Options Update: BP Volatility Elevated; Fitch Downgrades Debt originally appeared on BloggingStocks on Tue, 15 Jun 2010 08:30:00 EST. Please see our terms for use of feeds.

Look for big numbers from the property/casualty sector of the insurance industry for full-year 2009. Light catastrophe losses were a big help, leaving more cash in the coffers to benefit from the recovering financial markets following the September 2008 crisis. Reinsurance companies, in particular, will benefit from the light catastrophe activity of 2009.

Among 52 publicly traded insurance companies, rating agency Fitch reports, the incurred loss ratio fell to 65.8%, a decline of 1.8 percentage points, and the expense ratio increased to 28.5% (up 0.6 percentage points). This caused underwriting profits for the entire group to improve, as indicate by the overall combined ratio of 94.3% for 2009, down from 95.5% in 2008 (a lower combined ratio s a positive development).

Continue reading Strong 2009 Results for Insurance Sector

Strong 2009 Results for Insurance Sector originally appeared on BloggingStocks on Mon, 29 Mar 2010 10:30:00 EST. Please see our terms for use of feeds.

Update Nov. 26, 2008: See all 2008 Black Friday deals.

Hip retailer Urban Outfitters Inc. (NASDAQ: URBN) is expected to post earnings 22.9% higher than a year ago, to $0.35 per share, on revenue of $475.9 million (+26.4%). The Philadelphia-based company already said that same-store sales in the quarter were 10% higher. Urban Outfitters has beat expectations in recent quarters, by 11.5% in the previous quarter, and analysts on average recommend buying URBN. Shares fell to a 52-week low of $16.61 per share on Friday, and are down 29.5% from a year ago. Other companies expected to report more modest earnings growth in the coming week include watch and accessory maker Fossil Inc. (NASDAQ: FOSL), retail giant Wal-Mart Stores Inc. (NYSE: WMT), and TJX Companies Inc. (NYSE: TJX), parent of such discount retail chains as T.J. Maxx and Marshalls. These three companies have tended to top analysts estimates in recent quarters, and Fossil and TJX ended the week near their 52-week lows.

While Los Angeles-based American Apparel Inc. (AMEX: APP) had a strong second quarter, the casual wear maker is expected to report $0.13 per share earnings for the third quarter, the same as in the year-ago period. And analysts anticipate that Kohl's Corp. (NYSE: KSS) will report that profits fell 16.4% to $0.51 per share on revenue of $3.9 billion (+1.9%). Though same-store sales for October fell 9%, the Menomonee Falls, Wis.-based company reaffirmed its third-quarter forecast. Kohl's has offered positive surprises in recent quarters, topping estimates by 5.6% in the previous quarter. The consensus recommendation remains to buy KSS. Shares have been climbing after reaching a 52-week low in late October, but are still down 32.8% from a year ago.

Continue reading The week in preview: Macy's, Nordstrom, Abercrombie, JCPenney, and Kohl's

The week in preview: Macy's, Nordstrom, Abercrombie, JCPenney, and Kohl's originally appeared on BloggingStocks on Sun, 09 Nov 2008 12:30:00 EST. Please see our terms for use of feeds.

Earlier this week, my colleague Douglas McIntyre observed that Sun Microsystems (NASDAQ: JAVA) "is one of the worst performing large-tech companies in America." It seems that ratings firm Fitch agrees with his take as last night it slashed JAVA's ratings outlook from "stable" to "negative." As a result of the move, JAVA is trading just pennies away from its annual low of $4.51 this morning.

In a release, Fitch cited a litany of challenges facing Sun Micro, including deteriorating demand outlook, recent share losses in the server market, significant decline in gross margin, and the expectation for continued pressure on information technology spending into 2009.

Even more troubling, investors learned today that Sun's co-founder, Andreas von Bechtolsheim, is stepping down from his role as chief architect to work for start-up firm Arista Networks.

However, as bleak as things may seem for Sun, another report adds an interesting angle to McIntyre's suggestion that JAVA should be sold to the highest bidder. Southeastern Asset Management, a value investment firm, said Wednesday that it's boosted its stake in Sun Microsystems to 21%. The firm said that it plans to hold discussions with Sun's management "regarding opportunities to maximize the value of the company for all shareholders." And we all know what that's code for, right? Stay tuned to see how this potential M&A deal unfolds.

Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research.

Can a white-knight bid rescue Sun Microsystems? originally appeared on BloggingStocks on Thu, 23 Oct 2008 12:30:00 EST. Please see our terms for use of feeds.

