Effectively, the CME is lowering the cost to trade crude oil, gold, silver, copper, and a few other commodities. So far this has had no impact on prices of the SPDR Gold Trust (NYSE: GLD), United States Oil Fund (NYSE: USO), iShares Silver Trust (NYSE: SLV), nor in the iPath DJ-UBS Copper TR Sub-Index ETN (NYSE: JJC).

In the past, margin costs were raised on traders as an effort to curb runaway trading to the upside by making it more expensive for traders and speculators to trade energy and metals.  In short, driving up the cost of poker creates fewer gamblers. So what happens when they make it cheaper to trade?

The full details are here.

JON C. OGG

The casino and resort giant sold 1,811,313 shares of its common stock at $9.00 per share to raise gross proceeds of about $16 million before fees and discounts.  Keep in mind that this is the Harrah’s-Caesars deal which was a $15 billion buyout back at the peak of private equity.

$16 million… $15 billion… $28 billion.  Whatever it boils down to…  The figure we were counting on was up to $223.4 million in additional stock, the overwhelming majority of which would be coming from private equity owners. Apollo Global Management, LLC (NYSE: APO) is not even reacting positively to the news with a 0.8% drop down to $14.97 so far today, probably because it is not selling shares.  Paulson & Co. has the right to sell along with affiliated groups of Goldman Sachs Group Inc. (NYSE: GS).

Even a $500 million offering could have set the pace for up to a decade for all of the backers to exit their positions.

The reason that the company chose this model is likely to keep an initial higher value for a limited share float.  That establishes a fair market value that is probably higher than if the firms all sold shares in a huge offering for the market to absorb.  It allows private equity firms to liquidate in batches and it also gives those private equity firms an ability to peg a true market value to the shares rather than a theoretical value of the shares based solely upon other casino stock values.

Our take: The private equity firms should dismantled the assets into separate companies and sold them off or brought them public as smaller casino properties.

In some manner of speaking, this is far less transparent than exactly the ‘unlocking of Singapore and Macau’ values from Wynn Resorts, Limited (NASDAQ: WYNN) and Las Vegas Sands Corporation (NYSE: LVS).

Does us calling it a sham of an IPO mean that it will flop?  Not at all.  As we are publishing this, the value is up 50% from the $9.00 pricing at $13.70 on almost 3.9 million shares.  With such a low float, who knows how high it could go.  Still, if you are a ‘widows and orphans’ investor you probably better look elsewhere.

At least this IPO did not launch on the Ides of March.

JON C. OGG

The Fed Funds Futures are very different today from a week ago after Ben Bernanke and his minions at the FOMC predicted that rates would be “exceptionally low through at least the end of 2014.”  Prior to that, it was a mid-2013 promise.  The reality is the FOMC has no obligation to commit to any time frame and the late-2014 was a projection rather than a commitment.  Still, this was a ‘risk-on’ signal if there ever was one.

Fed Funds Futures are now showing a 100% chance of a rate hike in December 2013.  That is the first month where the price is under 99.75 and this is the first time in quite a while that a rate hike has been this close.  What is interesting is that there is still close to an 80% chance of a rate hike by August of 2013.  Should you panic?  Absolutely not.  The rate hike would just remove the 0.00% to 0.25% range up to a formal 0.25% Fed Funds Rate.

It is still all the way out to September of 2014 now before the Fed Funds Futures are calling for a 100% chance of a 0.50% Fed Funds Rate.

Daily rates can be seen here for Fed Funds Futures from the CME.

JON C. OGG

Keating has been a Director of the Group Finance.  The strategy change is to effect a split in the Irish and U.K. Retail Division into separate units for each country.  Each unit will be led by separate chiefs and both chiefs will be members of the group executive committee.  U.K. Retail will be led by Des Crowley; Ireland Retail will be led by Liam McLoughlin. The new structure’s implementation date is expected to be in mid-March of 2012.

Shares at the local level in Dublin were up 5.2% on last look, but the ADRs in New York were up 3.1% at $6.46 against an adjusted 52-week range of $3.99 to $27.00 if you account for the reverse split.

