Posts tagged bankruptcy

Sunday September 28, 2008: Consensus in Congress. Will Moody’s still downgrade Ambac? Will Wachovia beat the “Credit Crunch”?

September 28, 2008 · Filed under business, economy, investing, money, politics, stock market · Tagged , , , , , , , , , , , , , , , , , , , , ,

Early this morning, Congress finally agreed on the wording of the bailout.  CNNMoney.com reported the following provisions attached to the way the money is spent:

 

*The $700 billion would be disbursed in stages, with $250 billion made available immediately for the Treasury’s use.  (After the initial $250 million, an additional $100 million can be released by the President.  If after that more money is needed, Congress can re-vote on release of the remaining $350 million.)

 

*Curbs will be placed on the compensation of executives at companies that sell mortgage assets to Treasury. Among them, companies that participate will not be allowed to offer golden parachutes to executives; they will not be able to deduct the salary they pay to executives above $500,000.

 

*An oversight board will be created. The board will include the Federal Reserve chairman, the Securities and Exchange Commission chairman, the Federal Home Finance Agency director and the Housing and Urban Development secretary.

 

*Allow for the Treasury to receive the option to take ownership stakes in participating companies under certain circumstances.

 

*Treasury may establish an insurance program – with risk-based premiums paid by the industry – to guarantee companies’ troubled assets, including mortgage-backed securities, purchased before March 18, 2008.

 

Congress wanted to get the bill together before the opening of the Asian markets tonight.  The Nikkei 225 opened $10 lower than Friday’s close, but then began a slightly hesitant ascent.  How the bill’s finalization will affect our market’s opening tomorrow, or if anymore bankruptcies or downgrades will occur, is still up in the air.  My guess is that there will be a sigh of relief across all sectors tomorrow but any real change will only happen after the bill is signed, sealed and the money is delivered. 

 

Will Ambac (ABK) avoid a Moody’s downgrade before the relief comes through, and when the relief comes through, will it help ABK?  Message boarders seem to think the price of ABK will skyrocket tomorrow, and the very late-day increase in ABK’s share price on Friday may have hinted belief that a weekend deal would in fact help ABK come Monday.  But the “Moody Monster” is still lurking in the woods.  Analysts are blaming a lot of the financial crisis on these ratings agencies for rating companies way higher than they deserved, therefore needing to make drastic corrective downgrades.  On March 20, 2001, Frank Raiter, Standard & Poor’s former top mortgage official, said he was asked by S&P to rate a real estate investment he had never even reviewed.  He told Bloomberg that he was told to “just guess” because the S&P was in competition with other ratings companies (possibly Moody’s?) for fees on a $484 million deal.  It’s good that ratings are being revealed as little more than smoke and mirrors, but people still take ratings seriously, and a Moody’s downgrade of Ambac would devastate the company and its stock price.     

 

And will the news of consensus on Capitol Hill save Wachovia (WB) from going bust before another bank picks up its fractions?  Or will we remember Wachovia as the last big victim of the “credit crunch”?  We’ll have to wait to see… 

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Saturday September 27, 2008: Citigroup may want Wachovia, but only after it goes belly up. US automakers get their green bailout

September 27, 2008 · Filed under business, economy, investing, money, politics, stock market · Tagged , , , , , , , , , , , , , , , , , , , , , , , ,

I’d like to send a shout out to Michael Sincere, author of Understanding Options, who actually read my blog and commented on it.  Maybe someday, if I ever land an agent and if that agent ever lands a deal, Michael Sincere will write the foreword to this book.  I have time.  This experiment is going to be a long time in the making.

 

Slowly, news is leaking out about the failure of Washington Mutual.  A Bloomberg article that hit today finally used the word “bankruptcy”, however the failure still isn’t a top story.  Is it just me?  Am I the only one who thinks that the biggest bank failure in the short history of our country is at least warranted one full day of sensationalism? 

 

“WaMu had its banking unit seized Sept. 25 by government regulators after customers withdrew $16.7 billion over 10 days. JPMorgan Chase & Co. became the biggest U.S. bank by deposits when it bought WaMu’s branches with a $1.9 billion payment to the Federal Deposit Insurance Corp.

 

The Chapter 11 bankruptcy petition, filed Sept. 26 in U.S. Bankruptcy Court in Delaware, wasn’t immediately available due to Web site maintenance. The Web site was expected to be operating again on Sept. 27 at noon, Eastern time.

