Citigroup (C) is not going to make it, at least not an an independent company. The FT has reported that the head of Goldman Sachs (GS) called Citigroup CEO Vikram Pandit to discuss a merger. Goldman had converted itself into a commercial bank. Maybe it was worried it would go the way of Morgan Stanley (MS). But, the Treasury has come up with capital for all the big financial firms, so the urge to do something has probably passed for the world's premier investment bank.
It is different for Citigroup. There things have gone from bad to worse.
Citigroup is not likely to make it as an independent company. It will not be a buyer. It will be sold.
If the bank's stock price and analysts covering the company are right, Citi's fate could be determined by the end of the year. Over the last month, shares in the bank are down by 40%. Rival JPMorgan (JPM) is off 2%. Wells Fargo (WFC) is up 10%. Citi's market cap is down to $66 billion. Bank of America's is nearly $100 billion.
In the last quarter Citi lost $2.8 billion, or $.60 per share, compared with a profit of $2.2 billion, or $.44, in the period a year ago. Revenue fell 23% to $16.7 billion Bank analyst Meredith Whitney, who has been right more often than not on bank stocks, says that troubles in Citi's consumer group will drive up its losses more than expected. She cut her earnings estimates on the bank to a 2008 loss of $2.87 per share and a loss of $2.65 in 2009. Citi may not have the capital to cover those losses even with the government's cash injection.
What Whitney did not factor in just a week ago is that the credit crisis and signals of a recession have become much worse in a matter of days. Mortgage defaults are likely to rise more sharply then they have been as people lose jobs. The consumer's ability to pay his credit cards debt will deteriorate sharply. Citi's investment banking business is dead as a doornail. Most LBO loans are dropping in value as each week passes.
Citi will not report Q4 earnings for almost three months. It may run into awful trouble before that. The Fed and Treasury are going to have to find a merger candidate. Most likely that will be JP Morgan (JPM) because Bank of America (BAC) and Wells Fargo (WFC) are already digesting big acquisitions. Or, the government may turn around and take a majority stake in the money center bank the way it did with AIG (AIG) where it has already provided $90 billion in loans.
Vikram Pandit will have failed. It may take a little while for that to become absolutely clear, but Wall St. can take it to the bank. Or, maybe not.
Douglas A. McIntyre
Tuesday, October 28, 2008
Monday, October 27, 2008
Value City
For all of you who have seen your 401k portfolio loose 10% over the past few months, don't worry. Hopefully you do not need that money right now.
This morning U.S. stocks headed for yet another sharply lower open Monday as stock markets tumbled further around the world on worries about the health of the global economy.
A surge in the yen illustrated investors' nervousness about how much economic activity could slow. Japan's Nikkei 225 index dropped to its lowest close in 26 years as investors worried that the high yen will hurt Japanese exports and further disrupt economic activity. The currency moved to the 93 yen level.
This tell us that we have not yet seen the bottom and that market volitility is still an issue. For the casual investor this offers an oppentunity. Equities are cheap right now.
Example 1: this company is trading a 11x forward earnings, pay a very good dividend and is debt light and cash heavy, Microsoft. Microsoft is a high quality stock and is a value right now.
Some others include Dow, Becton Dickinson, Disney and Quixote are all good picks.
This morning U.S. stocks headed for yet another sharply lower open Monday as stock markets tumbled further around the world on worries about the health of the global economy.
A surge in the yen illustrated investors' nervousness about how much economic activity could slow. Japan's Nikkei 225 index dropped to its lowest close in 26 years as investors worried that the high yen will hurt Japanese exports and further disrupt economic activity. The currency moved to the 93 yen level.
This tell us that we have not yet seen the bottom and that market volitility is still an issue. For the casual investor this offers an oppentunity. Equities are cheap right now.
Example 1: this company is trading a 11x forward earnings, pay a very good dividend and is debt light and cash heavy, Microsoft. Microsoft is a high quality stock and is a value right now.
Some others include Dow, Becton Dickinson, Disney and Quixote are all good picks.
Tuesday, October 21, 2008
Move over OPEC
What OPEC did for crude the Kremlin wants to do with natural gas.
