Reuters: Banks paid out billions of dollars in bonuses last year while losing money.
Reuters: The US closed its car “clunkers” program just as it began as funds ran out.
Reuters: Obame faces more questions about his health care plan.
Reuters: A Congressional bill would affect OTC derivative holdings. Read More
KBW, the bank research firms, thinks Bank of America (BAC) will have to raise $10 billion in new capital. Its mix of real estate, LBO, business, and consumer credit debt still faces substantial write-downs.
The figure is part of a report from KBW that says American money center and regional banks will have to come up with $30 billion to make their balance sheets right. According to the AP, "Among the banks reviewed by KBW, 10 are large-capitalization banks that would account for $21 billion in capital necessary to cover potential losses."
For BAC, which is already trading poorly in the market due to general malaise in the bank industry and its ill-advised purchase of Countrywide (CFC), the dilution from raising $10 billion would be close to 15%.
That could take its stock from $23, near a 52-week low, to $18. And, that is if there is no other bad news.
Douglas A. McIntyre
According to Reuters, global companies may start to issue profit warnings as business slows overseas.
Reuters reports that InBev is sticking to it offer to buy Anheuser-Bush (BUD).
Reuters reports that Chrysler is shutting minivan plants.
Reuters writes that financial executives are still looking for companies that they can buy cheap and improve.
Reuters reports that Lehman (LEH) rose after Morgan Stanley gave the brokerage a positive rating.
Reuters reports that Florida has sued Countrywide over its mortgage practices.
Reuters reports that Ford (F) was in talks to sell Volvo to Renault.
The Wall Street Journal writes that federal authorities want the names of UBS (UBS) clients who may have used the bank to dodge taxes.
The Wall Street Journal writes that Sirius (SIRI) put out financial forecasts for the firm once it combines with XM Radio (XMSR).
The Wall Street Journal writes that the US corn crop is mostly intact even after Midwest flooding.
The Wall Street Journal reports that UBS is likely to issue another profit warning.
The Wall Street Journal writes that Starbucks (SBUX) new coffee has attracted new customers and some critics.
The Wall Street Journal reports that Ford (F) is trying to maintain the vitality of its flagship product, the F-Series pick-up.
The Wall Street Journal reports that Teva (TEVA) has begun to ship a generic version of schizophrenia treatment Risperdal.
The New York Times reports that the Saudi Khurais oil field, one of the largest in the world, may not do as well as many had hoped.
The New York Times writes that business activity in the Midwest remained weak in June.
The FT reports that Warner Music (WMG) has signed up for Nokia’s (NOK) music service.
Bloomberg reports that Eli Broad says the current recession is the worst since WWII and believes the housing market will not recover for years.
Bloomberg writes that Bank of America (BAC) will pay about one-third less for Countrywide (CFC) than it had planned.
Douglas A. McIntyre
According to Reuters, M&A activity is down sharply.
Reuters writes that Anheuser-Busch (BUD) turned down an offer from InBeve.
Reuters reports that Yahoo! (YHOO) has realigned its senion management
Reuters reports that China Mobile (CHL) said it was making progress with Apple (AAPL) on iPhone distribution.
The Wall Street Journal reports that Mozilo of Countrywide (CFC) helped many people get loans.
The Wall Street Journal writes that the Fed will make it easier for private equity firms to invest in banks.
The Wall Street Journal writes that IACI (IACI) will take a $300 million goodwill hit.
The Wall Street Journal write that the new Centro did not keep Palm (PALM) from a big loss.
The New York Times writes that a suit claims that UBS (UBS) misled investors.
The New York Times writes that Sony (SNE) has put together a plan to improve returns in its electronics businesses.
The Wall Street Journal writes that Ford (F) is offering buy-outs at some of its plants.
The Wall Street Journal reports that a memo from Microsoft’s (MSFT) Ballmer offers clues about what he will do with the company.
The New York Times writes that Chrysler brought back Lee Iacocca to give employess a pep talk.
The FT writes that Verizon (VZ) is pressing Vodafone (VOD) to exit its piece of Verizon Wireless.
Bloomberg writes that AIG (AIG) is facing another $5 billion in write-downs.
Douglas A. McIntyre
Oshkosh (OSK) Comes out with extremely week outlook. Sells down to $22.20 from 52-week high of $65.83.
GM (GM) Big sell rating and possible credit rating downgrade. Economy catches up to Detroit. Makes multiyear low at $11.10 down from 52-week high of $43.20.
Rite Aid (RAD) Larger than expected loss. Sells off to to $1.39 from 52-week high of $6.51.
Lear Corporation (LEA) Auto supplier in a bad auto market. Screams down to $14.25 from 52-week high of $41.33.
