Search results matching tag 'Bank of America'

Executive perks at bailed-out banks still rising

Kim Peterson — Tue, 20 Oct 2009 14:45:00 GMT

The salary of banking executives is a sore point with, well, everyone, but the perks are just getting better.

Financial firms that received taxpayer bailout money boosted their executive perks about 4% on average last year, the Washington Post reports. Bosses that didn't quite get the bonus or salary they wanted had their ruffled feathers smoothed over with a nice country club membership.

Ken Lewis of Bank of America (BAC) and Jeffrey Peek of CIT Group (CIT), for example, each got an extra $100,000 in personal jet use over the year.

And Comerica (CMA) chief Ralph Babb Jr. got a slick new country club membership that would normally have cost him $200,000.

The chief of GMAC Financial Services got a $2.5 million check to help him pay his personal taxes. That practice is going to stop, however. In June, the Treasury Department banned bailed-out companies from giving their executives tax money.

About half the banks increased their perks to top executives, the Post reports.

American Express (AXP) spent a nice chunk of money on its chief executive's personal life. It paid $415,000 for the chief's personal travel on the company jet, $201,000 for his home security system and $46,000 for security during personal trips.

Does the CEO of American Express really need a bodyguard when he vacations? The company apparently thinks so.

Many of these companies are backing off of the corporate perks now. GMAC doesn't use corporate aircraft at all now, the Post reports. SunTrust Banks (STI) has stopped paying country club memberships, but it has increased salaries to make up the difference.

And Bank of America won't let it's top executives take the company jet for personal travel any more. Guess they'll have to fly commercial when they want to frolic in the south of France. The horror!

Credit losses threaten bank recovery

Anthony Mirhaydari — Sat, 17 Oct 2009 01:28:00 GMT

The Dow Industrials tumbled back under the psychologically important 10,000 threshold on Friday after some surprisingly bad news from the banks jarred the bulls out of their complacency.

Bank of America (BAC) reported a third-quarter loss of $2.2 billion or 26 cents per share, falling below the consensus estimate of a 12 cent loss as its consumer credit portfolio continues to deteriorate. Similar problems plagued Citigroup (C) when it reported a 27 cent per share loss on Thursday. The results would've been even worse if not for some accounting trickery surrounding the amount of money set aside for future loan losses.

Remember that it was news the banks had returned to profitability back in March that got the equity rally going in the first place. Now, after a 53% rise in the Dow and a 146% increase in bank stocks as represented by the Financial SPDR (XLF), one wonders: Will the beleaguered financial system deal yet more damage to the real economy as loan growth is tightened and fresh losses recognized? It's too early to say, but the banks are already balking at plans to increase capital requirements. Moreover, there is evidence that the consumer loan delinquencies that have dampened Q3 results are about to get worse.

According to Credit Suisse analysts, an improvement in consumer credit loss rates is still over a year away given that losses didn't peak in the 1990 credit cycle until well after unemployment reached its zenith. This will come as a surprise to many, given the improvement in early stage delinquencies back in the spring and summer months. Some of this was probably tied to the payment "holidays" and other forbearance policies the banks put in place around this time that have since expired.

Seasonality is another factor, as the spring and summer months tend to have lower rates of delinquency. Unfortunately, we're entering a period of the year -- surrounding the back-to-school and holiday shopping seasons -- in which consumers tend to fall behind on their payments.

Given the data, I have a feeling the news flow out of the financial sector will take a turn for the worse over the next few quarters. No longer can the bulls depend on surprise profits from the banks to jolt the market higher during earnings season. They'll have to find another catalyst.

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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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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Paulson's little white lie

Douglas McIntyre — Mon, 05 Oct 2009 16:02:00 GMT

It seems that Henry Paulson was a bit too optimistic about the prospects of several banks which received TARP funds at the end of last year.

The Treasury Department’s inspector general Neil Barofsky reports that the department “lost credibility” when its top officials claimed that the first capital injections from the $700 billion financial rescue were for healthy banks. At the time, Bank of America (BAC) and Citigroup (C) were actually in a great deal of trouble.

