• Behold the Power of Accounting
    Posted by on May 9th, 2006 at 9:50 am

    Here I thought GM was losing money. I mean, the company did say it lost $323 million for the first quarter. I usually don’t take those sorts of announcements lightly.
    But the great thing about GM is that if you don’t like a number on their income statement, you’re perfectly free to choose another. Go ahead. In fact you can just fill in your own! That’s exactly what GM did, and they settled on one of them “positive” numbers.
    Eighteen days after reporting a loss, GM now says that it really make $445 million for the first quarter. Why the change? Accounting, silly.

    The health-care agreement between GM and the United Auto Workers union requires the automaker to set aside $1 billion annually in 2006, 2007 and 2011 to offset increased health-costs to retired workers, according to a U.S. regulatory filing on March 31. Union retirees will pay premiums for the first time. It is part of an agreement to get a pretax health-care savings of about $3 billion a year from union workers.
    Preliminary Results
    GM had initially reported a first-quarter cost of $681 million, or $1.20 a share, for the first $1 billion payment to establish the health-care fund. GM Chief Financial Officer Fritz Henderson said at the time that the automaker was still talking to the SEC about how it should account for the payment.
    The company had said the health-care accord will help it reduce structural costs by an annualized rate of $7 billion by the end of this year, with $4 billion in savings in 2006. The automaker today increased the savings to $4.5 billion based on the accounting ruling.

    Bloomberg quotes one analyst as saying “The SEC backed off.” This, of course, has zero effect on the company’s operations, however the stock is rallying on the news.

  • The Baghdad Stock Market
    Posted by on May 9th, 2006 at 7:40 am

    It’s only open four hours a week, and there are just 100 stocks to buy, but the Baghdad Stock Exchange is open for business.

    The trading floor works the old-fashioned way — with bids taken on pieces of paper, the numbers written on a board with magic marker.
    In another unlikely twist, nearly half of the traders are young women. None of them wanted to talk to CBS News – because they were too busy.
    The stock market is being touted as one of post-war Iraq’s few success stories.
    Amazingly, one of the hottest areas of speculation is hotels and tourism. In a place like Iraq, this would surely fall into the futures category — long futures. And don’t even ask about the risk factor.
    “I buy them because they are real-estate and building on very good land, so they are cheap price, so I buy them and I wait,” says Abdul Latif, one of the traders who figures hotels are as good a place as any to try his luck.

  • 1955 Wheaties Commercial
    Posted by on May 9th, 2006 at 12:18 am

    Here’s a Wheaties commercial from 1955 featuring Duke Snider and Stan Musial. You have to pay 75 cents to see the whole thing, but you can see the first 10 seconds for free. The Wheaties boxes march past oil wells, amber waves of grain, and yes, the Arc de Triomphe.
    Enjoy.

  • Dell Warns (Again)
    Posted by on May 8th, 2006 at 5:11 pm

    Expect earnings of 33 cents a share, and sales of $14.2 billion. The Street was looking for 38 cents and $14.52 billion.

    The shortfall in earnings versus previous guidance was driven primarily by pricing decisions in the second half of the quarter that the company expects will accelerate revenue growth in the future.
    “During Q1 we continued to execute on our strategy to reinvigorate growth by making investments in our support infrastructure and product quality and by accelerating pricing adjustments,” said Kevin Rollins, Dell’s Chief Executive Officer. “We are committed to delivering industry leading value to our customers, which ultimately results in industry leading growth for the company.”

    The stock is down to $25 after hours.

