Oppenheimer analyst Meredith Whitney -- one of the handful of people to predict the current mess -- says that allowing banks to move "toxic" mortgages off their balance sheets is only part of the solution to the current mess.

Ms. Whitney told Fortune that a "bad bank" plan would help banks improve their balances sheets but that the more serious problems would still be there: The declining economy will cause an ever-increasing percentage of good assets to go bad while simultaneously killing demand for the other services banks offer.

Continue reading Meredith Whitney tells banks to 'deal with it'

Meredith Whitney tells banks to 'deal with it' originally appeared on BloggingStocks on Sat, 31 Jan 2009 17:10:00 EST. Please see our terms for use of feeds.

Last month, I posted on 2008's eight worst ideas. At the top of my list was deregulation. Robert Rubin, who spent a decade as a director of Citigroup (NYSE: C) and is now retiring, is partly responsible for one very important act of deregulation -- the repeal of Glass-Steagall which separated investment and commercial banking. (It was former Citi CEO Sandy Weill's 1998 merger of his Travelers with Citi that spurred Glass-Steagall's repeal in the 1999 passage of the Gramm-Leach-Bliley Act which allowed commercial and investment banks to own each other.)

And by bringing down that barrier -- established in the wake of the stock market manipulations of the 1920s enabled by commercial banks that made margin loans to trade stocks -- the U.S. helped usher in the current financial catastrophe. Now the government is gradually reimposing Glass-Steagall -- in effect, if not in law.

Rubin was well rewarded for his decade of "service" to Citi -- taking in $126 million and being paid as an employee while claiming to be a mere advisor. But for that measly sum, Rubin's reputation -- which was at its zenith following his tenure as Treasury Secretary in the 1990s -- is shredded. It probably didn't help that since he joined Citi's board in October 1999, its stock has fallen 82% -- destroying $164 billion in stock market value. Meanwhile, the empire that Weill ushered in -- based on the idea that people wanted to buy all their financial services from one provider -- is being dismantled.

Continue reading As Rubin departs Citi, deregulation gets a spike through its heart

As Rubin departs Citi, deregulation gets a spike through its heart originally appeared on BloggingStocks on Sat, 10 Jan 2009 08:40:00 EST. Please see our terms for use of feeds.

A strange piece of news made it out just as the market closed yesterday, Citigroup (NYSE: C) is considering a joint venture to put its brokerage unit, Smith Barney, together with the similar unit from Morgan Stanley (NYSE: MS).

According to The Wall Street Journal (subscription required), "Uniting the brokerage units of Citigroup and Morgan Stanley would represent another dramatic turn in the reshaping of Wall Street since the credit crisis erupted in 2007." Citi may be under pressure from the federal government to do a deal to monetize some of the bank's assets.

The possible deal raises two questions. The first is how does Citi benefit from the arrangement? The answer is that it may not benefit at all. One of the rumors related to the deal is that Morgan Stanley would pay Citi over a billion dollars to own the majority of the joint venture, but if that is true, why is Citi simply not selling the entire division?

The other relevant issue is why this action was not taken months ago, if not with Morgan Stanley then with another financial firm? The answer may be that Morgan was having trouble of its own, but there were banks in Japan and China that may well have been purchasers.

Vikram Pandit, Citi's CEO, has proven something about himself: he is remarkably slow to act. The value of Smith Barney has certain come down over the past year. He is getting cents on the dollar for a valuable asset.

Douglas A. McIntyre

A joint venture between Citigroup (C) and Morgan Stanley (MS)? originally appeared on BloggingStocks on Sat, 10 Jan 2009 05:08:00 EST. Please see our terms for use of feeds.

Closing Bell: Unemployment figures come in worse than expected originally appeared on BloggingStocks on Fri, 09 Jan 2009 16:05:00 EST. Please see our terms for use of feeds.

This post is part of AOL Money & Finance's Best & Worst in Money 2008 feature.

There have been big hopes for all the nominees in this category at one time or another, but they've also suffered from questionable management moves of various sorts. So what's to root for in any of these companies?

Circuit City was founded in 1949; back then it was known as Wards Company. The big-box format and Circuit City name came as the result of a series of retail experiments, and became official in 1984. The company was listed on the New York Stock Exchange in the same year. In 1991, the company established a bank to operate its private-label credit card, and later offered a co-branded Visa. Big-box used car retailer CarMax (NYSE: KMX) was also owned by Circuit City at one point. In 2005, the company's board rejected a buyout offer; the company was worth a reported $1 billion then. The next year, Philip J. Schoonover became chairman, and ... well, the rest is history. Circuit City is now in Chapter 11.

