shareholders

What to make of Wells Fargo's capital raise

Jim Kim — Wed, 05 Nov 2008 19:12:21 -0500

Last month, Wells Fargo said it would raise up to $20 billion primarily by selling common shares. But then came the TARP, and the San Francisco-based bank was required to raise $25 billion by selling preferred shares to the federal government. That seems to have prompted it to give current common shareholders a break; it announced it will raise only $10 billion by selling common shares. So this seems to be a case of using TARP funds to at lest partially fund a big acquisition. Not that there's anything wrong with that. Despite the early admonishment to lend TARP funds, it's clear that banks have leeway to use it as they see fit--even if they hoard it. That at least pads its capital ratios. The only use that may be unpalatable is to make outsized bonus payments.

For more:
- here's a Fortune item on the announcement

Credit crunch hits the Yankees

Jim Kim — Fri, 17 Oct 2008 13:51:55 -0400

We've noted that the credit crunch may lead to some big name changes at various stadiums. It may also hit home when it comes to the core business of baseball. The New York Yankees plan to move into a new stadium next year. Fortune notes that the business plan depends on sales of 47 pricey luxury suites to corporate big wigs at a cost of to $850,000 a year. That's by far the most expensive of any Major League team. But this is New York! How how can big banks justify such costs at a time like this? You certainly don't want to give the impression that bailout money was used to support a luxury box purchase. While there is return to such investment, there will be few shareholders and politicians who buy it, even of they get invited to a few games.

For more:
- here's the article

Related Article:
Banks bet on stadium sponsorships

Twist: Wells Fargo to buy Wachovia

Jim Kim — Fri, 03 Oct 2008 08:07:50 -0400

Wow! The world thought Citigroup had a government-assisted deal to buy Wachovia's banking operations for $1 a share. But that deal seems to have been scuttled for a better deal (for shareholders) with Wells Fargo, which had been itching to buy a bank. Wells Fargo, a safe-haven institution right now, is offering about $7 a share. It touted that the deal requires no government assistance and said it will raise up to $20 billion by issuing new shares. This creates a juggernaut of a retail bank, one that will rival Citigroup, and will keep Wachovia intact. The big issue of course is Wachovia's portfolio of toxic mortgages, much of which stems from its ill-advised purchased of Golden West. Wells said it would mark the assets to fair value, presumably at a big loss that will be offset by the capital raise.

For more:
- here's the New York Times article
- view the press release

Related Article:
Citigroup to buy Wachovia

Citigroup to buy Wachovia

Jim Kim — Mon, 29 Sep 2008 12:06:24 -0400

Another day, another bank "failure." Citigroup will buy Wachovia for $1 a share, in a deal that was brought about by regulators. Citigroup's shareholders may not be applauding, seeing as the bank took an immediate loss of $30 billion. It has agreed to absorb up to $42 billion in losses. The government will absorb additional losses that stem from the $312 billion portfolio of Wachovia's most troubled loans. To shore up its position, Citigroup will sell $10 billion worth of common stock and slash its quarterly dividend to 8 cents from 16 cents. This is essentially a non-failure failure in a sense--yet another. True, bank branches will remain open. Depositors are protected. But let's face it, the bank was tottering. Were it not for deal-making intervention, it would have really ended ugly. Really ugly. So who's next?

For more:
- here's a Washington Post article

Assessing the John Thain era at Merrill Lynch

Jim Kim — Tue, 16 Sep 2008 10:09:23 -0400

The John Thain era at Merrill Lynch was short, but long on drama. It ended on a good note. From the moment he stepped in, he was faced with one crisis after another. They all built to the point that the storied brand was threatened. Dominoes were set to crash into it. Thain, unclouded by a long emotional tenure at the firm (perhaps unlike Lehman Brothers CEO Richard Fuld), was clear-eyed enough to see the end, though it just might have survived the Lehman crisis. Still, Thain played it safe and did what he had to. He sold out to Bank of America at a price that leaves little room for shareholders (Merrill's anyway) to quibble. The brand will survive. Bank of America will continue to use it. It's unclear what role Thain will play if any. My guess is that he will move on.

