German banks tie up the Teutonic bridal suites and the greasy dago gets a boody nose for interfering ...Lehman slides into bankruptcy

More consolidation in continental banking as Commerzbank and Dresdener Bank have been happily sharing the same bed and shower arrangements since last month.

Now Deutsche Bank, the biggest bank in Germany with 14 mn customers is setting it's sites on a mega deal to take a 29.75% lump of Postbank, Germany's biggest retail bank with 14.4 million customers and a ravaged stock price and a fall in value from to €7 billion from €10 billion earlier in the year.

Deutsche and Postbank have been seen dining in the finest restuarants and holding hands discreetly and their eyes have been meeting over the lightly underdone lamb cutlets and may soon result in the exchange of room keys, before they pass the word to Daddy at Deutsche Post.... say Lord Patel's moles in the discreet hostelries in Bonn.

Lord Patel's data collection and surveillance systems have been told by the Bonn insiders, where every house is connected to Mozart, he ate there, tied his shoes, here, cuckolded the poor old man there, ate choclate cake here... and they have been telling the The General-Anzeiger newspaper in Bonn where Postbank is based,that a nice chunk will secure an option to also buy the remaining Postbank shares owned by Deutsche Post, which holds 50 percent plus one share in the bank.

The venerated and generally truthful newspaper says that Deutsche Bank's supervisory board have seen the romabtic liasons and have given their blessing to an exchange of body fluids.

Deutsche Bank has been under increasing pressure to agree the Postbank deal in recent weeks after Commerzbank made its move on Dresdner, which kick-started a new round of long-overdue consolidation in Germany's fragmented banking sector.

Handelsblatt reported that the 29.75 % stake in Postbank would cost Deutsche around €2.1 billion.

Then the nasty Spaniards have upset the wedding plans. Spanish Lothario,Banco Santander SA, Spain's biggest bank, has offered to buy up Deutsche Postbank AG in one gulp to expand in Europe's biggest economy.

Lord Patel's moles in Bonn savouring their sachetorter have heard in the last hour that Deutsche Post's supervisory board agreed to sell a 29.75% stake in its Deutsche Postbank unit to Deutsche Bank for a eye goggling modest €2.8 billion putting a total value of about €11/12 on Postbank ...... and you keep the greasy dagos out the door.

Deutsche Bank has said Deutsche Post had also given it an option to acquire another 18 percent of Postbank at a price of 55 euro ($76.63) a share. That option could be exercised from a year to three years after the acquisition of the initial stake closes.

Furthermore, Deutsche Post has granted Deutsche Bank a right of first refusal for the remaining Postbank shares, a move that guarantees Deutsche Bank has the first shot at becoming the bank's majority stakeholder. PostBank Press release xdetails the need for the regulators to approve.

Sounds like a done deal from the public bar of the Dog and Duck..

Lehman's death throes watched calmly by Paulson

Meanwhile in New York Lehman's shares have fallen even more, to below US$4.00 and the bank has a Market Cap of only US$5 Bn (they wrote off US%5.6 Bn in Q3) - Bank of America (Market cap US$147 Bn) is being touted as a white Knight but Paulson says no Government funds are available. You really can't have any sympathy with the bankers who lave been throwing the omen off the seldge as the wolves circled ,Erin Callan (Lehman Brothers), Zoe Cruz (Morgan Stanley), and Sallie Krawcheck (Citi) - hence the "Glass Cliff".. in short , they are set up for failure ... see Carly Fiorina (Hewlett Packard), Kate Swan (W.H. Smith) and Patricia Russo (Alcatel-Lucent) were all appointed to top positions at a time of "tumbling share prices."

It raised $4 billion selling preferred stock. In June, it raised another $2 billion in preferred shares, at much harsher terms, and $4 billion by selling common shares at $28. ...and the Market Cap is less than US$5 BN ..... the black hole is New York not at CERN in Switzerand.

It is increasingly looking, says Erin in a hasty phone call that Paulson is calling the moral hazard card and Lehman will slide into bankruptcy.... unless someone does something, CEO Fulda's (he earned US$40 Mn last year) hasty plan to . “accomplish a significant de-risking of our balance sheet,” in part by putting risky assets into a new company it would spin off to shareholders next year -- well next year might to be reachable from here she tells us.

A busy weekend is ahead as Lehman's flogs off their 55 % stake in Neuberger Berman, their prized asset management business and the bottom feeders have been churning the water Kohlberg Kravis Roberts, Hellman & Friedman, Bain Capital, Clayton, Dubilier & Rice ,Carlyle Group, Hellman & Friedman LLC , General Atlantic LLC, J. C. Flowers, Blackstone Group, and Apollo Management all named in the Press . have until tonight to seal a deal.

This sale has been on the stocks for weeks and values of US$5 -6 Bn. have been placed on the company ... a pretty girl called Mrs Schwartzman says that Stephen wants this one. Seeing he picked up $4.78 billion in compensation for 2007 she must be a happy lady anyway. Nice payday when you consider the market cap of The Blackstone Group L.P. is only US$4.16 billion today lass than half what it was when IPO'd So Stephen coulf buy back the bit of the company he sold off with the profit he made on the sell off.

Peter G Peterson , the Blackstone Group and selling it all away to China.... but Ex Comptroler General has the correct analysis of the problems ...

Peter G Peterson founded the Blackstone Group with Stephen A. Schwarzman with $400,000 in seed capital. "Blackstone" is a wordplay on the founders' names, Stephen A. Schwarzman and Peter G. Peterson. Schwarz is German for black. Peter, or Petra in Greek, means stone or rock.

