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Ka-Ching! On Wall Street


Investment banks are topping themselves again. On Mar. 14, Goldman Sachs (GS) trumpeted a record $2.64 billion in quarterly net earnings on a record $10.34 billion in revenues. The next day, Lehman Brothers (LEH) chimed in with a record $1.1 billion profit on a record $4.5 billion in revenues. The powerful M&A wave has generated big fee bucks, of course. But Goldman's take on equities trading for clients and its own accounts soared 167% from the previous quarter. And Lehman's asset-management revenues jumped 57% compared with the same period last year.

So how long can the banks keep raising the bar? Goldman CEO Henry "Hank" Paulson struck a note of caution in a statement: "While we know that we cannot expect to achieve these results every quarter, we continue to see attractive opportunities." Let's face it: These numbers could get much smaller and still be pretty darn shiny.

See "Goldman's Golden Haul"

H&R Block (HRB) has more to worry about than the tax man. On Mar. 15, New York State Attorney General Eliot Spitzer filed a $250 million suit against the tax preparer, alleging it fraudulently steered clients into its Express IRAs. Spitzer claims these tax-friendly accounts -- with their not-so-friendly fees and low interest rates -- were "virtually guaranteed" to lose money for most clients. The company, which recently said it bungled its taxes and reported that quarterly net earnings fell 69%, plans to "vigorously defend" the Express IRA. Investors whacked the stock by 6%.

See "It's Taxing Times for H&R Block"

At least one media company still sees life in the dead-tree news business. McClatchy (MNI) on Mar. 13 agreed to buy larger rival Knight-Ridder (KRI) for $6.5 billion, including $2 billion in assumed debt, thus creating the second-biggest U.S. newspaper outfit. McClatchy, known for running a tight shop, is betting that circulation and sales at its acquired papers will do something rare these days: grow faster than the national average. It plans to keep just 20 Knight-Ridder papers and sell 12 others, sending shudders through newsrooms from the Philadelphia Inquirer to the San Jose Mercury News.

Although the Dubai ports deal sank on Mar. 9, political jetsam still poses a hazard for President George W. Bush's ship of state. DP World, the company owned by key Mideast ally the United Arab Emirates, took to the lifeboats at the Administration's request, announcing that it would abandon its plan to take over operations at six U.S. ports. On Mar. 15, DP World said it would sell all its U.S. operations to an American company within six months. But members of Congress from both parties, loath to let a good political issue go, vow to pass legislation to ensure the deal doesn't ever float again.

The Asians keep grabbing more space in the U.S. auto garage. On Mar. 13, Korean carmaker Kia, owned by Hyundai, said it will construct a $1.2 billion plant in Georgia, probably to assemble SUVs, creating 2,500 jobs. On the same day, Toyota (TM) confirmed plans to build its Camry sedan at a Subaru plant in Indiana. Presto: 1,000 jobs. Meanwhile, Ford (F) and GM (GM) aim to slash 55,000 factory jobs combined. Forecaster CSM Worldwide says foreign-owned plants in the U.S. will turn out almost 6 million cars and trucks by 2009, a 20% boost over this year's expected 5 million.

Just a few weeks ago, GM Chairman Richard Wagoner Jr. was talking as if he might not find a buyer for 51% of the GMAC lending business. Now he may have the makings of an auction. Investment firm Cerberus Capital Management has been kicking the tires, and on Mar. 15 The Wall Street Journal said Kohlberg Kravis Roberts is leading another bid. One GM insider says management is confident it will soon get a deal. If so, GM stands to bring in upwards of $13 billion, which it can use to fix its cracked cylinders and those of its old parts unit, Delphi.

See "GM's Dwindling Options"

NASDAQ fired the first shot on Mar. 10, but the London Stock Exchange pooh-poohed the $4.2 billion offer, and now the NYSE is expected to jump in. The U.S. exchanges are hot to bag London because it's the bourse of choice for many foreign companies leery of listing in tightly regulated America.

The worst-kept secret in the video game galaxy is out: Sony (SNE) confirmed on Mar. 15 that the PlayStation 3 won't hit stores until November, instead of spring. The new system, critical to Sony's attempt to win the battle for the living room, will do just about everything but tie your shoes, and game czar Ken Kutaragi concedes that packing tons of new technology into one box has proven daunting -- and costly. Delaying the launch to prevent glitches may be smart, but it means that Microsoft's Xbox 360 will have almost a year's lead, and Nintendo's Revolution could blast off earlier than PS3, too.

See "Sony's Delay of Game"

When all else fails, try waving the flag. So figures German drug and chemical conglomerate Merck (MRK), which is promoting its unsolicited $17.7 billion offer for rival Schering (SHR) as a way to put the country's has-been pharma industry back in the global big leagues. The deal would transform two midsize players into a national champ with sales of $13.4 billion. For now, Schering is playing hard to get: It spurned the offer on Mar. 14 and is looking for a white knight or a defensive deal of its own.

More bloopers at Fannie Mae (FNM)? While investors don't seem to care, pols see a chance to pounce. On Mar. 13 the housing finance giant said it had uncovered new bad numbers. It can't say how much the latest finds will add to the $11 billion in losses it has already disclosed. Fannie's stock barely budged. But the Bush Administration and other critics turned up the volume on demands to cap the investments held by Fannie and its rival, Freddie Mac (FRE), and GOP senators want to sharpen scrutiny of the companies' charitable and lobbying practices.

Selling out has its privileges. Take the top three executives at North Fork Bancorp (NFB), who stand to receive at least $288 million in payouts following the $14.6 billion takeover bid by Capital One (COF) on Mar. 13. True, CEO John Kanas is no Johnny-come-lately banking on a big score. He joined North Fork in 1971 and became CEO in 1977. His bank, which operates in the coveted and lucrative New York metro area, has done well over the years by snatching business from the even bigger banks around it that alienated customers with their serial mergers. Now, Capital One, which until its recent purchase of Hibernia (COF) operated strictly in the credit-card realm, is elbowing into the fray: At $31.19 a share, it's paying a 23% premium to gain a bigger foothold in retail banking. The deal will create a contender with deposits of more than $84 billion, ranking it among the nation's top 10. The integration will surely lead to cost-cutting. One possible target? Compensation.


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