  • A Case of the Mondays
    Posted by on May 8th, 2006 at 1:48 pm

    Kind of a blah day so far. Golden West (GDW) is obviously doing very well. The stock opened at $75.89, and it’s been drifting lower since. (Here’s a nice article on the Sandlers.)
    UnitedHealth (UNH) continues to sink. Ugh. The stock dipped below $45 today, hitting a new 52-week low. Medtronic (MDT) also made a new low. Large-cap health care stocks get a frowny face today.
    Watch out for Home Depot (HD). The stock has been in a trading range for nearly a year, but the earnings have been pretty good. The next earnings report comes one week from tomorrow.
    Dell (DELL) had a nice open. The stock is back above $26. The next earnings announcement comes on May 18.
    Danaher (DHR) and Expeditors (EXPD) continue to soar. I never would have guess that Expeditors would be up 60% by May. That’s the fun part of investing.
    The price of gold is pulling back slightly. Is $700 an ounce inevitable? I think it may be. The dollar dropped to an eight-month low versus the yen as it looks like the Fed is near the end of its rate hikes.

  • Criticizing the Deal
    Posted by on May 8th, 2006 at 11:17 am

    The criticism of the Wachovia/Golden West has officially begun:

    “It’s a high price, and this adds more cyclicality to their earnings stream, which always puts downward pressure on its price-earnings multiple,” said Jim Russell, director of core equity strategy at Fifth Third Asset Management in Cincinnati, which owns Wachovia shares.

    It doesn’t seem that high too me. The deal price of $81.07 is only about 15 times this year’s estimate. True, the mortgage biz is getting soft, but few banks can offer GDW’s market position. Wachovia’s shares are down about 5% this morning.

    Analysts said the purchase will dilute Wachovia’s operating earnings per share by some 2.5 percent in the first year, and increase its exposure to volatile mortgages.
    Gimme Credit analyst Kathleen Shanley wrote that the thrift’s loan portfolio, 63 percent of which is in California, “could be vulnerable in a prolonged downturn.”
    Prudential Equity Group LLC analyst Michael Mayo downgraded Wachovia to “underweight” from “neutral weight,” saying the purchase “dilutes long-term growth rates.”
    Gary Townsend, an analyst at Friedman, Billings, Ramsey & Co., downgraded Wachovia to “market perform” from “outperform,” seeing no “strategic imperative” for the purchase.

  • The Beatles Lose
    Posted by on May 8th, 2006 at 9:19 am

    The Beatles lost their “Apple v. Apple” lawsuit against Apple Computer (AAPL). The computer company is legally allowed to use its apple logo on its iTunes music store (heck, even the judge admitted that he owned an iPod).

    Apple Corps, which claimed that the computer company had broken a 1991 agreement in which each side agreed not to enter into the other’s field of business, said it would appeal. (BA! Appeal, apple…get it?).
    Judge Edward Mann of Britain’s High Court ruled that Apple Computer used the fruit logo in association with the store, not the music, and thus did not breach the agreement.
    “I conclude that the use of the apple logo…does not suggest a relevant connection with the creative work,” Mann said in his written judgment. “I think that the use of the apple logo is a fair and reasonable use of the mark in connection with the service, which does not go further and unfairly or unreasonably suggest an additional association with the creative works themselves.”

  • GDW’s ride from $0.25 to $80
    Posted by on May 8th, 2006 at 7:33 am

    In 30 years, Golden West’s stock has climbed from 25 cents a share to over $80. The WSJ has more:

