In times of financial crisis, job cuts seem the thing to do. Both Merrill Lynch (MER: 45.04 -0.30 -0.66%) and Lehman Brothers (LEH: 43.67 -0.40 -0.91%) may cut more employees than previously anticipated, and this time it seems they want to do it quietly without major announcements. The big question is whether these job cuts will help these companies by cutting costs or whether they will be too little too late and end up harming the company by getting rid of needed talent.
George Soros thinks the markets will fall further in the next year and that the current “bottom” is not the end of the fall. He thinks that financial institutions should be far better regulated and that many OTC products such as swaps should be conducted through regulated exchanges that have predetermined margin requirements and guarantee the credit-worthiness of the counterparties.
In many cases, it may be simply too complicated to set up an exchange for many of these products as there are so many ways of packaging them and each may not have enough daily volume to justify being listed. However, in a time like this where credit worthiness is of such importance, moving more products from OTC to exchanges may be something to look into.
Thursday, April 3, 2008
Opening Bell: 4.3.08
S&P futures vs fair value: -2.0. Nasdaq futures vs fair value: +0.5. Futures point to a muted start to trading. Research In Motion (RIMM) reported earnings and an outlook that topped expectations. UBS downgraded Cisco to Neutral from Buy. Fed Chairman Ben Bernanke will be joined by SEC Chairmon Cox and New York Fed Geithner to testify before the Senate Banking Committee at 10:00 ET. In economic news, market participants will get the March ISM services reading at 10:00 ET.
Wednesday, April 2, 2008
Goldman Sachs Buyback Rumors
Today the chatter is about Goldman Sachs. People say lots of things, but today they are saying that Goldman will announce a major stock buyback tonight after the market closes. They're even putting a number on it: $8 billion. Of course, the people saying this are in no condition to know and last week they probably would have told you that Lehman Brothers would be worth $2 on Monday. (But a couple weeks before that they were right about Bear Stearns.) Make of it what you will.
A side note: it's kind of nice to report on bullish rumors about an investment bank. When was the last this happened?
Goldman Sachs didn't comment on this because they wouldn't anyway...
A side note: it's kind of nice to report on bullish rumors about an investment bank. When was the last this happened?
Goldman Sachs didn't comment on this because they wouldn't anyway...
Opening Bell: 4.2.08
Stocks Surge as 2 Major Banks Advance Turnaround Plans (WSJ) It's a real relief that the worst is behind us. The big capital announcements from Lehman and USB obviously supposedly helped spur a major rally. And then all day yesterday we listened to the talking heads on CNBC debate whether a bottom had been put in. We have no idea, or even what that means (seriously). But if the worse was behind us, then it wasn't so bad. A crisis mainly confined to Wall St. and a few neighborhoods in Ohio, Detroit, Southern California, Arizona and Florida. Is that it? Cool.
A Bipartisan Bid on Mortgage Aid Is Gaining Speed (NYT) Reminder to self: never again click on an article with the world 'bipartisan' in the title. Check out the picture in there. Very very NSFW.
Europe Launches Northern Rock Probe (AP) Not clear exactly which part they're concerned with, but the EU will launch a probe of the Northern Rock bailout. Wonder if perhaps public funds were used to protect private interesting, which surely represents some sort of conflict. Just a thought.
Google's CIO leaves search giant for job at EMI (News.com) A bit of a surprise jump that at first looked like an April Fools joke: Google CIO Doug Merrill is leaving the search giant for record label EMI. Usually we see Google top brass leaving to get involved with startups of sort, but this is actually more impressive. Sure he probably could've gone to any startup he wanted, and yes, startups always face long odds of success. But for an old-school major record label, its prospects are incredibly daunting. EMI, it should be noted, is owned by UK PE firm Terra Firma. Apparently his exact title or job role has not been announced, but it's a position designed especially for him.
Revolution in Coachella (Aguanomics) Had to link to this cause of the name alone: Aguanomics -- it's a blog about water economics. And given how sexy water is these days, how could anyone not want to read that? This particularly entry is not about the music festival, but about a tiered pricing structure on water on consumption and its potential impact as a conservation inducing mechanism. We also like it, cause he ends his posts with a Bottom Line: "Coachella should meter AND the metering should be based on per-capita use -- why charge less to a guy with a golf course-sized lot than a family on a small lot. Meter and charge per capita rates that rise quickly when water is wasted." (via Marginal Revolution)
Congress to Take Testimony on Internet Gambling Ban (Bits) Miss the days when there were like 15 fresh stories on Bear Stearns each day, cause it made writing the Opening Bell so easy. Today for example, an article about the internet gambling ban is the only interesting/relevant thing seen all day. Anyway, the UIGEA -- the law "banning" internet gambling -- sought to limit bank transactions to foreign gambling enterprises. But actually it's still doable. Enforcement is tough and spotty. And right now, the banks aren't really on the hook if it happens to happen under their watch. So some are more serious about cracking down than others. So that's the debate now.
