Rolfe Winkler http://blogs.reuters.com/rolfe-winkler Option ARMageddon Tue, 29 Jun 2010 22:17:45 +0000 en-US hourly 1 http://wordpress.org/?v=4.2.5 Cheerio! http://blogs.reuters.com/rolfe-winkler/2010/06/29/cheerio/ http://blogs.reuters.com/rolfe-winkler/2010/06/29/cheerio/#comments Tue, 29 Jun 2010 22:17:45 +0000 http://blogs.reuters.com/rolfe-winkler/?p=6435 Some news to share with Option ARMageddon readers: After a great year writing columns and blogging for Reuters, I’m moving on.

My experience at 3 Times Square has been great. First with Reuters Commentary and lately with Reuters Breakingviews. The team here is absolutely first rate.

I’m headed to the Wall Street Journal, where I will join the team at Heard on the Street. So check for my byline on the back page of the Money & Investing section starting soon.

For those without a subscription to the Journal, you can still follow me via Twitter, where I’ll continue to share great links. My Twitter profile is @RolfeWinkler.

A special thanks to Felix Salmon without whom I never would have come to Reuters.

Thanks for reading!

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Lunchtime Links 6-28 http://blogs.reuters.com/rolfe-winkler/2010/06/28/lunchtime-links-6-28/ http://blogs.reuters.com/rolfe-winkler/2010/06/28/lunchtime-links-6-28/#comments Mon, 28 Jun 2010 13:45:34 +0000 http://blogs.reuters.com/rolfe-winkler/?p=6412 Corruption suspected in airlift of billions in cash from Kabul (Rosenberg, WSJ) $3 billion has left the country in three years. And that’s just the officially declared amount. Your tax dollars at work folks.

Will Obama make tough budget choices? (RealClearPolitics) Watch it to the end. Is Obama talking about austerity because he believes it’s necessary or because it’s de rigueur among G20 leaders these days?  We’ll see if he actually follows through. He has had some big economic policy wins of late that are commendable. China says it will let the yuan appreciate; Europeans are going to conduct stress tests; and he’s got a financial reform bill to sign. None of the above are panaceas, but they are progress.

PDFG-20 summit declaration (G-20) Wherein the Group of 20 nations agree to a timetable to reduce deficits by half by 2013 and “stabilize” debt-to-GDP by 2016. Not exactly lofty goals. And in any case, there’s plenty of emphasis that deficit cutting won’t happen until economic “recovery” takes hold. Ugh. Curring spending will cut growth. Seems to me there’s no way to de-lever without accepting that output is going to fall.

PDFFinancial reform bill summary (via Alphaville) Want to know what ended up in the financial reform bill? Here’s a helpful summary.

The cheap cost of cheating the lowest paid (Clines, NYT) This subject feels like it deserves a lot more than a few hundred words.

Counterfeit fashion, counterfeit personalities… (Economist)

YouTube adds a vuvuzela button! (YouTube) Click the soccer ball bottom right…

Grammar Nazi WIN (facebook)

Simba… (imgur)

Optical illusions (imgur) Never mind the Tevez goal that was bogus. All of this can be solved with very simple replay technology. And it’s not like it would take up any extra time. A reviewer in the booth could tell refs the correct call in seconds…

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Bank failure Friday http://blogs.reuters.com/rolfe-winkler/2010/06/26/bank-failure-friday-31/ http://blogs.reuters.com/rolfe-winkler/2010/06/26/bank-failure-friday-31/#comments Sat, 26 Jun 2010 02:25:09 +0000 http://blogs.reuters.com/rolfe-winkler/?p=6423 #84

—Failed bank: Peninsula Bank, Englewood FL
—Acquiring bank: Premier American Bank, Miami FL
—Vitals: assets of $644.3 million, deposits of $580.1 million
—Estimated DIF damage: $194.8 million

#85

—Failed bank: First National Bank, Savannah GA
—Acquiring bank: The Savannah Bank, National Association, Savannah GA
—Vitals: assets of $252.5 million, deposits of $231.9 million
—Estimated DIF damage: $68.9 million

#86

—Failed bank: High Desert State Bank, Albuquerque NM
—Acquiring bank: First American Bank, Artesia NM
—Vitals: assets of $80.3 million, deposits of $81.0 million
—Estimated DIF damage: $20.9 million

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Hasbro may not be most profitable LBO plaything http://blogs.reuters.com/columns/2010/06/25/hasbro-may-not-be-most-profitable-lbo-plaything/ http://blogs.reuters.com/rolfe-winkler/2010/06/25/hasbro-may-not-be-most-profitable-lbo-plaything/#comments Fri, 25 Jun 2010 16:53:18 +0000 http://blogs.reuters.com/rolfe-winkler/2010/06/25/hasbro-may-not-be-most-profitable-lbo-plaything/ Hasbro may make some of the world’s most iconic toys, but it wouldn’t necessarily make a great plaything for private equity barons. True, the maker of G.I. Joe action figures and Play-Doh — which said it rejected a buyout approach — has great brands for the under-10 set. But the seasonal toy business would be expensive to finance with real — rather than Monopoly — money. Even with big cuts, the potential returns from a deal look meager.

On the face of it, Hasbro looks like an attractive addition to private equity’s toy chest. Its iconic products range from Mr. Potato Head figurines and Nerf footballs, to classic board games like Scrabble and Candy Land. But the toy business has its many ups and downs. Children are fickle customers, after all, and two-thirds of sales typically come in the third and fourth quarters alone.

