HSBC Holdings (NYSE: HBC), a United Kingdom-based banking and financial services company, rallied on the Hong Kong stock exchange; following a report it held talks with China's sovereign wealth fund about a potential investment in the bank.
HBC is expected to report Q2 EPS in late July.
HBC August option implied volatility of 32 is near its 26-week average of 30 according to Track Data, suggesting slightly larger price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
MOST NOTEWORTHY: European banks, the Paper and Forest Products sector, Kindred Healthcare and Convergys were today's noteworthy upgrades:
Keefe Bruyette upgraded the European Banks sector to Neutral from Underweight on valuation as they see limited downside from current levels. Included in the firm's top picks are HSBC Holdings Plc (NYSE: HBC) and Banco Santander SA (NYSE: STD).
Credit Suisse upgraded the Paper and Forest Products sector to Overweight from Underweight citing valuations and expectations that fundamentals will bottom this fall. The firm raised shares of Temple-Inland Inc (NYSE: TIN) and Smurfit-Stone Container Corporation (NASDAQ: SSCC) to Outperform from Neutral.
Friedman Billings upgraded shares of Kindred Healthcare Inc (NYSE: KND) to Outperform from Market Perform on valuation following the recent pullback and believes the company is well-positioned to beat modest expectations over the remainder of the year. The firm raised their target to $36 from $29.
Oppenheimer raised Convergys Corporation (NYSE: CVG) to Outperform from Perform on valuation, as they believe investors should look at the company's business lines separately. Their sum of parts valuation yields an $18 target.
OTHER UPGRADES:
Suncor Energy Inc (NYSE: SU) was upgraded to Overweight from Neutral at JP Morgan and to Outperform from Market Perform at Friedman Billings.
UBS upgraded BT Group Plc (NYSE: BT) to Neutral from Sell.
The Wall Street Journal reported that a federal judge said that the government had "sufficient evidence" for a jury to conclude that a conspiracy to fraudulently boost the financials of American International Group Inc (NYSE: AIG) began with former CEO Maurice R. "Hank" Greenberg. That led to a transaction that artificially inflated AIG's loss reserves.
Citigroup Incorporated's (NYSE: C) Falcon Strategies fixed income hedge fund is down 75%, the Wall Street Journal reported, bad news for the three U.S. banks that invested in it to help increase returns on employee life insurance. One of the banks, Fifth Third Bancorp (NASDAQ: FITB), is suing Transamerica Life and Smith Barney, both of whom helped to arrange the investment, and some are now questioning whether Citigroup will be forced to give back some of the investments as they have with individual investors.
After it stopped offering some mortgages last month because it was swamped by volumes of new applications, the Financial Times reported that First Direct, a unit of HSBC Holdings Plc (NYSE: HBC), has resumed lending to new customers. The bank said it has continued to receive "significant interest" in its mortgages from existing customers.
OTHER PAPERS:
In an effort to raise capital from shareholders, the Telegraph reported that Barclays Plc (NYSE: BCS) is considering a takeover bid for a rival in the U.S. or UK. Sources believe Barclays may attempt to acquire an investment bank, a struggling bank or a deal in a fast-moving economy. Potential names mentioned include UBS AG (NYSE: UBS) and Lehman Brothers Holdings Inc (NYSE: LEH).
According to the Wall Street Journal, former American International Group Inc (NYSE: AIG) CEO Maurice R. "Hank" Greenberg is pressing the troubled insurer to turn the company around. He says that he and other major shareholders have "deep concern about the persistent and seemingly endless destruction of value at AIG."
Hybrid Capital Second, a Morgan Stanley (NYSE: MS) investment vehicle, increased its stake in internet start-up Livedoor to 18.15% from 12.76% in March, the Financial Times reported, superseding the company's founder, Takafumi Horie.
OTHER PAPERS:
After it incurred $3.2B of bad debts in the first three months of the year, the Telegraph reported that Knight Vinke, an HSBC Holdings Plc (NYSE: HBC) shareholder, has renewed calls for the bank to shed its U.S. consumer finance business.
According to people familiar with the matter, the Wall Street Journal reported that American International Group Inc's (NYSE: AIG) airplane-leasing unit is considering a split from the company. The people said International Lease Finance Corp have grown "increasingly concerned" the company will be hurt by AIG's financial troubles.
