Daily Archives: July 13, 2008

Fannie Mae (FNM) And Freddie Mac (FRE): The Bail-Out Begins

Concerns about the financial health of Freddie Mac (FRE) and Fannie Mae (FNM) and the huge repercussions which would occur in the banking and mortgage industry if either one fails has cause the government to take extraordinary action.

According to MarketWatch: "The Treasury has moved to increase its existing line of credit to Fannie and Freddie. In addition, Treasury have been given the power to buy the two companies stock. In a separate vote, the Fed board of governors voted to open its discount window lending facility to Fannie and Freddie."

The employees and shareholders of Bear Stearns will probably be upset that they did not get the same treatment. It does raise of the issue of where the line gets drawn.

Douglas A. McIntyre

Posted on: July 13, 2008 – 5:55 pm in Housing, ,

Apple (AAPL) Backdating Scandal Could Still Wreak Havoc

Apple (AAPL) may be one of the most successful companies in the world. Over the last five years, the value of the firm’s shares is up almost 1,600%. Most of that is due to the launch of the iPod and improvements in the Mac. Whether the iPhone will have similar financial success remains to be seen.

Over the last two years, Apple has had a constant companion to go with its success: accusations that the company backdated stock options. That problem has not gone away, and, it may be about to get somewhat worse. According to The New York Times: "A CLASS-ACTION lawsuit contending securities fraud and filed last month may force the Apple board to pay some attention." The Justice Department is still probably looking into the matter.

Working to resolve the issue with the government may turn out to be much easier than fending off class action suits. The US Attorney may drop its investigation altogether.

Some Apple shareholders look at the options backdating lawsuits as a way to get much more money out of the company than they made on their investments in stock. With $20 billion in cash and securities on its balance sheet, the options issue may make Apple a target for a long, long time.

Douglas A. McIntyre

Posted on: July 13, 2008 – 7:29 am in Law,

US May Put $15 Billion Into Fannie Mae (FNM) And Freddie Mac (FRE)

In an attempt to save Fannie Mae (FNM) and Freddie Mac (FRE) from becoming insolvent, the US Treasury is reviewing a plan to put $15 billion in new capital into the companies.

According to The Times, "The capital-injection plan is said to be high on a list of options being considered by regulators as a means of restoring confidence in the lenders."

Because Fannie Mae’s market cap is now only $10 billion, and Freddie Mac’s is only $5 billion, a cash infusion could cut the value of the common stock in the two companies by two-thirds or more.

The plan would involve money which ultimately comes from US taxpayers, but shareholders in the two firms would be nearly wiped out.

If the two companies fail, the mortgage markets could fall into tremendous disarray causing more write-offs at banks and making home loans much harder to get

On that basis, the bail-out is cheap.

Douglas A. McIntyre

Posted on: July 13, 2008 – 6:06 am in Financial Stocks, ,

Microsoft (MSFT), Icahn Make Firm Offer: Yahoo! (YHOO) Rejects

Friday evening Microsoft (MSFT) and Carl Icahn made an offer to the Yahoo! (YHOO) board. Microsoft would buy Yahoo!’s search business. Icahn would take over the rest of the company. The portal company’s board would have to leave immediately.

The offer had a one day time limit.

According to Reuters, The company said the "take it or leave it" deal that was offered would also preclude a potential sale of all of Yahoo "for a full and fair price, including a control premium."

Yahoo! was right to walk away.

Microsoft’s (MSFT) position in search is getting worse by the month. Yahoo!, while still well behind Google (GOOG) in the category, has a significant strategic value to Redmond, one it cannot get anywhere else.

Microsoft offered Yahoo! $33 a share for the company once. If the Yahoo! board can win its proxy fight against Icahn, Microsoft will be back with a higher offer.

Douglas A. McIntyre

Posted on: July 13, 2008 – 5:36 am in Mergers and Buy Outs, , ,