Bank of America (BAC) Series of negative comments from brokerages about money center banks. Wall Street also does not like Countrywide (CFC) deal. Sells down to $25.01 from 52-week high of $52.96.
Citigroup (C) Wall St. estimates another $9 billion in write-offs in Q2. Drops to $17.53 from 52-week high of $52.97.
XM Satellite Radio (XMSR) Concerns about viability, merger or not. Drops to $7.33 from 52-week high of $16.44
Sirius (SIRI) Ditto. Dips to $1.80 from 52-week high of $3.94
AIG (AIG) Investors looking for more huge write-offs. Tumbles to $28.26 from 52-week high of $70.97
United (UAUA) Oil prices top $140 a barrel. Sell down to $5.25 from 52-week high of $51.60
Douglas A. McIntyre
Today’s selling does not look orderly like it has on many other down days this year. The drop is across almost every sector and most widely-traded shares. Much of it is out of proportion with the news.
GM (GM) is off 11% today to $11.43. Anyone who watches the car industry much must have known that car sales would be bad this year. Gas is too high and consumer income is too low. The stock traded above $21 a month ago.
GE (GE), one of the most admired companies in the world, is down 2% to $27.49, near its 52-week low. There is nothing new from the conglomerate. The most management has said is that it thinks it will hit its numbers. Hardly a reason to racket the share price down again.
RIM (RIMM) and Oracle (ORCL) are both down, RIM by 11% and Oracle by 3%. Each had guidance below Wall St. estimates, but the guidance was still for significant growth. The news should be a relief.
Bank of America (BAC) took out a new low today. Goldman said Citigroup (C) would have $8.8 billion in new write-offs in the current quarter. That helped drop BAC. So did its acquisition of much-troubled mortgage company Countrywide (CFC) Bank of America is one of the few stocks that should be taking a beating.
Even the darling of the investment community, Apple (AAPL) is off nearly 3% to $172.42. With everything so right at the company, why should its share fall?
Some of the selling has become too bloody to watch. It is time to avert the eyes or find a new hobby that does not involve investing in the stock market.
Douglas A. McIntyre
According to Reuters, Anheuser-Busch (BUD) will reject a $46.3 billion buy-out from InBev.
Reuters writes that Oracle (ORCL) posted strong earnings but its outlook was light.
Reuters reports that RIM (RIMM) has an excellent quarter but weak guidance.
Reuters reports that the Fed held rates buy showed concern about inflation.
Reuters writes that Goldman Sachs (GS) says Citigroup (C) may have $9 billion in write-downs in the current quarter.
Reuters reports that Sony (SNE) expects 10% ROE in three years on TVs, Blu-ray and chips.
Reuters reports that Jerry York, adviser to billionaire investor Kirk Kerkorian said auto sales will not recover in the second half.
The Wall Street Journal writes that three more states have filed suits against Countrywide (CFC).
The Wall Street Journal writes that no one is rushing to buy GE’s credit card operations.
The Wall Street Journal reports that the head of Yahoo! (YHOO) wrote to shareholders defending the company’s reaction to the Microsoft (MSFT) offer
The Wall Street Journal writes that Fitch cut its creditor default ratings on Ford (F) and GM (GM).
The New York Times writes that the Supreme Court cut awards against Exxon (XOM) in the Valdez case.
The FT writes that the ECB may raise interest rates.
Bloomberg writes that Goldman Sachs (GS) and four other banks sold $1.7 billion in LBO debt for 70 cents on the dollar.
Douglas A. McIntyre
If there were questions whether or not the first first of the large bank and lender deal would get done, it looks like that is history. Countrywide Financial Corporation (NYSE: CFC) has announced that the results from its special stockholders meeting to vote on the acquisition by Bank of America Corp. (NYSE: BAC) was a stockholder approval. The holders of more than 69% of the Countrywide common stock approved the stock transaction. Pending conditions, this merger is expected to close on July 1, 2008.
Countrywide shares are up 1.9% at $4.75 today and Bank of America shares are up 2.9% at $27.39 today. The final buyout price based upon the full 0.1822 share conversion would be at an adjusted $4.99 based on Bank of America’s price.
Jon C. Ogg
June 25, 2008
Frank Mozilo, founder and CEO of Countrywide (CFC), is almost universally viewed as a thug and miscreant. It will be left to the celestial authorities whether he eventually goes to heaven or purgatory. But, the Attorney General of Illinois wants him in state court.
