Asset Sales

Dividends, the best source of capital right now?

Jim Kim — Tue, 22 Jul 2008 08:30:33 -0400

We've noted that most big banks have fewer options when it comes to capital raising. Public offerings are increasingly hard, given concerns about dilution, among other things. Outside investors have been licking their wounds as their early investments have really tanked. So that leaves asset sales and dividend cuts. Asset sales can be a tricky, especially at a time when valuations are an issue. Just ask Merrill Lynch. And for the second time in three months, Wachovia has cut its dividend. It now will pay a nickel a share, compared with 37.5 cents earlier, and 60 cents a share at the start of the year. The move will effectively raise $700 million each quarter. This, of course, is bad for shareholders, but in this environment, what choice did the bank have? It's second quarter earnings were much worse than anticipated--a loss of $4.20 a share. Analysts were expecting 78 cents a share. Ouch. The fourth largest U.S. bank is also slashing 6,350 jobs.

For more:
- here's the AP article

Another upside surprise: Citigroup beats expectations

Jim Kim — Fri, 18 Jul 2008 07:59:22 -0400

Citigroup reported a loss of 54 cents for the April-to-June quarter, which was not as bad as the 66 cents analysts were expecting. The loss reflects $7.2 billion in writedowns, which again was lower than the $9 billion or so that the most pessimistic analysts were expecting. As a barometer of how the credit crunch has hit the bank, we note that revenue was down nearly 30 percent from a year ago. Still, the quarterly upside surprise was additional good news from the commercial bank sector, in line with the positive results from Wells Fargo and JPMorgan Chase. Right now, the capital situations seems to be in hand. But we've learned that it's unwise to assume the worst is over. Still, there are plenty of assets to be sold--Citigroup is in the midst of a large restructuring that will call for many asset sales--and that just may be the only source of capital it needs going forward.

For more:
- here's an article on earnings from CNNMoney.com

The pain of financial stocks gets worse

Jim Kim — Wed, 16 Jul 2008 07:37:07 -0400

Capital is the No. 1 need in the industry right now, but where is it going to come from? According to the New York Times, Goldman Sachs has taken a look at 52 fund-raising efforts and found that investors have only racked up gains at two. The average deal lost 42 percent for investors. The two biggest sources of capital going forward just might be dividend cuts and asset sales. Mr. Market seems to be pricing in some dividend cuts already, so this may be a good time to swallow the medicine. Why more banks are not doing this is puzzling. Asset sales are going to step up. We're already seeing that. Both of these methods favor big banks. Regional banks are going to have a tougher time if their capital ratios dip, hence the predictions of more failures. None of this is new stuff, but the markets are treating it as such.

For more:
- here's a Times article on the financial stocks

Citi to sell even more assets

Jim Kim — Fri, 11 Jul 2008 13:26:39 -0400

Citi CEO Vikram Pandit made news not too long ago by embracing his company's sheer breadth, which he saw as a golden opportunity--like his storied predecessors. Some were disappointed that he opted against a massive break up. His confidence that he can find synergies, however, does not mean every piece of the empire will be deemed a strategic fit. Indeed, we're in for a slew of asset sales. This is not a break up, but more of a chip away. Some of those chips, however, can fetch quite a lot. Citigroup just sold its German retail banking unit to France's Credit Mutuel for $7.7 billion in cash, earning a post-tax gain of $4 billion. My guess is that we'll see other sales of overseas units. Is Japan next?

For more:
- here's the AP article on the sale of German retail unit

Can Wachovia survive on its own?

Jim Kim — Thu, 10 Jul 2008 17:49:12 -0400

Wachovia's new CEO, Robert Steel, has roots at Goldman Sachs, where he was vice chairman before moving into public service at the Treasury Department. His corporate pedigree has only stoked the view that perhaps Goldman Sachs is interested in buying the bank, despite its woes. The big issue for Wachovia is capital. A Goldman Sachs analyst has noted that nearly half of the $8 billion of capital raised in April has already "evaporated," according to Seeking Alpha. This, of course, endangers the dividend, and will likely force some asset sales; and that may not be enough. Any buyer will have to be convinced the worst is over and that the Golden West disaster has been worked through. My sense is that the Goldman Sachs rumor is mere wishful thinking.

For more:
- here's the Seeking Alpha item
- Wachovia's stock hits 17-year low. Article
- more on new Wachovia CEO. Article
- more on the bank's big writedown. Article

More asset sales to come

Jim Kim — Mon, 07 Jul 2008 16:07:49 -0400

With all top banks--except maybe Goldman Sachs--facing the need to raise more capital, it's a good bet we are going to see more asset sales. Morgan Stanley has announced that it will raise about $900 million by selling half of its stake in MSCI, the index and research house. Meanwhile, Merrill Lynch apparently is serious about selling part of its stakes in either Bloomberg or BlackRock, or both. Citigroup just raised $900 million by selling its stake of CitiStreet benefits administration company to ING Group. There have been various rumors that Citigroup also is pursuing sales of consumer-related business units in Europe, as well as an outsourcing outfit in India. You've got figure a lot is on the block at Citigroup.

For more:
- here's an article on Morgan Stanley from MarketWatch
- here's more on Merrill Lynch's asset sales
- here's an article on Bank of America selling its CA tech center