Today - Monday, March 10, 2014
- "Total nonsense," says Bruce Berkowitz of Treasury's claim that 2012's altering of the Fannie (FNMA +4.1%) and Freddie (FMCC +3.3%) bailout - in which regular dividends were scrapped in favor of the "profit sweep" - was necessary because at the time it was worried the two couldn't earn enough to make the payments (a forecast the improving housing market has made wrong).
- Berkowitz's reading of the original bailout says the GSEs could have issued more stock to Treasury in lieu of cash, and he's' scratching his head as to how both the government and the GSEs failed to know this. Conspiracy? “I prefer the simpler reason that no one bothered to read the agreement.”
- Another reason is government lawyers' reading of the documents differs with Berkowitz. Ultimately, a judge will probably decide.
- Separately, how going long Fannie and Freddie became the latest version of The Greatest Trade Ever.
- William Rogers was awarded $5.78M in 2013, including $1.3M in cash, $900K in salary, and $3.59M in restricted stock and options. His 2012 award was $8.51M.
- The big decline in his bonus came as the bank failed to meet some profitability targets, among them the efficiency ratio which deteriorated to 71.75%. SunTrust's (STI) stock gained 30% last year, lagging the 24-company KBW Bank Index by 500 basis points.
- Indexing and fund-management giant (and a unit of Northwestern Mutual Life Insurance), Russell Investments could fetch about $3B in a sale, and Blackstone (BX) and Bain Capital are among those sniffing around, reports Bloomberg. Goldman is piloting the sales effort.
- Founded in 1936, Russell consists of an index business and a money manager with $257B in assets, and Northwestern has indicated it's not interested in splitting them up. Other major index creators like S&P Dow Jones, MSCI, and FTSE - not tied to asset managers - are more pure-plays in indexing.
- Selling high: Russell isn't publicly traded, but indexing rival MSCI gained 41% last year and a gauge of asset managers climbed 45%.
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- Core net investment income of $16.2M or $0.30 per share and net increase in net assets from operations of $13.1M or $0.24 per share. Q1 dividend of $0.29 per share is declared, inline with previous. Operating expenses of $14.3M up $1.4M from Q3 thanks to higher investment advisory and incentive fees, as well as higher compensation expense.
- Net asset value per share of $9.85 is off a nickel from Q3.
- CC at 10 ET
- Press release, Q4 results
- TICC +2.3% premarket
- The new $500M senior unsecured facility is expandable to $850M and consists of a $250M revolving line and a $250M term loan. It amends and restates Hersha Hospitality Trust's (HT) existing $400M facility.
- CFO Ashish Parikh: "The new facility affords the Company greater financial flexibility, extends our debt maturities and reduces our weighted average cost of debt ... We were particularly encouraged by the oversubscription of the facility by the bank group."
- Press release
- CYA maneuvers commence at Citigroup (C) where some former and current senior executives claim to have urged tighter controls in Mexico but were rebuffed by Banamex's managers, reports Bloomberg. 'We dispute assertions by anonymous sources peddling theories that the management team is somehow unaccountable or autonomous," says Citigroup spokesman Mark Costiglio.
- Banamex waved off efforts to integrate systems with Citigroup and was slow to improve controls, technology, and corporate governance, say Bloomberg's sources.
- Fifth Street Technology Partners has closed three new investments totaling $55M YTD. Fifth Street Finance (FSC) funded the deals and received warrants for each, boosting the size of the company's venture lending portfolio to $79M.
- Michael David, chief of Fifth Street Technology Partners: "We continue to build our brand with the venture capital community, along with a robust pipeline of pending opportunities."
- Press release
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- Schneider Electric (SBGSF) confirms it's in discussions with prospective suitors about selling them its sensors unit CST.
- Les Echos reports that Schneider is in talks with private-equity firm Carlyle (CG) and PAI Partners about a deal that could see the electrical-gear maker reap up to $900M and retain 30% of CST.
- The good news is baked into the stock, says analyst Daniel Altscher, downgrading National Retail Properties (NNN) to Market Perform from Outperform. He notes the name has generated a 15% total return since he made it an Outperform last August vs 13.7% for the S&P 500, and it's up 15% YTD vs. the S&P up 1.6%.