According to The Wall Street Journal, "In a draft of the complaint, Illinois alleges that the company engaged in "unfair and deceptive practices" in the sale of mortgage loans." The root causes of this is probably that Mozilo wanted to improve his earnings and fuel the secondary mortgage market. He was willing to pay brokers to loan money to anyone, even those in homeless shelters.
The charges are severe because they assume a conspiracy on the part of the CFC top management to push practices which they know were wrong. It is not the first time that ethics have arm-wrestled profits at financial companies, and it will not be the last.
There are enough government agencies after Mozilo that one or more of them will probably catch him. He helped ruin a significant part of the national financial system.
But, Mozilo alone is not at fault. How could such a large fraud go detected for so long? Certainly other companies in the industry must have been aware of what was transpiring at CFC. And, what about the mortgage firm’s own employees? And, local authorities which could see the home sales and mortgage documents come across their desks?
For Mozilo, the question will be what is the price of depravity?
A big fine? Or, twenty years to life?
Douglas A. McIntyre
According to Reuters, the Fed is seen as holding rates on fears of inflation.
Reuters writes that the CEO of Nissan is bracing for the worst in the US.
Reuters writes that Hilton will add 300 hotels in Asia over the next decade.
Reuters reports that Barclays (BCS) will raise $8.8 billion in new capital.
Reuters reports that Blockbuster (BBI) shares rose on rumors it would not buy Circuit City (CC).
Reuters reports that Illinois is suing Countrywide (CFC) and Mozilo.
Reuters reports that Blackrock (BLK) sees the global slowdown getting worse in 2009.
The Wall Street Journal reports that the cost of oil could cause large cuts in orders at Boeing (BA) and Airbus.
The Wall Street Journal writes that consumer confidence plunged
The Wall Street Journal reports that Chrysler tapped it $2 billion credit line.
The Wall Street Journal reports that Charter (CHTR) will delay sending targeted ads to its customers becuase of privacy concerns.
The Wall Street Journal writes that the number of very wealthy people is growing faster in Asia, Russia, and India than it is in the US.
The Wall Street Journal writes that RIM (RIMM) is entering the risky market of consumer handsets.
The Wall Street Journal writes that Wachovia (WB) has hired Goldman Sachs (GS) to evaluate its loan portfolio.
The New York Times writes that Disney (DIS) is overhauling its website to make it more attractive to consumers.
The FT writes that inflation is now global and threatens economies in almost every region.
The FT writes that Nokia (NOK) has taken full control of software company Symbian in a challenge to handset operating systems from Apple (AAPL) and Google (GOOG).
The FT reports that Wal-Mart (WMT) will open its first Marketside small grocery chains in the Fall.
Douglas A. McIntyre
According to Reuters, the fuel price increase in China may bolster consumption.
Reuters writes that the Fed’s policy on inflation is starting to hurt the housing market.
Reuters writes that the Bank of America (BAC) buy-out of CountryWide (CFC) may be done next month.
Reuters reports that the CFO of Citigroup (C) said the bank will take more write-offs.
Reuters writes that Washington Mutual (WM) cut 1,200 jobs.
The Wall Street Journal reports that Yahoo! (YHOO) is planning a reorganization.
The Wall Street Journal reports that the chairman of Live Nation will leave the company.
The Wall Street Journal reports that Continental (CAL) and United (UAUA) have formed a broad marketing alliance.
The Wall Street Journal writes that high gas prices are beginning to cut consumer consumption.
The Wall Street Journal writes that the decision by the Air Force to review its fuel tanker decision is drawing criticism from overseas.
The New York Times writes that the market for small cars is so great the auto companies cannot keep up.
The New York Times reports that Kirk Kerkorian has raised his stake in Ford (F) again.
The FT writes that Microsoft (MSFT) will not go on a buying spree after losing its bid for Yahoo!.
Bloomberg writes that UBS (UBS) is accused of helped US clients hide $20 billion in assets.
Douglas A. McIntyre
It turns out that Frank Mozilo, head of Countrywide (CFC), was passing out special mortgages to people including two former chiefs of Fannie Mae (FNM). Countrywide did business with the quasi-government operation, so being friendly was a good, perhaps excellent idea.
According to The Wall Street Journal, "These borrowers, known internally as "friends of Angelo" or FoA, include two former CEOs of FNM, the biggest buyer of Countrywide’s mortgages,
It is too early to say whether these discoveries will lead to any sort of government investigation. They certainly look bad.
More important, they raise the issue, once again, of why the management of Bank of America (NYSE:BAC) wants to buy Countrywide? There may be money to be made down the road, but there still could be a lot of troubling revelations between now and then.
Bank of America is trading near a 52-week low now. A lot of big investors don’t like the CFC deal. Perhaps the bank’s stock price will get the message through. There is very little benefit and a lot of potential risk in buying CFC.
