Thain and CIT Offer Each Other a Second Chance at Redemption

Date Feb 10 2010 15:21:16 Source:Bloomberg

By Christine Harper and Linda Shen

Feb. 10 (Bloomberg) -- John Thain and CIT Group Inc. are giving each other something that ousted chief executive officers and bankrupt lenders usually don’t get: a second chance.

Thain’s record of success at Goldman Sachs Group Inc. and NYSE Euronext was marred by his exit from Merrill Lynch & Co. last year, when he was pilloried for $27.6 billion of losses, $3.6 billion of bonuses and $1.2 million of decorating expenses for his office. CIT, once the biggest independent commercial lender in the U.S., sought court protection last year, a move that’s usually a death sentence for a financial firm.

CIT, which survived its reorganization, and Thain, its new CEO, are counting on each other to burnish their reputations. John Reed, the former Citigroup Inc. co-CEO who recruited Thain in 2003 from Goldman Sachs to the New York Stock Exchange, says it’s a good match.

“He’s learned a lot,” said Reed, who was the Big Board’s interim chairman. At the time, Reed said he thought Thain, a fellow graduate of the Massachusetts Institute of Technology, needed to broaden his horizons after 24 years at Goldman Sachs. “He is today a different person than when he came over and first joined me, and a more capable person. He’s more mature.”

The CIT job gives Thain, 54, a chance to fix a public company whose business -- which includes lending to more than 3,000 small- and mid-sized businesses -- is tied to the heart of the U.S. economy. To rescue the company, Thain must find lower- cost sources of funding, lift restrictions on its banking unit and win over regulators wary after the bankruptcy wiped out a $2.3 billion Treasury Department stake.

‘Big Difference’

“It’s clearly an opportunity to make a big difference and you can see why John would find it attractive,” said Paul Deighton, a former Goldman Sachs colleague who is now CEO of London 2012 Ltd., the organization that’s running the London 2012 Olympics.

Thain had previously arrived at new jobs with a track record of success. He became CEO of the NYSE after helping to build Goldman Sachs into the world’s leading investment bank. When he took the helm of Merrill Lynch four years later, Thain had modernized the exchange, doing deals that transformed it into an electronic, international and publicly traded company.

As the financial crisis deepened in 2008, Thain sold Merrill Lynch over a weekend, only to be fired by his new boss and criticized for the firm’s losses, bonus payments and office redecoration.

Erasing the ‘Blot’

“He wants to find a way to erase the blot on his career from the ending of the Merrill Lynch saga, and what better way to do that than to take a very visible public company and turn it around,” said Douglas J. Elliott, a former JPMorgan Chase & Co. investment banker who is now a fellow in economic studies at the Brookings Institution in Washington. “If he does pull it off, he’s a hero.”

Thain’s arrival at CIT was well-timed. On Feb. 8, his first day on the job, the company officially became free of limitations on compensation and other activities imposed on companies that received money from the Troubled Asset Relief Program, or TARP. “Contingent value rights” that the U.S. Treasury received in CIT’s bankruptcy were “terminated and cease to exist,” according to a CIT regulatory filing.

“While the U.S. Treasury no longer has an investment in CIT, we are generally endeavoring to apply Treasury governance best practices,” CIT spokesman Curt Ritter said in an e-mailed statement Feb. 8.

MIT, Harvard

Thain, the son of a doctor, grew up in Antioch, Illinois, population 13,400, a town 60 miles (97 kilometers) from Chicago. He didn’t visit the East Coast of the U.S. until he arrived at MIT in Cambridge, Massachusetts, to study electrical engineering. From MIT he went straight to Harvard Business School and then directly to Goldman Sachs, where he worked in investment banking and traded mortgage bonds.

In 1993, Thain moved into the administrative side of the company -- known as operations, technology and finance -- or by its nickname “The Federation” after the fictional organization in Star Trek, according to a Goldman Sachs executive who worked with Thain and spoke on condition of anonymity. Thain became chief financial officer and eventually ascended to president and chief operating officer under then-CEO Henry Paulson.

