Month: June 2009

Carlyle Raises $1 Billion Asia Fund

Hong Kong – Global private equity firm The Carlyle Group announced today it has successfully closed its fourth Asian growth capital fund, Carlyle Asia Growth Partners IV (CAGP IV), a sector-agnostic growth capital fund which invests in high growth private companies with strong local management and leading market position in China, India, Korea and other key Asian markets. Despite a difficult fund-raising environment, the fund raised $1.04 billion in only 14 months from a broad geographical range of investors.

The closing of CAGP IV reflects improving investor sentiment towards China and India as the two major economies begin to stabilize and show signs of emerging from the downturn. Nearly 40% of CAGP IV’s limited partners are new investors, demonstrating growing demand for exposure to China and India.

“We are delighted with the support we have received from our investors, especially given challenging industry-wide fundraising trends. This is an excellent time for long-term investors to seek value in China and India. Our new fund offers access to high growth opportunities with no leverage, providing attractive risk-adjusted returns. Despite the economic downturn, most of our growth capital portfolio companies have achieved growth rates in the range of 20-50% over the last year,” said Wayne Tsou, Managing Director and Head of Carlyle Asia Growth Partners.

“The Chinese domestic consumption story is developing well. China’s strong economic performance, successful implementation of its stimulus plan and incentive measures for small and medium-size enterprises are attracting international firms and investors to the Chinese market,” added Tsou.

Carlyle also believes that India’s promising demographic fundamentals, mature capital markets and skilled workforce make it well-positioned for further growth.

“The strong entrepreneurial culture in India has created many potential investment opportunities for Carlyle. India’s emerging middle class is fuelling strong domestic consumption, while the outsourcing and re-engineering of various products and services from all over the world to India continues to grow at a lively pace. India’s growth story is sustained by its vibrant capital markets, a resilient banking system and a pro-business stable government,” said Shankar Narayanan, a Carlyle Managing Director responsible for CAGP’s investments in India.

Existing investors have been encouraged by the success of CAGP IV’s predecessor CAGP III, which has made 22 investments in two and half years across more than ten sectors including energy, consumer, technology, business services, education, industrial, healthcare, real estate and media, 80% of which were made in China or India.

David M. Rubenstein, Carlyle Co-founder and Managing Director, said, “The Carlyle Group raised $19.9 billion in new capital last year, and this fund close builds on that momentum. Asia remains a core focus of our global business, and Carlyle continues to devote more resources to China and India. CAGP is one of the largest growth capital platforms in Asia and has consistently provided investors with exposure to the very best of the region’s opportunities.”

Carlyle Asia Growth Partners IV is the fourth fund managed by the Carlyle Asia Growth Capital group, which has an aggregate committed capital of approximately US$2 billion. The group invests through a team of local professionals in six offices – Beijing, Hong Kong, Mumbai, Shanghai, Seoul and Tokyo. CAGP brings significant support and value to portfolio companies through its vast international business network, deep local insight from its native investment team, experience in a broad range of industries, expertise in business management, and strong leverage in global M&A and capital market fundraising. This has allowed CAGP’s portfolio companies to expand capacity and seek acquisition opportunities.

CAGP IV is more than 50% larger than its predecessor CAGP III by capital commitment and has already made its first investment in a leading Chinese high-end women’s fashion company Ellassay.

Arden Asset Management and J.P. Morgan Establish Hedge Fund of Funds Program

SatelliteNEW YORK – (Business Wire) Arden Asset Management LLC, a leading independent fund of hedge funds manager, and J.P. Morgan (NYSE: JPM) today announced an agreement under which Arden will manage a $1.1 billion proprietary hedge fund of funds portfolio for J.P. Morgan’s investment banking division, effective July 1, 2009. J.P. Morgan’s investment bank has agreed to seed several new Arden funds and invest in one of Arden’s current flagship funds with these assets.

As part of the agreement, a team led by Shakil Riaz, Chief Investment Officer of J.P. Morgan’s proprietary hedge fund of funds program since inception in 1995, will join Arden. Mr. Riaz will become a member of the Arden Investment Committee and continue his investment leadership role for new funds seeded by the J.P. Morgan assets. The existing Arden funds and customized accounts will continue to be managed by Arden senior investment professionals and Investment Committee members: Averell H. Mortimer, Chairman; Henry P. Davis, Managing Director and Head of US Manager Research; Ian P. McDonald, Managing Director and Head of European and Asian Manager Research; and Matthew Bianco, Managing Director and Head of Risk Management.