Douglas A. McIntyre
Who is to blame for the subprime mortage mess which has effectlively locked up much of the global credit markets and pushed the US economy into recession. It is the banks. Period. If they had been responsible in their home lending practices, most of the thrashing of the economy could have been avoided.
Thus says Warren Buffett as he tours Europe like a king. According to Reuters "The banks exposed themselves too much, they took on too much risk …. It’s their fault. There’s no need to blame anyone else," he said.
Buffett may be right, because a number of companies like Countrywide Credit (CFC) gave mortgages to people who were able to buy homes for over $1 million on salaries of under $10,000.
Nonetheless, it is 20/20 hindsight. Where was Buffett when we needed him?
Douglas A. McIntyre
Short sellers are making significant bets that most financial stocks traded on the NYSE will fall sharply. Data is as of May 15 and compares to information on April 30.
Short interest in Countrywide (CFC) rose 26 million shares to 102.4 million Share sold short in National City rose 39.6 million to 138.8 milion. Shares short in Fannie Mae (FNM) rose 17.9 to 104.3 million. Short interest in Washington Mutual (WM) moved up 8.4 million to 192.7 million. Shares short in Freddie Mac (FRE) rose 10 million to 63.2 million. Short interest in Ambac (ABK) moved up 10.1 million to 58.2 million.
Among large cap stocks, the short interest was also up in CBS (CBS) rising by 6.7 million to 37.2 million. Short interest in Motorola (MOT) was up 8.8 million to 48.8 million.
The once sector in which short sellers made a major exit was tech and telecom. Share short in Sprint (S) fell 13.6 million to 83.7 million. Short interest in Texas Intruments (TXN) fell 12.2 million to 35.2 million. Short interest in Micron (MU) dropped 6.4 million to 76.9 million. Shares short in HP (HPQ) fell 4.3 million to 23.2 million. And short interest in AMD (AMD) dropped 1.1 million shares to 98 million.
Data from NYSE
Douglas A. McIntyre
A series of lawsuits against the board and management of Countrywide (CFC) accuses them of insider trading and not being careful enough in regulating the firm’s lending practices. As is the wont in these things, the defendants sought to have the charges dismissed. The judge would have none of it.
According to The Wall Street Journal, the person on the bench wrote "Plaintiffs’ allegations create a cogent and compelling inference that (Countrywide directors) misled the public with regard to the rigor of Countrywide’s loan origination process, the quality of its loans, and the company’s financial situation."
It also appears that directors sold hundreds of millions of dollars worth of CFC stock from 2004 to 2007. The mortgage lender was doing a large stock buyback during the later part of that process, which would have tended to keep the price up.
Countrywide and its executives face two major issues now. The first is whether any of them will go to jail. The prima facie evidence would say that most of them will serve some time in the big house.
The other open question is whether this whole mess will cause Bank of America (BAC) to back away from its purchase of CFC. So far, the bank is sticking to its acquisition plan. The deal may simply be too good to walk away from. If some of the CFC management is in prison, they will simply have to be replaced with executives from one of the hundreds of other mortgage companies which have failed.
It looks, at least for now, that none of the Countrywide board or management will go to the gas chamber.
Douglas A. McIntyre
Not all financial shares are created equal, at least no according to short bets made on NYSE companies for the period ending. April 30 compared to numbers on April 15.
Short interest in Washington Mutual (WM) dropped 11 million shares to 184.3 million. Short interest in Citicorrp (C) fell 10.4 million to 109.4 million. Short interest in Countrywide (CFC) fell 22.5 million to 76.4 million. In the case of these companies, each has either raised money or is being bought out.
Short interest in several financial firms took a big jump. Wachovia (WB) was up 14.8 million to 117.4 million. Short interest in National City (NCC) rose 40.4 million to 100.3 million. Short interest in Fannie Mae (FNM) rose 12.8 million shares to 85.4 million.Share short in Wells Fargo (WFC) rose 12.3 million to 122.5 million. Shares sold short in Ambac (ABK) moved up 16.8 million to 48.1 million.
Other large increases in shares sold short included Ford (F) where short interest rose 11.3 million to 293.1 million. Sprint (S) increased 16.6 million to 92.3 million.
Short interest in some large companies dropeed sharply. Shares short in in AT&T (T) fell 15.3 million to 38 milion and shares sold short iin Citicut City (CC) fell 8.5 million to 27.4 million.
Data from NYSE
Douglas A. McIntyre
According to Reuters, Cisco (CSCO) has a good quarter but was cautious about the future.
