Tuesday, March 11, 2014
- "There's no good reason for an office company and a shopping-center company to be housed under the same roof," says Sandler O'Neill analyst Alexander Goldfarb, summing up a major investor gripe over Vornado Realty Trust (VNO)
- Under consideration by Vornado would be the spinoff of its strip malls into a separate company which would then merge with Retail Opportunity Investments (ROIC). Vornado shareholders would take a majority stake in the combined company, avoiding the large tax bill that would come with an outright sale. Talks are continuing and no deal is assured, plus Vornado Chairman and CEO Steven Roth is known to take his time - often years - to pull the trigger on big deals.
- Analysts value the business at $2B-$3B.
- "They'd probably be rewarded by the market if they simplified further and focused more on their New York and D.C. portfolio," says LaSalle Investment Management's Keith Pauley.
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- "While I strongly support GSE reform that protects taxpayers, such efforts should also be mindful of investors," says Senator Pat Toomey, sticking up for preferred and common stockholders of Fannie Mae (FNMA -30.6%) and Freddie Mac (FMCC -27.5%) in wake of a proposed bill to wind down the GSEs.
- "Taxpayers should be fully compensated, but once they are, investors ... should not be denied their fair share of any remaining value."
- "The government¹s actions with respect to the GSEs' profits raise serious concerns, including whether these actions lawfully respect the rights and interests of all Americans."
- Previous: Fannie and Freddie plunge on wind-down proposal.
- Analyst Sameer Gokhale estimates Discover (DFS -1.4%) will come through the Fed stress tests (results on March 20) with a minimum Basel III Tier 1 common equity ratio of 8.95% and Fifth Third (FITB -0.8%) 7.3%. As both should be comfortably above 7% under the severely adverse scenario, higher payouts for should be justified.
- Gokhale prefers to use payout yield - total annual dividends and buybacks divided by the share price - as opposed to payout ratio, and Discover and Fifth Third have two of the highest, 8.6% and 6.2%, respectively.
- He's expecting Discover's quarterly dividend to be boosted to $0.21-$0.23 per share from $0.20 now, and $1.1B-$1.5B in buybacks to be approved. Fifth Third could lift its dividend by $0.03 to $0.15 per share and be approved for $1.B-$1.3B in buybacks.
- In one of the great delayed reactions of recent times, Fannie Mae (FNMA -39%) and Freddie Mac (FMCC -36.4%) plunge in wake of the proposed bipartisan Senate bill calling for their wind-down. Like Wile E. Coyote after running off the edge of a cliff, the stocks hung around in positive territory for a couple of hours after the news hit ... then they looked down.
- The Fannie "S" series preferred is off 9.9%, Freddie's is down 18.5%.
- There's another downgrade in one of the year's hottest sectors, with Apollo Residential Mortgage (AMTG -0.8%) losing its Buy rating at JMP Securities.
- Previously trading at one of the larger discounts to book value among the mREITs, Apollo's rally this year has brought it to less than a 10% discount to Dec. 31 book.
- Last week: Three valuation-inspired downgrades of mortgage REITs.
- Italy's UniCredit (UNCFF, UNCFY) kitchen sinks it, booking a $20.8B Q4 loss as it sets aside money for bad loans and writes down goodwill from past acquisitions ahead of the ECB's EU-wide review of banks before it takes regulatory control in November.
- The bank also announced plans to cut 8.5K jobs, about 6% of the workforce, along with a stock dividend of $0.10 per share for 2013.
- The stock closed 6.2% higher in Milan, leading the FTSE MIB index to the EU's best performance on the day, +0.4%.
- Buying low and selling high in the GSEs continues unabated as a long-awaited bipartisan Senate bill is introduced to continue government backing of mortgages, but wind down Fannie Mae (FNMA +4.5%) and Freddie Mac (FMCC +4.7%).
- The White House: “We support this effort and believe it is a workable bipartisan approach to complete the biggest remaining piece of post-recession financial reform.”
- A bill in the more conservative House would more or less cut the government out of housing finance. With elections months away, the chance of any sort of reform becoming law this year are probably slim.
- The insurance industry finds an ally in Maine Senator Susan Collins who introduces an amendment to Dodd-Frank seeking to clarify new capital rules for nonbank financials.
- Insurance companies have made the case they're not banks and already meet state-imposed leverage requirements, and thus shouldn't be subject to the same rules as banks, and the Fed - now a regulator of AIG and PRU, and maybe MET soon as well - has asked for guidance about whether Dodd-Frank allows it leeway.
- Not a member of the Senate Banking Committee, Collins testified the Fed does indeed have flexibility and her bill seeks to make that clear.
- Related ETFs: KIE, IAK, KBWI, KBWP
- Accuvant aims to protect clients against cyberattacks and similar threats, and Blackstone (BX -0.7%) will invest $150M for an 80% stake, reports the WSJ. Blackstone's investment is expected to fund expansion of the Denver firm, particularly its consulting arm and its managed security services unit, which helps companies monitor and respond to situations.
- This isn't Blackstone's first foray into the sector - the P-E giant has also invested in Bit9, iSight Partners, Secure Mentem, WatchDox, and Cylance.
- The publication of the 285-page manual marks the start of phase 2 of the ECB's review of EU banks which is expected to run until August. The exam will cover €3.72T, or 58% of the banking system's risk-weighted assets. On average, central bank supervisors will review 1,250 credit files per bank.
- The move is part of a process by the EU to harmonize banking practices across borders, break the (often-toxic) link between governments and their banks, and bring credibility back to the sector. Along with this review, the ECB is conducting stress tests for the largest banks.
- Yesterday: German lenders - including Deutsche Bank (DB) - escape the need to revalue their mortgage portfolios.
- Also among those under review: SAN, BBVA, ING
- "We still maintain that USB shares deserve a premium valuation to the group given its superior profitability measures (ROA and ROTE), low risk profile, and strong management team," writes analyst Chris Mutascio, whose $44 price target reflects a 13 multiple on expected 2015 earnings.
- Thanks to lower expectations for earnings reserve releases and a continuing slide in mortgage revenue, Mutascio cuts his 2014 EPS estimate to $3.17 from $3.25 and 2015 to $3.37 from $3.45.
- Thomas Wirth was picked to replace Howard Sipzner, effective at the close of business yesterday. Wirth has been an EVP, Portfolio Management and Investments at Brandywine Realty Trust (BDN) since 2009.
- Press release
- Reiterating its Market Perform rating on the stock, Wells Fargo says Sipzner's departure is unexpected, but his communications with the Street had left something to be desired. Replacement Tom Wirth is well-known and regarded by the analyst community.
- Core earnings of $48M or $0.42 per share compare to $9M or $0.09 a year ago. Full year earnings of $198M or $1.92 per share compares to $55M or $0.55 in 2012.
- Risk-adjusted yield on consumer finance portfolio of 21.18%, up 98 bps from a year ago, but off 71 bps from Q3.
- Continued wind-down of legacy business with the sale of $1B of mortgages to three different parties (previous: New Residential buys $900M in mortgages from Springleaf).
- 2014 guidance: Year-end consumer net finance receivables of $3.6B-$3.75B vs. $3.14B at end of 2013; Consumer risk-adjusted yield of 22-23% vs. 22.03%; Pretax earnings of $85M-$105M vs. $110M.
- CC at 10 ET
- Press release, Q4 results
- LEAF -1.5%