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Tag: Business
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Citigroup buys Wachovia’s banking assets
FDIC Chair Sheila C. Bair has overseen another shot-gun wedding – this time between Wachovia Corporation and Citigroup.
Citigroup agreed to pay $1 a share, or about $2.2 billion for Wachovia’s banking operations, according to media reports, in the latest deal brokered by federal officials as a result of the distressed mortgage market.
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She stressed that the storied Charlotte bank did not fail, like Washington Mutual, which was seized by the authorities after suffering a run on deposits last week.
“This morning’s decision was made under extraordinary circumstances with significant consultation among the regulators and Treasury,” Bair said in a statement. “This action was necessary to maintain confidence in the banking industry given current financial market conditions.
“There will be no interruption in services and bank customers should expect business as usual,” she said.
Wachovia will remain a public company, retaining its asset management and retail brokerage businesses, including the Evergreen franchise and the A.G. Edwards brokerage division.
The New York Times points out that the deal further concentrates Americans’ bank deposits in the hands of just three banks: Bank of America, JPMorgan Chase and Citigroup. Together, those three would be so large that they would dominate the industry, with unrivaled power to set prices for their loans and services.
Wachovia had been hurt badly by its 2006 purchase of Golden West Financial, a California lender specializing in so-called pay-option mortgages. The bank also faced mounting losses on loans made to home builders and commercial real estate developers.
In June, Wachovia’s board ousted G. Kennedy Thompson, the bank’s longtime chief executive, and replaced him the following month with Robert K. Steel, a former top lieutenant of Henry M. Paulson Jr. at both Goldman Sachs and the Treasury Department.
Steel arrived in New York to handle the negotiations in person this weekend, along with David M. Carroll, the bank’s chief deal maker. At 8:15 am. Saturday, at the Seagream Building offices of Sullivan & Cromwell on Park Avenue, Citigroup took their first peek at Wachovia’s books with Chief Executive Vikram Pandit personally overseeing the negotiations, according to media reports.
Top officials at the FDIC and the U.S. Treasury were also major participants, pressing the parties to move quickly.
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William Gross, stamp collector and bond king, ready to advise the Treasury
William H. Gross, the billionaire “King of Bonds,” has never been reluctant to give advice.
He has written two books on investing as well as numerous op-ed pieces on the markets. And he’s usually available for interviews on matters economic.
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Gross says that he and his colleagues at Pacific Investment Management Company (Pimco) will evaluate the distressed mortgage securities the government will buy if a $700 billion bailout plan is approved by Congress.
“I’d even be willing to say that if the Treasury wanted to use our help, it would come, you know, free and clear,” said Gross, who is Pimco’s founder and co-chief investment officer.
It’s a little unlikely that Treasury Secretary Henry M. Paulson Jr. will take Gross up on the offer as Pimco might be seen as having a conflict of interest even if it doesn’t charge for its services.
But there’s a good chance that any advice Pimco gave would have to be taken seriously, as the company has managed to remain relatively unscathed by the mortgage and credit crisis.
Gross had argued for more than a year that the bubble was going to burst.
And Pimco was so well positioned when the government stepped in that it made $1.7 billion when Treasury saved the mortgage giants Freddie Mac and Fannie Mae. Though, on the down side, Pimco was a large holder of bonds at the now bankrupt Lehman Brothers.
Gross, 64, has long shown an ability to beat the odds. After his graduation from Duke University he spent a summer in Las Vegas playing blackjack. Starting with $200, he ended up with $10,000.
After that summer, he served on a U.S. Navy destroyer off the coast of Viet Nam. Following his discharge, he earned an MBA at the University of California at Los Angeles.
He then went to work for Pacific Mutual Life as an investment analyst.
In 1982, Gross founded Pimco. The company now manages $830 billion, including $132 billion in the Pimco Total Return Fund, the world’s biggest bond fund.
Gross has invested a significant portion of his own money in stamps, collecting rare issues.
Last year, he raised $9.1 million for the charity Doctors Without Borders by selling some of his some of his British stamps at auction.
The amount raised represented an astonishing return on investment, as Gross had spent a total of $2.5 million for the stamps between 1998 and 2001.
“It’s four times profit,” Gross said after the auction. “It’s better than the stock market.”
Gross will sell more of his stamps at auction on Oct. 3. The 138 British Empire stamps are estimated to bring at least $1.25 million. Gross and his wife, Sue, will donate the proceeds to the Millennium Villages Project.
The couple has also donated millions of dollars to various causes through the California-based William and Sue Gross Foundation.
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Rudy Giuliani puts together team to ‘guide’ firms on proposed bailout
The vultures are already circling.
The New York Daily News reports today that Rudy Giuliani is positioning his international law firm to get a stake in the proposed $700-billion bailout of Wall Street.
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With a rescue deal still being hammered out in Washington, the former presidential candidate and New York mayor announced Thursday that Bracewell & Giuliani had put together a high-powered task force to assist financial institutions in selling toxic assets to the federal government.
