Search results matching tag 'AIG'

AIG kitchen worker gets $7,700 bonus

Douglas McIntyre — Wed, 14 Oct 2009 10:53:00 GMT

American International Group (AIG) is a meritocracy. One of the firm’s best kitchen workers got a $7,700 retention bonus as part of the firm’s plan to keep key employees. According to the FT, the payment was made in March.

Kenneth Feinberg, the government’s pay czar, is asking that AIG retention bonuses be cut by $198 million for 2010 and that the company “claw back” $45 million from last year.

The trouble with the plan is that some of the retention programs were probably part of written agreements with employees, and the federal government may not want to be seen as violating contracts. It would raise the issue of whether employment agreements at firms which have still not repaid government loans are any good at all.

The pay czar may find pressure from AIG workers and the legal community to honor past commitments. Some of the pay agreements may even go into court. If the pay czar loses in a dispute in district court, if could severely undermine his future ability to regulate Wall Street pay.

As for the kitchen worker, Feinberg will probably not get that bonus back. It was probably already spent on a new car, a vacation condo, or a child’s college education.

Top Stocks blogger Douglas A. McIntyre is an editor at 24/7 Wall St.

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In Goldman vs. rest of the world, Goldman’s winning

Minyanville — Tue, 06 Oct 2009 17:48:00 GMT

This article is written by Minyanville's Megan Barnett

This week has seen yet another round in the battle between Goldman Sachs (GS) and the Rest of the World. See also, Goldman Sachs Lightning Bolt Sparks Rally. On Monday, Goldman Sachs analysts Richard Ramsden and Brian Foran upgraded their outlook for big banks from neutral to attractive. The news sent shares of JPMorgan (JPM), Bank of America (BAC), and Wells Fargo (WFC) sharply higher. And yes, even Goldman Sachs shareholders benefited from the news, as its shares jumped nearly 4%.

The upgrade baffled many banking analysts and it came against a backdrop of negative opinions. And these aren't just slightly bearish views -- they're downright scary outlooks that suggest some of the worst still lies ahead for banks and the rest of the economy. Here's a sampling:

Meredith Whitney, the analyst who made her name as a banking bear at the start of the credit crisis, penned an op-ed for the Wall Street Journal last week in which she predicted that small businesses will become the next victims of the crisis since their access to credit is being denied by banks and other lenders. She believes “we are only in the early stages of the second half of this credit cycle."

George Soros reiterated his gloom for a roomful of global financial policy wonks in Istanbul yesterday, saying that the US economic recovery will be extremely slow thanks to the “basically bankrupt” banking system at its core.

Nouriel Roubini, perhaps the greatest lover of gloom, agreed with Soros, predicting that the S&P 500 will fall below its March 9 low. “For the sake of achieving growth stability again and avoiding deflation, we may be planting the seeds of the next cycle of financial instability,” he said.

Chris Whalen, managing director at Institutional Risk Analytics, said yesterday he believes the fourth quarter will “be a bloodbath” for the banking sector. The reasons? Banks' assets continue to shrink, more write-downs are coming, and access to government money is going to shock the system.

Joseph Stiglitz said that the stock-market rally is little more than irrational exuberance and that the economy can’t grow fast enough to slow unemployment, which he said “will continue to get worse.”

Many of these comments came as the World Bank and the International Monetary Fund prepare to meet in Istanbul, but it was once again Goldman Sachs that came down on the opposite side. From Bloomberg:

“In a separate Bloomberg Television interview yesterday, Goldman Sachs Group Inc. Chief Economist Jim O’Neill said the International Monetary Fund meetings in Istanbul are 'stuck' in an outdated mentality that doesn’t reflect the rising power of emerging economies following the global financial crisis. O’Neill also said the dollar probably isn’t the No. 1 concern for US policy makers, and predicted 4.1% growth for the global economy next year. Many countries will be 'surprising' in their economic growth in 2010, he said, while adding that there is potential for more 'positive surprises' that could help fuel global expansion.”

