Daily Archives: January 10, 2008

Financial Mergers May Be Mandated Rather Than Preferred (WFC, CFC, BAC, AXP, ABK, MBI, BX, COF, WM, WFC, ETFC, BSC, GS, SLM, JPM, STI, FITB, WB, NLY, CIM, BRK-A)

There have been major reports for days and weeks that have revolved around many financial services, banks, lenders, and the like merging.  The truth is that the carnage in the financial sector is coming to head whether the U.S. heads into a recession or narrowly escapes, the only thing that is going to save these is actual mergers.   We think that Fed and Congress would be extra lax on any predatory acquisition if it keeps a major institution from failing.  It is dangerous ground to tread, but if you plow down into the potentials in an "if, then" scenario it isn’t exactly out of left field.  Despite our thought on the subject, that is opinion rather than fact.

We’ve already noted the Bank of America (NYSE: BAC) possible deal with Countrywide (NYSE: CFC) story bringing this to a head today.  Yesterday’s notation out of Berkshire Hathaway (NYSE: BRK-A) saying it would not rule out an outright acquisition in a bond insurance operation after starting one of its own last week.  We’ve got foreign sovereign funds buying stakes on what they hope is on the cheap, and we’ve got private equity doing bottom fishing in the distressed arena.

We can’t cover all of the potential names because it might end up being a tome.  But the Fed is going to probably give some incentives to the winners to save these dogs.  So who are some of the other usual suspects that might be on a Wall Street hit list of takeout candidates????

  • Fifth Third (NASDAQ: FITB), Washington Mutual (NYSE: WM), Sun Trust (NYSE: STI) are usual suspects in larger banking that could teeter into a forced merger.
  • Bear Stearns (NYSE: BSC) is one of the most vulnerable of the large brokerage and investment bankers, and in electronic trading you can count E*Trade (NASDAQ: ETFC) as the most damaged and most vulnerable here.
  • Sallie Mae (NYSE: SLM) has been a true disaster story, and we’d expect that anything happening there would tend to be investments rather than another buyout attempt.
  • On the bond insurers, AMBAC (NYSE: ABK) and MBIA (NYSE: MBI) are deemed as the most vulnerable of the larger players in the group.
  • Capital One Financial (NYSE: COF) is deemed the most at risk of the credit card lenders with banks, and its warning close to a 52-week low today drives that home even more.
  • Countrywide Financial (NYSE: CFC) is by far the most distressed out of the major mortgage lenders.

Now let’s look at the flip side.  We also want to think about which financial giants are running well and holding up that are going to survive this mayhem either way: 

  • Among these would be Berkshire Hathaway (NYSE: BRK-A) of course.
  • JPMorgan Chase (NYSE: JPM) is the healthiest of the big conglomerate financials, and  Bank of America (NYSE: BAC), Wachovia (NYSE: WB) and Wells Fargo (NYSE: WFC) have all been in trouble as far as stock prices but would be potential saviors or at least bottom fishers if there was some incentive being passed around the table.  On B of A, would the Fed change its 10% cap on deposit rates to save another major financial player?
  • Annaly Mortgage (NYSE: NLY) recently launched via an IPO its Chimera (NYSE: CIM) in conjunction with Merrill Lynch (NYSE: MER) that we’ve noted as a vulture fund that is masquerading as a mortgage investment company.
  • American Express (NYSE: AXP) has the strongest of credit portfolio’s, so it could position itself as an opportunist if it so chooses even though it has some caution now.
  • Whether you like or approve of private equity or not, Blackstone (NYSE: BX) is impressively going after distressed assets in the sector that might not be quite as distressed as the prices are indicating.
  • On the investment banking side we’d look for Goldman Sachs (NYSE: GS) to be the most attractive out of the entire group despite it openly warning of lower earnings out of many financials today, and we’d expect any of the solid investment banks out of England and the E.U. to take a shot with the U.S. Peso giving what may be an implied 20% or 25% discount in any buyouts.

Once again, these are just the majors.  There are potentially dozens more of these in each sector.  Stay tuned, this is a very fluid environment that is changing its stance left and right just like it’s a lithium user off the meds and on hallucinogenics.

