Ouch.
A -64% IRR. Go team!
Archive for January 2009
From Flying magazine’s eIssue:
On Tuesday night, with no fanfare whatsoever, Congress left out a provision of the Troubled Assets Relief Program (TARP) that would have prohibited TARP beneficiaries from using bizjets. No word on exactly why the provision was deleted, but NBAA, among other aviation member organizations, is delighted. In a release on Wednesday, NBAA President Ed Bolen put it nicely, saying “Congress has clearly recognized that it is important to provide Americans with strong oversight of the federal dollars in the TARP program, but that the language addressing business aviation had the potential to fuel job losses for countless people in the general aviation community.” The bill looked to be headed for approval by as early as Thursday.
We are very relieved over here. Being forced to sit next to Ken Lewis in first class (or John Thain for that matter, who would try to sell you his bag of half eaten nuts he’d already spit in for twice their retail cost once the flight attendant had left) was just not something we wanted to endure, and we just know he’d step right on our face to get into the raft if we put down in the Hudson.
Not that most financial stocks haven’t suffered, but Wells Fargo seemed to be keeping its own. Fueled by the presumption of better underwriting standards during the credit crisis, a strong dividend tradition and its association with Warren Buffett, the firm seemed at least somewhat resilient to attack. No more, apparently.
Wells Fargo & Co., the biggest U.S. bank by stock-market value, may need to raise $10 billion and cut its dividend after the acquisition of Wachovia Corp., wrote Atlantic Equities LLP analyst Richard Staite.
Staite, based in London, downgraded Wells Fargo to “underweight” from “neutral” today and said the bank may announce disappointing earnings this year because of the deteriorating economy. Wells Fargo reports fourth-quarter earnings on Jan. 28.
“With the accelerating decline in house prices in California and surge in unemployment we expect them to suffer significant losses in 2009,” Staite wrote. “Given the weak economic outlook there is a chance the dividend could be cut as a way to conserve capital.”
As we print this Wells Fargo is down 14%. Alarming since it was down 9% when we started writing this article.
We aren’t usually ones to say “We told you so,” but we don’t mind pointing out that a friend of Dealbreaker had Wells pegged 6 months ago.
No matter what, even if WFC has managed to walk through this period relatively unscathed, I do not think this helps the case for the financials as a whole and would absolutely be a seller (if only I could!) of any rally. I’m going on record: this is a bear trap.
Wells Fargo May Need Cash, Dividend Cut, Staite Says [Bloomberg]
Vikram Pandit “Was Too Smart In Considering Things…Lacked Urgency….Not Scared Enough”
By Equity Private
That’s the reasoning cited by Dennis Kneale, hitting his false dichotomy quota for the day, for why Vikram Pandit’s gotta go. He’s right, you know. It’s sad to say, but what Citi needed a year ago was an idiot who soiled himself every time Meredith Whitney bought a new ball gag. Spectacles didn’t suggest a successor, which presumably can be explained by virtue of the fact that there is none (though perhaps DK was about to nominate Bojangles for the job, with the Merrill Lynch defecator as deputy before he and Charlie Gasparino started shouting at each other at a pitch and in a tongue only dogs can hear/understand). No matter. The question(s) remains. (1) Should Vikula pack up his belongings and mosey on out of the place (2) Who should take over?
The Across the Curve blog often has insightful and potent analysis, with a focus on credit markets that reveals some real expertise in the area. Today, however, its author, originally a weak supporter of government intervention, has made a rather public about-face.
We are forced to agree with him. Matters are quickly getting out of hand and deeper government involvement in the essential engines of the economy, and the deficit spending required to entrench it, is looking less and less desirable by the day.
From the outset, I have always been a supporter of government intervention as a means to prevent this unique crisis from taking the system down. I have always believed that the consequences of inaction were greater than the cost of government involvement. I question that assumption now.
The bailouts began with the deal in which JPMorgan took control of Bear Stearns with government assistance and continues to this day with the government intervention in the Bank of America union with Merrill Lynch.
The Federal government will now be an integral part of the financial system for a very long time and will influence decision making and risk taking in that sector during the time in which taxpayers are a partner in those businesses.
I now think that we would have been better off with some truly cathartic event which would have curbed the animal spirits of traders but which would have established a basis for a market prescribed recovery. Succinctly stated, the government is not in the business of taking risk and I would argue is in the business of risk avoidance.
In retrospect, the commonweal would have been better served had nature taken its course and allowed for capitalism to travel its natural course. I fear that this new course has placed on us a path to a very slow recovery and one in which innovation and risk taking will be viewed through the narrow and ill begotten prism of some bureaucrat.
Some Opening Comments [Across The Curve]
Having a hard time meeting that big mortgage payment for the oversized place you probably shouldn’t have borrowed to pay for? Well, relief might be in the cards. That is if you’re willing to have a porno shot in your home.
