The focus of the short sellers moved to the healthy financial firms on bets that they will sell off like their less successful peers. Shares short in JPMorgan (JPM) rose 29% to 5.2 million. The short interest in Wells Fargo (WFC) was up 7% to 133.2 million.

Short sellers jump into stock in big industrials. Shares sold short in GE (GE) were up 34% to 106.4 million. The short interest in Ford (F) moved higher by 7% to 268.5 million.

In the tech sectors, short sellers made a retreat. Shares short in Intel (INTC) moved down 6% to 98.6 million. The short interest in Comcast (CMCSA) was fell 19% to 78.3 million. Short interest in Microsoft (MSFT) fell 3% to 72.1 million shares.

Shares short in Oracle (ORCL) dropped 17% to 47.9 million and the short interest in Yahoo! dropped 8% to 40.9 million. Shares short in Sun (JAVA) fell 5% to 29.7 million and the short interest in Symantec (SYMC) fell 10% to 29.6 million.

The short interest in Apple (AAPL) dropped 3% to 21.3 million shares.

Data from NASDAQ and NYSE

Douglas A. McIntyre

Several analysts have more pessimistic forecasts of an increase of 250,000 people out of work compared with September, putting the jobless rate at 6.8%.

It is not unusual to hear educated speculation that the level of unemployment in the US will go as high as 7.5% next year.

All of these numbers may be much too low. What if the economy were to lose three million jobs over the next five quarters instead of as little as one million? That would take unemployment near 10%. The jobless rate hit just under 9% in the 1974 recession and hit 10.2% in 1982. That level is higher than it had been since WWII and has never been surpassed since then.

It is not very hard to account for where three million more jobs might be lost. In the retailer sector, there are several large companies such as Sears (SHLD) which employ several hundred thousand people each. If this holiday’s sales are as bad as experts expect, it would not be shocking to see 500,000 jobs fall out of this part of the labor force.

In the automobile industry, some estimates are that a GM (GM) combination with Chrysler could put 60,000 people out of work. If Chrysler’s is sold off in pieces, nearly as many people may lose jobs. The car parts industry employees tens of thousands of workers. There will be as much fall-out in that part of the sector as there will be at the Big Three themselves. Almost no one is predicting a recovery of car sales until 2010.

The restaurant and hospitality industries are expected to be hit very hard as travel drops and more people are forced to eat all of their meals at home. Some of the largest firms in these sectors employee well in excess of 100,000 each and there are tens of thousands of small restaurants around the country. The idea that this portion of the job pool could lose several hundreds thousand workers is not out of the question.

While layoffs in the banking and financial sectors have already been painfully significant, there are bound to be more. The consolidation that has taken down companies including WaMu, Countrywide, Bear Stearns, Lehman, Wachovia, and NCC is not at an end. Several large regional banks and brokerage operations which have over 10,000 employees each could become part of future acquisitions if the mortgage and consumer credit disasters get even worse.

Three million jobs seems like a great deal, but, industry-by-industry, it is not terribly hard to get there.

Douglas A. McIntyre

Barclays did the sensible thing. It went out and raised money on its own. According to MarketWatch, the bank "struck a deal to raise up to 7.3 billion pounds ($11.9 billion) in fresh capital as the U.K. lender signaled its preference for cash from Middle Eastern royal families to the British government."

The excuse that US financial firms might give for not going the private capital route is that Barclays is doing better than they are. But, last November, the UK bank wrote down $2.7 billion in subprime paper. Last May it lost nearly $3 billion.

The stock market is usually not a bad test of how companies in the same industry are doing relative to one another. So far this year, Barclays shares are down 65%, which is more that those of JP Morgan (JPM), Citigroup (C), or Bank of America (BAC).

Barclays took a risk, perhaps a large one, by insisting upon raising private capital. That revives the question of what would have happened if the Treasury and Congress had not stepped in to provide tens of billion of dollars to US banks. Wells Fargo (WFC) did not ask for public capital for its purchase of Wachovia (WB). That is a useful bit of data.

The Barclays announcement indicates that the American banking system may have made it on its own. Some institutions would have been bought by others, probably at fire sales prices. That has already happened to companies like NCC (NCC). But, the valuations of the firms when they traded near their lows were probably attractive enough to bring in private equity and sovereign fund capital.

The bailout may not have been needed at all.