Also, be advised that if you are a common shareholder in at 20% higher or 50% higher than today’s prices, there might not be a big payday at a huge premium.  In fact, in dating terms some of these might be referred to as mercy "something"…….  A bailout won’t save every institution or investor.

Bernanke using more aggressive tones on rate cuts is also helping bolster the fears out there.  The old conspiracy theory about the government rescue fund would give way to the "incentives" or relaxing of certain rules.  Is that true? It may be myth, it may be fact.  We aren’t going there.

There is something here for bottom fishers, conspiracy theorists, and speculators all.  Of course there’s also the risk that the strong allow the weak to just fail. Welcome to financial services stocks in 2008.

Jon C. Ogg
January 10, 2008

We routinely cover many mergers, speculations, spin-offs and more on our open email distribution list.  Many of these also appear in the Special Situation Investing Newsletter screen candidates as well.

Posted on: January 10, 2008 – 4:49 pm in Banking, Financial Stocks, Mergers and Buy Outs, , , , , , , , , , , , , , , , , ,

American Express (AXP) Joins Line Of The Weak

American Express (AXP) said the economy is getting worse. The company will take a pre-tax charge of approximately $440 million (approximately $275 million after-tax) for the fourth quarter.

In light of the fourth quarter charge, American Express expects fully-diluted earnings per share from continuing operations to be in the range of $0.70 to $0.72 for the quarter. Those results would compare with fourth-quarter year-ago earnings of $0.73 per share.

Shares are off 5% in the after-market to $46.30.

Douglas A. McIntyre

Posted on: January 10, 2008 – 4:15 pm in Earnings Warning,

The 52-Week Low Club (COF)(NT)(MW)(BKS)

Men’s Warehouse (MW) No one wants shirts, coats, and ties. Falls to $16.76 on bad same-store sales. Down from 52-week high of $56.64.

Barnes & Noble (BKS) Poor sales and weak earnings. Books are passe. Stock drops to $28 down from 52-week high of $43.80.

Nortel Networks (NT) Telecom equipment sector is weak all over. Trades down to $12.13 from 52-week high of $31.79.

Electronics for Imaging (EFII) Expects Q4 miss and gets downgraded. Shares fall to $12.35 from 52-week high of $30.20.

Capital One (COF) Big write-offs. Drops to $38.85 from 52-week high of $83.64.

Douglas A. McIntyre

Posted on: January 10, 2008 – 4:00 pm in HI/LOW, , , , ,

Bernanke Say Rates May Fall

According to WSJ.com Federal Reserve Chairman Ben Bernanke opened the door to aggressive interest-rate reductions, saying downside risks to the economy "have become more pronounced."

Douglas A. McIntyre

Posted on: January 10, 2008 – 2:54 pm in Economy

Bank of America (BAC) To Buy Countrywide (CFC)?

A report at WSJ.com says that Bank of America (BAC) is in advanced talks to buy Countrywide (CFC).

CFC shares are up 43% on the news

Douglas A. McIntyre

Posted on: January 10, 2008 – 2:48 pm in Banking, ,

NY AG May Be AMD’s Only Friend (AMD, INTC)

Intel Corp. (NASDAQ:INTC) is seeing shares down close to 2% today at $22.34 on word that New York Attorney General Cuomo is probing Intel on antitrust issues.  The truth is that this is an ongoing case as Advanced Micro Devices (NYSE: AMD) is supposed to have its own antitrust case against Intel heard in court in early 2009.  There have been more accusations of collusion, predatory practices, price fixing, and more than can be easily counted. 

The problem is that if this is such good news, you’d expect a monster rally in AMD shares.  Its shares are up only 5% after a meteoric dive and shares are only at $5.78.

Wall Street might not expect a settlement, and we aren’t sure that Intel or AMD would want to show their hands with a settlement.  Even if they do settle, that doesn’t mean that the Feds, states, foreign nations, nor the E.U. have to back down.  AMD needs all the friends it can get.