Several former colleagues from Goldman Sachs credit Thain with leading the effort to build the firm’s risk-management processes and infrastructure over the next decade, saying he excelled at understanding the plumbing of the organization and recruiting talented executives to join a department that is dismissed at many Wall Street firms as “the back office.”

‘Real Contribution’

“The very fact that you had one of the best people in the firm running it, which made it a breeding ground for other good people, you could see this was a place that you could make a real contribution,” London 2012’s Deighton said of his decision to move from investment banking into operations under Thain in 1993.

Bradley Abelow, who worked under Thain in the operations business for about a decade, said Thain was crucial to building a risk-management department at Goldman Sachs that could act as a check on the firm’s traders and bankers. He said Thain was also adept at collecting information from a variety of sources so that he didn’t rely too heavily on his deputies.

“I always wanted to surprise him, to tell him something he didn’t know -- I viewed that as an extreme challenge,” said Abelow, a founding partner of New York-based private-equity firm NewWorld Capital Group who previously served as chief of staff to Jon Corzine, the former governor of New Jersey. “I don’t know that I ever succeeded in that.”

Sept. 11

Thain distinguished himself on Sept. 11, 2001, when terrorists struck the World Trade Center a half mile away, former colleagues say. Thain, who was the highest-ranking executive present at Goldman Sachs’s 85 Broad Street headquarters, turned his office into a crisis control center, established teams to locate Goldman Sachs employees and secured telecommunications for the firm.

“He’s just a very level head, very cautious, and has absolutely excellent judgment both on people and situations,” said Deighton.

In the crisis that brought down Lehman Brothers Holdings Inc. in September 2008, Thain succeeded in persuading Bank of America Corp. to pay $29 a share for Merrill Lynch during a single weekend, a 70 percent premium to the shares’ closing value the previous Friday.

“He basically sold the company for a lot more than it was worth at a time when that was the right thing to have done,” Reed said.

Bank of America

Merrill Lynch’s losses accelerated after the sale and Ken Lewis, who was then CEO of Bank of America, fired Thain three weeks after the transaction closed. Thain found himself facing accusations that he’d failed to do enough to keep Bank of America apprised of the losses and that he’d accelerated bonus payments to Merrill staff. Information about Thain’s $1.2 million redecoration of his Merrill office, which took place when Thain joined in late 2007, was provided to the press at the same time.

In April 2009, Lewis was stripped of his chairman title at Bank of America after investors rebelled against his handling of the Merrill Lynch takeover. He later resigned from the company.

Last week, New York Attorney General Andrew Cuomo filed a civil fraud case against Bank of America, Lewis and former Chief Financial Officer Joe Price. The case alleges that they deceived investors and taxpayers in 2008 by not disclosing losses at Merrill Lynch before shareholders voted on the firm’s pending takeover, and used those losses to extract more bailout funds from U.S. regulators.

‘Without Merit’

Bank of America, based in Charlotte, North Carolina, has called the charges “totally without merit” and lawyers for Lewis and Price have denied wrongdoing. Cuomo’s lawsuit said that “from the moment the merger was announced, Merrill was transparent with Bank of America management about the losses Merrill was incurring.”

The lawsuit “stands on its own and I’m glad that the truth has come out,” Thain said in an interview on Feb. 7. “I’m focused on CIT and I’m focused on moving forward -- that is history to me.”

Thain said he’ll start his job by studying CIT’s businesses and determining what kind of funding model can be most successful.

Naming new senior managers will be a priority, Thain said. On Feb. 1, CIT Chief Operating Officer Alexander Mason became the fourth executive to announce a departure, saying he would leave on Feb. 26. That came on the heels of CEO Jeffrey Peek’s exit Jan. 15, and after CIT said in December that Chief Financial Officer Joseph Leone would retire in April. Chief Risk Officer Nancy Foster stepped down Dec. 31.

