Morning links 12-14

Dec 14, 2009 14:07 UTC

No shortage of news this morning….

Dubai gets bailout from Abu Dhabi (Reuters)

Exxon to buy XTO for $41 billion (Reuters) $41 billion is the enterprise valuation. It’s incomplete to say the Exxon is only paying $31 billion for the stock when it is also assuming $10 billion of debt.

Citi to repay TARP, raise $17 billion (Reuters) The ringfence agreement on Citi’s pile of toxic assets will end and Treasury will also start selling its common shares back to the market. Here are all the details from Citi.

Morgan Stanley hires Greg Fleming (NYT) Fleming was the guy who pressed Merrill to sell itself to BofA. He hashed out the deal, including Merrill’s controversial bonus package, with BofA’s Greg Curl.

VIDEO: “Wall Street doesn’t get it.” Too bad Obama’s reform plan does little to change the status quo. And in any case, Fed policy will continue to support banks for an “extended period.” The Prez meets with Wall Street CEOs this morning.

Watch CBS News Videos Online

COMMENT

$41B including assumed debt. “Only” $31B in stock.

Posted by Andrew | Report as abusive

Bank failure Friday

Dec 11, 2009 22:32 UTC

#131

  • Failed bank: Republic Federal N.A., Miami FL
  • Acquiring bank: 1st United Bank, Boca Raton FL
  • Vitals: at 9/30, assets of $433m, deposits of $352.7m
  • DIF damage: $122.6m

#132

  • Failed bank: Valley Capital Bank N.A., Mesa AZ
  • Acquiring bank: Enterprise Bank & Trust, Clayton MO
  • Vitals: at 9/30, assets of $40.3m, deposits of $41.3m
  • DIF damage: $7.4m

#133

  • Failed bank: SolutionsBank, Overland Park KS
  • Acquiring bank: Arvest Bank, Fayetteville AK
  • Vitals: at 9/30, assets of $511.1m, deposits of $421.3m
  • DIF damage: $122.1m

Lunchtime Links 12-11

Dec 11, 2009 17:47 UTC

Jamie gets a deal! (Bloomberg) Prof. Linus Wilson had been estimated that warrants the government got as part of its TARP bailout for JP Morgan were worth $11-$37.  They ended up selling for $10.75. The lower price is most likely because these are not common securities, are illiquid, and therefore worth less than we all thought. Can’t really complain. The market spoke. Dimon looks smart for refusing to negotiate bilaterally with Treasury to repurchase them. Treasury was driving too hard a bargain. IIn retrospect, that means the deals on TARP warrants for the likes of AmEx and Goldman ended up going off much better for taxpayers. But Hank Paulson still did far worse negotiating with banks for emergency capital than Warren Buffett. Shame.

Ginnie Mae’s growth puts taxpayers on the hook (Grow/Goldfarb, WaPo…via Patrick) Ginnie packages FHA mortgages into mortgage-backed securities. It’s the next Fannie/Freddie….

Stratfor: It’s not just Greece, other Eurozone countries (Delivingne, Money Game)

Wealth rebound in Q3, is it sustainable? (EconomPIC data) More fun from the Fed’s flow of funds report.

Why women are hottest in coutries with too few dudes (Hooking up smart) Supply and demand at work.

Craigslist and eBay in legal fight (Hals, Reuters)

The Morgan Freeman chain of command (Maxim)

Bad choice of ClipArt (imgur)

I find this hilarious….a pretty emotional reaction to Return of the Jedi….”do they put R2D2 back together?”

COMMENT

ok… argument #1 for not having comments on the front page.

Posted by Andrew | Report as abusive

Evening Links 12-10

Dec 11, 2009 04:54 UTC

Loopholes lurk in bank bill (Paletta/Enrich, WSJ) Companies with connections get to buy exemptions…

Treasury yield curve widens to most since 1992 (Walker, Bloomberg)

Dems want to raise debt ceiling a whopping $1.8 trillion (Rogers, Politico) So they don’t have to revisit the issue before the 2010 midterm elections…

The job market: Is a college degree worth less? (Oloffson, Time) Yes! The net present value of a B.A. has been declining for years. Look for the trend to continue as tuitions increase even as unemployment stays high and wages fall. Don’t go into debt to buy that fancy degree from a private school kids. A good state school is a much better deal right now. Save your money for an advanced degree…

Wells writing off principal on option ARMs (Cambell, Bloomberg) This is the proper way to modify mortgages if you’re hoping to keep people paying. My question is whether Wells has to write down the loan on its balance sheet and take a hit to capital. My impression was that they already took huge writedowns on Wachovia’s book of option ARM loans when they acquired it. So would guess principal forgiveness is not leading to asset writedowns.

