Private equity giant KKR & Co. (NYSE: KFN) posted a $1.2 billion loss last year -- compared to pretax net income of $815 million the year before. This is KKR's first loss in at least five years.

Bloomberg pins the blame on a drop-off in leveraged buyout transactions. A $1.4 trillion market in 2006 and 2007, only $212 billion was spent on takeovers last year, which was bound to put a dent in KKR's top and bottom lines.

Continue reading KKR posts $1.2 billion loss on LBO market fall

KKR posts $1.2 billion loss on LBO market fall originally appeared on BloggingStocks on Mon, 01 Jun 2009 07:00:00 EST. Please see our terms for use of feeds.

Citigroup (NYSE: C) has decided to take a chance that most other banks have avoided. It will become more aggressive in making mortgage and consumer loans. According to the AP, "Citigroup plans to use some $36.5 billion of its U.S. government capital infusion for new mortgages, credit card loans and to buy mortgage-backed securities in the coming months."

What Citi is not likely to say is whether the government twisted its arm to get the lending going. There has been criticism from a number of politicians that Citi and other large banks are getting bail-out money but have been keeping that capital to help their balance sheets.

Continue reading Citgroup (C) takes a gamble on more lending

Citgroup (C) takes a gamble on more lending originally appeared on BloggingStocks on Tue, 03 Feb 2009 04:11:00 EST. Please see our terms for use of feeds.

The Blackstone Group L.P.'s (NYSE: BX) stock is down from about $25 to under $10 during the last 52-weeks. No wonder. It does deals like buying Hilton Hotels According to The Wall Street Journal, "The $26 billion leveraged buyout of Hilton Hotels Corp., with its 2,900 hotels and 490,000 rooms throughout the world."

Travel is likely to be way, way down during the recession.

But, the news has broader implications than that. Most LBOs are done with heavy debt, usually borrowed from major banks. Often that debt carries high interest rates to account for risk. In a slowing economy, a lot of that debt will default. Companies which were taken private will end up in Chapter 11, especially those which depend heavily on consumer spending.

That brings the issue around to bank earnings in 2009. While write-offs for mortgage-backed paper may be improving somewhat, a wave of LBO defaults are likely to hit money center banks hard. More losses, more need for capital.

The Treasury may not be done handing out money yet. Another wave of trouble for banks is just around the corner.

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

More proof of low IQs at private equity firms originally appeared on BloggingStocks on Wed, 05 Nov 2008 17:10:00 EST. Please see our terms for use of feeds.

MAJOR PAPERS:

• The Wall Street Journal's "Smartmoney Stock Screen" looks at eight companies whose valuations make them ripe to buy, and they also may be in the sites of corporate buyers. The big eight include Asbury Automotive Group Inc (NYSE: ABG), Crane Company (NYSE: CR), Scholastic Corporation (NASDAQ: SCHL) and The Scotts Miracle-Gro Company (NYSE: SMG).
• The Wall Street Journal's Walter Mossberg said in the "Personal Technology" column that he cannot recommend Apple Inc's (NASDAQ: AAPL) MobileMe, as it has "too many flaws to keep its promises".
• The Wall Street Journal also speculated that the collapse this week of SemGroup LP, which is the parent of SemGroup Energy Partners LP (NASDAQ: SGLP), may have played a role in the 14% drop in crude oil over the past 10 days.
• In a move that could take advantage of the gap in the financing markets, The Goldman Sachs Group Inc (NYSE: GS) raised $10B to invest in loans backing leveraged buyouts. The fund will reportedly buy senior loans, the Financial Times reported.

• Former American International Group Inc (NYSE: AIG) chief Hank Greenberg is reportedly in settlement talks with New York Attorney General Andrew Cuomo over charges that Greenberg improperly inflated corporate books to show improved profits, the New York Post said.

Newspaper wrap-up: Stocks to buy that might also be taken over originally appeared on BloggingStocks on Thu, 24 Jul 2008 08:35:00 EST. Please see our terms for use of feeds.

Like water-torture, the drip, drip, drip of bad news out of Wall Street keeps coming. According to a report in The Wall Street Journal, Merrill Lynch (NYSE: MER) will report mortgage securities write-offs of another $6 billion to $8 billion, raising the question whether the firm will have to bring in more money by selling shares..

The newspaper reports that "The latest would bring its total since October to more than $30 billion and mean that Merrill reports a third straight quarterly net loss." Merrill compounded its problems by getting further into the CDO markets as 2007 went on.

While some experts believe that the worst is behind big banks and brokerages, that may not be true. The paper based on mortgages still carries risk as the housing market continues to fall.

