TheStreet.com's Jim Cramer says the acquired Bear Stearns portfolio is worth even less than he thought.
How bad was that Bear Stearns portfolio? I am beginning to believe that JPMorgan's (NYSE: JPM) (Cramer's Take) buy of Bear is looking like a big mistake. It can only be justified by what might have been an even bigger problem for JPM -- the collapse of the trades that Bear made, which were being processed by JPM's clearing.
We are now beginning to get a real sense of the worthlessness of the mortgage portfolios. Not that we got any help from the SEC, which has taken a "we don't care what's in the mortgages as long as you tell us you have mortgages" attitude. That's been worthless for investors, and maybe even for JPMorgan.
The losses now exceed $400 billion, according to my modeling (if you simply assumed that 50% of the exotic mortgages that were issued from 2005 to 2007 eventually went into default). That's amazing, but it looks like I dramatically underestimated the losses. UNDERESTIMATED!
The most egregious issuers of these exotic mortgages were Bear, Merrill Lynch (NYSE: MER) (Cramer's Take) and Lehman Brothers (NYSE: LEH) (Cramer's Take). I believe that JPM has taken in a huge number of uninsurable, non-hedgeable mortgage instruments that are a pure write-off. And that means they are probably underwater on everything they took in.
Some analysts thought that once banks moved though their bad bet on subprime paper, they might start to see improvements in their earnings. Not so fast. Plain old loans for houses and condos are going bad so fast that lenders are about to get hit again on the bottom line.
The Wall Street Journalpoints out in one of it top stories that "Federal regulators warned Thursday that banking-industry turmoil would continue as financial institutions come to terms with piles of bad loans they made to finance the construction of homes and condominiums."
Many investors may say that the information is obvious, and that it was expected that falling real-estate prices would hurt banks. But the real victims may be bank shareholders. As large lenders take more losses on their portfolios, they will have to raise more capital and further dilute shareholders. Banking stocks which are down two-thirds from their highs could drop even further.
Now that banks are selling off these large loans, the quarterly reports for companies like Wachovia (NYSE:WB) and Wells Fargo (NYSE:WFC) are about to get hammered again. Wachovia trades at below $22, down from a 52-week high of more than $54. Wells Fargo has fallen from a 52-week high of almost $38 to $27. Regional banks like National City (NYSE:NCC) have had it worse. It shares have fallen from a one-year high of $34.62 to $5.25.
Selling in those stocks in not over. Not even close.
The banking unit of National City Corporation (NYSE: NCC) recently entered into a "memorandum of understanding" with federal regulators, the Wall Street Journal reported. The banking unit has bad loans, and the agreement basically means that the bank is on probation, as the government pressures financial institutions.
The Wall Street Journal also reported that Justice Department criminal prosecutors and its U.S. attorney's office in Brooklyn, NY are investigating American International Group Inc (NYSE: AIG) to see if they overstated the value of contracts tied to subprime mortgages.
OTHER PAPERS:
Lehman Brothers Holdings Inc (NYSE: LEH) is thinking of releasing its Q2 results a week earlier than planned, and announcing a capital raising plan at the same time, according to the New York Post, in order to reduce negative speculation about its future.
MOST NOTEWORTHY: Host Hotels, Packeteer and France Telecom were today's noteworthy downgrades:
Deutsche Bank downgraded shares of Host Hotels (NYSE: HST) to Hold from Buy and lowered their target to $19 from $22.50 on a lack of near-term catalysts and industry headwinds. Note the firm also downgraded Sunstone Hotel Investors (NYSE: SHO), Strategic Hotels (NYSE: BEE) and DiamondRock Hospitality (NYSE: DRH) to Hold from Buy.
Merriman downgraded shares of Packeteer (NASDAQ: PKTR) to Neutral from Buy following the acquisition bid by Blue Coat Systems (NASDAQ: BCSI) as they are not expecting additional suitors to emerge.
ABN Amro cut France Telecom (NYSE: FTE) to Hold from Buy as they see increased risk from the company's acquisitions strategy.
OTHER DOWNGRADES:
Keefe Bruyette downgraded Capitol Federal (NASDAQ: CFFN) to Underperform from Market Perform.
Omnicell (NASDAQ: OMCL) was lowered to Neutral from Strong Buy at Broadpoint.
National City (NYSE: NCC) was downgraded at Bear to Underperform from Outperform.
MOST NOTEWORTHY: National City, Syntax Brillian and Medco Health were today's noteworthy upgrades:
Deutsche Bank upgraded shares of National City (NYSE: NCC) to Buy from Sell on valuation as they believe their $9.00 target is in-line with the company's franchise value.
Baird upgraded Syntax Brillian (NASDAQ: BRLC) to Outperform from Neutral based on recently announced strategic initiatives and valuation.
Jefferies upgraded shares of Medco Health (NYSE: MHS) to Buy from Hold as they believe the company's renewed PBM contract with United Healthcare (NYSE: UNH) removes a major overhang.