For the first time since the current crisis hit the car industry, the issue of debt default at one of the Detroit car companies has been raised by a ratings agency. According to The Wall Street Journal, "Fitch warned that Chrysler's issuer-default rating could be lowered two more notches from the current B-minus to CCC -- nearly default status -- if problems with rising loan delinquencies and losses on auto loans trickle down to retail volumes."

Fitch also downgraded GM (NYSE: GM). It has started to dawn on the experts in debt, cash flow, and balance sheets that if the current course of events in the US car industry continues, the former "Big Three" may have to raise more money or face a horrible cash crunch. There were concerns about Chapter 11 possibilities in Detroit three years ago and now those are returning.

But, that was then and this is now. Past problems in Detroit were primarily on the cost side. The car companies have cut billions of dollars in expenses and put together a new deal with the UAW. The concern now swings to revenue. Lehman Bros. recently said the the rate at which autos are being sold in June could indicate an annual sales figure of only 12.5 million vehicles in the domestic market. Last year the US produced 16.1 million unit sales.

"Default" is back in the dictionary in Detroit.

Douglas A. McIntyre is an editor at 247wallst.com.

Fitch sees possible defaults at US automakers originally appeared on BloggingStocks on Thu, 26 Jun 2008 10:47:00 EST. Please see our terms for use of feeds.

This post is part of a series on some of the most memorable companies that have disappeared.

Going, going, gone!

No more Bear Stearns. What a shame. It did not have to be, but alas -- bad management, greed, and too much negativity on Wall Street made it unsustainable when sustainability is the word of the day. It is, or should I say was, one of the foremost investment banks on Wall Street for many decades.

JPMorgan Chase (NYSE: JPM) completed it acquisition of Bear Stearns (NYSE: BSC) on May 30, 2008. As a result, Fitch Ratings has upgraded the ratings of BSC and removed them from Rating Watch Positive, where they were originally placed on March 17. As the direct and sole owner of BSC, JPM has assumed the capital structure of BSC.

Bear Stearns had been one of the top investment banking, clearing, and brokerage firms in the United States, serving major corporations, institutions, governments, and high net worth individuals. Through several subsidiaries, it provided asset management, lending, and merger and acquisition advisory services. It's been a leading market-maker for NYSE-listed securities (through Bear Wagner Specialists), as well as for OTC shares, corporate and government bonds, and derivative products.

It was these derivative loan instruments that did them in. Bear Stearns, a company that for decades was relied upon to help its customers assess risk, fell short when it came to managing its own. Management was not watching very closely, and if they were, they did not understand what they were seeing. (See Serious Money: The page on Buffett Part V: Company Management.)

Continue reading Companies that vanished: Bear Stearns -- a lesson learned?

Companies that vanished: Bear Stearns -- a lesson learned? originally appeared on BloggingStocks on Fri, 06 Jun 2008 12:37:00 EST. Please see our terms for use of feeds.

S&P looks to fix credit rating problems -- too little, too late? originally appeared on BloggingStocks on Fri, 08 Feb 2008 09:50:00 EST. Please see our terms for use of feeds.

But the bigger fear is the repercussions of a serious ratings downgrade of MBIA. Fitch has threatened to cut its top-notch AAA-rating on fears that its capital base was not sufficient to cover its liabilities. That's because $2 trillion worth of insured securities held by mainstream investors, such as pension funds and local governments are at risk if MBIA and its peers lose their top tier credit ratings.

Once again, as I posted yesterday, the future of global capital markets rests in the hands of ratings agencies. In fact, Fitch's warning of a ratings downgrade seems to be a bit conservative. If MBIA had to pay out $31 billion to cover the guarantees on those CDOs, its $6.5 billion worth of capital could be wiped out. Meanwhile, any mainstream investor -- who owns MBIA insured CDOs -- will need to write them down and or sell them if MBIA loses its AAA rating.

The result could be a rise in interest rates paid by city and state governments and a cut in services or increase in taxes to balance those city and state budgets.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in MBIA securities.

Will MBIA's $31 billion CDO bust raise your taxes? originally appeared on BloggingStocks on Fri, 21 Dec 2007 11:18:00 EST. Please see our terms for use of feeds.

MBIA (NYSE: MBI) closed at $34.60 Wednesday.

MBI announced on Dec. 10 it will raise up to $1 billion of capital through an investment by Warburg Pincus. Warburg will also purchase $500 million of MBI common stock and support a shareholder rights offering of up to another $500 million. MBI estimates it will incur a case loss reserve of $500 to $800 million in Q4. Fitch is expected to release a review of MBI's credit standing soon. MBI December 30 straddle is at $4.30. MBI January option implied volatility of 111 is above its 26-week average of 63 according to Track Data, suggesting larger price fluctuations.

AMBAC Financial (NYSE: ABK), a provider of financial insurance-guarantee products, closed at $24.87 Wednesday.