On June 21, 2007, The Blackstone Group went public. Their IPO was to raise $4 billion on March 22, 2007 by selling 133.3 million shares priced at $31.00 per unit. The stock began trading on the NYSE on July 22, 2007.

The Chinese State Investment Company took 10 % stake ($3 billion) stake. By the way the People's Bank of China announced today that total reserves at the end of June reached $1.809 trillion (around 45-50% of annual GDP). This breaks down to $153.9 billion growth in the first quarter of 2008 and a $126.6 billion growth in the second.

Anyway this made Mr Peterson very, very, rich. So, as the Peter G Paterson Foundation website says, he set about giving the money back.

It also made his co-partner very, very rich but if you read Friday, July 13, 2007 Tax cuts for the very,very rich - how it works... and where some of the money goes you will find he has a fucking expensive wife with a fucking expensive lifestyle....

A philanthropist and student of philanthropy, as well as a longtime advocate for securing America's fiscal future, Pete decided to devote much of his new fortune - $1 billion - to a foundation that would tackle some of the critical challenges threatening the nation's well-being. Among them: large and growing budget deficits, dismal national and personal savings rates, and a ballooning national debt that endangers the viability of Social Security, Medicare, and our economy itself.

For too long, these issues have been the increasingly costly gorilla in the room. Policymakers of all stripes know they are unsustainable, and yet they've been politically untouchable, with special interests and career-minded elected officials lined up to block efforts to address them. The media and the business community seem to share Washington's short-sightedness, preferring to focus on today instead of covering and investing in the future.

Pete decided to invest much of his personal fortune in an unprecedented effort blah, blah read the est of this self promtional stuff on his tax dodging Foundation website.....Finally, Pete decided that this foundation would make a special effort to inform and engage the people who are most threatened by the collective reluctance to address these issues: young adults.

Pete's dedication to America stems from his own life story, a classic tale of the American dream. He is the son of a Greek immigrant who moved to America as a teenager with no money, no knowledge of English, and only a third-grade education. Taking a job as a railroad dishwasher, he slept and ate in a caboose and saved his wages, eventually opening an all-night restaurant in Kearney, Nebraska. He sent his son to college. From there, Pete went on to succeed in the corporate world, serve in the Cabinet, and on one summer morning, become an instant billionaire.

The Foundation is dedicated to securing the future of all Americans, and to reversing the recent loss of faith that our children will have better lives than we do. By promoting responsibility today and opportunity tomorrow, we will do our best to keep the country strong and keep this very American dream alive.

Tonight Lord Patel cannot make a screening in "downtown" Washington laid on for the Press about I.O.U.S.A WHICH IS HIS BIG IDEA ..

Our Vision
To keep America strong and the American Dream alive by promoting responsibility and accountability today to create more opportunity tomorrow.

Go to the website and see the movie trailer ... we've even got a scrappy crappy screen shot for you .. guess what ? The US of A is in hock to China.!!!!!..Guess what ..he thinks that's a bad idea and wants to change it.

Skadden represented Morgan Stanley & Co. Inc. and Citigroup Global Markets as the lead underwriters in The Blackstone Group's initial public offering.Skadden is representing Fresenius AG, a health care company in Germany, in its approximately US$5 billion acquisition of APP Pharmaceuticals, Inc., a provider of pharmaceutical products which we wrote about last week.

Skadden (AKA Skadden, Arps, Slate, Meagher & Flom LLP) a big Washington / global outfit and no doubt involved in Peter's IOUSA have spent quite some time looking at this post ... there's a surprise.

We now discover that IOUSA is exoplained on Wikipedia ....I.O.U.S.A. is a 2008 documentary film directed by Patrick Creadon.

It is scheduled to compete in the Documentary Competition at the 2008 Sundance Film Festival.
The film focuses on the shape and impact of the United States National Debt. The film focuses on Robert Bixby, director of the Concord Coalition, and David Walker, 55 the U.S. Comptroller-General, as they travel around the United States on a tour to let communities know of the potential dangers of the National Debt. This is a tour carried out through the Concord Coalition, and is known as the "Fiscal Wake-Up Tour." In February 2008, Walker announced that he would be resigning from his post as Comptroller General of the office of Goverment Accountability to become the president and CEO of the newly established Peter G. Peterson Foundation. His term was supposed to end in 2013. He states that he feels he can more freely draw attention to the serious issues the U.S. is facing from this position.

Walker said. “My new position will provide me with the ability and resources to more aggressively address a range of current and emerging challenges facing our country, including advocating specific policy solutions and courses of action.”

There are some excellent clear and well illustrated Presentations from Former Comptroller General David Walker to be found here especially recommended Saving Our Future Requires Tough Choices Today

Here is a fascinating slide - remember the GAO serves Congress...

Hitler returns to Berlin ... this time as a dummy

Madame Tussauds threw open their new waxworks on the Unter den Linden, Berlin to reporters ,but not to the public , today. Judging by the Der Speigel photographs, the realism of the figures is several times better than those in London.

The figure of Adolf Hitler in his bunker with shades of the Oliver Hirschbiegel's brilliant film, Der Untergang (The Downfall) has predictably received attention . .... although Marlene Dietrich, Karl Marx, Einstein juggle for attention with modern german politicians ( and some old ones like Erich Honecker) and second rate German fussballern

Madame Tussauds (first seen in England in 1802) is now part of the Poole (mysterious place) based Merlin Entertainments who are majority owned by the Blackstone Group which was founded in 1985 by Peter G. Peterson and Stephen A. Schwarzman , when the management company was IPO's last year the Chinese Government (AKA The China Development Bank, ) took 9.9% of the offering at a value of some US$7.8Bn (nominal share value US$29-31) which Tony Lueng out of Hong Kong oversees. (Shares closed at US$17.23 today so the Chinese are left nursing a bruising loss ... but not as much as the US$2.2 BN they put into Barclays at the same time.

