Why Andrew Puzder Loves His Bankers No Matter How Firms Bungled By Christine Harper
May 12 (Bloomberg) -- The collapse of Bear Stearns Cos. and the $40.9 billion in writedowns and credit losses at Citigroup Inc. haven't shaken Andrew Puzder's faith in Wall Street. The chief executive officer of Carpinteria, California-based CKE Restaurants Inc., which owns Carl's Jr. and Hardee's hamburger chains, says he is sticking with his Wall Street advisers, Citigroup's Bora Sila and Cary Thompson, who just left Bear Stearns to join Bank of America Corp. Puzder says both men have counseled him for more than 15 years on issues ranging from takeover financing to how the company is perceived in the market. ``The reason I use these two people is not because of the company they work at,'' Puzder said in a May 1 interview. ``It doesn't make any difference if they work for Citigroup or Bear Stearns or JPMorgan or Merrill Lynch or whoever you want to deal with. It really is the person more than it is the entity.'' Puzder and other executives say the reckless and neglectful behavior at some Wall Street firms doesn't affect them. When New York-based Bear Stearns ran out of cash in March and was forced to turn to the Federal Reserve for funds, then-Chairman James ``Jimmy'' Cayne was at a bridge tournament. Former Citigroup CEO Charles O. ``Chuck'' Prince told the Financial Times in July that, even amid market turmoil, ``as long as the music is playing, you've got to get up and dance.'' UBS AG, which has taken $38 billion of writedowns, said in a report last month that managers at its investment bank focused on revenue more than risk. `Clients Are Hostage' Even though Wall Street banks ``have made egregious errors of judgment in risk management, it doesn't really affect the two things that we buy from them,'' said David Rickard, chief financial officer of Woonsocket, Rhode Island-based CVS Caremark Corp., the second-largest U.S. drugstore chain, referring to M&A advice and financing. ``The services we do purchase from them we're probably going to continue to need, so we're probably going to continue to use them.'' With only about 10 companies that have a global ability to provide those services, clients don't have anyplace else to turn, said William Cohan, a former investment banker at New York-based JPMorgan Chase & Co. and Lazard Ltd. ``The clients are hostage, and I think the firms know that,'' said Cohan, who wrote ``The Last Tycoons'' about Lazard, which was published last year by Random House. ``Wall Street is a cartel, and like any cartel they are able to control access to their product.'' Cohan said he saw no reaction from clients to the collapse of Internet and telecommunications stocks when he ran the telecom mergers and acquisitions team at JPMorgan from 2002 to 2004.
M&A Fees ``JPMorgan had financed Enron and WorldCom, and that was very embarrassing stuff, and I never saw any fallout from that,'' Cohan said. ``Clients think this stuff is going to happen. Wall Street has conditioned them because it has happened so often in the last 25 years.'' Wall Street CEOs often say their so-called client franchise forms the core of their business, even when investing and trading accounted for much of their revenue. In the first half of 2007, before taking writedowns and credit losses on bonds and leveraged loans, the five biggest U.S. securities firms made 15 percent of their revenue from advising on mergers or financing companies. Veteran bankers warn that it's too early to assess what clients will do, noting that the volume of takeover and underwriting assignments has plummeted this year amid turbulent markets and slowing economic growth. Longer term, they say, some of the firms hardest hit by the credit crisis -- Zurich-based UBS and Citigroup and Merrill Lynch & Co. in New York -- may lose clients who are looking for financing or more stability. Potential Opportunity Beneficiaries probably will include Goldman Sachs Group Inc., which reported record profits last year while others were losing money, as well as Morgan Stanley, Lehman Brothers Holdings Inc. and JPMorgan. Those New York-based firms haven't been forced to oust their chief executive officers and haven't had the same scale of losses as Merrill, Citigroup or UBS. ``Morgan Stanley, Goldman Sachs and Lehman Brothers are going to have their sharp-eyed investment bankers plotting about what they can do'' to woo clients, said Roy Smith, a finance professor at New York University's Stern School of Business and a former partner at Goldman Sachs. ``They're going to try to find something that the client wants to do and then make themselves more attractive to them.'' Morgan Stanley, which ranks sixth among merger advisers this year and fourth among equity underwriters, sees opportunities in the crisis. ``We feel good about our relative position in this environment,'' said Colm Kelleher, chief financial officer of Morgan Stanley, the second-biggest U.S. securities firm by market value after Goldman. ``Our reputation as a top adviser and our financial strength should work to our advantage with clients.'' UBS's Outlook Rick Leaman, joint global head of investment banking at UBS in New York, said the bank isn't changing the services it offers corporate clients, including bridge loans. The biggest Swiss bank provided clients with a four-page presentation last week captioned ``UBS remains a leading global wealth manager, premier investment bank, and key global asset manager.'' The presentation emphasized the company's size and credit-worthiness.
