Top Stories:
Bill Gross to Paulson: I'm Not Buying It - (www.cnbc.com) Pimco’s legendary bond investor Bill Gross said during “Street Signs” Thursday that his firm would be staying out of any and all bank offerings for the foreseeable future. Banks the world over have raised $400 billion in capital, Gross said, and may need to raise much more. The problem, though, as yesterday’s $1.5 billion preferred offering at Wells Fargo [WFC) ] showed, is that the institutional buyers are full, leaving only small investors to pick up the slack. As Gross said, “There’s only so many billion and a half small investor bank capital deals that can be done from this point forward.” Wells Fargo Executive Vice President and Chief Financial Officer Howard Atkins, in a later interview with Cramer, disputed the claim. “It was very much an institutional transaction," he said. "I’m not quite sure it’s being characterized as being something different.” Atkins said that over 100 institutions took part in the offering, adding that it was "successful" and "well oversubscribed."
Bear Failure Could've Brought Down Lehman, Merrill - (www.cnbc.com) Letting Bear Stearns fail last March could've resulted in the failure of Lehman Brothers, Merrill Lynch and possibly Morgan Stanley, an analysis by JPMorgan Chase shows. JP Morgan [JPM ] , which ended up buying Bear for $10 a share, considered not taking over Bear and letting its fate being determined by bankruptcy court. If that had happened, the bank's analysis shows, the market impact would have been devastating. Lehman [LEH ] , Merrill [MER ) ] and Morgan Stanley [MS ) ] had huge counterparty exposure to Bear, which would have needed $8 billion in additional funds to survive. So a failure of Bear would've triggered failures by possibly all three. Still, some people at JP Morgan weighed letting Bear and the rest fail because they would have eliminated at least two and possibly four competitors in about a week.
Vulture Investor Stephen Feinberg and his venture capital fund (Cerberus) have gutted several key companies and their investments are faltering:
- Just like Junk Bond Investor Michael Milken in the 80s, Venture Capital companies and investors like Stephen Feinburg’s Cerberus are gutting good companies and leaving them highly leveraged with debt and in some cases, bankrupt. In the meantime, key execs have extracted billions in personal payments while leaving a trail of companies leveraged to the hilt, implementing layoffs, and causing companies to go bankrupt. He needs to be tried and jailed like Milken before him. Here are several examples:
· Mervyn's Sues Ex-Owners (Feinberg’s Cerberus, Sun Capital Partners) - (online.wsj.com) Mervyn's LLC has sued its former private-equity owners, saying they stripped the department-store chain of its valuable real estate and then nearly doubled its rent, effectively pushing the California-based company into bankruptcy protection five weeks ago. When a high-profile group including Cerberus Capital Management and Sun Capital Partners purchased Mervyn's for $1.26 billion in 2004, the deal was structured as two separate transactions -- one for the retailer and a second one for the retailer's real estate. This complicated structure, the suit alleges, enriched the private-equity firms while leaving the retail operations insolvent.
· Cerberus' and Feinberg Investment in GMAC and Chrysler Faltering – (www.cnbc.com) Mr. Feinberg’s giant investment fund, Cerberus Capital Management, is racing to salvage multibillion-dollar investments in Chrysler, the smallest of the Detroit automakers, and GMAC, the financing arm of General Motors. But for Cerberus, named after the mythological three-headed dog who guards the gates of hell, the news keeps getting worse.On Wednesday, Chrysler, which owns the Jeep and Dodge brands, said its sales in the United States fell by a third in August — nearly twice the industry average — as the downturn in the auto business dragged on. Honda eclipsed Chrysler as the nation’s No. 4 seller of cars, and Nissan is closing in fast. The same day, GMAC, in which Cerberus holds a 51 percent stake, said it was trying to stanch the bleeding from a business that was supposed to be immune to the ups and downs of the car industry: home mortgage lending. GMAC and its home loan unit, Residential Capital, announced that they would dismiss 5,000 employees, or 60 percent of the unit’s staff, and close all 200 of its retail mortgage branches.
· BREAKING NEWS: Update: ResCap Cuts 5,000 - Scales Back Originations Across Multiple Channels - (www.ml-implode.com) – Another Feinberg and Cerberus investment gone bad. Today, the official announcement came out, and GMAC Mortgage retail is not the only part of Rescap that's being impacted. We h... Battered mortgage lender Residential Capital, a unit of GMAC Financial Services, will cut its work force by 60 percent, the companies said Wednesday. About 250 of those cuts will come from Minnesota initially, with more planned for later in the year. GMAC will also close all 200 of its GMAC Mortgage retail offices as it tries to weather the mortgage crisis that has especially bloodied ResCap.