As a result, any buyer of Hasbro would need to stump up a big equity check. Tag on a 30 percent premium to Wednesday’s closing stock price — before revelations of a deal appeared in the Wall Street Journal — and that’s around $53.50 a share, or $8.4 billion including debt. If banks are willing to extend debt of around six times EBITDA, a buyer would need to come up with around $3.8 billion in equity.

That’s doable, but would almost certainly require a consortium of private equity firms or outside investors. And even with all that capital, bankers say a Hasbro with so much leverage would have to pay a relatively rich 9 percent interest rate to its creditors. The combination of expensive debt, plus lots of equity, would dampen returns.

Of course, under new, disciplined private equity ownership, Hasbro might be able to squeeze out more profits, perhaps growing its operating margin to, say, 19 percent from the 16 percent analysts currently forecast. But assuming an exit at the same multiple of earnings the company traded at before a bid emerged, the annualized returns would still be shy of around 10 percent. Given the risks, that’s hardly a reason to shout Yahtzee!

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Lunchtime Links 6-23 http://blogs.reuters.com/rolfe-winkler/2010/06/23/lunchtime-links-6-23/ http://blogs.reuters.com/rolfe-winkler/2010/06/23/lunchtime-links-6-23/#comments Wed, 23 Jun 2010 15:08:24 +0000 http://blogs.reuters.com/rolfe-winkler/?p=6395 91% of Harvard grads get honors (Kofol, Harvard Crimson…ht Nick Gogerty) Seriously? Apparently the faculty has put its foot down, so only half will get honors.

IAF planes spotted in Saudi Arabia (Jerusalem Post, ht Jim Rickards) The Saudis hate the idea of the Persian bomb every bit as much as the Israelis. They’ve given Israel flyover rights to take out Iranian nuclear facilities. If Israel attacks, that could send oil and gold skyrocketing.

Buffett wins bet on World Cup (Frye/Son, Bloomberg) Berkshire Hathaway had written an insurance policy that would have paid out if France won the cup. Among the favorites going in, France turned out to be one of the worst performers in the tournament.

Mortgage purchase applications at 13 year low (CR) Lots of demand was pulled forward by the tax credit.

CHART — Technically, the S&P 500 doesn’t look so good (Culp, Reuters)

The UK has its Hoenig (Alloway, Alphaville) By that I mean a monetary policy dissenter who appears not to buy the output gap argument.

Blankfein on Oprah? (NY Post) Awkward! And probably not gonna happen. Speaking of Oprah….

Is she rigging the vote in her reality TV contest? (HuffPo) Screenshot evidence?

BP brings the big gun: Bob Dudley (Mason, Telegraph) Having faced down Russian oligarchs, one would think Dudley can handle the stressful situation he’s about to get into…

Spill, from space (Discover Mag) This never gets old…

Italian soccer training (Youtube) And what Rugby fans think.

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Lunchtime Links 6-22 http://blogs.reuters.com/rolfe-winkler/2010/06/22/lunchtime-links-6-22/ http://blogs.reuters.com/rolfe-winkler/2010/06/22/lunchtime-links-6-22/#comments Tue, 22 Jun 2010 17:00:37 +0000 http://blogs.reuters.com/rolfe-winkler/?p=6391 In law school, grades go up, just like that (Rampell, NYT) Grade inflation to help grads get jobs…and pay off debt….

Must Read — A colossal fracking mess (Bateman, Vanity Fair…ht Yves)

UK government delivers “unavoidable budget” (WSJ) Keynesians will decry the spending cuts, but common sense says they have to happen. Governments can try to borrow forever, but eventually unforgiving credit markets would jack up rates, necessitating far deeper cuts.

Home sales weak despite tax credit (Mutikani, Reuters) Bad omen for the housing market….CR called it a very weak report.

Elon Musk is broke (Sorkin, Dealbook)

Greatest Rube Goldberg device ever? (Youtube, ht CSQT)

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Lunchtime Links 6-21 http://blogs.reuters.com/rolfe-winkler/2010/06/21/lunchtime-links-6-21/ http://blogs.reuters.com/rolfe-winkler/2010/06/21/lunchtime-links-6-21/#comments Mon, 21 Jun 2010 17:04:29 +0000 http://blogs.reuters.com/rolfe-winkler/?p=6386 Must ReadDysregulation nation (Warner, NYT)

Yuan soars to post-revaluation high (Reuters) On Saturday China said it would let its currency appreciate. Though U.S. consumers may face higher prices, this is absolutely necessary to help rebalance the world economy.

SEC turning up the heat on CDO cases — suing ICP Asset Mgmt for CDO fraud and investigating Magnetar

Don’t gut proxy access (Bebchuk, Dealbook)

Basel trading reforms delayed (Reuters) Ugh. The best fix for the global financial system is to make banks hold more capital. Postponing the rules for holding more capital against trading assets could delay the bigger reforms scheduled  for 2012…

Americans think soccer is boring (imgur) Some of us Yanks love the World Cup, but isn’t it ridiculous that every other match is determined by something besides quality play? Blown calls. Missed calls. Fake injuries. What solves this? More refs on the field? Some form of instant replay?