Our take: This could lead to more of a break-up or allow asset sales more easily down the road.  It certainly is not growth ambitions, but whatever adds to survival chances right now is what matters the most.

JON C. OGG

FULL PRESS RELEASE FROM THE P.R. DEPT. BELOW:

The Governor and Company of the Bank of Ireland (the “Bank of Ireland”)
1 February 2012

Bank of Ireland Announces Board and Executive Management Changes

Bank of Ireland has today announced changes to its Group Structure and to its Senior Executive Team.

Board Change
Andrew Keating has been appointed an Executive Director of Bank of Ireland and Group Chief Financial Officer with immediate effect, replacing John O’Donovan who has retired from that role.  Andrew was formerly Director of Group Finance where he spearheaded a major transformation of the Finance Division in the Bank of Ireland Group.  He joined Bank of Ireland in 2004, prior to which he held a number of senior finance roles with Ulster Bank having qualified as a chartered accountant with Arthur Andersen.

Andrew is also a Director of Bristol & West plc, which is a wholly owned subsidiary of Bank of Ireland.

There are no details requiring disclosure for Andrew under paragraph 6.6.7 (2) to (6) of the Listing Rules.

Changes to Group Structure
Having embedded considerable benefits from the sharing of best practice and synergies in areas such as segment/product propositions, operational management and infrastructure the Group is enhancing the visibility of and focus on two of our most significant businesses.  Accordingly, for strategic management purposes we will split our Retail (Ireland & UK) Division into Retail Ireland Division and Retail UK Division.  Each will be headed up by separate Divisional Chief Executives who will be members of the Group Executive Committee.

Changes to Group Executive Committee
Des Crowley will be Chief Executive of the Retail UK Division where he will be responsible for the various UK based retail businesses within our subsidiary Bank of Ireland (UK) plc and outside the subsidiary.  Prior to this he held a number of positions on the Group Executive Committee since 2000, including Chief Executive, Retail Financial Services and Chief Executive UK Financial Services, having joined Bank of Ireland from Arthur Andersen.  As we work through the revised structure we will need FSA regulatory approval for key changes/appointments which we make during the course of transition.

Liam McLoughlin will be Chief Executive of the Retail Ireland Division, where he will be responsible for the Branch Network, Business Banking, Mortgages, Personal Lending, Debit & Credit Cards and Wealth Management.  Liam has been Head of Group Manufacturing since July 2009.  Prior to that he held a number of senior positions in the Capital Markets and Finance Divisions.  He joined Bank of Ireland in 2004 from Ulster Bank Group prior to which he had been Financial Controller with the National Treasury Management Agency.  Qualifying with PricewaterhouseCoopers he is a fellow of Chartered Accountants Ireland.

Senan Murphy joins Bank of Ireland to become Head of Group Manufacturing.  Senan , a chartered accountant , was most recently Chief Operating Officer and Finance Director at Ulster Bank whom he joined in 2008 having previously been Finance Director at Airtricity. Before that Senan worked in a number of senior roles in General Electric in both the US and Ireland.  In his role with Bank of Ireland, Senan will be responsible for managing and enhancing the Group’s infrastructure (including its technology), customer service and contact centres, collection activities, its customer payment activities and cash distribution.  Senan will be a member of the Group Executive Committee.

Mr Murphy will join the Bank shortly and will transition into his new role for the implementation date of the new Group Structure at which time Mr Crowley and Mr McLoughlin will formally take on their new roles.

The new Group Structure will have an implementation date of mid March 2012.

1 February 2012
 
Enquiries:
Dan Loughrey, Head of Group Corporate Communications Ph: 00-353-623-4770
Helen Nolan, Group Secretary Ph: 00-353-76-623-4710

Our take is that Mark Zuckerberg has been holding out to achieve a $100 billion market valuation for the IPO.  Even if Facebook does not deliver on its IPO paperwork next week, the IPO is coming soon.  The company is going to have to disclose its financials sooner or later due to its large base of shareholders.

GSV Capital Corporation (NASDAQ: GSVC) already owns shares of Facebook and its share have popped by 3% to $15.60 on this news.  As a reminder, Microsoft Corporation (NASDAQ: MSFT) invested in this and now should have exponential implied valuation gains on what sounded silly at the time.

