Seeking Alpha


Send Message
View as an RSS Feed
View geodan85's Comments BY TICKER:

Latest  |  Highest rated
  • Peabody Energy approves 1-for-15 reverse stock split [View news story]
    A secondary share offering is guaranteed since Peabody will have only ~18.5 million shares after reverse split. Share authorization will stand at ~53.33 million shares after reverse split. The question is when? Obviously, sometime between 10/2015 and 10/2018 (11/2018 is when first debt maturity comes due).

    In the prospectus, they offered five options for reverse split 1 for 8, 1 for 10, 1 for 12, 1 for 15 and 1 for 20. Why choose 1 for 15? My guess is they sounded out the large institutional holders (Fidelity 8.14%, Blackrock 6.43%, Vanguard 5.85%, Balyasny 5.04% / all listed in prospectus) and based it off feedback from these owners who control over 25% of the equity. Also, I believe part of their credit line is only accessible/contingent upon raising additional equity, although they can access most of the credit line before tapping the portion requiring equity issuance.

    Dilution is a certainty, what I would really like to know is why the company didn't issue equity when they bought MacArthur coal years ago when their equity partner, Acerlor Mittal, backed out. They chose 100% debt financing, which is why the stock is where it is now. Of course, it is too late to correct that mistake, but if they were too late then, they will likely be too early now when they choose to issue additional equity, which will worsen the dilution.

    However, the large institutional holders may prefer an earlier secondary since they benefit and will be taken care of by the underwriters. If the short position remains large (still listed at ~36% at end of August) and the large hedge fund shorts are excluded any allocation on a secondary, a memorable squeeze may ensue. Of course, coal pricing, coal demand and political opposition will all need to show trends in the right direction.

    Reverse splits are seldom a positive and it is disappointing BTU has chosen this path with the stock still above listing requirements. The better move would have been to wait implementing this desperate measure especially given the comments of the CEO regarding coal's future.
    Sep 17, 2015. 12:21 PM | Likes Like |Link to Comment
  • Bank Of America Capital Position: Mostly Smoke And Mirrors (Part I) [View article]
    agreed, hard to believe that the Fed and OCC would allow this change if they believed BAC was capital deficient. Also, I believe BAC has a lot less level 2 and 3 assets then JP Morgan and Citibank, which is important given liquidity constraints in holding those types of assets. It should not be forgotten that the 2008 crisis was more about liquidity (technical defaults) then outright failures.
    Sep 4, 2015. 10:02 AM | 3 Likes Like |Link to Comment
  • Emotions Have Left CTC Media Trading At Under Cash Value With Free Upside On Operating Business, 40% Base Case Upside [View article]
    The minority shareholders will have no say over how cash is used (hopefully the company does distribute the proceeds, but is Russia and Putin does what he wants and could stop this distribution).

    Also, odds are high that minority shareholders will be bought out at discounted price, it has happened before in Russian shares as well as European share (called a squeeze out of minority shareholders).
    Aug 25, 2015. 01:40 PM | Likes Like |Link to Comment
  • Peabody Denies Reports That It's Selling All Of Its Australian Assets [View article]

    Most of BTU's Aussie coal sales to China is met coal, not thermal coal, so not sure why you think electricity demand in China is really relevant to BTU. Steel production is what drives met coal sales.
    Aug 20, 2015. 10:49 PM | 2 Likes Like |Link to Comment
  • Peabody Denies Reports That It's Selling All Of Its Australian Assets [View article]

    Yes over regulation by this administration. In the first six years of this administration they have increased regulations/major rules across all federal agencies buy 499 versus the same time period in the previous administration (Forbes 8/17 issue article titled NIMBY Nation, I suggest you read it).

    The result of these major regulatory changes (defined by the GAO as having an annual of more then $100 million on the economy or significant impacts on prices, production, employment or international competiveness) have hindered business owners and stalled numerous major projects in the energy industry (as well as other industries). How you may ask? Mainly by empowering environmental advocacy groups with the means to sue using the new regulations (Keystone XL is just one the major media decided to publicize) to stall, delay indefinitely it seems while they essentially "shake down" the companies doing the cap-ex/investing. Other mega projects stalled by these tactics are: Bay Delta Conservation Plan, Cape Wind Project, Port of Savannah, Expansion of I 95 in Connecticut, Yucca Mountain, California High Speed Rail, NY State fracking ban, Energy Gateway Transmission Project and of course Keystone XL pipeline. These are just multi billion dollar projects, many smaller ones are impacted by lawsuits and multi layer permitting that has been increased by the EPA in their jurisdictional grab.