Cigarette tax will mean $10 packs in NY (Carrasquillo, myfoxny)

Funny church sign

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Bank failure Friday http://blogs.reuters.com/rolfe-winkler/2010/06/19/bank-failure-friday-30/ http://blogs.reuters.com/rolfe-winkler/2010/06/19/bank-failure-friday-30/#comments Sat, 19 Jun 2010 01:21:47 +0000 http://blogs.reuters.com/rolfe-winkler/?p=6382 Slow Friday….

#83

–Failed bank: Nevada Security Bank, Reno NV
–Acquiring bank: Umpqua Bank, Roseburg OR
–Vitals: assets of $480.3 million deposits of $479.8 million
–Estimated DIF damage: $80.9 million

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Lunchtime Links 6-18 http://blogs.reuters.com/rolfe-winkler/2010/06/18/lunchtime-links-6-18/ http://blogs.reuters.com/rolfe-winkler/2010/06/18/lunchtime-links-6-18/#comments Fri, 18 Jun 2010 14:02:42 +0000 http://blogs.reuters.com/rolfe-winkler/?p=6373 Germany says will publish bank stress test results, but only if banks give the ok! (McGroarty/Kissler, DowJones) The healthy banks should encourage their own results to be published.

Calpers to have directors on call (Chon, WSJ) Later this year, the SEC is expected to finalize so-called “proxy access” rules to make it easier for invetsors to nominate their own directors. They can do it now, but they have to run their own proxy campaign, which can be expensive and difficult. The SEC proposal would allow investors to put director nominees on the company’s proxy card. The one investors get every year. Corporate boards and their lawyers are apoplectic about this new rule, fearing their clubby boards will be invaded by unions and pension plans. This move by Calpers looks to solve another issue facing investors that want to nominate directors: where do you find them? Guys like Carl Icahn have a healthy bench of would-be directors. Now Calpers wants one.

Greenspan warns on deficits (Greenspan, WSJ) Don’t be fooled by today’s low interest rates. The government could very quickly discover the limits of its borrowing capacity. Hey Alan, thanks for warning about unsustainable debts, but it would be helpful if you admitted that your famous put inflated the country’s largest ever private credit bubble…and that Bernanke is repeating your mistake…

Housing market slows as buyers get picky (Streitfeld, NYT)

Lenders go after money lost in foreclosures (El Boghdady, WaPo)

Time lapse analemma (johndlowell) Very cool.

Not impressed… (imgur)

How is this even possible? (reddit)

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TARP starts grooving like bad ’80s remix http://blogs.reuters.com/columns/2010/06/17/tarp-starts-grooving-like-bad-80s-remix/ http://blogs.reuters.com/rolfe-winkler/2010/06/17/tarp-starts-grooving-like-bad-80s-remix/#comments Thu, 17 Jun 2010 20:50:49 +0000 http://blogs.reuters.com/rolfe-winkler/2010/06/17/tarp-starts-grooving-like-bad-80s-remix/ TARP was in a groove but it’s now turning into a bad ’80s remix.

After a string of profitable paybacks from Goldman Sachs, JPMorgan and 59 others, the list of deadbeats is growing. In May, 91 banks missed their dividend payments to taxpayers, up from 55 in November. With hundreds of banks still trapped in the $700 billion bailout program, it’s growing reminiscent of the savings and loan crisis.

Back in the late 1980s, the Fed routinely lent to insolvent institutions, compounding the losses. Reforms were passed in 1991 to prevent it from happening again. Yet after losing $2.6 billion of bailout cash in the failures of CIT, Pacific Coast National Bancorp and UCBH Holdings, Treasury looks poised to lose still more, some in banks that should never have been given money in the first place. About $3.5 billion is tied up in the 91 current delinquents.

Part of the problem is conflicting goals. Some lenders, like Saigon National, want to pay back TARP, but their primary regulator — in Saigon’s case the Office of the Comptroller of the Currency — won’t let them. Concerned with balance sheet soundness, the regulators are rightly focused on forcing banks to hold more capital.

Taxpayers, however, shouldn’t be the ones supplying the stockpiles. Treasury said TARP was intended for viable institutions. If after nearly two years since TARP was set up, banks can’t find private capital, it suggests they probably weren’t healthy enough to be rescued in the first place.

Two big banks already look like serious zombies. Pacific Capital Bancorp, with $7.4 billion of assets, and Anchor Bancorp Wisconsin with $4.5 billion, have each missed five dividend payments and appear incapable of surviving without taxpayer cash.

Anchor Bancorp’s tangible common equity, a key capital measure, is negative, meaning TARP money is propping up the bank. Meanwhile, Pacific Capital is having trouble completing a private capital hike.  Even if it comes off, Treasury will be forced to write down a substantial portion of the investment.

It’s time to let the terminally ill ones go — and face the reality, however belatedly, that some TARP banks are beyond saving.

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Lunchtime Links 6-16 http://blogs.reuters.com/rolfe-winkler/2010/06/16/lunchtime-links-6-16/ http://blogs.reuters.com/rolfe-winkler/2010/06/16/lunchtime-links-6-16/#comments Wed, 16 Jun 2010 17:25:12 +0000 http://blogs.reuters.com/rolfe-winkler/?p=6367 $250k deposit insurance limit to be made permanent, retroactive (Paletta/Luccetti, WSJ) Savers in IndyMac, which failed before deposit insurance limits were raised, can now put in a claim for lost deposits over $100k. I argued a year ago that this bailout never deserved the “temporary” moniker in the first place, that it would never go away. The problem is that deposit insurance, which is supposed to stabilize the banking system, can actually DEstabilize it by compounding moral hazard. That’s what this does.

