Wall Street Breakfast: Must-Know News 18 comments
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- CIT makes it official. CIT Group (CIT) filed for bankruptcy protection Sunday with broad support from its debtholders, but taxpayers will lose the $2.3B invested in CIT, marking the first definitive loss in the government's rescue of the financial system. Nearly 90% of CIT's bondholders voted in favor of the prepackaged bankruptcy, which CIT says will enable it to reduce total debt by $10B, significantly reduce its liquidity needs over the next three years, enhance its capital ratios and accelerate its return to profitability. Bondholders will receive about $0.70 on the dollar, a number that could have fallen as low as $0.06 had CIT entered a freefall bankruptcy. With $71B in assets and $65B in liabilities, CIT's bankruptcy ranks among the largest in corporate history. (CIT's bankruptcy filing)
- Goldman wants Fannie's credits. Goldman Sachs (GS) is in talks to buy up to $1B in tax credits from Fannie Mae (FNM) for an undisclosed amount. But the government - which controls Fannie - is reluctant to approve a deal that would allow Goldman to reduce its tax bill "given the animus held by many lawmakers toward big Wall Street firms in general, and Goldman in particular." Fannie and its rival Freddie Mac (FRE) loaded up with billions of dollars in the credits - which were created to spur investment in low-income housing - during the boom years, but now have no use for them.
- Comcast/GE near deal. Sources say a deal giving Comcast (CMCSA) control of GE's (GE) NBC Universal could be announced as soon as next week after a tentative agreement was reportedly reached Friday. GE would contribute $12B in debt to the new entity, and retain 49% ownership, while Comcast would kick in "several billion dollars" and its stable of cable networks for its 51%. Talks with Vivendi, which owns 20% of NBCU, continue to center on how to arrive at a mutually acceptable valuation - and are currently the main roadblock to a deal.
- Denbury picks up Encore of $4.5B. Denbury Resources (DNR) agreed to acquire Encore Acquisition Co. (EAC) in a transaction worth $4.5B including the assumption of $1.25B in debt. Denbury will pay $50 for each share of EAC - $15 in cash and $35 in stock - a 35% premium to Friday's close. "All of our operations are in the Gulf Coast. It is good to expand to another area, to get a footprint in another location like the Rockies," Denbury CEO Phil Rykhoek said, noting the combo will have one of the largest reserves of crude among independents. Denbury plans to sell off some non-core oil and gas assets next year to pay down its debt. JPMorgan (JPM) will provide Denbury with a new $1.6B line of credit and another $1.25B in bridge financing.
- Lupus drug passes critical 2nd trial. Human Genome Sciences's (HGSI) experimental lupus drug Benlysta was successful in a second large clinical trial, paving the way for approval of the first new treatment for the disease in 50 years. While not as strong as the results from an initial study, the results released Monday should be enough to secure FDA's go-ahead. Hopes for Benlysta have been growing since initial results were released in July, surprising many experts who had been sceptical given the previously poor track record of new lupus treatments. HGSI +41% premarket.
- Pfizer eyes Protalix. Pfizer (PFE), is reportedly considering a JV with Israel's Protalix, and may even buy the company. Protalix developed the ProCellEx system for producing medical proteins through genetically engineering carrot cells; the method is up to 90% cheaper than other methods. Last month Protalix said its experimental drug to treat Gaucher's disease, Uplyso, was successful in a late-stage clinical trial. If approved, it would compete with Genzyme (GENZ) blockbuster Cerezyme.
- The cost of doing better. UAW rank-and-file dealt Ford (F) a fatal blow, overwhelmingly rejecting proposed contract concessions that would bring its costs in line with GM and Chrysler. "This was a tough sell from the beginning," a professor who specializes in labor issues said. "Ford was caught in between doing better and advertising that, and the UAW already giving Ford concessions." Sources say Ford will continue talks with the union to find ways to cut costs, but may look to move some production to lower-cost locations if it can't remain competitive in the U.S.
- Goldman secretly bet on the housing crash. In 2006 and 2007, Goldman Sachs (GS) sold more than $40B in mortgage-backed securities to pension funds, insurance companies, labor unions and foreign financial institutions, while failing to disclose it was betting heavily on a sharp drop in U.S. housing prices. While some say the omission may be a violation of securities laws, Goldman says it had no obligation to disclose its internal hedges.
- Kelly tells BofA 'no thanks.' Bank of New York Mellon (BK) CEO Robert Kelly was reportedly asked to become Bank of America's (BAC) next CEO, but said he's not interested in the position. While BofA's search committee hasn't ruled out hiring an insider - with Gregory Curl and Brian Moynihan the current favorites - the Kelly feelers reflect the board's growing interest in outside candidates.