Douglas A. McIntyre

• China Telecom (CHA) Raised to Buy at UBS.
• Choice Hotels (CHH) Raised To Neutral From Underweight at JPMorgan.
• Comcast (CMCSA) Started as Outperform at Credit Suisse.
• Google (GOOG) Started as Outperform at Credit Suisse.
• L-1 Identity Solutions (ID) Raised to Neutral from Underweight at JPMorgan.
• PepsiAmericas (PAS) Raised to Buy at UBS.

• AmeriCredit (ACF) Cut to Underperform at KBW.
• Ericsson (ERIC) Cut to Sell at Goldman Sachs.
• National City (NCC) Cut to Market Perform at KBW.
• News Corp. (NWS) Cut to Neutral at Credit Suisse.
• Nokia (NOK) Cut to Sell at Goldman Sachs.
• PC-Tel (PCTI) Cut to Neutral at Baird.
• Ralcorp Holdings (RAH) Cut to Neutral at Credit Suisse.
• Sherwin-Williams (SHW) Cut to Neutral at JPMorgan.

Jon C. Ogg
October 28, 2008

Now that Henry Paulson has $700 billion and some discretion about how to spend it companies from car manufacturers to airlines want a piece. So do some municipalities. Insurance companies are already in the "salvation system", or at least AIG (AIG) is. But, its $123 billion came from a pot all of its own.That means Treasury has a bit more money.

It is not unreasonable to think that "strategic" industries like automobiles should get a Brink’s truck of bullion. The trouble is that Treasury Secretary Henry Paulson may find financial firms need more money than projected. Right now Treasury has $250 billion earmarked for equity investments. Tens of billions of dollars, or perhaps more, will go for the original plan of buying toxic paper.

If Wall St. considers that massive write-downs that NCC (NCC) and Wachovia (WB) made when they were taken over, it gives some picture about how bad off banks may really be. NCC is a modest-sized bank and it will take almost $20 billion in charges. Wells Fargo (WFC), Wachovia’s new owner, says write-offs after the buyout could be a large multiple of the NCC number.

Several analysts recently wrote that Citgroup (C) may not make money until 2010. What the total cost of future capital going into the big money center banks is hard to calculate.

But, Paulson had better save the entire $700 billion for the banking system. He is going to need it.

Douglas A. McIntyre

NCC’s stock is down 20% on the news. PNC will pay a total of $2.23 a share or $5.58 billion.

The government had a hand in the deal and probably even forced it. PNC says it received a $7.7 billion investment from the government, under its $750 billion bailout plan.

The amount of the write-offs when the deal is done will be extraordinary. PNC’s CEO said $19.9 billion of losses on the National City portfolio will come in as write-downs at the time the acquisition closes.

That says a great deal about major US bank balance sheets. Wachovia (WB) reported a third-quarter loss of $23.9 billion on Wednesday, which say a mouthful about that state of its financials. Under the provisions of its merger deal with Wells Fargo (WFC), it was required to fess up to everything bad it could find. According to Reuters, loan losses from Wachovia could hit $74 billion.

Odd that the really big write-offs only get exposed when these firms are bought. It is almost as if those banks which are still independent are moving a bit slowly in getting all of their cards onto the table.

Douglas A. McIntyre

This merger comes with interesting terms.  National City shareholders are entitled to 0.0392 share of PNC common stock foreach share of National City.  The PNC offer to acquire National City isfor $2.23 per share, or an aggregate fixed amount of approximately $5.2billion in PNC stock. Additionally $384 million of cash is payable tocertain warrant holders.  National City has issued to PNC an option toacquire 19.9 percent of National City’s common stock that becomesexercisable under certain specified circumstances.

PNC plans to issue to the U.S. Treasury $7.7 billion of preferred stockand related warrants under the TARP Capital Purchase Program subject tostandard closing requirements.

The combined entity will all of a sudden be the fifth largest bank asfar as deposits are concerned, and apparently it will be fourth in thenumber of branches nationally.

The dollar terms announced would have been $2.33 based upon a PNC closeof $56.88.  Unfortunately, its shares are lower along with the rest ofthe other financial stocks and it appears down 4.6% at $54.32 if thoseare accurate prints on a day where stocks are not opening normally andare certainly not opening higher.

Jon C. Ogg
October 24, 2008

Charter is in a pretty good business. As a cable provider it markets digital TV, broadband and VoIP services. The company has more than five million customers. It also has over $20 billion in debt. The stock changes hands at $.38. That compares with a 52-week high of $3.94

There are several other very well-known companies which could move below $1 and face problems with their exchange listings and their ability to attract new capital.