TEHRAN, Iran - Russia, Iran and Qatar made the first serious moves Tuesday toward forming an OPEC-style cartel on natural gas, raising concerns that Moscow could boost its influence over energy markets spanning from Europe to South Asia.
Such an alliance would have little direct impact on the United States, which imports virtually no natural gas from Russia or the other nations.
But Washington and Western allies worry that closer strategic ties between Russia and Iran could hinder efforts to isolate Tehran over its nuclear ambitions. In addition, the United States opposes a proposed Iranian gas pipeline to Pakistan and India, key allies.
In Europe - which counts on Russia for nearly half of its natural gas imports - any cartel controlled by Moscow poses a threat to supply and pricing.
Russia, which most recently came into confrontation with the West over its five-day war with Georgia in August, has been accused of using its hold on energy supplies to bully its neighbors, particularly Ukraine.
Moscow cut natural gas exports to the former Soviet republic over a price dispute during the dead of winter in 2006 - a cutoff that caused disruptions to European nations further down the pipeline.
The 27-nation European Union expressed strong opposition to any natural gas cartel Tuesday, with an EU spokesman, Ferran Tarradellas Espuny, saying: "The European Commission feels that energy supplies have to be sold in a free market."
Together Russia, Qatar and Iran account for nearly a third of world natural gas exports - the vast majority supplied by Russia - according to U.S. government statistics. The three hold some 60 percent of world gas reserves, according to Russia's state-controlled energy company Gazprom.
The United States - the world's largest consumer of oil and gas - produces most of its natural gas needs at home, importing only from Canada and Mexico.
Russia is also a major oil producer, though not an OPEC member. For its part, Iran, in its standoff with world powers over its nuclear program, has threatened to choke off oil shipments through the Persian Gulf if it is attacked.
A gas cartel could extend both countries' reach in energy and politics, particularly if oil prices bounce back to the highs seen earlier this year, prompting renewed interest in cleaner-burning natural gas and other alternative fuels.
Tuesday's gathering in Tehran appeared to be the most significant step toward the formation of such a group since Iran's supreme leader, Ayatollah Ali Khamenei, first raised the idea in January 2007.
"Big decisions were made," said Iranian Oil Minister Gholam Hossein Nozari. His Qatari counterpart, Abdulla Bin Hamad al-Attiya, said at least two more meetings were needed to finalize an accord, according to the Iranian Oil Ministry's Web site. No timeframe was given.
Calling the grouping the "big gas troika," the chief executive of Russia's state-controlled energy company Gazprom, Alexei Miller, said it would meet three or four times a year.
"We are consolidating the largest gas reserves in the world, the general strategic interests and - what is very important - the high potential for cooperation on three-party projects," Miller said.
Already, Russia has built Iran's first nuclear reactor, which Iranian officials say could begin operating later this year. The West fears Iran's nuclear program could lead to development of atomic weapons; Iran insists it is only for peaceful energy production.
Experts say a natural gas cartel would not have the same influence on prices as OPEC has on oil since natural gas is not subject to the same severe fluctuations.
"There's always some worry when these guys get together that they'll try to replicate OPEC, but they know that's not doable," said Robert Ebel, senior adviser to the Energy and National Security Project at the Center for Strategic and International Studies in Washington. "They can try to get more control over gas, but it's not OPEC."
True its not OPEC, but it will be soon.
TEHRAN, Iran - Russia, Iran and Qatar made the first serious moves Tuesday toward forming an OPEC-style cartel on natural gas, raising concerns that Moscow could boost its influence over energy markets spanning from Europe to South Asia.
Such an alliance would have little direct impact on the United States, which imports virtually no natural gas from Russia or the other nations.
But Washington and Western allies worry that closer strategic ties between Russia and Iran could hinder efforts to isolate Tehran over its nuclear ambitions. In addition, the United States opposes a proposed Iranian gas pipeline to Pakistan and India, key allies.
In Europe - which counts on Russia for nearly half of its natural gas imports - any cartel controlled by Moscow poses a threat to supply and pricing.