Housing starts plummet in May (CR) This is good news folks. The economy can’t recover until housing recovers, and housing can’t recover — not sustainably — until supply declines…

Judge releases some Blago wire taps (Kozlov, CBS) Was chatting with a friend over the weekend who worked in Blagojevich’s office briefly. He told a story about how the IL governor refused to take a certain trip to Washington, that would have clearly benefited the state, because his wife refused to go. His wife refused to go because staff thought it a bad idea to grant her request to use state resources to turn the trip into a fun vacation for her and her friends.

Look who decided to show (flickr) For Tetris fans…

Swedish subway system (leenks) Pretty cool…

Stuck man cuts off own arm (MSNBC)

Seen at the Brazil – North Korea soccer match (imgur) Hilarious.

A German student created a major traffic jam in Bavaria when he ‘mooned’ a group of Hell’s Angels, hurled a puppy at them and then escaped on a bulldozer. (Orange News) This has to be a joke…

BP buys 32 of Kevin Costner’s oil cleanup machines (ABC) As Yves Smith remarked: “if you build it, they will come.”

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Lunchtime Links 6-15 http://blogs.reuters.com/rolfe-winkler/2010/06/15/lunchtime-links-6-15/ http://blogs.reuters.com/rolfe-winkler/2010/06/15/lunchtime-links-6-15/#comments Tue, 15 Jun 2010 18:06:37 +0000 http://blogs.reuters.com/rolfe-winkler/?p=6358 Life insurers win capital reprieve (Scism, WSJ) This is a shame. On one hand, life insurers don’t appear as systemically risky as Wall Street banks, since their liabilities aren’t as unstable. You won’t see a run on life insurance policies the way you might on bank deposits, commercial paper or repos. But life insurers nevertheless dramatically overlevered themselves during the boom, and they invested in all sorts of dodgy paper rated AAA. To protect policy-holders, regulators should err on the side of demanding too much capital…

CFTC approves first movie futures contract (Doering/Rampton, Reuters) For “Takers,” starring Matt Dillon. I wonder: will they have to approve contracts for each individual movie? This also a shame

Leverage, Baby! (Kim/Opdyke, WSJ) No doubt the writers liked the idea of taking a contrarian view, but the analysis in this piece is quite awful. Their basic thesis is that rates are low so investors should lever up to buy assets or just to raise cash. Hmmm, last I checked, cash pays 0%. The reason to pay interest to hold cash is…what precisely? As for asset prices, they look too high whether deflation or inflation is on the horizon. A decade of debt deflation is the most likely scenario, in which case asset prices will fall and debts will be ever more burdensome to service. But even inflation would be problematic, contrary to popular opinion. Higher expected inflation would lead to two things that are toxic for asset values: higher interest rates and higher discount rates for future cash flow streams. Borrowing to buy assets only makes sense if they’re substantially undervalued; the writers don’t make any case for that.

What free Wi-Fi looks like in South Korea… (imgur) ….a lot more impressive than anything you can get in the U.S.!

Bin Laden hunter arrested in Pakistan (BBC) News story or Quentin Tarantino film?

Once just a site with funny cat pictures, now a web empire (Wortham, NYT) I Can Has Cheezburger now has 40 employees. Crazy.

Etch-a-Sketch Chicago (reddit) Pretty awesome. Chicagoans will note the sun is rising from an odd direction, but whatever.

He’s a novelist now?!? (GlennBeck.com) Wouldn’t want to be the ghost-writer that worked on this project…

You would if you could…

triceretops

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Bankers should be thankful for even meager M&A http://blogs.reuters.com/rolfe-winkler/2010/06/12/bankers-should-be-thankful-for-even-meager-ma/ http://blogs.reuters.com/rolfe-winkler/2010/06/12/bankers-should-be-thankful-for-even-meager-ma/#comments Sat, 12 Jun 2010 02:58:33 +0000 http://blogs.reuters.com/rolfe-winkler/?p=6349

Cross-posted from today’s NYT.

Rosy predictions of a big bounce-back in mergers and acquisitions may not be coming true, but bankers are fortunate that U.S. deal volumes are recovering as if the recession just endured was run-of-the-mill. After two down years, the value of American corporate match-making is flat in 2010. That’s no boom — but if history is any guide, it’s also nothing to complain about.

After declines of 41 percent in 2008 and 22 percent in 2009, the $322 billion of U.S. announced deals so far in 2010 is off 1 percent compared to last year’s pace. That pattern is in line with the last two recessions, according to Thomson Reuters data. The downturn of the early 1990s saw three dry years, the dotcom bust two fallow ones.

But considering the depth of the latest recession compared to the prior two, one might think dealmakers would still be in hibernation. Consider: During the latest recession, five of six quarters from 2008 through the second quarter of 2009 showed negative real GDP growth; the other recessions had just two down quarters. Also: employment has fallen, and stayed, 6 percent from its pre-recession peak; the other recessions saw employment dip less than 2 percent below peak level, and hiring on the other end picked up more quickly.

Yet some on Wall Street had been predicting a more robust rebound. Goldman Sachs predicted “a perfect storm for M&A” late last year, pointing to cash-stuffed corporate coffers — now at a record according to the Federal Reserve — and also benign capital markets. Greenhill & Co also predicted 2010 would be big for dealmakers.