Citigroup (NYSE: C) was formed in 1998 from one of the largest mergers in history: banking giant Citicorp and financial conglomerate Travelers Group. The company holds over 200 million customer accounts in more than 100 countries, and includes the investment services brands Smith Barney and Primerica. The company owns prominent, renowned buildings in Manhattan and Chicago, and also won naming rights to the new ball park of the New York Mets. But it was the subprime mortgage crisis that was Citigroup's undoing, resulting in the need for the recent federal bailout.

Continue reading Best & Worst in Money 2008: Struggling company we're rooting for most

Best & Worst in Money 2008: Struggling company we're rooting for most originally appeared on BloggingStocks on Fri, 05 Dec 2008 10:40:00 EST. Please see our terms for use of feeds.

The Independent reports that Citigroup's (NYSE: C) Smith Barney took the $100,000 entrusted to it by a 76-year old mother and put it in now-illiquid Auction Rate Securities (ARS) -- bonds whose interest rates are supposed to reset in weekly auctions -- without her understanding. After she died earlier this year, her son discovered that what she had told him was "in an easy-to-sell money market fund" was in fact frozen in ARSs.

Since February, when I first posted on the $330 billion ARS market, a forum has gathered with 3,924 comments from people who have much of their savings frozen. This widow, like many of the people who comment there, had their money moved into ARSs without their knowledge or with the assurance that the money would be safe and would offer a higher than average return. One key question: Did ARS purchasers receive prospectuses or know of their risks?

But last year, an accounting rule change caused demand for ARSs to evaporate since companies could no longer account for them on their balance sheets as "cash equivalents." So the banks started to bid on the auctions themselves to keep the market going. But thanks to the credit crunch, banks no longer had sufficient capital to prop up the market. So the auctions failed and thousands of people, like this widow, have found that they can't get their money.

Continue reading Smith Barney reportedly wipes out 76-year old mother's $100,000

Smith Barney reportedly wipes out 76-year old mother's $100,000 originally appeared on BloggingStocks on Tue, 20 May 2008 09:07:00 EST. Please see our terms for use of feeds.

With Citigroup's (NYSE: C) quarterly report, many investors hoped that the bank had gotten most of its bad news out. It wrote off a great deal of its mortgaged-backed inventory and LBO-debt. The firm also said it would fire 9,000 people. That number will likely rise. Citi has pledged that it will cut nearly 20% of its total operating costs.

Some of the gloom around the stock lifted. It traded over $25. It was as low as $17.99 recently.

But, many still view the future of Citi as grim. In an odd way, the quarterly report showed the bank as weaker than investors thought. According to Bloomberg, "The writedowns burned through much of the $30 billion of capital Citigroup has raised since late last year, leaving it vulnerable to further charges and loan-loss provisions." In other words, the bank may have to raise more money, or sell one of its successful divisions. Smith Barney often comes up in that conversation.

Or, if matters get worse quickly and there is not ready capital to bail out the bank, it could still be dismantled in a fire sale. Whether the Fed would turn to JP Morgan (NYSE: JPM) or Goldman Sachs (NYSE: GS) to buy Citi and handle the decisions of which parts must go or whether the firm's board would do it, the alternatives would ruin one of the world's largest financial companies. But, it did get into the mess all on its own.

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

Many analysts see Citigroup as still troubled originally appeared on BloggingStocks on Sat, 19 Apr 2008 14:10:00 EST. Please see our terms for use of feeds.

Research in Motion (NASDAQ: RIMM) closed at $104.30 Thursday.

RIMM will report Q3 EPS on December 20, 2007. Smith Barney says: "RIMM continues to be our top North American handset pick." International CES will be held January 7-10 in Las Vegas. RIMM December 103 straddle is priced at $12.35. RIMM January option implied volatility of 78 is above its 26-week average of 53 according to Track Data, suggesting larger risk.

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

Options update 12-14-07: RIMM option prices aggressive into EPS originally appeared on BloggingStocks on Fri, 14 Dec 2007 10:22:00 EST. Please see our terms for use of feeds.

Honeywell (NYSE: HON) is hosting its 2008 guidance announcement on December 13. Alex Brown says, "We expect a bullish outlook from HON." HON overall option implied volatility of 28 is near its 26-week average of 27 according to Track Data, suggesting non-directional risk.

United Technologies (NYSE: UTX) is hosting its 2008 outlook meeting on Thursday, December 13. Smith Barney says, "Buy UTX; Sell BA - Use any strength in BA's stock to switch to UTX." UTX overall option implied volatility of 24 is near its 26-week average according to Track Data, suggesting non-directional risk.

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

Option update 12-10-07: Honeywell, United Tech volatility flat into outlook originally appeared on BloggingStocks on Mon, 10 Dec 2007 10:06:00 EST. Please see our terms for use of feeds.

Dell (NASDAQ: DELL) is expected to announce Q3 EPS of 35c on November 29 according to Thomson First Call.