Russia, which most recently came into confrontation with the West over its five-day war with Georgia in August, has been accused of using its hold on energy supplies to bully its neighbors, particularly Ukraine.
Moscow cut natural gas exports to the former Soviet republic over a price dispute during the dead of winter in 2006 - a cutoff that caused disruptions to European nations further down the pipeline.
The 27-nation European Union expressed strong opposition to any natural gas cartel Tuesday, with an EU spokesman, Ferran Tarradellas Espuny, saying: "The European Commission feels that energy supplies have to be sold in a free market."
Together Russia, Qatar and Iran account for nearly a third of world natural gas exports - the vast majority supplied by Russia - according to U.S. government statistics. The three hold some 60 percent of world gas reserves, according to Russia's state-controlled energy company Gazprom.
The United States - the world's largest consumer of oil and gas - produces most of its natural gas needs at home, importing only from Canada and Mexico.
Russia is also a major oil producer, though not an OPEC member. For its part, Iran, in its standoff with world powers over its nuclear program, has threatened to choke off oil shipments through the Persian Gulf if it is attacked.
A gas cartel could extend both countries' reach in energy and politics, particularly if oil prices bounce back to the highs seen earlier this year, prompting renewed interest in cleaner-burning natural gas and other alternative fuels.
Tuesday's gathering in Tehran appeared to be the most significant step toward the formation of such a group since Iran's supreme leader, Ayatollah Ali Khamenei, first raised the idea in January 2007.
"Big decisions were made," said Iranian Oil Minister Gholam Hossein Nozari. His Qatari counterpart, Abdulla Bin Hamad al-Attiya, said at least two more meetings were needed to finalize an accord, according to the Iranian Oil Ministry's Web site. No timeframe was given.
Calling the grouping the "big gas troika," the chief executive of Russia's state-controlled energy company Gazprom, Alexei Miller, said it would meet three or four times a year.
"We are consolidating the largest gas reserves in the world, the general strategic interests and - what is very important - the high potential for cooperation on three-party projects," Miller said.
Already, Russia has built Iran's first nuclear reactor, which Iranian officials say could begin operating later this year. The West fears Iran's nuclear program could lead to development of atomic weapons; Iran insists it is only for peaceful energy production.
Experts say a natural gas cartel would not have the same influence on prices as OPEC has on oil since natural gas is not subject to the same severe fluctuations.
"There's always some worry when these guys get together that they'll try to replicate OPEC, but they know that's not doable," said Robert Ebel, senior adviser to the Energy and National Security Project at the Center for Strategic and International Studies in Washington. "They can try to get more control over gas, but it's not OPEC."
True its not OPEC, but it will be soon.
Friday, October 17, 2008
Walmart Canada
Once again Walmart shows why it is king. Wal-Mart Stores Inc., known for its strong stance against workers unionizing, on Thursday closed a tire and lube center in Canada where workers had voted to organize.
A Wal-Mart spokesman said the five workers and one manager at the center were offered jobs at comparable Wal-Mart facilities or elsewhere in the store, which is located in Gatineau, Quebec and has more than 250 workers. The store itself will remain open.
The closure comes after an arbitrator in Quebec had imposed a labor contract on the facility in August.
The United Food and Commercial Workers union called the closure an "attack" on Wal-Mart workers. Wal-Mart in 2005 closed a store in Jonquiere, Quebec, after workers there agreed to unionize. The union has a Canada Supreme Court case pending over whether those workers' rights were violated.
Wayne Hanley, president of UFCW Canada, said the closing violates workers' rights.
"Wal-Mart thinks a cheap oil change is more important than the Canadian constitution," Hanley said.
Wal-Mart Canada spokesman Andrew Pelletier said the contract that was imposed on Wal-Mart in August would have raised costs too much. "It could require us to increase consumer prices by more than 30 percent," Pelleti
What really makes this so interesting is that Walmart is a solid stock on the S&P Canada, and there is nothing that anyone can do to stop them.
A Wal-Mart spokesman said the five workers and one manager at the center were offered jobs at comparable Wal-Mart facilities or elsewhere in the store, which is located in Gatineau, Quebec and has more than 250 workers. The store itself will remain open.