AT&T to charge for heavy data usage on iPhones (Svennson, AP)

Shooting in Times Square, perp had Mac-10 (CityRoom) A couple hundred yards up the street from Reuters’ office….

Google goggles (Youtube) Pretty cool. Wonder if it really works.

22 million horsepower (YouTube) Flame exits the rocket at Mach 3. Temp is 4500 Fahrenheit, 2/3rds as hot as the sun. At that temp, they say, steel boils.

COMMENT

“Don’t go into debt to buy that fancy degree from a private school kids. …. Save your money for an advanced degree…”: and so the educational Arms Race continues. Or should that be Harm Race?

Posted by dearieme | Report as abusive

AOL’s got independence – and issues

Dec 11, 2009 01:16 UTC

The AOL-Time Warner merger was the crowning deal of the new millennium. The spin-off on Thursday of the internet business from Time Warner is an appropriate bookend to a lost decade in the stock market. There may be value left in the online operation, but it won’t be easy for chief executive Tim Armstrong to extract it.

When AOL announced it was buying Time Warner 10 days into 2000, the two companies had a $350 billion market value. Today their combined value is just $50 billion, a decline of 86 percent – even worse than the Nasdaq’s 45 percent decline.

Nonetheless, the divorce is a healthy decision. Time Warner management is no longer distracted and can deal with bigger problems in its core print and media businesses. AOL too can move forward without the shackles of a bureaucratic corporate parent.

But the going will be tough for Armstrong. He wants to convert the company into a content and advertising play, but according to RBC Capital Markets, as much as a fifth of AOL’s traffic comes from dial-up internet subscribers checking email and such. So the continued decline of AOL’s access business – 5 million subscribers today compared to 26 million in 2002 – does more than pressure overall company cash flow. It threatens the company’s transformation to a pure content business.

Bulls point to AOL’s apparently cheap valuation – its enterprise value of $2.4 billion is just five times projected free cash flow for 2010. But much of that cash comes from the declining access business. There may be opportunity to improve advertising profit margins in line with peers. That’s what management is targeting, though they concede it will take at least a few years.

Armstrong is essentially in a race against time. He must reinvest much of the cash from the access business into content to get the wider internet audience to re-engage with his site. AOL managed to survive a choppy decade. But it may not endure the next.

Wells Fargo forecloses farm, animals fend for themselves

Dec 10, 2009 22:40 UTC

I smell a PR problem here, at least locally. “Glocester farmer, evicted in foreclosure, seeks to compel care for animals” (Djuardin, Projo)

The evicted owner of Bonniedale Farms, upset with the way 136 animals on his farm have been treated since he was forced off the property Monday by Wells Fargo Bank, plans to go before a Superior Court judge Wednesday to get a restraining order to force the bank or its agents to provide food, water and care for the animals left behind.

Guy Settipane, the lawyer for Dan MacKenzie, said his client became concerned Tuesday morning after neighbors described chaotic conditions on the property on Snake Hill Road. He said MacKenzie became alarmed when he went to the site and saw, from a distance, “total strangers walking off with his animals.”

But the lawyer said his main concern was for the animals — including cats, dogs, chickens, pigs, horses, sheep, goats and others — that he said had been left to fend for themselves despite assurances by Wells Fargo that it had arranged to have the Rhode Island Society for the Prevention of Cruelty to Animals take care of them.

There’s more in the article.

COMMENT

“Call me crazy but I believe the foreclosure process takes a very long time and the former owner would have received several notices well in advance of being evicted. Maybe he should have done something instead of putting his head in the ground and hoping for a miracle.???”

This may or may not be true. It’s also completely irrelevant, unless you live in some strange world where the animals were also privy to the foreclosure process and, after carefully considering their options, then made some foolish choices.