But while last year’s fourth quarter showed some promising return to dealmaking — including TPG’s buyout of IMS Health and Berkshire Hathaway’s  acquisition of Burlington Northern, the momentum hasn’t carried over.

Some may find that surprising. After all, while many companies achieved profit targets through cost cutting during the economic downturn, the juice has probably been squeezed from that lemon. Acquiring competitors is one way to find additional cost-cutting opportunities through synergies. For instance, while CenturyTel and Qwest have been cutting costs on their own, they now hope their merger will yield over $600 million more in fresh savings.

The trouble is that even though the U.S. economy has stopped contracting, big risks still weigh on the animal spirits of potentially acquisitive executives. Job growth is anemic and credit markets have seen renewed volatility in the wake of Europe’s sovereign debt crisis. That volatility may have helped scuttle Prudential’s bid for AIG’s Asian insurance business, and a $15 billion leveraged buyout of Fidelity National Information Services.

Put it all together, and dealmakers pining for more action should probably just consider themselves lucky.

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Bank failure Friday http://blogs.reuters.com/rolfe-winkler/2010/06/12/bank-failure-friday-29/ http://blogs.reuters.com/rolfe-winkler/2010/06/12/bank-failure-friday-29/#comments Sat, 12 Jun 2010 02:07:28 +0000 http://blogs.reuters.com/rolfe-winkler/?p=6343 Just one tonight it appears…

#82

–Failed bank: Washington First International Bank, Seattle WA
–Acquiring bank: East West Bank, Pasadena CA
–Vitals: assets of $520.9 million, deposits of $441.4 million
–Estimated DIF damage: $158.4 million

On another, far more important topic — the U.S. match against England tomorrow — a British friend suggests the stakes be increased. To wit:

IF THE US WINS: Britain officially becomes the 51st state; the queen becomes a charwoman at the White House and American rock stars are forbidden by law to affect English accents.

IF ENGLAND WINS: American Independence is revoked and you revert to being a colony with Her Gracious Majesty as your head of state. Frisbees, Rollerblades and Jerry Springer-type TV shows are then made illegal.

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Lunchtime Links 6-11 http://blogs.reuters.com/rolfe-winkler/2010/06/11/lunchtime-links-6-11/ http://blogs.reuters.com/rolfe-winkler/2010/06/11/lunchtime-links-6-11/#comments Fri, 11 Jun 2010 16:11:17 +0000 http://blogs.reuters.com/rolfe-winkler/?p=6335 Bill would extend home buyers’ deadline for tax credit (El Boghdady, WaPo) Really? Ugh.

BP plans to defer dividend (Pagnamenta, TimesUK) With the potential cost of the spill running into the tens of billions, it makes sense for BP to sequester as much cash as possible for cleanup/liability…

New estimates double rate of oil flowing into GoM (Gillis/Fountain, NYT) Says the amount spilling could be equivalent to another Exxon Valdez every 8-10 days

Klarman tops Cohen/Griffin as investors search for margin of safety (Stein, Bloomberg) I didn’t know SK had so much in assets under management. Kind of surprises me. He seems like the type that would prefer to keep the portfolio limited so that he could invest in small companies that might move the needle.

U.S. firms build up record cash piles (Lahart, WSJ) Just a thought, but seems to me that cash on one person’s balance sheet is debt on someone else’s. Yeah, the Fed’s Flow of funds report showed that corporate cash piles are up, but it also showed that total public/private debt is still growing!

Tax burdens highest in….? (ht Nick Gogerty)

Japan unfurls solar sail in space (Amos, BBC)

Adobe photoshop (reddit)

Fred Astaire once called this the “greatest dance number ever filmed” (YouTube) So says the poster of this video. I believe it.

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A crisis not wasted http://blogs.reuters.com/rolfe-winkler/2010/06/10/a-crisis-not-wasted/ http://blogs.reuters.com/rolfe-winkler/2010/06/10/a-crisis-not-wasted/#comments Thu, 10 Jun 2010 11:50:12 +0000 http://blogs.reuters.com/rolfe-winkler/?p=6319 White House Chief of Staff Rahm Emanuel famously said crises shouldn’t be wasted. Lucky for U.S. financial markets, the 80s savings and loan debacle wasn’t. Reforms passed in response meant U.S. regulators were better prepared than their European rivals to process the current crop of bank failures.

For months Spain has struggled to resolve troubled savings banks, resorting to a haphazard merger process. It’s not clear such combinations will bring stability, even if they can be completed. The collapse/bailout of CajaSur caused markets much consternation. Even now, Spain’s other savings banks are racing to merge before the June 30 expiration of the country’s temporary bailout law.

Meanwhile America’s FDIC closes a handful of institutions every Friday night without incident. The difference is strong rules to resolve collapsing banks, rules we got thanks to the S&L crisis.

During that episode the Federal Reserve routinely lent to insolvent institutions, funds that often ended up in the pockets of insiders and bank creditors, compounding taxpayer losses.

Such walking dead banks were christened “zombies” by Boston College Professor Edward Kane. Kane, along with other academics George Kaufman and George Bentson, helped lead reform efforts to stop Fed lending to insolvents and to empower bank regulators to seize them proactively, reducing costs. As a result, FDIC was well-prepared for the latest wave of bank failures. Over two hundred have been quickly and quietly closed since 2008.

Not having suffered similarly instructive bank crises in their own past, European nations were caught flat-footed coming into this one. Besides Spain’s troubles with savings banks, the UK was unprepared for Northern Rock’s collapse in 2007. Only afterward did the British adopt a special resolution regime modeled on the American one.