 

JPMorgan, Citigroup Inc., Wells Fargo & Co., Banco Santander SA and Toronto-Dominion Bank had all expressed interest in buying all or parts of WaMu ahead of the JPMorgan purchase.

 

WaMu was expected to lose as much as $19 billion on bad mortgages during the next 2 1/2 years. Standard & Poor’s cut the bank’s credit rating twice in nine days, to eight levels below investment grade, as chances decreased that any deal wouldn’t be a buyout of the whole company, leaving creditors of the holding company to face substantial losses.”

 

Maybe it was the web site maintenance that slowed the news down.  Baffling. 

 

Citigroup (C) may acquire Wachovia (WB), but it’s now being reported that Citi may first wait for Wachovia to fail, exactly following JP Morgan’s lead on WaMu.  I have no stake in Wachovia, thankfully, and maybe in this case, since I do own a few Citi shares, I’m all for this slimy tactic.  Buying low and selling high oils the entire market- from multibillion dollar mergers to a college kid buying a few thousand shares of QMNM hoping for a miracle.  This is how growth happens.  But when that strategy is applied to the heart of the market- the financials- it has to be expected that “buying low” will take on an entirely new appearance.  If one bank can wait two days for another bank to fail before buying it, the merger will cost fractions less. 

 

The $25 billion government loan that Ford and Chrysler applied for this summer to transform their outdated factories into green car producers will come a little early.  The bill, which states that the automakers would not have to make payments on the loan for five years, passed the Senate today and is now off to President Bush for final approval.

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Sunday September 21, 2008: “Paulson’s Monster” needs $700 trilllion. Moody’s questioned.

September 21, 2008 · Filed under business, economy, investing, money, politics, stock market · Tagged , , , , , , , , , , , , , , , , , , , ,

“Paulson’s Monster”, as it’s being called, has now proposed the need for $700 billion of taxpayer dollars, raising the US debt limit to $11 trillion, to spin off the bad sectors of the financials into its own entity.  Paulson claims his plan will “minimize” the cost to the taxpayer in the long run, but who can really be sure?  As part of the plan, Paulson said that he was currently in talks with other countries for help.  He wouldn’t disclose which countries.       

 

Back in Ratings land, one ABK message boarder claimed that the Feds raided Moody’s on Friday looking for connections between the ratings company and hedge funds.  No link was provided, and given that any Joe Schmo can go on a Google Finance board and post whatever he or she pleases, it could very well be completely fabricated.  However, a Bloomberg article titled “Berkshire’s Bond Insurer, Moody’s Stake Face Probe”, reports that one such link may in fact come to light:

 

“Billionaire Warren Buffett’s Berkshire Hathaway Inc. faces a probe by Connecticut’s attorney general for possible conflicts created by owning almost 20 percent of credit ratings company Moody’s Corp. while also running a new municipal bond insurer. 

 

Moody’s gave its top rating last week to Berkshire Hathaway Assurance Corp., created in December as existing bond insurers struggled to maintain their AAA ratings. A favorable rating for Berkshire by New York-based Moody’s, or a lower rating for competitors including MBIA Inc. and Ambac Financial Group Inc., may give Buffett’s company an advantage.”

 

So maybe there is truth in rumor. 

 

In other news, Barclays is the proud new owner of Lehman Brothers’s investment banking and trading businesses.  The $1.75 billion deal approved yesterday is a definite bargain as compared to the one Barclays would have had to strike last week for Lehman’s entire assets before bankruptcy.      

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Tuesday September 16, 2008: The government loans $85 billion to AIG. Will Lehman accept Barclays’s bid? Naked short selling to be banned within 24 hours.

September 16, 2008 · Filed under business, economy, investing, money, politics, stock market · Tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Where to start?  All these stories are unfolding all at the same time.  Most people alive have never seen such things. 