“Arden’s high quality institutional infrastructure and well-established investment processes were important in our decision to select the firm to manage these assets,” said Robert Case, head of Principal Investment Management for J.P. Morgan’s investment bank. “Partnering with Arden, which has a proven track record of managing absolute return programs through many market cycles, enables us to continue participation in this attractive asset class, while better managing our overall capital commitments.”

Averell Mortimer, Arden President and Chief Executive Officer, said, “We are pleased to partner with J.P. Morgan on this unique venture, which we believe will create significant value for both Arden investors and J.P. Morgan in the years to come. Importantly, this initiative further strengthens our organization and brings additional specialization and expertise to Arden’s global investment program. We warmly welcome Shakil and his colleagues to Arden and believe investors will benefit from their market experience and long-term investment record as we develop new strategies to meet the expanding needs of our sophisticated institutional clientele.”

Founded in 1993, Arden Asset Management LLC is a leading global fund of funds investment management company with offices in New York, London, Zurich and Bahrain. Arden is registered with the US Securities and Exchange Commission (SEC) and Arden’s affiliate, Arden Asset Management (U.K.), Ltd. is authorized and regulated by the Financial Services Authority (FSA). Arden’s institutional and individual investors include taxable and non-taxable clients from the United States, Canada, South America, the United Kingdom, Europe, Australia, Japan and Asia ex-Japan. As of July 1, 2009, Arden’s assets under management will exceed $8 billion.

J.P. Morgan is the investment banking arm of JPMorgan Chase & Co. (NYSE: JPM), a leading global financial services firm with assets of $2.1 trillion and operations in more than 60 countries. The firm is a leader in investment banking, financial services for consumers, small business and commercial banking, financial transaction processing, asset management, and private equity. A component of the Dow Jones Industrial Average, JPMorgan Chase & Co. serves millions of consumers in the United States and many of the world’s most prominent corporate, institutional and government clients under its J.P. Morgan, Chase, and Washington Mutual brands. Information about J.P. Morgan is available at http://www.jpmorgan.com.

J.P. Morgan Securities Inc. acted as financial advisor to its affiliates on this transaction.

Credit crunch takes toll on super-rich

moneyBy Megan Murphy

The ranks of the world’s super-rich have been shredded by the credit crunch, putting paid to the theory that the wealthy are better at holding on to their money.

The global population of “ultra high net worth individuals” – defined as those with at least $30m to invest – shrank by nearly 25 per cent in 2008, according to the latest World Wealth Report produced by Merrill Lynch and Capgemini.

That leaves just 78,000 left worldwide after a year of bank crises, government bail-outs and stock market routs.

High net worth individuals – worth a mere $1m, excluding their homes – fared poorly as well, seeing around $8,000bn shaved off their bank balances.

The unprecedented declines wiped out two years of robust growth, reducing both the total number of rich people and their wealth to levels last seen in 2005.

Nick Tucker, market leader for UK & Ireland in Merrill’s wealth management arm, said the report showed there were no “safe havens” for investors as markets across the world plummeted.

However, despite 2008’s negative results, overall wealth is expected to top $48,000bn by 2013, as global economies recover.

“Last year was about preservation, not appreciation,” Mr Tucker said. “As markets recover, high net worth individuals will have the flexibility to readjust their strategies and reinvest in new, developing opportunities along the way.”

China, unsurprisingly, is expected to drive much of this expansion.

The world’s fastest-growing major economy surpassed the UK for the first time in the report’s rankings of the total number of rich people by country.

There are now an estimated 364,000 dollar millionaires in China, the fourth largest population in the world.

Hong Kong, by contrast, lost 61 per cent of its millionaires in 2008, with India, Russia and the UK also suffering steep declines.

The economic uncertainty also took a hefty bite out of the luxury good markets. Perhaps the report’s most telling statistic? The number of used private jets available for sale worldwide hit an all-time high last November.

Copyright The Financial Times Limited 2009

At Least Three Small Banks Already Halting Their TARP Dividends

resize_cashburnAccording to reports from the Wall Street Journal, at least three small, cash-strapped banks have stopped paying dividends to the U.S. government and other investors to conserve cash.