The inspector’s report states “Treasury may have created unrealistic expectations about the institutions’ condition and their ability to increase lending.”

It was, perhaps, only a little white lie. Paulson and Bernanke knew that confidence in the credit markets was worse than fragile as the financial crisis spun nearly out of control. They also knew that the TARP was likely to keep large banks from failing, at least for a few months, while the world credit system had a chance to catch its breath.

Paulson probably believed that misleading the public was the lesser of two evils. He could have disclosed everything he knew about the health of the banking system, particularly information about the most troubled banks, and caused a panic worse than the one which was already in progress -- or he could have kept his mouth closed and hoped for the best from the TARP investments.

Paulson chose to omit all that he knew when talking to the public and the media, a type of moral relativism. It was probably an excellent idea.

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

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TARP recipients abuse borrowers

Jim Van Meerten — Mon, 05 Oct 2009 15:23:00 GMT

Over the weekend, McClatchy Newspapers had two powerful articles entitled "Help with mortgages is difficult to come by" and "Some firms with spotty pasts get tax dollars."

The articles expose how firms like Bank of America (BAC), Citigroup (C) and Morgan Stanley (MS) -- firms who were bailed out from the brink of bankruptcy by TARP with billions of taxpayer dollars -- are now abusing mortgage borrowers who are in trouble. The Treasury is doing little, if anything to monitor the situation.

In one case, Ronnie Fruia was about to lose his home when he, his mother and son were all hospitalized. He was recovering from a stroke and couldn't talk, but CitiFinancial sent someone to his hospital room to sign modification papers that didn't even cut his interest rate. State regulators had to step in to get his rate changed from 11.5% to a reasonable 5%.

In another case, Countrywide, a subsidiary of Bank of America, put a woman in default while she was being treated for breast cancer. Her church had raised money to keep her mortgage out of default but Countrywide refused to take a payment from the church.

Saxon Mortgage Services, a unit of Morgan Stanley, was sued by the attorney general of Missouri when he found that Saxon failed to properly credit loan payments to accounts even after the borrowers had proved that the payments had cleared their bank accounts. They even charged late fees though the mortgages were current.

The Government Accountability Office (GAO) in July found that the Treasury was short-staffed and had hired only half of the employees necessary to monitor the loan modification program.

Taxpayer dollars bailed out the banks from bankruptcy. Now the banks are on track to pay big bonuses while at the same time foreclosing on the very taxpayers who bailed them out. They have only worked with 12% of the mortgage holders that qualify for the Treasury's mortgage modification program.

Isn't it ironic that the bailout money goes to the very firms that invented these adjustable loans that got borrowers into this mess -- and now they turn their backs on borrowers trapped in their predatory lending schemes?

Jim Van Meerten is an investor who shares his opinions on financial matters on Financial Tides, MSN Top Stocks Blogs and Seeking Alpha. Please leave your comments below or email FinancialTides@gmail.com.

Disclosure: I hold no positions in the companies mentioned in this post.

Charlotte, city in panic

Jim Van Meerten — Fri, 02 Oct 2009 14:41:00 GMT

I moved to Charlotte right in the middle of its Golden Age. Hugh McColl and Ed Crutchfield, two local good old boys, had built not one but two international banking empires in the same town and it looked like there was no stopping them from becoming even bigger.

Charlotte was calling itself the second largest financial center in the U.S., second only to New York City. Most of the locals were reaping the benefits of the large dividends from Nations Bank and First Union. If you didn't work for one of the two banks, you owned a good chunk of the stock.

They both endorsed a new, young and charismatic mayor named Pat McCory, and the three together got funding for everything Charlotte needed to be a great city. We were getting mass transit, the downtown was bringing back people after dark to a football stadium, new arena, dining and entertainment venues.

The Arts & Science Council and United Way were receiving full funding from everyone. The local joke was that the official bird of Charlotte was the building crane. They were sighted all over town, in flocks.

