The deal will bring Sallie Mae under private control amid intense political scrutiny of the student-lending industry.
JC Flowers, the architect of the deal, and Friedman Fleischer & Lowe will invest $4.4bn in Sallie Mae and control 49.2% and 1% respectively.
JPMorgan and Bank of America will each own 24.9% and provide the financing for the transaction, which would be the largest leveraged buyout of a financial services company.
Although welcomed by the stock market (Sallie Mae’s share price kept on rising in the days following acquisition talks) the deal faces challenges on several fronts. Among other obstacles are US government threats to cut the federal subsidies and guarantees that have contributed to the company’s growth in the past 35 years.
Furthermore, the three major rating agencies, Standard and Poor’s (S&P), Moody’s and Fitch, put Sallie Mae on notice for possible downgrades, which might bring the company’s rating down to speculative grade, increasing the cost of financing for Sallie Mae in the unsecured bond market.
On the acquiring banks’ side, the deal has received mixed responses. Some believe that the banks will benefit from Sallie Mae’s leading position in student loans securitisation and that they will be able to cross-sell their other products to the student customers they’ll acquire through the deal.
On the other hand, S&P, although not modifying its rating for the two banks, said that the strategic benefits of the deal were unclear as neither will have managerial control, and revenue synergies do not appear to have been well defined.
S&P also noted that both banks are rivals in the student lending space, which would not make for the best collaborative environment.
ABN AMRO bidding war
Royal Bank of Scotland, Fortis and Grupo Santander have joined forces on a prospective bid for ABN AMRO that would rival Barclays Bank’s offer for the Dutch bank. ABN AMRO has been in exclusive talks with Barclays but there has been speculation that the price the three banks can offer will exceed Barclays’ proposal.Furthermore, the prospect of a break-up bid could attract other banks.
Citi has announced a global redundancy programme that will involve some 17,000 positions out of the bank’s 327,000-strong workforce. Almost 10,000 of the projected job cuts will be outside the US and the bank warned that more redundancies were likely once the current $2.5bn cost-cutting programme was complete.
Meanwhile, Citi has acquired the remaining partnership interest it did not already own of Old Lane Partners, the manager of a hedge fund and a private equity fund with total assets under management and private equity commitments of approximately $4.5bn. The financial terms of the transaction were not disclosed. Old Lane will operate as part of Citigroup Alternative Investments, Citi’s alternative investments platform.
The New York Stock Exchange and Amsterdam-based Euronext have completed their merger. The new group, NYSE Euronext, has announced that it will make expanding in the US derivatives sector its priority. The exchange group already has a significant presence in European derivatives with the Liffe platform in London. NYSE Euronext also announced that it was moving the international listing business from New York to Paris.
KBC to acquire Absolut
Belgian bank KBC has announced an agreement to acquire midsize Russian bank Absolut Bank with an offer that values the bank at €761m. The deal widens KBC’s expansion area, which until recently was focused on EU accession countries in Central and Eastern Europe.
Continuing domestic market consolidation in Italy, Intesa Sanpaolo, formed last year by the merger of Banca Intesa and Sanpaolo IMI, has made an offer for CR Firenze, a Tuscan bank with a market capitalisation of more than €4.5bn. Intesa Sanpaolo has also expressed interest in expanding its presence in other Italian regions. The group has a market capitalisation of €75bn.
Royal Bank of Canada has agreed to buy 50% of the Bahamas-based banking unit of Fidelity Bank and Trust International to expand its corporate banking business in the Caribbean. The partnership, to be called Royal Fidelity Merchants Bank and Trust, will provide services including corporate finance, investment management and pension and mutual fund administration. The deal consideration wasn’t disclosed.
Citi has announced the acquisition of Taiwan’s Bank of Overseas Chinese (BOOC) for NTD14.1bn ($427.3m). The New York-based bank has a presence in the country with Citi Taiwan, the island’s most profitable international bank. The merger of its operations with BOOC will create a combined business with 66 branches and assets of $22.8bn, making it the country’s largest international bank and the 13th largest of all Taiwan banks by total assets.
Industrial and Commercial Bank of China (ICBC) has announced a 31% profit growth in its first set of results since its listing last year. ICBC’s initial public offering (IPO) is The Banker’s Deal of the Year global winner, (see p28). The bank’s profits rose to Rmb49.8m ($6.4bn) last year, fuelled by growing personal banking and wealth management businesses.
HSBC China setback
International bank HSBC has suffered a setback in its Chinese expansion strategy after its main domestic partner in the country, Bank of Communications (BoCom) was reclassified as a large state-owned bank – instead of a joint-stock bank – protecting the Chinese bank from a foreign takeover.
Banks classified as state-owned banks include Bank of China, Industrial and Commercial Bank of China, China Construction Bank and Agricultural Bank of China. China considers this class of bank to be integral state assets essential for ensuring government control over the economy.
In an additional blow, the country’s securities regulator has approved an IPO of BoCom on the Shanghai stock exchange, which could raise about Rmb30bn ($3.9bn). The Chinese bank is already listed in Hong Kong. As foreign investors have little access to the Shanghai market, HSBC will need special dispensation and have to pay about Rmb6bn to avoid having its BoCom stake diluted.
Japan’s Shinsei Bank has posted a ¥58bn ($488m) net loss on its 2006 accounts rather than a forecast ¥40bn net profit because of charges against its consumer finance business. The result means the bank has missed a profit target set by the government when it injected public money to rescue Shinsei from collapse in 1998. This might force the bank to submit a new business plan to regulators.
Sumitomo Trust and Banking has agreed to buy the Japanese asset management unit of Barclays Global Investors UK Holdings for ¥4.9bn as the Japanese bank aims to expand its asset management operations. Barclays’ Japanese asset management unit has posted a ¥420m net profit during the six months ended last September.
Japanese investment bank Nomura says it is to double the size of its Asian wealth management unit outside Japan in the next three years. The unit has 200 employees.
British bank Standard Chartered is to spend S$800m ($529m) on a new office in Singapore, which will be the company’s biggest. The bank generates two-thirds of its profits from Asia, and the office will serve as headquarters for private and consumer banking.