Nelson Chai

At Merrill, Thain assembled a management team largely by recruiting colleagues from Goldman Sachs and NYSE Euronext. Thain recruited Nelson Chai, chief financial officer at NYSE Euronext, to be CFO at Merrill. He said on Feb. 7 that Chai would probably be a candidate for the CFO position at CIT.

Thain will also have to adapt to a very different culture at CIT than he was used to in his Wall Street jobs, said Brookings Institution’s Elliott.

“This may be significantly harder for him than even he thinks because he hasn’t really run this type of company before,” Elliott said. “It’s easy to think that because you’re good at finance in general that you’d be good at every single aspect of it. But lending to small businesses is quite a different business.”

Factoring Concern

Some of CIT’s clients who rely on the company to provide financing that enables them to ship their merchandise to retailers are concerned that Thain doesn’t have enough understanding of that side of the business, known as factoring, said Vano Haroutunian, a partner at law firm Ballon Stoll Bader & Nadler PC in New York, which advises clothing and accessory companies that are customers of CIT’s.

“They don’t see the logic of going with someone who’s from investment banking rather than someone who would be a little bit more familiar with asset-based lending and factoring,” Haroutunian said. “The concern is not about him personally, although there is some of that because of his record at Merrill Lynch.”

Germany Outlines Greek Aid on Eve of European Summit (Update1)

Date Feb 10 2010 15:19:11 Source:Bloomberg

(Adds euro, stock reaction in sixth paragraph.)

By Brian Parkin and Jonathan Stearns

Feb. 10 (Bloomberg) -- German Finance Minister Wolfgang Schaeuble will brief lawmakers today on steps he may take to support the Greek government as it braces for a wave of strikes protesting deficit-reduction plans.

The German initiative came on the eve of a European Union summit and followed a slump in bond prices amid speculation that Greece would fail to tackle the EU’s largest budget deficit. A German official said nothing will be agreed upon before tomorrow’s summit in Brussels and no decision has been made on whether aid would take the form of loan guarantees.

“We are considering support,” Michael Meister, financial- affairs spokesman for Chancellor Angela Merkel’s Christian Democratic Union, said in an interview yesterday. Schaeuble was scheduled to speak in Berlin at 7:45 a.m. local time.

The euro’s slide to a nine-month low and surging bond yields prompted leaders to drop their resistance to rescuing Greece and protect the rest of the euro region from market turmoil. Greek Prime Minister George Papandreou has failed to convince investors his deficit-cutting plans go far enough. His challenge will be highlighted today when labor unions shut down schools, hospitals and flights to fight his proposals.

“We are talking about support in the broad sense,” Olli Rehn, the EU’s new economic affairs commissioner, said yesterday. Meister said aid would come “under strict conditions and if the Greek government undertakes far-reaching state reforms.”

Signs of a rescue helped ease investors’ concerns that worsening government finances would derail the global recovery. The euro rose 0.3 percent to $1.3754 at 6 a.m. in Frankfurt and gains outnumbered declines by more than 3-to-1 among the 1,652 constituent stocks of the MSCI World Index. The yield on the Greek 10-year bond slid the most in at least 12 years.

Plan B?

For weeks, European officials have insisted that no bailout was planned and that Greece’s effort to reduce its deficit, estimated at 12.7 percent of gross domestic product, should be given a chance to work. EU policy makers have no “plan B” to help Greece, former Monetary Affairs Commissioner Joaquin Almunia said in a Jan. 29 interview.

“I’m not surprised it happened, just by the timing of it,” said Julian Callow, chief European economist at Barclays Capital in London. “They would have to structure it in a way that it’s sufficiently penal so as not to create a moral hazard issue and encourage other countries like Portugal, Spain and Ireland to keep on track in terms of getting their own houses in order.”


German government spokesman Ulrich Wilhelm said in a statement that reports that a decision had “virtually been taken” to offer Greek assistance were “unfounded.”

Germany and other EU nations were considering offering Greece and other debt-ridden euro-area members loan guarantees, the Wall Street Journal reported yesterday, citing people familiar with the matter.

