Posted by: John Gilmore | September 16, 2006

Mergers, Acquisitions and the Bailout

As I’ve mentioned in previous posts, we haven’t seen any of the $700 billion bailout used to buy distressed securities. What we have seen is the U.S. Treasury buying equity stakes in banks and the possibility that this buyout will extend to insurance companies. As you will read in the articles below – one of the consequences of these actions is that banks are taking these funds and are planning to acquire other banks. It appears that the same scenario will play out with insurance companies. Those banks and insurance companies lucky enough to be ‘chosen’ will have a significant advantage over those without access to these funds. How would you like to be one of the banks/companies without government funding trying to fight off a takeover in this current business environment? If it doesn’t sound fair – that’s because it isn’t. Don’t think for a minute that this wasn’t planned. You are seeing a forced consolidation of banks and companies across the board.

In order to see what is really happening, you must look past all of the rhetoric. We were told that this bailout was absolutely necessary or we faced an economic meltdown. It was absolutely necessary to buy billions of dollars of ‘toxic’ securities or face the consequences. Well, no securities have been purchased and the economy hasn’t melted down yet. What has happened is that the Federal Reserve and the U.S. Treasury are gaining ever more control over our banks and corporations by buying equity in these companies. Today, the Federal Reserve began lending directly to corporations (see article below). So, what we actually see is our government and an international banking cartel gaining more control over us as industries are forced to consolidate and the government continues to buy equity stakes.

There are very few people that recognize that all of these problems (mortgage foreclosures, bankruptcies, reduced lending, stock market volatility, banking instability, etc.) are merely symptoms of the underlying disease – our monetary system. Central Banks and governments have the world focused on the symptoms – while the disease destroys the world’s economy. You can’t simply treat the symptoms and expect a cure. If you want to be cured – you must cure the disease. To truly get free of this mess – the Federal Reserve must be removed and the U.S. must begin to manage its own money supply.

Remember – based on what we’ve learned – our economy is destined to collapse. This is not a mystery to the leaders of the Fed and it’s not a mystery to the highest echelon of power within our government. So, when they tell us that we must submit to their demands to ‘save’ our economy, what is really happening? They are simply forcing us to go along with their plans – knowing that we are destined for collapse. They are now consolidating power (bank/corporation consolidation & government equity stakes) for the time when our economy does collapse. This will usher in a new round of regulation and control as we move closer to world government and a world financial system. As I’ve said many times before – very ingenious. Evil – but ingenious. This ‘beast’ continues to deceive the world – just as the Bible tells us it would do.

The last comment I’ll make in this post is this – do we really want our government managing banks and corporations? Think about this for a minute. This is the same group of people (the Federal Reserve, Congress, Senate, Presidential administrations, U.S. Treasury, etc) that have led our nation to the brink of economic ruin – which could eventually lead to the collapse of the United States. This is a group of people (the term ‘leaders’ definitely does not apply here – leaders are worthy of our respect) that is extremely corrupt and focused on worldly wealth and glory for themselves. Do we really want this same group of people to gain even more control over us? Would you really want George W. Bush, Nancy Pelosi, Barney Frank or Ben Bernanke running your company? The thought of this keeps me up at night.

I’m sure there will be much more to discuss in coming days. Things are moving so fast that it’s difficult to keep up with the changes.

jg – Oct 28, 2008
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October 28, 2008

Plan Could Push Insurers Into Mergers

More Corporate Lending Also Could Be Sparked Under the Government’s Rescue Program
By LESLIE SCISM

If the Treasury Department’s capital-infusion program for the banking sector expands to insurers, industry consolidation may follow.

Some of the life insurers whose names have emerged as supportive of a widening of the Treasury’s $700 billion rescue program, the possibility of which emerged Friday, are considered by ratings firms to be financially healthy and capable of acquisitions. One is New York-based MetLife Inc. Industry analysts say it could be a contender to acquire at least some of the U.S. life-insurance operations of American International Group Inc.