Blackstone for example own approximately 20 million square feet of office space in the SF Bay Area ... On the Peninsula and throughout Silicon Valley.

Practical jokers and thrill seekers or the barmy will be herded off the stand at Madame Tussauds - there is a sign on Hitler's desk telling visitors not to take photos.

Unlike the other exhibits, Hitler will be kept cordoned off and will be guarded permanently by a member of staff, and the area will be permanently monitored by video surveillance cameras.

Der Speigel report that Council of Jews in Germany have not ob jected and take a refreshingly relaxed view. The General secretary Stephan Kramer, doesn't want Hitler to become a tourist attraction in Berlin. "But if such an exhibition helps to normalize the view of Hitler and to demystify him, one should try it," he said.

"Erasing him from history is not going to bring the perished ones back, it's not going to heal the damage that he did, the crimes that he did. That would be counter-productive," he said.

Naturally it hasn't been without criticism and politicians have jostled for their sound bites , Michael Braun, of the center-right Christian Democratic Union (CDU).. "distasteful beyond comparison." Danny Cohn Bendits colleague Green politician Alice Ströver ...."tasteless, disgusting and in bad style."

"Unspeakable," commented Brigitte Lange from the Social Democrats.

For more news from Germany try this.."Heidelberg woman bites rapist's penis and escapes" Ouch!


Worth taking a look at Tuesday, July 17, 2007 Mein Kampf - German Academic calls for re-publication

Yvette Copper lies, King prepared his defence and the exact nature of the assets we now own (especially Granite) are amazingly no clearer

It is impossible to fully grasp the complexities of the legislation for the rushed nationalisation of Northern Wreck (although who would argue with AK see earpiece here) but Famous for 15 Megapixels points us all to the remarks made by the fragrant, elfinesque, and frightfully beautiful Yvette Cooper who regularly exchanges bodily fluids with her well endowed Balls who no doubt populates the intimiacies of the longeurs of post coital triste with wise and witty enecdotes about life in Gordon's Treasury. ... and little good it has done her pretty little head.

Therefore it is worth noting what Hansard records the ignorant haughty bitch saying yesterday....

"Banks stopped lending to each other in the normal way and Northern Rock, owing to its business model, could not get the money that it needed to keep going. The action that we took last autumn was widely supported at the time. The Government stepped in and effectively saved Northern Rock."

Up to a point Lord (Cooper)Copper... the way the shares dropped £1 on the day the NR interims were produced July 26th when the Directors had voted a 33% rise in the divvy, on the back of profits rising less than 1% on nett lending up by 47.3% a suggests that prudent bankers may well have had other and very specific reasons for not lending to Northern Wreck other than "Banks stopp(ing)ed lending to each other in the normal way" - inter bank lending was continuing but at punitive (and temporarily excessively high LIBOR rates).

Northern Wreck had in fact telegraphed their problems well before September 9th when the BOE intervened and had approached Lord King as early as August 11th/12th (BBC Radio 4 Today repeat of File on 4 Interview interview) for the odd £30Bn.well before LIBOR rates had taken off. (BBC4 Today Interview 6th November which you can hear here) which you will find is curiously truncated from the transcript here to make the timetable of events less clear.

SANTS (CEO of FSA) : " ....we immediately identified that there was a potential possible risk here to Northern Rock, and proactively engaged with them as part of our group of firms that we were moving to a crisis management mode."

PESTON: So did you contact them, as it were?

SANTS: We contacted them.
...

KING (BOE) ...bit by bit the funding, the wholesale funding to Northern Rock started to ebb away. [Note it did not STOP]

PESTON: So how much did you estimate at that stage Northern Rock was likely to have to find let’s say by the end of the year, as it were, in terms of the borrowings that they’d made from the money markets that were simply not being replaced?

KING: Well, we thought that it was of the order of about £30 billion was the amount that they would have to find. It became clear quite quickly that the bulk of that funding – say £20 billion to £25 billion or £30 billion would have to come from the Bank of England. So it became clear that Northern Rock required a very very large sum of money.
.....

KING: On the weekend ( 25/26 Aug) before we granted the facility to Northern Rock, I was asked whether, if a certain retail high street bank were to make an offer or a bid for Northern Rock, whether we would be prepared to lend that bank £30 billion at bank rate for about two years. And I think what that did was to demonstrate that our original view, that it was not possible to save Northern Rock without a large injection of money on that scale was clearly right ......

On the other point that Vince Cable raises about Granite - this was addressed by ex Treasury Minister Ken Clarke just as the clock chimed midnight last night and ended discussion in the quaint way these things are done in the Palace of Varieties Westminster. On the Division the Ayes =293 and the Noes and Malcontents = 167 and off it goes to the other place.

This was what the slim, lissom, nubile renaissance woman Yvette Cooper said ...
...and this is what the Cty savvy gent who evidently understands these things said

..and for these members of the opublic who cannot understand how Granite appears on the Balance Sheet as an asset but is a Trust whose beneficiaris the NE Downs Syndrome Group is beyond us ... but I smell a large roomful of lawyers (see Times beloe) getting ready to Hoover up very substabntial sums of dosh over many years, ready to make Jarndyce v Jarndyce look like a Sunday School PicNic. (But see newer post Saturday, February 23, 2008 Granite and the masters of the Master Trusts - exploiting loopholes with the City lawyers )

One wonders what Fitch and Co are doing to put a credit rating on Granite today ? See their report on Covered Bonds yesterday.

