Kinder Morgan To Buy El Paso Corp. For $20.7 Billion To Become America's Largest NatGas Pipeline Operator (KMI, EP)

NEW YORK (AP) — Kinder Morgan plans to buy El Paso Corp. in a $20.7 billion deal that's expected to create America's largest natural gas pipeline operator.

Kinder Morgan Inc. is expanding its reach as the U.S. becomes increasingly reliant on natural gas. Drillers are pumping ever-increasing amounts from underground shale deposits across the U.S. Natural gas prices have dropped to less than half their level of three years ago, and power companies are using more of the fuel because it emits fewer greenhouse gases than coal.

The deal also adds to founder and CEO Richard Kinder's energy empire. Kinder, 66, started the company with friend William Morgan after leaving his post as president of the now-defunct Enron Corp. Forbes lists his net worth at $6.4 billion.

Kinder Morgan will more than double the size of its pipeline network by purchasing El Paso. The new pipeline system would stretch 80,000 miles — long enough to wind around the globe three times. Kinder Morgan's pipelines in the Rocky Mountains, the Midwest and Texas will be woven together with El Paso's expansive network that spreads east from the Gulf Coast to New England, and to the west through New Mexico, Arizona, Nevada and California.

"We believe that natural gas is going to play an increasingly integral role in North America," Kinder, who is also the company's chairman, said on Sunday when the deal was announced.

Robert McFadden, a Houston-based natural gas pipeline consultant, said the expanded network will make it easier to move natural gas from new shale fields that have mushroomed across the U.S. in the past few years.

"Think of it like federal highways and toll roads," McFadden said. "The more options you have to get from point A to B, the shorter your trip."

Pipeline companies, which get paid for moving natural gas from the field to the market, have been in big demand recently as drillers tap rich new deposits in Pennsylvania, Montana, Utah and other states. The pipeline companies been able to keep transport fees roughly constant during the past several years, even though natural gas prices have dropped from more than $13 per 1,000 cubic feet in 2008 to less than $4, pipeline this year.

The acquisition comes on the heels of other consolidation in the industry. Energy Transfer Equity is planning to buy Southern Union Co. for $5.7 billion after a tug of war with Williams Cos.

With more pipelines under its control, Kinder Morgan could charge suppliers higher transport fees, and that may affect the price that utilities and other major natural gas buyers pay for natural gas. But home owners and other retail natural gas customers won't notice much of a change on their monthly bills, if any. Retail gas bills are largely influenced by local distribution costs and other items that won't change with this deal, McFadden said.

Once approved, Kinder Morgan said it will also become the largest independent transporter of gasoline, diesel and other petroleum products. It will also be the largest independent owner and operator of petroleum storage terminals. It will be the largest transporter of carbon dioxide in the U.S., moving about 1.3 billion cubic feet per day.

Kinder Morgan and El Paso are both based in Houston. Kinder will remain chairman and CEO of the combined company.

The combined company will surpass other pipeline companies like Enterprise Products Partners LP, also based in Houston. Enterprise operates about 50,200 miles of pipelines.

The companies valued the deal at $26.87 per El Paso share, which includes $14.65 in cash, 0.4187 in Kinder Morgan shares and 0.640 in Kinder Morgan warrants.

Based on El Paso's about 770.25 million outstanding shares, the deal is worth about $20.7 billion.

Kinder Morgan is also assuming $13 billion, net of cash, of El Paso debt as part of the deal. It intends to fund the purchase with a combination of equity and more debt. But once the deal closes, the company said it plans to sell off El Paso's exploration and production assets and the cash raised will help reduce that debt.

Kinder Morgan said the deal is expected to boost Kinder Morgan's shareholder value through increased cash flow and future growth opportunities. It's also expected to boost Kinder Morgan's dividends and result in about $350 million a year in cost savings.

El Paso had announced plans to spin off its exploration and production unit in May.

The acquisition, which has been approved by the board of both companies, is expected to close in the second quarter of next year and needs regulatory approval.

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How JP Morgan Just Made $1.9 Billion By Everyone Betting Against Them (JPM)

Earlier this morning, JP Morgan reported Q3 earnings of $1.02 per share, which compares to analysts' expectation for $0.92 per share.

However, no one can seem to agree on whether or not JP Morgan actually beat the analysts' estimates.