Perhaps not surprisingly, the stock market continues to favor Goldman’s unfettered optimism. The views from the banking analysts and its chief economists are opinions, of course, but they're opinions from the bank that perhaps suffered the least during the credit crisis. It’s the bank that continues to come out on top, whether its in American International Group’s (AIG) survival or in CIT Group's (CIT) bankruptcy. If it has reason to be hopeful, that's all that plenty of investors need to hear.

But the reality will likely be somewhere in between the doomsayers and the wearers of rose-colored glasses. As Todd Harrison pointed out last week (Will “Write-Ups” Bolster the Financials?), the banking sector could get a boost from write-ups as certain credit markets have thawed, but that may only mask the deeper problems that remain. See also, Why Earnings Look Opaque Beyond Third Quarter.

The ugly numbers that lie ahead for the banking sector -- and there will certainly be some -- are still an unknown, and investors are choosing instead to focus on the positive ones that are known today: An IPO market showing signs of life, the return of merger Mondays, the raising of funds to pay back governments both here and abroad. Even investment bankers themselves are bullish on their own financial outlook: One-third of Wall Street workers expect their bonuses to be higher in 2009, according to a recent poll.

But the good signs won't likely be enough to fuel a recovery. Hope for the best, prepare for the worst. At least we’ve all learned the first part of that lesson.

No positions in stocks mentioned.

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Will Congress be to blame for runaway inflation?

Minyanville — Thu, 17 Sep 2009 15:57:00 GMT

This article is written by Minyanville's Andrew Jeffery

Federal Reserve Chairman Ben Bernanke may have kept his job for another four years, but that doesn’t mean it’s going to be any easier than the last four.

With pundits, politicians, and regulators sounding the trumpets that our latest bout with recession is likely behind us, central banks and Treasury Departments around the world are looking forward at the daunting task of removing the various forms of stimulus -- which, in the estimation of former Merrill Lynch economist David Rosenberg, have contributed 100% of global economic growth this year. See "Staying Neutral on Inflation vs. Deflation."

European Central Bank Chief Jean-Claude Trichet even took out space in the Financial Times to lay out his vision for the eventual withdrawal of “enhanced credit support,” which helped prop up local, and indeed global, financial markets.

Here at home, Bernanke’s much maligned predecessor, Alan Greenspan, is voicing concern that Congress could complicate the Fed’s already delicate task of keeping the economy grinding ahead without waking the sleeping giant of inflation.

According to Bloomberg, in a radio broadcast to clients in Tokyo, Greenspan said he doubts US politicians have the will to withdraw stimulus if unemployment remains stubbornly high.

And since Bernanke tossed the Fed’s “independence” to the wind when he embroiled the Fed in the highly political bailouts of financial giants AIG (AIG), Citigroup (C), Fannie Mae (FNM), Freddie Mac (FRE), Goldman Sachs (GS) and, well, the entire American banking system, his ability to ignore rambling lectures and intense pressure from the economic simpletons on Capitol Hill will be minimal, at best.

If prices begin to tick up -- which they are yet to do thanks to the fundamental deflationary forces still hard at work -- Bernanke’s narrow tightrope will shrink further still.

In order to keep inflation at bay, Bernanke’s primary tool is raising interest rates, which thwarts economic growth by making borrowing more expensive for firms and individuals alike. But should he leave the floodgates of cheap money open too long, he risks igniting what many experts believe will eventually become runaway inflation.

For now, Bernanke has a bit of time on his side. The deflationary debt unwind is still going strong, as consumers and businesses get used to life after easy credit -- where cheap debt is no longer the engine of economic growth. This holiday from getting rid of the economy's training wheels, however, can't last forever.

If what has thus far been a recovery almost exclusively from massive government intervention into markets can transition into something more sustainable, Bernanke will be forced to man up and fight for the virtues of price stability. This will come at a heavy political cost.

But after all, isn't that what the central bank was created for in the first place?

For an opposing view, see "Why We're Facing Deflation."

No positions in stocks mentioned.

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Bank stocks lose leadership role

Anthony Mirhaydari — Tue, 01 Sep 2009 20:25:00 GMT

In a dramatic shift, investors are shying away from the riskiest assets and the most speculative stocks. The huge rise in the likes of AIG (AIG) and Citigroup (C) had the trappings of a short-covering bull rally on its last legs. Now, the financial sector appears to losing the market leadership role that powered the broad market higher.