Posted by Maynard Handley | Report as abusive

Households cut debt, have long way to go

Dec 10, 2009 19:46 UTC

U.S. households are slowly repairing their (private) balance sheet. We’ve a long way to go, but according to the latest Flow of Funds report, we’re making progress.

See the chart below

household debt slide

As households and businesses cut debt, governments (state and federal) are adding debt to soften the blow. The good news appears to be that consumers are de-levering faster than the government is re-levering, a figure I’m trying to nail down at the moment.

More soon….

COMMENT

Bottom line: debt is slavery. My wife and I live with such peace of mind because we have zero debt. We paid our house off early and buy used cars, cash, and drive them for years and years. It looks like most people cannot distinguish between needs and wants as evidenced by that ratio above.

Posted by Lyle | Report as abusive

Parsons says Citi can repay TARP

Dec 9, 2009 21:49 UTC

I’ve got a question below…but first the story: “Citi positioned to repay TARP, report” (Eder/Wilchins, Reuters) –

Citigroup Inc is in a position to repay TARP, the bank’s chairman, Dick Parsons, told cable television network CNBC on Wednesday.

Parsons told CNBC that Citigroup was in talks with regulators about repaying its $45 billion bailout from the U.S. Treasury’s Troubled Asset Relief Program….

Reuters reported on Monday that Citigroup and the U.S. government were disagreeing over how much the bank should raise to repay taxpayers, according to people briefed on the matter. The people said talks could take weeks or months.

Good that Treasury is pressing Citi to raise substantial equity to get out of the program. It should also sell its common shares back to the market…bank the paper gain taxpayers sitting on….

One question I’ve got: What about Citi’s “ring-fenced assets?” Remember the $306 billion loss-sharing deal that Citi signed with Treasury and FDIC? BofA almost got themselves involved in a similar deal, but it was never signed.

Presumably those ring-fenced assets are still on Citi’s balance sheet and are still backstopped. Should the company be allowed to exit TARP — allowing it to pay whatever bonuses it sees fit — if a large chunk of its most toxic assets are still backstopped by the government?



Lunchtime Links 12-9

Dec 9, 2009 16:36 UTC

Volcker criticizes bankers (Dealbook) “Wake up gentlemen.” Indeed.

Geithner extends TARP to next October (Treasury) He buries the lead near the bottom of his letter. It had been scheduled to expire in December. Nothing so permanent as a temporary government program….

50% bonus tax would hit 20,000 London bankers (Aldrick/Armitstead, Telegraph) What’s to stop banks from boosting salaries in response? This is a backwards way to shrink the banking sector. Recapping balance sheets (i.e. bankruptcy) is the way to go.

Greek finance minister says no risk of default (Lacqua/Petrakis, Bloomberg) Reminds me of last year when every troubled bank reassured us that liquidity and capital were solid. When they have to make that comment publicly, you know the run is already on.

MUST READ—Greek debt could be timebomb for euro (Reuter, Spiegel)

Gerry Corrigan’s case for large integrated financials (Johnson, Baseline Scenario) Corrigan is one of the more responsible folks in the banking sector, yet he’s repeating the same old tripe that we “need” large banks.

Fed keeps testing the exit (NY Fed) It’s third tri-party reverse repo test in the last week. This, again, is one of the mechanisms that the Fed says it will deploy to pull liquidity out of the system, when and if it decides to.

Hillary ex-pollster Mark Penn got $6m of stimulus funds (Bolton, The Hill)

Drug dealer takes a snowday (imgur) Clever…

Tiger, lion, bear form unusual friendship (Telegraph) see below…

tiger_1538371c

COMMENT

You still read Mark Hanson? He’s got some great stuff on HAMP up…

Posted by Andrew | Report as abusive

Ireland, ahead of the curve

Dec 9, 2009 15:32 UTC

At least one country is making tough choices. From John Murray Brown (FT): Ireland poised for harsh budget

The Irish government is set to unveil the harshest budget in decades on Wednesday as it seeks to curb a ballooning deficit and restore credibility with international debt markets….

This will be Mr Lenihan’s third budget announcement in 14 months, after emergency measures in April that included new income and health levies.