``The headlines have led people to the conclusion that we may be shrinking what we call our capital markets and advisory businesses, but we're not,'' Leaman said. ``The competition is fierce, but it has always been fierce. I haven't seen that change.'' At Lehman Brothers, which has one-third the market capitalization of UBS, the pitch to clients focuses on the longevity of the firm's senior management, including Richard Fuld, who has been CEO for almost 15 years. Question of Trust Clients are ``tilting toward those who offer a team that has a lot of continuity in it,'' said Skip McGee, global head of investment banking at Lehman in New York. ``I've talked to clients who have said, `I don't even know who my banker is at bank X anymore, and I haven't seen anybody from there for two months.''' Financing, either through arranging loans or underwriting sales of securities, will probably be a key factor for some clients, said Peter Solomon, a former Lehman executive and now chairman of New York-based investment bank Peter J. Solomon Co. Clients ``don't say they're troubled by the poor management of Citibank,'' Solomon said. ``Nobody says that. What they say is, `I wonder if I can rely on them?''' Some chief financial officers ``find they're struggling with widening spreads, they're struggling with more difficulty getting credit,'' he said. Credit Terms That isn't the case so far at Minnetonka, Minnesota-based UnitedHealth Group Inc., the largest U.S. health insurer, where Treasurer Robert Oberrender said he hasn't seen any change in the terms being offered by Wall Street banks. ``Those firms that are having problems are giving us better service,'' he said. ``They may be communicating a little bit more frequently, they may be talking to us more regularly than if things were going smoothly.'' Citigroup CEO Vikram Pandit was communicating a different message last week. He told shareholders of the largest U.S. bank by assets at a May 9 meeting in New York that the company will be choosier about how and where it provides financing. ``Going forward, we will be charging for capital anytime a transaction requires the use of our balance sheet,'' Pandit said. ``You will also see us exiting unprofitable relationships.'' With fewer banks and brokers providing financing, clients may end up accepting whatever they can get, as leveraged-buyout firms are already finding. LBO Disagreements
Steven Black, co-head of JPMorgan's investment banking division, responded derisively to comments in February by Hamilton ``Tony'' James, president of Blackstone Group LP. James said that Blackstone, which manages the world's biggest buyout fund, could turn to hedge funds and mutual funds for money instead of to banks such as JPMorgan, which was the top arranger of loans for U.S. buyouts last year. ``If they think they can do that themselves without the banks, then God bless them,'' Black said. ``I don't think that will work very well, but let them try.'' After feasting on fees generated by buyout firms until the credit crisis began last year, some banks and brokers are now retracting financing agreements. Bain Capital LLC and Thomas H. Lee Partners LP, Boston-based buyout firms purchasing Clear Channel Communications Inc., are suing six banks, accusing them of refusing to fund the $19.5 billion acquisition. The banks -- Citigroup, Morgan Stanley, Credit Suisse Group, Wachovia Corp., Deutsche Bank AG and Royal Bank of Scotland Group Plc -- lost a bid last week to have a New York judge throw out the lawsuit. Serving Clients ``With attitudes like defaulting on LBO commitments, the basic position is `So we ruin our reputation, our competition is all ruining their reputation too, so where are these guys going to go?''' Solomon said. ``The massive consolidation in the securities and commercial banking industry makes the clients more dependent on them.'' At Procter & Gamble Co., the largest consumer-products company in the U.S., Chief Financial Officer Clayton Daley said he has been bringing more investment banking work within the firm, instead of hiring banks or brokers, for years. The Cincinnati- based company's relationship with bankers ``really hasn't changed'' after the credit crisis, he said. ``They've stayed focused on their clients and do understand that their long-term interest is in serving their clients.'' David Mackay, president and CEO of Kellogg Co. in Battle Creek, Michigan, said the credit problems on Wall Street involve business units that ``we typically are not involved with in any way, shape or form.'' Frosted Flakes For Kellogg, which makes Raisin Bran and Frosted Flakes, bankers provide a ``valuable external perspective that we sometimes utilize,'' Mackay said. When dealing with Wall Street firms, CKE's Puzder said the important thing is to find a banker who can be relied on. ``You need to get someone who understands numbers, but also understands not only your business but business in general,'' he said. ``It may sound funny to say, but there's a lot of them out there who don't.''
