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Posted
Apr 21 2008, 01:01 PM
by
Matt Koppenheffer
Rating:
After watching relatively positive reactions to horrible earnings reports from the likes of Citigroup and Merrill Lynch last week, investors are far less chipper about the news out of Bank of America today. So it wouldn't be surprising if investors watching the financial sector are wondering when bad is good and when bad is just... well, bad.
The beginning and end of that story is expectations. Think about it this way: say you are expecting a meteor to crash into earth and create an ice age that will end life as we know it. The following week you wake up to hear that the meteor will end up missing earth, but you find that somebody has stolen your car. On balance you're still probably pretty psyched about the situation.
In that same way, Citigroup and Merrill have had some very pessimistic expectations thrust on them. In fact, it's been so bad for Citi that, as Charley Blaine pointed out last week, Apple is now worth more as a company than Citi. In a situation like that, investors are really pretty impressed with anything north of abject failure.
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Posted
Apr 14 2008, 02:33 PM
by
Matt Koppenheffer
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The details of Wachovia's first-quarter report were unfortunately familiar enough to border on dull. The quarterly loss was $350 million, brought on by some $5 billion in asset impairment and loan related charges. It's also quickly moving to make sure it has enough liquidity by cutting its dividend and raising $7 billion of new capital.
What's more interesting to consider is the fact that Wachovia, like many of its competitors, steered its financial ship directly toward the oncoming storm in the twilight hours of the housing boom. In May of 2006, Wachovia agreed to purchase Golden West Financial, a huge California savings and loan. Though the S&L was very well respected, the deal was fantastically ill-timed as it gave Wachovia tremendous exposure to the bubblicious California real estate market.
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Posted
Apr 07 2008, 11:12 AM
by
Matt Koppenheffer
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Washington Mutual chief executive Kerry Killinger might as well be standing in front of a "Mission Accomplished" banner today. WaMu shares are skyrocketing on hopes of a $5 billion investment from private equity shop TPG that would give the bank a nice cushion to deal with its massive lending missteps.
While Citigroup, Bear Stearns, and Merrill Lynch may grab most of the headlines because the magnitude of their losses was so great, WaMu has managed to lose an impressive amount of money for a bank of its size. WaMu finished 2007 with a loss of $67 million thanks to loan loss provisions above $3 billion and charge-offs of $1.6 billion.
Meanwhile, the company seems to care far more about Mr. Killinger than its shareholders. After reporting the dismal results for 2007 -- results that took the stock down 70% from where it started the year -- the board of directors concocted a compensation plan that would ignore the effects of the bank's potential loan losses, foreclosed real estate, and restructuring. So in the coming year, while investors will continue to feel the effects of further losses, the executive team can rest easy that their payout won't be crimped by their past strategic decisions.
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Posted
Apr 04 2008, 01:28 PM
by
Matt Koppenheffer
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Swiss bank UBS has made it abundantly clear that US banks aren't the only ones that can create massive write-downs. The bank has taken a staggering $37 billion in losses, and is headed out to the market to raise new money -- despite the fact that its stock is roughly half of its 52-week peak.
Things have gotten so bad that former UBS president Luqman Arnold has stepped in as an activist investor hoping to change the bank's pitch from "you and us" to "you and us and them." Like the rebellious teenager that set fire to the garage, it's UBS' investment banking division that has caused all the heartache for the venerable bank and Mr. Arnold wants to kick it out of the house.
However, what Mr. Arnold has made known is that he's not in this to take control of UBS -- he's not interested in a chairmanship or executive role. His primary focus is creating a good return on the sizeable position that his investment firm, Olivant, has in UBS.
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Posted
Mar 25 2008, 03:58 PM
by
Charley Blaine
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Al Copeland died on Sunday. You might not know the name. In Louisiana and certainly around New Orleans, he was about as well known as anybody both for the chicken you can get at Popeyes Famous Fried Chicken, the chain he started, and for his lavish, complicated and exuberant lifestyle.
He liked getting married. But all four of his marriages ended in divorce -- often acrimoniously. He liked Christmas. His house along Lake Pontchartrain in Kenner, La., was so lit up with lights at the holidays that airline pilots would use it to line up their approaches to the airport.
He liked fast cars and fast boats. He carried on a fun feud over the decor of one of his restaurants with no less than Anne Rice, the author of "Interview with the Vampire."
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Posted
Mar 20 2008, 12:09 AM
by
Jon Markman
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The big question on investors’ minds this week is whether the market has reached a major bottom following the Federal Reserve’s sensational attempt to rescue troubled brokerage Bear Stearns and slash short-term interest rates. It sure looked that way to many Tuesday after the big stock indexes soared by 4%. But Wednesday not so much, as stocks forfeited three-quarters of their gains.
