PlanMaestro

Can someone remind me who is Greenspan?

BofA to Cut From Elite Ranks http://online.wsj.com/article/SB10001424052702304868004577376412357712878.html The Charlotte, N.C., company is planning about 2,000 staff cuts in its investment banking, commercial banking and non-U.S. wealth-management units, said people familiar with the situation. Those operations were vastly expanded with Bank of America's 2009 purchase of Merrill Lynch & Co. The reductions are significant because of whom they target: the high-earning employees whose efforts helped Merrill Lynch account for the bulk of Bank of America's profit since the financial crisis. ... Cutbacks aren't Bank of America's only response to surging costs. The bank is loath to cut too deeply in businesses, such as the fixed-income trading operation, that are showing improvement and highly competitive. One structural shift being planned will pool junior investment-banking employees across different industry sectors so the younger bankers can be routed to whatever area is most in demand at that moment, said people familiar with the situation. Proponents say that move will help younger workers gain more experience, while others say it will detract from the bank's service to clients. .... Mr. Montag told his managing directors in 2009 that he wanted the bank to make half its big corporate loans abroad in the coming years. Bank of America Merrill Lynch hit that target at the end of 2011, as non-U.S. large corporate loans increased to 50% of all corporate loans, up from 39% in 2010. Bank of America has been pushing deeper into emerging markets and taking on assignments it once might have rejected as too risky. One example of an emerging-markets deal done under Mr. Orcel that the pre-Merrill Lynch company likely wouldn't have touched was the 2010 initial public offering of Russian aluminum company UC Rusal Ltd., 0486.HK +0.73% a person familiar with the matter said. At Mr. Orcel's prodding, Bank of America also boosted its country-lending limit for Russia to $5 billion from $50 million. The bank also has lifted limits in other countries, such as China and India. Bank of America still lags behind rivals in several key markets overseas, even though it is ranked No. 2 globally by investment-banking revenue. It was No. 6 in investment banking revenue in Europe during the first quarter of 2012, and not in the top 10 in Asia Pacific excluding Japan, according to Dealogic, a financial data company. Last week, Bank of America lost the top executive of its Chinese investment banking operations when Erh Fei Liu left to run a BlackRock BLK +0.26% Inc.-led fund focusing on overseas investments. Mr. Liu was also a veteran of the old Merrill Lynch. ...

Thx for the article Kiltacular. Lloyds LYG just released earnings: http://www.ft.com/cms/s/0/ae862572-9308-11e1-aa60-00144feab49a.html#ixzz1tcxUZcu7 Lloyds was hampered by an extra £375m charge to cover the cost of compensating customers for mis-sold PPI, a form of loan cover that was once a big earner for banks. It had already set aside £3.2bn for the purpose last year. .... Mr Horta-Osório said that one in four of the claims submitted to Lloyds by such companies involved people who had not even held a PPI policy with one of the bank’s brands. “It is fraud and I think we should stop that,” he said, adding that the complaints trend had been more stable in April. However, he also accepted that the way Lloyds had sold PPI had been “unacceptable”. ..... On a “combined businesses” basis – a Lloyds-devised measure of underlying performance – it posted a £628m pre-tax profit, up from £284m a year earlier. Lloyds has been talking to the Co-operative Group about the potential sale of 632 branches that it must shed to satisfy EU rules on state aid.