I knew I'd made the right decision to move to Charlotte when I couldn't buy a house. Every time we found what we wanted, before we could make a written offer it was sold; often above the asking price. Every February, luxury car dealers and jewelers set up displays in all the downtown atriums hoping to get a large piece of all the bonuses the banks handed out every spring. Most of the bank executives' kids went to one of the four major private schools. Life was good. All that has changed.

The two good old boys retired and left two MBAs in charge. Through acquisitions the names got changed to Bank of America and Wachovia. Things were going fine until they started making some ill-fated acquisitions like Countrywide and Golden West just as the real estate market was about to collapse.

The financial stocks began to plummet so acquisitions with stock dried up. The Feds engineered the acquisitions of Merrill Lynch by B of A and Wachovia by Wells Fargo. These had been rumored in the works for years but when they happened prematurely it came to light that no one had actual merger plans in the drawer and the pipe dreams weren't ready to be implemented.

A financial brain drain started, beginning with Wachovia's Cece Sutton, one of the most influential women in banking jumping to Morgan Stanley. Soon one announcement after the other was made as bankers, commercial lenders, investment bankers and financial analyst jumped ship and left town. As transfers and pink slips flew we discovered there were no succession plans in place at either bank.

Ken Thompson wasn't replaced with an insider and now that Ken Lewis is leaving the BofA board is also looking for an outsider. Charlotte has always had a fear of outsiders. "You aren't a native Charlottean, are you?" was the first question a new neighbor was always asked. The mayor ran an ill-fated campaign for Governor so the last of the Charlotte Trinity is gone. Charlotte is a ship without a captain.

The paper is filled every day with announcements on building loans for both commercial and residential real estate in default. The building cranes are disappearing. Projects are stopped in mid-construction. The lot around the corner from my house was supposed to be a high end luxury townhouse complex but hasn't had a worker on it in over six months.

Pink slips are still handed out, bonuses aren't what they used to be. No luxury auto and jewelry displays this past Spring. All of the finance committees at the private schools are worried about next years enrollment as the students' parents are transferred or pink slipped.

Charlotte has survived a lot. It survived Cornwallis, the Civil War -- locally known as the War of Northern Aggression (the last meeting of the Cabinet of the Confederate States of America was held here). There is a plaque on a downtown sidewalk that says:" Jefferson Davis stood on this spot when he was informed Abraham Lincoln had been shot". The gold mines and the Federal Mint have long closed, the cotton mills are gone and soon everyone fears the banking money mills will move on too.

Is Charlotte the victim of bad decisions or just providence? Providence just happens to be the name of one of Charlotte's oldest communities, founded long before the Revolutionary War. Will tomorrow's headlines be good or bad?

Well that's the news from Lake Woebegon, folks, what's happening in your city?

Jim Van Meerten is an investor and amateur writer on financial subjects on Financial Tides, MSN Top Stocks blog and Seeking Alpha. Please let me SEE your comments below or email them to FinancialTides@gmail.com.

Image credit: Johnnymartyns89, Creative Commons Attribution ShareAlike 3.0 license.

Ken Lewis' $125 million goodbye

Douglas McIntyre — Fri, 02 Oct 2009 10:38:00 GMT

When Ken Lewis finally leaves Bank of America (BAC), he will get a $125 million goodbye from the financial firm, unless the federal government’s pay czar decides to challenge the package.

Most of the Lewis compensation was set long before the big bank got into trouble and had to take $45 billion in TARP funds, so his employment contract may be sacrosanct. If so, he will get one of the largest severance packages in American corporate history.

According to Reuters, Lewis’ severance package "includes $53.2 million in retirement benefits, mostly from a program frozen years ago, and $72.8 million in accumulated stock and other compensation."

The question now is whether the new government pay czar, Kenneth Feinberg, may try to void the arrangement. Probably not. The Administration does not want to be seen as violating contract law. Feinberg has not challenged a $100 million bonus to Citigroup (C) commodities trader Andrew Hall, probably because the compensation was part of a written deal with the bank.

Feinberg’s problem with Lewis may end up being very simple. Once the government abrogates one contract, how many more can it cancel? That raises the question of whether any compensation agreement between a large Wall Street firm and an employee will be honored.