So here’s the plain facts: You can only get a major bottom in stocks if the impulse to sell has been exhausted and if investors respond to lower prices with a powerful, sustained wave of buying. And the actions this week suggest that neither has occurred. Selling was clearly not exhausted Tuesday because sellers came roaring back Wednesday.
(Update: The market's gain on Thursday shows investors are hope the worst is over. But it hardly proves that stocks are cheap enough.)
The verdict is therefore clear: A major bottom in the market hasn't yet arrived. To understand why, consider what got folks excited Tuesday. The bailout of Bear Stearns might seem positive on the surface but it loses its allure when you stop and ponder the implications of the fact that the fifth-largest brokerage in the nation lost 95% of its value in a few weeks' time. And the three-quarter point cut in interest rates means the Fed believes the economy is in terrible shape. As if to put an exclamation point on this issue, on Wednesday Merrill Lynch, UBS and Lehman Brothers, all of whom had business models with similarities to Bear Stearns, were on the hot seat -- sinking in value by up to 11.5% and closing at lows. Investors thus collectively decided more shoes will drop, and the Fed cannot bail them all out at once.
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Posted
Mar 19 2008, 09:32 AM
by
Anthony Mirhaydari
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The real reason Wall Street is downright giddy over the historic $18 billion Visa IPO this morning isn’t because the banks that own it are in for a big payday or that it represents a safe haven in a time of market turmoil. Instead, investors want to profit from the slow death of physical money. Cash is no longer king; Long live the charge card!
Already, a majority of retail transactions are done with a card instead of cash. This is up from less than 30% a decade ago. People love the convenience: Visa estimates that contactless card transactions are twice as fast as cash. For all their complaining about interchange fees, retailers love the fact people tend to spend 20% more when using plastic. Americans alone now possess some 1.5 billion credit cards.
The demise of paper notes and coins will only continue. The last refuge of cash has been small transactions like paying a bus fare. Now, even this is threatened. Interchange rates continue to fall. Card terminals are becoming less expensive and more ubiquitous. It’s only a matter of time before just about any purchase can be settled electronically.
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Posted
Mar 16 2008, 07:37 PM
by
Charley Blaine
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The proposed sale of Bear Stearns on Sunday to JPMorgan Chase for $2 a share, or $236 million, will keep litigation lawyers busy for years as enraged shareholders seek to recover anything from the disaster.
The losses from Bear Stearns' demise are shocking, so shocking that Asian and Australian stocks tumbled on the news. The dollar was fallling. Crude oil jumped over $111 a barrel, and European shares were expected to open lower as was the U.S. stock market.
From a peak price of $171.52 in January 2007, Bear Stearns managed to lose 98.8% of its peak market value of $20.2 billion in less than 15 months, all because the company bet everything that the housing market and the markets for securities backed by subprime mortgages wouldn't break. It did
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Posted
Mar 14 2008, 07:33 AM
by
Anthony Mirhaydari
Rating:
Target, everyone’s favorite cheap-chic retailer, has a big ticking time bomb on its balance sheet. After rapidly expanding its in-store credit card program over the past year, taking on questionable risks, the company is now desperately trying to offload the decaying $8.6 billion portfolio. According to news out today, J.P. Morgan has stepped up and is interested in acquiring roughly 50% of the Target Red card and Target Visa accounts.
No doubt this was spurred by activist investor William Ackman, who back in December snatched up a 10% share in the company through his Pershing Square hedge fund. Ackman pushed management hard to sell the cards business, but they replied that “market conditions” were delaying the decision. Well, unless I missed something, the “market conditions” have been getting a heck of a lot worse since then. So why sell now? With the big banks hoarding cash, margins being called, and blood on the Street, the terms couldn’t have gotten any sweeter.
Unfortunately, details aren’t forthcoming as the company’s press release describing the deal was rather vague. Portales Partners analyst William Ryan noted “the company created more confusion than it provided detailed information.” Everyone is still trying to figure out what’s going on and determine whether this is good news or not.
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Posted
Feb 05 2008, 02:45 PM
by
Douglas McIntyre
Rating:
Citigroup traded off over 7% today. Wachovia and JP Morgan are down over 3%.
Is it any wonder? S&P today said that its potential downgrade of Ambac and MBIA may lead to rating cuts at big banks as well. Bloomberg writes: "bond insurer downgrades also could affect banks directly by causing them to recognize more losses and reverse gains in securities they hold guaranteed by the bond insurers, S&P said."
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