Madoff Loss Spawned in ‘Bargain With Devil’ at Cerberus Bank

[Joanne98]

Feb. 19 (Bloomberg) -- Two of Japan’s eight nationwide banks are braced for $2.6 billion in losses after investments by U.S. private equity groups, which the Obama administration is counting on to help bail out the U.S. financial system.

The lenders took on increased risks under foreign ownership. Aozora Bank Ltd., acquired in 2003 by Cerberus Capital Management LP, reported reverses on subprime mortgages, GMAC LLC shares and Bernard Madoff’s fund. Shinsei Bank Ltd., bought in 2000 by private investors including billionaire J. Christopher Flowers, had losses on a stake in Germany’s Hypo Real Estate Holding AG.

“Aozora and Shinsei were managed like many banks in America, investing in derivatives and other toxic assets,” said Neil Katkov, head of Asia research at Boston-based Celent LLC. “It was a bargain with the devil.”

Buyout firms including Cerberus and J.C. Flowers & Co. are stumbling with investments from Japan to Germany as their acquisitions are battered by the credit crisis and the deepest recession since the early 1980s. As many as 50 percent of companies owned by private-equity firms may default by 2011, according to a study of 328 holdings by Boston Consulting Group.

The failures are affecting a cross section of the global economy. Mervyn’s LLC, Lyondell Chemical Co. and Linens ‘n Things Inc. -- all controlled by buyout firms -- have filed for bankruptcy. Cerberus received U.S. government aid for Chrysler LLC and GMAC, the lender affiliated with General Motors Corp.

Rules Loosened

http://www.bloomberg.com/apps/news?pid=20601109&sid=aFC_U5GBjZOc&refer=home

[DCKit]

1. Cerebus - Again.

Is it time to investigate yet, Nancy? The BFEE's finger, hand and footprints are all over this skeezy corporate person.

[Joanne98]

2. Investigate Carlyle too.

[DCKit]

3. Definitely. Thanks for the reminder, Joanne. I was feeling deficient in things to hate today. n/t