It’s Not Nice To Fool With The Stock Market (TechTraderDaily) Thank the lord that April Fools is gone for another year. Totally dumb. The one thing I were amused by was the debate about certain April Fools stories that directly related to public companies. InfoWorld, the dusty old trade rag, ran a story about Microsoft and Yahoo agreeing on a deal. Some people hated it. For one thing, it was classic InfoWorld. It was probably the least clever story they could've come up with and the story was pretty much devoid of wit.
IMF Cuts Global Forecast on Worst Crisis Since 1930s (Bloomberg)With a recession in the US considered to be done and done, all eyes turn to the globe to see if mother Earth can stay out of the big R. Right now the IMF is pegging the chances of a global recession at a meager 25 percent (apparently that's pretty big for the entire globe) citing the worst financial crisis since the great depression. Speaking of the US recession, on Intrade, the odds of one happening this year are down to 70 percent, from 74 percent a few weeks ago. That's a start.
A Bipartisan Bid on Mortgage Aid Is Gaining Speed (NYT) Reminder to self: never again click on an article with the world 'bipartisan' in the title. Check out the picture in there. Very very NSFW.
Europe Launches Northern Rock Probe (AP) Not clear exactly which part they're concerned with, but the EU will launch a probe of the Northern Rock bailout. Wonder if perhaps public funds were used to protect private interesting, which surely represents some sort of conflict. Just a thought.
Google's CIO leaves search giant for job at EMI (News.com) A bit of a surprise jump that at first looked like an April Fools joke: Google CIO Doug Merrill is leaving the search giant for record label EMI. Usually we see Google top brass leaving to get involved with startups of sort, but this is actually more impressive. Sure he probably could've gone to any startup he wanted, and yes, startups always face long odds of success. But for an old-school major record label, its prospects are incredibly daunting. EMI, it should be noted, is owned by UK PE firm Terra Firma. Apparently his exact title or job role has not been announced, but it's a position designed especially for him.
Revolution in Coachella (Aguanomics) Had to link to this cause of the name alone: Aguanomics -- it's a blog about water economics. And given how sexy water is these days, how could anyone not want to read that? This particularly entry is not about the music festival, but about a tiered pricing structure on water on consumption and its potential impact as a conservation inducing mechanism. We also like it, cause he ends his posts with a Bottom Line: "Coachella should meter AND the metering should be based on per-capita use -- why charge less to a guy with a golf course-sized lot than a family on a small lot. Meter and charge per capita rates that rise quickly when water is wasted." (via Marginal Revolution)
Congress to Take Testimony on Internet Gambling Ban (Bits) Miss the days when there were like 15 fresh stories on Bear Stearns each day, cause it made writing the Opening Bell so easy. Today for example, an article about the internet gambling ban is the only interesting/relevant thing seen all day. Anyway, the UIGEA -- the law "banning" internet gambling -- sought to limit bank transactions to foreign gambling enterprises. But actually it's still doable. Enforcement is tough and spotty. And right now, the banks aren't really on the hook if it happens to happen under their watch. So some are more serious about cracking down than others. So that's the debate now.
It’s Not Nice To Fool With The Stock Market (TechTraderDaily) Thank the lord that April Fools is gone for another year. Totally dumb. The one thing I were amused by was the debate about certain April Fools stories that directly related to public companies. InfoWorld, the dusty old trade rag, ran a story about Microsoft and Yahoo agreeing on a deal. Some people hated it. For one thing, it was classic InfoWorld. It was probably the least clever story they could've come up with and the story was pretty much devoid of wit.
IMF Cuts Global Forecast on Worst Crisis Since 1930s (Bloomberg)With a recession in the US considered to be done and done, all eyes turn to the globe to see if mother Earth can stay out of the big R. Right now the IMF is pegging the chances of a global recession at a meager 25 percent (apparently that's pretty big for the entire globe) citing the worst financial crisis since the great depression. Speaking of the US recession, on Intrade, the odds of one happening this year are down to 70 percent, from 74 percent a few weeks ago. That's a start.
Tuesday, April 1, 2008
Lehman: We Don’t Need Money But We’ll Raise Some
After the Bear Stearns (BSC: 10.73 +0.24 +2.29%) fiasco, it seems one of the most-used lines by financial company spokespeople or the CEOs themselves is something like “we don’t need money”. It’s rather ironic to hear them say that even as they are trying desperately to raise money. One case in point is Lehman Brothers (LEH: 41.47 +3.83 +10.18%) which says it doesn’t need money but that it’s selling at last $3 billion worth of shares to raise capital.
Lehman’s stock declined after this announcement although an “insider” claims that there is a lot of interest in subscribing to these new convertible preferred shares. Unlike normal shares, this offering will offer a coupon payment of 7% to 7.5% and a conversion premium of 30% above market. As with most convertible bonds/shares, it is simply a way of packaging a loan where the loan principal will be paid back as predetermined number of shares.