After regrouping and counting casualties, the bears are on the counterattack. AIG is down 24.3% over the last two days while Citigroup has lost 10.1%. Government controlled mortgage lenders Fannie Mae and Freddie Mac are down 19.1% and 17.9% respectively.

The catalyst appears to be a downgrade of AIG by a Sanford C. Bernstein analyst and downgrades of Fannie and Freddie by FBR Capital Markets analysts. But the signs of an impending turnaround have been building for weeks.

Just look at the way the Financial Select Sector SPDR (XLF), which represents bank stocks in the S&P 500, has been losing momentum over the last few weeks. The fund fell through both the two-month trend line that has supported its massive 37.6% rise out of July as well as the trading range established after the big rally on August 21. The fact that it cut through both support lines so effortlessly suggests additional weakness is likely.

As for the analyst downgrades, AIG was estimated to have a negative book value of $6.4 billion if the government's support and other goodwill were discounted. Paul Miller at FBR Capital Markets said "there is no fundamental value remaining" in Fannie and Freddie.

Moving forward, given the intensity of Tuesday's decline, I would expect a few days of consolidation at these levels before another wave of selling hits the sector. If you can handle the risk involved, the high-leverage Direxion Daily Financial Bear 3x Shares (FAZ) would be an attractive play on a move over the $29.50 level. I'll add it to my portfolio at Wall Street Survivor if this happens.

I'm also looking at potential short candidates including Bank of America (BAC) and Wells Fargo (WFC). Be sure to check back for portfolio updates.

My positions

Following up on Monday's commodities post, I added a long position in the ProShares UltraShort Basic Materials ETF (SMN) as well as short positions in Century Aluminum (CENX) and Teck Resources (TCK) today. Teck looks particularly weak as it fell through both its lower Bollinger band and its August trading range.

Disclosure: The author does not own or control a position in any of the funds or companies mentioned.

Anthony Mirhaydari is a researcher for the Strategic Advantage investment newsletter. He can be contacted at anthony.mirhaydari@live.com. Feel free to comment below.

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The new hot stock? AIG

Kim Peterson — Fri, 28 Aug 2009 18:03:00 GMT

Check out American International Group's (AIG) one-month chart (pictured). It's red hot right now, and no one knows why.

"Who would want to buy a stock that's still 80% owned by the government?" an equity analyst asked The New York Times. Good question.

The stock price is up to $50. Just one month ago, it was under $15. Here are a few events that have happened at AIG lately, although none would seem to justify the spike in price:

There's a new chief executive, Robert Benmosche, who hails from Metlife.

Benmosche has said AIG will repay the government for its numerous massive bailouts.

AIG reported a profit last quarter.

OK big deal. Yes, it's all good news, but not that good. The Times lists some less obvious possibilities fueling the price gain:

A major deal might be in the works.

Short sellers getting squeezed out of positions.

Speculators trying to profit, thinking AIG might bring big returns.

The stock has a limited number of owners after its 20-for-1 reverse split in June, so it doesn't take much to swing a big price change.

“The risk appetite has returned to the marketplace,” the equity analyst said. “People don’t want to get 5% back. They want to get the money back that they lost over the last year.”

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Stocks form dreaded 'Gravestone Doji'

Anthony Mirhaydari — Fri, 28 Aug 2009 08:12:00 GMT

Over the last few days stocks have been careening wildly, either tumbling towards oblivion or feigning a move higher. But in the end, the major indices settle gently near the unchanged line by the closing bell.

Take Thursday's session: The S&P 500 fell hard at the open, dropping as much as 1.2% before rebounding for a 0.3% gain. Or look at Tuesday: A gain of 1.2% brought the index to a new high for the year, but this was quickly reduced to a gain of just two-tenths of a percent.

Bing: More on 'Gravestone Doji'

Traders have clearly reached a point of indecision after the huge rise out of the March low: The S&P 500 is up 52% while the Russell 2000 is up a whopping 70%. Chart watchers have a name for the formation stocks are drawing out: It's called the "Gravestone Doji" pattern. And as you'd expect from its grim sounding name, this behavior normally precedes a market decline.