In fact, CEO Jamie Dimon was the first to say that there were "several significant items" that were unusual during the quarter.

The one item everyone is raising red flags about is the $1.9 billion pretax DVA gain.  DVA is short for debt valuation adjustment.

Bloomberg explains the DVA:

[R]esults may include gains taken under a U.S. accounting rule known as Statement 159, adopted by the Financial Accounting Standards Board in 2007, which allows banks to book profits when the value of their bonds falls from par. The rule expanded the daily marking of banks’ trading assets to their liabilities, under the theory that a profit would be realized if the debt were bought back at a discount.

In other words, when investors and traders bet against a banks' bonds, causing credit default swap spreads to soar, the bank is allowed to book a mark-to-market gain.

Last year, Bloomberg spoke to Oppenheimer analyst Chris Kotowski who called the DVA an "abomination."  He explains, "Just because Morgan’s credit spreads widened out this quarter doesn’t mean that their ultimate interest and principal payments changed one iota."

But Dimon doesn't act like the DVA is anything worth applauding.  "The DVA gain reflects an adjustment for the widening of the Firm’s credit spreads which could reverse in future periods and does not relate to the underlying operations of the company."

Expect more banks to report DVA gains.

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German Finance Minister: We're Giving $283 Billion To The EFSF And "That's It. Finished."

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German Finance Minister Wolfgang Schaeuble ruled out a larger German contribution to the European Financial Stability Facility in an interview published Saturday, according to Sky News.

"The European Financial Stability Facility has a ceiling of 440 billion euros, 211 billion of which is down to Germany. And that is it. Finished,'" he told magazine Super-Illu.

This is the latest in a string of comments from Schaeuble that have wrecked hopes for an EFSF capable of recapitalizing European banks or taking on larger debts from peripheral Europe.

Dow Jones also reports that Schaeuble ruled out leveraging the EFSF in a meeting with the Free Democrats (FDP) on Tuesday.

Despite Schaeuble's criticism of expanding the fund, his tune could change after a meeting October 9 between German Chancellor Angela Merkel and French President Nicolas Sarkozy. Reports say the meeting will be focused on speeding the economic integration of Europe, a proposal German voters are likely to reject.

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How To Get Permission To Put $2 Billion Of Your Employer's Money At Risk (UBS)

To better understand why, you must understand value-at-risk, or VaR.

VaR is one of the most common ways to measure how much money a bank has at risk.  In a nutshell, VaR is the maximum amount of money one could lose over a certain period of time given a certain level of confidence.

For example, if you had a one day VaR of $100 at a 95% level of confidence, then there is a 95% chance you won't lose more than $100 in one day.

However, this doesn't mean that the worst-case-scenario loss in a given day is capped at $100.  In fact, thanks to the existence of derivatives and the ability to short, the maximum loss for a trading department can be unknown. Such weaknesses have drawn criticism from the likes of hedge fund manager David Einhorn and The Black Swan author Nassim Taleb, who calls VaR a "fraud."

So, now we have framework in which to think about UBS' $2 billion loss.

DealBreaker's Matt Levine did some digging and found that the UBS investment bank's maximum one day VaR at a 95% confidence level was 98 million Swiss francs, or around $113 million, at the end of the second quarter.

After crunching the numbers, Levine concluded that losing $2 billion would've been a 29 standard deviation event, effectively a statistical impossibility.

So, here's one way the whole UBS' trade might've gone down: Kweku Adoboli comes into work one day and goes to his manager with a trade idea.  He presents a couple of negative scenarios including one absolutely insane scenario just for kicks.  "Boss, there's a chance I might lose $2 billion dollars on this trade.  But that would be a 29 standard deviation event, which means I'm more likely to get struck by lightning while riding on the back of a flying pig!"  Both laugh and Adoboli gets the go-ahead.

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China Just Gave A $1 Billion Loan To A Troubled European Country

Belarus.

Rather than bailing out Italy as markets hoped last week, China gave a $1 billion loan to Belarus, along with grants and building contracts, according to the AFP:

A statement said Wu Bangguo also announced agreements to build a communications satellite, a paper factory and a hotel in Minsk in a meeting with leading members of the Belarus parliament.