Don’t forget about iShares KLD 400 Social Index Fund (NYSE: DSI).  It will end up being a holder as well and this should increase the trading volume of that ETF whether it is up or down in share prices.

Facebook is ONE OF OUR TOP 17 IPOs FOR 2012

Until an SEC filing hits the tape, we are treating this as a rumor.  One of many rumors.  Supposedly the Facebook IPO will create over 1,000 new millionaires.

JON C. OGG

What was new and unexpected was the comments on how long exceptionally low interest rates will remain in place.  Rather than through mid-2013, the FOMC now has language that will accommodate that near-zero rate stance at least through late 2014.  If that is not a dovish Fed, there never has been one.

Everyone has been wondering if quantitative easing would expand via QE3 (or QE2.5)… Let’s just be honest.  This is more like QE4.

Fed governor Lacker sought to leave out the expected time period for the incredibly low interest rate horizon.  The Fed will also regularly review the size and the composition of its holdings and it is currently maintaining the plan to reinvest mortgage debt principal payments.

The Fed will also continue expanding the maturity of securities, which was that “operation twist” that has been in effect.

The wording was that global financial markets still pose significant risks and the unemployment rate is likely to decline only gradually with a modest pace of economic growth in the coming quarters.  Inflation is subdued and expectations remain stable for inflation.

Other notes: Housing remains depressed, business investing has slowed, household spending continues to improve.

The Fed left the Discount Rate flat at 0.75% and the vote was 9-1 for the Fed Funds Rate action with the sole dissenter being Lacker.

JON C. OGG

Bank of America is trading at a healthy discount to its book value.  The stated book value is $20.09 per share and the tangible book value is now up to $12.95.  Even with a $6.80 pric after a 20% gain in two weeks, this is a steep discount.  The Warren Buffett investment from Berkshire Hathaway Inc. (NYSE: BRK-A) looks like it may pay off now.

Bank of America was the last of the money-center outfits to report and shares are indicated up about 5.5% at $7.17 in active pre-market trading.  The move is also good for other banks which have reported:

Wells Fargo & Co. (NYSE: WFC) is indicated up 0.6% at $30.42 and it trades above book value.

J.P. Morgan Chase & Co. (NYSE: JPM) is up 1.2% at $37.00 and Citigroup Inc. (NYSE: C) is up 1.6% at $29.50.

JON C. OGG

Fourth quarter net revenues were $6.05 billion, and net earnings were $1.01 billion or $1.84 EPS. The annualized return on equity was 5.8% for the fourth quarter.  Management talked about the year being dominated by global macro-economic concerns, impacted risk tolerance of clients, and other challenges.  Thomson Reuters had estimates of $1.24 EPS and 6.54 billion in revenues.

Here were the quarterly highlights by unit:

• Net revenues in Investment Banking were $857 million for the fourth quarter of 2011, 43% lower than the fourth quarter of 2010 and 10% higher than the third quarter of 2011.
• Net revenues in Institutional Client Services were $3.06 billion for the fourth quarter of 2011, 16% lower than the fourth quarter of 2010 and 25% lower than the third quarter of 2011.
• Net revenues in Investing & Lending were $872 million for the fourth quarter of 2011.
• Net revenues in Investment Management were $1.26 billion for the fourth quarter of 2011, 16% lower than the fourth quarter of 2010 and 3% higher than the third quarter of 2011.
• Compensation and benefits expenses (salaries, discretionary compensation, amortization of equity awards and other items such as benefits) were $12.22 billion for 2011, down 21% from 2010. The ratio of compensation and benefits to net revenues for 2011 was 42.4%. Total staff count was down 7% compared with the end of 2010.

The good news about this quarter is that the investment bank made money at a time when estimates were coming down extremely fast.  The bad news is that the quarter was far from an attractive one compared to normalized quarters.

Book value was $130.31 per common share and its tangible book value was $119.72 per common share. Unfortunately, book value in banking today is a ceiling rather than a floor.  Shares are indicated up 1.3% at $98.99 against a 52-week range of $84.27 to $171.49.