Bankrupt Smith Family Homes owed creditors $50 million - (www.tampabay.com) The full extent of the financial carnage left behind by bankrupt Smith Family Homes was revealed in a court filing showing the Tampa builder stiffing lenders nearly $50-million. Smith, active mostly in the Pasco County suburbs, filed for Chapter 7 liquidation last month, a victim of the housing slump. The company lists $58.7-million in liabilities, mostly mortgage debt on lots. SunTrust is out the most, at $20.1-million. Bank of America is owed $6.9-million, Regions Bank $6.4-million. What could be bad news for homeowners is that Smith is delinquent paying back $3.3-million in Community Development District bonds used to finance Hillsborough's Panther Trace and Pasco's Seven Oaks neighborhoods. Homeowners living there pay back the bonds as part of their yearly tax bill. In other neighborhoods, such large delinquencies have left homeowners on the hook for the debt.
Roche to move 3,000 jobs out of Palo Alto, impacting housing - (www.fiercebiotech.com) Actually, story is not clear on how many net jobs are being lost as jobs seem to be shifting between Palo Alto, South San Francisoc, and New Jersey. Palo Alto may have to say goodbye to as many as 3,000 jobs. According to the San Francisco Business Times, Roche is planning to move its inflammation business from Palo Alto to Nutley, NJ and its virology ops--also at Palo Alto--to South San Francisco. The company will also move U.S. pharmaceutical commercial operations from its New Jersey site to South San Francisco.
Florida Housing Woes: Banks with 'Troubled' Exposure - (www.cnbc.com) Some interesting intelligence from one of the ground zeroes of the housing market: Florida. Paul Miller of FBR published some financial “ramblings” (his word not mine) on a recent trip to Florida’s West Coast. The group from Friedman Billings Ramsey visited St. Petersburg, Sarasota, Port Charlotte/Punta Gorda and Fort Myers, meeting with realtors, mortgage lenders and land brokers. The takeaway is that most down there believe it will take two to four years to work through the over-swelled inventories and that the lower end of the market will recover more quickly than the higher-priced homes. “Rising foreclosures and continued home price declines will result in significant losses to the banking system,” Miller writes. “Higher severity rates should remain an overhang on valuations for institutions with the largest exposures to the Western Florida housing market." And those are: Bank of America , Fifth Third , JP Morgan Chase, National City, SunTrust, Wachovia, Washington Mutual, Wells Fargo
GMAC to cut 5,000 jobs at ResCap mortgage unit - (news.yahoo.com/s/nm) GMAC LLC said on Wednesday it plans to cut 5,000 jobs at its Residential Capital LLC mortgage unit, or 60 percent of that work force, and shut its 200 GMAC Mortgage retail offices to combat persistently weak housing and credit markets. GMAC also plans to stop offering home loans through its Homecomings broker channel, and is evaluating strategic alternatives for its GMAC Home Services and noncore mortgage servicing businesses. It said it keep offering mortgages "where there is a secondary market to sell the loans." The cutbacks suggest deepening problems for GMAC's owners. A group led by private equity firm Cerberus Capital Management LP (CBS.UL) bought a 51 percent stake from General Motors Corp (GM.N) in 2006. The automaker owns the remaining 49 percent.
Ospraie fund to close after August hit – (news.yahoo.com/s/nm) Ospraie and Lehman declined to comment. Hedge fund manager Ospraie Management LLC will close its flagship fund after it plunged 27 percent in August on losses in energy, mining and natural resources equity holdings, in one of the biggest ever closures of a commodities-focused hedge fund. The closure of the fund, announced by the firm's founder Dwight Anderson in a letter to investors on Tuesday, could be more bad news for Lehman Brothers Holdings Inc (LEH.N), which took a 20 percent stake in the hedge fund manager in 2005. One expert said the closure of the fund, which at the time of the letter's writing had lost 38.59 percent this year, may also have played a role in bringing down U.S. stocks on Tuesday, which fell after initially climbing more than 1 percent. Lehman shares were down more than 3 percent in after-hours trading.
Cramer: The Rally is Real, Here's Why - (www.cnbc.com) Let’s see if blow-hard Cramer will be wrong once again, then spin it afterwards.
Home Depot CEO: Housing Decline Nears End - (www.cnbc.com) Another prediction to watch closely. Home Depot's chief executive said a battered U.S. housing market was nearing the bottom of its decline, but the home-improvement sector would remain under pressure at least through early 2009. Blake made similar remarks about the U.S. housing market in late July.
Attorney General files charges against house builder using illegal contracts - (www.gazette.net) A Rockville-based home builder and its owner have been charged with violating the Consumer Protection Act, according to Maryland Attorney General Douglas F. Gansler's office. The charges allege that contracts written by Smart Development/Premiere Homes L.C., which is owned by Edward Kevin Smart, contain illegal clauses that the company used to terminate those contracts with consumers without liability if it failed to build the promised houses, according to an Aug. 26 press release from Gansler's office. Smart, who is listed as the company's president on the Premiere Homes Web site, said he had no comment on the charges when contacted last week.
