Facebook IPO Mess

The Facebook (NASDAQ: FB) IPO mess has worsened considerably in just 24 hours. The federal government will examine why analysts at Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) lowered their financial forecasts for the social network just ahead of the IPO. The concern is that favored clients knew about the changes, but the broader investment world did not. Nasdaq claims that if it had known how badly its technical glitches would be, it would have suspended the IPO until there was full confidence shares could trade smoothly. There are also rumors that Facebook’s CFO David Ebersman decided at the last minute to increase the number of shares that would be offered by 25% without enough conversation with his entire team of bankers. Ebersman discussed his plans with lead underwriter Morgan Stanley. But the decision caught many large investors by surprise and caused them to wonder whether the market had enough of an appetite for all of the new shares. Based on how Facebook has traded since the IPO, the answer is no.

Fiat and Mazda

Fiat and Mazda will build a small convertible together. Fiat is the controlling shareholder of Chrysler. The deal is an example of how large car companies that face slow sales in Europe and slowing sales in China have started to band together to save costs. General Motors (NYSE: GM) and Peugeot plan to jointly operate production facilities in Europe. GM’s Opel division is bleeding money in the region. Peugeot is one of the most financially troubled European car companies. GM also has made in investment in Peugeot. And trouble is probably what binds Fiat and Mazda together. Fiat’s sales in Europe have collapsed. Mazda sales run well behind Japanese rivals Toyota (NYSE: TM), Honda (NYSE: HMC) and Nissan. Nissan already has a close alliance with Renault. Fiat and Mazda do not have the capacity to easily develop many new models on their own.

Getty Images for Sale

Private equity firm Hellman & Friedman, which owns Getty Images, has begun the process to sell the company it bought for $2.4 billion in 2008. It reckons using investment banks Goldman Sachs and JP Morgan (NYSE: JPM), it can get $4 billion. Getty has one of the world’s great inventories of photos, some of them artistic icons taken by photographers years ago. The company gets a ready stream of licensing revenue for use of its inventory. The Financial Times points out that there have already been a number of deals in the sector. That by itself may hurt interest and bring down the price that outside investors would pay.

Douglas A. McIntyre

CalSTRS will vote its more than five million investor shares against the entire board’s reelection at Wal-Mart Stores, Inc. annual meeting. We encourage our fellow shareholders to do the same.

Walmart has not been very good to CalSTRS, and many other investors, as least as far as returns go. Its share price has been nearly flat over the past decade. But, like other holders of shares in the world’s largest retailer, it has ignored the rule that people, including executives, are innocent until proven guilty. The fund writes in a letter about its plans:

Based on these allegations, which indicate a breakdown of corporate governance and lack of oversight that should have averted this situation, CalSTRS does not have confidence that the current board has the independence and leadership needed to address these difficult issues.

A number of charges have arisen against Walmart over bribery activity at its Mexico operations. There are also allegations that past and current management knew about them and covered them up. Federal investigations, and a probe by Walmart’s board, have only just begun. It may be months before these conclude. In the meantime, no one in management or on the board has been pushed out, which is as it should be.

If the CalSTRS approach set a standard by which to measure boards and management, all of the leaders of Chesapeake Energy (NYSE: CHK) and JP Morgan (NYSE: JPM) would be gone by now. The same holds true for dozens of companies that have been through recent ethical scandals. Some board members and executives has been forced out at companies where there were breaches of reasonable standards. This includes Best Buy (NYSE: BBY) and Green Mountain Coffee Roasters (NASDAQ: GMCR). There have been no widespread suggestions that the entire boards and top managements of these corporations resign or be turned out by shareholders. Not everyone on the boards of these two public corporations was part of the wrongdoings. By forcing the resignations of those who had violated fair codes of conduct, these board members actually have proved their worthiness as fiduciaries.

The CalSTRS pressure to unseat the entire Walmart board is too radical. The directors who should reasonably judge the chairman and two CEOs ought to be left to do their jobs.

Douglas A. McIntyre

According to a report at Business Insider:

But, just as important, news of the estimate cut was passed on only to a handful of big investor clients, not everyone else who was considering an investment in Facebook.

That’s a big no-no because such information is “material” according to the SEC and selectively disseminating news about a company implies insider trading.

The SEC, along with ahandful of other government agencies, have begun investigating the Facebook IPO. As the days pass, more goodies land on their plates.

Shares are down about -2.5% just before noon, at $33.34.

