Deals of the Day: The Dubious Logic Behind Comcast-NBCU

Deals of the Day gathers all the biggest news of the morning related to mergers and acquisitions, bankruptcies, financing and private equity. Deal Journal’s homepage is You can see real-time updates of our posts and our favorite deal-related articles on other Web sites through our Twitter feed at

Today in BofA

Short-term solution: BofA directors wrestled with finding a new chief after Lewis’s resignation, considering even a temporary fix to the leadership vacuum. [WSJ]
Related: Lewis’s surprise resignation announcement indicates that directors and regulators remain too slow in addressing weakness in the banking sector. [WSJ]

Mergers & Acquisitions

Comcast-GE: Talks to merge Comcast’s cable networks and General Electric’s NBC Universal are the latest sign of a big shift in television. [WSJ]
Related: Comcast is weighing a deal of dubious logic with NBC Universal. If Comcast shareholders are lucky, the cable operator is engaging in a routine examination of potential deals and will shortly come to its senses and walk away. [WSJ]

Anglo-Xstrata: The U.K. Takeover Panel gave Xstrata a “put up or shut up” order, saying the Anglo-Swiss company must formalize its offer for Anglo American by Oct. 20. [WSJ]

Saturn: A new bid to buy the GM brand is unlikely. [Detroit Free Press]

Femsa: The Latin America beverage company is in talks to merge its beer operations with a larger rival in a deal that could be valued as high as $9 billion and would continue a wave of global brewing consolidation. [WSJ]

Cadbury-Kraft: A Cadbury shareholder is suing the confectioner’s board and CEO, saying investors “stand to lose out massively” if the company refuses to negotiate with Kraft. [Reuters]

Buyer’s Market for Asset Management Arms: During the boom, banks piled into asset management. Now many are trying to pile out, resulting in a buyer’s market for such businesses. [WSJ]

Bankruptcy & Restructuring

Lehman: A court-appointed Lehman examiner is looking at whether the Fed improperly cut in front of other creditors in the $613 billion bankruptcy. [WSJ]

Selling old GM: An entity known as “Old GM” has the formidable task of unloading all of the unwanted remnants of GM’s grand industrial empire. [WSJ]

Creditor vs. creditor: CIT Group has offered its creditors a deal that pits different categories of bondholders against each other and would see some of the firm’s current board replaced. [WSJ]

Newspaper war: Creditors hoping to take over Philadelphia’s two main daily newspapers accused the current owners Thursday of trying to ”game” the bankruptcy system to keep insiders in control. [Associated Press]

Financial Institutions

RBS: Philip Scott and Penny Hughes have been appointed nonexecutive directors as part of an ongoing management shakeup that has resulted in eight new appointments since last October. [WSJ]


Citadel: The hedge fund pulled in about $1 billion last year in a unit that does high-frequency trading. [WSJ]

KKR’s Changing Face: KKR has taken a step forward to a long sought-after NYSE listing via its completion of a merger with its Amsterdam-listed fund unit, KKR Private Equity Investors. [WSJ]

Don’t call it a comeback…well, actually: Carlyle’s David Rubenstein expects the private-equity industry to come back and to be stronger. [Bloomberg]

Regulation buyside: Under draft legislation released by a senior lawmaker, hedge fund advisers would have to register with U.S. authorities. [Reuters]

Capital Markets

Kraton Performance Polymers: A maker of polymers used in products such as disposable baby diapers and razor blades, plans to raise as much as $230 million in an initial public offering. [Reuters]

A New Look at an Old Trick: IPO Spinning

Amid all the rage and blame directed at Wall Street for the global financial crisis, it is easy to forget the scandals of old.

Take “IPO Spinning.” This phenomenon was much rumored in the late 90s and early part of this decade, when the IPO markets were on fire. Ultimately a few high-profile cases were brought to light, such dozens of IPOs that Frank Quattrone, the former Credit Suisse First Boston banker, was cited for doling out improperly. He was also cited for allegedly obstructing a probe into how the offerings were allocated. Quattrone’s conviction was later overturned. He avoided a third trial by reaching a deferred-prosecution agreement in 2006 that called for the charges to be dropped, provided he stayed out of trouble for a year.

Then IPO spinning largely fell out of the public spotlight.

Well, the U.S. IPO market is widely believed to be heating back up. So it seems timely that a new paper is being published that studied the way in which that IPO spinning hurt investors and companies.

Here’s a little review: In IPO spinning, the shares being sold to the public are underpriced–meaning that the initial offering price is set lower than demand for the offering would suggest. And the investment banks that shepherd the ‘hot’ offering to market set aside shares in special brokerage accounts created for executives with which they wanted to curry favor. The under pricing helped give the shares a more-commanding pop in the first day of trading and ensured that favored executives would get a big pay day. The banks got the standard fee of roughly 7% of the amount raised and the goodwill of executives who were looking to select an investment bank for their companies.

A recent study by a pair of finance professors at University of Florida quantifies for the first time the cost of spinning to the companies issuing their IPOs. The professors, Xiaoding Liu and Jay Ritter, found that 43% of the IPOs in which the executives are being spun are underpriced.

On average, the researchers found that such under pricing leaves $17 million on the table that could have been raised through the IPO. That’s a significant sum considering that the average proceeds raised through the hot IPOs examined in the study totaled $113 million. “That means the company has $17 million less on its balance sheet and that hurts the shareholders,’’ says Mr. Ritter. The researchers define “underpriced” as the difference between the closing price on the first day of trading and the offer price

Mr. Ritter says the IPO drought amid the financial crisis has pushed the issue to the backburner of regulatory concerns, but he expects that spinning could return as banks compete for business. “Human greed had not gone away,’’ he says.

Deconstructing Ken Lewis’s Beard

Associated Press
In happier, beardless days.

The Wall Street Journal reports today that: “One sign to company insiders that something was up: Lewis returned to work after Labor Day in a full beard, which no one at the bank had ever seen before.”

