Iraq Tribal Alliances Pay Off

Photo courtesy AFP.

Nearly five years into the occupation of Iraq the United States is learning what the British, the Turks and even Saddam Hussein knew and practiced before them: Forming alliances with tribal sheiks is essential to pacifying and governing the country.

For tribal identification in Iraq is not just an asterisk in a personal biography, it's fundamental to identity, even a person's place in society and livelihood.

In western Anbar province, U.S. courting and alliance-building means paying special attention to al-bu Nimr. The influential tribe, which mainly lives on or near the Euphrates between Ramadi, Hit and Haditha, numbers between 300,000 and 400,000 people. It was one of the first Sunni tribes to battle al-Qaida on its own, and one of the first to begin cooperating with coalition forces early in the occupation.

"Two groups (tribes) in Anbar went to the coalition forces," Sheik Hatim Abdal Razzaq said. "One was in the west and one in the east of the province. We were both attacked by terrorists and insurgents for it.

"We lost people. We gave blood. But by working with the coalition forces we saw a future ¿¿ and we agreed to get together, and we've cleaned up the bad areas like Hit."

Hatim, 27, took over the leadership of the tribe two years ago following the death of his father. His uncle, Sheik Jabair, was the de facto head of the tribe then but stepped aside because of ill health. He acts, however, as Hatim's chief adviser and confidant.

Hatim's and Jubair's relationship with U.S. forces is on many levels and complicated, a balancing act between short- and long-term U.S. interests, Iraqi government interests, and the payback interests of the tribe, whose militia now make up the majority of police forces in the Hit district.

The U.S. part of the courtship involves growing the friendship and cooperation of Hatim and Jubair, but at the same time ensuring that other tribes aren't slighted, that infrastructure projects and governance actions wanted by the them benefit all the people of the Hit district as equitably as possible.

It's a juggling act on both sides, pure and simple, and one that's given heavy attention by Marine Lt. Col. Jeffrey Dill, the commander of U.S. forces in Hit who has forged a strong personal relationship with the sheiks. That relationship means frequent and lengthy informal meetings with Hatim over endless cups of sweet tea and huge platters of lamb kabob and chicken at the sheik's compound.

Those meetings all start the same: with a handshake, a kiss on the cheek and a bumping of right shoulders. It's the greeting of friends rather than official counterparts.

During those meetings serious subjects are broached and discussed almost casually, as if in passing, as each side gauges the other's intent and the seriousness of the issue at hand. "Oblique" rather than "direct" is the operative word, although blunt discussion also takes place when needed. This especially occurs during formal meetings with sheiks and officials in city council meetings around the district.

The young sheik was in a good mood the night a reporter accompanied Dill to the tribal compound on one of his "courtesy" calls. Eyes dancing, and with an amused look he wanted to be questioned by his new guest.

When asked if he or his tribe received financial consideration for cooperation, he insisted he did not. (Payoffs were a practice of previous Iraqi governments and foreign occupiers).

"Feluus (money)?" he asked rhetorically while rubbing his fingers together and laughing. "Laa, laa -- no, no feluus."

"We get respect from the coalition forces and they trust us, we have security ¿¿ they make many projects here, and projects mean jobs for the people."

Hatim voiced concern over tribal and political rivalries in Shiite tribal areas that could further tear Iraq apart, but ever the diplomat said in the end all the political and sectarian factions would realize they were Iraqis and fighting would destroy chances of a better national future. But he also cautioned that a strong, central government was years away and patience was needed.

"For 35 years Saddam Hussein was president," Hatim said. "Now his government is gone and the one we have is not yet strong. Now we face the problems his government caused or ignored. And it's not easy, it will take time.

"I like the future for the Iraqi people. I like the security for the Iraqi people because without security we will have nothing."

The alliance between Hatim and U.S. forces is still a work in progress, as are other budding relationships with Sunni sheiks and tribes. But the special importance of the al-bu Nimr connection was highlighted last September when Hatim was one of five sheiks in the province invited to meet with U.S. President George W. Bush during his visit to Iraq.

That meeting -- including the news photo published around the world of it -- put the young sheik high -- very high -- on al-Qaida's hit list, a U.S. intelligence source said. At least one of the five has already been assassinated, which may help explain why Hatim and his uncle openly carry pistols in the compound despite being surrounded by heavily armed bodyguards.

Wall Street Sees 20% M&A Slump on Scarce LBO Credit (Update1)

Dec. 17 -- Even Goldman Sachs Group Inc., the world's leading takeover adviser since 2001, is prepared for a decline in mergers and acquisitions income next year when a slowing economy reduces the market for leveraged buyouts.