 

AIG no doubt drove the market today.  Lehman was six times as big as Enron and WorldCom, and AIG is 50% bigger than Lehman.  Yesterday when it became clear that Goldman Sachs (GS) and Morgan Stanley (MS) were last two independent investment banks left standing, the government asked the two giants to inject capital into AIG to keep it alive.  When that didn’t go over so well, the fed went back to the drawing board and came up with a new idea, which was later captured in a Bloomberg article titled “Fed Said to Reverse Stance, Consider AIG Loan Package”.  Originally the government said that it would absolutely not help AIG, but throughout the day AIG’s tentacles were measured and realized to stretch much further than previously thought.  The news stories about AIG threw the stock all over the place today.  As an example of just how turbulent the ride was, at 2:30PM the stock was trading at $2.76.  At 3PM, the stock was trading at $5.  That’s an 81% increase in 30 minutes.  AIG is the world’s largest insurer, and unless it’s shored up, many institutions (including regional banks, as exposed by CNNMoney.com) will likely get knocked out.      

 

Reuters released an odd article today about former chief executive of AIG Hank Greenberg leading a hoard of investors in a bid to take over AIG.  I think I’ll let that one rest. 

 

The Federal Reserve, against what everyone predicted, left interests rates alone today.  The rate will stay at 2%. 

 

When the market broke in 1937 signaling the Great Depression, the US Securities and Exchange Commission (SEC) created the “uptick” rule, which essentially stopped people from betting against failing stocks.  “Naked short selling” is what it’s called now, and is when a trader buys a put for an underlying amount of stock he or she would not be able to deliver.  The SEC did not eliminate the uptick rule until July 6, 2007.

 

Our government tried to being back a sort of uptick rule this past July and it did, in fact, help the financials rebound.  You can still see the ban reflected in most stock charts, not only the financials, from July 15 until the beginning weeks of August. 

 

Now that banks are acting more like houses made of cards than they are the good old impenetrable banks we all grew up with, the government and some analysts have began buzzing about a possible reinstatement of the uptick rule.  Back in August when the ban on naked short selling was lifted off the 19 financials it protected, the plan was to create “within a few months” a sweeping rule would eliminate excessive short selling.  Some, like Alan Greenspan, think this is eliminating an important side of the market, but when a bet is sure, much like oil was six months ago, people will take and take advantage of it. 

 

The head of the SEC, Christopher Cox, announced today that the “within a few months” will probably be this week (TheStreet.com) in light of what happened yesterday and the free lunch frenzy it caused among the traders who know how to sell short naked.

 

I’m not going to lie; In this economy, with oil going down yet gasoline refusing to budge, the price of food through the roof, the cost of electricity forcing me to cram foods into my toaster oven instead of firing up my electric stove, and clothing being so expensive I’m at least 3 seasons behind (if not many more), I’d naked short sell a few of the stocks I own if I knew how to.  But just a few, not all day and not to the point I felt sick with guilt.  I wonder if anyone feels guilty.  Doubt it. 

 

I bought long into Merrill Lynch (MER) today, and added to my positions of Citigroup (C) and Washington Mutual (WM).  Washington Mutual is a real gamble, but MER should be one stock I won’t have to worry about. 

 

The Dow crossed from red to green and back again 15 times today and really rallied in the last two hours of trading to close up 141 points to $11,059.  My stocks that gained today included C, MBI, MER, MTG, RDN, RF, and WM, but it wasn’t enough to have me end the day in the green, and in fact, I’m now overall up just $2.08.  But I’m keeping the faith that regulations will come this week and we’ll look back on this time as another bottom. 

 

When the top stories are no longer about the banks, people are going to start asking questions about the price of gasoline.  Crude oil slipped another $4.56 today to close at $91.15, so why is gas still over $3.50 a gallon?  I smell “pissed off” coming. 

 

In late-breaking news tonight, Barclays announced it put a bid in to buy Lehman Brothers for $2 billion, and the government decided to loan AIG $85 billion. 

 

Also in tonight’s late-breaking news, an SEC spokesman told Reuters that “The American Bankers Association said many of its members have seen precipitous declines in their stock, high trading volumes and huge spikes in so-called failures to deliver [due to naked short sellers], leading them to conclude that their stock is being manipulated.  The U.S. Securities and Exchange Commission expects to issue new rules against abusive short selling within 24 hours.” 

 

Within 24 hours.  This is great news. 