With the market share issues at hand, it’s hard to imagine that Intel will walk away entirely clean from this issue.  Even if Intel is given a slap on the wrist, the problems at AMD might persist.

Could the courts halt innovation?  Maybe we all want to go back to the old Pentium or 286 processor days after all.

Jon C. Ogg
January 10, 2008

Posted on: January 10, 2008 – 11:30 am in Semiconductor, ,

AMD (AMD) Trading Up On Intel (INTC) Investigation

AMD (AMD) shares are trading up as much as 4%. NY Attorney General Andrew Cuomo says he is investigating possible violations of state and federal antitrust laws by Intel Corp (INTC), according to The Associated Press.

The AP writes that " Cuomo spokesman says the subpoenas seek information on whether Intel coerced customers to exclude Advanced Micro Devices Inc., known as AMD, from the market for a specific computer processing unit."

Douglas A. McIntyre

Posted on: January 10, 2008 – 11:26 am in Semiconductor, ,

Sharp Sell-Off For Akamai (AKAM)

Akamai (AKAM) shares quickly turned South this morning and moved down over 9% on heavy volume.

The stock has touched $25.97 today, a 52-week low.

Douglas A. McIntyre

Posted on: January 10, 2008 – 10:32 am in Internet,

Microsoft Might Buy Logitech… And It Should (MSFT, LOGI, MCZ)

Shares of Logitech (NASDAQ: LOGI) are trading up over 8% in early Thursday trading.  The maker of keyboards, mouses, PC-cams, microphones, and all other computer peripherals is trading up on market chatter and speculation that Microsoft may want to acquire the company.

While this is a mostly hardware company, this might actually be a good fit for Microsoft. The company is expected to have revenues of $2.39 Billion for its annual March-2008 numbers.  It also trades at 23.4-times fiscal March-2008 earnings if the estimates are accurate, and its currency converted market cap is roughly $6 Billion.  Logitech also just unveiled its new line of peripherals at CES this week.

Many analysts have panned software companies making hardware acquisition efforts.  This one makes sense though when you consider that Microsoft already makes many of its own computer peripherals. If nothing else, it might be a great bit of subliminal marketing with the company name being all over your desktop without you even realizing it.

Shares of Logitech are trading up over 8% at $33.86 and its 52-week trading range is $25.05 to $37.03.

If Logitech doesn’t get acquired by Microsoft, Logitech should consider acquiring Mad Catz Interactive (AMEX: MCZ).  That would lock-up a competitor in the video game peripherals space that has been making some inroads despite its sub-$100 million market capitalization.  With the $500 million or so bump in Logitech’s market cap today, the company could get Mad Catz for free.

Jon C. Ogg
January 10, 2008

Posted on: January 10, 2008 – 10:20 am in Mergers and Buy Outs, PC Companies, Rumors, Technology Companies, , ,

NCR Dodges The Retail Blues, Thanks To Automated Checkout Terminals (NCR, TDC)

NCR Corp. (NYSE: NCR), formerly known as National Cash Register, is managing to raise earning per share targets.  While there are always companies that do well and while some companies outperform during an economic crunch, this is quite surprising when you consider that most retail operations are noting a pinch on their results as the economy slides. 

The company has set its new 2007 EPS range at $1.35 to $1.40.  This compares to its previous guidance range of $1.20 to $1.25, and fiscal targets according to First Call are only $1.22.  NCR also said it sees Fiscal 2007 revenue growth of approximately 8% instead of its previous guidance of 5% to 6% revenue growth.  What is interesting is that the company noted stronger than previously anticipated profitability in the company’s Customer Services operations and in financial self-service and retail store automation divisions.  Sounds good for the self check-outs and for the technology side of the business, yet maybe an omen for cashier operators that may not exactly have a triple digit I.Q.

This might not seem like a monumental change, but it did just restructure itself and when you consider the slowing retail economy that NCR sells to then this is quite a surprise.  So far Wall Street is rewarding NCR with a 6.6% gain to $22.35. 