“Our team of former government officials and experienced attorneys in the fields of legislation, enforcement and finance are equipped to guide institutions in this quickly evolving and complex environment,” Giuliani said in a press release.
Giuliani is not the only one preparing his firm to advise companies on the bailout. But he has been a high-profile surrogate for GOP presidential nominee John McCain. The fact that McCain has not signed off on the proposed bailout does not seem to have given the former mayor any pause before pursuing a new business opportunity.
Members of Bracewell & Giuliani’s task force will include several partners with connections both to the financial world, the U.S. Treasury Department and to the George W. Bush White House, among them:
- Robert L. Clarke, a former U.S. Comptroller of the Currency under the late Ronald Reagan, who also was a director of the Federal Deposit Insurance Corporation and the Resolution Trust Corporation.
- Marc Mukasey, a former federal prosecutor in Manhattan and the son of U.S. Attorney General Michael Mukasey, a close friend of Giuliani’s.
- John A. Brunjes, a member of the Connecticut Hedge Fund Association and a former assistant attorney general for the state of Connecticut.
- Patrick C. Oxford, a longtime fundraiser for George W. Bush, who had served as a member of the board of regents for the University of Texas during Bush’s tenure as Texas governor.
- Evan D. Flaschen, a leading bankruptcy attorney who has represented some of the world’s largest institutional investors.
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WaMu seized by federal regulators, sold to JPMorgan Chase (Muckety.com)
David Bonderman and Alan Fishman got a big surprise yesterday from the federal government.
Bonderman, founder of TPG private equity firm, was a major investor in the struggling Washington Mutual. Fishman became CEO of the bank just three weeks ago.
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In the nation’s biggest bank failure to date, the FDIC seized WaMu last night, and then quickly sold it to JPMorgan Chase for $1.9 billion.
Bonderman, a former WaMu director who led a $7 billion investment in the company in April, will lose big. Fishman, however, has a golden parachute.
The New York Times reports that Fishman will keep his $7.5 million signing bonus and is eligible for another $11.6 million in severance pay.
With $307 billion in assets, WaMu was a threat to the solvency of the FDIC, which insures customer bank accounts up to $100,000 per person, per institution. The federal insurance fund,depleted by the earlier failure of IndyMac Bank, totaled just $45.2 billion at the end of June.
The Times reports that the WaMu takover was a shock to the company’s board as well as its CEO, who was flying from New York to Seattle when the deal was completed.
TPG released a statement yesterday, saying simply: “Obviously, we are dissatisfied with the loss to our partners from our investment in Washington Mutual.”
The Wall Street Journal’s report today was equally bleak:
The fact that no bank was willing to buy WaMu until it failed shows how badly confidence has eroded in a banking system awash with record profits just a few years ago. Faced with deepening losses on mortgages, credit cards and other loans, big and small banks across the country are struggling with what many bank executives say is a crisis far deeper than the savings-and-loan debacle.
This is the second fire sale in which JPMorgan has acted as buyer. The company bought Bear Stearns in March.
([Muckety.com](https://createpositivechange.org/2008/09/26/wamu-seized-by-federal-regulators-sold-to-jpmorgan-chase/5222)
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Wife of Lehman CEO selling off $20 million in artworks
When the going gets tough, the rich go to auction.
Bloomberg reports today that Kathy Fuld, wife of Lehman CEO Richard Fuld, is unloading a $20 million set of drawings at a November sale.
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In a press release, Christie described the items as “a superlative grouping of master drawings of American post-war art from an important private collection.” The set includes works by Arshile Gorky, Agnes Martin and Barnett Newman, as well as de Kooning.
As one of the most highly paid executives on Wall Street, Fuld has become a prime target of those criticizing plans to rescue the nation’s financial system.
Richard Fuld received $34.4 million in compensation in 2007. The Fulds have an estate in Greenwich, CT, and last year paid $21 million for a co-op at New York’s exclusive 640 Park Ave.
More recently, the family has been selling off Lehman holdings that are almost worthless. Stock sold yesterday on behalf of the couple’s son and daughters traded at 14 cents per share.
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AIG’s ex-CEO Willumstad to forego $22 million severance
American International Group’s ex-CEO Robert Willumstad has rejected a $22-million severance package from his former employer.
Willumstad e-mailed his successor, Edward Liddy, that he would decline the package since he had been unable to execute a restructuring plan before the government had to step in to avert AIG’s collapse, the Wall Street Journal reported.
“I prefer not to receive severance while shareholders and employees have lost considerable value in their AIG shares,” he wrote.
Willumstad, 62, had become chief executive on June 15, after Martin J. Sullivan was ousted. AIG’s stock price declined 97% during his three-month tenure.
The newspaper also reported that major AIG shareholders, concerned about the proposed government takeover, were meeting today to discuss alternatives to the $85-billion federal bailout, citing an unnamed source.
