Daily Archives: March 8, 2008

Ambac (ABK) Insiders Make Big Share Purchases, Nice Return

At the end of the week, Ambac (NYSE: ABK) raised $1.5 billion and was able to keep it "Aaa" rating, essential for the company and the bonds it insures.

The capital may have solved some of Ambac’s short term problems, but the number of shares sold to bring in the money caused huge dilution for existing shareholders. According to MarketWatch "The bond insurer had to sell more than 180 million new shares to raise what it needed to satisfy the rating agencies, almost tripling the total outstanding."

Company insiders made relatively large investments on their own, a sign that they believe that. over time, the increase in the share base will not keep the stock price down.

According to Form4Oracle, eight insiders made significant purchases the same day the refinancing closed. The total dollar value of shares purchased by the group was in excess of $600,000. Michael Callen, Ambac’s CEO invested $168,750 at $6,75 a share and one board member put up $135,000.

Hand it to them. All of the insiders did well. Ambac closed at $9.50 on Friday.

Douglas A. McIntyre

Posted on: March 8, 2008 – 5:37 pm in Financial Stocks,

As Boeing (NYSE: BA) And Airbus Battle, China Walks In A Side Door

Boeing (NYSE: BA) and Airbus go toe to tor for almost very major commercial airline contract in the world. They haul each other into court over international trade practice questions. For pure blood sport, the competition can hardly be matched.

Over the course of the last week, the battle between the two companies moved up a notch as the Air Force gave a $35 billion tanker program to Northrop Grumman (NYSE: NOC) and EADS, the parent of Airbus. Members of Congress may try to keep the deal with Boeing and the issue should be messy for several months.

While Boeing and Airbus beat the living daylights out of one another, China is planning to begin to build its own large commercial aircraft. China is one of the biggest markets for the two airplane company leaders, and as the need of big jets there increases, the Asian company was going to be a meal ticket that might last for decades.

Things are not going as planned. According to The Wall Street Journal "China has confirmed plans to set up a company to make large passenger airplanes." The paper also writes that Boeing thinks China will need over 3,300 new jets by 2026.

China could be making its own planes by then, leaving Boeing and Airbus to bicker over military contracts.

Douglas A. McIntyre

Posted on: March 8, 2008 – 5:18 pm in Aerospace, ,

Delphi’s Troubles Prick GM (GM) Balance Sheet

GM (NYSE: GM) would rather not put money into its former parts operations which is now a separate company and in Chapter 11. Because of tight credit markets, the large auto company has agreed to offer up $2.8 billion in loans as part of a $6.1 billion package to get Delphi out of bankruptcy.

Some of the other investors in Delphi, led by Appaloosa Management, do not want GM to make the investment unless they can approve the terms. According to Reuters "Jack Butler, a lawyer for Delphi, told U.S. Bankruptcy Judge Robert Drain that there is nothing in the agreement with the planned investment group that bars the stepped-up role of GM in the financing."

The matter may be been partially settled when the judge said that the investment partners could not walk away from the Delphi deal because of GM’s role in the financing. That should open the way for Delphi operate on its own within a month.

GM would almost certainly rather avoid the situation all together. Given its own problems in North America, loaning money is not high on its "to do" list. But, without parts from Delphi, GM could be shut down in a matter of weeks.

The debt for Delphi is the lesser of two evils.

Douglas A. McIntyre

Posted on: March 8, 2008 – 5:02 pm in Autos,

This week on Stockhouse March 3 – 7

Another unstable week had the Dow and the TSX down most of the week on continuing credit concerns and a darker U.S. economic outlook.

Despite closing slightly higher Wednesday, stocks on both sides of the border couldn’t recover from last week’s fall as the Dow spent most of the week down on a weak construction sector, further credit market concerns, and lowered consumer confidence.  Trouble at the banks and worries about the U.S. economy kept the TSX on a sharp decline through the week.

Read More »

Posted on: March 8, 2008 – 4:45 pm in Uncategorized

Google (GOOG) At $350?

Fred Hickey, the editor of HIgh Tech Strategist, is saying Google (NASDAQ: GOOG) will have a very large earnings miss this quarter followed by "more disappointments to come," according to Barron’s.

What happens then? The fall-out from weaker earnings is likely to lower P/E multiple, dropping from 25 to, perhars, 20. At that level, Google could fall below $350, and it could happen fast.

Google may have ended its run as Wall St.’s darling.