It turns out the Bank of America insiders were on to something. Growing facial hair is rarely done lightly. But in many cases, it signals a significant change in someone’s frame of mind. Psychiatrists say men grow beards to appear macho or to hide something (like a double chin) or as a sign of rebellion.

Although we never got a glimpse of Lewis’s beard, there have been some creative interpretations of what it might have looked like. (Click here for one)

So what did Lewis’ beard signify? We looked back at some of history’s famous beards hoping to shed light on what drove the soon-to-be former BofA chief’s short-lived whiskers.

Associated Press
Circa 2001

Mourning Beard: Al Gore’s post 2000 election beard is probably the most famous foray into facial hair in recent times. Beard experts and psychiatrists said Gore’s whiskers represented “time off,” “transition” and “mourning.”

Politically Expedient Beard: Abraham Lincoln: Legend has it that an 11-year-old girl inspired Honest Abe to grow a beard during his presidential campaign in 1860. “All the ladies like whiskers and they would tease their husband’s to vote for you and then you would be President, ” wrote little Grace Bedell of Westfield, N.Y.

Time off Beard: After New Mexico Gov. Bill Richardson dropped out of the 2008 presidential race, he re-emerged publicly to endorse Barack Obama sporting a full beard. “For an entire year, every day was programmed,’’ Richardson said at the time. “Now that I am wearing a beard, I can finally reflect and decompress.”

Associated Press
Johnny Damon had to shave to don his Yankee pinstripes.

‘Idiot’ Beard: Johnny Damon was often said to resemble Jesus because of the bushy, brown beard he grew as a centerfielder for the Boston Red Sox during the team’s magical 2004 championship season. The beard was part of Damon’s ‘Idiot’ mystique, as he liked to call it. And the laid-back approach it came to symbolize was said to be key to the Red Sox winning their first World Series in 87 years. When Damon was traded to the Yankees in 2005, he was forced to shave off the beard. The Yankees haven’t won a World Series since the clean-shaven Damon donned the pinstripes.

Protest Beard: Late night hosts David Letterman and Conan O’Brien grew beards in 2008 to show solidarity with striking television writers, many of whom were growing beards (See time off beard).

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Kenneth Lewis, the Man Who (Almost) Beat Wall Street

It’s sometimes hard to remember that Kenneth Lewis used to be seen as a savior of the world’s financial system. With his purchases of Countrywide Financial and Merrill Lynch, Lewis was the Mississippi banker who conquered Wall Street.

Just listen to Lewis in a “60 Minutes” interview, one month after Bank of American nabbed Merrill Lynch in September 2008.

Interviewer Lesley Stahl asks: “If you are No. 1 and if the idea was to compete with New York or Wall Street, you won.”

Lewis: “Yes, we have won in that sense. Yes.”

Of course, Lewis’ victory lap on “60 Minutes” now looks premature at best, a misjudgment at worst.
We know the rest of the story: Unexpected and huge Merrill losses, bonuses to Merrill executives, federal investigations into whether Lewis hide those losses and bonuses from his bank’s shareholders and, now, Lewis’s retirement.

If Lewis ever watches that “60 Minutes” interview again, he’s likely to cringe. It would be like looking back at an old prom or high school year book photo.

There’s footage of Lewis showing off the multiple BofA office towers and spiffy trading floor in Charlotte , N.C. Lewis tells Stahl it was “egregious” how much bankers are being paid. (Two months later, Lewis approved those $3.6 billion in bonuses to Merrill executives, even though the securities firm was about to post a loss of $27.6 billion for 2008). And there’s a BofA executive boasting how the southern bank had long sought to best its northern competitors and take over the nation’s banking system.

The “60 Minutes” video is worth a look:

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Deals of the Day: Lewis Exits BofA. Now Who Will Succeed Him?

Deals of the Day gathers all the biggest news of the morning related to mergers and acquisitions, bankruptcies, financing and private equity. Deal Journal’s homepage is You can see real-time updates of our posts and our favorite deal-related articles on other Web sites through our Twitter feed at

Today at BofA

Lewis Exits: BofA CEO Ken Lewis said he will resign by year end, after scrambling to keep his grip on the bank he helped build from a scrappy outsider to the nation’s largest in assets. [WSJ]
Related: Fatigue, distraction of media and regulatory grilling led Lewis to call it quits. [Forbes]
Related: Who are the contenders to succeed Lewis? [WSJ]
Related: Lewis was shot with his own gun., but who exactly who pulled the trigger. [WSJ]
Related: The end of the Lewis era. [BusinessWeek]

Mergers & Acquisitions

M&A: After a two-year decline in activity, a late spate of big-name mergers gave deal makers hope that the deal-making drought was nearing an end. [WSJ]

Comcast: The cable giant is weighing a potential deal involving General Electric Co.’s NBC Universal. [WSJ]

Hershey: The confectioner remains stymied in its ability to assemble a bid for Cadbury, likely leaving the U.K. sweets company with few alternatives to an unsolicited takeover offer from Kraft. [WSJ]

Saturn: Penske dropped its bid to buy Saturn. GM said it would pull the plug on the brand, jeopardizing 13,000 jobs. [WSJ]

Cisco Systems: The tech company has agreed to buy Tandberg, a videoconferencing-gear maker with dual headquarters in New York and Oslo, Norway, for about $2.98 billion. [WSJ]

Time for Bharti to Dial Home: Eager to strike a deal with South Africa’s MTN Group, India’s Bharti Airtel has found itself rebuffed for a second time. This is good news: Being the leader in the world’s fastest-growing telecom market is exciting enough. [WSJ]
Related: After multiple unconsummated attempts at a deal, where can MTN now turn? If MTN can’t take the junior role, it can try expanding beyond the 21 countries in which it already operates. [WSJ]

Citi: The beleaguered banking giant completed the sale of its Japanese brokerage Nikko Cordial Securities to Sumitomo Mitsui Financial Group. [WSJ]

Financial Institutions

J.P. Morgan: The banks new investment banking head will have the tough task of quelling long-simmering tensions between the bank’s New York and London offices. [WSJ]
Related: Before the crash, J.P. Morgan lagged in key areas. Once rivals reassert themselves, the bank may not look so impressive Dimon’s successor may find. [WSJ]