True, the European banking system is more concentrated than the American one. Most of FDIC’s takedowns are of small, systemically meaningless banks. But its regulatory toolkit proved adequate to shutter WaMu, a giant bank with $307 billion of assets, at no cost to anyone besides the bank’s shareholders and creditors. And since 2008, it has closed 53 banks with more than $1 billion of assets, 10 of which had assets over $10 billion.

The U.S. system is far from perfect. The original sin of the post-S&L rules was a “systemic risk exemption” granted regulators to lend to zombies determined too big to fail. That exemption was trotted out multiple times during the crisis, most infamously for FDIC’s debt guarantee program, which gave financials like Citi, Goldman, GE and many others explicit government backing.

The real problem, facing Americans and Europeans alike, is that the very biggest banks remain too large and complex to resolve. American regulators hope this problem will be solved with new “resolution authority” contained in legislation.

Still, most bank failures are, thankfully, remarkably boring affairs as insured depositor accounts are seamlessly transferred to healthy institutions or paid out. It goes to show that good regulation can indeed come out of crisis.

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Lunchtime Links 6-9 http://blogs.reuters.com/rolfe-winkler/2010/06/09/lunchtime-links-6-9/ http://blogs.reuters.com/rolfe-winkler/2010/06/09/lunchtime-links-6-9/#comments Wed, 09 Jun 2010 14:10:09 +0000 http://blogs.reuters.com/rolfe-winkler/?p=6316 The blog prophet of euro zone doom (Thomas, NYT)

Hoenig wants a rate increase (Kelleher/Gillam, Reuters) He won’t get it. The Fed has trapped itself. The only way to keep the economy “growing,” is to pump ever more copious amounts of credit into it. If we’re not willing to put up with any recession whatsoever in order to pay-down/write-off debt, well, then, eventually we become Greece. Even central banks that print the currency in which their debt is payable can’t defy gravity forever. The Japanese have tried for the better part of a generation….hasn’t worked so well….

Here’s a chart to make the above point:

Fed trapped

All TruPSed up (Alloway, Alphaville) Great, clear post from Tracy. Bank capital is still just about the most important issue in financial markets; this is the latest fight…

CHART: Mortgage purchase applications keep dropping despite low rates (Culp, Reuters) There will be no sharp recovery for housing. Too much shadow inventory and too little demand. Rates may even decline to new lows on more flight to safety buying of U.S. government paper, but don’t expect housing to get much of a boost.

Legacy for one billionaire, death but no taxes (Kocieniewski, NYT) No clever tax dodge here, Duncan just happened to die in 2010, a year when the estate tax dropped to 0%.

Bubble Watch: $35k per night hotel room (Nassauer, WSJ) NY’s gilded age is surely returning post Lehman…

Whole new level of American laziness (reddit)

Weight-lifter goes for gold, projectile vomits on judge and passes out (windycitizen) He apparently went for a third attempt after this. Why? Just why?

Superman

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Evening Links 6-7 http://blogs.reuters.com/rolfe-winkler/2010/06/07/evening-links-6-7/ http://blogs.reuters.com/rolfe-winkler/2010/06/07/evening-links-6-7/#comments Mon, 07 Jun 2010 21:53:21 +0000 http://blogs.reuters.com/rolfe-winkler/?p=6311 Betting on the bad guys (Adams, WSJ) From the cartoonist behind Dilbert.

Consumer credit increases slightly in April (CR) Credit excluding mortgage debt is back on the rise…ever so slowly…and probably not for long…

Fed paper: Effective homeownership rate much lower than official rate (NY Fed) The official rate from the Census Bureau was 67.2% at the end of ’09. But back out those with negative equity, and the rate is 5.6% lower. And that’s using optimistic house price indices from OFHEO and FHFA. Using Case-Shiller, the homeownership gap is much worse.

BofA settles Countrywide overbilling scams for $108 million (Wyatt, NYT) As mortgage bonds increasingly went bad, Countrywide’s servicing business had to find ways to squeeze out profits. This was a particularly slimy way to do that…

New iPhone presentation crashes on, you guessed it, network trouble (Gizmodo) The crowd laughs it off. iPhone users everywhere unsurprised.

Dow falls below “Flash Crash” low

20 years of growth in Shanghai (skyscrapercity)

Parenting Fail (Abrams, Asylum)

Funny: Calvin and Hobbes on capitalism (imgur)

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Bank Failure Friday http://blogs.reuters.com/rolfe-winkler/2010/06/05/bank-failure-friday-28/ http://blogs.reuters.com/rolfe-winkler/2010/06/05/bank-failure-friday-28/#comments Sat, 05 Jun 2010 04:01:56 +0000 http://blogs.reuters.com/rolfe-winkler/?p=6308 Three failures tonight…including one in Nebraska with assets/deposits over $2 bilsky.