Douglas A. McIntyre

Posted on: March 8, 2008 – 11:49 am in Internet,

Blackstone Earnings & Private Equity Outlook (BX, PSP)

Shares of The Blackstone Group, L.P. (NYSE: BX) have seen their share of pain since coming public in 2007.  The private equity giant will report earnings Monday, and this may further set the tone for at least the public anticipation of private equity firms for the months ahead.  Much of that should already be known as the days of the giant club-deals are dead and as many private equity firms have had to focus on smaller deals that are in-line with more historic trends of deals being in the hundreds-of-millions of dollars or in the few-Billion dollar range.  Much of the current climate has also revolved around vulture activities and buying assets that are deemed distressed in market pricing that in reality may not be as weak as the prices would indicate.  Funds are still being raised.

There are just not many public comparisons to base a history on, so we’d urge traders and investors alike to use any formal estimates as a sort of moving target that might not be as set in stone as most other established companies.  First Call had estimates pegged at $0.19 EPS and $434.6 million in revenues on last look.  If any guidance is offered, next quarter estimates appear to be $0.26 EPS on $549.8 million in revenues.  Once again, use those as a vague moving target as the crowd of analysts making formal numbers is rather small.

Options traders appear to be braced for a move of at least $1.00 in either direction.  The chart here has been of little use as the stock’s price has just gone lower and lower.  Shares closed down some 3% at $14.58 Friday after putting in a new intraday low of $14.16.  Its post-IPO high was $38.00.

Private equity is not dead.  But the excesses of 2006 and 2007 are proving to look very similar to the excesses seen in the consumer credit bubble.  Blackstone was one of the only private equity firms that made it to a huge public IPO last year, but we have noted how there are in essence many more public private equity firms, hedge funds, and others that act similar to private equity firms.  There is even an ETF called the PowerShares Listed Private Equity (AMEX:PSP), and another exchange traded note recently launched.

This may be heresy, but there is at least one thing to consider: if the share prices post the same performance ahead as they have seen since an IPO, it would be very conceivable that Steve Schwarzman and other officers decide its time to go private again.

Jon C. Ogg
March 8, 2008

Posted on: March 8, 2008 – 10:09 am in Earnings, Financial Stocks, Private Equity, ,

Banks May Face $325 Billion Margin Call

The Fed may need to get ready to put another $300 billion into the banking system, trading cash for paper that is clearly not worth a hundred cents on the dollar.

According to a report from Morgan Stanley (NYSE: MS) "A systemic credit crunch is underway, driven primarily by bank writedowns for subprime mortgages," according to the report co-authored by analyst Christopher Flanagan. "We would characterize this situation as a systemic margin call," according to Reuters.

The report is based on subprime-related home prices falling a total of 30%.

The private markets do not have the capital to solve a problem of this magnitude. Even sovereign funds are not likely to be able to pul ltogether the level of funds which the report indicates might be necessary. Nor is there any reason to believe that they would want to take that kind of risk.

That would leave the problems at the feet of the Fed, which has already opened a credit facility of $100 billion to ease a tightening market. It looks more likely with each passing day that the problems with write-downs may still be in their early stages.

Douglsa A. McIntyre

Posted on: March 8, 2008 – 10:02 am in Banking,

Can Texas Instruments Mid-Quarter Update Rescue Chip Stocks? (TXN)

Texas Instruments Inc. (NYSE: TXN) is set to report its mid-quarter update on Monday.  What is expected to be a short press release will come after the close.  The chip giant issued guidance with last quarter’s earnings as follows:

  • Total TI revenues of $3.27 billion to $3.55 billion;
  • Semiconductor revenues $3.20 billion to $3.46 billion;
  • Education Tech revenues, $70 million to $90 million.
  • EPS in the range of $0.43 to $0.49.

On last look, First Call showed estimates of $0.46 EPS on $3.4 Billion in revenues.  If you use options trading for an indicator, the current month contract did get a bit more active on Friday and it appears that options are pricing in a move of $0.55 to $0.80 in either direction.

The company did just give an update last week at a Morgan Stanley conference so conventional wisdom would at least lend credence to the company not announcing the world become much uglier in the last few days.

Shares closed up marginally Friday at $29.30, and shares are at the bottom of a trading range of $28.00 to $39.63 seen over the last 52-weeks.

Jon C. Ogg
March 8, 2008

Posted on: March 8, 2008 – 9:07 am in Earnings, Semiconductor,

If Ambac Insiders Bought Shares, Does It Help? (ABK)

Ambac Financial Group, Inc. (NYSE: ABK) did manage to raise its additional $1.5 Billion in new capital as the company tries to maintain its Triple-A ratings.  Ambac priced 185.2 million common shares at $6.75 each and 5 million equity units at $50 each as Ambac tries to maintain its Triple-A ratings at S&P and Moody’s, while Fitch did ultimately lower ratings to AA and has it on review.