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Monday September 15, 2008: Down go the Banks

September 15, 2008 · Filed under business, economy, investing, money, politics, stock market · Tagged , , , , , , , , , , , , , , , , , , , ,

Exactly two months from the widely-believed bottom, “the biggest shakeup since the Great Depression” is what it’s being called.  Today was the largest 1-day loss to the Dow in seven years.  What a total mess.  All this time, I’ve been sure no one knew what they were talking about the financials and that the bottom was already hit.  Slowly though, I’m coming to ask myself, “what were you thinking??”  Analysts had said the worst wasn’t over, but of course I didn’t believe them; I’m stubborn and always have been.  Late last night and early this morning, former employees streamed out of Boston’s Lehman building, and all other Lehman locations, with boxes and resumes in hand.  After last night’s negotiations failed, it was certain death for their jobs, and their stock, which was at 70 cents by 6:30AM, 45 cents by 7:30AM, and 18 cents at day’s close.  In less than 24 hours, the 158 year old mainstay lost 94% of its value.  Not only was the bankruptcy of Lehman Brothers the largest bankruptcy in United States history, it dwarfed all other bankruptcies in our country’s history.  Along for the hellevator ride from par to the bottomless abyss went all the financials today.  Even Merrill Lynch, which was up 30% in premarket trading because of being bought out last night for nearly twice its current value, closed the day up just 0.6% from its sorry close on Friday. 

 

Articles and blog titles that ht today had some pretty colorful titles: “Jaw-dropping day for financial markets”, “A day of reckoning”, “Meltdown in US finance system pummels stock market”, “AIG fights for survival”, “Street’s nasty surprises keep experts guessing”, “Giants fall on judgment day”, “Stocks plummet on financial meltdown”, “It’s a morose Monday for Street’s employees”, “Goodbye to easy money”, and “Broken brothers” were just a sampling.  The articles spanned all languages as today hit the entire world like a million tons of bricks. 

 

So many questions arose out of today.  What will happen to WaMu?  What will happen to the mortgage insurers now that one of the banks they insured has evaporated?  What will happen to AIG’s stock value now that the bank plans to head to the lending window?  AIG had asked for $40 billion, but word on the street is that they’ll “only” get $20 billion.  Following suit of its sibling ratings companies, Standard & Poor cut Washington Mutual’s rating to “junk” today.

 

Of the stocks I watch, here are today’s nearly unbelievable numbers:

 

Regions Financial (RF):                           Down 4% to $11.12

Community Bancorp (CBON):                    Down 4% to $4.53

Syncora Holdings (SCA):                          Down 6% to $2.39

Thornburg Mortgage (TMA):                       Down 7% to 35 cents

Triad Guarantee (TGIC):                         Down 9% to $2.1549

Financial Select Sector ETF (XLF):            Down 9% to $19.15

MBIA (MBI):                                               Down 11% to $11.45

National City (NCC):                                    Down 11% to $4.28

First Marblehead (FMD):                        Down 14% to $2.67

Centerline Holding (CHC):                          Down 14% to $2.05

Radian Group (RDN):                               Down 14% to $3.90

Citigroup (C):                                                Down 15% to $15.24

Ambac (ABK):                                             Down 16% to $6.24

PMI Group (PMI):                                        Down 17% to $2.57

Deerfield Capital (DFR):                          Down 18% to 60 cents

Bank of America (BAC):                              Down 21% to $26.55

MGIC Investment (MTG):                       Down 21% to $5.35

Washington Mutual (WM):                          Down 26% to $2.00

American International Group (AIG):  Down 60% to $4.76

 

 

My friend works for AIG.  I hope that if he loses his job it’ll be the kick in the pants he needs to get his ass to Hollywood.

 

The Dow plunged 504 points today to close below $11,000 to $10,917.  A few days ago, an analyst on TV said that “it is possible we may see $100 oil within six months”.  Within six months, buddy, how about within six days?  Crude oil fell to a 7-month low today, losing $5.47 to close at $95.71 a barrel. 

 

This experiment is going to be much longer-term than I previously thought.  Luckily I have time to wait.  I took another advance on my credit card to possibly take advantage of some of the week’s bargains, and will pay it back on Friday when my paycheck hits.

 

Later in the day, an article titled “Wall Street Losses Seen Spurring Regulatory Reform” hit CNNMoney.com.  Some are calling for another ban on short-sellers.  Alan Greenspan, in his interview this weekend, said that short-sellers are necessary to keep prices as a closer reflection of company values.  But if Washington Mutual, for example is really trading at [now less than] 17% of its book value (MarketWatch, September 11), how real are the shorties really keeping things?

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