Economists expect Mr Lenihan to tighten the budget by a further 2.5 per cent, which some say could exacerbate Ireland’s recession.

But speaking on Tuesday evening Mr Lenihan sought to offer Irish taxpayers some light at the end of the tunnel, insisting that Wednesday’s announcement would be “the last of the very difficult budgets”.

Economists expect cuts in public sector pay, social welfare entitlements and child benefit to be among €4bn-worth of savings aimed at restraining public borrowing next year to about 12 per cent of GDP.

This is what happens when debt problems get out of hand. Ireland, like California, is engaged in round after round of budget cuts, yet their deficit is still huge.

I was on Oregon Public Radio yesterday discussing what to do with TARP “savings.” (You can listen there or download an mp3, my segment begins 15 minutes in.)

A caller made the good point that government stimulus for jobs is a bad use of money, once the stimulus is gone, so is the job. The caller didn’t finish the point: after the stimulus and job are gone, the debt is still there.

The idea articulated by my interlocutor, Chadwick Matlin from Slate, was that it’s short-sighted to be worried about debt today what with unemployment at 10%.

But more than a jobs problem we have a debt problem. If we try to solve the first with more of the second, we’ll only make unemployment worse in the long run.

10% ain’t a bad number folks, not compared to where it will go if, like Ireland, we go so crazy with deficits that we lose the ability to borrow cheaply.

Remember, all this debt incurred today isn’t going anywhere. It will have to be rolled over in perpetuity (unless we magically start running surpluses).

If we wait too long, we’ll just need to make deeper cuts and/or raise rates more steeply just as all countries are forced to do when they run up unpayable debts.

COMMENT

Mike,

Let he without sin cast the first stone.

Posted by Andrew | Report as abusive

Calling all design feedback!

Dec 8, 2009 23:24 UTC

Now that readers have had a few days to see the new Reuters blog format, we want to hear from you. What do you like? What do you hate? Send me an e-mail or leave a comment. I’ve been asked by the design team to compile feedback so now’s your chance. Please don’t be shy.

Topics for discussion:

1. The automatic “continue reading” feature on the front page of the blog.

2. Having comments appear on the front-page.

3. The color, font and size of text.

4. ….

COMMENT

I like the new format, it is less cluttered than the old one. A few add-ons I would like:

- a ‘drop up’ to consolidate the world editions into:

Sub-Saharan Africa; The US; rest of Americas; Asia-Pacific; Central Asia; Europe; North Africa & Mid East + Institutional roundup (IMF, World Bank, NGO’s, etc.) (see Devex format);

- Indices graphs: 3, 5 and 10 years;

- Daily and weekly summaries;

- Breaking Views should be more prominent and be the first pop-up when clicking on Opinions and Analysis

- on the second landing page, I am a sucker for alphabetical order, generally it is too cluttered and could be consolidated, I assume the SDLC is ongoing;

- I noticed in the letter from the managing editor that the formats will be rolled out to other countries in 2010 – I would like all countries to be in the same format, even if content is scaled down.

Hope that helps.

Ps: The slideshows are pretty violent, I much prefer more artistic and soft photos like China slides.

Posted by Jacques the Grateful User | Report as abusive

CIT to emerge from bankruptcy

Dec 8, 2009 21:57 UTC

CIT expects to exit bankruptcy protection on December 10, having filed for it only 40 days previously on November 1. (Chasan, Reuters)

The firm, one of the largest financial victims of the credit crisis, will be the first of the financial bankruptcies to emerge from bankruptcy protection, unlike Lehman Brothers, Washington Mutual, IndyMac and other financial companies that have been unable to continue on their own.

CIT’s reorganization plan will reduce its debt by about $10.5 billion and defer significant debt obligations for three years, CIT said.

Under the plan, CIT’s unsecured debtholders are to receive 70 cents on the dollar of new notes, plus new common stock. The company had won support from bondholders for the plan substantially in excess of the minimum amount required under U.S. bankruptcy law.

Common and preferred stockholders, including the U.S. government, will be wiped out.

The U.S. Treasury had received preferred stock in CIT for a $2.33 billion investment in the company through the Troubled Asset Relief Program. This represents one of the first losses of taxpayer money through investments made under that program.