But after looking through the form 4 filings in the Edgar database it showed that there were insiders at Ambac who participated in the offering with them buying shares.  From what we tallied up it appears to be more than $600,000.00 on almost 100,000 shares in purchases.These may not be all of the purchases as more form 4 filings may come Monday, but here are some of them showing who acquired how many shares in the offering:

  • Chairman & CEO Michael Callen bought 25,000 shares;
  • Director Thomas C. Theobald bought 20,000 shares;
  • Director Henry D G Wallace bought 10,000 shares;
  • EVP Douglas Renfield-Miller bought 10,000 shares
  • Director Jill Considine bought 10,000 shares;
  • Director David Wallis bought 6,250 shares;
  • SVP Gregg Bienstock bought 6,000 shares;
  • EVP John Uhlein bought 5,000 shares;
  • CFO Sean Leonard bought 1,000 shares.

For whatever it is worth, CEO Michael Callen noted in a CNBC interview that Ambac had ample cash to pay claims for more than the current environment and earnings are assured for two years on its portfolio.  Filings show that new business generated so far in 2008 has been at a standstill.

Insider buying is usually hailed by Wall Street and critics have a hard time in continuing to bash a company when management plunks down its own cash to buy shares.  We don’t want to sound like disappointed brats, but as these were priced at $6.75 this total dollar amount just doesn’t exactly ring out the sounds of a major show of force.  Wanting more and more is unfortunately just the way of Wall Street.  Either way and regardless of the size, it is at least good to see management put more skin in the game.  That’s even more of the case when you consider how painful the game at Ambac has been and how long this road is going to be.

Jon C. Ogg
March 8, 2008

Posted on: March 8, 2008 – 8:47 am in Financial Stocks, Insider Activity, Secondary Offering, , ,

FBI Goes After Management Thugs At Countrywide (CFC), Bank Of America Deal May Be Troubled

The FBI is looking into whether Countrywide (NYSE: CFC) committed securities fraud by making false statements about the mortgage bank’s financial position.

The Wall Street Journal writes that a "potential issue facing the company is whether it has been candid in its accounting for losses. People familiar with the matter said that Countrywide’s losses may be several times greater than it has disclosed."

Aside from the potential civil and criminal issues at stake, the investigation could scuttle the planned buy-out of Countrywide by Bank of America (NYSE: BAC) It is not clear whether the mortgage company can survive as an independent entity if the big money center bank walks away. Clearly if auditors and the government determine that CFC losses are much greater than represented, it might drive the firm into insolvency.

The Bank of America deal is probably the only avenue for Countrywide shareholders to get any money for their shares. The company’s stock has dropped from a 52-week high of $42.24 to just above $5 which is not much above its 52-week low.

The disclosure of the FBI probe is likely to push shares lower. If new, significant losses have to be reported, the price may well go to zero.

Douglas A. McIntyre

Posted on: March 8, 2008 – 6:35 am in Law, ,

Strike At Suppliers Helping GM (GM)

According to Bloomberg, GM (NYSE: GM) has a 113 day supply of trucks. That is well above the 60 days that most industry analysts believe is ideal. Strikes have closed some companies which supply GM parts to shut down. That, in turn, has forced GM to close some of its facilities.

The over-supply of truck inventory leads to dealers and the big car company to offer incentives to get the vehicles off their lots. The incentives cut profits margins. When aggressive promotions hit levels as high as "$5,000 cash back", GM may actually be losing money on some product lines.

Is the strike a godsend? It is until the work stoppage goes on for two or three months. After that, the worm turns at GM. A shortage is worse than an glut. Customers will go elsewhere when the inventory runs out.

Douglas A. McIntyre

Posted on: March 8, 2008 – 6:17 am in Autos,

Boeing (BA) Whines About Tanker Loss

Now that Boeing (NYSE: BA) has officially lost the bidding for a new Air Force tanker to Northrop Grumman (NYSE: NOC) and EADS, parent of Airbus, it will probably make an official complaint to the US government.

"What is clear now is that reports claiming that the Airbus offering won by a wide margin could not be more inaccurate," the company said in a statement, according to Reuters. Almost all the comments made by military officials contradict that, so it is difficult to believe it is true.

Part of the leverage that Boeing has is members of Congress who want to keep jobs building the tanker in the US. EADS would do some of the work in its home markets of France and Germany.

Boeing may end up cutting its own throat. If EADS and the governments in large European countries believe that the decision about who should get the contract is purely political, Boeing might find some of its commercial airplane orders from the large flag carriers in the region cut. That could cost Boeing more than the tanker contract is worth.

Douglas A. McIntyre

Posted on: March 8, 2008 – 5:59 am in Aerospace, ,