The value of transactions may fall 20 percent from a record $3.9 trillion this year, executives at JPMorgan Chase & Co., Lehman Brothers Holdings Inc. and Bank of America Corp. estimate. That may reduce fees on Wall Street and contribute to Goldman's first profit drop since 2002, the last year M&A decreased, according to analysts surveyed by Bloomberg.

LBO firms, responsible for half of this year's 10 biggest purchases, now face financing costs that have more than doubled since June to the highest in four years. The pace of takeovers fell 33 percent since the end of the second quarter as chief executive officers at companies, including Virgin Media Inc. and Cadbury Schweppes Plc, delayed asset sales amid signs economic growth in countries ranging from the U.S. to Britain is ebbing.

``It's the end of an era for a while for the very large LBOs,'' said Piero Novelli, 42, the London-based head of global M&A at UBS AG, Switzerland's biggest bank.

Lehman's backlog of investment banking fees is lower than earlier in the year, Chief Financial Officer Erin Callan told investors on Dec. 13 after the No. 4 U.S. securities firm said fourth-quarter earnings dropped 12 percent. Callan estimates M&A may fall 20 percent next year. Her comments echoed Goldman CFO David Viniar, who said in September that the investment-banking pipeline at Wall Street's most profitable firm fell from a record in the second quarter.

Fed's Outlook

``We're in a very different environment than we were a year ago,'' said Stefan Selig, 44, the New York-based global head of mergers at Bank of America Corp. The value of deals may drop by 15 percent to 20 percent, he said.

The size of acquisitions may hinge on the U.S. economy, which the Federal Reserve has said will grow as little as 1.8 percent next year, which would be the slowest pace since 2002 when global mergers declined 29 percent.

The proportion of matchmaking from the U.S. declined to 42 percent since July 1, the lowest since the first half of 2002, data compiled by Bloomberg show. The largest transactions announced today were in the U.S., led by Ingersoll-Rand Co.'s $10.1 billion agreement to buy Trane Inc., the Piscataway, New Jersey-based maker of air conditioners for vehicles.

Botched Sale

Leveraged buyouts accounted for 24 percent of the $2.4 trillion of purchases announced in the first half, crowned by the $32 billion offer for Dallas-based power producer TXU Corp. by a group led by New York-based Kohlberg Kravis Roberts & Co. LBO firms comprised just 10 percent of the $1 trillion total since Aug. 1.

``There are more bankers chasing less transactions,'' said Jimmy Elliott, 55, global head of mergers at JPMorgan in New York, who predicts acquisitions may slump as much as 30 percent. ``There's no evidence that there will be any large public-to- private transactions in the near and intermediate future.''

UBS's Novelli expects global takeovers to drop at least 15 percent next year. The slowdown will be particularly severe in the U.S., where rising borrowing costs caused by the collapse of the subprime mortgage market hurt private-equity firms, he said.

Cerberus Capital Management LP, the New York-based private equity firm that buys troubled companies and corporate cast-offs, scrapped a $6.2 billion bid for Dallas-based Affiliated Computer Services Inc., the biggest processor of U.S. student loans, in October, saying funding had become harder to arrange. Georgica Plc, the U.K.'s largest operator of pool halls and bowling alleys, ended talks with bidders Dec. 12, blaming a ``difficult banking market and deteriorating trading conditions.''

Falling Fees

``There is a pure systemic lack of trust in the financial system,'' said Eric Bissonnier, Geneva-based chief investment officer for Asia and Europe at EIM, which has $14 billion invested in hedge funds. ``Costs are higher and the outlook for the economy is bleaker, so if you put that together, people will hesitate to do deals.''

Global fees from acquisitions will fall 5 percent in 2008 from this year's $36.9 billion, said Teck-Tjuan Yap, managing director at Freeman & Co., the New York-based research firm that tracks the securities industry. Revenue will decline 10 percent in the Americas and 3 percent in Europe, he said.

Morgan Stanley banker Michael Zaoui predicts 2008 will be a ``strong year.''

``The beauty of the mergers business is that it's a permanent feature of capitalism,'' said Zaoui, 50, chairman of European M&A, in a Dec. 10 interview in Paris.

Market Volatility

Goldman, Morgan Stanley, Citigroup Inc. and JPMorgan, all based in New York, were the top financial advisers this year, Bloomberg data show. Private-equity clients accounted for about 30 percent of their assignments.

Lehman, which ranks as the No. 6 adviser this year, won't cut jobs as M&A fees clients because it plans to win clients from rivals, said Mark Shafir, 51, the firm's global head of mergers, in an interview with Bloomberg TV today.

``The mega-LBO is dead,'' said Tom Willett, 39, joint head of European takeovers at ABN Amro Holding NV in London. ``Equity markets are extremely volatile.''

The recent increase in stock-market swings is making it difficult for buyers and sellers to agree on prices, said Joel Cohen, 69, chairman of Sagent Advisors Inc., a New York-based investment bank. Market movements measured by the Chicago Board Options Exchange SPX Volatility Index, or VIX, rose in November to the highest since 2003.

