The sum of all fears

February 24th, 2009
The Sum of All Fears
Many argue that U.S. banks need to be nationalized, perhaps temporarily, pointing to Sweden’s success in fixing its banking sector. But a growing group of experts is raising alarms, saying that any nationalization cure would be far worse than the banking crisis disease.
In today’s Wall Street Journal, William Isaac, who was chairman of the FDIC from 1981-1985, argues forcefully that nationalizing the biggest U.S. banks is not a viable option. He points out that Sweden is tiny compared with the United States and that the total nationalization effort there involved one bank that had already collapsed. He says that the problems at Citi, Bank of America and perhaps others are too big and difficult to be dealt with through drastic government intervention, particularly one labeled “nationalization.”
Dick Bove, a veteran bank analyst, also thinks government management is a mistake. Nationalized banks would not be dynamic enough to aid the economy in recovery, according to Bove. He also argues that the damage to shareholders would be catastrophic, though certainly in the case of Citigroup, shareholders have already taken most of the hit.
If voices of wisdom aren’t enough for skeptics, the example of AIG may be. AIG is not a bank, but it faces a lot of the same problems that banks do. And nationalization has done little to help the insurer, which has been losing bailout dollars with dizzying speed, and is seeking more cash from the U.S.
The United States’ efforts to fix AIG have done nothing to improve the government’s standing on Wall Street. But then again, continually applying new band-aids to the financial system doesn’t appear to be stopping the bleeding. If nothing else, we now know that both sides of the nationalization argument have a whole lot more evidence of what doesn’t work than what does.
Deals of the Day:
* Roche will likely have to up its bid for the 44 percent of Genentech it does not already own, analysts said after the U.S. biotech group urged shareholders to reject the offer.
* American International Group received bids from MetLife and Axa SA for its American Life Insurance Co unit, Bloomberg reported, citing people familiar with the situation.
* Lehman Brothers Holdings will spin off its venture capital arm into an independent firm, the latest move by the bankrupt securities firm to shed assets and raise cash.
* Commodities trading house Noble Group, the biggest shareholder in Gloucester Coal, has concerns about Gloucester’s proposed merger with fellow Australian miner Whitehaven Coal, Noble said in a statement.
* Spain’s Santander and utility Union Fenosa have renewed talks to sell their 36 percent stake in oil group Cepsa to Abu Dhabi fund IPIC, Expansion reported, citing unnamed energy- sector sources.
* French retailer Carrefour is seeking to buy Seventh Continent in a deal that would make it the first foreign company to enter the Russian retail market since the credit crunch hit local firms
* Privately held mobile email provider Visto has agreed to buy rival Good Technology from struggling Motorola to expand its offering and grow scale in a market dominated by Research in Motion.
* Billionaire investor Carl Icahn raised his stake in independent film and television studio Lions Gate Entertainment Corp to 14.28 percent and may add or oust directors from the company’s board, according to a securities filing made on Monday.
* Boyd Gaming said it was interested in exploring an acquisition of struggling casino operator Station Casinos, which has said it may file for bankruptcy protection.
* Liquidators Hilco Merchant Resources LLC and Gordon Brothers Retail Partners were named as the lead bidder in a bankruptcy auction for U.S. luxury retailer Fortunoff Holdings LLC, according to a person with knowledge of the auction.
* Semiconductor company Exar Corp said it agreed to buy Hifn Inc, a provider of data compression and encryption technology, in a deal valued at about $59 million.
* The Chinese government aims to cut the number of major auto-making groups through mergers to 10 at most from 14, an official newspaper reported, as the global economic crisis adds urgency to restructuring the fragmented sector.
* State-run Life Insurance Corp of India has raised its stake in ICICI Bank by 2.04 percent to 9.38 percent through market purchases, a filing by India’s second largest bank to the stock exchange showed.
* The board of fraud-hit Satyam Computer Services hopes to seek expression of interest from potential bidders by the end of this week, its chairman said.