Pacific Capital Bancorp, a Santa Barbara, Calif, which received $180.6 million in TARP money, said Monday that it suspended dividend payments on its common and preferred stock as part of a wider effort to save about $8 million per quarter. A bank spokeswoman confirmed that the U.S.’s preferred shares are included in the dividend freeze.

Seacoast Banking Corp. of Florida, of Stuart, Fla., and Midwest Banc Holdings Inc., of Melrose Park, Ill., have also halted their TARP-related dividends.

Treasury spokeswoman Meg Reilly told the Journal, said, “Treasury respects the contractual rights of [TARP recipients] to make decisions about dividend distributions.”

RBC Capital banking analyst Gerard Cassidy said he was surprised by the news and said “it goes to show you that the due diligence performed by the Treasury was not sufficient.”

According to the Journal, under a provision in the TARP contracts between banks and the U.S. government, a bank usually can defer dividend payments for as long as six quarters, though it eventually will have to cover the entire amount. In a smaller number of contracts in which the Treasury got so-called noncumulative preferred stock, the bank can skip dividend payments without penalty. But if the bank misses six quarterly payments in a row, the Treasury Department can appoint two directors to the bank’s board.

Related Regional Bank ETFs: Regional Bank HOLDRs (NYSE: RKH), SPDR KBW Regional Banking (NYSE: KRE).

World Bank warns on emerging markets

exblBy Chris Giles in London

Published: June 22 2009 04:30 | Last updated: June 22 2009 04:30

Leading developed nations are misguided in focusing efforts on restoring demand in their own economies, the World Bank will say on Monday.

This is because emerging markets – suffering a severe shortage of foreign funds – are fundamental for a return to global growth.

In its annual Global Development Finance report, the World Bank expects private capital flows to developing countries to fall almost three-quarters this year to $363bn (€260bn, £220bn) from a $1,200bn peak in 2007.

The drop in credit flows will undermine investment in emerging and developing economies, it says, with a consequent hit on rich country exports of capital-intensive goods – one of the sectors hardest hit in the global recession.

Japan, Germany and South Korea, the wealthy nations suffering the worst drops in output, specialised in exports of investment goods, which have been struck low by a lack of appetite for investment in poorer countries and the postponement of purchases of durable goods.

The report welcomes signs of improving global equity, bond and interbank markets but says the stark reduction of private capital flows to poorer nations will lead to lower investment and slower emerging market and global growth in the medium term.

As a result, the authors warn rich countries against putting pressure on their big banks to curtail lending to poorer countries.

“It is a very, very short-sighted policy,” Hans Timmer, of the World Bank’s prospects group, told the Financial Times.

“There is self-interest in protecting emerging and developing markets.”

So far, leaders of wealthy countries have decried financial protectionism, while pressing their own banks to refrain from risky foreign lending.

The bank frets that too little effort is being given to ensuring emerging and developing economies return to normal growth rates after being struck down by the crisis of confidence following Lehman Brothers’ collapse in September.

Within emerging markets, the main focus should be on preventing the financial crisis fully engulfing central and east Europe, the report says. These countries are vulnerable because their current-account deficits increase reliance on foreign flows of private capital.

In poorer developing counties, the concern is that, through no fault of their own, recent years of rising incomes will end – with the risk of a backlash and a return to the inward-looking domestic policies so damaging to prosperity.

The World Bank estimates that the destruction of private capital flows alongside current-account deficits and the need to refinance maturing debt will leave emerging and developing countries short of up to $635bn.

This funding gap will need to come from official sources, such as foreign aid, or foreign exchange reserves in countries with large stockpiles, such as Russia. If it is absent, growth prospects in poor, and consequently richer, economies will be at risk.

Copyright The Financial Times Limited 2009

Geithner’s Opening Statement On Financial Regulatory Reform

geithner114Treasury Secretary Tim Geithner’s Opening Statement before the U.S. Senate Banking Committee On Financial Regulatory Reform:

Chairman Dodd, Ranking Member Shelby, members of the Banking Committee. I’m pleased to be here today to testify about the Administration’s plan for financial regulatory reform.

Over the past two years, our nation has faced the most severe financial crisis since the Great Depression. Our financial system failed to perform as it should have – by distributing and reducing risk.

Instead, the system magnified risk. Some of the world’s largest institutions failed. The resulting damage on Wall Street hit Main Streets across the country, affecting virtually every American.

Millions have lost their jobs, families have lost their homes, small businesses have shut down, students have deferred college, and seniors have shelved retirement plans.