    Your comment about me suggesting let the government, via the EPA, let more supply on the market when there is no demand is interesting. I want the government to back off and stop interfering and stop "managing the economy" as some failed form of the old Soviet centralized five year plans disguised as environmental righteousness. Maybe you think they can "manage supply and demand" but I see no government anywhere in the world ever being successful in those endeavors.

    You really think there is no demand? Energy demand is growing and is forecast to continue to grow according to the EIA (links below) with fossil fuels all in the mix for the foreseeable future. However, with the capex cuts being announced by major energy producers and long lead times for many projects (ten years for certain oil projects), rest assured current oversupply will not last and prices will recover.

    Bankruptcies in the coal sector (JRCC, PCX, WLT, ANR to name a few) have occurred and will reduce supply since the new owners won't recover their debts owed by engaging in a race to the bottom. They will reduce supply until pricing rises to levels that create profits to recoup their losses in reorganization. This will help BTU, which has stated almost all of their mines are profitable in current environment with the exception of a few. The Australian hedges really hurt them, but they will roll off in the next two years as well as their lease installment payments in the PBR finishing along with VEBA payments. It is estimated that all of this increases cash flow by over $700 million by end of 2017.

    With their first significant debt payment due in November 2018, they have time and should be able to pay down some of the debt and refinance the balance since they will have ample steady cash once again by that maturity. Lenders love cash flow and BTU has long term contracts with the utility industry that aren't going away. So, I really don't understand your comment of "should be aware that the end is coming for BTU". Why, because there have been multiple bankruptcies in the industry?

    Those companies were very different from BTU with more expensive eastern coal operations (or just met coal for the steel industry) that are way more labor intensive then the PRB.

    Go short if you want in BTU and I wish you luck, but I believe they survive and will stay long with an eye towards the 2016 election and beyond. A republican win next November will definitely make a difference for coal (as well as all fossil fuels) as current EPA rules/regulations will be rewritten and/or abandoned.
    Aug 20, 2015. 10:39 PM | 6 Likes Like |Link to Comment
  • Peabody Denies Reports That It's Selling All Of Its Australian Assets [View article]
    I think it is fair to say shorts are covering in BTU. The short position listed on yahoo is outrageous at 42% of float and volume has spiked the last few days, today ~58 million shares traded, more then 3.0x average trading volume. Soros buying 1 million shares is pretty much a non-event since it is pocket change for him. However, what is interesting is his reputation (actually the smart traders that work/worked for him) and his buying may have prompted the short covering.

    The large hedge funds that have punished this stock lower now may believe BTU is not headed for bankruptcy since so called smart money has started buying (debatable with Soros who always takes credit for trades his portfolio managers/traders made whether or not it was his idea or theirs / case in point the breaking of the BOE with a short of the pound was Stan Druckenmiller's trade when he worked for Soros, however Soros got all the credit). The only reason to stay short a stock at a buck after a 90% fall is for a bankruptcy filing which would enable the shorts to never have to cover (buy it back) their position and realize a taxable gain (they get cash up front from short sale and most of their margin is returned from their prime brokers/lenders when BK is implemented).

    The only reason to stay or continue to run the short at a buck is for tax benefit if you truly believe bankruptcy is coming since most of your money is already made. Also, given the carnage in overall market the last few days, hedge funds may be taking profits in their BTU position to offset losses in other longs that may have occurred when they bailed on these positions. After all, when they report to their clients all that matters is net returns/gains.

    Finally, the Obama EPA will be history in a little over 16 months and will not cause anymore damage, although they will try, but likely run out of time. If the republicans don't screw it up in the 2016 election, it looks like a lay-up for them, the next administration will likely be very friendly to all fossil fuel producers and stop the ridiculous over regulation this administration has brought to the energy industry in the U.S.
    Aug 20, 2015. 05:56 PM | 12 Likes Like |Link to Comment
  • Brokerages get tough with advisers who break rules [View news story]

    Brian Moynihan has been consolidating BAC and all the acquisitions made by previous CEOs. He is a lawyer by training and probably was the right guy (if I remember correctly the only one reported to really want the CEO job when Ken Lewis was forced out) as CEO to settle the major lawsuits and shrink the firm by selling non core operations and reduce headcount. Actually, they set this plan in motion five years ago and named it "New BAC" and have been executing since.