I like how you put it Uccmal: as BAC is today 1.5 years from now plus a similar overhang as AIG w/o the will and instruments to solve it. Considering how cheap they are, maybe just enough to keep in the watchlist for a review a year from now. But the American banks are in better shape as Parsad correctly likes to remind us. Another article from the FT today. LYG and RBS have some interesting non-core assets they are being forced to sell (Warren are you awake?). The first and largest direct auto and home insurer in the UK, and the creators of the life insurance business. http://www.ft.com/intl/cms/s/0/20f83cbc-92b4-11e1-9e0a-00144feab49a.html#axzz1tZYW3XLB Boldness is a good quality in an entrepreneur. So the rumoured interest of financier Edi Truell in Direct Line and Scottish Widows is to his credit. However, the owners – Royal Bank of Scotland and Lloyds, respectively – have slung cold water on the gossip, saying they have no intention of selling to Tungsten, the cash shell that the financier plans to float by the end of May, or to anyone else. RBS is at least readying Direct Line for an initial public offering of its own, at the insistence of European trustbusters. The first tranche of shares is due to hit the market this autumn. That gives Mr Truell an outside chance of intervening. Eamonn Flanagan of Shore Capital values the motor insurer at close to its net asset value of £4.5bn. Assuming Tungsten can raise a mooted £1bn in equity for a deal, debt might supply the balance. Buying Scottish Widows may be where Mr Truell’s aspirations really shade into pipe dreaming. The life and pensions company, bought for about £7bn in 2000, makes solid returns for the struggling bank – some £886m in pre-tax profits in the UK alone last year. Lloyds is under no current pressure from regulators to sell this strong brand. Mr Flanagan believes it would fetch less than an embedded value of £6bn. But the buy would still be a big stretch for Tungsten, albeit that it might pay partly in shares. .... Direct Line is Britain’s biggest personal motor insurer by number of policies. Its brands include Churchill and car breakdown service Green Flag. The home and motor insurer swung into profit in 2011, posting an annual operating profit of £454m after rising bodily injury claims pushed it to a £295m loss a year earlier.

Another very interesting situation to watch, and they do not have the euro straightjacket. Early flotations might leave RBS adrift http://www.ft.com/intl/cms/s/0/a95c95dc-92df-11e1-b6e2-00144feab49a.html#axzz1tX0xqhyN But achieving maximum value for the business right now is impossible. Some RBS managers try to put a brave face on the forced sale – divestment will simplify the group’s structure, they say, and the boost to group capital will be welcome given the ever tougher regulatory requirements on banks. That argument is simplistic – under current regulations the business merely operates using double-counted bank capital, so the economic benefit of selling will be limited. For a bank that has been swinging between a slim profit and a big loss for the past year or two, being deprived of half a billion pounds of income will hurt, too. At the very least Mr Hester should argue for a delay to the sale timetable and use the interim to rake in profits from the business, only floating it once equity markets look healthy again. All of the above would be “nice-to-have” concessions. For RBS the “must-have” change in the EU sanctions relates to the so-called “dividend access share”. This abstruse construct, which defines the terms under which the bank may pay dividends on ordinary “A” shares (owned by government and private-sector alike) and preferentially treated “B” shares (owned only by the government), is a dangerous obstacle to RBS ever being reprivatised. Essentially, it makes it prohibitively expensive for RBS to pay dividends to the private sector. Unless it is renegotiated, no potential investor – from Abu Dhabi to Singapore – would go anywhere near the government’s RBS stock. If only for this reason, both Mr Hester and the British government should make it a priority to head to Brussels – and Lloyds’ António Horta-Osório might as well go along for the ride. Banks in Belgium, the Netherlands and Germany can clearly persuade the EU authorities that the worse-than-expected crisis should mean a slackening of penalties. The UK should be arguing for the same boost for its part-nationalised banks.

http://www.ft.com/intl/cms/s/0/b7e32700-9097-11e1-9e2e-00144feab49a.html#axzz1tLIoRdBW The Fed has paved the way for some concessions to the banks’ concerns, setting up a “model validation council” to try to address concerns that the Fed is factoring in too-high loss rates on assets. One complaint aired by Mr Dimon and other bankers is that the Fed assumes banks would continue to buy back shares in a market crisis. Officials retort that is exactly what they did in 2007. Officials seem confident that their models delivered sound results. Any changes to the stress tests are likely to revolve around timing, potentially alleviating the pressure on banks to provide so much data at the end of each year. They might also consider giving banks the results of the tests and allowing them to submit a plan for dividends and share buybacks instead of doing both at the same time. That could make it easier for the banks to avoid an embarrassing veto on their capital plans.