Ford (F) has fallen from a 52-week high of $8.99 to $1.88 earlier this month. US cars sales in each of the last three months of the year could be more brutal than they were in the first three quarters. In addition to a slowing economy, car buyers, even those with reasonable finances, are finding it hard to get car loans. A number of auto industry analysts believe that Ford will get low on cash by the second half of next year.

Level 3 (LVLT) appeared to have recovered from a share price which was hurt by the company’s net losses earlier this year. It had cut its great hunger for buying and unsuccessfully integrating new operations. But, it has almost $7 billion in debt and extremely modest operating income. Shares have fallen from a 52-week high of $4.48 to $1.26. Any significant problems with its debt or a quarter or two of losses and the stock could go lower.

Ambac (ABK) has done well recently. The bond insurance company indicated that it will try to get the federal government to buy its risky assets. That may not happen. Or, the toxic assets on the firm’s balance sheet could become more troubled as the economy and housing market fail. The stock has been as low as $1.04. It trades at $3.04 now. It would only take one big dose of bad news to push it lower again.

AIG (AIG) has to sell a lot of assets to get out from under the $89 billion it has borrowed from its federal government loan facility. There is already speculation that it is having trouble selling some of its best assets because of the credit market. The insurance company still has bad paper on its books and the value of that could certainly be falling. Management now gets to spend a lot of time with NYS Attorney General Cuomo. Not a good distraction during a turnaround. The stock traded at $1.25 earlier this year, and now sells for $2.12 a share.

NCC (NCC) has recovered some from its balance sheet problems. Investors are speculating that the Paulson plan will help the bank rid itself of bad assets. It might even get Treasury to buy some of its shares to provide capital. There have also been rumors that a larger bank like Citigroup (C) will buy it. A quarter or two of bad write-offs and disclosures about the faltering value of its balance sheet could cut NCC down to size. It trades at $3.03 but was at $1.25 not terribly long ago.

Douglas A. McIntyre

The ratio offered is 0.1991 shares of Wells Fargo stock. This is an alternative merger from the Citigroup (NYSE: C) government assisted buyout.  Wells Fargo will record Wachovia’s credit-impaired assets at fair value.  Wells Fargo claims it needs no financial assistance from the Federal Deposit Insurance Corporation or any other government agency. Wells Fargo will also issue $20 billion in new securities to shore up its liquidity as well.

What is interesting here is that this may actually be a game changer for the banking sector.  It has two paths that could come from it.  First, the FDIC hasn’t keyed in on this.  We do not know if the FDIC will step in yet to say the original Citi deal has already been reached or if either part will make a lawsuit out of this.  Second, this could put other troubled banks into play.  Sovereign Bancorp (NYSE: SOV), National City Corporation (NYSE: NCC), and Fifth Third Bancorp (NASDAQ: FITB) are all trading higher on this in hopes that Citi or others will step in now and snatch them up.  This might even mean there is something left for the common shareholders there too.

Wachovia closed at $3.91 yesterday and shares are up above $6.00 in early trading reaction to this announcement.  Citigroup is trading down about 6% in early trading on this.  You snooze, you lose.

Jon C. Ogg
October 3, 2008

There has been no news about the financial firm to account for either its fall or resurrection. Rumors about credit and bank runs took NCC down despite comments from several brainy analysts including Oppenheimer & Co.’s Terry McEvoy. He upped his rating to "outperform" when trading opened at the beginning of the week.

The frenzy around NCC caused Moody’s to say it might downgrade the bank’s debt. It was a cowardly act based on the sell-off and the credit agency probably wishes it could take its announcement back.

The theory that took the stock down and then helped it move higher is that the bailout package will be good for NCC. Of course, no one other than bank management knows how much toxic paper the firm has to unload. The amount may be very modest. If the package makes it through the House, NCC may even go back to over $5, where it traded three weeks ago.

NCC is not alone. Wachovia (WB) and several other banks suffered the same gyrations. The panic got brutal. Many depositors and clients probably did pull out of these institutions. If the rate of attrition had been great enough, NCC or WB might have failed. In either case, it would have been without good reason.

The real high-stakes gamblers in the market probably played the sell-offs and buy-ups by watching suckers move in and out of the bank shares. They made a lot of money in a very brief period of time.

Douglas A. McIntyre