"The Chinese government has taken the decision to accord Belarus a preferential loan of one billion dollars for the realisation of joint projects, as well as a grant of 70 million yuans," the statement quoted Wu as saying.

He also said China gave Alexander Lukashenko's iron-fisted regime full backing for its stance on domestic and international questions and its resistance to foreign meddling.

Giving money to this hyperinflation-suffering Eastern European dictatorship will have little impact on markets. The IMF has refused to offer money to Belarus until the country agrees to reforms. Instead China buys favors and contracts in a poor country, as they have done in developing nations around the world.

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Airlines Squeezed Out A Record $1.83 Billion In Fees Last Quarter

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Check your wallet: The U.S. Department of Transportation reports it only took three months for airlines to rack up $1.38 billion in fees.

The fees fall into two catagories: checked baggage fees and reservation change fees.

BTS reports U.S. carriers collected $783,696,000 million worth of baggage fees this quarter, compared to $104,681,000 during the same time in 2007.

Topping this year's list was American Airlines, which earned $197,971,000 in baggage fees alone.

Reservation change fees cost travelers almost $600 million dollars this quarter, nearly $400 more than they paid in 2007. As a result of such fees, airlines are on pace to generate $5.5 billion this year, not including holiday travel spikes–a 300% increase from 2007.

Thankfully, the government is pissed about this practice too, and in July the Department of Transportation drafted a proposal requiring airlines to disclose more information on what fees are being collected and how they're going about it.

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ESPN To Pay $1.8 BILLION Per Season For Monday Night Football

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SPORTS CHART OF THE DAY: The Average NFL Franchise Is Worth More Than $1 Billion

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Forbes.com has released their annual NFL franchise valuations. And for the first time, the average NFL franchise tops $1.0 billion in value.

The Dallas Cowboys top the list at $1.85 billion, followed by the Washington Redskins at $1.56 billion. In all, 15 of the NFL's 32 teams are valued at more than $1.0 billion.

For comparison, in the other three major North American sports leagues (MLB, NBA, NHL) combined, the New York Yankees ($1.7 billion) are the only team valued at more than $1.0 billion.

Also consider that the NFL's least valuable franchise, the Jacksonville Jaguars ($725 million) are still worth more than every NBA and NHL franchise, and all but five MLB teams.

The average value of NFL franchise is nearly twice the average value of an MLB franchise (below). And the total value of all 32 football teams ($33.1 billion) is nearly as much as the total value of the 90 teams in the NBA, NHL, and MLB ($33.6 billion).

Here are the average franchise values in each sport (data via Forbes.com)...

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FHFA Sues 17 U.S. And Euro Banks For Over $100 Billion In Losses (BCS, BAC, GS, JPM, UBS, CS, C, DB, JPM, HSBC)

The Federal Housing Finance Administration has just announced mortgage-related lawsuits against 17 U.S. and Euro banks.

Bank of America has been sued over $30.85 billion in losses on securities.

Goldman Sachs has been sued over losses on $11.1 billion in securities.

Barclays has been sued for $4.9 billion in losses on securities.

UBS has been sued for over $900 million in losses on securities.

Nomura for over $2 billion in losses on securities.

Credit Suisse has now been sued, too. 

Citigroup has been sued over losses totaling $3.5 billion in losses on securities.

Deutsche Bank has been sued for $14.2 billion in losses on securities.

JPMorgan has been sued for losses on $33 billion worth of securities. First Horizon, General Electric, and Ally Financial have been sued too.

HSBC has been sued over losses on $6.2 billion worth of securities. 

Morgan Stanley has been sued over losses on $10.58 billion in Certificates issued in connection with 33 securitizations underwritten by the firm or its entities.

The lawsuits seek to recoup losses on a total of over $100 billion in securities. They are available for download on the FHFA's website.

Goldman Sachs, Deutsche Bank, Morgan Stanley, and (now BofA subsidiary) Merrill Lynch have also been sued for fraud for making "false and/or misleading statements" about the securities and the underlying loans. The FHFA has asked for unspecified punitive damages against the companies.

Noteworthy: It sounds like the House Financial Services Committee was kept in the dark on this, signifying that the FHFA is acting as an independent agency on this one. Also, lots of people are named as individuals in the lawsuits. The White House did not comment on the lawsuits Friday afternoon.