- "As we sit here today, we think the stock is more appropriately valued at over 17x our 2014E FFO of $2.04. This is particularly the case given that we have already taken the liberty of increasing our 2014E FFO above guidance to a level that we think is more representative of where it could actually shake out by year-end."
- "Fundamentally, we still think there is a lot to like about the National Retail Properties story, and if the stock pulled back to a valuation that we thought was attractive like we did in August 2013, we could potentially look to become more constructive on the name."
- See also: Realty Income loses Buy rating at BofA
Sunday, March 9, 2014
- The sale of JP Morgan's (JPM) private-equity business has stalled, Reuters reports, adding that a possible reason is that the bank increased its asking price by too much.
- JPMorgan put One Equity Partners on the market in November; it's portfolio is valued at over $4B.
- Meanwhile, whistleblower Keith Edwards will receive $63.9M for information he provided that led to the bank paying a fine of $614M to settle charges that it defrauded the government into insuring flawed home loans.
- A judge has ruled that a conflict of interests caused bankers at RBC Capital Markets to persuade Rural/Metro Corp. to accept a low offer of $438M from Warburg Pincus when the latter bought the national ambulance service in 2011.
- Judge Travis Laster found that the Royal Bank of Canada (RY) division misled Rural/Metro directors about the valuation of the company in order for the sale to be completed quickly. RBS also failed to disclose that it was looking to help Warburg finance the acquisition.
- Laster agreed with Rural/Metro's former investors that they should have received more money, although he has yet to decide how much RBC should pay in compensation. The ex-shareholders want $172M.
Saturday, March 8, 2014
- "MetLife (MET) is one of the cheaper stocks in a sector that is, itself, cheap relative to the market," says Eric Hagemann, an analyst at Richard Pzena's Penza Investment Management (an owner of the shares). A check of price/book (excluding investment gains) finds Met at 1.1x - grouped with Hartford (HIG) at 0.9x and Lincoln Financial (LNC) at 1.1x - but well less than Prudential's (PRU) 1.6x.
- Why the discount? Met is one of few remaining large financials not yet buying back any stock as it awaits direction from D.C. (which isn't expected until late this year or early next). In same boat, AIG and Prudential have both thrown caution to the wind and begun repurchases.
- On the other hand Met has boosted its dividend to $1.10 per share annually and the payout could approach $1.50 in 2015. There was also last year's $2B acquisition of Chilean pension fund provider Provida. If the new regulatory capital rules are too onerous, a breakup of Met into domestic and international businesses is a possibility.
- "In a record stock market, MetLife offers a nice package for investors: a rock-bottom P/E and price/book ratio, an attractive global franchise, and a financially astute management team," writes Andrew Bary.
- EFC's estimated book value of $23.65 per share as of February 28 slips from $24.45 at the end of January, but a dividend of $0.77 was paid. Book value was essentially stable after adding back the payout.
- Press release
- Friday's close of $24.14 puts the stock at 1.02x book. Mortgage REITs (EFC is actually a partnership) near or above book were a rare sight at the start of the year, but the species is making a comeback.
- Yesterday: 3 mREITs lose Buy ratings for valuation reasons; trading above book value, Javelin Mortgage is punished after earnings
- Related ETFs: REM, MORT, MORL
Friday, March 7, 2014
- Hardest hit in the mREIT sector today is Javelin Mortgage (JMI -5.3%) after reporting core EPS of $0.45, down from $0.54 in Q3, but inline with the current monthly payout of $0.15.
- Book value per share fell to $14.28 from $14.69 at the end of Q3 (if you add the dividend back, it actually rose a few pennies), leaving the stock (before today's decline) trading at a premium to book. Net interest margin of 1.78% gained six basis points with CPR falling to 4% from 5.4%.
- Leverage declines to 4.9:1 from 6.48:1 as the agency portfolio falls to $802M from $1.3B and the non-agency to $284.3M from $267.2M.
- 1.5M shares repurchased at average price of $12.72 each during Q4, leaving about 12M shares outstanding.
- The company previously announced a boost in the buyback authorization to 3M shares.
- Press release