Blankfein's View

``If stock-market volatility stays high, it may be an impediment to equity-based deals as the value of both the bidder's and the target's stock moves around,'' said Frances Hudson, a market strategist at Standard Life Investments in Edinburgh, which has 142 billion pounds ($289 billion) of funds under management. ``On the funding side, there may be less investor appetite for rights issues to fund cash bids.''

Buyout firms are paying 370 basis points over benchmark rates for senior bank debt instead of 200 basis points earlier in the year, according to Guy Hands, CEO of London-based LBO company Terra Firma Capital Partners Ltd. Banks also are lending an average of 5.7 times of a target company's earnings, down from 10 times earlier this year.

Lloyd Blankfein, Goldman's chief executive officer, told investors last month the company strives to dominate the most- active parts of the market. The firm's advisory fees jumped 53 percent in the first three quarters to $2.98 billion, comprising about 8 percent of revenue.

Earnings Outlook

``Throughout recent cycles, we have consistently been sought out as a strategic or financial adviser across industries and regions,'' Blankfein said in a Nov. 13 speech at an industry conference in New York. The firm was the top adviser to financial institutions during a merger wave in the early 1990s, and to technology companies during the Internet boom later in the decade, he said.

Goldman's profit probably will fall 8 percent to $10.5 billion next year from a record $11.4 billion in 2007, according to the average estimate of analysts surveyed by Bloomberg. Lucas van Praag, a New York-based spokesman for Goldman, declined to provide M&A estimates for next year.

Goldman, Morgan Stanley and Bear Stearns Cos. are scheduled to report fourth-quarter results later this week. Analysts estimate Goldman's earnings declined 1.5 percent to $3.1 billion, or $6.64 a share, while Morgan Stanley may report a loss of $397 million, or 39 cents a share, and Bear Stearns may post a loss of $248 million, or $1.82 a share.

Sovereign Funds

Areas of strength for M&A bankers include advising gas, electricity and water companies, and sovereign wealth funds. Funds from the oil-rich Persian Gulf states and China were together responsible for about 4 percent of takeovers this year, up from less than 3 percent in 2006, according to Bloomberg data.

Gulf investors more than doubled their spending on acquisitions this year to about $76 billion, as oil prices soared 58 percent, Bloomberg data show. With crude above $90 a barrel, oil produced by Gulf nations, including Saudi Arabia and the U.A.E., is worth at least $1.3 billion a day.

Citigroup, the biggest U.S. bank by assets, said Nov. 26 it will receive a $7.5 billion cash infusion from Abu Dhabi to replenish capital after record mortgage losses caused the stock to fall almost 50 percent. Saudi Basic Industries Corp., the biggest chemicals company by market capitalization, agreed in May to buy General Electric Co.'s plastics unit for $11.6 billion in a record acquisition for the Gulf.

`Funding Appetite'

Russian steelmaker OAO Severstal bid for London-based Celtic Resources Holdings Plc, its first purchase in precious metals. Industrial & Commercial Bank of China Ltd., that nation's largest bank, invested $5.6 billion in Johannesburg-based Standard Bank Group Ltd., Africa's largest lender.

``You will see emerging markets plugging in the gap,'' said Thomas King, 47, the London-based head of European investment banking for Citigroup. ``The further you move from the U.S, the less affected the markets tend to be. Transactions in the emerging markets are getting larger.''

Tata Steel Ltd., India's oldest producer of the metal, completed the 6.2 billion-pound purchase of the U.K.'s Corus Group Plc in April. China's sovereign wealth fund this year bought a $3 billion stake in New York-based buyout firm Blackstone Group LP.

Macquarie Group Ltd., the world's largest private infrastructure investor, is betting on Europe.

``The focus is on strong cash-flow producing businesses such as utilities, toll roads, ports, airports,'' said Andrew Hunter, the London-based head of Macquarie Capital Advisers Europe. ``Credit markets will slow down M&A activity more generally, but in defensive assets that produce stable and predictable cash flows, we expect deal flow and funding appetite to be no less than 2007.''

U.S. Stocks Fall; Exxon, Freeport-McMoRan, Caterpillar Decline

Dec. 17 -- U.S. stocks extended their worst weekly drop in a month, led by energy producers and chipmakers, on growing concern that the U.S. economy will slow.

Exxon Mobil Corp., the biggest U.S. oil company, and Freeport-McMoRan Copper & Gold Inc., the world's second-largest copper producer, declined on slumping fuel and metals prices. Micron Technology Inc., the biggest U.S. producer of computer- memory chips, fell the most in two months after an analyst forecast a wider loss. Caterpillar Inc. dropped to the lowest since Nov. 27 after Morgan Stanley said construction-equipment sales will slow next year.