Papandreou was in Paris today, scheduled to meet French President Nicolas Sarkozy.

Papandreou’s government yesterday floated new steps to bring down the deficit and its efforts were saluted by Fitch Ratings, which called his 2010 deficit-reduction plan “achievable.” The measures include cuts of as much as 5.5 percent in government workers’ wages and a waiver on taxes for Greeks who repatriate funds held in foreign accounts.

Aid for Greece isn’t officially on the EU summit agenda. Still, EU President Herman Van Rompuy said this week he will lead a discussion of “some aspects of the present economic situation” over lunch, a session without notetakers that is traditionally devoted to the most sensitive subjects.

Conditions for Aid

In the interview in Strasbourg, Rehn, pointed to tomorrow’s summit and a meeting of European finance ministers next week and indicated that Greece will be held to strict conditions in exchange for any backing.

“Solidarity goes both ways,” Rehn said. “I am sure that in the next couple of days we will see discussion and decisions to this effect.”

EU law bars the European Central Bank or national central banks from bailing out EU countries through buying their debt or offering loans, according to a report by the German parliament’s research unit published today.

Options for Greece include bilateral aid or a package put together by a group of countries using the euro, Meister said.

Nobel laureate Joseph Stiglitz said Greece’s budget-deficit reduction plan will prevent a default, and he reiterated his call for the European Union to aid the nation against “speculative attacks” in financial markets.

“I’ve been very impressed with the comprehensive approach they’ve had,” Stiglitz said in an interview on Bloomberg Television in London yesterday. “There’s clearly no risk of default. I’m very confident about it.”

Flat Times for Beer Stocks

Date Feb 10 2010 15:17:55 Source:BusinessWeek

It might finally be time to kill the idea that a recession is a good time to buy shares of brewing companies. The argument is that, even in economic hard times, people still love to drink beer.

That might be true during the Super Bowl, but recent data suggest Americans overall are slowing their consumption of suds.

"Lots of folks have thought beer is recession-proof or recession-resistant," says Craig Purser, chief executive of the National Beer Wholesalers Assn. "The numbers don''t bear that out."

Molson Coors (TAP), the largest U.S.-owned brewer, saw its shares hit their lowest level since May 2009 after a gloomy earnings report on Feb. 9. SABMiller (SBMRY), headquartered in London, is down 10.7% in 2010, and Belgian brewer Anheuser-Busch InBev (BUD) has fallen 6.7% since the start of the year.

"Toughest U.S. Market in Decades"
Molson Coors Chief Executive Peter Swinburn cited "the toughest U.S. beer market in decades," as his company reported fourth-quarter earnings of $1.02 per share, 8¢ below analyst estimates. Molson Coors sold 4% less beer by volume worldwide from a year earlier, but results in the U.S. were particularly disappointing for investors.

In the U.S., Molson Coors and SABMiller distribute beer through a joint venture called MillerCoors. "In the U.S., MillerCoors'' fourth-quarter results reflect a significantly weaker beer industry than expected," Swinburn told analysts. According to the industry-funded Beer Institute, based on data from the first 11 months of 2009, beer shipment volumes fell 2.1% last year. And, according to market research firm IBISWorld, beer producers'' revenues declined 2.7% in the past year.

Imported beer has borne the brunt of the downturn, with U.S. import volumes down 9.7% last year. Premium domestic brews have also suffered, as consumers "trade down" to cheaper brands and are more likely to drink at home than in bars or restaurants, Purser says.

Craft Beer Sales Rise 12.4%
One segment of the beer industry that has resisted the recession is craft breweries, increasingly popular for flavorful beers made in smaller batches. According to data from the Nielsen Co., craft or microbrew sales rose 12.4% in 2009.

Craft brewers are lucky that rising interest in their products has reduced the impact of the recession, says Julia Herz, craft beer program director at the Brewers Assn., a trade group for craft brewers.

Customers "want flavor, diversity, and choice," Herz says. "That''s how craft has remained a high priority and an affordable luxury."

