Handful of Investment Bankers To Profit on State’s Bond Deals

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Handful of Investment Bankers To Profit on State’s Bond Deals

WALL STREET WEST

A group of 10 investment banks are expected to reap as much as $75 million in fees from the $15 billion in bonds that will be issued after passage of Proposition 57 earlier this month to shore up the state’s budget.

Last week, Lehman Brothers was named lead manager of what will be the largest municipal bond offering in U.S. history, as state Treasurer Phil Angelides sought to quickly put a team in place.

“There’s been little or no discussion of fees,” said Mitchel Benson, a spokesman for Angelides.

Co-senior managers include Banc of America Securities LLC, Bear Stearns & Co., Citigroup Global Markets Inc., E.J. De La Rosa & Co., Goldman Sachs & Co., JP Morgan Securities Inc., Merrill Lynch & Co., Morgan Stanley & Co. and UBS Financial Services Inc.

The team is essentially the same that was put together to sell $10 billion in fiscal recovery bonds proposed under the administration of former Gov. Gray Davis, said Juan Fernandez, director of public finance for the state treasurer’s office.

The group did so much due diligence on that offering that the state decided to keep the same team in place, Fernandez said. Additional managers will be announced later, he said.

The first tranche of bonds will be issued after Memorial Day, which is about three months away relatively soon for such a large offering.

Officials in Angelides’ office would not say how much the investment banks would earn on fees, but the same group of investment banks pocketed nearly $20 million last year when the state sold $4 billion in general obligation bonds.

That calculates to roughly $5 for every $1,000 in bonds sold, though the ratio could be lower given the huge size of the offering.

“In private they’ll lick their chops over the prospect that California will keep paying hefty interest rate premiums to sell all those bonds,” said Zane Mann, editor of the California Municipal Bond Advisor newsletter. He said he believes passage of the bond measure is a plus for investors, who will pick up higher yields on California bonds than on most alternative tax-exempt investments.

Kate Berry

Moving Markets

L.A.’s Asian-American banks are on an acquisition tear.

In an effort to follow the burgeoning flow of Asian immigrants migrating to other parts of the country, local bankers are scouting to buy up branches in other states.

Los Angeles-based Nara Bancorp announced last week that it has purchased its fifth bank branch in the New York and New Jersey area by acquiring a Hackensack, N.J., branch of Interchange Bank, a unit of Interchange Financial Services Corp.

The No. 2 Korean-American bank has added six branches in New York in the past five years, including three in Manhattan, two in the heavily Korean Queens neighborhood of Flushing and one in Jackson Heights, another Queens locale.

Its smaller rival, Center Financial Corp., announced last month that it will buy Liberty Bank of New York, with one branch in Manhattan and one in Flushing. Center has 13 branches in Southern California.

Of course, not all Asian banks are moving into other states.

For the past several years, East West Bancorp has been purchasing smaller banks to shore up its market share in Southern California and expand from its ethnic base of Chinese-Americans. It now has 40 branches, including three in San Francisco and two in Silicon Valley.

Kate Berry

Headhunter Upbeat

The overall job market may not be growing the way economists would like, but there’s been enough activity in the executive recruitment ranks to boost the shares of Korn/Ferry International by more than 10 percent last week after the company reported better than expected earnings for its fiscal third quarter.

For the period ended Jan. 31, Korn/Ferry posted net income of $3.9 million, or 10 cents a share, compared with a loss of $2.6 million (7 cents) for the like period a year earlier. Analysts polled by Thomson First Call had been expecting, on average, profits of 5 cents a share.

Fee revenues rose 8 percent for the third quarter to $81.4 million versus $75.5 million in the like year-ago period.

“With the strength in corporate profits and overall economic expansion, we continue to witness a recovery in the executive recruitment business,” Paul C. Reilly, chairman and chief executive of Los Angeles-based Korn/Ferry, said in a press release.

Korn/Ferry also said it expects to earn between 10 cents and 16 cents a share in the current fourth quarter; analysts polled by Thomson First Call were estimating 10 cents.

After the report came out on March 10, Korn/Ferry shares rose $1.06, or 8.9 percent, to $13.26, after rising as high as $13.90 on a down market day.

The prices approached the 52-week high of $13.98 set in late January, when the economy was showing signs that job growth would finally kick in. In the past year, Korn/Ferry’s shares have traded as low as $6.15 each.

Anthony Palazzo

Sniffing Out Threats

Pasadena-based Cyrano Sciences Inc. started out in 1997 with backing from venture capital firms specializing in medical markets. But like a lot of technology start-ups, it shifted gears after the Sept. 11 terrorist attacks and adapted its “electronic nose sensor” technology to military and homeland security applications.

The effort paid off last week when Smiths Detection, a unit of London-based Smiths Plc, purchased Cyrano for $15 million plus a percentage of future earnings. Cyrano, which arose out of the laboratories at Caltech, was rechristened Smith Detection Pasadena.

Steve Sunshine, Cyrano’s chief executive, will remain president of Smiths Detection Pasadena. The unit will add its sensing technology, which can detect common industrial chemicals, to equipment that Smiths already uses to detect traditional biological and chemical warfare agents.

“There’s a growing concern that our own chemicals that we use in this country could be used by terrorists for ill-intentioned purposes,” said Sunshine. “That’s something that is definitely a post-9/11 concern, and I think speaks to the concept of technology integration and the use of more than one (detection) technology in concert.”

Cyrano’s early backers included Oak Investment Partners and Johnson & Johnson Development Corp., the venture capital arm of Johnson & Johnson. More recent investors included Santa Monica-based Rustic Canyon Partners.

Sunshine said one attraction of Smiths as a buyer was its presence in the industrial aerospace and medical market sectors. The technology can be used, for example, to detect the unique scent signature on the breath of patients with pneumonia or diabetes, or to test the quality of beer during production.

Anthony Palazzo

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