Statements from Wall Street firms about a near-term recovery is a victory of hope over reason. The truth of the matter is that they have no idea how much more the economy will slide. That raises the question of whether home equity loans, credit card debt, and auto loans will begin to fail at a faster rate. There are securities held by banks based on pools of all of this debt. The value of LBO debt could also continue to drop as business profits are squeezed by a poor economy.

The Merrill write-down is a sign of one thing and one thing only. Wall Street's numbers could get much worse and there is little reason that the economy will help them get better.

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

Merrill Lynch (MER) plans $6 billion to $8 billion in write-offs originally appeared on BloggingStocks on Wed, 16 Apr 2008 08:35:00 EST. Please see our terms for use of feeds.

AMD (NYSE: AMD) has more problems than a dog has fleas. Over the last year, AMD shares have fallen from $18.35 to $6.41. Margins have been cut by competition with larger rival Intel (NASDAQ: INTC). New products have been late to market.

Wall Street firm Caris & Co. thinks it has some solutions. According to Barron's, the firm has issued a research report that "raised several scenarios for what happens to the struggling chip maker from here."

The first suggestion is the most obvious: the company should dump CEO Hector Ruiz. The stock has fallen under his leadership. The company took on billions in debt by buying graphics chip company ATI.

The other two options are to sell the company to a large tech operation like Samsung or do an LBO. AMD does have $5 billion in debt, so going private might be hard.

There is another approach. Sell ATI. It will not bring the over $5 billion that AMD paid, but it would get the balance sheet back in shape. Get rid of Ruiz and bring in a new CEO. There is room for two chip makers in the PC and server markets, but getting into price wars with a company like Intel has to be avoided to whatever extent possible under new management.

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

How can AMD be saved? originally appeared on BloggingStocks on Tue, 15 Jan 2008 08:55:00 EST. Please see our terms for use of feeds.

Dow Chemical (NYSE: DOW), a diversified chemical company, is recently up $1.42 to $46.17 after Bloomberg confirmed DOW canceled an analyst meeting. DOW has been the frequent subject of private-equity takeover chatter and the cancellation is refueling the conjecture. DOW call option volume of 27,544 contracts compares to put volume of 5,011 contracts. DOW November option implied volatility of 36 is above a level of 28 from twenty minutes ago, according to Track Data, indicating traders positioning themselves for a higher share price.

W.R. Grace (NYSE: GRA), supplier of specialty chemicals & industrial applications, is recently up $1.12 to $30.06 on unconfirmed LBO chatter. GRA call option volume of 9,562 contracts compares to put volume of 724 contracts. GRA October 30 straddle is at $2.00. GRA November option implied volatility of 61 is above its 26-week average of 51, according to Track Data, suggesting traders are positioning themselves for a higher share price.

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

Option update 10-12-07: DOW, GRA calls active on M&A chatter originally appeared on BloggingStocks on Fri, 12 Oct 2007 16:15:00 EST. Please see our terms for use of feeds.

You may think the subprime mortgage mess is huge. Well just around the corner a larger elephant is looming and its impact may be even more devastating than the current credit crisis.

While it sounded like good news when banks sold $30 billion of loans for leveraged buyouts last week -- $26.4 billion of that was for the First Data buyout. That sale came with a big price tag -- banks agreed to sell the debt at 96 cents on the dollar, which means they locked in losses after their fees.

And then there was the problem of what to do with the other 90% of LBO loans in the pipeline.

The Wall Street Journal (subscription required) reported today that Citigroup Inc. (NYSE: C), Credit Suisse Group and J.P. Morgan Chase & Co. (NYSE: JPM) hold $400 billion in debt they promised for financing purchases private equity firms have in the works globally. If they can't sell the debt, they're left holding the bag, which means a lot less money for other loans. If the economy slows as expected and corporate profits weaken, the only way the banks will be able to unload the debt they're holding will be a fire sale on that debt at even deeper discounts then the First Data deal.

Continue reading Next debt collapse: LBO loans?

Next debt collapse: LBO loans? originally appeared on BloggingStocks on Wed, 10 Oct 2007 16:15:00 EST. Please see our terms for use of feeds.

Mutual funds finally standing up to bad LBOs originally appeared on BloggingStocks on Tue, 02 Oct 2007 18:05:00 EST. Please see our terms for use of feeds.

Chesapeake Energy Corporation (NYSE: CHK) implied volatility up on gas price movement and expected fund raising.

CHK is the largest independent and third largest overall producer of natural gas in the U.S. Bloomberg reports Natural Gas Futures are up .88% to 5.63. CHK has a market cap of $15 billion with long-term debt of $8.3 billion. CHK announced on 8/8/07 a $500 million issuance of convertible senior notes (convertible debts increases volatility). CHK filed to sell EUR $525 million in senior notes on 11/27/06. CHK filed to sell $792 million in senior notes on 12/1/06. CHK filed to sell 30 million shares in a secondary on 12/7/06. CHK October option implied volatility of 33 was above its 26-week average of 28 according to Track Data, suggesting larger price risk.