- Nest egg keeps growing. U.S. companies are holding on to more cash than in any time during the last 40 years, according to a study by the WSJ. In Q2, the 500 largest nonfinancial companies held 9.8% of their assets ($994B) in cash and short-term investments, up from 7.9% ($846B) a year earlier. Firms are hoarding cash to ensure they can cover day-to-day costs after credit markets froze up last year, catching many off guard; their unwillingness to spend during the downturn is another factor increasing the bulge. In the short-term, large cash balances are a curse for the economy, but analysts say a strong cash position will enable companies to transition more quickly into growth mode when reinvestment begins.
- Full speed ahead in Asia. Asian factory activity grew again in October, with China hitting an 18-month high, suggesting the region is on an economically solid footing and will likely lead the global recovery. In comments released along with the official version of China's PMI, a government researcher said China's economy could grow 9.5% in Q4.
Earnings: Mon. Before Open
- Cooper Tire & Rubber (CTB): Q3 EPS of $0.77 beats by $0.11. Revenue of $794M (-1.1%) vs. $715M. (PR)
- Dean Foods (DF): Q3 EPS of $0.34 beats by $0.01. Revenue of $2.77B (-13.2%) vs. $2.94B. (PR)
- Ford (F): Q3 EPS of $0.26 beats by $0.38. Revenue of $30.9B (-2.5%) vs. $28.3B. U.S. market share +2.2% Y/Y. Expects full-year 2009 U.S. industry sales of 10.6M, consistent with previous guidance. Shares +4.3% premarket. (PR)
- Humana (HUM): Q3 EPS of $1.78 beats by $0.01. Revenue of $7.72B (+8%) in-line. (PR)
- Loews (L): Q3 EPS of $1.08 beats by $0.19. Revenue of $3.74B (+25.9%) vs. $3.35B. (PR)
Today's Markets
Asian markets were mostly lower Monday. Europe shares are trading higher at midday, and U.S. futures have moved higher overnight.
- Asia: Nikkei -2.3% to 9803. Hang Seng -0.6% to 21620. Shanghai +2.7% to 3077. BSE -1% to 15896.
- Europe at midday: FTSE +0.6% to 5073. CAC +0.5% to 3626. DAX +0.1% to 5422.
- Futures at 7:00: Dow +0.5% at 9715. S&P +0.6% to 1039. Nasdaq +0.3%. Crude +1.4% to $78.06. Gold +1.4% to $1,054. 30-year Tsy -0.21% to 119-29. 10-year -0.1%. Euro +0.3 vs. dollar. Yen flat. Pound -0.5%.
Monday's Economic Calendar
- 9:00 Supreme Court: Mutual Fund Fees
10:00 ISM Manufacturing Index
10:00 Construction Spending
10:00 Pending Home Sales
10:00 President’s Economic Recovery Advisory Board: The Economy
11:30 Hearing: Residential and Commercial Real Estate
3:00 PM Roundtable: Executive compensation - Notable pre-market earnings: CLX, CSE, CTB, DF, F, HUM, L, SYY
- Notable post-market earnings: APC, AXS, CAR, CHK, FST, HL, KGC, MNKD, PFG, RSG, SM, VMC
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GS bet on housing crash? "While some say the omission may be a violation of securities laws" You can bet that they will not be punished additionally they will get into Fannie Mae's pants and take her credits. All the while our illustrious politicians will be complaining but will actually do nothing that would put their reelection contributions from Wall Street in jeopardy.
At least some parts of our government are transparent.
Yet Ford is the only one of the 3 that is actually ADDING capacity in America right now (their recent announcement to build the Koga SUV here, moving production from Europe).
If I were Ford I would locate that plant in a right-to-work state, spin it off as a seperate, wholly-owned entity (like Toyota does), and set it up without the UAW.
THAT would be a gauntlet in the sand, and it would be interesting to see who picked it up...
Investment bank's strategy should be investigated as securities fraud, critics say
By Greg Gordon
McClatchy Newspapers
Published on Sunday, Nov 01, 2009
WASHINGTON: In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.
Goldman's sales and its clandestine wagers on falling home prices, completed at the brink of the housing market meltdown, enabled one of the nation's premier investment banks to pass most of its potential losses to others before a flood of mortgage loan defaults staggered the U.S. and global economies.
Only later did investors discover that what Goldman promoted as triple-A investments were closer to junk.
Now, pension funds, insurance companies, labor unions and foreign financial institutions that bought those dicey mortgage securities are facing large losses, and a five-month McClatchy Newspapers investigation has found that Goldman's failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws.
''The Securities and Exchange Commission should be very interested in any financial company that secretly decides a financial
product is a loser and then goes out and actively markets that product or very similar products to unsuspecting customers without disclosing its true opinion,'' said Laurence Kotlikoff, a Boston University economics professor who has proposed a massive overhaul of the nation's big banks. ''This is fraud and should be prosecuted.''