For more:
- here's a New York Post article

Lehman releases 3Q earnings early along with capital plans

Jim Kim — Wed, 10 Sep 2008 07:59:03 -0400

We have a bit more clarity on the Lehman Brothers situation now that it has released preliminary third-quarter earnings and a peek at capital raising activity. The firm says it will sell a 55 percent stake in its asset management, private equity and wealth management. It will retain its hedge fund stakes. This deal will raise book value by $3 billion, as goodwill from Neuberger Berman disappears. It also will retain the pre-tax income from these units. But there's no deal yet. We're not sure who the buyer is. Lehman also will spin off its commercial real estate assets to shareholders in the first quarter of 2009. The dividend will be cut, as well. Furthermore, the firm has a deal to sell some mortgage assets to a U.K. buyer. But will this be enough? The firm announced a preliminary loss in the $4 billion range. Revenues were more negative. It will write off about $7.8 billion, which is more than expected, but that was offset by $800 million in hedges and $1.4 million in write-ups. We'll see how people react.

For more:
- here's the release

Regional banks at risk due to GSE preferred stock

Jim Kim — Tue, 09 Sep 2008 11:13:37 -0400

The bailout of Fannie and Freddie has been a rank disaster for common shareholders of the two companies. They are clearly the big losers. The preferred shares are not as widely owned, but regional banks tended to be big owners. Hey, they sounded like a great idea when people assumed that Fannie and Freddie would live forever. According to a table from Goldman Sachs posted by the Financial Times, tiny Gateway Financial has 22 percent of its "tangible equity at risk" in GSE preferred shares. Midwest Banc Holdings is at 20 percent. The biggest regional banks with the most exposure are Westamerica and Sovereign; they have 10.6 and 8.5 percent of their respective tangible equity at risk in these securities. As the FT notes, the big question is Wells Fargo, which has not disclosed how much GSE preferred shares it owns. But it did say it will take a charge for the third quarter.

For more:
- here's the post

Winners and losers in the Fannie, Freddie mess

Jim Kim — Mon, 08 Sep 2008 07:50:45 -0400

The news of the federal takeover of Fannie Mae and Freddie Mac spells really bad news for value investors--notably Bill Miller, who just couldn't believe that a beaten down stock wouldn't bounce back. He never learned his lessons, averaging in as financial stocks plummeted. Last week, when Freddie Mac stock was trading at about $5, he bought 30 million shares, according to the New York Times. All shareholders--and Fannie and Freddie ranked among the most widely held stocks--got burned, including employees who owned a lot of shares. The big winners are the shorts, the most vocal of which was hedge fund guy William Ackman. All in all, this is extraordinary news. As for Daniel Mudd, the departing head of Fannie, and Richard Syron, his counterpart at Freddie, they will make out well with severance packages in excess of $10 million; which will not make them popular.

For more:
- here's the article

GPs vs. LPs vs. shareholders

Jim Kim — Thu, 04 Sep 2008 13:34:26 -0400

Private equity companies make a strong case for going public. But everyone knows that there's always the possibility of complications. The news that Calstrs will invest much less in funds offered by the Blackstone Group--$250 million vs. the $1.7 billion it invested in the last Blackstone fund--has led to an interesting post at Portfolio. Calstrs Chief Investment Officer Christopher Ailman says this: "Money-management organizations are based around a culture, and being public changes the culture of the organization--the stock price now becomes the focus." And this: "I don't like seeing my GPs on the cover of Vanity Fair or bantered about on CNBC. I liked it when they were private." Wow. These are strong words via the media. The issue for the Blackstone Group is whether any of its other big investors are thinking along the same lines.

For more:
- here's the Portfolio item

Offering watch: Apollo vs. KKR

Jim Kim — Mon, 25 Aug 2008 13:22:26 -0400

Both Kohlberg Kravis Roberts and Apollo Management made headlines when news broke that they were going public after all. They're not abut to stage traditional IPOs. Both will manage to list themselves without selling shares to new investors. Breakingviews notes Apollo is re-listing its private shares, now on GSTrUE, on the NYSE, while KKR will sort of reverse merge with its Amsterdam-listed affiliate and then re-list on the NYSE. Breakingviews gives KKR the nod, noting that affiliate shareholders will get a nice premium for their shares, which may make them more likely to hang onto the stock. But in both cases, eventually the stock will rise and fall with results and expectations. Both could face an embarrassing after-market situation, not unlike the Blackstone Group.

For more:
- here's the article

Related Articles:
KKR to go public after all
Apollo Group to go public