Smith Barney says: "Reiterate Buy - we continue to believe that CY08 consensus EPS underestimates that positive impact of retail expansion, headcount reductions and share repurchase."

DELL December option implied volatility of 45 is above its 26-week average of 28 according to Track Data, indicating larger price fluctuations.

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

Option update: Dell volatility elevated into earnings originally appeared on BloggingStocks on Wed, 28 Nov 2007 10:26:00 EST. Please see our terms for use of feeds.

Charles Schwab (NASDAQ: SCHW) has a market cap of more than $27 billion. Merrill Lynch's (NYSE: MER) is only $48 billion. That does not put much value on all of the Merrill businesses beyond its individual investor brokerage network. Because of metrics like that, there is speculation that both Merrill and Citigroup (NYSE: C), which owns Smith Barney, might do partial IPOs of their brokerage operations. It could do something for the shareholders of the companies. The institutional trading units of the big financial houses are dragging their value down. The mortgage-backed securities problems could keep it that way for some time.

"It is an obvious thing for them to do. The shares in the brokerage business would be much more highly rated than the parent's stock," one banker told the Financial Times.

The move could also give brokers who work at the private client groups a reason to stay. Any stock options they might get in their parents are probably not worth much. Offering a cut of a new public company could be a strong magnet for holding brokers.

The other benefit of such a move, especially at Merrill, is that the senior management of the brokerage unit feel that it is under-represented in the executive suite where most of the top brass come from trading and banking. Giving them a chance to run their own public company might fix that.

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

Merrill and Citigroup may spin-out brokerage units originally appeared on BloggingStocks on Sat, 17 Nov 2007 12:10:00 EST. Please see our terms for use of feeds.

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.

International Business Machines Corp (NYSE: IBM) volatility elevated after Sharp two-day sell off after Cisco Systems, Inc. (NASDAQ: CSCO) outlook:

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.

Option update 11-9-07: Citigroup and IBM Volatility Up on sell off originally appeared on BloggingStocks on Fri, 09 Nov 2007 16:24:00 EST. Please see our terms for use of feeds.

BEA Systems

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

Option update: BEAS options suggest buyout deal in early 2008 originally appeared on BloggingStocks on Mon, 29 Oct 2007 13:04:00 EST. Please see our terms for use of feeds.

AIG (NYSE: AIG) is recently down $0.56 to $63.28. Smith Barney says, "AIG has yet to provide investors with an earnings release date for 3Q '07 results. In the wake of the subprime meltdown, investors are eager to asses the fate of AIG's $29 billion of subprime mortgage exposure and its credit guaranty business." AIG call option volume of 13,468 contracts compares to put volume of 36,042 contracts. AIG November option implied volatility of 44 is above a level of 33 from last night and above its 26-week average of 22 according to Track Data, suggest larger near term risk.

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

Option update 10-25-07: AIG puts up on subprime concern originally appeared on BloggingStocks on Thu, 25 Oct 2007 13:27:00 EST. Please see our terms for use of feeds.

National City (NYSE: NCC) volatility Elevated; NCC sells off on EPS & loan exposure. NCC reported 3rd quarter 2007 net income of $106 million, or 18 cents per diluted share. Goldman Sachs says "turning NCC around is going to take time. Mortgage contributions are likely to remain depressed, while credit will remain an issue." NCC has a current dividend yield of 7.34%. NCC November option implied volatility of 45 is above its 26-week average of 31 according to Track Data, suggesting larger price fluctuations.

Fifth Third Bancorp (NASDAQ: FITB) volatility Elevated as FITB near 10-year low. FITB, headquartered in Cincinnati, is recently down $0.99 to $28.99. Smith Barney says "while FITB was going through its regulatory issues, it tried to offset by taking on more rate risk. One of our concerns has been that it was also taking more credit risk." FITB November option implied volatility of 38 is above its 26-week average of 27 according to Track Data, suggesting larger price risks.

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

Option update 10-24-07: National City, Fifth Third Bancorp volatility up originally appeared on BloggingStocks on Wed, 24 Oct 2007 12:57:00 EST. Please see our terms for use of feeds.

Research in Motion (NASDAQ: RIMM) closed at a record high of $124.52.

• RIMM and Alcatel-Lucent (NYSE: ALU) announced an agreement to distribute BlackBerry handsets in China.
  
• Smith Barney says: "We continue to believe RIMM's stock price appreciation is fundamental. We reiterate our Buy rating on RIMM."
  
• RIMM November option implied volatility of 59 is above its 26-week average of 48 according to Track Data, suggesting larger risk.

Countrywide Financial (NYSE: CFC), a U.S. home mortgage lender, closed at $15.05.

• CFC is expected to report EPS on 10/26.
  
• CFC November option implied volatility of 103 is above its 26-week average of 61 according to Track Data, suggesting larger risk.

