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M&A, Losses & Stock Sales Accelerate

M&A, Losses & Stock Sales Accelerate

Recent mergers, acquisitions & other corporate activity

January 16, 2008

By COCO SALAZAR

photo of Coco Salazar
Mergers and acquisitions have heated up, with one firm proposing to go private and another looking to become the biggest bank in Wyoming. But it was the Bank of America deal to acquire Countrywide Financial Corp. that has drawn the sharpest criticism. Meanwhile, as more writedowns are taken, financial firms are seeking more capital from investors in the United States and abroad.

Community Bank of Arizona announced Stephen R. Curley as its director and president, who will be in charge of managing all aspects of operations, including loan production.

Meanwhile, Stock Yards Bank & Trust recently became the newest and 100th member of Lenders One, a national alliance of independent mortgage bankers across 50 states that was formed seven years ago. Becoming a member enables the Louisville, Ky.-based bank holding company of S.Y. Bancorp Inc. to be more competitive with other national lenders because “Lenders One has a unique business model with many cost-saving opportunities and networking benefits” that can increase profits, according to a news release.

The Office of the Comptroller of the Currency said it issued five enforcement actions within the weeks of Nov. 29 through Dec. 21, 2007. One was a removal/prohibition order against an individual of First National Bank of Shelby County in Alabama, another terminated an existing order against The Putnam County National Bank of Carmel in New York, and the remaining three consisted of formal agreements with First National Bank in Goodland, Kan., The Citizens National Bank of Somerset in Kentucky, and Olmsted National Bank, Rochester, Minn.

Within the negative news associated to the subprime crisis is that the rating outlook will remain negative for Citigroup Inc., which posted a $9.8 billion net loss in the fourth quarter mostly due to a $15.0 billion charge in subprime-related collateralized debt obligations, Fitch Ratings announced Tuesday. Though financial issues remain manageable and its capital base has improved, Fitch will maintain that outlook until profitability is restored, exposure to topical areas, including CDO and U.S. real estate loan exposure and structured investment vehicles, is further reduced, and asset quality stabilizes.

Hypo Real Estate Group took a charge of nearly $580 million in the fourth quarter due to exposure to U.S. CDOs. The German bank announced it was forced to do a revaluation of CDO investments as the U.S. subprime crisis has led to significant scope of rating downgrades that have been affecting this asset class over recent weeks.

Amongst recent efforts to weather the subprime storm, Thornburg Mortgage Inc. raised $212 million in concurrent public offerings of 7 million common stock shares and 8 million shares of its existing 10 percent Series F Cumulative Convertible Redeemable Preferred Stock, the Santa Fe, N.M.-based company said.

Net proceeds from the offerings were $201 million, of which the majority will be used to finance the acquisition or origination of adjustable-rate mortgage assets, and the remainder for liquidity needs and working capital, Thornburg reported.

Thornburg said it could gain additional net proceeds of $30 million if underwriters fully exercise two options to cover over-allotments through purchasing 1.1 million additional common stock shares and 1.2 million additional preferred stock shares. The joint bookrunning managers for the offerings are UBS Investment Bank and Friedman, Billings, Ramsey.

Merrill Lynch’s latest capital infusion consisted of $6.6 billion raised by issuing convertible preferred stock in private placements to long-term investors, primarily from Korea Investment Corp., Kuwait Investment Authority and Mizuho Corporate Bank. Other investors included TPG-Axon Capital, The New Jersey Division of Investment, The Olayan Group and T. Rowe Price Associates Inc., Merrill announced on Tuesday.

“One of my main priorities over the last several weeks has been to ensure Merrill Lynch’s balance sheet is strong, and these transactions make certain that Merrill Lynch is well capitalized,” said John A. Thain, Merrill chairman and chief executive officer, in the written statement.

Thain, who last November became head of Merrill after resigning as CEO of the New York Stock Exchange, added that the global reach and diverse clients of the “high quality” foreign investors open doors to “more strategic opportunities around the world.”

Bank of America’s planned acquisition of Countrywide Financial Corp. was described as a “very bold move” in an announcement by TowerGroup, which added that the merger seems to be “little more than a bailout strategy” for BoA to protect its earlier $2 billion investment in the Calabasas, Calif.-based mortgage giant.

TowerGroup said BoA will benefit in becoming the largest U.S. mortgage lender and servicer — with 23 percent market share, while gaining leading, proprietary loan origination and servicing platforms and opportunity to cross-sell its bank products to an estimated 9 million Countrywide borrowers. But the challenges include “a potential culture clash between Countrywide’s aggressive mortgage operations and Bank of America’s professional retail banking environment,” BoA’s balance sheet status and capitalization requirement coming under further scrutiny, which started when it acquired LaSalle bank, and the multiple years it will take to identify and eliminate redundant lending and banking systems.

“While BofA may be rewarded with long term benefits from this acquisition, this purchase makes a bold bet that an economic recession is avoided in the next 18 months, a real estate rebound occurs and further significant demons within Countrywide’s mortgage business do not surface,” the research and advisory firm said in the announcement. “BofA might get better odds at a Las Vegas roulette table.”

While that deal finalizes, Ocwen Financial Corp. said on Monday its reviewing a proposal to take the company private. The proposal was made by a group of investors led by its Chairman and CEO William C. Erbey, Oaktree Capital Management L.P. and Angelo, Gordon & Co. L.P, who wish to acquire all of Ocwen’s outstanding shares for $7 each.

Erbey proposed to make a “significant” investment in the deal, while providing Ocwen’s senior management team the chance to do so as well, and continue as chairman and CEO following the transaction, according to a copy of the proposal letter.

Ocwen said it has formed a special committee of independent directors to consider the proposal, though there is “no assurance that any definitive offer will be made, that any agreement will be executed or that any transaction will be approved or consummated.” Evercore Group is serving as its independent financial advisor and Shearman & Sterling LLP as its legal counsel.

Fitch Ratings announced that it placed Ocwen’s long-term issuer default rating on rating Watch Evolving pending additional details about the deal — though a downgrade is unlikely.

But the latest merger agreement is that in which Wells Fargo & Co. will acquire five banks in Wyoming and eastern Idaho owned by United Bancorporation of Wyoming Inc., according to an announcement Tuesday. Terms of the cash deal, expected to close next quarter, were not disclosed.

Following the acquisition of Jackson State Bank & Trust, Shoshone First Bank, Sheridan State Bank, First State Bank of Pinedale and United Bank of Idaho, Wells will be No. 1 in both deposits and assets among banks in Wyoming, the announcement said.


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