Late Breaking News
Public left with only 'rubbish' of Northern debts claims MP Scotsman (Edinburgh Evening News)

"However, during the Commons debate Mr Cable said Treasury Chief Secretary Yvette Cooper appeared not to know what was happening to the bank's best mortgages.He said: "What we are now being told is that in some way this has now been hived off to the benefit of a person or persons unknown, apparently, to the minister."What is going on here appears to be not public ownership of Northern Rock but an asset-stripping operation designed to benefit whoever, we don't know."This is a very serious development."

"A Treasury spokeswoman today said it was "simply wrong" to say that all the high quality mortgages are in Granite. She said: "Northern Rock does not sell all its high quality mortgages to Granite; it retains a substantial volume of high quality mortgages on its own balance sheet.Speaking outside the Commons, Labour's John McDonnell, said he had written to Chancellor Alistair Darling asking for an immediate statement."

See also BBC Online ..."Chancellor Alistair Darling has moved to calm fears about the nationalisation of Northern Rock after it emerged the bank's best assets would stay private.
Mr Darling said taxpayers would not benefit from the nationalisation of a firm holding £45bn of Northern Rock's most profitable mortgages. "

The Times Northern Rock advisers facing fees showdown -" Merrill Lynch, Citigroup and Blackstone – are holding out for their full share of £75 million in agreed fees, despite the fact that the Government did not follow their advice to sell the bank. “The reality of it is that they all had letters that had a base amount and a ‘success’ amount,” one source said.
The base amount = £50 million, with £25 million “success” fee."

"The Government is already on the hook to pay a fee of between £15 million and £20 million to its own advisers, Goldman Sachs and the legal firm Slaughter and May." ..."The Treasury has also agreed to pay £5 million to each bidding team to cover the costs of their banking advisers, lawyers and accountants."

If you understand who own Granite, NEDSA, the BOE/taxpayers/ or someone else .. please let us know.

UPDATE : 23rd September If arrived from links elsewhere please also go to see newer post Saturday, February 23, 2008 Granite and the masters of the Master Trusts - exploiting loopholes with the City lawyers )

Furriners buying in at the bottom

Investment bank Morgan Stanley said today it has sold a portion of itself ( 9.9 % or less of Morgan Stanley's total shares outstanding.) to China Investment Corp., an investment arm of the Chinese government, for $5 billion to raise capital after taking $9.4 billion in writedowns on mortgage-related investments.

The Blue chip Wall Street bankers report a loss of $3.59 billion, or $3.61 a share, during the fourth quarter ended Nov. 30, marking the first time Morgan Stanley has posted a quarterly loss in its 72-year history. Just a year ago, Morgan Stanley posted a profit of $2.21 billion or $2.08 a share.

In the latest major overseas investment by a sovereign wealth fund, the Government of Singapore Investment Corp (GIC) said last week that it would inject 11 billion Swiss francs (US$9.74 billion) into UBS, Switzerland's largest bank.

UBS said a strategic investor in the Middle East, which it did not want to identify, is injecting an additional 2 billion francs into the bank, which revealed further writedowns of around US$10 billion due to a crisis in the US subprime mortgage sector.

Dow Chemical is to place its plastics business in a joint venture with Kuwait's state oil company.

Citigroup announced some $6.8bn of write-downs and losses in the third quarter, and the potential for another $11bn in the fourth quarter.It then sold up to 4.9 % of itself for $7.5 billion to the Gulf Arab emirate of Abu Dhabi in a complicated deal that involves paying a fixed coupon of 11%. That is well above the average yield on US junk bonds of 9.4 per cent, according to Merrill Lynch data.

Abu Dhabi will be Citi's largest shareholder.

In May, China's (then) new state investment agency, China Investment Corp., took a $3 billion stake in U.S. private equity firm The Blackstone Group,this is in the form of a non-voting stake of just under 10%.

Billionaire corporate raider Nelson Peltz's Trian Group has teamed up with up with the Qatar Investment Authority, an arm of the emirate's government, and in a classic corporate raid they now have 4.5% of the company.(Peltz bought drinks group Snapple for US$300m (£149m) and sold it three years later for US$1.5bn.)

Today it has been announced that Milestone Resources, the investment arm of Dubai based Mahesh “Micky” Jagtiani’s Landmark Group, had acquired a 7.4% stake in Debenham's plc and could be poised to buy it. ( A trade off maybe for thr news that UNiversal Studios are helping to make Dubailand the ME Disneyland ...given the outdoor temperatures in Dubai , truly a Hell on Earth)

Bear Stearns reports results tommorrow before the bell. Wear a hard hat.

Is China moving the market with Treasury Bond sell off and dumping sub prime CDO's ?????

The Daily Telegraph reports today that Data released by the New York Federal Reserve shows that foreign central banks have cut their stash of US Treasuries by $48bn since late July, with falls of $32bn in the last two weeks alone.The yield on the benchmark 10-year note declined to 4.47 % at 5:15 p.m. in New York, from 4.55 % yesterday.

A recent analyst report has pointed the finger at Beijing as the main suspect in the sudden bond flight this summer.

In a client note entitled "Has China started to dump US Treasuries?", David Powell, an economist at IDEAglobal in New York said the sales appear to coincide with early moves by Beijing to launch its new $300bn sovereign wealth fund.

The scheme is part of the government's plan to diversify it $1,340bn reserves from bonds (mostly in the US) to a broader portfolio of investments and a better yield.

See also Lord Patel's recent observations about the US$3 Bn. Blackstone investment by China and the sub-prime mortgage derivatives / CDO's sell off. "Did China trigger Market Meltdown ?" on Sunday August 19th 2007.