It also raises the specter that the government may not honor contracts in other parts of the business sector if companies are taking federal money for any purpose. Contract law violations would certainly be tested in the federal court system. Feinberg walks a fine line.

Lewis will probably get his $125 million. Some analysts would say he deserves it. He built Bank of America into a financial giant. To a large extent, the bank’s near-collapse was as much as part of the credit crisis as it was any decisions that he made.

That will not keep the public from believing that the deck is stacked against small shareholders and in the favor of rich CEOs.

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

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So long, Ken Lewis

Louis Navellier — Thu, 01 Oct 2009 18:42:00 GMT

Great news this week for shareholders of Bank of America (BAC). Ken Lewis will finally be leaving as chief executive.

Sorry, Kenny. Hate to see you go.

Bing: More on Ken Lewis

You want to know how happy BAC shareholders are? When the news hit the wires, the stock traded up in the after-hours market by about 1%. In other words, the bank is already worth $1.5 billion more without him!

As you can probably tell, I don't have a lot of sympathy for Mr. Lewis (I'll get to more on that in a bit). Back in April after a disastrous shareholder meeting, I wrote:

"BAC shareholders were plenty angry at today's meeting and demanded that the jobs of chairman and CEO be separate. Lewis held them both. Given this move, I doubt he'll hang around as CEO much longer. "

Pretty prescient on my part, no?

Well, I'd like to think so, but in reality, the writing's been on the wall for a long time for Mr. Lewis. The fact is, I've never trusted Ken Lewis. For one, Bank of America has consistently tried to massage its earnings. As an analyst, I can't stand that.

Last year, other banks were compensating their institutional clients for losses in their controversial high-yielding institutional money market funds, what did BofA do? They simply returned the illiquid securities to their clients.

Technically, mutual funds are allowed to do this, but BofA did it so they wouldn't have to disclose their losses. For BofA, it was more important to try and mask their losses rather than to take care of their clients.

In my opinion, Lewis seriously overpaid for Merrill Lynch. Add to that the fact that things got so bad for BofA that they went to the Treasury Department to be rescued. Twice! And the bank has been sued for the Merrill deal by the SEC. Perhaps that explains his, um, early retirement.

I'm not sure what the future holds for Bank of America, but a huge cloud has been lifted from over it. For now, I rate the bank a Hold. That means don't buy if you don't own it. However, if you do own it, there's no reason to sell right now.

At the time of publication, Louis Navellier held a position in Bank of America.

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David Bowie’s role in the credit crisis

Minyanville — Wed, 30 Sep 2009 14:36:00 GMT

This article is written by Minyanville's Justin Rohrlich

The financial crisis that began in August 2007 had relatively little to do with traditional bank lending…Its prime cause was the rise and fall of "securitized lending," which allowed banks to originate loans but then repackage and sell them out.
-- Niall Ferguson, The Ascent Of Money

The dust is still settling from the great market crash of 2008-09, and we still don’t know exactly who or what to blame. It might have been securitization, but it probably wasn’t David Bowie. For more on securities, see Banks Realize Securities Are Like a Box of Chocolates.

Securitization is the process of taking a group of assets and transforming them into a tradable security. By aggregating them into one large pool, investor risk is, in concept at least, distributed more evenly. Asset-backed securities resemble bonds in that they pay a fixed amount of interest over a specific time period.

Bing: The history of Bowie bonds

These securities can be backed by mortgages, credit card debt, car loans, or anything else that will (theoretically) generate future cash flow. Like song royalties, for instance.

In 1997, a fellow named David Pullman introduced the world to Bowie Bonds.

Bowie Bonds were securities backed by the future revenues from 25 David Bowie albums -- 287 songs in all -- that David Bowie recorded before 1990.

Pullman arranged to sell $55 million worth of 10-year bonds to Prudential, in what was the first high-profile case of securities backed by intellectual property.

What was in it for Bowie?

Oh, just $55 million upfront, as opposed to waiting for the gradual accumulation of his royalty income to reach that level -- plus, the rights reverted back to him after 10 years.