JON C. OGG

Bank of New York missed on the top and bottom line with earnings of $0.42 EPS versus $0.52 estimates; revenues were down over 5% to $3.54 billion versus the $3.74 billion estimate.  Assets under custody and administration rose 3% to $25.8 trillion; Assets under management were up 8% to $1.26 trillion.  The company talked up general uncertainty in the financial markets and lower levels of client activity.

State Street reported $0.93 EPS after charges versus $0.94 EPS estimates; revenue rose by 13% to $2.315 billion versus estimates of $2.4 billion.  The company ended with a tier 1 common ratio of 16.9% and it has submitted its 2012 capital plan to the Federal Reserve Bank with plans for dividends and our share repurchases.

Bank of New York is down 3.6% at $20.49 and State Street has not yet started trading and we have not yet started seeing early indications in the early pre-market with about two hours until trading opens in New York.

JON C. OGG

We have compiled basic earnings previews and shown Thomson Reuters estimates from the following: Goldman Sachs Group Inc. (NYSE: GS); State Street Corporation (NYSE: STT); Bank Of New York Mellon Corp. (NYSE: BK); U.S. Bancorp (NYSE: USB); Northern Trust Corporation (NASDAQ: NTRS); American Express Co. (NYSE: AXP); Bank of America Corporation (NYSE: BAC); Morgan Stanley (NYSE: MS); and Capital One Financial Corporation (NYSE: COF).

Goldman Sachs Group Inc. (NYSE: GS) is set to report earnings on Wednesday morning and the earnings estimates have been coming down more than just marginally ahead of the expected earnings report.  It is no longer expected to have the name “Golden Slacks” attached as a nickname right now.  The current target is $1.24 EPS on $6.54 billion in sales, but the earnings targets were above $2.00 EPS recently and the street expected almost $3.00 just about 90 days ago.

State Street Corporation (NYSE: STT) is set to report earnings on Wednesday morning and the consensus estimate for the trust and custodial bank is expected to rise about 8% to $0.94 EPS.  Bank Of New York Mellon Corp. (NYSE: BK) is set to report earnings on Wednesday morning and the earnings estimates are $0.53 EPS and $3.75 billion in revenues.  We will be waiting to see if any of the charges to trust and custodial customers taking the cash holdings operations to a cost rather than as an interest bearing account will have made a difference.  That seems to have gone away but it may have just been lost in the shuffle.

U.S. Bancorp (NYSE: USB) is expected to report earnings on Wednesday morning.  The estimates are $0.63 EPS on $4.76 billion in sales.  Northern Trust Corporation (NASDAQ: NTRS) is also due Wednesday morning and estimates are $0.68 EPS and $972.3 million.

American Express Co. (NYSE: AXP) is due on Thursday after the close and earnings estimates are $0.98 EPS and $7.92 billion in sales.  As with the rest of the lenders and credit cards, we expect to hear continued improvements in credit metrics regarding the customer base.

Bank of America Corporation (NYSE: BAC) is due to report on Thursday morning.  The most unpopular of the big ‘too big to fail’ money-center banks in America, has a consensus earnings estimate of $0.23 EPS on $24.08 billion in revenues.  This has been the best DJIA stock so far in 2012 even including the last two trading sessions.  It is a bit more than just interesting that earnings estimates have ratcheted higher over the last ten days when estimates elsewhere have been cut so much in banking.  The huge discount to book value is again likely to be less material than in years passed.

Morgan Stanley (NYSE: MS) is set to report on Thursday morning as well.  Long gone is worrying about the relative book value and long gone is the comparison to Goldman Sachs.  Estimates are for a loss at -$0.57 EPS and $5.57 billion in revenues.

Capital One Financial Corporation (NYSE: COF) is due to report earning on Thursday and this is the credit card bank “for the rest of America.”  The earnings report could be wildly far off of estimates because the bank is in the process of acquisitions which could greatly skew the headline numbers.  A fresh SEC filing showed that monthly data showed a continued improvement in default rates and in late payments in December. The consensus estimate is $1.55 EPS and $4.08 billion in sales.

JON C. OGG