The Dow Jones industrial average was down 173.71 points, or 1.29 percent, at 13,275.15. The Standard & Poor's 500 Index was down 19.49 points, or 1.31 percent, at 1,469.93. The Nasdaq Composite Index was down 27.94 points, or 1.06 percent, at 2,602.30.

Apple was down 4.3 percent at $137.88 after the company said it was cutting the price of its iPhone.

Earlier in the day, reports showed a plunge in pending U.S. home sales,The National Association of Realtors' index of signed purchase agreements dropped 12.2 % after gaining 5 % in June. Today's report showed pending resales dropped in all four regions. They fell 21% in the West, 13 % in the Midwest, 12 % in the Northeast and 6.6 % in the South.

Private sector employment showed slowest rise (38,000 )in four years and a surge in layoffs, especially in the financial services sector.

Charts all from the Federal Reserve Bank website today.

Mad Judge calls for compulsory DNA samples for everyone in known universe

Lord Justice Sedley, the Hilaire Belloc quoting, Lord of Appeal, says the current database, which holds DNA from crime suspects and scenes, was "indefensible" because he says it is unfair and inconsistent.

His insane response to the problems (not even mentioning the 500,000 mis-labeled samples revealed last week by the Home Office) is to add the whole population and every single visitor. This of course chimes with Tony Blair's demands for such a policy while visiting the London HQ of the Forensic Science Service.

Lord Justice Sedley spoke last year on the 13th may about "Sex, Libels and Video-surveillance" and garnered an adequate measure of column inches - not the usual result of being asked to give the Annual Blackstone Lecture, at Pembroke College, Oxford

He said inter alia many things about the News of the Screws and George Galloway ...

I want to suggest, first, that privacy – prominently but not solely private sexual activity, which sells so many newspapers – is something which our law does not yet adequately protect ...

The same legal brain can however accept that the state may invade our privacy - and even that of our visiting uncles, aunts in such a gross way.

More column inches on the way M'lud.

Incidentally the forthcoming (Oct 22nd) trial of Mr Castree for the murder of Lesley Molseed who has been identified by DNA "lost" by the West Yorkshire Police looks set to be very interesting... readers will recall the circumstances it was lost and how Mr Stefan Kisko was locked up as a a result by further falsification of evidence. See previous posts

Did China trigger Market Meltdown ?

In a very relaxed mood, as dwelling in that warm glow, when Manchester United are thrashed 1-0 by the Blues in our "Derby" match, orders were given to the pantry to break out the Bacardi Breezers and so a slightly lightheaded Toni Fabuloso has been providing me with some long overdue Ayurvedic massage - well that's we call it - something about total body karma she murmers soothingly.

Drifting (as it tends to do at times like this) mindlessly, several possibilities popped up, Collateralised Debt, Blackstone, IPO, China, slump, dollar dives...

Let's begin somewhere near the beginning ...

Stephen A. Schwarzman, 60 (roommate at Yale of Dubya and also member of the Skull and Bones ) is Chairma and CEO of the Blackstone Group LP and co founder with Peter G. Peterson 81 (who is Chairman of the Council on Foreign Relations). This "blue chip" high powered outfit in February this year "purchased" Equity Office Properties in the the largest leveraged buyout ever which required US$23 Bn of funds - a few days later Stephen invited us all to his glitzy party (Rod Stewart provided the entertainment ) to celebrate his 60th Birthday on February 13th. (Cost - US$6 Mn. , but who's counting ?).

On May 20th the Chinese Gubment announced that it's new un-named Investment vehicle ( headed by Antony Leung, Hong Kong's financial secretary from 2001 to 2003, appointed in January 2007) was buying into Blackstone with US$3Bn ahead of the forthcoming IPO at 95% of the IPO price, (The Chinese State holds some US$1.3 Trillion US Treasury Bonds ) . This will give them 10% of Blackstone (for an agreed 4 years) but this was in the form of non voting "investor units" not shares so creeps under regulatory radar. "I see it as the Chinese paying tuition to learn a little bit about how to invest in the rest of the world. " said Trevor Houser on APM radio. - Really ? Sounds like very expensive distance learning.

"To the extent that the state investment company stays below the 10 percent threshold for governmental review...and invests in securities that are liquid, which this security eventually will be, that's a very easy way for the state investment company to put large amounts of money to work with minimum to no controversy," Schwarzman is quoted saying - it also meant that he and his pal could up the IPO offer from US$4Bn. to US$7Bn. (and pocket US$3Bn. more of the readies)

This investment puzzled some folks because the last time the Chinese Gubment tried to invest in the US big style, was when Chinese oil company CNOOC tried to acquire California based Unocal, the folks who had done a deal with the Taliban for a pipleine through Afghanistan (in which famouse pianist Ms.Condileezza Rice helped put together) but which came to a sad end when President Clinton sent the Tomahawks flying into Kabul when his cocksucking girl friend's dirty washing got more publicity than it needed.

Anyway,CNOC pulled out of a bidding war which Chevron won and piled into the sunny seas off Angola at the time.

Perhaps the timing was connected with the visit the following day by Chinese Vice Premier Wu Yi to meet U.S. Treasury Secretary Henry Paulson in Washington to discuss sticking points in trade in the second round of the two governments' "Strategic Economic Dialogue."

Then came the IPO.

Jim Jubak of MSN Money Markets at Street.com called this a "Must Miss" .."a very, very, very bad deal for investors " and added what now appears to be a very astute rider.."I believe investors are about to learn a great deal about this market".

Note. If Jim talks. Listen.