Prudential (PRU), which bought the entire issue, received the revenues generated by those 25 albums until the principal plus 8% interest was repaid. Pullman, of course, got his cut, as well -- about $6 million.

Some in the British press have accused Bowie Bonds of being the catalyst that brought the entire banking sector down.

Come again?

Yes, the London’s Daily Mirror claims the Thin White Duke (and David Pullman, by association) are responsible for the financial doldrums through which the world has been slogging for the past two years by creating the idea of securitization.

The Mirror makes the case that banks were rendered starry-eyed by this new technique and couldn’t jump on the bandwagon fast enough.

“Let’s make loans, but resell them and get all our money now! Then, we can make more loans with the money we just got back and repeat the whole process again and again until we’ve got more cash than any one person could ever possibly count! Plus, we’ll be laying the risk off to others, so we can’t possibly lose!”
Once in, the gettin’ was good -- banks even bought back some of their own asset-backed securities -- until the gettin’ got bad when the defaults began. That’s when the buyers disappeared and institutions wound up losing bundles on their bundled assets.

Suddenly banks like Citigroup (C), Deutsche Bank (DB), Wells Fargo (WFC), and Bank of America (BAC) didn’t have anything coming in, so they stopped lending. When the banks stopped lending, money got vacuumed out of the economy. With less money floating around, spending dropped, unemployment rose, causing people to spend even less, leading to even fewer dollars getting passed back and forth.

Rinse and repeat as many times as necessary to foment a full-blown recession.

So, is David Bowie actually to blame for the rise and fall of the global economy?

In a word, no. Securitization dates back to 1970, when the Government National Mortgage Association, or “Ginnie Mae,” permitted private financial institutions to bundle a group of GNMA-guaranteed mortgages and sell the bundles as securities.

Rolling Stone magazine quotes a source as saying, “There is no chance in hell that David Bowie inspired banks to package loans into securities, have rating agencies rate them AAA blindly, and sell them off to high-leverage hedge funds.”

In any case, while Pullman and his Bowie Bonds may not have inspired the asset-backed security craze, they did spawn a handful of imitators.

Royalty Advance Funding of Beverly Hills, California, (from their Web site: "There is no minimum or maximum amount that can be advanced. Any songwriter, publisher, composer, or producer is welcome to take advantage of our music royalty/residual advancement service. No questions asked.") announced an arrangement with Lloyd Price Music.

Price, who wrote "Lawdy Miss Clawdy," still collects royalties on the 1952 hit.

Will some of Ziggy’s stardust rub off on Mr. Price?

The state of the music business today doesn’t bode well for his chances.

"Pirates will always find new ways of challenging copyright lawyers," said Alan Dalinka, a partner in Chicago law-firm DLA Piper Rudnick Gray Cary.

Apparently, even people old enough to remember "Lawdy Miss Clawdy” know how to use BitTorrent.

For more on the blame game, check out Hoofy and Boo.

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Lawsuits rain over Bank of America

Kim Peterson — Tue, 29 Sep 2009 18:15:00 GMT

Bank of America (BAC) is already in hot water for its suspicious acquisition of Merrill Lynch last year. Now, the heat is getting turned up a notch.

The Ohio attorney general wants billions of dollars from Bank of America and its executives over the way it handled the Merrill purchase, the Wall Street Journal reports. Attorney General Richard Cordray has sued the bank on behalf of five pension funds.

The lawsuit alleges that the bank and its executives hid Merrill's financial situation before shareholders voted to approve the deal in December. The pension funds had filed five different lawsuits, and have now joined together in one megalawsuit, with Ohio leading the charge.

It's a safe bet that other shareholders are on the phone with lawyers, too.

And then there's the lawsuit that won't die. I'm talking about the suit that the Securities and Exchange Commission filed against the bank and then tried to sweep under the rug with a paltry $33 million settlement.

A federal judge rejected the settlement earlier this month, and is forcing the issue to go to trial next year.

Something tells me that this can of worms is just getting opened.

Image credit: Brian Katt, GNU Free Documentation license

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