Under The Radar News - Friday

by: SA Eli Hoffmann

Same old, same old. Lehman (LEH) is using its new-found welcome at the Fed's discount window to play some of the same games that brought on the credit crisis. In recent weeks, it created a $2.8B vehicle named Freedom, into which it dumped risky LBO debt. It then turned to the Fed and used Freedom (apropos) as collateral against a short-term cash loan, effectively flipping high-risk debt into cash it could use to finance its day-to-day business. Equally shocking its that $2.26B of the securities were rated investment-grade by S&P. "For investment banks to go back to the ratings firms and say, 'Here's a new structure for you to rate investment grade' -- that's shocking to me," one debt strategist said. Sources say the move was a test to see just how far the Fed would go. Wall Street insiders called the move "brilliant" and said others would follow suit. It seems the discount window ain't so stigmatized after all.

Bear investor says fooled by execs. Billionaire H. Roger Wang is suing Bear Stearns (NYSE:BSC) for allegedly duping him and his wife into buying shares before the March 16th collapse, and illegally liquidating their account after Wang and his wife refused to send in unpaid balances. Wang paid $6.56M for 150,000 shares at prices between $71.96 and $33.44, which were liquidated for $947,000. He claims that on March 11, he was told by a Bear executive the firm was "financially sound, that its stock value should be at least $85 per share, and that now was a great time to invest in the stock." He argues Bear "concealed highly relevant information about Bear Stearns, including specifically its extremely poor and disastrous financial condition."

GE's beef with Bear. The near collapse of Bear Stearns (BSC) caused an "extraordinary" disruption it GE's (NYSE:GE) financial business, CEO Jeff Immelt said on the company's earnings conference call (full transcript later today). "After the Bear Stearns event, we experienced an extraordinary disruption in our ability to complete asset sales and incurred marks of impairments, and this was something that we clearly didn't see until the end of the quarter."

Open Text buzzing with speculation. Will content management software developer Open Text (NASDAQ:OTEX) be acquired? Raymond James' Steven Li thinks Hewlett-Packard (NYSE:HPQ) or Oracle (NASDAQ:ORCL) might pursue Open Text, which remains far ahead of rivals Interwoven (IWOV) and Vignette (VIGN). Others name SAP (NYSE:SAP) and Microsoft (NASDAQ:MSFT) as possible suitors. But CEO John Shackleton says OTEX "could easily become a $1-2 billion company by just doing what we're doing today, and do so very profitably. We're not looking to be bought." While sales have indeed been resilient, analysts have raised concerns about the company's potentially weak organic sales growth; much of its success has been thanks to a weak U.S. dollar.

FAA: Inspections failed to catch cracks. Five Southwest Airlines (NYSE:LUV) planes were grounded last month due to cracks that should have been detected during previous inspections, an FAA official told the Senate, leading some to think this week's epidemic of aircraft groundings has genuine safety roots.

Euro's impending collapse. Forbes says mounting tensions between inflation-obsessed Germany and growth-hungry Latin countries will undo the euro. The Germans want tight monetary policy despite core inflation of only 2.4%, while the Latin bloc and Ireland want lower interest rates to spur economic slumps. Spain and Italy will eventually withdraw and return to their currencies, followed by Germany and France, it says. Hyperbole?

Banks begin reporting earnings next week. Some analysts think worst-case scenarios have already been priced in, and "less-bad" news could see shares jump. Others fear banks are still underestimating delinquency losses, and are "under-reserved." Goldman takes the middle road: It thinks the time has come to "cherry pick" the best of the bunch, including New York Mellon (NYSE:BK), SunTrust Banks (NYSE:STI) and U.S. Bancorp (NYSE:USB).

Auf Wiederzehen, Citibank? Citigroup may break-up or sell its Germany business as part of a global reorganization, sources say. The unit contributed 3% of Citi's earnings in 2006; it makes the bulk of its profit from consumer loans.

Time to get in, or time to get out? A commodity fund advised by Brian Hunter -- the energy trader whose bad bets triggered $6.6B in losses at Amaranth in 2006 -- returned 49% in Q1, and is up 103% since its initiation in November.

Blockbuster device to take on Apple TV. Blockbuster (BBI) is developing a standalone set-top device to stream broadband movies straight to TV sets, a direct competitor to Apple TV (NASDAQ:AAPL). Blockbuster fell 17% in January after Apple said iTunes would move into movie rentals. Sales of Apple TV have lagged the company's expectations. Netflix (NASDAQ:NFLX) also has a set-top box in development.