NCR’s 52-week trading range is $19.64 to $57.50, although we’d caution that the $57.50 is misleading because of the recently spun-off Teradata (NYSE: TDC).

Jon C. Ogg
January 10, 2008

Posted on: January 10, 2008 – 9:59 am in Retail, ,

Newspaper News (MNI)(JRC)(GCI)(NYT)

The news about the demise of newspapers is now at least two years old. Each month newspaper chains put out their advertising numbers and each month they are worse.

The only real question about the newspaper industry is whether online versions of print papers can help offset falling print ad revenue. So far, that has not been working well. The best case is probably The New York Times (NYT) which gets about 10% of its revenue online now.

Goldman Sachs now says that a recession will take newspaper ad revenue down 7.9% next year. Only recently the investment bank was calling for a 2.6% decline.

This year will probably be the year that the newspaper industry has dreaded. Some companies with significant debt like McClatchy (MNI) and Journal Register (JRC) may have to go through large financial restructuring. Common shareholders may not make it out alive. At firms like Gannett (GCI) and The New York Times the only alternative will be to cut staff, perhaps sharply.

The future has finally caught up to the industry.

Douglas A. McIntyre

Posted on: January 10, 2008 – 9:57 am in Old Media, , , ,

Morning Rumor III: Microsoft (MSFT) Still Wants To Own Yahoo! (YHOO)

If it has been said once, it has been said a thousand times. Microsoft (MSFT) would like to buy Yahoo! (YHOO) to challenge the online search and web presence of Google (GOOG).

The latest installment of the rumor is in today’s New York Post. The paper writes "sources close to Microsoft say the company is still debating if it should make last year’s informal offer to buy Yahoo! official by going public with its bid."

Douglas A. McIntyre

Posted on: January 10, 2008 – 9:37 am in Internet, , ,

Goldman Sachs Lowers Financial Estimates (AB, ABLk, BLK, CLMS, CME, BEN, GBL, IVZ, JNS, NITE, LAB, LM, MKTX, NYX, TROW, PZN, NDAQ, TRAD)

Goldman Sachs has lowered estimates on many financial services players this morning:

  • AllianceBernstein (AB) (buy);
  • AMBAC Financial (ABK) (neutral);
  • Blackrock (BLK) (buy);
  • Calamos Asset Mgmt. (CLMS) (neutral);
  • CME Group (CME) (buy);
  • Franklin Resources (BEN) (neutral);
  • Gamco Investors (GBL) (sell);
  • INVESCO plc (IVZ) (neutral);
  • Janus Capital (JNS) (neutral);
  • Knight Trading (NITE) (buy);
  • Labranche (LAB) (sell);
  • Legg Mason (LM) (neutral);
  • Marketaccess Holdings (MKTX) (neutral);
  • NYSE Euronext (NYX) (neutral);
  • T. Rowe Price (TROW) (neutral);
  • Pzena Investment Mgmt. (PZN) (neutral);
  • The NASDAQ Stock Market (NDAQ) (neutral);
  • TradeStation (TRAD) (neutral)

Jon C. Ogg
January 10, 2008

Posted on: January 10, 2008 – 9:22 am in Analyst Calls, Financial Stocks, , , , , , , , , , , , , , , , , ,

The Ultra-Lite Car From Tata (TTM): Why Not For US?

It is easy to look at Tata’s (TTM) new mini-car, which will sell for $2,500 in India, and laugh. It is smaller than the Honda (HMC) Civics which came into the US in the 1970s.

Detroit laughed at the Civic as well, laughed itself sick.

The Tata "Nano" would not meet US emissions standards, but the engineers at Ford (F) and GM (GM) can make cars that run on H20, so why not fit a tiny engine with anti-pollutant technology?

US drivers are not going to take a wee car onto the interstate, but for the millions of people who commute to work, or just drive around town, a small car would be ideal Something that might get 100 mpg.

Could Detroit make money on such a vehicle? Perhaps not. But, it could buy a modified version from Tata.

Think of the advantages. If the car gets a flat tire, the drive can just pick the vehicle up and put it in his pocket.

