confidence is at its lowest point since 1992. It’s easy to see why. Here in Los Angeles, distressed home sales are up from 3 percent of total sales in spring of 2007 to 30 percent in spring of 2008; 3.7 percent of all homes are in foreclosure; and across California, home sales prices are off almost 30 percent. And that is not to mention $4 gasoline and record food and commodity prices that are pinching household budgets.” In mortgages, the market will return to more traditional products also, along with Home buyer education and renegotiation of defaulting loans and that is no small exercise, but financial innovation has to continue as well. At this stage, while BofA consolidates it has to invest in more of market development efforts thru its extensive network and refocus on producing returns from the world’s nook and corners like in China and Brazil where there is more and more business as BRIc countries maintain their growth. BofA has to find robust business models and risk management while increasing its presence in Europe, LatAm and the developing world without decimating itself in the crisis and imploding on itself. Direct Banking models, Prudent Credit Card lending and tapping unbanked populations in responsible lending and banking programs are but obvious choices which cannot be swept aside for feigned problems in their operating structures. Business is successful in China, there are successful Credit Card companies and you are Bank of America, not an also ran. You owe it your investor and your customer.

Bank of America is among the world’s leading wealth management companies and is a global leader in corporate and investment banking and trading across a broad range of asset classes serving corporations, governments, institutions and individuals around the world and serves clients in more than 150 countries

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zyakaira  notes: Citi reported $4.3 billion, BofA $3.2 billion on $33 billion, $JPM $2.7 billion on $27.7 billion, with TARP repayments costing $0.10 to the EPS and $GS reported $1.8 billion (WAMU and MER seem to have paid off!)

Citi and BofA woula have made losses without the one time stake sales while JP Morgan has absorbed the bullets and GS never got shod in the shooting gallery for all practical purposes.

Unfortunately, $DB and the European banks are still sinking! Citi beat the analysts to hell! One more shot for the next quarters acquisition boom. If you note, all profit is from underwriting and fees while morts and Fixed Income has stopped bleeding at these 4 and hopefully $WFC

NOW LET’s GET TO REPAIRING THE ROAD AND THE POWER PROBLEMS, as Mamaa would say..

nytimes-> But behind the figures was a sober reality: Those happy results were driven by billions of dollars in one-time gains — in the case of Bank of America, by a profit from the sale of a stake in a big Chinese bank and, in the case of Citigroup, by a bonanza from a new joint venture for its Smith Barney division.

Without those one-offs, the banks, despite two taxpayer-financed bailout dollars apiece, would have lost billions.

Like Goldman Sachs and JPMorgan Chase, which stunned Wall Street earlier this week with robust earnings reports, Bank of America and Citigroup got big increases from their trading operations.

But the pain being felt by hard-pressed American consumers hurt these giants even more. Both banks set aside billions of dollars to cover looming losses on consumer loans and warned that, given the tough economy, the road ahead could be rocky.

Still, the results exceeded analysts’ expectations. Bank of America announced earnings of 33 cents a share, and Citigroup reported earnings of 49 cents a share. The results at Citigroup far outstripped the loss of 18 cents a share that analysts had predicted.

But both banks — the last of the big lenders that have yet to pay back their emergency bailout money from the federal government — sold significant assets during the quarter, cushioning their bottom lines. Bank of America’s results were enhanced by the $5.3 billion pretax gain from the sale of shares in the China Construction Bank. Citigroup formed a joint venture with Morgan Stanley for Smith Barney, resulting in an $11.1 billion pretax gain.

While the results provided another sign that American banking industry is stabilizing somewhat faster than many had expected, they nonetheless underscored how the sagging consumer economy is hurting banks big and small. For the moment, trading and other traditional Wall Street businesses, such as securities underwriting, are generating profit at many big institutions.

At Bank of America, a record trading profit of $6.7 billion and a pickup in investment banking fees lifted net revenue to $33.1 billion, up from $20.7 billion a year ago.

via 2 Ailing Banks Post Profits, Aided by Asset Sales – NYTimes.com.

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High speed rail from the Stimulus and long tracts of downtown real estate that can be reconstructed, the opportunity is immense

more about “Real Estate turnaround – Los Angeles …“, posted with vodpod

The median price surge of 7% to $265,000 reflects a recent trend of higher-priced properties taking a greater market share.

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