Wall Street Wizardry: A new wave of repackaged mortgage investments, “re-remics,” are emerging as banks and insurers seek to make soured securities look better. [WSJ]

Bankruptcy & Restructuring

CIT Group: The lender upped the ante with its creditors by drawing up a prepackaged bankruptcy plan. [WSJ]


KKR: Shares with a “KKR” ticker symbol begin trading Friday, bringing an end to the iconic private-equity firm’s relentless two-year quest for a public listing. [WSJ]

Putting the sword to Eni: Activist campaigner Eric Knight is demanding a breakup of Italy’s Eni. [WSJ]

Capital Markets

Talecris Biotherapeutics: The maker of blood-plasma therapies that U.S. regulators blocked from being acquired in June, raised $950 million in the second-largest initial public offering in the U.S. this year. [Bloomberg]

Comcast Linked to NBC Universal Stake

Sam Schechner

The intrigue over the fate of NBC Universal is intensifying, with cable giant Comcast Corp. considering a potential deal involving the media company.

NBC Universal minority-owner Vivendi SA, of France, is deciding whether to sell its 20% stake in the owner of television and movie assets. General Electric Co., with an 80% stake, is readying NBC Universal for a potential public offering of Vivendi’s stake, while casting around for less risky alternatives, according to people familiar with the matter.

Media executives are atwitter over what they think each side will do. The latest buzz, reported Wednesday by the Hollywood blog The Wrap, says Comcast is in talks to buy all of NBC Universal, a deal that would save GE the headaches of finding another minority owner and would create one of the world’s largest media companies.
Comcast has held the discussions with NBC Universal majority-owner GE, according to people familiar with the matter. It isn’t clear if those discussions will lead anywhere. Comcast said the report of its deal to buy NBC Universal is “inaccurate.”

Other rumors include everything from new buyers for all or part of Vivendi’s stake to a merger between NBC Universal’s movie studio and Time Warner Inc.’s Warner Bros. studio.

NBC Universal, which owns TV networks including NBC, USA and CNBC, along with local TV stations, Universal Studios and theme parks, is valued at between $21 billion and $23 billion, according to a recent report from research firm Sanford C. Bernstein. Another analysis, from J.P. Morgan, pegs NBC Universal’s value at $30 billion to $35 billion, valuing Vivendi’s investment as high as $7 billion.

Comcast and Time Warner have been frequently rumored acquirers, though there are obstacles in both cases.

Comcast is the largest cable operator by subscribers in the U.S. Its executives have said in recent weeks that they would be interested in TV networks it could add to its existing portfolio, which includes entertainment channel E! and sports channel Versus. Steve Burke, the company’s chief operating office, said at an investor conference in early September that “I don’t think that means doing a big $50 billion acquisition.”

People familiar with the thinking at GE and NBC Universal say it could be difficult to interest Comcast without offering a path to controlling NBC Universal. Both Time Warner and Comcast have been cool to owning a slice of a media company controlled by someone else. A purchase of all of NBC Universal would solve that problem.

The plotting over NBC Universal was set in motion by a feature of the 2004 deal in which Vivendi merged its Universal movie studio, cable networks and theme parks with G.E.’s NBC businesses. As part of the deal, Vivendi received cash and about 20% of NBC Universal, according to securities filings.

Vivendi also got the right to exit the joint venture, with an annual period to declare its intentions that runs from Nov. 15 to Dec. 10. Exercising that right would trigger a sale to public investors of Vivendi’s NBC Universal shares. G.E. can step in to buy the stake privately, the securities filings say. It has also said it could find another partner to buy the stake.

Vivendi has long indicated that it would eventually sell its NBC Universal holding. At an investor conference earlier this month, Jean-Bernard Levy, Vivendi’s chief executive, said that the company hadn’t decided whether to sell this year.

“We will ask ourselves, ‘Is it the right time or not?’ ” he said in a brief interview at the event. “We will look at a number of elements,” he added, but declined to elaborate.

Each year there is a guessing game about whether Vivendi finally will shed the stake. This time Vivendi has extra motivation, including a tepid stock price and a desire for cash to expand its telecom investments.

Vivendi spokesman Antoine Lefort declined to comment on whether the company would sell the stake this year.

G.E. is nevertheless preparing NBC Universal for a potential IPO, say people familiar with the matter. Executives at various divisions are involved in making preparations, these people say. G.E. is also exploring other possible options for Vivendi’s stake, including third-party buyers, people familiar with the matter say. One person familiar with the matter said the due diligence is more advanced than what GE would need for an IPO.

Wednesday evening, representatives for GE said the company doesn’t comment on rumors. Asked about the report of a Comcast deal, the representatives referred to Comcast’s statement.

A more exotic scenario envisions Time Warner buying Vivendi’s 20% and trading it back to NBC Universal for Universal Studios. That would leave G.E. with full ownership of NBC Universal’s television networks and TV studio. And it would leave Time Warner to combine Universal with Warner Bros. Many executives say Hollywood is in dire need of consolidation, as studios cut back on the number of movies they make and consumers buy fewer DVDs.

It’s unlikely Time Warner would want Universal, according to a person familiar with Time Warner’s thinking. Warner Bros. is already the biggest U.S. movie studio in terms of global gross box office revenue, and Time Warner recently merged two of its existing studios and cut the number of movies it produces to save money. Such a deal also would be difficult to pull off and could be complicated to value, leading one person familiar with the thinking at G.E. and NBC Universal to downplay the scenario as well.

Media executives are chattering about other possible deals. Analysts have suggested private-equity companies could buy a stake. Blackstone Group LP, for instance, might be a logical partner. The private-equity firm already jointly owns the Weather Channel and Universal Orlando theme park with NBC Universal. Other reports have suggested that cable magnate John Malone might buy the 20%, given his history of unusual transactions. It’s also possible the entire company could be broken into pieces and sold off. People familiar with the thinking of G.E. and NBC Universal have downplayed those options.