#79

—Failed bank: First National Bank, Rosedale MS
—Acquiring bank: The Jefferson Bank, Fayette MS
—Vitals: assets of $60.4 million deposits of $63.5 million
—Estimated DIF damage: $12.6 million

#80

—Failed bank: Arcola Homestead Savings Bank, Arcola IL
—Acquiring bank: None. Insured deposits paid out.
—Vitals: assets of $17.0 million deposits of $18.1 million
—Estimated DIF damage: $3.2 million

#81

—Failed bank: TierOne Bank, Lincoln NE
—Acquiring bank: Great Western Bank, Sioux Falls SD
—Vitals: assets of $2.8 billion deposits of $2.2 billion
—Estimated DIF damage: $297.8 million

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Lunchtime Links 6-4 http://blogs.reuters.com/rolfe-winkler/2010/06/04/lunchtime-links-6-4/ http://blogs.reuters.com/rolfe-winkler/2010/06/04/lunchtime-links-6-4/#comments Fri, 04 Jun 2010 14:15:51 +0000 http://blogs.reuters.com/rolfe-winkler/?p=6304 CHART: Census responsible for almost all job growth (Culp, Reuters) 411k census jobs added in May. 431k total jobs added.

Not for the forint-hearted (Alloway, Alphaville) There could be some political posturing behind these comments from Hungarian officials — who suggest, in effect, that Hungary is the next Greece. Still pretty unsettling.

Euro hits 4-year low on mistranslated French comment (Reuters)

CBO issues Fed-flattering propaganda (Naked Capitalism)

Global bank capital pact advances (Enrich/Paletta, WSJ) Article says the new Basel accords could require $1.2 trillion of additional capital and liquidity. Reminds me of Greenspan’s comment that U.S. banks should carry 15% TCE, which would force them to raise similarly huge sums. While everyone agrees banks need more capital, regulators aren’t actually going to force them to raise it while they’re trying to follow their faux dual mandate of not just keeping banks safe, but also encouraging them to “lend more to get the economy going.” The two goals directly conflict.

Happiness may come with age, study says (Bakalar, NYT)

Keanu Reaves gives £50 million of his Matrix residuals to movie’s behind-the-sceners (HelloMag)

Big Picture captures birds caught by the oil spill (Globe)

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Free ride ending for U.S. wireless bandwidth hogs http://blogs.reuters.com/columns/2010/06/02/free-ride-ending-for-u-s-wireless-bandwidth-hogs/ http://blogs.reuters.com/rolfe-winkler/2010/06/02/free-ride-ending-for-u-s-wireless-bandwidth-hogs/#comments Wed, 02 Jun 2010 21:52:40 +0000 http://blogs.reuters.com/rolfe-winkler/2010/06/02/free-ride-ending-for-u-s-wireless-bandwidth-hogs/ By Rolfe Winkler

Bandwidth hogs are losing a big trough. AT&T on Wednesday became the first major U.S. mobile service provider to shift from an all-you-can-eat model to tiered pricing for email and Internet access.

The decision is likely to cut into sales at first, but could improve the company’s long-run profitability and end nightmarish network problems. Customers look to be the early winners, while conditioning them to pay for usage should provide a longer-term victory for carriers.

AT&T is shrewdly pricing the plans to keep customers happy. Most should actually see bills decline. Users who consume less than 200 megabytes a month, 65 percent of them according to AT&T, could pay $15 instead of the current $30 for the unlimited plan. Considering how unhappy many customers are with the service, widespread price increases wouldn’t have gone down well.

Even though the heaviest smartphone users will pay more, AT&T’s average revenue per user will probably dip. The company expects little impact on 2010 sales, but JPMorgan estimates service revenue could fall as much as 5 percent on an annualized basis.

Any hit to short-run revenue will be a price worth paying if customers can be convinced to pay for consumption. As things stand, the capital expenditure required to support iPhone users means they may be worth nothing to AT&T, according to research firm Sanford Bernstein, although the company disagrees.

Better network quality requires investment, and consumers are now being pushed to pay. Despite the competition, prices should rise over time, especially as bandwidth usage continues to swell. AT&T’s decision appears to rely on rivals also forcing those clogging the networks to shoulder most of the burden of improving the mobile plumbing. It seems a good bet, for if other providers don’t follow suit, they’re apt to attract the feasters who cause dropped calls and slow downloads for everyone.

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Evening links 6-2 http://blogs.reuters.com/rolfe-winkler/2010/06/02/evening-links-6-2/ http://blogs.reuters.com/rolfe-winkler/2010/06/02/evening-links-6-2/#comments Wed, 02 Jun 2010 21:35:50 +0000 http://blogs.reuters.com/rolfe-winkler/?p=6296 Quote of the Day: Absolving Moody’s for failing to see the housing bubble, Warren Buffett employed the “who-could’ve-known” defense when he told the Financial Crisis Inquiry Commission today that “rising prices are a narcotic” that corrupt the critical thinking of rational people. To that Chairman Phil Angelides responded that rising prices may be “a narcotic, but don’t we expect ratings agencies to avoid it? You don’t want [the credit] police trading crack.

BofA admits foreclosure can be appealing (CR) The bank acknowledges the obvious, that if you’re not concerned about a hit to your credit rating–or losing your house–you can live rent free for more than a year waiting for the repo guy to get to you. On a related note…

Owners stop paying mortgages, and stop fretting (Streitfeld, NYT)

CDS spreads for oil companies blow out (Alphaville) This matches the huge drop in the share prices of companies that are attached to the spewing Macondo well in the Gulf. If the spill can’t be contained, will the liability?

Buffett expects “terrible problem” for municipal debt (Frye/Selway, Bloomberg) The Oracle did offer some wisdom about municipal issuers…

“People become immune to coffee boost,” experts say (Roberts, BBC)

Visualizing the BP oil disaster (ifitwasmyhome)

Lego printer uses world’s cheapest ink cartridge…LOL!