    In my opinion, BAC will never sell Merrill Lynch Wealth Management since it is a cash cow for them and gives them a global footprint for distribution of product/services and for gathering assets (fee based income) and compliments nicely with their core banking business. They also reorganized it by splitting it from Merrill's institutional investment banking business by combining it with U.S. Trust and other similar businesses under a new executive with direct report to CEO.

    To give an example of how they are integrating banking and brokerage, I still have my accounts at Merrill Lynch and have a Bank of America credit line on one account (~55% available as LTV) that costs me nothing unless I use it. The rate charged is based on LIBOR plus 300 bps, very attractive currently, but it floats, bad for me if rates rise, but good for bank since their 300 bps of interest has no market risk and principle is secured by a portfolio that can be sold quickly to cover loan. It is not a margin loan to buy stocks, since when it was set up you are asked if it will be used for financial assets or other purposes. My point is, it is good business (secured lending) for BAC and what they do, lend money.

    Institutional businesses they acquired with Merrill Lynch are now organized under another executive with direct report to CEO and include BAC's corporate banking and businesses that fall under an institutional type rather then retail. Again, the point is it doesn't seem they will sell Merrill Lynch since it was reorganized to a new structure as well as banded on the BAC platform. If you wanted to sell it someday, it would be better to operate it as wholly owned subsidiary.

    All this is happening under Moynihan, he has done a good job consolidating the BAC acquisitions and reducing costs. Is he the guy to lead the bank with a new growth strategy? I don't know, but it seems history shows that there are basically two types of CEOs, the cost cutter and the visionary. Brian Moynihan is clearly a cost cutter, can he pivot to a growth strategy if overall economic conditions justify it and regulatory restrictions allow it? I honestly don't know as I stated above, but history isn't on his side.

    I still own BAC stock, like joanpete, but also own UBS stock since I believe the old Merrill management will be better at growing a wealth management business since it is what they know and did, something current BAC management is, hopefully, learning.
    Apr 8, 2015. 10:39 AM | Likes Like |Link to Comment
  • Brokerages get tough with advisers who break rules [View news story]

    You are right about former Merrill Lynch management, it was excellent, but that was up until 2001.

    In 2001 Stan O'Neal was promoted to CEO by sabotaging his competitor for the job, Jeff Peek. Peek was in charge of MLAM (eventually sold by O'Neal to Blackrock to help pay for his mistake of a mega push into subprime) and had his henchman Ahmass Fakahany (CFO of MLAM at the time) present awful numbers regarding MLAM (at the board meeting to decide the next CEO) and therefore Peek's ability to manage. That the numbers were later corrected and admitted that they were all mistaken, didn't matter since O'Neal was promoted to CEO of Merrill Lynch.

    It was his gross incompetence that led to the downfall of Merrill Lynch with it eventually needing Bank America to buy the firm. O'Neal was despised by most of the old time Merrill management team and eventually many left the firm, or were forced to leave by the dictatorial O'Neal. He brought in his own guys like Dow Kim and Osman Sermerci to do what they were told by O'Neal since he knew better then anyone else.

    When Merrill's best bond trader and head of fixed income trading, Jeff Kronthal, told O'Neal that the subprime was risky and needed to be reduced, at the time the firm had only ~$5 billion in exposure, O'Neal basically told him you are either one of my guys or you are out. Kronthal was not an O'Neal guy so he was fired (link below). Sermerci was put in charge of bond trading and subsequently increased the firm's subprime exposure to ~$50 billion and dooming Merrill Lynch as an independent firm. O'Neal also bought First Franklin, a sub prime lender, to further ensure the demise of the firm as we knew it.

    I am also retired from Merrill Lynch, after working eighteen years as a trader in the International Equities Department. It is a sad story of what happened to Merrill Lynch, which in my opinion was the quintessential American brokerage/investment bank and that had a client first focus/mentality (both retail and institutional) that was very real. Other firms, our competitors (Goldman and Morgan Stanley in the U.S. / all the U.K brokers/bank as well), I believe only paid lip service to this principle and as has been reported in many investigations, traded against clients whenever an opportunity presented itself.