The market he was talking about was the go-go Private equity market in which Blackstone had shown an astounding annual 23% on average for the company's private-equity funds since 1987. Blackstone at the time of the IPO had US$80 Bn. assets under management which according to the offering showed :

US$31 billion in private-equity funds that do buyouts of public companies

US$18 billion in real estate investment funds

US$17 billion in funds of hedge funds

US $7 billion in senior-debt investments

US$6 billion in hedge funds that invest (?) in distressed bonds, stocks, near-equity debt (called mezzanine debt) and closed-end mutual funds.

What was actually for sale in the IPO was a 15% stake in the company that manages all that money that people have invested - or at least, provided them to invest and for which the co-founders wanted seven billion bucks. (Just pause to get your breathe here)

The company structure is BTW a master limited partnership, so investors will be unit holders NOT shareholders - Shareholders get to vote - on everything, investors just sit and watch the founders and hope the profits roll in like they did in the good ol' days.

Jim pointed to Fortress Investment Group who had IPO'd earlier in the year , with US$30 Bn. funds in management - Offered at US$18.00 they soared on the day to US$35 and had dropped back to US$27 when he was writing - Friday they closed at US$17.57. Ouch!!!

Blackstone offered at US$31 (valuing the company at US$33.43 Bn) closed on the first day (June 22) at US$36 and have slumped ever since to close at US$24.71 on Friday. Ouch! Ouch! - 46 days to lose one thrid of your money investment. Incidentally the day Bear Stearns let it slip that two hedge funds specializing in subprime debt ( a market said to total US$600Bn.) run by its asset management arm were facing a sudden wave of withdrawals by investors - On July 10, Standard & Poor’s announced it was downgrading $7.3 billion worth of securities sold in late 2005 and 2006. This was shortly followed by Bear Stearns CEO Warren J. Spector resigning on a Sunday afternoon.

Despite a last ditch attempt by Rep. Henry A. Waxman (D-Los Angeles) to delay the IPO and make changes to the generous tax treatment such deals provide - he proposed that publicly traded partnerships deriving income from investment advisor and asset management services pay the federal corporation tax rate of up to 35% instead of the 15% rate Schwarzman and Petersen enjoyed .. More details of how they end up with an effective tax rate of 5% on the sale profits that Lord Patel explained here recently

Yes folks you read that right - 5% Federal taxes !!

Due to tax cuts introduced by Dubya, Stephen's old room mate at Yale, (who is incidentally a massive funder and fund raiser for the Republican Party).

However that is straying from the point. Investors don't get a vote but if you are the Chinese Gubment and have shelled out US$3 Bn. into the founding partners pockets , the founding partner is going to listen?

Now if they, (or Antony Lueng on their behalf) said "Hey fellas", look at all these funny "collateralised debt obligations" (CDO's) these massive tranches of "collateralized bond obligation"(CBO) balance-sheet CDOs and arbitrage CDOs , these "mezzanine" finance deals, "revolvers" , "ramp-ups" we have too much exposure .

Blackstone had US$13 Bn. and a further US$17Bn. in hedge funds who were heavily exposed - " ..let's unload them", says Antony Leung. Maybe. Who knows ?

Now if a big mover like Blackstone starts to dump ..... is that a shot across the bows in the first battle of economic warfare ?

Just a thought.

Fast boats in China

So it seemed sensible to see what reaction is in China to the gyrations of the market and looked at the English Edition of China People's Daily

..Passenger numbers on Chinese airlines rose to 86.7 million in the first half of 2007,16.7% on last year....construction began on the construction of the main body of the first nuclear power station in NE China at Dalian, Liaoning province ..... China on way to being world's second largest exporter this year .... China now marketing 1.5 MW wind powered generator ...

Highlighted and eye catching however was the news about Racing at day 2 of the Qingdao International Regatta, the first Olympic Test Event for sailing in preparation for the 2008 Olympic Games.

In the Women's 470 classes in which the Swede Mrs Therese Torgessen is leading (crew Vendela Zachrisson) - after a disappointing 5th at Cascais in the ISAFChampionships recently, in which Britain's Christina Bassadone and Saskia Clark won a bronze medal but who are trailing at 15th so far.(Official website) .

Just downloading this pic of some happy sailors in the sun and Toni Fabuloso cracked open another Bacardi Breezer and said some more Ayervedic massage was needed.

She talks about Kapha disorders which manifest emotionally as greed and possessiveness and physically as obesity, fatigue, bronchitis and sinus problems.



President Hu had a good time fraternising with all the other members of the SCO and the wannabees, and got nicely treated.

Remember when some mad Chinese journo "crashed the Press conference" at the White House Rose Garden last April and embarassed visiting President Hu for a several minutes ? Talk about meeting a host of indignities."President Hu, your days are numbered!" and "President Bush, stop him from killing!" , "President Bush, stop him from persecuting the Falun Gong." shouted a Falun Gongist in both English and Chinese who had upstage his predecessor Jiang Zemin, in Malta 5 years previously.

This followed the band who the crowd were told would play the "national anthem of the Republic of China" -- the official name of Taiwan - no Chinese flags on the lamp posts, and "official visit" not a "formal visit" a "lunch" and not a "formal dinner".... granting a press pass to granted a one-day pass to Wang Wenyi of the Falun Gong publication Epoch Times - the White transcript that day politely airbrushed her 3 minute tirade calling it an "audience interruption."

Wal Mart and Home Depot ,2 of the US's major retails report sales slowdowns, lower returns, GM and Ford have cut 2007 sales forecasts .. Jumbo mortgages (over US$400K) rates have gone from 6.25% last month to as much as 8%.

Don't mess with Hu.