Fitch is expected to release a review of ABK's credit standing soon. ABK January option implied volatility of 131 is above its 26-week average of 66 according to Track Data, suggesting larger risk.

Daily Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

Options update 12-13-07: MBI, ABK volatility up on capital concerns and upcoming Fitch review originally appeared on BloggingStocks on Thu, 13 Dec 2007 11:30:00 EST. Please see our terms for use of feeds.

Freddie Mac (NYSE: FRE) indicated that it wants to seek more capital when it reported its $2 billion loss this morning, but that capital might be more expensive if Fitch Ratings cuts its rating by one notch. Fitch issued a statement this morning indicating that a cut in rating for Freddie Mac is being considered.

Fitch said in its statement reported by Reuters that Freddie Mac "faced a challenge in meeting capital targets set by its regulator, the Office of Federal Housing Enterprise Oversight (OFHEO)." Freddie is the second largest U.S. mortgage finance company. Fannie Mae is the largest.

Fitch may cut Freddie's preferred stock rating originally appeared on BloggingStocks on Tue, 20 Nov 2007 11:06:00 EST. Please see our terms for use of feeds.

Most investors probably think that when an investment ratings service like Moody's, Standard & Poors or Fitch gives a company, financial institution or security the highest rating of "AAA," it carries the least possible level of risk. Most investors would think that this rating would be reserved for United States Treasuries and only the most secure of companies like Berkshire Hathaway (NYSE: BRK.A), Johnson & Johnson (NYSE: JNJ), or United Parcel Service (NYSE: UPS). Actually, this happens to be the case, and these companies are among the very few to receive AAA ratings outside of financial institutions.

So what happened in the case of the Collateralized Debt Obligation (CDOs), where the ratings agencies determined that high-risk securities batched together had a smaller chance of default than the individual securities? Perhaps that is the case, but triple-A? Well, it seems to me that large investment banks knew they needed the AAA ratings to have a marketable security. They went to the ratings agencies that understood this and the agencies created the rational or plausible deniability to support the rating. This may be a bit harsh, but it does seem that the ratings agencies were working in reverse: first establish the rating and then the support for the rating. The ratings services are all heading for cover and many of the previously AAA-rated securities are being re-evaluated.

Continue reading Subprime = Triple-A ratings? or 'How to Lie with Statistics'

Subprime = Triple-A ratings? or 'How to Lie with Statistics' originally appeared on BloggingStocks on Wed, 25 Jul 2007 15:50:00 EST. Please see our terms for use of feeds.

Ratings agencies have tremendous power in the financial markets because their ratings determine if a certain credit is "own-able" by funds, depending on their covenants. For example, low-risk pension funds can't own poorly graded credit simply because it increases the likelihood of losing money. When ratings agencies change their position on companies or sectors, the market listens. A perfect example of this was the recent subprime fall that resulted from S&P announcing it could downgrade some of the credit from the group.

Now the opposite has occurred -- Fitch announced that it has positive outlook for Doral Financial Corp. (NYSE: DRL). Fitch justified its optimistic outlook for Doral by mentioning the company's sale of a 90% stake in the company to Bear Stearns (NYSE: BSC) Merchant Banking, among other things.

Even though this upgrade was on the company's debt, the stock traded up as well. I think Doral is too speculative to play with, and the future of this company, especially the stock, is extremely up in the air at this point.

Fitch upgrade sends Doral flying originally appeared on BloggingStocks on Sat, 21 Jul 2007 09:40:00 EST. Please see our terms for use of feeds.

Traditionally, private equity firms have focused on brick-and-mortar companies. The targets are often underperforming - yet have strong cash flows and stable contracts.

But, recently, private equity firms have moved to tech companies. And some of the deals have been huge, such as the $17.6 billion buyout of Freescale Semiconductor, Inc. (NYSE:FSL) and the $11.4 billion Sungard buyout.

So, is this the beginning of a major trend?

The answer is "no" from a top credit analysis firm, Fitch Ratings.

Why?

First, tech companies are not ideal for loading-up the balance sheet with debt. That is, the free cash flow tends to be too low - or too erratic. Besides, there is "technology risk," in which a company's products can become obsolete from intense competitive forces.

Next, because of the dot-com implosion, many tech companies have already restructured operations. In other words, there is little opportunity for improvement that a private equity can provide.

Despite all this, Fitch did find a few attractive candidates for buyouts: CA, Inc. (NYSE:CA), Convergys Corporation (NYSE:CVG) and even Dell Inc. (NASDAQ:DELL).

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

Fitch says: Tech LBOs are no big deal originally appeared on BloggingStocks on Fri, 10 Nov 2006 20:32:00 EST. Please see our terms for use of feeds.