Jerry Mendoza says he’s willing to go to an extreme he wouldn’t have before the real estate slump. It hit Southern California hard, with the median home price in a six-county region falling a record 34 percent in November to $285,000, according to research company MDA DataQuick.
His four-bedroom house in suburban Burbank, which Mendoza built in 2006, didn’t sell for the $1.3 million he asked, and when renters left in November he began leasing it for filming. The most he received for a day was $1,300, he said. So he posted an Internet notice that the property, which has an eight-person hot tub, was available to the adult-film industry, which he had heard pays as much as $5,000 a day.
What’s more? Income from sporadic filming (under 15 days a year) is tax-free.
Film, Porn Shoots Sought by Los Angeles Homeowners Hit by Slump [Bloomberg]
Anyone need a job? Citi is hiring! The Post reports that the profit machine needs a couple of bankers to help it amputate gangrenous limbs and “operate some of the businesses as it identifies buyers over months or years.” John Thain is said to be interested in the gig, and though it’s not yet a done deal, sources tell Dealbreaker he’s been telling friends he’s already found a guy with money to burn.
From: vikrampandit@citi.com
Sent: Friday, January 16, 2009 7:14 AM
Subject: Realigning Citi
We’ve exhaustively established that anyone in any way related to Bernie Madoff (sons, soon to be daughters in law) must love fish. So it should come as a shock to exactly none of you that Frank DiPascali, with Madoff since 1975 and CFO since 1996, is no exception. Bloomberg profiles the “aide” aide today in an attempt to figure out just what he knew and after a lot of fluff (“street-smart New Yorker,” “Catholic high school in Queens,” “blue-collar guy, not a Wall Street master of the universe”) we get to the money shot:
DiPascali’s boat is registered to Dorothy-Jo Sportfishing LLC at his home address, according to BoatInfoWorld.com. Based in Monmouth Beach, New Jersey, its crew reeled in the biggest tuna, a 191-pound bluefin, during a July 2007 fishing tournament, according to the South Jersey Marina in Cape May.
Per the Mid-Atlantic Tuna Tournament archives, DiPascali and his crew won $55,070. You know what’s after the jump.
Citi To Split Into Bad Bank/Worse Bank (Reuters)
“Citigroup Inc unveiled a plan to break into two businesses as a way to shed troubled assets, and reported an $8.29 billion fourth-quarter loss, its fifth straight quarterly loss.
The company also said on Friday that it anticipated more departures from its board, which is losing Robert Rubin as a director later this year. Nevertheless, Citigroup shares rose 14.9 percent to $4.40 in premarket trading, in part because of hope about the bank’s plans to restructure and separate its good assets from its bad ones.”
Bank of America To Get $20B, $118B Guarantee (WSJ)
Apparently there’s anger abound as BoA exec’s feel like they’ve been duped because Merrill’s balance sheet could reasonably be used to wipe one’s ass. There’s only two real ways this could go: either Bank of America comes out and says that they were caught off guard by the standing of Merrill’s balance sheet, in which case you really have to ask whether or not everyone was at least sober during the valuation, or they say they knew.
They’re calling the preliminary loss at Merrill at $15.41B, while the BAC 4Q numbers are in at $1.8B. Headline of press release from Bank of Amerillwide: “Bank of America Earns $4 Billion in 2008.”
“A Miracle On the Hudson” (Bloomberg)
It’s quite possible that’s both the first and last time I’ll ever quote Paterson, but it is what it is.
“”It’s somewhere between remarkable and miraculous; probably more miraculous,” said Mann, of R.W. Mann & Co. in Port Washington, New York. “If you had choreographed this, you couldn’t have done any better and couldn’t have done it as quickly.”"
For those of you wondering about Bankers on board the aircraft, it appears BoA had a large group on the plane, and Wells Fargo had three. Be sure to reach out to your colleagues today.
O’Bama Has Access To Remaining Tarp Money (WSJ)
It’s quite possible that the expectations and optimism are far outshining the capabilities of the President Elect to perform. That said, it’s also quite possible that those same expectations and optimistic views will create enough momentum to pull us out of this.
Wall Street Still Alive (WSJ)
“Though a number of the society’s luminaries — including former Bear Stearns Cos. Chief Executive James E. Cayne, Lehman Brothers Holdings Inc.’s Richard S. Fuld Jr. and ex-Merrill Lynch & Co. Chief Stanley O’Neal — have faced rebuke and were conspicuously absent, members still standing haven’t lost their sense of humor. This year’s attendees gave a rare standing ovation to a rendition of Don McLean’s “American Pie,” rewritten to read: “Bye, bye to my piece of the pie.”"