Tax cuts for the very,very rich - how it works... and where some of the money goes

This very happy looking chap with his wife is Stephen A. Schwarzman, he is Chairman, CEO and Co-Founder of Blackstone Group LP in 1985 and the Chairman of the board of directors of its general partner, Blackstone Group Management L.L.C. (who paid him US$400Mn last year) his colleague and co-founder Peter G. Peterson is Chairman of the Council on Foreign Relations.

Stephen was George Bush's room mate at Yale and joined the sinister Yale Skull and Bones sceret society in 1969 simultaneously. He is married to Christine Hearst, an intellectual property lawyer at Cowan, Liebowitz & Latman who, unusually, has kept the name of her second husband, Austin Hearst, father of her 2 children ( She is a daughter of Peggie Mularchuk of Hicksville, L.I.) grandson of the legendary newspaper tycoon Randolph Hearst.The wedding was solemnised by both Rabbi Bertram Siegel and Rev. Sam Matarazzo, a Roman Catholic priest on November 5th 1995.


At his 60th Birthday party on 13th February (total cost US$6 Mn) this year Rod Stewart provided the entertainment - and was allegedly paid US$1 Mn for the gig. (just days after the Blackstone US$39 Bn. purchase of Equity Office Properties in what was the largest leveraged buyout ever.

Last month these guys and their partners sold some of their share of Blackstone to the public and the public paid up US$3.7Bn - give or take the off US$100 Mn. for the flock of lawyers, accountants and PR / Press reptiles who were on hand to do the deal.

Whew ! That's some tax to pay on that pay day ... well yes the partners will initially pay (give or take the odd mill ... a whopping US$ 553 Mn. that's the going rate of 15% on Capital gains (reduced to that rate by his old room mate President Bush in one of his essential tax cutting moves) . Ouuuch!!!!!

But tax lawyers point out that the documents outlining the deal suggest that that tax will be returned to those taxpapers and some US$200 Mn. more ....How ?

Well , the trick is that that US$3.7 Mn. represents intangible assets - Goodwill for which the sellers (because they put this into a seperate entity called a "blocking company" - because it blocks paying tax) can make deductions for the "loss" of that goodwill.

Blackstone can deduct 35 %, based on the corporate tax rate for depreciation, of the value of $3.7 billion in good will, or $1.3 billion. Because the partners told investors they have the right to 85 percent of that amount, that means they have $1.1 billion worth of deductions.

The rub is of course that this tax is only repaid over 15 years, so that the deduction of US$1.1 Mn the partners can make on the US$3.7 Mn works out at in today's dollars US$751 Mn (ish, ish because those pesky lawyers, etc will take a pourboir you can bet)

So hey Presto , this precious prestidigitation means the partners recover US$198 million more than they paid in taxes. (751 - 571)

To reap those savings from the deductions, Blackstone needs to funnel income into that blocker corporation.

So Blackstone directs to the "blocker" corporation the annual fees it receives from investors for managing their money, which is 2 percent of the assets they manage - more than US$850 million last year, far more than the amount needed to write off the good will.
... and the effective tax the partners will have paid is approximately 5%.

Similiar tax structures have been used when the Fortress Investment Group went public in February (Goldman Sachs lead underwriter) , Kohlbreg, Kravis Roberts and Och-Ziff Capital managment identify virtually identical strategies for tax shrinking in their preliminary disclosure documents for their forthcoming floats.

It is of course all perfectly legal.

PS http://www.ipnetwork.com/ was formed by Christine Hearst Schwarzman, as she now calls herself, she founded and named herselfchairman of a new business, IPnetwork.com, which described itself as“the premier licensing and event sponsorship Website” and “the onlineleader in transaction, management and information services for the licensing,event sponsorship and intellectual property communities.” Just as the Internet bubble was poised to pop, she raised $20 million in financing for the venture,*** which she promised would, among other things,help Web site owners avoid copyright infringement litigation.“All of Schwarzman’s friends invested, but it went pfft in the bubble,”says an observer of the financial world. (Michael Gross 740 Park: The Story of The World's Richest Apartment Building (Broadway Books):)

A Whois produces this ....
Registrant:

The Blackstone group , 345 Park Avenue, NEW YORK, NY 10154
Domain Name: IPNETWORK.COM
Administrative Contact , Technical Contact :
Domain, CHS

admin@schwarzman.com

345 Park Ave, New York, NY 10154,US
Phone: 212-583-5000
Record expires on 13-May-2013 - Record created on 25-May-1999

Database last updated on 26-Feb-2007

*** IPnetwork.com, the premier licensing and event sponsorship Website, announced today the initial closing of its $20 million second round of financing. The round was led by Communicade, the Internet investment arm of Omnicom Group Inc., the global advertising, marketing and interactive media giant. Other investors include Chase Capital Partners, Merrill Lynch, Fenway Partners, LGT Capital Management, and Wharton Capital Holding Corp., as well as additional investments from Sir Ronald Grierson and previous investors TL Ventures, Craig McCaw, Reed Hundt, Jay Alix, Jon Moulton of Alchemy Partners and Chris Brody of Vantage Venture
Partners.

Perhaps not a business venture that Stephen will brag about - one imagines that Ron Grierson ex GEC , Craig McCaw, Reed Hundt, Jay Alix, Jon Moulton and Chris Brody might, with hindsight take a rather sour view of their investment.