The Standard & Poor's 500 Index slipped 16.03, or 1.1 percent, to 1,451.92 at 2:11 p.m. in New York. The Dow Jones Industrial Average sank 134.21, or 1 percent, to 13,205.64. The Nasdaq Composite Index lost 44.37, or 1.7 percent, to 2,591.37. Almost three stocks dropped for every one that rose on the New York Stock Exchange. Benchmark indexes in Asia and Europe retreated.

``You're going to see tight credit markets result in lower economic growth,'' said Wayne Wicker, who helps oversee $31.5 billion as chief investment officer at Vantagepoint Funds in Washington. ``We're not going to have the ebullient times that we've had in the past.''

Today's retreat trimmed the S&P 500's gain for the year to 2.4 percent, while the Dow is up 6 percent in 2007 and the Nasdaq has gained 7.3 percent. Treasury notes rose for the first time in four days as a decline in global stocks fueled demand for the safety of government debt.

Exxon, Freeport

Exxon lost $1.42 to $89.76 after crude oil fell below $90 a barrel in New York on concern inflation and subprime mortgage losses will reduce economic growth. Freeport-McMoRan tumbled $4.75 to $97.36 after copper fell to a nine-month low.

Micron Technology fell 49 cents, or 5.9 percent, to $7.88. The company's product prices have dropped below the cost of production because of an industry glut of dynamic random access memory chips, the main memory in personal computers, said Jefferies & Co. analyst John Lau. Intel Corp., the world's biggest maker of computer chips, slumped 58 cents to $25.72.

Caterpillar Inc. decreased $2.35 to $71.04. Morgan Stanley cut the shares to ``underweight'' from ``equal weight.'' U.S. construction equipment volumes and prices will decline in 2008, analysts including Robert Wertheimer wrote in a note to client.

EBay, Amazon

EBay Inc., the largest Web-based auction company, and Amazon.com Inc., the biggest Internet retailer, slumped on signs holiday sales growth online is slowing. ComScore Inc., a research firm, said online spending from Nov. 1 through Dec. 14 rose 18 percent to $22.7 billion, trailing the firm's forecast for 20 percent growth in November and December and last year's 26 percent gain.

EBay fell 45 cents to $32.25. Amazon.com declined $3.22 to $85.86.

A jump in consumer prices and $70 billion in bank losses on mortgage-backed securities has spurred concern that the U.S. economy may slow as spending and borrowing decline. Through the first 11 months of this year, consumer prices rose at an annual rate of 4.2 percent. That's up from 2.5 percent for all of 2006 and, if maintained in December, would be the highest rate in 17 years.

``We see the economy contracting'' on higher fuel costs and falling home prices, said David Darst, who manages more than $700 billion as chief investment strategist at Morgan Stanley Global Wealth Management in New York. ``We have some further shoes to drop as we unfold in '08.''

M&A

Trane Inc. surged $8.37 to $45.57 after the maker of heaters and air conditioners agreed to be bought by Ingersoll- Rand Co. for $10.1 billion in cash and stock. Ingersoll-Rand will pay $36.50 in cash and 0.23 of a share for Trane, valuing the manufacturer at $47.81 based on the Dec. 14 closing price. The offer is 29 percent more than Trane's close that day.

Ingersoll-Rand posted its biggest loss in more than seven years, slumping $5.29, or 11 percent, to $43.89.

Grant Prideco Inc. jumped $6.29 to $53.75. National Oilwell Varco Inc., the largest U.S. maker of oilfield equipment, agreed to buy its smaller rival for about $7.4 billion to add sales of drilling pipes and bits. The company said it will pay a combination of cash and stock that values Grant Prideco at $58 per share, a 22 percent premium. National Oilwell tumbled $7.26 to $70.11.

Illinois Tool Works Inc. slumped $2.61 to $53.29. The maker of Duo-Fast nail guns cut its full-year profit forecast as acquisitions and lower-than expected sales in North America cut profits.

Bond Insurers

Bond insurers gained after Moody's Investors Service affirmed AAA credit ratings for Ambac Financial Group Inc. and MBIA Inc. Ambac, the world's second-largest bond insurer, was affirmed with a stable outlook after the close of trading on Dec. 14, surprising analysts who expected the company to be more at risk of a downgrade than competitors. The shares surged $3.69 to $26.50.

MBIA, the largest bond insurer, rose $1.11 to $28.71 after being affirmed with a negative outlook.

Manufacturing in New York expanded at the weakest pace since May as orders for new business slowed and companies cut inventories. The New York Federal Reserve Bank's general economic index fell to 10.3 from 27.4 in November, the bank's Buffalo branch said, lower than the reading of 20 forecast by economists in a Bloomberg survey.