If it’s not possible to interest a private purchaser, that leaves a public offering as the default scenario. Unless, of course, G.E. decides it actually does want to pony up several billion dollars and buy the stake itself.

Lauren A.E. Schuker, Shira Ovide, Max Colchester, Dennis Berman and Paul Glader contributed to this article

Ken Lewis’ Farewell Letter: A Journey “Not For the Faint of Heart”

Wed 30 Sep 2009

To my teammates:

As some of you may know, I always end my summer in the mountains, giving me time to reflect on the bank’s challenges and our strategies to meet them. I have always returned to the company in the fall energized and ready to get to work with all of you to meet those challenges and pursue our goals.

This year, though, has been different. This year, I returned with a strong belief that the major strategic challenges of my tenure as CEO have been met. We have built leading market positions in every major product category in our industry. We have come through the worst economic downturn in 80 years with all the tools, assets and talent we need to succeed and win. We have taken the most important steps to reduce and remove the need for government support of our company.

The next great set of challenges for our company – executing across our businesses to achieve our potential, and imagining how our company must continue to evolve to meet the changing demands of the global marketplace – are for our next chief executive officer, and for our Executive Management Team, which I know is capable of rising to any challenge. I now have a strong sense that the work that has consumed me for the past eight years is largely finished, and that it is time for a new leader to take on new challenges with all of you.

For these reasons, I informed the board today of my intention to retire at the end of the year.I am comfortable with this decision, not only personally, but also as someone who is greatly invested in Bank of America. Our board of directors and our senior management include more talent, and more diversity of talent, than at any time in this company’s history. They begin the next chapter in our company’s history with a franchise unique in the world: a bank with primacy in U.S. retail and commercial banking, global wealth management and corporate and investment banking.

I have spent a lot of time this year meeting with our customers, investors and associates around the country and around the world. They understand what we have built and what we can offer them, and their excitement about the future of this bank is contagious.

I am gratified that even some of the critics of our acquisition of Merrill Lynch have come to acknowledge how well the deal is working out for our clients, and the great potential this combination holds for our shareholders over the long-run. Looking at the range of clients covered by our financial advisors and the strong position our traders and investment bankers have in the most important markets around the world, it has become hard to imagine Bank of America without Merrill Lynch.

Certainly, this journey has been a rocky one, and not for the faint of heart, but perseverance is paying off. There is no question in my mind that our success in these businesses will continue and grow over time.

None of this is to say that our bank does not face challenges. A near double-digit unemployment rate is bad medicine for a bank that serves consumers, and I am disappointed in how we managed credit risk. The next two quarters will be difficult.

I can assure you, though, that we have devoted the resources necessary to managing credit better. We have access to credit markets on terms that reflect our strength and stability. And when the economy does return to something approaching normal, our consumer bank – with preeminent positions in deposits, homes loans and card services – will lead the industry and will be an earnings machine.

Some will suggest that I am leaving under pressure or because of questions regarding the Merrill deal. I will simply say that this was my decision, and mine alone.

Most important to me is this: I will leave knowing that almost anywhere I go in this country, I’ll be able to walk into a Bank of America banking center and receive a warm greeting. I will be able to travel the world, and visit towers full of bright, energetic associates creating financial solutions for companies of every size and shape. Everywhere I go, I will know and see that the company I had the privilege to serve for 40 years is in good hands.

When I joined this company fresh out of college in 1969, I had several offers from other very strong companies, some offering markedly better terms. I chose this company because of the culture and the people I found here. It was a group of people who believed that with trust and teamwork, anything is possible. It was a culture that rewarded hard work and enthusiasm, that allowed and encouraged people to do the right thing, that demanded leadership from its associates, and settled for nothing short of winning.

We remain that company today, because of all of you. Thank you for allowing me to lead the greatest financial services company in the world. Thank you for understanding that our customers come first, and that all our future success flows from them. Thank you for all the support you’ve given me over the years. I’m very grateful. Ken

Ken Lewis’s Greatest Hits & Misses

Deal Journal has spilled a lot of ink on Ken Lewis. Can you blame us? In many ways, the Bank of America chief embodied all of the hubris, folly, bad luck, and outrage surrounding the financial crisis.

Here’s a quick look back at some of the high and low lights of Lewis’ recent tenure as head of the nation’s largest bank:

Lewis, the consummate deal maker: Since taking the reigns of the giant bank in 2001. Lewis completed $120 billion worth of acquisitions, making BofA the largest U.S. bank.

Lewis, the deal maker gone awry: “In Bank of America’s acquisition of Merrill Lynch is a candidate for the title of “A Deal from Hell.”

Lewis as Wall Street’s pawn: “America’s Banker of the Year? How about Chump of the Year? How else to explain the thorough snookering the Merrill Wall Street boys gave Bank of America?”

Lewis as modern-day Tom Sawyer: “By going to Treasury, Lewis transformed his Merrill Lynch problem into the government’s problem. In a way, Lewis’s move is the classic Tom Sawyer strategic jujitsu…’’

Lewis as political punching bag: Congress has been obsessed with trying to learn “who did what to whom” in the Merrill Lynch deal. Lewis is at the center of Congressional inquiries and disdain.

Lewis in hot water: Federal Judge Jed Rakoff last month refused to allow the Securities & Exchange to settle with BofA over the bank’s failure to disclose the billion in bonuses it was paying to Merrill employees. Rakoff said BofA lied to its shareholders and that he’s doesn’t support the SEC’s decision not to prosecute bank executives. The SEC is now building its case.

Lewis, as poet: At a recent speech in Japan, Lewis waxed poetic about finance and life in general.

BofA News Release on Ken Lewis Retirement

Many believed it was only a matter of time before embattled Bank of America chief Ken Lewis stepped down. Well, it’s happening. With Bank of America facing multiple government probes related to its acquisition of Merrill Lynch and BofA shareholders still upset about the troubled deal, the bank said Lewis is retiring at the end of this year.

Here’s the news release sent out this afternoon by Bank of America.