The financial-services conglomerate has said it is trying to sell business units, including these and part of its foreign life-insurance operations, to pay back an $85 billion rescue loan it received last month from the federal government in exchange an 80% equity stake. That rescue, by the Federal Reserve, is separate from the $700 billion Treasury program.

Raising large sums of money for acquisitions is a tough challenge for any financial company right now, with credit markets still tight and stocks beaten down. Analysts say the infusion of low-cost government capital into a potential acquirer could prove crucial for AIG’s efforts to strike deals in the months ahead.

A MetLife spokesman said the company wouldn’t comment on any potential acquisition plans. An AIG spokesman said: “AIG is moving forward aggressively with its plan to permanently resolve its liquidity problems, sell a number of our world-class businesses and repay the Fed loan. We also continue to evaluate other possible options to restore AIG as a healthy competitor.” He declined to elaborate.
Banking-industry analysts interpreted Friday’s announcement that PNC Financial Services Group Inc. has agreed to acquire National City Corp. as an indication that the government is using the rescue plan as ammunition to push weak banks into the arms of strong ones. PNC will sell $7.7 billion of preferred shares and warrants to the Treasury Department to finance the stock-and-cash deal.

Colin Devine, a stock analyst at Citigroup Global Markets, said in a note to clients Monday that he anticipates “a wave of M&A activity” among life insurers, with Treasury infusions taking “the form of facilitated deal financing such as” PNC will receive. He rates MetLife a top pick, saying it has a strong capital position and is “uniquely situated” to acquire U.S. units from AIG. MetLife shares rose 3 cents, or 0.11%, to $26.21 Monday.

Meanwhile, Evan Greenberg, chairman of trade group American Insurance Association, said a substantial majority of AIA’s members “do not support the inclusion of property-casualty insurers” in the Treasury program and wouldn’t participate if it becomes available. Mr. Greenberg, chairman of ACE Group, said AIA members are “well-capitalized.” Members include Chubb Corp., Travelers Cos. and W. R. Berkley Corp. Property-casualty carriers tend to have more-liquid investments than life insurers, and their core businesses aren’t as volatile as the overall economy because cars, homes and businesses continue to be insured.

One goal of any potential expansion of the Treasury program appears to be trying to ramp up the insurance industry’s role as a lender.

On Sunday, New York Life Insurance Co., one of the highest-rated insurers in the U.S., said that Treasury officials recently asked it and others in the life-insurance industry “for help in developing solutions for strengthening the financial system. We agreed to work with other industry leaders and Treasury so we could play a constructive role in helping shape this important discussion.” The insurer, which is mutually owned, doesn’t require additional capital and hasn’t made any decision to accept capital, if offered, a spokesman said.

Write to Leslie Scism at leslie.scism@wsj.com
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OCTOBER 28, 2008

U.S. May Offer GM $5 Billion Loan
By DEBORAH SOLOMON and STEPHEN POWER
Wall St. Journal

The U.S. Department of Energy is working to release $5 billion in loans to General Motors Corp., according to a person familiar with the matter, a move that could help ease the way for the auto maker’s discussed merger with Chrysler LLC.
GM and Chrysler’s majority owner, Cerberus Capital Management LP, have been negotiating a complex deal in which GM would end up owning its smaller Detroit rival, but the parties have struggled to line up financing. The combined entity would need about $10 billion in new equity to cover the cost of laying off workers, closing plants and integrating the two companies, according to people involved in the talks.

The $5 billion would come from the pool of $25 billion in low-interest loans that was approved by Congress and is being administered by the Energy Department. The loans are aimed at helping Detroit retool plants to meet new fuel-efficiency standards. It isn’t clear how quickly the money could be made available or whether it would come with strings attached.

