• Jimmy Cayne Cashes Out
    Posted by on March 28th, 2008 at 9:39 am

    Jimmy Cayne dumps all of his Bear Stearns (BSC) stock.

    Only a year ago James E. Cayne’s stake in Bear Stearns was worth more than $1 billion. But on Thursday, Mr. Cayne, the chairman of Bear, disclosed that he had sold all of his shares in the troubled investment bank this week for just $61 million.
    While the sale leaves Mr. Cayne a wealthy man, it nonetheless underscores the deep losses suffered by Bear’s shareholders after the company’s forced sale to JPMorgan Chase two weeks ago.
    And for Mr. Cayne, the liquidation evokes a deep sense of loss. It represents a humiliating capitulation for a brash executive who, with his ever-present cigar, suspender-snapping ways and Friday golf outings in the summer, epitomized the classic, if outdated, picture of the Wall Street chieftain.
    To the end, Mr. Cayne heeded the advice he often gave his colleagues at Bear: hold on to your stock. Whether the stock was flying high, as it was early last year, at $171, or plummeting, as it did in recent months, Mr. Cayne kept the vast bulk of his 5.6 million shares.

  • Goodbye Moto
    Posted by on March 26th, 2008 at 10:27 am

    Instead of one big sucky company, we’ll now have two!

    Motorola said Wednesday that it would split itself into two publicly traded companies as it struggles to boost its stock price and faces pressure from activist investor Carl C. Icahn.
    Motorola said in a statement that it would separate its flagging cellphone unit from its broadband and mobility operations, which encompasses the servicing of wireless networks and the building of television set-top boxes. Motorola shareholders would receive stock in both companies.
    “Creating two industry-leading companies will provide improved flexibility, more tailored capital structures, and increased management focus – as well as more targeted investment opportunities for our shareholders,” Gregory Q. Brown, Motorola’s chief executive, said in a statement.
    Motorola said in January that it was considering a break-up as its stock has plunged 45 percent over the past year. Despite the success of its Razr cellphone, Motorola has lost market share to rivals like Nokia, Samsung and Apple.
    It has also faced increasing pressure from Mr. Icahn, its second-largest shareholder. The activist investor recently sued Motorola to gain access to documents related to its board’s discussions about its cellphone business.
    Mr. Icahn, who holds about 6.3 percent of Motorola shares, is also seeking four seats on the company’s board.

    This makes some sense as the company’s stock has also split itself in two. I really don’t see the value of doing this. I’m always suspicious of the phrase “unlocking shareholder value.” The problem is, there has to be shareholder value in the first place that can be unlocked.
    One of the reasons for the breakup, given by CEO Gregory Brown, was that the two separate units would benefit from increased focus from management. Why couldn’t they effectively manage both?

  • Goldman: $460 Billion More in Credit Losses
    Posted by on March 26th, 2008 at 9:34 am

    From Bloomberg:

    Wall Street banks, brokerages, and hedge funds may report $460 billion in credit losses from the collapse of the subprime mortgage market, or almost four times the amount already disclosed, according to Goldman Sachs Group Inc. Profits will continue to wane, other analysts said.
    “There is light at the end of the tunnel, but it is still rather dim,” Goldman analysts including New York-based Andrew Tilton said in a note to investors yesterday. They estimated that residential mortgage losses will account for half the total and commercial mortgages for as much as 20 percent.
    Earnings and share prices at US financial institutions tumbled in the past year as fallout from the mortgage crisis spread to other markets. Demand for mortgage-backed securities evaporated, leading to the collapse of Bear Stearns Cos., once that market’s largest underwriter, and a Federal Reserve-led bailout by JPMorgan Chase & Co. this month.

  • Federal Reserve Announces Emergency Release Of Butterflies
    Posted by on March 26th, 2008 at 6:56 am

    The Onion Radio News is on the scene.

  • JPMorgan Sweetens the Pot
    Posted by on March 25th, 2008 at 12:55 pm

    I won’t say I predicted it, but I did, in fact, predict it.
    Yesterday, JPMorgan Chase (JPM) announced that it will increase its bid for Bear Stearns (BSC) from $2 a share to $10 a share.
    Last Wednesday, I wrote.

    I would say that the most likely outcome is that JP Morgan will sweeten the offer. To add some context, it’s really not that much for JPM. The company’s market value has already increased by $20 billion this week. The offer for Bear will cost JPM $236 million. What’s the big deal if it doubles or even triples the offer? Plus, it could win JPM some goodwill.