Royal Dutch Shell Plc (NYSE: RDS.A) and Spain's Repsol YPF SA (NYSE: REP) are pulling out of one of Iran's biggest gas projects, the $10B-plus development of phase 13 of South Pars, the world's largest gas field, the Financial Times reported.
WEB SITES:
Bloomberg reported that HSBC Holdings Plc (NYSE: HBC) set aside a smaller-than-forecast $3.2B for bad loans in the U.S. The bank also said its Q1 profit was higher than Q107.
The proposed Super SIV may end up being considerably smaller than the original outline, as banks and other SIV-owning institutions either write-down or find other ways to dispose of problematic SIV assets, The New York Times reported Monday.
Conceptualized following a request from the U.S. Treasury, the Super SIV is designed to facilitate the orderly sale of high-risk packaged mortgage loans and assets held by SIVs, but not to rescue those SIVs.
As presently configured, beginning in January/February 2008 the Super SIV will lead a coordinated, gradual purchase-and-resale of these assets, which, officials say, will avoid a "mad rush to the door" of SIV asset sales. The latter would further depress prices, and create another round of credit market turmoil, with negative consequences for the U.S. economy. The Super SIV will raise money from financial institutions to fund itself.
Due to accelerating losses at its American consumer-lending unit, HSBC Holdings PLC (NYSE: HBC) said it would take $3.4B in charges during its Q3, the Wall Street Journal reported. Despite the charges, the company said its Q3 operating income was up compared with the prior year due to revenue growth in the group.
Lululemon Athletica Inc (NASDAQ: LULU), a standout performer on Wall Street, is reportedly under fire for potentially false claims of its VitaSea clothing line, which the company says is made from seaweed fiber supplied by SeaCell. According to lab tests, the New York Times reported there was no significant difference in the mineral levels between regular cotton T-shirts and Lululemon's VitaSea fabric.
MOST NOTEWORTHY: The U.S. banking sector, HSBC Holdings, Trans World and Mips Technologies were today's noteworthy downgrades:
CIBC downgraded the U.S. Banks sector to Underweight from Market Weight as they see another leg down as investors shift focus away from write-downs to the impact the write-downs will have on risk-weighted assets and capital ratios.
Morgan Stanley downgraded shares of HSBC Holdings Plc (NYSE: HBC) to Equal Weight from Underweight, as they believe the company may have to set aside more money for bad loans in the U.S.
B. Riley downgraded shares of Trans World Entertainment Corporation (NASDAQ: TWMC) to Neutral from Buy, as they believe the downside risk should the Bob Higgins acquisition proposal fall through outweighs the potential upside should the bid be raised or should another bidder emerge.
B. Riley also downgraded Mips Technologies Inc(NASDAQ: MIPS) to Neutral from Buy following the company's Q1 results to reflect the company's deteriorating balance sheet and licensing business softness.
Citigroup Inc. (NYSE: C) volatility at nine-year highs on chatter of potential spin-offs:
Investor unhappiness with Citigroup's recent sell off has resulted in a larger chorus for Citigroup to consider spin-off options. Citigroup's Smith Barney unit has been frequently mentioned as a potential spin-off. Telegraph.co.uk said "banks including JPMorgan Chase & Co. (NYSE: JPM), HSBC Holdings plc (ADR) (NYSE: HBC), and Morgan Stanley (NYSE: MS) are being touted as possible buyers if Citigroup's management decides to offload assets." Citigroup was recently up 15 cents to $33.03. Citigroup call option volume of 135,047 contracts compares to put volume of 101,613 contracts. Citigroup November 32.5 straddle is priced at $2.55. Citigroup December option implied volatility of 56 is above its 26-week average of 29 according to Track Data, suggesting larger price risks.
IBM was recently down $4.83 to $101.27. IBM call option volume of 20,665 contracts compared to put volume of 25,200 contracts. IBM November 100 straddle was priced at $4.90. IBM December option implied volatility of 33 was above its 26-week average of 24 according to Track Data, suggesting larger price risk.
Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
HSBC Holdings (NYSE: HBC) is the latest financial company to drop out of the subprime lending game in the U.S. (and it is a game). HSBC, which is Europe's largest bank and has a large presence in the U.S., said that it would jettison 750 jobs from its Decision One Mortgage unit, take a hair under $1 billion in charges and write-downs, and completely exit the subprime market in the U.S. due to the business no longer being sustainable. Note to HSBC: duh!
In my view, the subprime mess was produced by the loan industry, from the top brass to the commission-based lenders who lined up ignorant citizens to borrow tons of money on foolish terms and with so little homework that "F" students would have cheered. Did shareholders of these companies complain when the lenders were raking in profits? Nope. Are they crying now that entire companies are going belly-up or are exiting the business while taking large losses? Sure they are.
In an inspiring moment of corporate-speak, HSBC Holdings group chief exec Michael Geoghegan stated that, "It's no longer sustainable and not the right place to allocate capital in the future." But it was obvious years ago that lending money and setting up short-term financing on top of a house made of cards was not the right place "to allocate capital." Billion-dollar lesson learned, HSBC.
The Boston Globe reports that credit card companies have been targeting subprime mortgage holders.
The evidence is stunning. Direct mail credit card offers to subprime customers in the US jumped 41% during 2007's first half, compared with the first half in 2006. By contrast, direct mail offers targeted at customers with the best credit fell 13%. During this same period, defaults on subprime mortgages rose significantly -- in June, nearly 20% of subprime mortgages were at least 60 days past due, and more than 1 in 20 were in foreclosure.
The leaders in selling higher interest rate credit cards to the financially vulnerable includes some subprime mortgage leaders. Here's a partial list:
Could it happen? Could News Corporation (NYSE: NWS) pull its offer? They could, and the fear is absolutely there. That's why the stock has fallen. For one, the Bancroft family, which controls the majority of Dow Jones' shares, hasn't formally accepted Rupert Murdoch's $5B, $60 a share offer. And no one else has come forward with a competing bid. But it does seem that both sides are moving together in the same direction. Okay, but somebody should make up their mind -- either way -- and stop fiddling around.
Barry Diller is back at it. The chairman and CEO of IAC/InteractiveCorp, who is also chairman of the board and a senior advisor to Expedia, is working to take online travel firm Expedia private at $30 a share. Part of any deal will involve Expedia's TripAdvisor being spun off with about 400 jobs being lost in that shuffle.
After many, many laps around the track, this race is over, as race track and casino operator Penn agreed to be acquired today by Fortress Investment Group LLC (NYSE: FIG) and private equity firm Centerbridge Partners. All cash, baby, in a deal worth $8.9B that includes $2.8B of assumed debt. Everyone to the Winner's Circle.
Happiness increases with age, according to a study conducted for HSBC Holdings plc (NYSE: HBC) and reported by MarketWatch. What is happiness? Why does it increase with age?
This study implicitly defined happiness as a combination of health, freedom from financial worry, and controlover one's life. According to the study, a majority of people in their 60s and 70s report being healthy and in control of their lives -- and as happy as many respondents in their 40s. This is the key finding of HSBC's survey of 21,000 people in 21 countries and spanning four age groups, each decade from age 40 to age 80.
Health is surprisingly good but varies by country. Overall, just 14% of those 60 to 79 in the U.S. said they're in poor or very poor health, while 86% say they're in fair, good or very good health. Poor health is lower in some countries -- Brazil (10%) and Mexico (10%) -- and higher in others -- Asia (18%), South Africa (32%), Russia (35%) and Turkey (35%).
Kohlberg Kravis Roberts & Co. (KKR) is one of the pioneers of leverage buyouts (LBOs), getting its start in the mid 1970s. During that time, LBOs were considered a niche, not a growth business.
Of course, things are a lot different today. Private equity firms are becoming a big power in finance. For the most part, however, the top firms have concentrated on U.S. targets.
That's changing. Today private equity firms are looking overseas for opportunities.
For example, today KKR announced that it has hired Sir John Bond, who recently retired as the group chairman of HSBC Holdings. He's hired on at KKR as a "senior adviser."
Translated, that means he will not get into the nitty-gritty of dealmaker; rather, his focus is likely to use his extensive network. His particular strength is in Asia, where buyout activity has been relatively light.
Seems like that is likely to change very soon.
Tom Taulli is the author of various books, including the Complete M&A Handbook. He operates InvestorOffering.com.
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