To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net. Last Updated: May 11, 2008 19:01 EDT
Mitsubishi UFJ Considers Yuanta, Daewoo Investments (Update1) By Finbarr Flynn and Ichiro Suzuki
May 12 (Bloomberg) -- Mitsubishi UFJ Financial Group Inc.'s brokerage unit may invest in Taiwan's Yuanta Financial Holding Co. and South Korea's Daewoo Securities Co. as part of a push to double overseas revenue, the head of the division said. ``We are now talking about a new business alliance'' with Yuanta, Yasumasa Gomi, chief executive officer of Mitsubishi UFJ Securities Co., said in an interview with Bloomberg Television. ``We want to strengthen our relations with Daewoo Securities.'' The talks with Yuanta, owner of Taiwan's largest brokerage, and Daewoo, Korea's third-biggest securities firm by market value, may lead to investments in the two companies, Gomi said. Mitsubishi UFJ Securities aims to increase the share of overseas revenue to 40 percent from about 20 percent now, said Gomi, 65. The company has invested more than $1 billion in the past two years in five companies from China to Singapore, vying with local rivals including Daiwa Securities Group Inc. for acquisition targets in faster-growing Asian economies. Acquiring overseas securities firms also offers a way for Mitsubishi UFJ, armed with about $31 billion of cash and cash equivalents, to counter a lack of lending growth in Japan. ``The mega-banks are probably going to be looking much more overseas,'' said Brett Hemsley, an analyst at HSBC Holdings Plc in Tokyo. ``They're going to be generating capital in excess of what they can reasonably deploy at home.'' Kim Eng The Tokyo-based brokerage, wholly owned by Mitsubishi UFJ, may buy a stake in Yuanta as part of an alliance including private banking, Gomi said. He declined to elaborate on the size of the potential investments in Yuanta and Daewoo.
Mitsubishi UFJ Securities raised its holding in Kim Eng Holdings Ltd., Singapore's largest publicly traded brokerage, to 14.6 percent last month by buying an 11 percent stake for S$166 million ($121 million). Yuanta is Kim Eng's biggest shareholder. The Japanese brokerage set up an alliance with Daewoo Securities in January 2007 in investment banking and corporate finance, as part of its efforts to tie up with the biggest domestic financial institutions in each Asian market, according to Gomi. Mitsubishi UFJ Securities' profit tumbled 82 percent to 8.1 billion yen ($78 million) in the year ended March 31, as trading revenue, fees and commissions declined in a market slump triggered by the U.S. subprime-mortgage crisis. India Strategy Still, the unit didn't invest in subprime-related securities, sidestepping the plummeting valuations that caused 413.3 billion yen of trading losses at rival Mizuho Financial Group Inc.'s securities arm. Kim Eng, one of the largest brokers in Indonesia, Thailand and the Philippines, will help Mitsubishi UFJ extend financial services to Japanese and foreign companies operating in those markets. The two firms aim to set up a S$1 billion fund to invest in Asian equities by the end of 2009, they said in a joint statement in November. In India, Mitsubishi UFJ Securities said last month it set up a subsidiary to offer local companies fund-raising options in Japan and to provide cross-border merger and acquisition services to Japanese and Indian companies. The brokerage has been working with ICICI Bank Ltd., India's second-biggest bank by market value, to offer merger advisory services and buy Indian assets. Rival Sumitomo Mitsui Financial Group Inc., Japan's second- largest bank by market value, agreed to buy a 15 percent stake in Vietnam Export-Import Commercial Joint-Stock Bank for $225 million in November. Daiwa Securities, Japan's second-largest securities firm, may increase its 1.25 percent stake in Saigon Securities Inc., Vietnam's biggest publicly traded brokerage, Daiwa's incoming chairman Akira Kiyota said last month. Mitsubishi UFJ fell 1.7 percent to 1,070 yen at the 3 p.m. close of trading in Tokyo. Yuanta fell 1.6 percent to close at NT$27.20 on the Taiwan Stock Exchange. South Korea's markets were closed today for a holiday. To contact the reporters on this story: Finbarr Flynn in Tokyo at fflynn3@bloomberg.net; Mariko Yasu in Tokyo at myasu@bloomberg.net Last Updated: May 12, 2008 02:34 EDT