    Actually, they quintupled it. Before you go thinking that a newfound spirit of generosity and altruism has broken out on Wall Street, I should remind you that self-interest may be playing a part.
    That $20 billion figure I mentioned was on Wednesday morning. By the end of the week, shares of JPM tacked on 25.8% which is an increase of $32 billion. I swear, Jamie Dimon must be some sort of financial Jedi. How did he pull this off? That $32 billion is far more than Bear was ever worth.
    At any rate, even after raising its bit, JPMorgan is really just kicking a couple of pennies Bear’s way.
    John Carney at DealBreaker said the real reason for the sweetened bid was to hold off a potential second run at Bear. That could be. Either way, JPMorgan Chase basically got one of the best deals imaginable. This will go down in Wall Street annals as a legendary deal.
    Think of it this way, thanks to the folks at the Federal Reserve, this was the most harmonious cooperation between the public sector and free enterprise since Eliot Spitzer and Kristen (or was it Ashley?). Except now, the roles are reversed.
    In the end, the Bear Stearns was done in by questionable liquidity. Unfortunately, the liquid in question was Kool-Aid and there was plenty to go around. Bear’s mismangement is simply staggering. While the deal was being worked out, Jimmy Cayne, Bear’s chairman, was at a bridge tournament in Detroit.
    What’s scary is, this wasn’t the first time. Over the summer, when two of Bear’s hedge funds rammed the iceberg, Cayne, who was then CEO, was at a bridge tournament in Nashville. Not only that, but according to the Wall Street Journal, he was “without a cellphone or an email device.”
    Sheesh. How does that happen?
    (Less importantly, there are bridge tournaments in Nashville??)
    The WSJ article also noted: “Attendees say Mr. Cayne has sometimes smoked marijuana at the end of the day during bridge tournaments. He also has used pot in more private settings, according to people who say they witnessed him doing so or participated with him.”
    Thank you, Rupert. Now that’s reporting! So while Bear’s stock was making new lows, management was making new highs. Not surprisingly, BSC shareholders aren’t too pleased with their shares vaporizing into thin air. On Sunday, The New York Post reported, “Cayne’s armed hulk of a bodyguard trailed him everywhere and parked himself outside Cayne’s office all day, sources said.”
    How much you want to bet that that source owns more than a few shares of BSC? Also, at what point, exactly, did the world of high finance start taking the form of the movie My Bodyguard? This can’t be a good development.
    Ironically, 101 years ago, J.P. Morgan, the man, helped bailout the financial system during the Panic of 1907. It was at this time that people realize that it might not be a great idea to have our entire financial system dependent on one man. So, to make a long story short, Congress eventually passed the Federal Reserve Act of 1913.
    Which leads us to last Tuesday. That’s when the Federal Reserve lowered interest rates by 75 basis points to just 2.25%. All told, rates have dropped by 300 points in just over six months. Until recently, Treasury Inflation Protected Securities (or TIPS) maturing as late at 2012 carried a negative yield.
    What I find interesting is that the financial media refuses to discuss the possibility of a bond bubble. Everyone assumes the bond market is correct—it never suffers from exuberance, rational or otherwise. Another interesting note is that this Fed decision was the first time since 2001 that there were two dissenting votes.
    Nevertheless, the market roared its approval and surged—perhaps in homage to Mr. Cayne—420 points. The two best days of the past five years came exactly one week apart.
    The course of events has probably left you feeling a bit rattled. That’s understandable. Standard & Poor’s recently said that the stock market’s volatility has reached its greatest point in 70 years. At one point last week, the yield on the three-month T-bill hit 0.2%.
    But I should remind you that times like these are often great buying opportunities. Since 1950, the entire capital gain of the S&P 500 has come when the yield spread between the three-month and the 10-year Treasury is over 65 basis points. Today, that spread is over 230 basis points.
    Not every stock is reeling from the credit crises. Many of the best companies aren’t overly leveraged and they see a bright year ahead. A great example is Donaldson (DCI) of Minneapolis, Minn.
    I have to warn you, Donaldson is about as dull as they come. The company makes…hold on to something…filtration systems! Woo!
    Yeah, I know, it’s pretty boring. But consider a few facts. Donaldson has reported record earnings for 18 straight years. Does that grab your attention?
    Last month, the company reported earnings of 42 cents a share, which was in line with the Street’s consensus. That was for the second quarter of their fiscal year, so for the first half, sales were up 14% and EPS was up 17%. That kinda beats the 0.2% from T-bills.
    On top of that, Donaldson increased its 2008 projection to $2 to $2.10 a share. That’s higher than what they first projected in November when they forecast $1.97 to $2.07. Not only that, this is actually the second time Donaldson has increased its projection. In September, the company expected EPS of $1.92 to $2.01.
    Always pay attention when companies warn or increase estimates. They’re a lot like cockroaches: For every one you see, there are five more scurrying around the woodworks.
    This credit crisis, too, shall pass. Ten years ago, when the financial system was heading for the cliffs, frightened investors left high-quality stocks. Shares of Donaldson dropped in half. But the stock is up over five-fold since.