Some analysts have raised Lehman’s rating and say their share prices are below fair value. So while that may well be the case, one has to ask why a company that doesn’t need capital is putting together a deal to borrow money with what might under normal circumstances seem a relatively high premium both in coupon payments as well as in the low share price at which the shares would be issued.
Lehman’s stock declined after this announcement although an “insider” claims that there is a lot of interest in subscribing to these new convertible preferred shares. Unlike normal shares, this offering will offer a coupon payment of 7% to 7.5% and a conversion premium of 30% above market. As with most convertible bonds/shares, it is simply a way of packaging a loan where the loan principal will be paid back as predetermined number of shares.
Some analysts have raised Lehman’s rating and say their share prices are below fair value. So while that may well be the case, one has to ask why a company that doesn’t need capital is putting together a deal to borrow money with what might under normal circumstances seem a relatively high premium both in coupon payments as well as in the low share price at which the shares would be issued.
Opening Bell: 4.1.08
UBS Seeks Fresh Capital, Expects $19 Billion in Write-Downs (WSJ) Exactly as expected, UBS says it will raised up to $15 billlion (also about 15 billion CHF thanks to currency parity) and that it expects write downs of $19 billion. That's a lot of money. The company hopes to hive off all of its nasty, real estate-related assets by turning them into a separate unit, which may be spun off or sold. Perhaps the idea is that if you bundle a mountain of illiquid assets and turn them into their own company, you might be able to catch a bid for 'em. Also: The Chairman is stepping down.
Maybe not so nonsensical after all (Econbrowser) How hard could home prices fall? 50 percent? Economist Menzie Chinn thinks that number sounds a tad high, but it's possible. An interesting report, walking through the numbers and the math to figure our worst-case scenarios for the housing fall. 50 percent seems a bit beyond the range of what's realistic, but it's not totally impossible. Anyway, some interesting stuff in there to read through.
Dell Weighs Alternatives to Its Link With CIT (NYT) Dell's found itself tied up in the whole credit mess via its relationship with commercial finance firm CIT, which is having all kinds of problems of its own. Basically, CIT has been the backbone of the Dell Financial Services unit, which provides loans to finance Dell products. Anyway, no official word yet on what the company plans to do, except that it will, of course, explore some strategic alternatives. The article notes that both Microsoft and Avaya are CIT partners.
Microsoft Unlikely to Raise Yahoo Offer (WSJ) The Journal reports that Microsoft isn't interested in raising its offer, as Yahoo would like. Who knows though what's really going on. Hard to say whether this is news news, or whether this is spin coming out of Microsoft designed to send a message. That being said, the report says there haven't been any fresh talks lately, which is newsy, since a lot of folks have been interpreting the recent quiet as meaning that the two sides were busily hatching together a plan.
Record reserve growth, record dollar reserve growth and no evidence of diversification among the countries that matter (RGE Monitor) Foreign governments continue to sock away ginormous piles of cash and that cash is still in dollars. Despite the precipitous slide of the greenback, there really hasn't been a diversification away. Brad Setser takes a very long and detailed look at the asset compensation around the world. Definitely worth a scan if this is your bag.
Maybe not so nonsensical after all (Econbrowser) How hard could home prices fall? 50 percent? Economist Menzie Chinn thinks that number sounds a tad high, but it's possible. An interesting report, walking through the numbers and the math to figure our worst-case scenarios for the housing fall. 50 percent seems a bit beyond the range of what's realistic, but it's not totally impossible. Anyway, some interesting stuff in there to read through.
Dell Weighs Alternatives to Its Link With CIT (NYT) Dell's found itself tied up in the whole credit mess via its relationship with commercial finance firm CIT, which is having all kinds of problems of its own. Basically, CIT has been the backbone of the Dell Financial Services unit, which provides loans to finance Dell products. Anyway, no official word yet on what the company plans to do, except that it will, of course, explore some strategic alternatives. The article notes that both Microsoft and Avaya are CIT partners.
Microsoft Unlikely to Raise Yahoo Offer (WSJ) The Journal reports that Microsoft isn't interested in raising its offer, as Yahoo would like. Who knows though what's really going on. Hard to say whether this is news news, or whether this is spin coming out of Microsoft designed to send a message. That being said, the report says there haven't been any fresh talks lately, which is newsy, since a lot of folks have been interpreting the recent quiet as meaning that the two sides were busily hatching together a plan.
Record reserve growth, record dollar reserve growth and no evidence of diversification among the countries that matter (RGE Monitor) Foreign governments continue to sock away ginormous piles of cash and that cash is still in dollars. Despite the precipitous slide of the greenback, there really hasn't been a diversification away. Brad Setser takes a very long and detailed look at the asset compensation around the world. Definitely worth a scan if this is your bag.
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