Using Japanese candlestick charting, the Doji represents a trading day in which the opening and closing prices were close together -- despite large intra-day variation. The Gravestone variation is marked by an upward spike. Translation: A sharp increase in prices was met by profit takers and short sellers instead of new buyers looking to ride the rise. We've seen a series of these this week in chain of Dojis that looks eerily similar to the setup before June's plunge.

The best way to think about this, especially if you're prone to conspiracy theories, is to imagine that somebody is propping up the indices while big money positions are reserved ahead of the inevitable fall. Who would do this? And how would they accomplish it? Your guess is as good as mine. One possibility is through the credit derivatives market, which is unregulated. By buying up credit protection, our perpetrators would make the equity market believe creditworthiness has improved. This could explain the crazy action in stocks like American International Group (AIG) and Citigroup (C).

Theories aside, what's clear is that cash is being taken off the table. According to the market internals experts at Lowry's, their proprietary measure of short-term buying power has dropped 5% this week. Another 3% drop will trigger their trader's sell signal -- a closely watched metric followed by institutional trading desks all over Wall Street. Get ready, because things are about to get interesting.

Disclosure: The author does not own or control a position in any of the funds or companies mentioned.

Anthony Mirhaydari is a researcher for the Strategic Advantage investment newsletter. He can be contacted at anthony.mirhaydari@live.com. Feel free to comment below.

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Uncle Sam, real estate investor

Minyanville — Thu, 27 Aug 2009 14:20:00 GMT

This article is written by Minyanville's Andrew Jeffery

After four years of searing pain, the U.S. housing market is finally showing signs of life. And even as the causes and relative sustainability of this nascent “recovery” are being hotly debated, traditional buyers and investors alike are jumping into the market for homes with both feet.

It now appears that the biggest, baddest investor of them all, the one with infinitely deep pockets, is wading into the fray: Uncle Sam.

According to HousingWire, the U.S. Department of Housing and Urban Development, or HUD, is giving state and local governments a total of $50 million to help deal with the onslaught of foreclosed homes, many of which lie vacant and blighted, ripe for vandalism, squatting, or worse. HUD has allocated chunks of cash to national development groups and local community organizations hoping to plug holes left by the private real estate investment market.

Bing: US Housing Market

Funds are being distributed through the Neighborhood Stabilization Program, which was established by former President George Bush in Economic Stimulus part one and expanded by President Barack Obama earlier this year.

This investment directly into the real estate market highlights a new strategy in Washington’s fight against foreclosures, and one which is likely to grow in the coming years. That the federal government will increasingly be forced to take ownership -- directly or indirectly through local organizations -- is the subject of a recent piece I wrote on land banking for HousingWire, a mortgage and housing trade publication.

Land banks are publicly funded entities charged with taking ownership, rehabilitating, and putting back into use vacant or otherwise unwanted properties. The most well-known land bank in the country is run by Genesee County in Michigan, which is home to the woebegotten town of Flint.

Flint’s land banking initiatives began decades ago, as foreclosures and blight are not some new, post-housing bubble phenomenon. The program has gone a long way in providing Flint the chance at a future many of its Rust Belt neighbors can only dream of.

While as a loyal capitalist I loathe government meddling into the affairs of the private markets, to cry foul at bureaucrats for meddling in the housing market would redefine the old cliché of closing the barn door after the horses have left. If taxpayer money is going to be heaped at our country’s ongoing housing nightmare, far better for it to go to community redevelopment than to the reckless inflation of the balance sheets, earnings, and salaries of the likes of JP Morgan Chase (JPM), Wells Fargo (WFC), Bank of America (BAC) and Citigroup (C).

Initiatives like the recent allocation of money from HUD down to the local level do not represent some silver bullet to fix our housing woes, but seek to address some of the harsh realities of what, for most, is a foreclosure epidemic that plays itself out on CNBC and flashy websites like RealtyTrac or Foreclosure Radar: It just doesn't seem real.