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

Option update 10-24-07: RIMM shares at record high; CFC at 4-year low originally appeared on BloggingStocks on Wed, 24 Oct 2007 09:19:00 EST. Please see our terms for use of feeds.

Office Depot, Inc. (NYSE: ODP) had 1,186 retail stores in North America and another 369 stores owned, licensed or franchised in other parts of the world as of June 30th.

Smith Barney says "shares of ODP appear undervalued but few data points loom in the next quarter or two to drive them higher." ODP is expected to report earnings per share (EPS) in late October. ODP January option implied volatility of 43 is above its 26-week average of 33 according to Track Data, suggesting larger price fluctuations.

Baker Hughes Incorporated (NYSE: BHI) is engaged in the oilfield service sector. BHI recently up $1.01 to $92.12.

BHI has a market cap of $29.5 billion with long term debt of $1 billion. BHI is expected to report EPS on October 26th. BHI reported on October 8th its September rig count rose to 1,032 from 1,009 in August 2007. BHI November 95 calls have traded 59 times on contract volume 2,878 contracts, above its open interest of 834 contracts. BHI November 100 calls have traded 170 times on contract volume 18,641 contracts above its open interest of 480 contracts. BHI November option implied volatility of 34 is near its 26-week average of 30 according to Track Data, suggesting slightly larger risk.

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

Option update 10-9-07: Office Depot volatility Up; Baker Hughes calls active originally appeared on BloggingStocks on Tue, 09 Oct 2007 16:39:00 EST. Please see our terms for use of feeds.

Google Inc. (NASDAQ: GOOG) recently trading up $15.29 to $609.20.

GOOG is expected to report earnings per share (EPS) on October 18th. GOOG October at the money 580 straddle is priced at $32.10. GOOG October option implied volatility of 38 is above its 26-week average of 27 according to Track Data, suggesting larger risk.

The Gap Inc. (NYSE: GPS) CEO Glenn Murphy hosted a meeting with analysts on October 5th.

Smith Barney says "Mr. Murphy is focused on making the company gets an adequate return on its investments. This includes a focus on the expense of the business. We suspect there will be continued focus on moderating the cost structure and assessing various cost components, including marketing. We think the real estate portfolio is under review." GPS over all option implied volatility of 31 is near its 26-week average according to Track Data, suggesting flat price risk.

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

Option update: GOOG straddle suggests risk into earnings per share as GOOG at record originally appeared on BloggingStocks on Mon, 08 Oct 2007 16:15:00 EST. Please see our terms for use of feeds.

Research in Motion (NASDAQ: RIMM) is recently up $9.14 to $109.64.

• Morgan Keegan says: "Trends still very strong; raising fiscal 2009E EPS to $2.98."
  
• RIMM is expected to report EPS after the close tonight.
  
• RIMM total option volume is heavy on 191,243 contracts trading. RIMM October option implied volatility of 49 is below a level of 87 from last night prior to EPS. RIMM average option implied volatility over the last 26-weeks is 44 according to Track Data.

SanDisk (NASDAQ: SNDK) a supplier of flash data storage card products, is recently down $0.76 to $52.43.

• SNDK is expected to report EPS on 10/18.
  
• Smith Barney-SBSH has a $71 price target on SNDK. SBSH said on 10/4 "contract pricing a negative, new products a partial offset."
  
• SNDK October option implied volatility is at 64, November is at 52, above its 26-week average of 44 according to Track Data, suggesting larger near term price risks.

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

Option update: Research in Motion (RIMM) volatility collapses as shares rally originally appeared on BloggingStocks on Fri, 05 Oct 2007 12:50:00 EST. Please see our terms for use of feeds.

Baidu (NASDAQ: BIDU) volatility flat on reports of BIDU TV.

www.Baidu.com, a Chinese language internet search provider, closed at $203.21. SBSH has a $250 price target on BIDU. Smith Barney says that "according to article on www.Tech163.com and it www.sohu.com, BIDU has started to test its BIDU TV advertising display on its union sites on 8/21." BIDU September option implied volatility of 50 is near its 26-week average according to Track Data, suggesting non-directional risks.

SINA Corp (NASDAQ: SINA) option implied volatility flat at 42.

www.SINA.com, a leading online media company and value added information service provider for Chinese communities, closed at $40.30. CIBC World said on 8/7 "SINA maintains a solid market leadership position in branded advertising, supported by stable traffic growth and solid relationships with larger advertisers." SINA overall option implied volatility of 42 is above its 26-week average of 39 according to Track Data, suggesting non-directional risk.

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

Option update: Baidu (BIDU) volatility flat on reports of BIDU TV originally appeared on BloggingStocks on Fri, 24 Aug 2007 09:55:00 EST. Please see our terms for use of feeds.