Shareholders who are dissatisfied with the deal are exploring ways to quickly pay off the loan, which gave the federal government the right to take 80% of the insurer. Under this scenario, AIG would not only sell assets, but also raise capital in other ways, potentially leaving shareholders better off.
AIG had no choice but to accept the federal help last week, when large sums of private money were unavailable.
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Former Mccain Adviser Phil Gramm Tied to Financial Turmoil
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IRS to auction off mansion of indicted mogul Michael Lauer – lawn uncut
He’s a former master of the universe whose high-flying clients included former Sotheby’s chairman A. Alfred Taubman, Britney Spears and the heirs of Dayton’s Department Stores.
But the fortunes of Michael Lauer, the flamboyant founder of a once-ballyhooed hedge fund, have crashed to earth in spectacular fashion. The latest sign was the open house last Friday of his five-acre Greenwich, Conn. estate, complete with outdoor pool and tennis court, in anticipation of a Sept. 26 auction by the Internal Revenue Service. Lauer’s Cessna plane and Mercedes race car have already been sold to the highest bidder.
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Lauer, the founder of Lancer Management Group LLC, was charged earlier this year with conspiracy and wire fraud. Four colleagues were also indicted.
The alleged scheme cost investors, including a Connecticut state pension fund and a University of Michigan endowment, hundreds of millions of dollars. Lauer’s assets were frozen to help recoup their losses.
Former Lauer estateIf convicted, Lauer faces as much as 25 years in prison.
A native of the Ukraine who came to this country nearly penniless, Lauer put himself through Columbia University and worked his way up at several firms, including Oppenheimer & Co., according to a Forbes profile.
He told Forbes he expects to be vindicated.
In the meantime, he may have to find someplace else to sleep. (The pictures released by the I.R.S. show a very lived-in-looking space with bathroom counters and tables piled high with sundries.)
The I.R.S. set the minimum bid on his estate at $2.5 million – $200,000 more than Lauer paid nine years ago, according to the Hartford Courant.
The announcement lists the property as having three fireplaces, vaulted ceilings, two whirlpool tubs, a sauna, a legal apartment over the garage and a tennis court.
But be prepared: the Courant warns that “the property might need some work: At the least, the lawn needs a good trimming.”
A second open house will be held Sept. 25.
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H. Rodgin Cohen at epicenter of Fannie Mae-Freddie Mac crisis
H. Rodgin Cohen may not be well known away from Wall Street, but he would seem to be the first person called in times of bank failure, acquisitions or mergers.
Consequently, it’s no surprise that Cohen, the chairman of Sullivan & Cromwell, a powerhouse law firm, took part in the recent talks between the U.S. Department of the Treasury and mortgage giants Freddie Mac and Fannie Mae.
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On Sunday, Paulson announced the government takeover of both Freddie Mac and Fannie Mae.
Both companies have been hard hit by a wave of mortgage foreclosures, and the government is going to send much-needed capital their way.
As part of the deal, Mudd and Richard F. Syron, his counterpart at Freddie Mac, leave their posts, though they will remain for a while as advisers. Herbert M. Allison Jr., the former chairman of TIAA-CREF, will replace Mudd. David M. Moffett, a senior adviser with the Carlyle Group and a former vice chairman of US Bancorp, takes over for Syron at Freddie Mac.
Cohen, a native of West Virginia, came to this crisis with more than three decades of experience in high-stakes financial showdowns.
A graduate of Harvard Law School and a veteran of the U.S. Army, he joined Sullivan & Cromwell in 1970 and became a partner in 1977.
Over the years, Cohen’s efforts have “fundamentally altered the banking landscape,” according to CFO Magazine.
He helped do this in part by discovering a legal loophole that allowed banks to expand beyond state lines and thereby change the industry.
Cohen has also been involved in a steady stream of bank acquisitions, including the joining of Chase Manhattan and Chemical Bank and the merger of Norwest and Wells Fargo.
Cohen has likewise been a key player in rescue efforts involving failed banks.
He helped in the aftermath of the 1974 collapse of Franklin National Bank, and he represented the struggling Continental Illinois Bank in its 1984 negotiations with the Federal Deposit Insurance Corporation.
Recently, Cohen was a key player in the talks that led to the fire-sale acquisition of Bear Stearns Companies by JP Morgan Chase & Co.
Cohen was also involved in the resolution of the 1980 Iran hostage crisis, helping obtain through the release of frozen Iran bank deposits the money that was necessary to free the hostages.
“When the phone call came saying the hostages had landed, it was the most exhilarating feeling I’ve experienced,” he later told The New York Times.
Cohen reportedly has a less-is-more style that works well at the conference table.
“He has a quiet sense of authority in a boardroom,” Hamid Biglari of Citigroup told The Financial Times. “He speaks infrequently. He is not one to dominate a conversation by holding forth. But when he does speak, everyone listens very carefully.”