Armageddon

Investing with Style http://video.ft.com/v/1590459177001/Investing-with-style Interesting take on what traditional value drivers have underperformed in the current cycle. If you ignore the value/growth dichotomy and consider growth as another value driver (is there any other kind?) it is even more interesting. "The problems of value at the moment are down to a loss of trust" This other video on the US financials and book value in general is also related to this issue: http://video.ft.com/v/1583877064001/America-s-hidden-treasure

With a 74% loans to deposits, there is no need for expensive financing especially if it is expensive and does not contribute to capital ratios. Too much liquidity!

Fascinating.

Moody's Hears It From Banks http://online.wsj.com/article/SB10001424052702303978104577362282853365276.html The rating agencies are a gift for value investors and a menace to the world.

http://newsandinsight.thomsonreuters.com/Legal/News/2012/04_-_April/ACA_Financial_gets_go-ahead_for_Abacus_fraud_case_v__Goldman/ Like U.S. District Judge Victor Marrero, who last month permitted the hedge fund Dodona to proceed with fraud claims for its investment in Goldman's Hudson CDOs, Justice Barbara Kapnick was swayed by allegations that the bank deliberately set out to mislead ACA, which insured the Abacus CDO. Kapnick's 41-page opinion recounts that ACA specifically asked Goldman at least twice about Paulson's position on the CDO. Goldman repeatedly informed the insurer, according to Kapnick, that Paulson was the equity investor with a long position that aligned his interests with ACA's. Of course, that wasn't true: Through credit default swaps, Paulson was banking on the inevitable failure of the CDO. That allegedly active deception, according to Kapnick, overcomes Goldman's argument that if ACA really wanted to know Paulson's position it could simply have asked him. "By undertaking to characterize Paulson's economic interest in the transaction, Goldman Sachs assumed a duty to disclose Paulson's true economic interest in Abacus, especially once it was put on notice that ACA was acting on the erroneous belief, based on Goldman Sachs's affirmative misrepresentations, that Paulson had pre-committed to take a long position," the judge wrote. In other words, Kapnick held, even though ACA is a sophisticated player, Goldman is on the hook for concealing information ACA couldn't have obtained by other means.

Report: Bank of America workforce shrinking http://www.charlotteobserver.com/2012/04/20/3185600/report-bofa-workforce-shrinking.html

A contrarian view from Argentina http://blogs.ft.com/beyond-brics/2012/04/20/ypf-the-view-from-argentina-part-i-expropriation-was-right/ And a contrarian view from The Guardian http://www.guardian.co.uk/commentisfree/cifamerica/2012/apr/18/argentina-critics-oil-nationalise

The problem of price controls: http://www.clarin.com/sociedad/Gobierno-encaminado-faltan-productos-gondolas_0_685131726.html

True, for Telefonica is also like 5%. I thought it was higher for BBVA. http://www.opinion.com.bo/opinion/articulos/2012/0417/noticias.php?id=52455

Like most Latin American countries. You can say that European and Asian countries have their history too. Peron and the Peronists were modeled on some Spanish guy that the latest rumor says is still dead. I am not going to say I am an expert, just an observing neighbor from across the Andes that would much love to hear from the Argentinians themselves. Argentina compared to other Latin countries has a decentralized power structure where the provinces, their governors, and their crony base are a real power (herding cats). That has made very difficult historically for Argentina to control spending. That was one reason that Cavallo decided to go to the extreme of "Convertibilidad" to put a straight jacket on the provinces. The Kirchner power base is from their province, and to keep power they are running a corrupt transfer web, that has even corrupted the judicial system. But at the end this is mostly about enriching themselves and keeping power. There is no real ideology here, it looks more like the Mexican PRI than anything else. So it is very difficult to compare it to Venezuela (ideology) or Russia (centralized dictatorship). Lately things are getting so complicated that Cristina is trying to raise national cohesion with the overused Malvinas/Falkland card. Since this nationalistic card is not gathering international support, while the economy is starting to dove tail, my impression (and it is just an impression) is that the YPF expropriation looks more like desperation. The economy will continue to suffer a normal balance of payment crisis but with a flexible exchange rate that should mitigate the issues. If the above analysis is correct, the nationalization issues might be overstated and value at the right price in the right sectors, that are not controlled by foreign interests - like banking and utilities -, might be a possibility.