Paul Ausick

The U.S. allows China to buy treasuries directly without banker assistance. (Reuters)

MF Global paid Jon Corzine $8 million in the year before it collapsed. (Reuters)

The new BrandZ annual study of brand values puts Apple (NASDAQ: AAPL) in the top position, followed by McDonald’s (NYSE: MCD), Coca-Cola (NYSE: KO), IBM (NYSE: IBM), Microsoft (NASDAQ: MSFT) and Google (NASDAQ: GOOG). (Reuters)

Trading losses at JP Morgan (NYSE: JPM) help competitors make money. (Reuters)

Comcast (NASDAQ: CMCSA), Time Warner Cable (NYSE: TWC) and Cablevision (NYSE: CVC) will share Wi-Fi systems to give customers more access to wireless broadband. (WSJ)

Many traders blame Morgan Stanley for overpricing Facebook shares. (WSJ)

France and Germany remain in a battle over the future of austerity in the region. (WSJ)

Facebook’s largest hurdle with investors remains its mobile strategy. (WSJ)

The European Union gives Google little time to answer charges about its business practices, which include privacy matters. (WSJ)

Formula One Group will go public on the Singapore Stock Exchange to raise $2.5 billion. (WSJ)

Zynga (NASDAQ: ZNGA) shares are hurt by the drop in Facebook’s stock. (WSJ)

JP Morgan will kill is share buybacks because of trading losses. (NYT)

Eastman Kodak loses its patent case against Apple and Research In Motion (NASDAQ: RIMM). (NYT)

France will press its neighbors to create eurozone-wide bonds. (FT)

Douglas A. McIntyre

The admission of a $2 billion loss due to improper hedging losses was one thing from J.P. Morgan.  The problem is that Jamie Dimon signaled that the losses could widen out further in the months ahead.  Ultimately the bank will be out of those trades, but these are apparently illiquid enough that the bank cannot simply say “market-sell order” to another trading desk.  J.P. Morgan Chase also has exposure to Europe and elsewhere at a time when BRIC growth has been slowing substantially and while Europe is in meltdown mode.

Wells Fargo is just more of a traditional bank that makes its money off of deposit management, client advisory services, brokerage, loans, and mortgages.  The bank also still trades at a premium to its book value of $25.45 as of March 31, 2012. Its share price is $31.37 after a 1.4% gain today and the 52-week range is $22.58 to $34.59.

J.P. Morgan Chase & Co. (NYSE: JPM) has now joined Bank of America Corporation (NYSE: BAC) and Citigroup, Inc. (NYSE: C) in trading at substantial discounts to their prior book values.  As we have said over and over, book value is the ceiling right now rather than the floor. When investors believe that book values will be dropping or that a bank’s earnings power is drained, does book value even matter?  It is not as though the banks could auction off those assets and realize that price overnight.

The book value of J.P. Morgan Chase & Co. (NYSE: JPM) was $47.60 at the end of the first quarter.  That compares to $46.59 the previous quarter and compares to $43.34 in the first quarter of 2011.  J.P. Morgan shares are down 2.6% at $32.62 after two broker downgrades today.

Bank of America Corporation (NYSE: BAC) reported that its stated book value is $19.83 per share, and its tangible book value was $12.87 per share.  BofA trades at $6.88 after a 2% drop today.

Citigroup, Inc. (NYSE: C) reported that its book value was $61.90 on the stated value methodology and its tangible book value was $50.90 at the end of March.  Citi trades at $26.18 after a 0.6% gain today.

Jamie Dimon might still be the strongest CEO in the room, but as of now it is Wells Fargo that is the safest of the big money-center banks.

JON C. OGG

Dimon also said that the bank would continue to pay dividends, but those payments could also be in jeopardy if the Federal Reserve decides that the derivatives losses threaten the stability of the banking system. Given a choice between two bad alternatives, Dimon and JPM have chosen to retain dividend payments in an effort to keep shareholders at least reasonably happy. By suspending its share buybacks, the bank is hoping to cut off any demand to kill its dividend payments.

The SEC, the FBI, and the Commodities Futures Trading Commission (CFTC) have all launched investigations into JPM’s recently announced trading loss of $2 billion and counting.

As the market continues to slide, JPM’s losses from the trades continue to mount and could top $5 billion. The catch is that no one really knows the extent of the bank’s exposure, probably including even the bank itself.

Shares are down less than -1% at $33.18 in a 52-week range of $27.85-$46.49.

Paul Ausick

The heads of Samsung and Apple (NASDAQ: AAPL) will discuss a settlement to patent wars between the two companies over smartphone IP. (Reuters)

General Motors’ (NYSE: GM) Opel faces a harsh reaction from workers arising from plant closures. (Reuters)

Nasdaq (NASDAQ: NDAQ) will change its trading systems after trouble with the Facebook (NASDAQ: FB) IPO. (Reuters)

Google (NASDAQ: GOOG) says its has Chinese approval to buy Motorola Mobility (NYSE: MMI). (Reuters)

Dalian Wanda Group, based in China, will buy the AMC movie chain for $2.6 billion. (WSJ)

Greece’s conservative parties, which favor austerity, begin to show improvements in U.S. polls. (WSJ)

The European Union’s José Manuel Barroso says Greece should expect pressure over austerity to remain high despite indications otherwise from the G8 meeting. (WSJ)

Some accountants say that Chesapeake Energy (NYSE: CHK) costs misrepresent the firm’s financial position. (WSJ)

The G8 meeting and the opinions of EU leaders may press Merkel to allow Europe to aid some large banks in the region. (WSJ)

UK and US bank regulators prepare for any failure of several financial firms, which include Goldman Sachs (NYSE: GS), JP Morgan (NYSE: JPM) and Barclays (NYSE: BCS). (FT)

China begins to cancel or delay some commodities imports — another sign its economy has slowed. (FT)

UK Prime Minister David Cameron says the EU should prepare for the departure of Greece. (FT)

Douglas A. McIntyre

One example of a CEO who were taken to task recently for the actions of his company was Lloyd Blankfein of Goldman Sachs (NYSE: GS), who seemed to forget everything about the operations of his investment bank for the few short hours he answered questions. Another was Akio Toyoda, whose company, Toyota Motors (NYSE: TM), built some cars with dangerous accelerator problems. Toyoda spent most the time during his testimony apologizing for the mistakes the manufacturer, founded by his grandfather, made and explaining how a new quality control program would prevent them. Toyoda must salvage the good name of his ancestors, he said.

