Savings Experiment: Snow Removal
Bonds Are a 'Safe' Investment: A Big Lie Gets Even Bigger
Barclays (BCS) recently announced its performance for the full year 2010. Based on the better than expected performance of its sales & trading division, we have updated our price estimate for the company to $18.30. This is still about 10% lower than the current market price of just over $21. It competes with other worldwide banking institutions and financial services group like Citigroup, The Royal Bank of Scotland Group, Bank of America, UBS and JPMorgan Chase.
Bank posts
FeedFixed Income Trading the Biggest Driver to Barclays' Stock
Continue reading Fixed Income Trading the Biggest Driver to Barclays' Stock
Swiss Lawmakers Reject Deal to Name American Clients of UBS
Looks like UBS (UBS) isn't going to hand over files on its American clients to U.S. tax authorities.
Nationalist and left-wing lawmakers blocked a treaty with the U.S. that would have allowed UBS to hand over said files. This "treaty" was reached last August between the Swiss government and Washington in order to put to rest a disagreement about UBS's supposed role in tax evasion. The boondoggle was that the Social Democrats wanted a commitment from the government to tax bankers' bonuses and the People's Party wanted a vote against the tax before dealing with the U.S. tax treaty.
Continue reading Swiss Lawmakers Reject Deal to Name American Clients of UBS
Bank Death Toll Approaches 40
Another seven banks were shuttered last week, bringing the number of bank failures in 2010 to 37. The most recent casualties came from Alabama, Georgia, and Minnesota on Friday alone. Earlier in the week, banks in Utah and Ohio were added to the count.Advanta Bank, in Draper Utah, wasn't able to attract a buyer. The FDIC stepped in and approved payouts for insured deposits, with checks to depositors expected to be mailed on Monday. Advanta had $1.6 million in assets and $1.5 million in deposits.
75 Days, 30 Bank Failures
Four more banks bit the dust last week, bringing the total to 30 -- just shy of 75 days into 2010. Regulators closed banks in New York, Florida and Louisiana, representing in aggregate nearly $1.1 billion in assets and a little over a billion dollars in deposits.
Park Avenue Bank in New York was shut down by the FDIC this week. It had $520.1 million in assets and $494.5 million in deposits as of the end of last year. Its deposits will be assumed by Valley National Bank, which is based in Wayne, New Jersey, and it will pay a small premium for them. Valley National also agreed to pick up virtually all of the bank's assets.
Bank Failure Tally Hits 25
Three more banks failed last week, bringing 2010's total to 25. Already, this year's bank failures have matched the 2008 full-year total and exceeded the 2007 amount by a factor of greater than eight. The three regional banks that failed last week were in Florida, Illinois and Maryland, with close to a billion dollars in aggregate assets. According to the FDIC, the pace of bank failures could be set to accelerate in the next few months.
Sun American Bank, in Boca Raton, was taken over by the FDIC, with First-Citizens Bank & Trust, based in Raleigh, N.C., assuming the Florida banks assets and almost all of its deposits. Sun American had assets of $535.7 million and $443.5 million in deposits. Since July, First-Citizens has acquired the assets of four failed banks, the others being First Regional Bank of Los Angeles, Venture Ban (Lacey, Wash.) and Temecula Valley Bank (Temecula, Calif.).
Investment Banking Unit Pushes JPM to Strong Profit
Thanks to strong results from its investment banking unit, JPMorgan Chase (JPM) was able to turn in a fourth quarter profit of $3.3 billion. This is a profound increase from the Q4 profit of $702 million posted in 2008. JPM, which is the second largest bank in the U.S. in terms of assets, has performed best throughout the financial crisis, as evidenced by its substantial year-over-year increase in Q4 profit. For the last quarter of last year, JPM generated $25.2 billion in revenue.
Continue reading Investment Banking Unit Pushes JPM to Strong Profit
Obama plans to disclose bank stress test results
The New York Times reports that the White House will publicly disclose the results of the stress tests of the 19 biggest banks in the country.
The obvious reason for not disclosing the results of the stress test is the fear that it could lead to a self-fulfilling prophesy: Banks deemed to be poorly positioned for a prolonged economic downturn will experience withdrawals, fleeing employees and less access to credit, making them more likely to fail -- or at least threatening their ability to compete.