The closure comes after an arbitrator in Quebec had imposed a labor contract on the facility in August.
The United Food and Commercial Workers union called the closure an "attack" on Wal-Mart workers. Wal-Mart in 2005 closed a store in Jonquiere, Quebec, after workers there agreed to unionize. The union has a Canada Supreme Court case pending over whether those workers' rights were violated.
Wayne Hanley, president of UFCW Canada, said the closing violates workers' rights.
"Wal-Mart thinks a cheap oil change is more important than the Canadian constitution," Hanley said.
Wal-Mart Canada spokesman Andrew Pelletier said the contract that was imposed on Wal-Mart in August would have raised costs too much. "It could require us to increase consumer prices by more than 30 percent," Pelleti
What really makes this so interesting is that Walmart is a solid stock on the S&P Canada, and there is nothing that anyone can do to stop them.
Monday, October 13, 2008
Up hill
Germany, France and other European countries on Monday unveiled bail-out plans to recapitalise their banks and reopen credit markets, following the British announcement of measures to nationalise parts of the UK banking system.
The world’s stock markets soared as details emerged of the co-ordinated European campaign to spend more than £1,434bn (€1,832bn, $2,477bn) on bailing out the continent’s troubled banks.
Other European stock markets followed suit as Germany, France, Austria, Portugal and the Netherlands announced their plans, Italy’s cabinet passed a new decree offering more support to the financial sector, and the Spanish government approved a guarantee for issues of new bank debt. Frankfurt’s Xetra Dax closed up 11.4 per cent, while the CAC 40 in Paris rose 11.2 per cent.
Europe’s central banks promised unlimited dollar funding in co-ordinated action with the US Federal Reserve. This dramatic further expansion of Fed liquidity operations is intended to ease the intense demand for dollars in Europe. The European Central Bank, Bank of England and Swiss National Bank said they were ready to inject as much as needed into the markets for dollar funding covering periods of seven days, a month and 84 days.
Confidence in the money markets showed signs of returning as the interbank cost of borrowing in sterling, euros and dollars fell. Three-month dollar Libor eased to 4.75 per cent from 4.82 per cent, its steepest drop since March and the first time it has fallen since last Monday when it was 4.29.
Wall Street also snapped back from last week's devastating losses after major governments announced further steps to support the global banking system, including plans by the U.S. Treasury to buy stocks of some banks. All the major indexes rose more than 8 percent, and the Dow Jones industrials rose more than 700 points.
In late afternoon trading, the Dow Jones industrial average rose 712.05, or 8.43 percent, to 9,163.24. It was the Dow's largest-ever point gain during a session, surpassing the jump of 503.45 points seen on Sept. 30.
The Dow's largest point increase by the time the closing bell sounded occurred March 16, 2000, during the waning days of the dot-com boom, when the blue chips closed up 499.19, or 4.93 percent.
Broader stock indicators also jumped Monday. The Standard & Poor's 500 index advanced 78.71, or 8.75 percent, to 977.93, and the Nasdaq composite index rose 146.86, or 8.90 percent, to 1,796.37.
About 2,900 stocks advanced on the New York Stock Exchange, while about 250 declined. But the trading volume of 1.22 billion shares was lighter than it had been last week, suggesting there was less conviction in the buying than during last week's selling.
Wall Street was cheered by word from the Bank of England that it would use up to $63 billion to help the three largest British banks strengthen their balance sheets.
The Bank of England, the European Central Bank and the Swiss National Bank also jointly announced plans to work together to provide as much short-term funding as necessary to help revive lending.
After a series of weekend meetings in Washington of heads of the Group of Seven nations, the gains in global markets signaled that investors found comfort from the actions and pledges coming from government officials.
The surge in stocks comes after a dismal week on Wall Street that erased an estimated $2.4 trillion in shareholder wealth. The Dow, after eight consecutive daily losses that totaled just under 2,400, or 22.1 percent, finished at its lowest level since April 2003, and also suffered its worst weekly percentage loss ever, a fall of 18.2 percent.
Meanwhile, the S&P 500 and the Nasdaq each lost 15.3 percent last week.