CHARLOTTE, N.C., Sept. 30 /PRNewswire/ — Ken Lewis, chief executive officer and president, announced today that he has notified the Board of Directors of his decision to retire, effective December 31, 2009. The Board will continue ongoing planning to ensure his successor is selected by that date. Lewis will retire as CEO and as a director.

“Bank of America is well positioned to meet the continuing challenges of the economy and markets,” said Lewis. “I am particularly heartened by the results that are emerging from the decisions and initiatives of the difficult past year-and-a-half.”

“The Merrill Lynch and Countrywide integrations are on track and returning value already,” Lewis noted. “Our board of directors and our senior management include more talent, and more diversity of talent, than at any time in this company’s history. We are in position to begin to repay the federal government’s TARP investments. For these reasons, I decided now is the time to begin to transition to the next generation of leadership at Bank of America.”

“Ken Lewis was a key architect in building a truly global financial franchise,” said Walter E. Massey, Chairman of the Board of Directors. “We are on a solid path to the future. The board will be moving in a deliberate and expeditious manner to select a worthy successor to Ken Lewis.”

On August 3, Lewis, 62, announced changes to his executive management committee that increased the depth, range and diversity of experience of Bank of America’s leadership team. Lewis noted that “these changes also position a number of senior executives to compete to succeed me at the appropriate time.”

In a message today to Bank of America associates, Lewis thanked them for the opportunity to lead. “In 1969,” Lewis wrote, “I chose to come here because of the culture and the people. We believed that with trust and teamwork, anything is possible. We remain that company today.”

Biographical Highlights:

Chief executive officer since 2001

Joined North Carolina National Bank (NCNB, predecessor to NationsBank and Bank of America) in 1969 as a credit analyst in Charlotte.

Born in 1947 in Meridian, Mississippi.

Earned a bachelor’s degree in finance from Georgia State University. Graduate of the Executive Program at Stanford University.

The only two-time winner of American Banker newspaper’s “Banker of the Year” award (2002, 2008). Named in 2007 as one of the 100 most influential people in the world by Time magazine.

Member of the Financial Services Roundtable and the Financial Services Forum; the Fifth District’s representative on the Federal Advisory Council; past chairman of United Way of Central Carolinas, Inc.; a member of the Committee to Encourage Corporate Philanthropy; a director of the Homeownership Education and Counseling Institute; vice chairman of the Corporate Fund Board of The John F. Kennedy Center for the Performing Arts; and past chairman of the National Urban League.

Can CIT Survive a Bankruptcy Filing?

The concept of a prepackaged bankruptcy for CIT Group is being framed by some people involved in the matter as “the antithesis of Lehman Brothers.”

Unlike Lehman, which has endured a slow, painful liquidation process in bankruptcy court, it is hoped that if bond holders can agree to a plan that would lighten CIT’s debt load before it files for bankruptcy protection, it can emerge as a formidable and more financially stable lender in just a few months.

That may be wishful thinking, say bankruptcy lawyers and restructuring experts. CIT may have to deal with problems attracting and retaining customers both during and after it emerges from bankruptcy. Why would potential borrowers do business with CIT, which will likely have to lend more conservatively post-bankruptcy, if they can receive a similar loan from competitors like Bank of America and Wells Fargo?

Getting a business loan is not like buying a car from a company in bankruptcy. A customer that relies on a lender to finance its business is likely to be more fickle and cautious than someone buying a car. (Some even worried that people wouldn’t buy from automakers that had been through bankruptcy. But those worries have largely faded, thanks in part to “cash for clunkers” subsidies)

But when it comes to lenders, “reputational risk is a very, very important one,” says Harold Reichwald, co-chairman of the banking and specialty finance practice at the law firm Manatt, Phelps & Phillips, LLP, ? “If customers have alternative lenders they are likely to seek them out.”

Then again, CIT has long standing relationships with many of its customters, expecially small and medium sized businesses. CIT has been able to offer some of the best rates in the industry. Also, if CIT is able to line up new financing to avert bankruptcy than many potential concerns from customers would be ameliorated.

But history is not on CIT’s side. The three bankruptcy lawyers that Deal Journal spoke to this afternoon couldn’t name a single financial institution that has survived bankruptcy court in the past three decades.

To be sure, federally regulated commercial banks are often put into government receivership before they are sold off or the government sells them off to other banks.

But the fact that CIT is regulated by state agencies, and not the Federal Reserve or the Federal Deposit Insurance Corp., means it lacks the safety net that these federal regulators can provide in a crisis.

A pre-packaged bankruptcy may protect CIT from its creditors, but can it insulate the company from the concerns of its customers

Without CIT, Life Is Tougher, but Better

Many CIT Group borrowers who have jumped ship amid the lender ’s struggle through mounting financial difficulties say the past two months have been bitter and sweet.

Assaf Cohen, a wholesaler of T-shirts and jeans in midtown New York, who WSJ interviewed in the previous CIT coverage when the factors first announced its stalled talks with the government in July, said he suspended his business’s borrowing from CIT right after he heard the news.

fashiondistrict_D_20090717152614.jpgBloomberg News
A pedestrian walks past a clothing store in the fashion district of New York.

Not only did Cohen manage to switch to other factors quickly with the help of Merchant Factors Corp., a third-party entity that pools receivables from individual garment businesses to negotiate a lower fee from CIT, but it has also got back most of its receivables, valued at more than $1 million, from CIT as clients paid in the past two months.

“I felt lucky that CIT didn’t hold onto our money,” Cohen said. “Today I have only 10% of receivables left with them.”

Cohen said almost everyone in the garment business has switched from CIT since.

Still, life without CIT is more difficult for garment wholesalers, because no other factors approve as many retailers as CIT used to. “Now we have to play the game to see which factors approve which retailers and have to work with various factors instead of with one,” Cohen said.

The two new factors Cohen now work with cover about 80% of the retailers that CIT used to cover.

That means fewer retailers are able to buy from Cohen with credit. In a weak economy, that adds salt to injury. “To say the least, the business is challenging. We are waiting for the business to come back,” Cohen said.

While Cohen now has a new set of business worries–multiple factors, fewer credited clients and weak orders–he feels fortunate that exposure to the struggling CIT isn’t one of them anymore.