Craft beers account for 5.8% of the overall beer market, according to Nielsen. The vast majority of beer sold is produced by either the MillerCoors partnership or Anheuser-Busch InBev, the company that now owns brands like Budweiser and Bud Light. According to IBISWorld, by volume, InBev controlled 49.9% of the U.S. market in 2009, while MillerCoors controlled 28%.

(Some of these brewing giants also have a presence in the craft segment. Molson Coors said it plans to acquire Granville Island Brewing early this year. Based in Vancouver and founded in 1984, Granville Island claims to be Canada''s first microbrewery.)

Fewer Discounts for Consumers
American consumers may be buying less beer because, despite the tough economy, they aren''t getting very many discounts. According to Nielsen data, the average case of beer cost 2.5% more in 2009 than the year before.

The production costs for brewers have been rising for several years, says IBISWorld senior analyst George Van Horn. Another reason for fewer discounts, he says: Big brewers have tried to avoid price wars that would make it harder to pay back debt used to pay for recent acquisitions, he says. As of June 30, InBev had $55.6 billion in long-term debt after borrowing $45 billion to acquire Anheuser in November 2008.

If there are bright spots for brewers, they come from new products that are catching customers'' attention, such as the proliferation of specialty beers or new low-calorie offerings. "I remain very, very bullish on the future of [beer industry] innovation," Purser says.

Despite economists'' expectations that the U.S. economic recession is over, remarks from Molson Coors'' Swinburn on Feb. 9 suggest beer-buying isn''t set to rebound soon. "Overall consumer demand remains sluggish, and we see these conditions continuing to impact volume and mix in the near term," he told analysts.

Geely not to sign Volvo deal by Chinese New Year

Date Feb 10 2010 15:14:05 Source:Global Times
Geely Holding (Group) Co.''s CEO Yang Jian denies the rumor about the company will sign a deal on the sale of the Ford Motor''s Volvo unit by the start of the Chinese New Year on February 14.

Yan Jian said it has not been determined whether the deal could be reached by the end of February.

Yuan Xiaolin, the Geely spokesman for its Volvo acquisition project, expects the deal to be signed by March 31 and completed by June 30.

Negotiations have snagged on financing and details in the signing documents, Bloomberg reported.

Geely sold 43,877 vehicles in January, up 137 percent from a year earlier. Sales rose 1 percent compared with December, 2009, the company said in a statement yesterday.

The sales growth reflects the increased competitiveness of the group''s products in China and the encouraging market response to its new models, according to the statement.

Agencies and Shi Jierui contributed to this story

Chinese pharmaceutical enterprises aim for approvals from FDA

Date Feb 10 2010 15:13:18 Source:Global Times
Chinese pharmaceutical enterprises aim to acquire certifications from American Food and Drug Administration (FDA), which can be seen as an echo to the upgrade of Chinese pharmaceutical industry, said China Business News (CBN) Wednesday.

Getting the certification may help Chinese pharmaceutical enterprises to enter the US market and to change the long-term situation of its merely providing raw materials to multinational pharmaceutical enterprises.
''''To acquire approvals from FDA is a key step for our pharmaceutical enterprises to implement the ''going out'' strategy,'''' said Yu Mingde, president of China Pharmaceutical Enterprises Association (CPEA).

And CPEA has raised proposals to relevant national departments, intending to provide a package of incentive policies to enterprises who want to list abroad, according to Yu.

Fierce competition in the Chinese market and the attraction of the large market abroad push Chinese pharmaceutical enterprises to enter the western market, added Yu. ''''The same product sold in the western market can be times higher than in China, which may help to promote the development of Chinese enterprises.''''

Currently, the US, the European Union and Japan cover 88 percent of the market share, so China can only compete for the remaining 12 percent, and that’s why Chinese pharmaceutical enterprises cast so much attention to FDA, said Yu.

FDA is acknowledged as the strictest quality standard in evaluating pharmaceutical manufacturing and the only gate pass for pharmaceuticals to enter the western market.