ebenezer

Wall Street Breakfast: Must-Know News

Regarding the CDS paper...don't forget AIG's positions had a significant impact on the financial health of Goldman Sachs. If AIG fails, Goldman would take an extremely heavy hit. Why does anyone think Paulson (ex-Goldman) bailed AIG in the first place, while letting Bear Stearns, et al fail?

Wall Street Breakfast: Must-Know News

Please, eddie6442, mark-to-market accounting has not as a fundamental rule "caused" any problems. It forces recognition of the current value of an asset to more accurately reflect a company's financial exposure...and require proper adjustment to reserves if necessary, and there is nothing inherently wrong with that. The issues today have been caused by a leadership crisis compounded by a lack of integrity and honesty in business dealings, and further compounded by unregulated leveraged "gambling" in the financial markets by people who knew better. Most of them still have their same old jobs and are trying to come out unscathed...to heck with their customers. The roll-off on the average investor has been horrendous, but when it is all over these guys will still be all right and the rest of us will be starting over. That is the shame.

Should You Follow Warren Buffett’s Latest Moves?

I wonder if the man was on top of things enought to have sold and rebought some shares at lower prices, thus keeping the cash differential and maintaining his positions?

Derivatives Alert: Explosive Risk Is Still Unrecognized

I agree with you and believe the derivative exposure issue is huge. WFC is already under investigation by the Robbins, Kaplan, Miller and Cirisi Law Firm in Minneapolis for allowing its traders to enter into the derivative market with money "contracted" to be invested in far less risky money market-type portfolios. The initial amounts discussed were around $300 million, but it may be more. Wells apparently credited the investors with slightly higher than money market returns, but kept the larger differential trading profits for their own...this, of course, when the derivatives were in the money. All the time, Wells apparently never revealed to the investors what they were doing, and the higher associated risks. I don't know the current status of this situation, but more forms of it may be present at Wells Fargo, as well as many other banks.

January Market Review: Political Transition, Bear Reignition

Walmart (WMT) stock is as low...relatively speaking...as it has been in 5 years. It is a destination for cost conscious buyers and should at least hold up well in this economic environment. Target (TGT) will continue to lag Walmart in real value as long as it continues to give away millions in profits through its local community "givebacks" and spend money on its trendy advertising. Target needs to maintain its comfortable interior appearances, but get down to matching Wal Mart's pricing. Wal Mart, on the other hand, would do well to continue a shopping experience appeal to more affluent customers, and be sure to keep its stores clean and comfortable...looking ftoward providing an enhanced shopping experience similar to Target.

Government Risk Rises: Credit Markets Face Structural Collapse

Rakesh...

I agree with you, wholeheartedly. If you recall the Enron mess, Fastow was an expert at off balance sheet activity involving not only implicit guarantees backed by Enron stock, but by derivative-like structuring of the vehicles to hide Enron business losses and offset business deal declines in value. However, when the stock prices dropped, and capital calls came due , the true nature of the "short term" loan character of many of the vehicles had to be reacted to by the investment banks/banks who had funded the quarterly infusions of capital into Enron's P&L. With the help of Anderson and Company looking the other way, these deals continued to be restructured until there was no more willingness to support them due to Enron's failing balance sheet.

Enron used "Mark-to-market" for their compensation awards, but then failed to account for the long term decline in intrinsic business value (as many of the deals lost money) using the same methods. Me, I'm all for the M-to-M method to gain a realistic view of the present economic value of assets/deals with regard to P&L, balance sheet and shareholder interest exposure.

Considering we have all had the benefit of Long Term Capital's and Enron's messes...I can't believe Congress has not wailed for greater regulation, transparency and trading controls over derivative contracts along with the hedge fund businesses who love the vehicles the most. Today, even a good bank doesn't know its own exposure if the hedge fund it is lending to keeps its other banking relationships confidential.

For Greenspan to argue hedge funds need no regulation was always beyond my comprehension...greed drives too many beyond self interest for the benefit of their own survival. And, as we have now seen, a true lack of self interest toward the preservation of the system that allows one the "play" has wreaked havoc on us all.


On Jan 28 02:32 AM Rakesh Saxena wrote:

> Dear Ebenezer: You have a point. My point, however, is that the proper
> recognition of such contracts on balance sheets is vital, now and
> in the future. The FSAS 157 guidelines are too vague, and subject
> to subjective interpretations. Many thanks - Rakesh

Wells Fargo & Company Q4 2008 Earnings Call Transcript

If the economy worsens and savings rates drop due to withdrawals, I'm not sure what has fundamentally changed since the stock was down around $14.00 a few days ago? Any new P/E ratios would reflect lower revenues, lowered expenses and lower absolute earnings per share. If defaults and bad debt increase in 2009 beyond reserves, earnings could be impacted regardless of expense cuts and the integration of Wachovia. I need to review the financial data in more depth, but the general presentation seemed slanted to the rosy side of the equation with the facts still pointing to a very rough if not down coming year.