Foreclosures selling at bargain prices in Miami - (eyeonmiami.blogspot.com) After a year or two of holding their foreclosed properties, lenders are finally selling them off in South Florida. Hearing about foreclosures seems like an abstract exercise on the financial page of the newspapers. What does it really mean that the nation's financial institutions don't have enough capital to meet the requirements of financial regulators? As you can see, what has been happening here is that much of our sub-tropical farmland has been gobbled up by ugly sprawl subdivisions. But I'll bet the same view can be seen outside Las Vegas or in California's Central Valley or in the suburbs so far outside Los Angeles and San Francisco that you need your head examined to pay for commuting costs and a mortgage at the same time. To me, this is what the national economic crisis looks like, mostly for people who do not necessarily read the opinion page of the Wall Street Journal or the New York Times (not to mention, The Miami Herald which won't touch the story because it is so scary to their advertisers.)
Other Stories:
Housing stabilization will lead economic recovery, someday - (www.marketwatch.com)
Getting Real About Real Estate - (www.seekingalpha.com)
How the housing crash hurts your retirement - (www.money.cnn.com)
Fitch Warns on Option ARMs: High Defaults Await - (www.housingwire.com)
You have until Sept. 30 to use FHA scam, er, loophole - (www.idahostatesman.com)
The Next Bailout: FDIC - (optionarmageddon.ml-implode.com)
Fed Official Says Institutions - (Other Than Fed) Must Be Allowed to Fail - (www.nytimes.com)
Despite Lower Oil Prices, Little Relief for Consumers - (www.nytimes.com)
Report: Worst summer for job cuts since 2002 - (www.ap.com)
Skimpy base salary raises next year - (www.chicagotribune.com)
Lehman lifeline plan in doubt as Korean banks cool - (www.reuters.com)
Coke paying 300% premium for Chinese juice company - (www.financialweek.com)
Corning lowers 3Q earnings, sales outlook - (www.chron.com)
Staples 2Q profit drops 16 percent - (www.chron.com)
House price crash goes global - (www.guardian.co.uk)
English mortgage approvals drop to lowest since records began - (www.guardian.co.uk)
English house price slump worse than feared - (www.telegraph.co.uk)
Retailers slash prices, but run risk of hurting profit margins, eroding cache - (www.chicagotribune.com)
Wal-Mart pushing for cleaner gold mining - (money.cnn.com)
Oil falls below $109 on demand, Gustav threat passes - (www.reuters.com)
Wall Street wavers on economic worries - (www.ap.com)
Increasing credit card defaults has lenders reducing credit lines and adding fees - (www.financialweek.com)
Melt-down of Ospraie fund singes raw material producers - (www.financialweek.com)
Hedge funds suffer worst returns for 18 years - (www.telegraph.co.uk)
Ospraie’s flagship fund to be shut down - (www.ft.com)
Kozlowski, Swartz Seek End to Jail Terms - (www.cfo.com)
Golf club dues, other exec fringe benefits trimmed way back - (www.financialweek.com)
Canada on brink of recession - (www.ft.com)
Australian growth slows on weak demand - (www.ft.com)
ResCap to Cut 60 Percent of Workforce - (www.ml-implode.com) - "Troubled lender Residential Capital LLC said Wednesday that it will close all 200 of its GMAC Mortgage retail offices and cease...
Mortgage Rates are Mixed, but ARMs Nearly Disappear as Factor in Financing - (www.ml-implode.com) - ""Interest rates for fixed-rate mortgages continue to drift down as reports of economic weakness persist. July's leading economi...
Bank of England Gives Lenders Estimated $354 Billion - (www.ml-implode.com) - U.K. banks probably have tapped the Bank of England for more than 200 billion pounds ($354 billion) less than two months before ...
Option ARM Time Bomb About To Explode - (www.ml-implode.com) - Declining treasury yields will bail out some subprime borrowers, but not Alt-A Pay Option Arms. 80 percent of pay option arm hol...
Ed McMahon won't get kicked out of his house -- Donald Trump is buying it - (www.ml-implode.com)
Setser: "If trends continue.....Agencies won’t be able to rollover their debt" - (www.ml-implode.com)
The Bank Is so Proud - (www.ml-implode.com)
Fitch Warns on Option ARMs; “High Defaults Await” - (www.ml-implode.com)
Inequality and the Credit Crisis - (www.ml-implode.com)
Inflation Topples TIPS - (www.ml-implode.com)
Government rating seen safe from GSE dependence - (www.ml-implode.com)
"No panic signals" from Freddie debt auctions - (www.ml-implode.com)
Lehman Brothers On the Ropes - KDB Deal May be Ugly, or Not Happen At All - (www.ml-implode.com)
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