“I have not been following CIT’s news since I switched,” he asks when we speak by phone. “How is it doing now?”

Paul Volcker: You Call This An Economic Recovery?

It’s the last day of the third quarter, and the stock market has had a great run. Blue-chip stocks are on pace for the best quarterly performance since 1998. Investors seem to think strong corporations can still generate profits, while unemployment remains high.

Along comes former Federal Reserve Chief Paul Volcker to throw a wet blanket on the stock market’s cheery camp fire. Speaking this week in a two-part interview on “Charlie Rose, ” Volcker takes a much more dour view on the economy than many advisers in the Obama Administration.

Here’s Volcker on the current economic “recovery”:

“I think it’s questionable of how rapidly the economy will expand after this recession, because there are a lot of basic adjustments that have to be made…. We can’t just pump up consumption and pump up housing again. Might pad us for a year or two, but it’s imbalance that got us in trouble in the first place. We’ve got to work toward producing more goods, selling more goods abroad, being more competitive abroad, maintaining a decent rate of savings, bringing budgetary–federal budgetary situation back into something that’s sustainable, and all those things, plus the financial market is wounded. There’s no doubt about that, and it won’t recover from those wounds, deep wounds for a while.” (When pressed, Volcker wouldn’t put an exact time frame on the recovery, but said it would take “several’ years.)”

chascar via flickr
Storming into the Fourth Quarter

And here is Volcker on what he sees as the next shoe to drop on the banking system.

“The single threat in the credit area right now is commercial mortgages…commercial real estate’s in trouble… I think in terms of taking the loss and recognizing loss has only just begun.”

And finally, Volcker weighs in on the threat of inflation, a subject on which he is well versed. As Fed chief in the early 1980s, Volcker earned his spurs, fighting to limit inflation despite pressure to lower interest rates to pump up the economy.

“You ought to be potentially worried about inflation…the administration is perfectly conscious of the fact that they’ve got a problem….they say, our hands are tied, we can’t do anything now, unemployment is close to 10%, the economy is weak, there isn’t any apparent inflation problem at the moment, prices are nice and stable. But we’ve got that budget deficit….We’ve got to be careful about this. But it’s a problem for at least a year out, two years out, three years out.”

For an earlier Deal Journal post on Volcker’s views on restricting proprietary trading at commercial banks click here.

Deals of the Day: CIT Scrambles to Line Up Rescue

Deals of the Day gathers all the biggest news of the morning related to mergers and acquisitions, bankruptcies, financing and private equity. Deal Journal’s homepage is You can see real-time updates of our posts and our favorite deal-related articles on other Web sites through our Twitter feed at

Mergers & Acquisitions

Kraft-Cadbury: Kraft Foods was given a six-week deadline to either make a formal bid for Cadbury, the U.K. confectioner it has been stalking for the past three weeks, or walk away. [WSJ]

British Airways: the airline’s CEO said the company has a chance of finalising its proposed merger with Iberia before the end of the year and is keen to make an offer for BMI as well. []

Bankruptcy & Restructuring

CIT: The fate of CIT Group was hanging in the balance as the large commercial lender readied a plan that would likely hand control of the company to its bondholders. [WSJ]
Related: CIT is considering an offer of financing from Citigroup Inc. and Barclays Capital. [Bloomberg]
Related: CIT isn’t actively considering a merger at the moment. [Dow Jones Newswires]

Extended Stay: A Starwood-led group offered to pay $3.5 billion for the first mortgage of Extended Stay, setting the stage for a bankruptcy battle. [WSJ]

Financial Institutions

Who will succeed the King: J.P. Morgan changed the management of its investment bank, pushing out a longtime executive and igniting a contest to eventually succeed James Dimon at the helm. [WSJ]

More losses to come: Rising global securities prices reduced the IMF’s estimate of bank losses, but banks world-wide likely face additional write-downs of $1.5 trillion by the end of next year. [WSJ]

Citigroup: A top banking regulator in China said Citigroup’s local operations “absolutely” should expand in the country. [WSJ]

Global regulator: Morgan Stanley’s John Mack said a single regulator should oversee financial institutions world-wide. [Bloomberg]


The fund that protects consumer bank deposits has fallen into the red and will remain there into 2012, a symbol of how aftershocks will reverberate for years as banks continue to fail. [WSJ]


Realogy: The Apollo-owned company raised $515 million in new loans, with Carl Icahn representing 30% of that money. It plans to use $365 million of the proceeds to reduce senior debt. [NY Post]

Elliott Broidy: A venture capitalist and major Republican fund-raiser under scrutiny in a pay-to-play pension-fund scandal has failed to comply with the SEC’s investigation, the agency said in public documents it filed last week. [WSJ]

People & Players

Liam McGee: Hartford Financial named ex-BofA executive Liam McGee as CEO amid the firm’s retreat from the risky variable-annuities business. [WSJ]

Deal Journal Video: Salomon Brothers’ Legacy

It’s time to bid adieu to Salomon Brothers.

Of course, the investment bank officially disappeared into Citigroup over a decade ago.

But as the world’s credit boom intensified earlier this decade, Citi turned to the remnants of Salomon.

Salomon’s credit desk helped push the bank into tens of billions of disastrous mortgage bets. Citi’s investment bankers, largely Salomon veterans, piled on billions more in leveraged-buyout debts. Meanwhile, it was Salomon’s commodities-trading operation, Phibro, that provided some of the only reliable profits for the Citi mothership.

Now as Vikram Pandit tries to rebuild Citi, he will do so with an increasingly limited Salomon influence.

Dennis Berman and Evan Newmark discuss how Salomon’s culture has been passed onto Wall Street and in particular, onto Citigroup.

Volcker to Banks: Stop Trading with Taxpayer Money

Former government officials walk a fine line when they offer constructive criticism of their successors without sounding like pedantic know-it-alls.

Former Federal Reserve Chief Paul Volcker, who serves on President Obama’s Economic Recovery Advisory Board, has tried to strike that balance in his critiques of the Fed’s financial rescue effort and subsequent proposals to overhaul financial regulation.