Christine also hit the headlines in August last year, at a St. Tropez party held by Denise Rich the semi estranged wife of Marc Rich Tax exile, (pardoned by Bill Clinton) held a party abord her husband's Rich's sleek, 145-foot yacht, "Lady Joy," 300 luminaries disembarked to the old port, where an actual merry-go-round had been de-horsed and converted into a rotating dance floor surrounded by go-go girls in cages. Pole-dancing under the flashing lights - principal dancer was Christine - which much amused huisaband Stephen and fellow travellers the beautifully bronzed George Hamilton, Anne Hathaway, Rena Sendi, Terry Allen Kramer and Serena Boardman. P.M. Lounge emcee Unik handed the mike to Sean Combs , who rapped over his new record with James Brown.

US Private Equity Groups find collective strength to meet DOJ probe

Douglas "Doug" Lowenstein has been elected as group President and CEO of the newly launched The Private Equity Council and starts work Feb.2007 . Eleven companies including the reclusive Washington DC based Carlyle Group, have created a new association to conduct research and advocate on behalf of the growing -- casg rich and cash ready -- private equity industry.

Other companies include , The Blackstone Group, Bain Capital, Providence Equity Partners, Texas Pacific Group and Thomas H. Lee Partners. who worked with Bain to buyout Clear Channel for US£26Bn. Apollo Management - potentially buying out Harrah's Corp. for $17.1 billion currently, Hellman & Friedman, Kohlberg Kravis Roberts & Co. (KKR) romoured to be working on US$100 BN leveraged buyout of Home Depot earlier this minths with Texas Pacific, Chicago based Madison Dearborn Partners, and Silver Lake Partners from California.

"Doug" Lowenstein officially left the Washington D.C.-based Entertainment Software Association last week after 10 years.

The Private Equity Council intends to " launch outreach efforts in research, public affairs and government relations to increase the public awareness of private equity " what we used to call lobbying.

Sensing the criticism that is being levelled at the scale of their mega buyouts - over US$300 Bn in 2006, and mindful of federal interest, the new lobby group will no doubt aim to head off criticism.

Federal antitrust prosecutors opened an informal inquiry*** into allegations of anticompetitive bidding practices in the LBO business a few months ago . This antitrust probe is mainly on so-called club deals, Harrah’s, Freescale and HCA etc., in which several private equity firms get together to buy out a company.

The DOJ lawyers want to determine if these "club deals" allow private equity firms to control and influence the bidding process by offering rival firms a chance to co-invest in other deals. You scratch our backs and we'll scratch yours.....

***WSJ October 10th 2006 (A3) Private-Equity Firms Face Anticompetitive Probe
"The Justice Department has sent letters to a number of private-equity firms requesting a range of information and documents related to deals and business practices. "

Standard & Poors issued a Leveraged Commentary & Data (LCD) note on this topic the same day.(subs) The note said S&P is not in a position to comment as to whether private equity firms are colluding to despress pricess, the historical record shows no rising tide of consortium deals, nor any difference in the average purchase price multiple of these deals, compared to single-sponsor transactions.

An interesting set of figures igure they produce shows the average purchase price to pro forma EBITDA ranges of multi-sponsored deals, vs. those with a single buyer.

Since 1997, with multi-sponsored deals averaging at at 7.5x and single-sponsor deals at 7.4x a difference of 0.1% return! So far in 2006 (Oct) , multiple-sponsor deals paid on average 9.3x for properties which is 1.2 % higher than 8.1x EBITDA that private equity firms working alone have paid. It also suggests that they are awash with cash.

ITV in merger talks with NTL

Excitement on the LSE as news of talks have been taking place for a merger between UK broadcaster ITV and cable operator NTL.

In a statement responding to a 'highly tentative' preliminary approach from NTL, ITV said the cable giant has yet to table a firm offer.

'The board of ITV has indicated its willingness to listen to any bona fide proposal, but to date no meeting has been held nor has any proposal been received,' ITV said in a statement.

Meanwhile, the cable operator has announced it is changing its name to Virgin Media after taking over Virgin Mobile in July.

The ITV CEO position is vacant and a rumoured successor is ex-Ofcom chief executive Stephen Carter inside an enlarged group because he is a former managing director of NTL. ITV shares have surged to 112.25 up 7% today.

Earlier this year, a group of private equity firms including Blackstone Group, Apax Partners (see previous post) and the investment arm of Goldman Sachs abandoned an attempt to take over ITV at approx 130 p per share, after its approach was rejected. Bid battle in store ?

Pic * watch out as Bill Webster makes a pass for Audrey after a night out with at the dogs.

ITV - on the move

Reuters report talk of Roger Parry chairman of regional newspaper publisher Johnston Press (LSE: JPR.L ) The 2nd biggest local newspaper publisher in the UK (inc. Scotsman), and a major force on the internet with local commercial / news sites. He has plans (rumoured) to split Britain's biggest commercial broadcaster in two - and probably has his eyes on Friends Re-United.

Roger Parry, who cannot mount a bid for ITV (LSE: ITV.L - news) until October after informal overtures were slapped with a "put up or shut up" notice by the Takeover Panel in April, will, it is rumoured in Peterborough, update his proposal once the embargo expires. Parry would split the broadcaster into two companies, one housing production and internet and the other, broadcasting channels.

In June, Kohlberg Kravis Roberts and private equity group Permira were reported to be looking at a bid.

Goldman Sachs (NYSE: GS) Private Equity piracy department , Apax Partners Worldwide LLP and Blackstone Group have also been in the frame along with Greg Dyke, who has been touted as CEO.

Ratings plummet (the dire Love Island !) and revenues plunge and CEO Charles Allen is rumoured to be leaving to spend more time with his fat pay off.

The ever fragrant Mr Lauder of course, waits (?) in the wings (see post yesterday here "Heaven scent offer for ITV?") - the ITV share price jumped this morning 2 1/2 %. Somebody this time means bizniz. Lord Patel first with the news. Fillya boots.