John Coffee, a Columbia University law professor who served on an advisory committee to the New York Stock Exchange, said that investment banks have wide latitude to manage their assets, and so the legality of Goldman's maneuvers hinges on what its executives knew at the time.
''It would look much more damaging,'' Coffee said, ''if it appeared that the firm was dumping these investments because it saw them as toxic waste and virtually worthless.''
Lloyd Blankfein, Goldman's chairman and chief executive, declined to be interviewed for this article.
A Goldman spokesman, Michael DuVally, said that the firm decided in December 2006 to reduce its mortgage risks and did so by selling off subprime-related securities and making myriad insurancelike bets, called credit-default swaps, to ''hedge'' against a housing downturn.
Although the company had secretly bet on a downturn, DuVally told McClatchy that Goldman ''had no obligation to disclose how it was managing its risk, nor would investors have expected us to do so. . . . Other market participants had access to the same information we did.''
FBI investigations
In piecing together Goldman's role in the subprime meltdown, McClatchy reviewed hundreds of documents, SEC filings, copies of secret investment circulars and lawsuits and interviewed numerous people familiar with the firm's activities.
McClatchy's inquiry found that Goldman Sachs:
• Bought and converted into high-yield bonds tens of thousands of mortgages from subprime lenders that became the subjects of FBI investigations into whether they'd misled borrowers or exaggerated applicants' incomes to justify making hefty loans.
• Used offshore tax havens to shuffle its mortgage-backed securities to institutions worldwide, including European and Asian banks, often in secret deals run through the Cayman Islands, a British territory in the Caribbean used by companies to bypass U.S. disclosure requirements.
• Has dispatched lawyers across the country to repossess homes from bankrupt or financially struggling individuals, many of whom lacked sufficient credit or income but got subprime mortgages anyway because Wall Street made it easy for them to qualify.
Record earnings
With the help of more than $23 billion in direct and indirect federal aid, Goldman appears to have emerged intact from the economic implosion, and by repaying $10 billion in direct federal bailout money — a 23 percent taxpayer return that exceeded federal officials' demand — the firm has escaped tough federal limits on 2009 executive bonuses that accompanied bailout money.
It announced record earnings in July, and is on course to surpass $50 billion in revenue in 2009 and pay its employees more than $20 billion in year-end bonuses.
From 2001 to 2007, Goldman hawked at least $135 billion in bonds keyed to risky home loans, according to analyses by McClatchy and the industry newsletter Inside Mortgage Finance.
Its financial panache made its sales pitches irresistible topolicymakers and investors alike, and helps explain why so few of them questioned the risky securities that Goldman sold off in a 14-month period that ended in February 2007.
Since the collapse of the economy, however, some investors have changed their views of Goldman.
Adding up losses
Several pension funds, including Mississippi's Public Employees' Retirement System, have sued, seeking class-action status, alleging that Goldman and other Wall Street firms negligently made ''false and misleading'' representations of the bonds' true risks.
Mississippi Attorney General Jim Hood, whose state lost $5 million of the $6 million it invested in Goldman's subprime mortgage-backed bonds in 2006, said the state's funds are likely to lose ''hundreds of millions of dollars'' on those and similar bonds.
California's huge public employees' retirement system, known as CALPERS, purchased $64.4 million in subprimemortgage-backed bonds from Goldman on March 1, 2007. In July, CALPERS listed the bonds' value at $16.6 million, a drop of nearly 75 percent, according to documents obtained through a state public records request.
In May, without admitting wrongdoing, Goldman became the first firm to settle with the Massachusetts attorney general's office as it investigated Wall Street's subprime dealings. The firm agreed to pay $60 million to the state, most of it to reduce mortgage balances for 714 aggrieved homeowners.
It would be cheaper for the TAXPAYER (US GOVT) to eithe just cancel the credits, or alternatively , have the US Treasury pay Ginnie Mae 100% for the credits.
Only GS can make a fee as the fools in Congress and Treasury and Obama Administration transfer $ Billions from one govt account to another, a transaction between two pockets of the same taxpayers money.
How damn dumb are we?
> CIT's BK is likely to cost taxpayers $3B, according to Bloomie, and
> other sources..oh well....no doubt, GS will make out ok...that's
> what's REALLY important...right?.......
Old Trader, isn't CIT an original Rockefeller bank?
You did promise change though!!!
To be perfectly honest, I don't know.
On Nov 02 02:53 PM spald_fr wrote:
> On Nov 02 10:45 AM Old Trader wrote:
According to Google, CIT was founded in 1908 by Henry Ittleson, in St. Loius, Mo.
On Nov 02 02:53 PM spald_fr wrote:
> On Nov 02 10:45 AM Old Trader wrote: