Fortress Investment Group (NYSE: FIG) has named former Fannie Mae CEO Daniel Mudd as its new top guy.

Yes, that's right: Daniel Mudd. The same guy who was pushed out as CEO of Fannie Mae after driving it into insolvency and a federal takeover. Mr. Mudd had been CEO since 2004 and was responsible for the company's disastrous push into higher risk mortgages, which makes him an interesting choice to run a $300 million public company (that used to be a $3 billion public company, but hey).

That makes him a very strange choice for the title of CEO at Fortress, even though he already serves on the company's board of directors (and a lot of good that's done). With the share price in the toilet and its operations in a state of flux, this seems unlikely to do much in the way of building up confidence in the company and its operations. Worse, Mr. Mudd may still be the target of SEC and Justice Department investigations into disclosures at Fannie Mae prior to its demise.

Not long ago, the private equity firm, Fortress Investment Group LLC (NYSE: FIG), appeared to be in deep trouble. But things are looking better now, as the stock price has gone from $1 to $4.65 this year.

In fact, Fortress is now pulling the trigger on some deals. Just this week, the firm teamed up with Crestview Partners LP and Lightyear Capital LLC to invest $450 million in First Southern Bancorp (Lightyear is operated by Donald Marron, who was the former chief of PaineWebber Group).

On the Q3 earnings conference call for Fortress Investment Group LLC (NYSE: FIG) -- a top alternative investment firm -- there was an interesting discussion of the recent volatility in the financial markets. For example, between 2003 to 2007, the S&P 500 only had two days where the markets moved 4% in a day. However, in October of this year, there were 20 of 23 days where the S&P had intraday moves of greater than 4% (one day had a 10% move).

As a result, it's no surprise that the Q3 results for Fortress were lackluster. The firm reported a loss of $20 million, or $0.04 per share, which compares to a profit of $111 million, or $0.26 per share in the same period a year ago.

In fact, Fortress hedge funds have been hemorrhaging. That is, investors have requested $4.5 billion in redemptions, which accounts for about a quarter of assets. Unfortunately, it looks like there will be more redemptions over the next couple quarters.

As for the private equity funds, things are much better. After all, there are long-term lock-ups on such vehicles. No doubt, these assets will be a rich source of ongoing management fees. And, when markets come back, there are likely to be incentive fees.

In light of the wrenching markets, it's likely to be a long slog. And this is not comforting for investors. Keep in mind that Fortress carries $675 million in debt, which could be in jeopardy of a covenant violation -- because of deteriorating cash flows.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Streetsmart Guide to Short Selling: Techniques the Pros Use to Profit in Any Market. He is also the founder of BizEquity, a valuation website.

Even with the huge federal government buyout, cash is still in short supply that the Federal Reserve recently loosened the restrictions on private equity firms in terms of investment stakes in banks.

In light of this, one of the top private equity operators, Fortress Investment Group LLC (NYSE: FIG), is eliminating its Q3 dividend payment of $0.225 per share. Basically, the firm wants as much capital as possible to capitalize on the opportunities -- Fortress has about $300 million in cash. The CEO, Wesley Edens, said he wants to put money into banks, insurance companies and asset management operations.

In other words, this may be an attempt to reformulate the structure of Fortress's private equity structure, making it look more like a traditional financial services firm. It certainly helps that Fortress has a lot of capital to put to work.

However, such investments can be volatile and take several years to come to fruition. Then again, the purpose of private equity is to seek out long-term returns, right?

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He is also the founder of BizEquity, a valuation website

Leave it to private equity to try to bring back Michael Jackson.

The Wall Street Journal recently reported that "Colony Capital, which owns the Las Vegas Hilton and is a major shareholder in closely held Station Casinos, is in discussions with Mr. Jackson to get him back onstage and in the spotlight via a long-term stand in Las Vegas."

Colony Capital may just have the leverage to get something done with Mr. Jackson: he owes them $25 million after the firm acquired the debt from Fortress Investment Group.

The plan is to try to revive Jackson's career with a stint in Las Vegas and, eventually, build a Thriller-themed hotel-casino there. I'm not so sure. Las Vegas has resuscitated -- or at least prolonged -- the careers of a lot of entertainers, but it's hard to think of anyone who carries as much baggage as Michael Jackson.

Similarly, a private equity firm might be able to turn around a struggling brand but, to my knowledge, the industry has never attempted to work its magic on a brand that a large percentage of Americans believe has molested children (with the possible exception of Chrysler). And legal system be darned, that's what many people associate him with.

MAJOR PAPERS:

• Barnes & Noble Inc (NYSE: BKS) is considering a bid for rival bookseller Borders Group Inc (NYSE: BGP), the Wall Street Journal reported, a move which would allow Barnes & Noble to improve profits and reduce costs. Antitrust issues could prevent a deal.
• The Wall Street Journal also reported that Carl Icahn's effort to remove Yahoo! Inc's (NASDAQ: YHOO) board has picked up new supporters, including T. Boone Pickens, who acquired a 0.75% stake. Some Yahoo shareholders believe it is still too early to predict whether Icahn will be able to carry July 3's shareholder vote.
• A Financial Times investigation discovered that Moody's Corporation (NYSE: MCO) incorrectly awarded top ratings to billions of dollars to debt products due to an error in its computer models. Moody's said it is in the process of "conducting a thorough review" of the rating of the constant proportion debt obligations, which should have been up to four notches lower.

OTHER PAPERS:

• According to the people briefed on the matter, the New York Times reported that the buyout of Penn National Gaming Inc (NASDAQ: PENN) by Fortress Investment Group (FIG) and Centerbridge Parters may involve revised terms. The sources said the negotiations may "delay or even imperil" the deal.

It's been a year since Fortress Investment Group (NYSE: FIG) went public. At that time, the offering got a nice reception. After all, investors were hungry for hedge fund and private equity operators.

Of course, that's no longer the case. And the stock of Fortress has gone from $34 to a low of $9.50.

Well, this week, the firm announced its fiscal Q4 results. There was a net loss of $29.3 million, or $0.43 per share and pre-tax distributable earnings were down 43% to $78 million, or $0.18 per share. Revenues were also lackluster – falling 22% to $196 million. Although, with a large amount of assets under management (roughly $33.2 billion), Fortress saw a 43% spike in management fees.

With the roiling credit and equity markets, it's tough to complete deals. As a result, there hasn't been much opportunity to realize gains.

Despite all this, the Fortress conference call was upbeat. Keep in mind that the company focuses on asset-based investments, which tend to have less leverage and lower valuations. Besides, as major banks repair their balance sheets, there should be opportunities for players like Fortress to get some choice deals.

Interestingly enough, Fortress thinks that the second half of 2008 will be quite active. And, if the company can scoop up some transactions at compelling valuations, it could position itself nicely for the next couple years, when things get back to normal.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

There was lots of trepidation on the eve of Fortress Investment Group (NYSE: FIG)'s Q3 earnings report yesterday. After all, Blackstone (NYSE: BX) disappointed the Street.

Well, there was some relief (it also helped that there was a big rally in equities). The company, which operates private equity and hedge funds, posted a net loss of $38 million, or $0.52 per share in Q3. Although, if you strip various elements -- such as certain tax and compensation -- the firm earned $111 million, or $0.19 per share (which is known as pretax distributable earnings).

It was a relief that Fortress indicated there was little exposure to the subprime mess. If anything, the firm sees opportunities in the sector.

In fact, Fortress has some big plans. The firm is in the process of raising funds, with assets of $10 billion to $15 billion. The initiatives will range from infrastructure, commodities, emerging markets and Asian real estate.

What's more, Fortress had a nice realization on its Crown Castle investment. The original investment came in 2002, which involved an initial $120 million stake. The total proceeds since then? A cool $1.7 billion.

Yes, it's a reminder that the private equity business can be very enticing indeed.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

Alternative investment asset manager Fortress Investment Group's (NYSE: FIG) decision to shutter its subprime mortgage division, Nationstar Mortgage, generated only a mild reaction from traders and analysts alike. Nationstar, a leading U.S. subprime lender, has sustained substantial losses due to rising defaults and foreclosures.

Nationstar said any approved mortgage applications in its pipeline would be honored. Nationstar will also continue to service the $10 billion in subprime loans in its portfolio.

Wall Street took Fortress's subprime decision in stride: Wall Street appreciates all the candor and data it can get regarding the status of subprime loans and operations, and Fortress's announcement will help analysts compose a more-complete report on Fortress, one reason the Street did not punish FIG's shares this week. On Friday, FIG's shares closed down 26 cents to $21.32.

Moreover, Wall Street's clamor for "the more data, the better" regarding the subprime sector is not without justification. Late payments and defaults on subprime mortgages are already four times the historical U.S. average, and many analysts expect that percentage to rise in the quarters ahead: about $350 billion in subprime home loans will shift to higher interest rates, with initial rate increases boosting costs by 30% or more, according to research by Credit Suisse (NYSE: CS).

Nationstar, formerly Centex Home Equity, was bought in 2006 by Fortress, a manager of private-equity and hedge funds, for about $554 million. It had been owned by Dallas-based Centex (NYSE: CTX), the fourth-biggest U.S. homebuilder.

There's been lots of buzz that the upcoming Kolberg Kravis Roberts & Co. (KKR) IPO is dead. In fact, a recent report from the Times of London indicated that the offering has been postponed.

Well, maybe not. That is, KKR has indicated that the rumor is not true.

I have to admire the optimism of KKR (hey, it's probably been a key the firm's success).

No doubt, it's been crummy for private equity. There's a credit crunch. And, of course, the stock prices of The Blackstone Group L.P. (NYSE: BX) and The Fortress Investment Group (NYSE: FIG) have been miserable. It even looks like Carlyle is going to forgo an IPO for 2007.

But, private equity is about the long-term. And, it's in bad markets where the opportunities seem to pop up (especially for those firms that are well capitalized).

What's more, a key test will be KKR's upcoming financing of the mega buyout of First Data Corporation (NYSE: FDC). If the deal can get done, there may be some hope for the KKR offering.

Also, if you want to check out other IPOs planning to hit the markets, click here.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

A fascinating article appears [subscription required] on the cover of today's Wall Street Journal discussing the actions of a fund in which politician John Edwards is a large investor. Although I'm not a big John Edwards fan, I need to come to his defense on this issue -- it's simply too low of a blow.

The WSJ criticizes Edwards for the actions of fund managers within Fortress Investment Group (NYSE: FIG), seemingly asserting that Edwards is a hypocrite. Why? Because Fortress profited from people's misfortunes in the subprime collapse while Edwards has discussed his negative opinion of "predatory lenders" in the public eye.

This week, private equity firm Fortress Investment Group (NYSE: FIG) reported its Q2 earnings. Well, as should be no surprise, compensation costs were higher (not cheap to hire investment gurus). In fact, there was a net loss of $55.1 million. Although, the firm thinks a better metric is "pretax distributable earnings," which came to $143 million in Q2.

What's more, revenues fell from $328.3 million to $268.1 million. No doubt, the private equity game can be volatile.

On the conference call, Fortress CEO Wesley Edens had some interesting things to say about the turmoil in the financial system.

He said that it's going to take some time to clear out the huge amounts of debt that have yet to be placed for buyouts. Much of the debt is on balance sheets of firms like JPMorgan Chase (NYSE: JPM), Lehman Brothers Holdings (NYSE: LEH), and Goldman Sachs Group (NYSE: GS).

Private equity fund, hedge fund, and REIT manager Fortress Investment Group (NYSE: FIG) is expected to report earnings before the bell on Tuesday. Although I expect the company to report earnings that surpass expectations and raise guidance, I'd remain out of the stock in coming quarters.

For the quarter, I think the company stands to report in-line or better than expected earnings. As a Goldman Sachs research report noted, "The firm's dividend guidance of $0.225/share (75% of DEPS) offers a hint at 2Q2007 results, which ought to come in ahead of expectations.

The company should also increase its guidance for full year 2007 and 2008 as the company stands to recognize its surplus incentive income. This should increase the guidance rather significantly. In fact, this modeling revision lead Goldman to increase its 2007 estimate by 4 cents to $1.24 and its 2008 estimate by 14 cents to $1.59 per share. Clearly, if recognized, this incentive income will boost the company's bottom line.

Trump Entertainment Resorts Inc (NASDAQ: TRMP), Donald Trump's casino company, this morning said that following a three-month search, it would conclude its strategic review. Although it has held talks since March with groups of investors that included former Trump Taj Mahal manager Dennis Gomes and Boyd Gaming Corporation (NYSE: BYD), the company said the offers it has received "weren't likely to lead to a transaction."

It seems a little strange that Trump Entertainment couldn't find a buyer, particularly because the market for casinos and their assets is hot. Recent examples of casino sector activity include the in-process $17B acquisition of Harrah's Entertainment Inc (NYSE: HET) and the announced $6.1B acquisition of casino and racetrack operator Penn National Gaming Inc (NASDAQ: PENN) by Fortress Investment Group LLC (NYSE: FIG), a U.S. hedge fund and private-equity firm.

What gives? Why hasn't Trump found a buyer? Sources have speculated that its casinos, located in Atlantic City, NJ, have been struggling in comparisons to Las Vegas "entertainment destinations," a partial smoking ban and competition from new gaming venues in Pennsylvania and New York. Additionally, the announcement that the company would end its efforts to sell comes weeks after CEO James Perry said he would retire and, effective yesterday, would be replaced by COO Mark Juliano.

Trump's Atlantic City casinos are still working on a $250M project to update its gaming floors and add new restaurants, although it hasn't seemed to help. The company posted losses in earnings per share loss and revenue when it reported Q1 results in May. The Trump Taj Mahal Casino Resort, its largest casino, with 786 rooms, is set to open next summer.

The casino company said that while it was ending the initiative to sell the company, it would continue to review other strategic alternatives, including a cost cutting effort. The company laid off Chief Information Officer Virginia McDowell and executive vice president of design and construction, Paul Keller. It doesn't plan to fill these positions.

Trump shares fell nearly 18% this morning.

Late last year, Penn National Gaming (NASDAQ: PENN) tried to buy Harrah's (NYSE: HET). But, in the end, private equity firms TPG and Apollo Management won the deal.

Ironically enough, now Penn has decided to go private. The deal is valued at about $5.73 billion and the buyers include Fortress Investment Group LLC (NYSE: FIG) and Centerbridge Partners LP. There will also be a repayment of $2.8 billion in existing debt.

While casinos generate lots of cash flows, it's still not easy to pull off a buyout deal. A big problem is dealing with the mind-numbingly complex gambling laws. In other words, it should take at least a year to close the Penn transaction.

Although, at 10 times EBITDA, the deal has a reasonable valuation.

On the news of the transaction, Penn's stock climbed 21.92% to $62.35. The buyout offer is $67.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.