Hedgemedia's AltInvestment Global News Round-Up: Investment bankers feel the pain of market turmoil

Merrill Lynch shares took a pounding on Wednesday after the New York-based bank reported larger than expected losses as a result of the recent turmoil in the credit markets, taking a USD7.9bn write-down related to collateralised debt obligations and sub-prime mortgage exposure.

Quarterly losses totalled USD2.31bn, or USD2.82 a share, compared with a profit of USD3 billion, or USD3.50 a share, for the third quarter of 2006. With the firm also being downgraded by ratings agency Standard & Poor's, its stock fell nearly 6 per cent.

Bank of America is laying off 15 per cent of its investment banking staff, affecting about 3,000 people, as it reviews the future of the business. Investment banking chief Gene Taylor is on his way out following last week's departure of Chris Hentemann, head of its global structured products business, after reporting a USD527m third-quarter loss in his business. News of the layoffs comes a week after the Charlotte, North Carolina bank reported a 32 per cent decline in net profit due to trading losses and write-downs on non-performing loans.

Och-Ziff pushes ahead with IPO plans: The USD30bn New York hedge fund manager Och-Ziff Capital Management is proceeding with its plans for a USD1.1bn initial public offering. It has made numerous regulatory filings this month, ahead of its mid-November launch, despite recent turmoil in financial markets and underperformance of the stocks of listed alternative investment firms.

The shares are expected to list at between USD30 and USD33 apiece. In the latest quarter, investors ploughed USD1.2bn into Och-Ziff funds. For the first nine months of this year, total revenue rose 11 per cent to USD732m on a net loss of USD141m attributed in part to steeper compensation-related costs.

Secretive hedge fund manager Farallon Capital Management and GSO Capital Partners, in which Merrill Lynch took a stake in May, have teamed up with Hellman & Friedman in its USD2.65bn purchase of Goodman Global, which is the second-largest US manufacturer of home ventilation systems and air conditioners.

Farallon and GSO stepped up to provide financing for the transaction after banks curtailed financing of leveraged buyouts due to a downturn in the credit markets. Apollo Management and members of the Goodman family were the previous owners of the Houston firm. Excluding debt, the deal was valued at USD1.76bn.

Carbon emissions exchange to launch next year: NYSE Euronext and French bank Caisse des Dépôts plan to launch an exchange to trade carbon allowances and credits. The exchange will open early next year and will be majority-owned by NYSE Euronext.

Charles Rangel, chairman of the Ways and Means Committee of the US House of Representatives, plans to propose a tax increase on executives at buyout firms, hedge funds, and certain partnerships to help pay for a temporary fix to the alternative minimum tax that lawmakers need to pass this year, although Republicans are expected to oppose the move.

Rangel eventually plans to eliminate the AMT, which was established to ensure that the wealthiest Americans cannot escape the income tax net but now increasingly impacts middle-income households. The proposal calls for these firms or their principals to pay 37.5 per cent in income tax on carried interest or performance fees, rather than the 15 per cent capital gains tax they mostly pay at present.

Net inflows into hedge funds totalled USD45.2bn in the third quarter of this year, compared with USD60.2bn and USD58.6bn for the first two quarters, according to Hedge Fund Research. The industry now manages USD1.8trn, HFR says.

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