But drive through Oakland, California, Cape Coral, Florida, or Detroit and foreclosures aren’t just another statistic that evidences our dire economic situation. Foreclosures destroy neighborhoods, rip apart families, and set back years of what were otherwise positive improvements in some of the country’s most impoverished communities.

Real estate investors are reticent to put money to work in many of these areas because the risks simply don’t justify the rewards. Banks ignore many of these homes, abandoning the fight against looters and squatters, leaving the problems up to local police who are then dragged away from their regular beats. This isn't a situation that benefits anyone.

It is, however, one of the uses for taxpayer money that can be reasonably justified. The list of government programs about which that cannot be said is far, far too long to list -- and growing.

$50 million doesn’t even approach a drop in the bucket compared to what has already been spent bailing out AIG (AIG), Fannie Mae (FNM), Freddie Mac (FRE), General Motors (GM), Chrysler, Bank of America, Citigroup, and countless other, smaller firms that only now exist because taxpayers ponied up our hard-earned cash, whether we wanted to or not.

This $50 million is only the beginning. Lurking beneath the headlines of what many believe to be a respite from the Great Recession are neighborhoods with no hope of a recovery. The land banks, indeed, cometh.

For more on bailout content, see, "Banks & Bailouts."

No positions in stocks mentioned

Image credit: respres, Creative Commons Attribution 2.0 license

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Douglas McIntyre — Mon, 24 Aug 2009 11:02:00 GMT

Steve Jobs worked at Apple (AAPL) for $1 a year in 2000, just before the launch of the iPod, which completely changed the company’s fortunes and made him astonishingly wealthy. Lee Iaccoca worked for $1 in 1978 when he took charge of crippled Chrysler.

The dollar-a-year tradition has fallen on hard times. The most recent apostle of the practice was Edward Liddy who took the chief executive’s job at American International Group (AIG) when it was deeply troubled. He had been the head of Allstate (ALL), so he probably did not need to make several million dollars.

Liddy took the job as a public service, an action which seems to be both anachronistic and idealistic. Liddy worked hard to restructure the insurance company, but was derided mercilessly by Congress because AIG executives received large pay packages on his watch. The irony of this issue was that Liddy had nothing to do with the compensation agreements.

Liddy was replaced by Robert Benmosche, the former chief executive of MetLife (MET). Benmosche presumably is wealthy enough to work for nothing, but insisted on being paid $7 million. The taxpayers who own 85% of AIG are appropriately enraged that AIG let Liddy leave.

Much to the surprise of a number of compensation experts and probably the company’s shareholders, Larry Ellison, the founder and head of Oracle (ORCL), has decided to work for $1 in base salary in 2010. It would be easy to take a cynic’s view of the decision. Forbes says Ellison is one of the ten richest people in America.

Ellison owns 23.4% of Oracle’s stock, so he has every reason to make certain the company does well. But other corporate founders, including Howard Schultz of Starbucks (SBUX), have seven figure base salaries even though their shareholders have not done well since the market sell-off began in the fall of 2007. Ellison’s decision is all the more remarkable because Oracle’s stock has outperformed the market by a very wide margin over the last two years.

Ellison understands shareholder sentiment and is willing to have his compensation tied to corporate performance, something that most chief executives are not willing to do. Shareholders in large American companies were comfortable when management received big compensation packages during the 2002 to 2007 bull market.

The idea of most CEOs making millions, if not tens of millions of dollars, after that run-up turned into a sharp slide was obscene, the same shareholders reasoned. Goldman Sachs (GS) has received the most criticism because it appears that it will pay out record bonuses for its current fiscal year. The investment bank took government TARP funds. Goldman’s management, of course, argues that it paid that money back. Its shares have not recovered entirely, however. Late in 2007, they traded at just below $250. The stock now sits at $163, so the share price will have to rise a long way to support the case that Goldman Sachs has taken proper care of shareholder interests.

Goldman’s situation is a case in point, but it is beside the point. Boards and managements may choose to ignore the chance that the federal government will work to restrict pay packages, but it is foolhardy to ignore public sentiment. By some measures, 10% of Americans are out of work. Some of those people worked for AIG, Starbucks, and Goldman Sachs. Firing people while drawing a multi-million dollar pay check is not an endearing act.