    The long-running boom in the nation’s real-estate market has led to an impressive run of profitability at mortgage lenders like Golden West, whose shares were trading Friday near their all-time high. But with recent signs of some softening in real estate, Wachovia investors are sure to be asking whether the sale is a sign that the Sandlers view the market as having topped out. While Golden West has a conservative track record for underwriting loans, increased competition could raise the risk that loans the company has provided will sour, leaving Wachovia to deal with the losses.
    If approved by shareholders and regulators, the combination of the two financial companies would establish banking pillars on both coasts of the U.S., as well as offices the two companies have in between in states such as Texas. Golden West will add about 10,000 employees to Wachovia’s current employment level of about 97,000. Wachovia said it plans to cut less than 1% of the expense base of the combined companies, but added that no employees who deal directly with customers are likely to lose their jobs. The deal is expected to close in this year’s fourth quarter.
    Buying Golden West will let Wachovia extend its brand name across 285 branches in 10 states, where Golden West currently flies the World Savings Bank banner. The deal will make Wachovia the sixth-largest deposit-taker in California, the most-populous U.S. state, though its market share of about 5% would trail far behind those of Bank of America Corp., Washington Mutual Inc. and Wells Fargo & Co., based on the latest Federal Deposit Insurance Corp. data. Wachovia said the deal would add to its per-share profit, excluding expenses and amortization triggered by the acquisition, by the end of the second year after the purchase.
    Golden West’s primary appeal is its clout in adjustable-rate mortgages, or ARMs, on residential properties, generated through offices in 39 U.S. states where Golden West drums up business from local real-estate agents, mortgage brokers and directly from consumers. Wachovia Chairman and CEO G. Kennedy Thompson has been pushing hard over the past year to beef up the bank’s consumer-lending operation, complaining that its offerings have been weak.
    The lending business has been good to Golden West, last year resulting in net profit margins of 44% on revenue of $3.4 billion. Investors have flocked to the company, pushing Golden West shares up 10% over the past year, and by more than three-and-a-half-fold since 2000. On Friday, the company’s shares traded at about 14.4 times current earnings, according to data compiled by CapitalIQ. That placed it slightly above the average for U.S. thrifts, which trade at 14.1 times, and above rivals Washington Mutual (12.3 times) and Countrywide Financial Corp. (10.1 times).

    GDW.bmp

  • Holy Crap! Wachovia To Buy Golden West Financial
    Posted by on May 8th, 2006 at 12:18 am

    Whoa! One of my favorite stocks on the Buy List is being bought out. This is a HUGE deal.
    Wachovia (WB) just announced that it’s going to buy Golden West Financial (GDW) for $25 billion. Wachovia will pay GDW shareholders $18.65 a share in cash, plus 1.051 shares of Wachovia stock. That works out to $81.07 a share, which is about a 15% premium on Golden West’s closing price from Friday.
    Wachovia is making a major move to extend its reach into the Western part of the United States. Here’s more from the New York Times:

    The deal clears up concern some investors had over the question of succession at Golden West. It has been run for decades by husband-and-wife co-chief executives, Herbert M. and Marion O. Sandler, both in their 70’s and noted for their public criticisms in recent years of Federal Reserve policy, regulators and even President George W. Bush.
    Under their leadership, the thrift had a long track record of ignoring hot Wall Street trends, like trading exotic derivative products, staying focused for the most part on the business of making loans. Keeping it simple has been a prosperous business model for Golden West, particularly as it built up its mortgage-lending business in recent years in the red-hot California market by offering adjustable-rate mortgages.
    Formed in 1963, Golden West’s assets today total more than $100 billion and it has posted strong double-digit per-share earnings for decades. While the deal will give Wachovia a strong foothold in the mortgage-lending space, there are growing concerns among investors and Wall Street analysts that growth in that business may have peaked as interest rates creep higher. For instance, mortgage applications have been on the decline in recent months.

    My first thoughts are to congratulate Herb and Marion on building a terrific business. For decades, Golden West has been one of the best run thrifts in the country.
    Gertrude Stein said about Oakland that “there is no there there.” Well, there is a great savings and loan there, and its owners are about to become a lot richer.

  • Morgan Stanley Luring Brokers With Bonuses
    Posted by on May 6th, 2006 at 8:49 pm

    Right now, the big game on Wall Street is “get the assets.” Well…I guess that’s always the game, but it’s getting even more intense.
    Morgan Stanley (MS) is aggressively pursing other firms’ top-producing brokers. They’re offering bonuses of up to 200% of gross revenues. And I expect someone will shortly one-up them.
    My favorite quote comes from Howard Diamond, a Morgan recruiter: “Money is the best inducement for these kind of people to come aboard to Morgan Stanley.” It’ll probably help them stay too.