A parade of CEOs and senior executives was called to testify about the financial meltdown that triggered the last recession. These included bankers and officers of ratings agencies, in particular, S&P and Moody’s. No criminal charges were brought against any of these executives. Many have gone on to collect the large pay packages that Congress attacked with vigor. All in all, the testimonies were an inconvenience, or perhaps a brief period of anxiety that ended quickly.

Senators will ask Dimon how JP Morgan lost $2 billion or more on risky trades. He will repeat his standard response that his traders were stupid and that the mistakes were “self-inflected.” He will describe how those who ran trading operations were fired. He will explain all of the things JP Morgan will do to better manage risk. Perhaps most importantly of all, Dimon will talk about the incident as an aberration, and not a lesson in how a few poor decisions should prompt Congress and the Administration to set more strict bank laws.

For Dimon, if history is any guide, his time before the Senate committee will be little more than a few uncomfortable hours.

Douglas A. McIntyre

The Facebook IPO, priced at $38, will raise $16 billion. (Reuters)

A new poll shows Greeks favor pro-bailout leaders who will keep the country in the eurozone. (Reuters)

Verizon’s (NYSE: VZ) wireless operations will charge more for 4G data plans. (Reuters)

Hewlett-Packard (NYSE: HPQ) to cut its workforce by 25,000 to 30,000 people. (WSJ)

The United States sets duties on Chinese solar panels. (WSJ)

Gamestop (NYSE: GME) cuts its sales forecast. (WSJ)

Though Angela Merkel’s view of austerity for the region has been challenged recently, she appears to have no interest in changing her approach. (WSJ)

Twenty venture-backed U.S. firms are now valued above $1 billion. (WSJ)

The custodian of a group of New York City pension funds wants shareholders to vote against two directors on the Chesapeake Energy (NYSE: CHK) board. (WSJ)

The Gap (NYSE: GPS) raises its sales forecasts as its turnaround finally takes hold. (WSJ)

JP Morgan (NYSE: JPM) had no treasurer in place when its CIO made risky trades. (WSJ)

Treasury yields hit their lowest level ever as a flight to quality accelerates. (WSJ)

The eurozone may have done a good job preparing for a Greek exit. (NYT)

The U.S. Post Office will consolidate 48 mail processing centers to save money. (NYT)

JP Morgan’s trading unit has $100 billion in risky assets. (FT)

Apple (NASDAQ: AAPL) may offer an iPhone with a larger screen. (Bloomberg)

In China, home prices fall and car inventories rise — more signs of a slowing economy. (Bloomberg)

Douglas A. McIntyre

Some brokerage firms stop taking orders for Facebook shares. (Reuters)

Japan’s gross domestic product rises 3.5% in the first quarter, helped by consumer spending. (Reuters)

President Obama may force more harsh rules on banks after the JP Morgan (NYSE: JPM) loss. (Reuters)

Pinterest raises $100 million. (WSJ)

Some Facebook shareholders will sell $3.5 billion of stock in the initial public offering. The firms include Goldman Sachs (NYSE: GS). (WSJ)

Apple (NASDAQ: AAPL) may launch an iPhone with a larger screen. (WSJ)

Verizon Wireless will cut unlimited data plans when customers upgrade to 4G LTE. (WSJ)

LG Electronics releases its own series of new smartphones. (WSJ)

The Mortgage Bankers Association releases data that shows the percentage of homes in foreclosure has not fallen much in the past two years. (WSJ)

The number of loans in China has fallen, which may hurt the economy. (WSJ)

Japan’s economy grows an annualized 4.1% in the quarter ended in March. (WSJ)

Google (NASDAQ: GOOG) changes the way sites are measured as it tries to cut sites that try to “game” its system. (WSJ)

Walmart (NYSE: WMT) has been tardy in opening new, small stores, which is hurting it in competition with Target (NYSE: TGT) and other retailers. (WSJ)

Coty will use Bank of America (NYSE: BAC) and JP Morgan for its IPO. (WSJ)

JP Morgan’s trading loss could rise 50%. (NYT)

Dish Network (NASDAQ: DISH) releases a DVR that allows viewers to skip ads. (NYT)

The Federal Reserve says it is worried about the eurozone crisis and its effect on the U.S. economy. (FT)

Shell (NYSE: RDS-A) says natural gas prices could surge by 2015 due to demand. (FT)

Douglas A. McIntyre