One of the first recognized losses. It won’t be the last.

COMMENT

Well, thank goodness. Finally some financials are going to be coming out clean. Bankruptcy is necessary. More should follow, and if they can’t emerge, then let them die. The pain will not end until *everyone* comes clean.

Lunchtime Links 12-8

Dec 8, 2009 18:29 UTC

(Reader note: still working on the bugs….please click “continue reading” to see all the links)

Banks, U.S. spar over TARP repayment (David Enrich) This is the kind of thing that gives me a better feeling about Tim Geithner and Ben Bernanke. They are hammering banks to raise equity capital to get out of TARP. They have leverage and are using it productively, forcing bank shareholders to eat losses via dilution so that balance sheets are more stable. Great! Stick to your guns guys!

Questioning the unemployment rate (Kaminska, Alphaville) Dennis Gartman doesn’t buy the good news in the jobs report.

FASB wants accounting standards “decoupled” from bank capital rules (Norris, NYT) Can you blame ‘em? Seems to me Bob Herz just wants to be left alone. If regulators want to give banks more slack, fine.

Consumer credit contracts again (Federal Reserve) Though the contraction seems to be moderating. Just the latest improvement in the second derivative. I’m a fan of this trend. As consumers get out of debt, they rebuild their savings.

NY Fed President Dudley says monetary policy can limit leverage (CalculatedRisk) CR hightlights some key sections of Bill Dudley’s most recent speech. On the one hand it’s good to see him talk about the Fed’s ability to prevent credit bubbles by limiting leverage. On the other, he repeats that rates will stay low for an extended period. So the Fed is doing what it does best, inflating the next bubble. This time ’round they say they understand why that’s a problem. Yet they seem unwilling to do anything about it.

Obama to announce new jobs program (Zeleny, NYT) Including a cash for caulkers program….

BofA CEO candidate under scrutiny (Nadgir/Comlay/Eder, Reuters) Greg Curl was one of two names discussed at Judge Rakoff’s famous hearing back in August…

Greece faces ratings downgrade over spiraling deficit (Atkins/Oakley/Hope, FT) Alphaville is all over this story.

Don’t try this at home

Missed connection (Craigslist)

Late for work…

COMMENT

is there some sort of issue with using the ‘page down’ button for the latest batch of creativity-less web designers? oh, right, how will we get clicks unless we force readers to click just to read. at least we know its about content and not so much about money.

aka, new format = thumbs down

Posted by todd | Report as abusive

Politics and bank regulation don’t mix

Dec 8, 2009 13:28 UTC

The Federal Deposit Insurance Corp tried to seize and sell Cleveland thrift AmTrust last January but local politicians intervened. In the end, the bank still went bust 11 months later – a delay that may have increased losses to the U.S. regulator’s funds. As Congress debates banking reform, AmTrust provides a useful warning that the regulatory apparatus needs to be kept free from politics.

Regulators had known for some time that AmTrust was troubled. AmTrust’s chief regulator turned down the bank’s request for TARP money last fall. It also hit AmTrust with a cease-and-desist order, instructing management to change lending practices and boost capital by December 31. When AmTrust missed the deadline the FDIC decided to step in.

But Ohio Congressman Steven LaTourette and Cleveland mayor Frank Jackson convinced Treasury and the White House to keep the regulators at bay. Bythe time FDIC finally seized AmTrust on Dec. 4, its tangible common equity – the capital it has to withstand loan losses – had fallen to $276 million from $943 million the year before. The cost of the bank’s failure to FDIC: $2 billion.

The price tag to the FDIC would’ve been lower had it acted sooner, according to the Wall Street Journal. This isn’t a new lesson. Congress established the Prompt Corrective Action doctrine in 1991 because the S&L crisis taught that to limit the cost of bank failures, it’s important to seize troubled institutions quickly, while they’ve still got capital.

And the importance of speedy resolution is more pronounced with larger firms, whose deterioration can infect the entire system. Remarkably, Congress is poised to erect new political barriers that may delay pre-emptive action to corral systemically dangerous firms.

An amendment offered by Rep. Paul Kanjorski to Barney Frank’ s Financial Stability Improvement Act would require Treasury to sign off on corrective actions imposed by regulators on firms with greater than $10 billion of assets. For $100 billion+ firms a White House signature would also be needed.