The lawsuits, and the others that will follow it, were anticipated as early as at least late yesterday when the NYTimes reported that banks would be sued for their roles in the mortgage crisis.

The lawsuits seek damages in the BILLIONS — with specific dollar amounts to be determined if FHFA victorious at trial.

The news sent U.S. financials down big time Friday morning, and is particularly bad for Bank of America, as they are already on shaky ground.

Here's the press release from the FHFA:

These complaints were filed in federal or state court in New York or the federal court in Connecticut. The complaints seek damages and civil penalties under the Securities Act of 1933, similar in content to the complaint FHFA filed against UBS Americas, Inc. on July 27, 2011. In addition, each complaint seeks compensatory damages for negligent misrepresentation. Certain complaints also allege state securities law violations or common law fraud.

As conservator of Fannie Mae and Freddie Mac, FHFA is charged with preserving and conserving these companies’ assets and does so on behalf of taxpayers. The complaints filed today reflect FHFA’s conclusion that some portion of the losses that Fannie Mae and Freddie Mac incurred on private-label mortgage-backed securities (PLS) are attributable to misrepresentations and other improper actions by the firms and individuals named in these filings. Based on our review, FHFA alleges that the loans had different and more risky characteristics than the descriptions contained in the marketing and sales materials provided to the Enterprises for those securities.

FHFA filed the complaints under the broad authority granted to it by the Housing and Economic Recovery Act of 2008. The U.S. legal system provides for addressing such alleged misrepresentations through the nation’s securities laws and traditional common law. FHFA is following those legal remedies in filing these complaints and seeks to recover on losses to the Enterprises that are the legal responsibilities of others.

Discussions regarding these matters have taken place with several of the firms receiving complaints and, where constructive, they will continue.

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Talks Over $8 Billion In Bailout Funds Stalled After Greeks Miss Reform Goals

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Greek finance minister Evangelos Venizelos

Image: AP

Discussions between Greece and officials from the "troika" of the European Union, European Central Bank, and International Monetary Fund will pause for 10 days so that Greece can perform a technical study of its economic data.

This pause follows revelations yesterday that Greece will miss its deficit-cutting and privatization goals.

In a press conference this morning, Greek Finance Minister Evangelos Venizelos told reporters, "Yesterday night it was decided to conclude the first cycle of talks and a second cycle will begin in about 10 days on September 14," per a Reuters report.

He also confirmed that expectations of Greece's contraction had come in worse than expected at a number "very close" to 5%.

According to the AP, he insisted that this break had been "planned," and that austerity measures beyond those already approved by the Parliament would not be adopted.

Nonetheless, controversy will pervade this development, particularly on the heels of yesterday's announcement. Fail ling to meet announced goals could jeopardize $11 billion in bailout funds from the troika.

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European Soccer Teams Spent $2 BILLION On Players Alone This Summer

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Deliotte estimates that first-division clubs in England, Spain, and Italy spent nearly $2 billion on player transfers this summer.

England led the way, with the 20 EPL teams spending $790 million combined — a 33-percent increase from last year.

Five clubs — Manchester City, Manchester United, Chelsea, Liverpool, and Arsenal — accounted for two-thirds of the league's total bill.

The transfer window closed yesterday at 11 p.m., meaning no more players can be bought or sold until January.

Click here for some more wild Premier League facts. >>

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IRENE Damage Estimates Range From $7 Billion To $20 Billion

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Without including money lost to shutdowns, evacuations, and general disorder, hurricane Irene has left an estimated $7 billion to $13 billion in damages over 10 East Coast states.

According to ABC News, the Consumer Federation of America says wind damage may total about $5 billion and flooding $2 billion.

That's the low end. Peter Morici of the University of Maryland says $20 billion in damage and economic losses is possible in the weeks to come.

"The East Coast has a lot in common with New Orleans," Morici told ABC. "There are a lot of low lying areas, the flood levels are almost breaking records."

The damage is still less than it could have been. Tudor's gave a 35 percent chance Saturday that total damages would be at $40 billion.

In fact, Cumberland Advisors Chairman David Kotok says it could be a stimulus (via Politico): “We are now upping our estimate of fourth-quarter GDP in the U.S. economy. Billions will be spent on rebuilding and recovery. That will put some people back to work, at least temporarily.”

The Federal Emergency Management Agency has not yet released any federal damage estimates.

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