Kimberly-Clark Corporation (NYSE: KMB) implied volatility flat; KMB has low debt to equity ratio.

1.3 billion people, nearly a quarter of the world's population, use KMB brands every day. KMB is recently down 98 cents to $68.42. KMB has a market cap of $29 billion with long term debt of $3 billion. KMB reported 2006 revenue of $16.7 billion. KMB has been frequently mentioned as an LBO candidate in 2006. KMB option implied volatility of 18 was near its 26-week average according to Track Data, suggesting non-directional risks.

Daily options update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

Option update 8-30-07: Chesapeake Energy (CHK) volatility up originally appeared on BloggingStocks on Thu, 30 Aug 2007 18:16:00 EST. Please see our terms for use of feeds.

Bloomberg News reports that JPMorgan Chase & Co. (NYSE: JPM) will take a $1.4 billion charge for leveraged buy out (LBO) loans gone sour. The good news is that the charge represents only 3.4% of its LBO loans outstanding.

Interestingly enough, relative exposure to LBO loans does not seem to correlate with loss of stock market value in 2007. Here's the list of the eight biggest LBO lenders ranked by their LBO loans coupled with the percent decline in their stock market value since their 2007 highs (excluding Deutsche Bank and Credit Suisse):

• JPMorgan: $40.76 billion, -11.5%
• The Goldman Sachs Group, Inc. (NYSE: GS): $31.88 billion, -25%
• Deutsche Bank : $27.27 billion
• Credit Suisse: $27.16 billion
• Lehman Brothers Holdings, Inc. (NYSE: LEH): $21.73 billion, -32%
• Morgan Stanley (NYSE: MS): $20.08 billion, -30%
• Bank of America Corp. (NYSE: BAC): $17.84 billion, -4%
• Merrill Lynch & Co. (NYSE: MER): $16.12 billion, -22%

Continue reading JPMorgan Chase pays a modest price for LBO lending

JPMorgan Chase pays a modest price for LBO lending originally appeared on BloggingStocks on Fri, 17 Aug 2007 17:58:00 EST. Please see our terms for use of feeds.

Private equity firm TPG gets a Dell dude originally appeared on BloggingStocks on Wed, 01 Aug 2007 14:40:00 EST. Please see our terms for use of feeds.

This week's rumor round-up: Build-a-Bear to 'explore strategic alternatives' originally appeared on BloggingStocks on Fri, 29 Jun 2007 15:00:00 EST. Please see our terms for use of feeds.

This week's rumor round-up: CV Therapeutics for sale? originally appeared on BloggingStocks on Fri, 22 Jun 2007 15:45:00 EST. Please see our terms for use of feeds.

Bond spreads are tightest in nine years originally appeared on BloggingStocks on Mon, 18 Jun 2007 10:56:00 EST. Please see our terms for use of feeds.

The Monster that wouldn't be taken over. Yet. originally appeared on BloggingStocks on Thu, 14 Jun 2007 15:35:00 EST. Please see our terms for use of feeds.

Netflix Inc (NASDAQ: NFLX)

This week's rumor round-up: Will Amazon overpay for Netflix? originally appeared on BloggingStocks on Fri, 08 Jun 2007 15:00:00 EST. Please see our terms for use of feeds.

This week's rumor round-up: Lam Research close to sale? originally appeared on BloggingStocks on Fri, 25 May 2007 15:00:00 EST. Please see our terms for use of feeds.

• Crescent Real Estate Equities to be purchased by Morgan Stanley (NYSE: MS) Real Estate
• Payless ShoeSource (NYSE: PSS) to acquire Stride Rite (NYSE: SRR)
  
• Dow Jones & Co. (NYSE: DJ) controlling shareholders, the Bancroft family, meeting to review News Corp (NYSE: NWS) offer
• Sallie Mae making management changes for its take-private transaction
• Alcan Inc. (NYSE: AL) rejects Alcoa Inc.'s (NYSE: AA) $27 billion offer as inadequate
• MGM Mirage (NYSE: MGM) approach by Kirk Kerkorian's Tracinda Corp requires delicate strategy.

Buyout bubble: Getting there, but not yet originally appeared on BloggingStocks on Wed, 23 May 2007 10:53:00 EST. Please see our terms for use of feeds.

This week's rumor round-up: AMD, Circuit City in play? originally appeared on BloggingStocks on Fri, 13 Apr 2007 14:15:00 EST. Please see our terms for use of feeds.