Reuters reports that Sprint (S) and Clearwire (CLWR) will announced a $12 billion project for national broadband service.
Reuters writes that Paulson thinks the markets are emerging from their crunch.
Reuters reports that the Fed will seek to pay interest on bank reserves.
Reuters writes that one of the Fed’s members said inflation is having a corrosive impact on the economy.
The Wall Street Journal reports that the West is concerned about Russia’s new sovereign wealth fund and where it may try to invest.
The Wall Street Journal writes that analysts are now predicting $150 oil which would drive gas prices to $4.50.
The Wall Street Journal writes that Disney’s (DIS) results defied the economic slowdown.
The Wall Street Journal reports the Countrywide (CFC) promised to improve its practices as its testified before Congress.
The New York Times writes that Take-Two (TTWO) probably sold about $500 million of it Grand Theft Auto IV game in the first week it was out.
The FT writes that Dubai will begin to invest in emerging markets due to concerns in the West that its fund may want to influence policy in companies in which it invests.
The FT writes that Goldman predicted oil could move above $200.
Bloomberg writes that Countrywide is pulling home equity loans in Las Vegas.
Douglas A. McIntyre
According to Reuters, UBS (UBS) will cut 5,500 jobs. The company is also selling $15 billion in subprime mortgage paper to Blackrock.
Reuters writes that Bernanke says that high foreclosure rates are still a threat to the economy.
Reuters writes that M&A rumors pushed Sprint’s (S) stock higher.
Reuters reports that the head of Merrill Lynch (MER) said the firm would not have to raise more capital.
Reuters reports that Vodafone (VOD) will begin to sell the Apple (AAPL) iPhone in ten countries.
Bloomberg reports that Yahoo! (YHOO) is still open to talk with Microsoft (MSFT) if the offer is at the right price.
Bloomberg writes that $150 to $200 oil is likely in the next six to 24 months according to a Goldman analyst.
The Wall Street Journal writes that Citigroup (C) CEO Pandit is under pressure to be more decisive and turn the bank around.
The Wall Street Journal reports the US regulators plan to take more of a role in oil and gas markets.
The Wall Street Journal writes that Bank of America (BAC) is standing by its bid for Countrywide (CFC).
The Wall Street Journal writes that some of Yahoo!’s big shareholders were critical of the company for not taking Microsoft’s bid of the company.
The Wall Street Journal reports that Sears (SHLD) is preparing for a economic slump.
The Wall Street Journal writes that Merck (MRK) will make huge cuts in its sales force.
The Wall Street Journal reports that Microsoft (MSFT) will try to boost sales of its Zune by making music sharing among devices easier.
The Wall Street Journal reports that Qwest (Q) will use Verizon (VZ) for its wireless services.
The Wall Street Journal writes that AMD (AMD) has expanded its antitrust accusations against Intel (INTC).
The Wall Street Journal writes that the price of crude oil moved above $120.
The New York Times writes that Fannie Mae (FNM) and Freddie Mac (FRE) may need bail-outs.
The New York Times writes that a strike at a GM (GM) plant may hurt sales of one of its most popular cars.
The FT writes that US banks continue to tighten lending.
The FT writes that Target (TGT) will sell part of its credit card portfolio ot JP Morgan (JPM)
Douglas A. McIntyre
One of the interesting by-products of S&P cutting Countrywide’s (CFC) debt to junk is that Bank of America (BAC) may be frightened witless now about taking over the mortgage banker.
According to MarketWatch, the ratings agency said that "there is no assurance that any of Countrywide’s debt will be "redeemed, assumed, or guaranteed" after their pending merger, according to the ratings agency."
The fact that Countrywide’s portfolio and balance sheet are in free fall make it as likely that the financial firm will go bankrupt as it is that BAC will close the transaction.
Friedman, Billings, Ramsey took a very dim view of the S&P downgrade and cut Countrywide to "underperform" from "market perform," according to Reuters. The brokerage cut its target on Countrywide’s stock to $2 from $7.
Housing is getting worse and not better. Defaults are rising not falling. The FBI is looking at CFC’s lending and disclosure practices.
What is Ken Lewis, the CEO of Bank of America saying? Probably "pull out before we get hurt."
Douglas A. McIntyre
Bond-holders who own debt in Countrywide (CFC) have assume that Bank of America (BAC) would take those obligations on and that they would get paid out. Maybe not.
According to Bloomberg. “There is no assurance that any such debt would be redeemed, assumed or guaranteed,” the Charlotte, North Carolina-based bank said in an April 30 regulatory filing.
If the bond-holders push to be taken care of, the matter could end up in court. And, the deal to buy Countrywide could be killed.
Douglas A. McIntyre
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