American families are making essential changes in response to this crisis. It is our responsibility to do the same – to make our government work better.

That is why yesterday President Obama unveiled a sweeping set of regulatory reforms to lay the foundation for a safer, more stable financial system; one that can deliver the benefits of market-driven financial innovation even as it guards against the dangers of market-driven excess.

Every financial crisis of the last generation has sparked some effort at reform. But past efforts have begun too late, after the will to act has subsided.

We cannot let that happen this time. We may disagree about the details, and we will have to work through those issues. But o rdinary Americans have suffered too much; trust in our financial system has been too shaken; our economy has been brought too close to the brink for us to let this moment pass.

In crafting our plan, the Administration sought input from all sources. We consulted extensively with Members of Congress, regulators, consumer advocates, business leaders, academics and the broader public.

We considered a full range of options and decided that now is the time to pursue the essential reforms, those that address the core causes of the current crisis; and that will help to prevent or contain future crises.

Let me be clear, our plan does not address every problem in our financial system. That is not our intent. It does not propose reforms that, while desirable, would not move us towards achieving those core objectives and creating a more stable system.

By now, the details of our proposals are widely available so I would like to spend a few minutes explaining the priorities that guided us.

If this crisis has taught us anything, it is that risk to our financial system can come from almost any quarter, so we must be able to look in every corner and across the horizon for dangers.

Clearly, our current regulatory structure was not able to do that.

While many of the firms and markets at the center of the crisis were under some form of federal regulation, that supervision didn’t prevent the emergence of large concentrations of risk.

A patchwork of supervisory responsibility; loopholes that allowed some institutions to shop for the weakest regulator; and the rise of new financial institutions and instruments that were almost entirely outside the government’s supervisory framework left regulators largely blind to emerging dangers.

And regulators were ill-equipped to spot system-wide threats because each was assigned to protect the safety and soundness of the individual institutions under their watch. None was assigned to look out for the system as a whole.

That is why we propose establishing a Financial Services Oversight Council to bring together the heads of all of the major federal financial regulatory agencies. This Council will fill gaps in the regulatory structure where they exist. It will improve coordination of policy and resolution of disputes. And, most importantly, it will have the power to gather information from any firm or market to help identify emerging risks.

The Council does not have the responsibility for supervising the largest, most complex and interconnected institutions. The reason is simple: that is a specialized task, which requires tremendous institutional capacity and organizational accountability.

Nor would the council be an appropriate first responder in a financial emergency. You don’t convene a committee to put out a fire.

The Federal Reserve is best positioned to play that role. It already supervises and regulates bank holding companies, including all major U.S. commercial and investment banks. Our plan gives a modest amount of additional authority – and accountability – to the Fed to carry out that mission. But it also takes some authority away.

Specifically, we propose removing from the Federal Reserve and other regulators, oversight responsibility for consumers. Historically, in those agencies, consumer interests were often perceived to be in conflict with the safety and soundness of institutions.

That brings me to our second key priority — consolidating protection for consumers and ensuring they can understand the risks and rewards associated with products sold directly to them.

Before this crisis many federal and state regulators had authority to protect consumers, but few viewed it as their primary charge. As abusive pract ices spread, particularly in the market for subprime and nontraditional mortgages, our regulatory framework proved inadequate.

This lack of oversight led millions of Americans to make bad financial decisions that emerged at the heart of our current crisis. Consumer protection is not just about individuals but also about safeguarding the system as a whole.

Congress, the Administration, and regulators have already taken steps to address consumer problems in two key markets, those for credit cards and mortgages. But here too we need comprehensive reform.

Our proposed Consumer Financial Protection Agency will serve as the primary federal agency looking out for the interests of consumers of credit, savings, payment and other financial products.

This agency will be able to write rules that promote transparency, simplicity and fairness, including defining standards for “plain vanilla” products that have straightforward pricing.

Our third priority was making sure that reform, while discouraging abuse, encourages financial innovation.

The United States is the world’s most vibrant and flexible economy, in large measure because our financial markets and our institutions create a continuous flow of new products, services and capital. That makes it easier to turn a new idea into the next big company.

Our core challenge is to design a system that has a proper balance between innovation and efficiency on the one hand, and stability and protection on the other.

We did not get that balance right. That requires reform.