Douglas A. McIntyre

Posted on: January 10, 2008 – 9:10 am in Index, , , ,

Top 10 Pre-Market Analyst Calls (AW, CPT, ESPG, GSIC, GE, EFII, IR, MVSN, SAI, UPS)

These aren’t the only analyst calls moving stocks this morning, but these are the ones that 247WallSt.com is focusing on:

  • Allied Waste (AW) downgraded to Neutral at JPMorgan.
  • Camden Property (CPT) downgraded to Peer Perform at Bear Stearns; downgraded to Underweight at JPMorgan.
  • eSpeed (ESPD) raised to Buy from Neutral at Goldman Sachs.
  • Electronics for Imaging (EFII) downgraded to Market Perform at BMO Capital and downgraded to Underperform at Collins Stewart.
  • General Electric (GE) lowered price targets to $38 from $42 at Goldman Sachs, although it maintained a Buy rating.
  • GSI Commerce (GSIC) raised to Outperform at Bear Stearns.
  • Ingersoll Rand (IR) raised to Overweight at Lehman.
  • Macrovision (MVSN) raised to Buy at Jefferies.
  • SAIC (SAI) raised to Overweight at JPMorgan.
  • UPS (UPS) raised to Outperform at Bear Stearns.

Jon C. Ogg
January 10, 2008

Posted on: January 10, 2008 – 9:04 am in Analyst Calls, , , , , , , , , ,

Wal-Mart (WMT) Sales In Good Range

Wal-Mart (WMT) same-store sales rose 2.4% for the five weeks ending on January 4.

Revenue at the big retailer was up 8.4% for the period to $46.6 billion. International sales moved higher by 18.2% to almost $12 billion.

Douglas A. McIntyre

Posted on: January 10, 2008 – 7:48 am in Retail,

CostCo (COST) Beats Back Weak Consumer

CostCo (COST) moved against the trend of weak consumer retail sales in December.

Same-store sales rose 7 percent, boosted by higher U.S. gas prices at home and the weak dollar at its international stores.

The company said gas prices were 27 percent higher on average in the December period, pushing U.S. same-store sales 5 percent higher. Excluding the gas inflation, the increase was 4 percent. At its international stores, the weak dollar versus the Canadian and U.K. currencies led to a 16 percent gain. In local currencies, international sales rose 5 percent.

Douglas A. McIntyre

Posted on: January 10, 2008 – 7:21 am in Retail,

Blackstone (BX) Buys GSO Capital

Blackstone and GSO Capital Partners LP have agreed in principle on terms under which Blackstone will acquire GSO. GSO is an alternative asset manager specializing in the leveraged finance marketplace, with approximately $10 billion under management. It manages a multi-strategy credit hedge fund, a mezzanine fund, a senior debt fund and various CLO vehicles.

MarketWatch reports that the deal may be worth as much as $930 million.

Douglas A. McIntyre

Posted on: January 10, 2008 – 7:02 am in Mergers and Buy Outs,

Europe Markets 1/10/2008 BCS, BHP, BP

Markets in Europe were mixed at 6.25 AM New York time.

The FTSE was off a fraction to 6,271. Barclays (BCS) was up 1.1% to 464. BHP Billiton (BHP) was up 1.5% to 1532. BP (BP) was off 1.1% to 604.

The DAXX was flat at 7,783. BASF was down 2,2% to 102.54. Merck was down 1.6% to 92.31.

The CAC 40 moved up .1% to 5,439. Danone was down 2.2% to 60.44. EADS was up 3.2% to 19.45.

Data from Reuters

Douglas A. McIntyre

Read More »

Posted on: January 10, 2008 – 6:31 am in International Markets

Toyota (TM) And GM (GM) Vie For No.1 Spot In 2007

Toyota (TM) says that it sold 9.37 million vehicles in 2007, up 6% from the year before. According to the AP, GM (GM) has not issued numbers for last year, but they should be very close to those posted by its Japanese rival.

A last minute purchase by Jimmy Hoffa might put GM over the top.

Douglas A. McIntyre

Posted on: January 10, 2008 – 6:23 am in Uncategorized, ,