AmTrust was small enough that its collapse didn’t pose a systemic threat. At worst, it just compounded losses at FDIC, which may require its own taxpayer bailout before too long. With systemically dangerous firms, however, the cost of political delay will be much higher.

COMMENT

From what I understand, the Fed says it didn’t have the tools to handle the collapse of these firms. They aren’t asking for the authority to do so. But they do point out that because of a lack of any processes to unwind those companies the Fed had to keep the financial system afloat or the resulting defaults would have cause a depression on a global scale.

Mr Bernanke Pointed out that during the depression the banks were allowed to simply fail. And the resulting defaults cascaded causing a global down turn. He said that in order to prevent a repeat, some choices needed to be made to support the banks. If I understand history correctly, there was no financial social safety net in place during that time either.

I think it would have been easier and cheaper to keep the citizens afloat than it has cost us to keep the banks up. It also would have put the banks in a position of accountability to the citizens. Citizens with money can choose what sectors of the economy to support by choosing where to spend. It’s just incomprehensible to me that even though the citizenry is the engine of the economy, the engine is never given any fuel.

It’s like wanting to keep harvesting fruit from a tree that never gets watered. Eventually the tree dies and there is no fruit to be had. We are strangling our people with poverty. We are cutting off our own heads by keeping our people uneducated and sick, while expecting them to labor tirelessly. Our future slips away with each failed generation. It’s time to think about the citizens.

Are videogamers Hollywood takeover bait?

Dec 8, 2009 03:02 UTC

(Reader note: as part of the new Reuters BreakingViews team, my beat now includes covering stocks, investments and corporate finance. It’s a bit of a change of pace from the macro, Fed, banking stuff I normally write about, but have no fear: I will keep opining on those topics in blogs and the occasional column. In the meantime, excited to be tackling some new topics.)

by Rolfe Winkler and Rob Cox

Are video-gamers Hollywood takeover bait? With their business models under threat and shares in the doldrums, game publishers like Electronic Arts look ripe for the picking by larger media conglomerates such as Walt Disney. But much as shareholders might hope for a quick exit, they shouldn’t bank on a quick M&A payday.

The argument for entertainment companies buying video-game makers is compelling. Publishing video games is like making movies: Invest millions developing titles and pray for blockbusters. As in Hollywood, the trick is to establish successful franchises and regularly ride them to riches. Studios look for the next Harry Potter. Game publishers search for the next Call of Duty.

The economic lumpiness of the movies eventually drove all the major studios to become subsidiaries of media behemoths like News Corp, Time Warner, Viacom and Sony. These larger groups could lay claim to content and corporate synergies that offset the volatility in performance of the film business.

With some of the biggest gaming groups now struggling, it looks like a buyer’s market for acquisitive media groups hoping to burnish their gaming credentials. From previous highs, EA and Take-Two Interactive Software are off 70 percent and THQ is off 90 percent. Their combined enterprise value is now just around $4 billion.

But there’s no rush. Next year isn’t shaping up well for the gamers so they may get cheaper. EA will be releasing 30 titles, down from 50. Take-Two, creator of Grand Theft Auto, is expected to report its fourth losing year in the last five. THQ has no breakout hits on the horizon, Wells Fargo notes, and faces another difficult year.

All the while, the industry is struggling to adapt to a changing market where packaged games sold through retailers like GameStop are losing ground to online gaming alternatives. That trend motivated EA’s purchase of social networking game developer Playfish for $300 million last month.

It might be comforting for shareholders to have a rich corporate Daddy to support this wrenching transition. But big media can wait. Indeed, it need only look at the bullet EA dodged when it stepped back from a $25.74 a share hostile bid for Take-Two in 2008. That’s over three times Friday’s closing share price.

COMMENT

Now you’re getting into my ‘hood – and I must disagree. Look at the unblemished record for major media companies buying at the top and losing their shareholders’ capital: AOL/TW, VIA/CBS, DIS/Pixar, etc. Same will happen for DIS/MVL and Comcast/NBCUni. They have never been bargain buyers, and will wait for the gamers to go higher before they buy.

Posted by fatbear | Report as abusive
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