Presiding over Supply
November 5, 2008
The transformation of the financial landscape over the past several months has left investors searching for a safe haven for their money. As evidenced by periods of negative t-bill yields, the flight to safety has investors flooding the risk-free market or sitting in cash. The freezing of the credit markets has been a product not just of uncertainty amongst borrowers and lenders, but of uncertainty regarding the role of government in our capital markets. The unprecedented actions taken by the Federal Reserve have changed the traditional thought process on investing. Moreover, with the looming Presidential election, the investment framework has another big question mark. Assuming Senator Obama takes Read more
Profit with Berkshire and Buffett
November 3, 2008
Berkshire Hathaway Inc. [[BRK.A]] has been receiving a lot of press lately, as CEO and billionaire investor Warren Buffet has been negotiating favorable terms for deals with companies including Constellation Energy Holding Inc [CEG: 23.50, -0.07 (-0.30%)], Goldman Sachs Group Inc [GS: 66.79, -7.89 (-10.57%)], and General Electric Co [GE: 16.29, -1.52 (-8.53%)]. Many investors are wondering if they should follow Buffett’s lead and return to investing in equities, but the answer is not so simple. Even though he is one of the world’s greatest investors, it is not always necessarily prudent for individual investors to mimic his investing decisions. However, his investing expertise has undoubtedly led to the success of Berkshire Hathaway and his acquisition strategy has resulted in consistent growth of the company’s operating businesses. Read more
PNC and National City, An Inorganic Approach
October 27, 2008
On Friday, leaders from PNC Financial Services Group [PNC: 61.66, -2.37 (-3.70%)] came to an agreement to acquire National City Corp [NCC: 2.23, -0.20 (-8.23%)] for about $5.2 billion in an all stock deal. The deal came to a close after the U.S. Treasury invested $7.7 billion in preferred shares of PNC in association with the deal. An agreement wouldn’t have been reached if the government didn’t step in to provide some type of funding for the deal. Read more
American Express Up, Profits Down
October 23, 2008
American Express [AXP: 20.05, -2.35 (-10.49%)] blew past analysts expectations after the close yesterday. With consensus estimates calling for $0.59 cents per share, Amex reported diluted earnings per share from continuing operations of $0.74 cents per share, which was down 21% from $0.94 cents a year ago. Net income also came in with heavy losses at $861 million, a 23% fall from $1.1 billion last year. With the earnings beat, shares climbed higher by Read more
Credit Default Swaps – A Disastrous Unwind
October 21, 2008
Although mortgage backed securities and mortgage related assets have plagued the financial sector for the past 12-14 months, the sector is about to come under considerable pressure because of a uniquely structured product called a credit default swap or CDS. The government’s decision to allow Lehman Brothers to fail last month may be just another decision in this stressed market that is about to come back to haunt them. Read more
Citi Posts Another Loss
October 17, 2008
Citigroup [C: 9.64, -1.16 (-10.74%)] reported third-quarter results today before the bell. After writedowns of $4.4 billion and weak revenues virtually across the board, the bank reported its fourth straight quarterly loss of $2.81 billion, or 60 cents a share. This compares with last year’s third-quarter net income of $2.21 billion, or 44 cents a share. Revenue dropped 23% to $16.7 billion. However, the results were better than analysts had expected. Read more
JPMorgan Hit by Declining Earnings
October 16, 2008
As the Dow opened only modestly lower to start yesterday’s trading session, J.P. Morgan [JPM: 34.57, -1.78 (-4.90%)] surprised analysts when they reported positive earnings of $527 million, or $0.11 a share. Even though it represented an 84% drop from last year’s earnings of $3.37 billion, or $0.97 a share, the average consensus estimates from analysts were expecting a loss of $0.21 on revenue of $16 billion. Read more
PNC: Success in Subprime
October 10, 2008
The subprime crisis has decimated large financial institutions and has ultimately transformed the current financial services landscape as we known it. Tarnished assets have continued to grow and develop on balance sheets across the markets as mergers and acquisitions, along with governmental action, has been a necessity to keep the economy afloat. In what seems like the blink of an eye, Fannie Mae [FNM: 0.68, -0.002 (-0.29%)], Freddie Mac [FRE: 0.75, -0.07 (-8.54%)], Lehman Brothers, Wachovia [WB: 5.17, -0.38 (-6.85%)] ,AIG [AIG: 2.03, -0.23 (-10.18%)], and Merrill Lynch [MER: 13.35, -1.55 (-10.40%)] all have had to call upon the help of the government or another firm to salvage themselves. Read more
Worldwide Action, Interest Rate Cut
October 9, 2008
Many investors woke up yesterday morning to a surprising news headline that six central banks moved in coordination to cut their respective interest rates. The coordinated effort came from the central banks in the U.K., Canada, Sweden, Switzerland, and the U.S. The 50 bps cut stimulated the pre-market trading, which led the futures to the major U.S. indexes higher. Read more
Credence in Capitalism
October 8, 2008
My interest in writing this piece was sparked by a spirited debate with a fellow Bullish Banker regarding the implications of the financial crisis on the next President Elect. Upon watching the debates, it is clear neither candidate wants to address how such a financial bailout (and overall financial deterioration) will affect their campaign promises. The bottom line in all of this financial noise is that the standard of living must come down. The American consumer (yes with the help of the investment banks) is now being disciplined for their largesse over the past several years, which in the end is what drove speculation in many of the markets that have now become the problem. The deficit at the national level was not the problem as it turns out; it was the deficit at the consumer level. Read more
 
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