Government Risk Rises: Credit Markets Face Structural Collapse

Let us not forget a fundamental risk character of the derivative contract: No rule/law requires the maintenance of an "appropriate" reserve to pay off on the contract if its terms are not met. If the seller is unable to pay off a CDS default, for example, the buyer has gained nothing. These things are not sold like an insurance policy by a regulated insurance company required to maintain certain amounts of capital for potential statistically anticipated payouts. Close up the seller's company, sorry the premium was paid in salary, commission and overhead, and nothing is left to pay on default. Ultimately, the loss goes back to the banks loaning the money at the point of purchase, the shareholders of the funds investing in the contracts, or the issuers themselves. Lord knows, you'd think even the politicians could figure this one out...

Big Banks vs. America

C'mon everyone...the rules should have been as follows: Your company takes bailout funds, and the following rules apply...

(1) All employee salaries are frozen; (2) No bonus payments for 2008, period; (3) We` are sending an audit team in to see if 2007 and 2006 "clawbacks" on incentive compensation are appropriate; (4) no salary increases or incentive pay until the government money is paid back, with interest; (5) No dividends paid out until the government money is paid back; (6) If you don't like it, you are on your own, or we close you down and distribute your assets to another entity to manage. In addition, clean up your expense side of the business, your balance sheets and prepare a plan for more equitable distribution of profits to your shareholders, your employees and management.

If your employees don't like it, let them quit and see where else they can find a job and make any more money than they already do. A few might, but I'd bet not many. We have a leadership crisis, first, the financial mess is a secondary issue resulting from the leadership void.

Government Risk Rises: Credit Markets Face Structural Collapse

Don't forget...Robbins, Kaplan, Miller and Ciresi Law firm has uncovered WFC traders investing in derivatives market when it was flying with funds targeted to low risk investments by customer contract agreement. The company then apparently kept the larger spread profits while paying near money market rates to its customers. Now that the derivatives market has been in trouble, requests for certain customer withdrawal of funds has been met with resistance due to loss of the investment funds' value on the derivatives trading side. How much more of this has been going on without the knowledge of the investors, who were under the impression their dollars were being handled with much lower risk?

Monday Outlook: Earnings - Or Lack Thereof

It is beyond my comprehension that any financial institution receiving government funds is not required to freeze salaries and drop any bonus plans until such time the firms have recovered and paid back the infused capital.

Premium Multiples Being Drained from Wells Fargo

With all due respect for the author's predictions...WFC briefly hit $13.82 in trading on Tuesday, 1/20/2009, to finally settle in around $14.45 in the after hours market. Perhaps there is something to the analytics until we hear the annual numbers on 1/28?

Premium Multiples Being Drained from Wells Fargo

How coincidental is it that Citi's analyst releases a "negative " potential assessment of WFC within a day or two of when the next wave of 401(k) and other fund money is about to hit the market? Then, with regard to a stock that has been trading at $24 plus, over 300 million shares exchange hands in two days driving the stock's 2nd day low to $17.03. Then the share price jumps to close at $18.68 to close out the same day. The aftermarket takes the stock to $18.90, and poises for who knows what on opening Tuesday. If in fact WFC announces close to its "normal" dividend on 1/28, and its financials reflect a strong/manageable position after the Wachovia acquisition, this stock will suddenly appear very underpriced. In addition, any solid data from the financial announcements will hold up WFC as an island of refuge in in a queasy sea of institutions regaining their balance. No matter what the case, over the long run this stock currently appears to be the strongest of the banking investments to be holding.

S&P 500 Financial Sector Market Cap Continues to Sink

Market cap loss may or may not be directly related to actual losses. Derivative exposure and secondary market securitization package holdings are the biggest risk. After that comes direct primary mortgage exposure with retained mortgages, and any efforts to mitigate mortgages sold on the primary market to FnM and FrM which are still held by those entities. Risk exposure to hedge funds who borrowed bank money to leverage their investment purchases could be huge if those funds default...say an average of around 30-40 times the assets of the funds who borrowed. If the banks had any credit default swap exposure of their own, and did not reserve payout amounts appropriate to the risk of the contract, the exposure increases. Next, credit card defaults and the securitization of those receivables can begin to weigh as heavily as mortgage package securitization on the package and derivative participants. There is a lot out there, complicated by the lack of regulation and disclosure requirements that ultimately flow back directly to the financial institutions and investors when defaults cannot be covered. Without derivatives and hedge fund unregulated gambling, the total current financial exposure would be magnitudes less.