Continue reading Obama plans to disclose bank stress test results
What will Citi sell?
If the latest rumors are correct, it looks like Citigroup (NYSE: C) will not change very much from its current structure. So Citi may fail to follow the compelling story arc of repealing Glass-Steagall to form itself in 1998 only to reinstate that 1933 law in 2009 by splitting its investment and commercial banking operations. Instead, it looks like Citi will do a bit of trimming around the edges.
At the core of the problem is $150 billion in toxic assets -- consumer, corporate, and leveraged loans -- which appears to be the amount of cash Citi will need to raise assuming it writes off all that toxic waste and then attempts to raise the same amount of capital through asset sales.
So Citi's new strategy is to find buyers who in total are willing to pay $150 billion for the various pieces of Citi's business. And this push appears to be coming from FDIC chair Sheila Bair who may be representing taxpayers' 7% stake -- the single largest -- in Citi. But after all the selling Citi will still have consumer, commercial, and investment banking operations (basically the same corporate strategy).
So what is Citi going to try to hawk? Here are four candidates:
Wachovia (WB) insider buys $11 million of stock
Wachovia Corp. (NYSE: WB - option chain) shares are falling today with most other financial stocks, but we uncovered some interesting insider activity from this week. On Monday, a director at WB bought one million shares for $11.00. This cost him $11 million and could be interpreted as a sign that the stock is probably not going to go away any time soon. However, it is also a good idea to note that the same director bought 500,000 shares last winter at $38, so he may also just be averaging his position downwards. Either way, if you think that the stock won't fall by too much more in the coming months, then now could be a good time to look at a bullish hedged trade on WB, since the put premiums will be high today.WB opened this morning at $10.44. So far today the stock has hit a low of $8.50 and a high of $10.91. As of 12:55, WB is trading at $9.55, down $1.96 (17.0%). The chart for WB looks bearish and S&P gives the stock a 2 STARS (out of 5) sell ranking.
For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $5 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 39.9% return in just one month as long as WB is above $5 at October expiration. Wachovia would have to fall by more than 47% before we would start to lose money. Learn more about this type of trade here.
Continue reading Wachovia (WB) insider buys $11 million of stock
Recent market turmoil makes Citigroup break its promise
The recent challenging market conditions created much not only on traders and companies, but also cause some big names to break promises they had made to consumers. Eric Dash of The New York Times tells of one such promise that may now be repealed. Last year, Citigroup Inc. (NYSE: C) promoted the "deal is a deal" slogan, promising to millions of people that the company would no longer lift reserve interest rates on cards at any time, for any reason.However, as Dash explains, times have changed and in the current weak environment the bank is reconsidering its decision because of financial troubles. A year ago, the company said it would no longer use the "universal default" practice where a card issuers can raise the holder's rate when that person is late paying any bill. What the bank still held was the right to raise rates every two years, when people renew their cards.
At the time, it looked like Citigroup's decision was efficient as rivals such as Chase Card Services followed the company by announcing it would abandon the "universal default."
Continue reading Recent market turmoil makes Citigroup break its promise
Analysts warming up to financial ETFs
MarketWatch has an interesting article today about homebuilder and financial ETFs. The article, titled "Analysts say financial, builder ETFs signaling buy," interviews a couple of leading analysts who feel that both sectors have bottomed out and are "screaming buys."
Morningstar analyst Sonya Morris said that the Financial Select Sector SPDR (AMEX: XLF) is trading "at least 25% below what Morningstar thinks they are worth."
MarketWatch said in the same article, "Most of the analysts agree that valuations are attractive right now in the financial sector. They said that once the sector gets past the problems with the subprime crisis, probably by the end of this year, the shares could move fast."
I think these analysts are probably right, but that we're probably not through going down in the short term.
Zack Miller is the Managing Editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.