We think that the best way to keep the system safe for innovation is to have stronger protections against risk with stronger capital buffers, greater disclosure so investors and consumers can make more informed financial decisions, and a system that is better able to evolve as innovation advances and the structure of the financial system changes.

I know that some suggest we should ban or prohibit specific types of financial instruments as too dangerous. And we are proposing to strengthen consumer protections and enforcement by, among other things, prohibiting practices such as paying brokers for pushing consumers into higher-priced loans or penalties for early repayment of mortgages.

However in general, we do not believe that you can build a system based on banning individual products because the risks will simply emerge in new forms.

Our approach is to let new products develop, but to bring them into a regulatory framework with the necessary safeguards.

America’s tradition of innovation has been central to our prosperity. These reforms are designed to strengthen our markets by restoring confidence and accountability.

A fourth priority was addressing the basic vulnerabilities in our capacity to manage future crises.

The United States came into the current crisis without an adequate set of tools to confront the potential failure of large, interconnected financial institutions. That left the government with extremely limited choices when faced with the failure of the largest insurance company in the world and one of the largest US investment banks.

That is why, in addition to addressing the root causes of our current crisis, we must also act preemptively to provide the government better tools to manage future crises.

We propose a new resolution authority, modeled on the existing authority of the FDIC to handle weak or failing banks, that will give the government more options.

That authority will reduce moral hazard by allowing the government to resolve failing institutions in ways that impose the costs on owners, creditors and counterparties, making them more vigilant and prudent.

We must also minimi ze the moral hazard of institutions considered too big or too interconnected. No one should assume that the government will step in to bail them out if their firm fails.

We do this by making sure financial firms follow the example of families across the country that are already saving more money as a precaution against bad times. We require all firms to keep more capital and liquid assets on hand as a greater cushion against losses. And the bigger, most interconnected firms will be required to keep even bigger cushions.

The critical test of our reforms will be whether we make this system strong enough to withstand the stress of future recessions and the failure of large institutions.

That’s our basic objective; we want to make it safe for failure.

We cannot afford inaction. We cannot afford a situation where we leave in place vulnerabilities that will sow the seeds for future crises. And in the weeks and months ahead I look forward to working with this Committee to build a new foundation for a stronger American economy.

Thank you.

10 large US banks to repay $68B in TARP funds

Associated Press
June 17, 2009Geithner+Testifies+TARP+Oversight+Senate+Hearing+4vo3KQ-Uy7zl

WASHINGTON — Ten large U.S. banks planned to repay about $68 billion in bailout money today, marking a new phase for the most visible government effort to relieve the credit crisis.

The Treasury Department last week said the banks could begin repaying money they received last fall under the $700 billion financial system bailout known as the Troubled Asset Relief Program, or TARP. The program was the centerpiece of the government effort to relieve a global credit crunch and teetering financial markets last October.

The banks have since been negotiating with Treasury over the prices of stock warrants they issued as part of the TARP deal. When Treasury made its initial investments, it received the warrants, which give it the opportunity to buy the banks’ common shares in the future at a fixed price. The value of the warrants would depend on the shares’ future performance.

The pricing of warrants has been a point of contention, slowing the repayment process. Banks want to pay less to tear up the warrants than Treasury says they’re worth. But until banks have bought back the warrants, the banks will remain tied to the federal program. Several banks said they had told Treasury they wished to buy the warrants, officially starting the negotiation process.

TARP became a flashpoint for critics of government intervention last fall, when Congress debated whether to commit $700 billion of taxpayer money to the effort.

Today’s repayment plans were described by three industry officials who spoke on condition of anonymity because not all the banks had yet made their official announcements.

The banks repaying TARP are some of the industry’s largest, including JPMorgan Chase & Co., American Express Co., Goldman Sachs Group Inc. and Morgan Stanley. BB&T Corp. and U.S. Bancorp. also said they were repaying their TARP money.

Banks have been itching to quit TARP because it subjects them to limits on executive compensation and other rules.

Before getting permission to repay their TARP money, the banks had to meet a series of government requirements. Nine of the 10 were subject to a “stress test” designed to show how they would withstand a deeper recession.

They also had to raise equity from investors and raise debt without government guarantees. But the banks still rely on some government subsidies, including debt guarantees from the Federal Deposit Insurance Corp. and discounted credit lines from the Federal Reserve.

Today was the first day the banks were eligible to repay the money. Goldman disclosed its plans in letters to congressional leaders Tuesday.