Many major companies have arranged for management to be paid large performance bonuses and to get valuable stock option and restricted stock grants. That should be enough incentive to do a good job, that plus pride in having done something beneficial to shareholders. But, those things don’t seem to matter much at most firms.

It is easy to pick though proxies to find executives who are overpaid. Jeff Immelt, CEO of General Electric (GE) gets a base salary of $3 million. The company’s share price is down about 65% from its peak less than two years ago. Immelt is easy to attack because of his high visibility, but he is still a good example of an overpaid CEO who has not voluntarily and symbolically taken a pay cut.

The general population of public company shareholders cannot fathom why someone like Immelt makes $3 million. They don’t understand why the government would let Benmosche at AIG make $7 million after all the taxpayer money poured into the company. Theses compensation numbers are inappropriate, not because the people who run these companies are inexperienced or greedy. They are inappropriate simply because the firms are doing poorly.

Larry Ellison is working for $1 a year. His board would have given him more. He has done a good job for his shareholders. But, at some point recently, it must have occurred to him that the people who work at Oracle have made sacrifices and some have even lost their jobs. Oracle’s stock is at a 52-week high, which very few companies can claim, but the firm is still suffering the effect of the recession.

It’s too bad that a number of CEOs won’t follow the Oracle chief’s move. But, it is almost certain that not a single public company chief will read about Ellison’s action in the paper this week and follow suit.

Top Stocks blogger Douglas A. McIntyre is an editor at 24/7 Wall St.

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New AIG chief pay $6,999,999 too high

Douglas McIntyre — Tue, 18 Aug 2009 10:48:00 GMT

American International Group (AIG) has already taken $180 billion of taxpayer money and there is absolutely no reason to believe that most of it will be returned. The insurance company is still losing money, and its efforts to sell off units to raise capital have been pathetic.

Ed Liddy, former chief executive of Allstate (ALL), was AIG’s chief for the last year. He was brought in by the government to help work out the mess. He was repaid by regular beatings from Congress over AIG management compensation set before he arrived. He worked for $1 a year.

AIG’s new CEO will not be so generous. After making tens of millions of dollars at MetLife (MET), where he was chief executive, he will now make at least $7 million over the next year running the ruined financial firm. Robert Benmosche clearly does not have a community-minded bone in his body.

It is stunning that the government, which owns 85% of AIG, and its board would give the new chief such a rich package. The Administration and its pay czar are fighting extravagant pay packages on Wall Street. Now they turn around and overpay a man with the job of dismantling a large company.

The government would like to press its image as populist by beating down bankers on the pay issue. It has, in one act, undermined its moral authority on the issue. Surely it could have found one rich former insurance executive to run AIG as a contribution to the turnaround of the financial system.

Top Stocks blogger Douglas A. McIntyre is an editor at 24/7 Wall St.

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AIG refuses to talk

Kim Peterson — Wed, 05 Aug 2009 17:27:00 GMT

American International Group (AIG) is tired of dealing with all those analysts and their pesky questions. So it's not going to give them a chance to ask.

The company will not hold a conference call with analysts this week to present its second-quarter results. That's a pretty bold move, considering there's still a whole lot to be discussed -- like whether this company can ever pay back its $182 billion taxpayer bailout (the answer is no).

It was only two quarters ago that AIG reported the worst quarterly loss in U.S. history -- and even then it held a conference call. So what are we in for on Friday, when the company drops its bomb but skips the earnings presentation and question-and-answer session?

“This is a sensitive firm in a historically significant situation, I think that warrants some discussion,” a Morningstar analyst told Bloomberg. “It’s unfortunate they’re not doing the call like they used to. People are forming some good questions that both investors and the public would like to have answered.”

The call comes in the midst of a leadership change -- chief executive Edward Liddy is stepping down -- but that isn't a reason to can the call completely. Avoiding tough questions is the worst thing AIG can do for its investors at the moment -- and it sends a bad message.

At the time of this writing, Kim Peterson did not own shares of AIG in personal or client portfolios.

Image credit: David Shankbone, Creative Commons attribution 3.0 unported

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AIG: Please, sir, can I have some more?