But he can’t hold back on certain issues: Namely, the fact that commercial banks that have taken billions in government assistance and whose deposits are now insured by the federal government, continue to take trading risks that Volcker finds unacceptable.

Commercial banks “lend money to businesses, and that’s still a very important function….And that’s why we protect them. I don’t want to see those banks, however, taking a lot of unnecessary risk. It’s risky enough lending money. They don’t have to do a lot of trading on speculative reasons,’’ Volcker says in an interview on “Charlie Rose,” the PBS show which will be broadcast Tuesday and Wednesday nights.

In other words, Volcker said banks should not be allowed to act like hedge funds trading everything from commodities to debt instruments. He essentially favors restoring the Glass Steagall Act of 1933, which separated commercial and investment banking and was undone during the Clinton Administration. “I don’t want to support it with taxpayers’ money,’’ Volcker said

The problem is that proprietary trading is a major revenue generator for many commercial banks today. On some levels this could be good for taxpayers because the banks can use their trading profits to help pay back government bail out funds.

It’s difficult to argue against that logic, no matter how short sighted it might seem.

Not surprisingly, Volcker admitted during the interview with journalist Charlie Rose, which will be rebroadcast by Bloomberg TV, that he hasn’t found any takers in the Obama administration for his call to separate commercial banking from trading.

Is the M&A Recession Really Over?

Has the M&A market finally hit bottom?

For two years, deal makers have been searching for signs of that bottom. And for two years, merger activity has kept going down. Even as the economy and the stock and credit markets showed signs of improvement this summer, the M&A market remained a laggard.

And yet lately, there have been signs of life. Since Aug. 31, corporate buyers have announced a spate of big, brand-name deals, such as Walt Disney’s $4 billion acquisition of Marvel Entertainment; Kraft Foods’s $16.73 billion takeover offer for Cadbury; and Dell’s $3.9 billion deal to purchase Perot Systems.

So, have we seen the bottom? The answer seems to be at least a qualified yes. M&A has hit its cyclical trough and is starting a slow slog back up. That certainly was the take of Mr. Market on Monday.

“These deals are a strong, bullish sign for the market,” said Howard Lanser, a director at Robert W. Baird. “These are game changing, strategic transactions by the CEOs of these companies. The CEOs are showing confidence and are taking a longer term view.” But Lanser cautions that M&A activity needs to be broader across more industries for a more robust recovery. In the near term, deal volume is likely to remain depressed, just not at levels seen in July and August.

A look at September’s numbers lends support to that outlook. The dollar volume of world-wide and U.S. deals jumped significantly from August, up 58% and 79%, respectively. Yet the number of announced deals is less encouraging, with September likely to be flat with August. And while deal volume is up from August, September still marks the 12th straight month of year-over-year declines, according to Dealogic.

One reason is that, although corporate buyers increasingly feel the worst is behind them, they still don’t have a feel for the market. Buyers are concerned that they will be buying into a false uptick, while sellers remain concerned that they are selling too low. That may be keeping a number of would-be buyers on the sidelines.

But given the struggles of the M&A market, the positives are finally outweighing the negatives and, more importantly, confidence is coming back.

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J.P. Morgan: Wall Street’s King Picks Its Princes

J.P. Morgan Chase is shaking up its investment-banking ranks.

Jes Staley, a 30-year J.P. Morgan veteran who is currently head of the bank’s asset-management unit, has been named CEO of the investment bank.

The investment bank’s co-head, William Winters is leaving the bank after 25 years. The other co-head, Steve Black, will remain at the bank through 2010 to help with the succession and then plans to retire. He has been given the new title of executive chairman of the investment bank.

Mary Callahan Erdoes, CEO of the private bank, will become the new head of asset management.

The moves come as J.P. Morgan sits at the top of the I-bank heap. As of now, J.P. Morgan has the No. 1 spot for 2009 in both global capital markets revenue and in global M&A revenue, ahead of No. 2 Bank of America Merrill Lynch, according to Dealogic. This after J.P. Morgan has finished three years in a row at No. 2.

Black, who is 57, has been signaling that he wanted to retire, according to a person familiar with the matter. But the global financial crisis that escalated last year made it difficult for the bank to carry out a major leadership change.

Now with that crisis seeming to have eased, J.P. Morgan head James Dimon said in a statement that the timing was right to implement his succession plan for the I-bank.

As our colleagues at E-Financial News point out, Dimon may be grooming Staley as his own heir, just as Morgan Stanley’s John Mack promoted his New York bank’s head of asset and wealth management, James Gorman, to become the new CEO.

J.P. Morgan now will be looking to head off an exodus of bankers that could follow Winters out the door. (The bank didn’t disclose what Winters will do next). The near-the-end-of-the-year timing will make it more likely that bankers will remain in order to receive their bonuses for 2009 and will give Staley time to persuade them to stay, a person familiar with the bank’s strategy said.

Staley started at J.P. Morgan in 1979, he worked for nine years in Latin America, served as head of the company’s private bank and has headed its asset management unit since 2001.

Deals of the Day: Xerox Gambles, Winters Skates from JP Morgan

Deals of the Day gathers all the biggest news of the morning related to mergers and acquisitions, bankruptcies, financing and private equity. Deal Journal’s homepage is You can see real-time updates of our posts and our favorite deal-related articles on other Web sites through our Twitter feed at

Mergers & Acquisitions

Big gamble? Xerox and its new CEO, Ursula Burns, unveiled the biggest acquisition in the company’s 103-year history with a $5.6 billion deal for Affiliated Computer Services. [WSJ]

Related: Xerox has produced its own copy of the hardware-to-services strategy. [WSJ]

Cash, Consolidation the M&A Catalysts: Conditions are looking increasingly propitious for a recovery in global mergers and acquisitions after recent bids by Kraft and Abbott Laboratories. [WSJ]

Easy Math for Abbott Deal: Abbott Laboratories doesn’t face the revenue “patent cliff” that helped trigger megadeals such as Pfizer’s purchase of Wyeth and Merck’s acquisition of Schering-Plough. [WSJ]