Societe Generale trader Jerome Kerviel may face criminal charges
Prosecutors investigating the fraudulent trading scandal involving Jérôme Kerviel and his antics at French bank, Société Générale, have determined there is strong evidence that a crime has been committed and are asking for preliminary charges to be filed. The filing of preliminary charges by a judge would clear the way for investigators to dig deeper into the matter to determine if the case shall be dropped or continue on to trial.Defense attorney Elisabeth Meyer, speaking on behalf of Kerviel stated that he is being "thrown to the lions before being able to explain himself." Defense attorneys believe that Kerviel is being made a scapegoat in the wake of losses tied to the U.S. sub-prime mortgage meltdown. They claim that Kervial was just trying to be an exceptional trader. Too bad he couldn't have accomplished that above board.
The bank's CEO, Daniel Bouton rejects the notion that Kerviel is being used for cover. He called the idea "stupid", declaring that you can't "hide a hole by another hole." I would tend to agree with that thinking. The judge's pending approval of the filing of charges could clear the way to proving that Kerviel did indeed act with fraudulent intent. It is of no consequence whether or not Kerviel sought personal gain through his alleged misdeeds. It is of no help to him if he thought his actions were noble. What matters here is that he seems to have acted independent of the rules and then sought to cover his tracks in doing so.
Option update: China Life and India's ICICI Bank volatilities Elevated
China Life Insurance (NYSE: LFC) implied volatility is Elevated as LFC is near a record high. LFC offers products and services, including individual life insurance, accident insurance, and health insurance in China. LFC is recently up $2.97 to $66.21. LFC over all option implied volatility of 46 is above its 26-week average of 39, according to Track Data, suggesting larger price fluctuations.
ICICI Bank (NYSE: IBN) overall implied volatility is Elevated at 47. IBN is India's second largest bank, with total assets of over $79 billion USD as of 3/31/07. IBN over all option implied volatility of 47 is above its 26-week average of 41, according to Track Data, suggesting larger price fluctuations.
Daily options update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
Option update: CFC sells preferred shares to BAC, anxiety expected to decrease
Countrywide Financial Corp (NYSE: CFC) September volatility at 116 prior to BAC preferred stock purchase.
CFC, a U.S. home mortgage lender, is recently trading at $25.85 in pre-open trading, above its close of $21.82 yesterday. Bank of America (NYSE: BAC) purchased $2 billion of preferred stock from CFC. Goldman Sachs says this is "a vote of confidence from BAC, but earnings prospects unchanged." CFC September option implied volatility of 116 is above its 26-week average of 59 according to Track Data, indicating larger price fluctuations.
Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
More Countrywide Financial news
Peter Cohan: Is Bank of America's (BAC) purchase of Countrwide Financial (CFC) a good bet?
Georges Yared: Bank of America (BAC) makes strategic investment in Countrywide Financial (CFC)
Douglas McIntyre: Will Berkshire Hathaway (BRK) buy parts of Countrywide Financial (CFC)?
Douglas McIntyre: New lay-offs signal Countrywide (CFC) is not out of the woods
Peter Cohan: What the mortgage meltdown means to you
Eric Buscemi: George Bailey, meet Angelo Mozilo
Peter Cohan: Countrywide (CFC) meltdown continues
Michael Fowlkes: Countrywide Financial (CFC) adds to subprime panic
Peter Cohan: Could Countrywide Financial (CFC) be put down?
Private equity borrowers and lenders battle
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Last week, the battle between private-equity borrowers and lenders in the debt market that began to unfold in the middle of July hit the equity market in full force. "Covenant light" loan packages that greatly reduced the terms borrowers had to meet became the norm in the beginning of 2007. However, lenders have now revolted. Major money center bankers are now stuck with $150 billion to $200 billion of loans that they have committed to for their private equity clients.
Borrowers, the Blackstones of the world, are reminding the banks that they committed to the loans, so they have to deal with them. The lenders, the institutions who buy the debt from the banks, are saying they are no longer going to be lenient with their lending terms. It appears this stalemate is going to last into the fall.
For equity investors, the unfortunate reality is that equity markets will remain volatile until this pipeline, which needs to be financed, is worked through. This huge pipeline can be viewed in terms of a widget company having too many widgets, meaning pricing will remain volatile until this excess inventory is worked off.
It looks to be time to pick stocks you want to own for the long term and the price points you want to own them at, stepping up to the plate while everyone else is panicking.
Goldman Earnings Sink After Buffett Dividend
Johnson & Johnson's Income Falls 23%
Burberry Shares Leap on Sales Update