OTHER UPGRADES:
Friedman Billings raised Downey Financial (NYSE: DSL) to Market Perform from Underperform.
Volterra (VNASDAQ: LTR) was raised to Buy from Neutral at Piper.
Alliance Data (NYSE: ADS) was raised at JP Morgan to Overweight from Neutral.
Private equity firm Corsair Capital and several of the banks bigger shareholders are expected to inject over $6B into Cleveland regional bank National City Corporation (NYSE: NCC), the Wall Street Journal reported.
According to sources, the Financial Times reported that Bank of America Corporation (NYSE: BAC) is planning to sell a portion of its 9% stake in China Construction Bank in order to raise capital. However, Bank of America will offset some of the share sales by exercising options it holds to buy additional stakes in the bank at levels that are now well below market rates.
The UK Telegraph reported that the BBC is talking to private equity firms to join in a bid for Virgin Media Inc's (NASDAQ: VMED) Virgin Media Television, which owns a percentage of the UKTV content business that the BBC doesn't already own.
MOST NOTEWORTHY: Lululemon, National City and Devon Energy were today's noteworthy upgrades:
Thomas Weisel upgraded shares of Lululemon (NASDAQ:LULU) to Overweight from Market Weight as they believe the company's momentum continues following the strong results; the firm maintains a $43 target on shares.
Bear upgraded National City (NYSE:NCC) to Outperform from Underperform citing favorable risk/reward following reports is is considering a transaction with KeyCorp (NYSE:KEY).
JP Morgan raised Devon Energy (NYSE:DVN) to Overweight from Neutral citing solid organic growth with high rates of returns.
OTHER UPGRADES:
Micron (NYSE:MU) was upgraded at Goldman to Neutral from Sell.
Merrill raised eBay (NASDAQ:EBAY) to Buy from Neutral.
NCC announced on April 1 that its Board of Directors are reviewing a range of strategic alternatives for the company. NCC closed at $9.99.
RBC Capital says: "We would be surprised if the company will receive acceptable bids for the entire corporation considering its high exposure to higher risk assets."
NCC April option implied volatility of 122 is above its 26-week average of 57 according to Track Data, suggesting larger price fluctuations.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
The Financial Times reported that Lehman Brothers Holdings Inc (NYSE: LEH) yesterday said it had sent information to the SEC about possible abusive short-selling in its shares in recent days. Lehman CFO Erin Callan said the SEC was examining whether hedge funds collaborated to drive down the bank's share price in the days following the near collapse of The Bear Stearns Companies (NYSE: BSC).
Colombia's heavy oil area could hold 20B barrels of recoverable resources, the Financial Times reported, giving the country greater reserves than leading producers such as Mexico and Algeria, according to Colombia's government.
WEB SITES:
The Silicon Alley Insider reported that Douglas Merrill, Google Inc's (NASDAQ: GOOG) CIO, is leaving the company to become the president of music company EMI.
MOST NOTEWORTHY: Countrywide Financial, AstraZeneca, Massey Energy and International Coal were today's noteworthy upgrades:
Wachovia upgraded Countrywide (NYSE: CFC) to Market Perform from Underperform, as they do not expect any other bidders to emerge and for the acquisition by Bank of America (NYSE: BAC) to close.
HSBC upgraded AstraZeneca (NYSE: AZN) to Overweight from Neutral on valuation and their belief that an agreement with Ranbaxy on Nexium is possible.
Massey Energy (NYSE: MEE) and International Coal (NYSE: ICO) were upgraded to Neutral from Underweight at JP Morgan citing higher coal price forecasts.
National City (NYSE: NCC) volatility aggressive; shares trade at 15-year low as NCC is recently down $3.69 to $9.44.
NCC March 10 straddle is trading at $3.00. NCC April option implied volatility of 140 is above its 26-week average of 46 according to Track Data, suggesting larger price fluctuations.
TheStreet.com's Jim Cramer says we need Wilbur Ross to save someone's bacon to make this a healthier market all around.
Wilbur Ross, don't screw it up, we are all counting on you.
Yesterday it wasn't just the Fed cut that made the bank stocks rally. That mattered because it will help one portion of the banks' biggest woes: the lack of margin on their loans. Obviously, it also matters as a way to avoid a severe recession, which is why the retailers rallied.
But I believe what was even bigger than the rate cut for some of these banks was the possibility that we would not have another round of big losses, this time from a lack of insurance, because the grave dancing Wilbur Ross indicated he is choosing a bond insurer -- or bond insurers? -- to save with a big investment or takeover.
These companies just can't raise the capital on their own. Despite their endless protestations, even the limited disclosure they have given us doesn't give you much comfort that they can get their paws on the money themselves.
TheStreet.com's Jim Cramer says the acquired Bear Stearns portfolio is worth even less than he thought. 
.gif){kind=logo}
.gif){kind=logo}
National City.gif){kind=logo}
National City
Siemens (SI): More than layoffs, a strong sign of recession
McDonald's continues its coffee crusade
Cramer on BloggingStocks: Paulson and Bernanke step up to the plate