    Finally, I will point out that many of the former Merrill executives that left in the years after O'Neal became CEO, have slowly gotten back together over the past five years or so to rebuild the original model that worked very well prior to the O'Neal years. The firm they are now at is UBS. I believe UBS will become more like Merrill Lynch used to be as they put the problems from UBS's prior management behind.
    Apr 6, 2015. 01:04 PM | 3 Likes Like |Link to Comment
  • Bank Of America: Capital Concerns Driving Share Price Down [View article]
    What I find ironic is the estimated capital shortfall mentioned in article (if it comes to pass) is almost equivalent to what the bank has paid out in legal settlements, mostly for Countrywide which will be a case study example of the worst acquisition ever made in financial services (nice job Ken Lewis).

    Backing out of the Merrill deal by Lewis was not allowed by Fed and Treasury. However, Merrill Lynch Wealth Management was contributing the only real profits the bank was making in the early years coming out of the 2008 meltdown and has been a good acquisition for the Bank America which I believe they will never sell. Bank America Merrill Lynch, the investment bank, may be something they eventually sell, although it seems unlikely if they want that universal global bank status.

    Finally, the bank has too many shares outstanding (over 10 billion) and many were issued during the crisis at lower prices, therefore dilutive. Any sustainable rally in the share price will require heavy lifting and meaningful change in profitability to support higher share price levels and perceived capital needs going forward, which at this point seems elusive for the very average management team this bank has. Currently, dead money seems to be a good description for BAC, although as one comment said a move back toward $17.00 wouldn't be a major surprise and would represent an adequate return, providing you sell the shares if the move materializes.
    Mar 24, 2015. 05:05 PM | Likes Like |Link to Comment
  • Bank Of America: Why The Stock Just Got Hammered [View article]
    and getting worse.
    Mar 23, 2015. 10:14 AM | Likes Like |Link to Comment
  • BofA rainmaker returns after a year at Goldman [View news story]
    Montag is ex-Goldman Sachs, the force must still hold sway, anything to help the Deathstar. He likely still has stock in Goldman.
    Feb 3, 2015. 02:53 PM | Likes Like |Link to Comment
  • Bank Of America - New Preferred Stock Issuance [View article]
    Boosting tier one equity. I believe non-cumulative perpetual preferred counts as equity. B of A really can't issue more common with over 10.0 billion already outstanding. The question is, does this issue indicate another large settlement of a lawsuit is coming? Or a large write down on some illiquid assets?
    Jan 22, 2015. 08:22 AM | 1 Like Like |Link to Comment
  • Bank Of America - New Preferred Stock Issuance [View article]
    I believe Moynihan also said that most of the energy loans were to big well known diversified companies, so risk of default will be lower.
    Jan 22, 2015. 08:10 AM | Likes Like |Link to Comment
  • Oil Tankers - The Brightest Spot In The Gloomy Energy Sector [View article]
    Streetwise, I agree, their financial statements are straight forward and very easy to understand which is welcome given how complicated some reports can be.

    The dividend announced yesterday of $.22 is a little disappointing, but if they are paying down debt, it is probably prudent.

    I am tired of this company issuing shares every time the share rallies. The real test for future share price appreciation will be if CEO Hansen can refrain from another secondary when the price enters into the teens. If he can, and the day rates hold, you can the make the case NAT can trade toward $20.00.
    Jan 9, 2015. 10:10 AM | 2 Likes Like |Link to Comment
  • Bank Of America: Breaking Up Is Hard To Do [View article]
    BAC should not be broken up. It is still digesting (more like indigestion) Countrywide and Merrill with settling lawsuits caused by their (Merrill and Countrywide) bad behavior (one reason BAC doesn't get Wells valuation).

    Isn't higher capital a good thing, especially when you factor in derivatives? Sure, higher ROE/ROA will be tougher to achieve, but the balance sheet will be stronger and dividends (as mention by a another commenter) should be allowed to increase further (a main reason to buy bank stocks).

    An argument to allow U.S. banks to become universal mega banks at the end of the last century was to compete better against foreign banks that have always had the universal model. This hasn't changed and doesn't appear to be on the docket in other countries, so any forced reduction in size could hurt the U.S. mega banks when dealing internationally where size matters especially for counterparty risk.

    Finally, didn't Goldman call for the break-up of J. P. Morgan Chase? That in itself should be questioned since they were ground zero for triggering the crisis in 2008 with their dealings with AIG. I would never trust Goldman Sachs advice on their competition since they are the most self serving firm on Wall Street and in my opinion do not provide recommendations that are independent of their own self interests.
    Jan 8, 2015. 09:37 AM | Likes Like |Link to Comment