Although the loans are supposed to speed the availability of fuel-saving technologies, the money could help steady GM’s finances and make it easier for the struggling auto giant and Cerberus to persuade investors to back a deal. Any transaction would involve both Chrysler and GMAC LLC, which loans money for car purchases and other purposes. Cerberus owns 51% of GMAC and GM owns the rest.
Both GM and Chrysler are losing money. Analysts believe each company could start to run short of cash within 12 months.

The auto makers and Michigan’s congressional delegation have proposed at least three plans in recent weeks to unlock federal money for a GM-Chrysler merger. One is to seek an equity investment from the government. Another would draw money for the auto makers from the $700 billion Troubled Asset Relief Program, or TARP, set up ostensibly to help financial firms. A third possibility is accelerating the $25 billion in loans that the Energy Department is managing.

On Monday, White House spokeswoman Dana Perino, speaking of GM, Chrysler and Ford Motor Co., said “it’s a possibility that they could qualify” for Treasury funds under the $700 billion rescue fund, either through a direct investment or participation in the administration’s asset-purchase plan.

Treasury officials, however, are for now playing down that possibility, noting that any immediate federal aid will likely come from the Energy Department.
An Energy Department spokeswoman said Monday the agency is “in the process of developing the rules for the loan program” and that it would be “premature” to set a timetable for when the funds will be available.

The agency has come under criticism from prominent Michigan lawmakers in both parties after initially saying in September it could take “at least six to 18 months or more” to disburse the loans.

—John D. Stoll and Jeffrey McCracken contributed to this article.

Write to Deborah Solomon at deborah.solomon@wsj.com and Stephen Power at stephen.power@wsj.com
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OCTOBER 28, 2008

Federal Reserve Starts Lending Plan
By ANUSHA SHRIVASTAVA
Wall St. Journal

The Federal Reserve has kicked off a much-awaited lending program aimed at jump-starting the $1.45 trillion commercial-paper market, but investors say it could take days or weeks before short-term financing for U.S. companies loosens up.

Under its new Commercial Paper Funding Facility, the Fed is offering to lend money to highly rated companies for as long as three months. The goals are to persuade investors to lend to top-tier companies and give borrowers a backstop if funds can’t be obtained in the open market.

The program’s impact was muted Monday. Fewer companies came to market looking for financing than last week, and most were limited to uncomfortably short overnight loans. Rates rose modestly for debt maturing in 30 days.

“It will be a few more days before we have a good idea on the impact,” said Ira Jersey, interest-rate strategist at Credit Suisse.

The test will be whether rates established in the commercial-paper market are lower than the somewhat punitive rates on the Fed’s loans, which are intended to be a source of financing in emergencies rather than the first stop for companies seeking funds.

A related indicator of success will be how little companies borrow from the Fed. Data on borrowings will be released Thursdays.

For Monday, the Fed set its rates on three-month commercial paper at 2.88%, including a surcharge. For asset-backed commercial paper, the rate was set at 3.88%. New rates will be set daily.

The few companies looking for three-month loans in the open market Monday — including heavy issuers American Express Co. and General Electric Co. — offered to pay rates similar to those set by the Fed, according to Kevin Giddis, head of fixed income at Morgan Keegan.

It isn’t clear whether investors agreed to lend at those rates.

GE and American Express have registered for the new program, giving them the option of selling to the Fed. They didn’t respond to calls about whether they plan to actually use it. The Fed has said several dozen companies have signed up for its commercial-paper program, but isn’t naming them.

Market participants also are waiting for the start-up of another Fed program — the Money Market Investment Funding Facility — which is aimed at supporting money-market funds, the single largest group of investors in the commercial-paper market.
This facility will buy commercial paper and other short-term debt from money-market funds, in theory giving them confidence that they can get out of investments if they need to raise cash to cover redemption requests from their own investors.

Money-market funds have shied away from the commercial-paper market since Lehman Brothers collapsed in mid-September. Investors have been more reluctant to take on the new debt companies need to issue to fund basic operating needs such as rent and supplies.

—Kellie Geressy contributed to the report.
Write to Anusha Shrivastava at anusha.shrivastava@dowjones.com

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