  • Bove: Bear Will End Up Costing JPM $65 a Share
    Posted by on March 25th, 2008 at 10:04 am

    Richard Bove said that when you add it all up, Bear will eventually cost JPMorgan Chase $65 a share.

    While some may think that JPMorgan is getting Bear Stearns at a bargain price, “I do not,” Bove said in a note to clients. “Bear Stearns is a deeply troubled company which would have no value if the Federal Reserve had not stepped in to bail it out.”
    JPMorgan does not need Bear Stearns mortgage operation, has a “much stronger investment banking business,” and the Bear Stearns New York headquarters is “just another piece of Manhattan real estate that it must rid itself of,” Bove said.
    While JPMorgan Chase may want Bear Stearns’ prime brokerage business, it is likely that the unit’s best customers have already left for Goldman Sachs, he said.
    Bove currently has a “Market Perform” rating and $44 price target on JPMorgan Chase. The target implies he expects shares to drop about 6 percent over Monday’s $46.55 close.
    “What is most disturbing about this deal is that it uses a great deal of Morgan capital to buy a company that is losing market share, in a series of businesses that are declining in size, with a top management team that is best described as sclerotic,” he said.

  • Pot Takes Out Ad on Kettle
    Posted by on March 24th, 2008 at 8:14 am

    Fox Business Network has taken out a big ad in the NYT and WSJ to question Cramer’s credibility over his Bear Stearns call. Here’s the PDF.
    (Via: The Stalwart)

  • Boozing British Bankers
    Posted by on March 21st, 2008 at 10:16 am

    The Independent is on the scene:

    Rumour-mongering and rogue traders; buy-outs and bonus cuts: it’s been quite a week for bankers. And, yesterday, as drizzle fell and storm clouds gathered over the capital, the pub was the only place the nervous denizens of Canary Wharf wanted to be.
    They emerged from their offices, loosening their ties, to toast a long Easter weekend which, regardless of the turmoil which preceded it, will at least bring respite to anxiety. “We are meant to be at work but we’ve come here for some solace,” a group of Lehman analysts said.
    Lunchtime had just begun but they, along with many other suited drinkers, were on their fourth round of beers at the packed All Bar One branch under Reuters’ FTSE-100 ticker.

    Well done, lads. Well done.

  • JPMorgan offers Bear Stearns staff bonuses
    Posted by on March 21st, 2008 at 7:59 am

    Reuters reports:

    JPMorgan Chase & Co is offering bankers at Bear Stearns Cos bonuses to stay and support the controversial takeover, a person familiar with the situation said on Thursday.
    JPMorgan Chief Executive Jamie Dimon met with hundreds of Bear Stearns executives late Wednesday, his first meeting with bank employees since the takeover was agreed to on Sunday.
    At the meeting, Dimon, aiming to head off an exodus of Bear Stearns staff, proposed incentives to bank employees who stay and support the deal. He also expressed confidence that the deal would be completed as proposed, said the source, who was briefed on the meeting and is familiar with JPMorgan’s thinking.
    Employees who are offered jobs by JPMorgan would receive a bonus that includes JPMorgan shares. Employees who are not offered jobs will receive at least a cash bonus of about 30 percent of their 2007 compensation if they stay through the completion of the deal, the source said.
    It is unclear whether Bear Stearns employees, who own about 30 percent of the firm, were swayed by the offer.

    Well, allow me to clear it up—yes, they were swayed. The only question now is how much.
    The most important number to consider in this deal is that JPM’s stock is up 25.8% this week. That’s an increase of $32 freakin billion, which is far more than Bear was ever worth. The BSC folks don’t want to hold on to their stock, they want JPM’s.

  • Why Is the Stock Market Closed for Good Friday?
    Posted by on March 21st, 2008 at 7:39 am

    Today is Good Friday and the stock market is closed. I have no idea why this is since most of the rest of the country is open for business. I live in Washington, DC and the Feds will shut down for practically anything. But not today—it’s only Wall Street.
    When I got my first job as a broker, I remember my branch manager saying that it was some sort of ancient inter-confessional deal to have one Friday off for the Easter/Passover season. That could be right but I’ve never found anything to back it up. Today, however, a closed market on Good Friday is more likely so traders can follow their brackets without interruption.
    (By the way, there’s some doctoral dissertation waiting to written on the effect of fantasy sports on finance. Every trader I’ve ever known has had several fantasy football or baseball teams going. Wall Street is quite good at alternate reality; real reality is still a bit iffy.)
    The stock exchange closed for two hours in honor of the death of J.P. Morgan (the man, not the stock—that’s doing fine, thank you very much).
    The stock exchange used to have a brief Saturday session that was discontinued in 1952. Interestingly, the Saturday sessions have nearly been erased from history. If you look at many data files, like the Dow or S&P historical data at Yahoo Finance, the Saturday sessions aren’t there.
    Poor Saturday, it’s gone down the memory hold.