Saga of Opel: GM faced more uncertainty about its planned sale of Opel as the political winds shifted in Germany and Spain urged investigation of the deal. [WSJ]

UBS: The Swiss bank’s CEO said its U.S. wealth management business, Paine Webber, was a non-core business. []

Citi: Barclays said that it will buy Citigroup’s credit-card business in Portugal, as it continues to push for expansion outside the U.K. [WSJ]

The Game

Deep Within Citi, the Death of Salomon: We have bid goodbye to Bear Stearns, Lehman and Merrill. Today it is time to offer a final farewell to a hidden Wall Street institution at the center of the financial crisis: Salomon Brothers, writes Dennis K. Berman. [WSJ]

Financial Institutions

BofA-Merrill: BofA was accused of concealing widening losses at Merrill before the vote to approve the deal, in a suit on behalf of five pension funds. [WSJ]

UBS: The Swiss bank said that board members Sergio Marchionne and Peter Voser will leave the bank next year, citing the two managers’ busy schedules at their own companies. [WSJ]

City pay: London bankers are confident this year’s bonus round will be unaffected by the political furor over compensation levels, according to a poll by [WSJ]

BNP Paribas: France’s biggest bank by market value said it is launching a $6.28 billion rights issue to buy out the government’s stake, making it the country’s first bank to reimburse state funding issued at the height of the financial crisis. [WSJ]


The FDIC is expected to propose that most of the banking industry prepay assessments for the next three years to recapitalize the government’s insurance fund. [WSJ]

People & Players

William “Bill” Winters: The co-CEO of J.P. Morgan Chase’s investment bank is leaving the company. Steve Black, who served alongside Winters overseeing the investment bank, will become executive chairman of the unit. [Bloomberg]

Joseph Cassano: The former AIG executive, who headed its Financial Products unit has returned to the U.S. [Reuters]

Meet Twitter’s Newest Investor: Insight Venture Partners

The Internet is aflutter about Twitter’s latest round of fund-raising that just netted the microblogging site $100 million. The deal values Twitter, which generates almost no revenue, at $1 billion, sparking a debate about whether the company will become the Internet’s next Google, or the next

Deal Journal spoke with Jeff Horing, co-founder of Insight Venture Partners, a New York private-equity firm that was the lead investor in this, Twitter’s third and largest fund-raising round.

Two of Insight’s portfolio companies, Solar Winds and Medidata, have gone public in 2009, a rare feat amid one of the slowest IPO markets in recent memory. A third Insight portfolio company, Newegg Inc., an internet electronic retailer, just today said it is planning an IPO for this year.

The other new investors in Twitter include mutual fund giant, T. Rowe Price and Morgan Stanley’s asset management unit.

Deal Journal: How do you reach a $1 billion valuation for Twitter?

Jeff Horing: When we modeled it, we were looking at revenue somewhere between Google and Facebook. Google monetizes at $30 a user and Facebook is about $2 a user. If you look at Twitter’s user community and make some fairly conservative assumptions about revenue, we thought you could make a healthy exit at a multiple of a $1 billion.

DJ: When would you expect a Twitter IPO to occur?

Horing: We didn’t invest with a particular time frame in mind. We hope to help build the company. It could be several years or it could be sooner.

DJ: What’s Twitter’s plan to start generating a profit?

Horing: I think the company has a number of ideas. They have appropriately been focused on building up the company and they are being very careful in how they roll out those (revenue generating) plans…Twitter has become one the most recognizable names on the Internet overnight. Its brand is an incredible source of strength. It’s not a question of whether they will have revenue, it’s a question of when.

DJ: Are you concerned that Twitter won’t be able to turn a profit? There have been several internet companies with strong brands but weak business models.

Horing: The principle concern for Twitter management is putting its user community first and finding the right formula (for revenue generation) that doesn’t upset that community, one that is fair to shareholders and users. I think Google and Facebook have gotten that balance correct.

DJ: Are you worried that a competitor could emerge and push Twitter out of business. I mean there are not a lot of barriers to entry.

Horing: Apple’s iPhone has plenty of competition, but they have done a good job at protecting it from other technology. Once a community – like Twitter’s users — builds, it becomes very valuable and difficult to recreate.

Xerox’s Hail Mary Pass

“Game changer”

That is how Xerox described its $6.4 billion acquisition of Affiliated Computer Services this morning. Two weeks ago, Adobe called its $1.8 billion acquisition of Omniture in the exact same way.

But perhaps a different sports-related cliché could be used describe the recent burst of deals in the tech arena: Hail Mary passes.

Xerox is looking to supplement its waning printer- and copy-machine business by buying ACS, which provides information-technology services to businesses and governments. Rather than try to grow its services business through small acquisitions, Xerox has essentially attempted to reinvent itself with one big deal, which will nearly triple the size of the Xerox’s service business to $10 billion next year from $3.5 billion in 2008. The risk is that Xerox is about to run a business that hasn’t been at the core of its management’s expertise.

This for a company where things had been looking up of late. Under its new chief executive, Ursula Burns, the company’s revenue had showed signs of stabilizing in recent months. Now, investors are giving the company a thumbs down, with the stock down 18% to $7.40 this afternoon. To be sure, part of the sell off could be the result of the dilutive impact of the cash and stock deal for ACS or because Xerox isn’t likely to continue its share-repurchase program after the deal.

Adobe Systems threw a similar Hail Mary pass when the Web site builder bought Omniture, which measures web traffic. Adobe said it plans to create coding that would enable the two Web services to complement each other.

Then there is Dell’s $4 billion take out of Perot Systems. Dell snapped up Perot, which builds and services computer systems for the government, in order to move away from its personal computer business.

Dell isn’t abandoning its PC business, but the 68% premium it is paying for Perot speaks to the risk that Dell is willing to take to diversify its business. There is no question that the economic slowdown and increasing commoditization of technology hardware is putting pressure on the tech industry to consolidate. The question for investors is, which companies are diversifying and which are reinventing the wheel?