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American Idol creator gambles on an encore http://blogs.reuters.com/columns/2010/05/31/american-idol-creator-gambles-on-an-encore/ http://blogs.reuters.com/rolfe-winkler/2010/05/31/american-idol-creator-gambles-on-an-encore/#comments Mon, 31 May 2010 14:48:11 +0000 http://blogs.reuters.com/rolfe-winkler/2010/05/31/american-idol-creator-gambles-on-an-encore/ By Rolfe Winkler

Pop impresario Simon Fuller is ready for an encore. He wants his hit TV show American Idol back. This time it’s shaping up to be a duet, as Fuller has another deep pocket to join his own. The empire is bigger too, with image rights to Elvis Presley and Muhammad Ali added to the mix. But Fuller may yet come to regret a return to the same stage.

With a fortune built on the back of the Spice Girls, Fuller sold his TV talent show to CKX in 2005 for $174 million. He’s now ready to fork over $600 million, with one of Britain’s wealthiest bankers, Roger Jenkins, to buy back the whole company, according to the Wall Street Journal. That works out to about $6.50 a share.

It would be a nice premium to Thursday’s closing price of $4.32, but it’s little more than the $6 the shares traded at in late March when the company confirmed sale talks with then-boss Robert F.X. Sillerman, who resigned to launch his own bid. The market seemed skeptical, knocking the shares 30 percent below the $6 he was believed to be offering. It’s still not clear if a bid ever materialized.

Fuller’s offer may appear to shortchange CKX investors. But valuing the company at a modest seven times estimated 2010 EBITDA may not be so bad given the ratings for the American Idol finale sank to 2002 levels and its star, Simon Cowell, just left to launch a competing singing show.

Fuller and Jenkins likely view CKX as a cornerstone for a budding entertainment empire, having put together a $1 billion fund for acquisitions. Still, it seems like they’re paying a full price for the privilege.

The Idol worship follows another entertainment mogul’s return to his roots. Haim Saban just reacquired the Power Rangers kids franchise that started his road to riches. Like Saban, Fuller probably feels he knows his baby best, and is well suited to keep it strong. That may be true. But at the premium Fuller is willing to pay, current CKX investors should be happy to make this a swan song.

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Bank failure Friday http://blogs.reuters.com/rolfe-winkler/2010/05/29/bank-failure-friday-27/ http://blogs.reuters.com/rolfe-winkler/2010/05/29/bank-failure-friday-27/#comments Fri, 28 May 2010 23:44:24 +0000 http://blogs.reuters.com/rolfe-winkler/?p=6282 Happy long weekend everyone!

#74

–Failed bank: Bank of Florida – Southeast
–Acquiring bank: EverBank, Jacksonville FL
–Vitals: assets of $595.3 million, deposits of $531.7 million
–Estimated DIF damage:$71.4 million

#75

–Failed bank: Bank of Florida – Southwest
–Acquiring bank: EverBank, Jacksonville FL
–Vitals: assets of $640.9 million and deposits of $559.9
–Estimated DIF damage: $91.3 million

#76

–Failed bank: Bank of Florida – Tampa Bay
–Acquiring bank: EverBank, Jacksonville FL
–Vitals: assets of $245.2 million and deposits of $224.0 million
–Estimated DIF damage: $40.3 million

#77

–Failed bank: Granite Community Bank, N.A., Granite Bay CA
–Acquiring bank: Tri Counties Bank, Chico CA
–Vitals: assets of $102.9 million and deposits of $94.2 million
–Estimated DIF damage: $17.3 million

#78

–Failed bank: Sun West Bank, Las Vegas NV
–Acquiring bank: City National Bank, Los Angeles CA
–Vitals: assets of $360.7 million and deposits of $353.9 million
–Estimated DIF damage: $96.7 million

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Morning Links 5-28 http://blogs.reuters.com/rolfe-winkler/2010/05/28/morning-links-5-28/ http://blogs.reuters.com/rolfe-winkler/2010/05/28/morning-links-5-28/#comments Fri, 28 May 2010 13:17:19 +0000 http://blogs.reuters.com/rolfe-winkler/?p=6271 For some people, CDOs aren’t a four-letter word (Goldstein, Reuters) Great sleuthing from Matt. He tells the story of Donald Puglisi, who continues to make major bank as the rubber-stamp independent director for toxic CDOs.

Wall Street’s War (Taibbi, Rolling Stone)

FASB’s mark-to-mayhem (Alloway, Alphaville)

“Housing production credit crisis”? (CR) There is still a huge overhang of shadow inventory. 7.3 mln homes in foreclosure or in default. Not all of the defaulted ones will end up being repossessed by the bank, but the point is that there’s not shortage of inventory. We don’t need to stimulate supply…

PIC: Oil spill operations overview (OilDrum, ht CB) A fish’s-eye view. Plus, another new BP logo.

Drilling for certainty (Brooks, NYT)

The web shatters focus, rewires brains (Carr, Wired) “Even as the Internet grants us easy access to vast amounts of information, it is turning us into shallower thinkers, literally changing the structure of our brain.”

Critics destroy “Sex and the City 2″ (Rust, AtlanticWire) Don’t count on box office figures to suffer…

Buffett subpoenaed to testify before Crisis Commission (Fortune, ht Ed Harrison)

VIDEO: 8 month old reacts to ear implants that let him hear for the first time (YouTube) Priceless.


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