Thursday, October 9, 2008
DOW is down again
Lets focus on the positive. The DOW is down below the 9000 level, but that is not our concern today. We are going to look at some international stocks that are a good value right now.
Our first big pick is is Unibanco which is the third largest privately-owned bank in Brazil. Unibanco stands for União de Bancos Brasileiros (Brazilian Banks Union). Brazil is a place where, unlike America, the citizens are not over collateralized. They do not own homes and cars that they can not afford. So that means, Brazilians need loans, and they are willing to pay them back.
The second company is one that is paying a double digit dividend: CEMIG. CEMIG stands out among other Brazilian utilities because of its green energy initiatives and vision for the future. The bulk of its electricity is generated from 56 hydroelectric plants, a definitive advantage in a time of volatile energy prices. It has also been a leader in experimenting with renewable energy sources; its engineers have been actively testing the implementation of new solar and biofuel-based generators.
Recently management has announced plans to grow through the acquisition and development of more power plants. Expect to see more deals such as CEMIG’s recent bid for Companhia Brasiliana de Energia, or the possibility of participating in the building of the new 6,450 megawatt Rio Maderia hydroelectric plant.
CEMIG has also been growing its transmission and distribution network. They are constructing a transmission line to Chile, a move hailed as CEMIG’s first steps towards international development. Within Brazil, the “Light for Everyone” program promises to deliver power to an untapped market of 2.5 million low income rural homes
Our first big pick is is Unibanco which is the third largest privately-owned bank in Brazil. Unibanco stands for União de Bancos Brasileiros (Brazilian Banks Union). Brazil is a place where, unlike America, the citizens are not over collateralized. They do not own homes and cars that they can not afford. So that means, Brazilians need loans, and they are willing to pay them back.
The second company is one that is paying a double digit dividend: CEMIG. CEMIG stands out among other Brazilian utilities because of its green energy initiatives and vision for the future. The bulk of its electricity is generated from 56 hydroelectric plants, a definitive advantage in a time of volatile energy prices. It has also been a leader in experimenting with renewable energy sources; its engineers have been actively testing the implementation of new solar and biofuel-based generators.
Recently management has announced plans to grow through the acquisition and development of more power plants. Expect to see more deals such as CEMIG’s recent bid for Companhia Brasiliana de Energia, or the possibility of participating in the building of the new 6,450 megawatt Rio Maderia hydroelectric plant.
CEMIG has also been growing its transmission and distribution network. They are constructing a transmission line to Chile, a move hailed as CEMIG’s first steps towards international development. Within Brazil, the “Light for Everyone” program promises to deliver power to an untapped market of 2.5 million low income rural homes
Friday, October 3, 2008
Bad Wachovia
It appears that Wachovia's brass doesn't know what it means when an executive signs on the dotted line. Now it looks like the only ones who will gain will be the lawyers.
NEW YORK - Wachovia says it agreed to be acquired by San Francisco-based Wells Fargo & Co. in a $15.1 billion all-stock deal. But Citigroup now demands that Wachovia abide by the terms of its earlier deal to buy Wachovia's banking operations.
The clash sets up a battle over who will win Charlotte, N.C.-based Wachovia.
The Citigroup deal would have been done with the help of the Federal Deposit Insurance Corp., but the Wells deal would be done without it. The head of the FDIC said the agency is standing behind the agreement it made with Citigroup.
Citigroup says its agreement with Wachovia provides that Wachovia will not enter into any transaction with any party other than Citi or negotiate with anyone else.
NEW YORK - Wachovia says it agreed to be acquired by San Francisco-based Wells Fargo & Co. in a $15.1 billion all-stock deal. But Citigroup now demands that Wachovia abide by the terms of its earlier deal to buy Wachovia's banking operations.
The clash sets up a battle over who will win Charlotte, N.C.-based Wachovia.
The Citigroup deal would have been done with the help of the Federal Deposit Insurance Corp., but the Wells deal would be done without it. The head of the FDIC said the agency is standing behind the agreement it made with Citigroup.
Citigroup says its agreement with Wachovia provides that Wachovia will not enter into any transaction with any party other than Citi or negotiate with anyone else.
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