That is an interesting point of view. The thing is that many Spanish firms are arguing that the problems in Spain are overblown because of their large Latin American presence. But if they are stopped from repatriating funds, like the Argentinian banks recently, the argument can show some cracks. These are some of the Spanish firms with Argentinian presence Gas Natural Fenosa, Endesa, Santander, BBVA, Mapfre, Telefónica, ACS, OHL, NH, Sol Melia, Inditex.

Truth. However, I would not put Argentina along side Venezuela or Russia. This looks more about economic incompetence than a power coup . Trying to control inflation alongside runaway spending after the early 2000s crisis, the Kirchners put controls on energy costs. That put a stop of energy investments and a dependency on foreign imports. Instead of unwinding the controls when Argentina got out of the slump, that had a purpose, the Kirchners double down The balance of payments concerns are so high that banks dividends were stopped by the Central Bank (directed to the Spanish banks that were redirecting funds to manage their own problems). In this circumstances, it seems that the expropriation of Vaca Muerta oil field was too much temptation even if nobody knows who is going to fund the needed CAPEX. Argentina is a very difficult country to manage. It looks more like things getting out of control for Cristina and she is clutching at straws. Rumors are that Petrobras Argentina is next. The thing is that ALL stocks are suffering not just the energy related. http://www.ft.com/intl/cms/s/0/caf527bc-88a9-11e1-9b8d-00144feab49a.html#axzz1sLyr8O5O

Is there anyone that can comment on recent events in Argentina from a value investing perspective? Some Argentinian stocks are starting to look really cheap. Meanwhile, it seems that the small non-Repsol shareholders of YPF are emerging whole (but with an irrational controlling shareholder that who knows what is going to do later). http://online.wsj.com/article/SB10001424052702304432704577349830438299066.html?mod=googlenews_wsj

Packer and COneal, maybe we should start a CT Capital Trust thread. I have also been doing work on it and it looks very cheap. But the legacy assets is a tough nut to crack.

Packer, have you done some work on Capital Trust CT?

The largest companies when capitalism wast just rising. Fun to see who is still around on one form or another (Careful, Bank of America is not the current Bank of America). The comparisons against other countries are also very interesting. http://media.bloomberg.com/bb/avfile/r4_flsjut66g http://www.bloomberg.com/news/2012-04-10/-fortune-500-of-1812-shows-u-s-banks-early-influence.html The biggest American corporation in 1812 was the Bank of the United States, chartered by Congress in 1791. Ironically, Congress refused to renew the bank’s charter in 1811, so in 1812 it was in the process of being liquidated. In 1816, Congress would charter an even larger central bank, which would meet the same fate in the 1830s at the hands of President Andrew Jackson. Two other banks in the top 10 are still with us. The City Bank of New York (No. 5), founded in 1812, is today’s Citigroup Inc. ©, observing its 200th anniversary this year. And the Manhattan Co. (No. 8 ), more recently known as Chase Manhattan, survives as part of JPMorgan Chase & Co. (JPM) Bank of New York (No. 37) is also still around, with Mellon added to its name. Economic activity at the time was still heavily concentrated in the Northeast. New York, Massachusetts and Pennsylvania had chartered the most corporations in our 500. Together they account for 63 percent of the companies and 56 percent of corporate capital. A few caveats call for attention. Although some of the companies in the list, such as Bank of New York, exist in substantially the same form today, others, such as Bank of America (No. 2), aren’t related to extant businesses other than in name. Some surviving companies have long since lost their original identities in mergers; for example, Bank of North America (No. 36), the DNA of which is now a part of Wells Fargo & Co. (WFC) The fate of many smaller companies in the list, particularly the turnpikes, is unknown; in many cases, their facilities eventually became part of the public-road network.

It is important to understand how a turnaround expert thinks about turnarounds: 1. to detect the few ones that can survive to live for better times. 2. to detect a good implementation in early stages, and be prepared for signs that it could be turning south (and get out).

One Up On Wall Street : How To Use What You Already Know To Make Money In The Market by Peter Lynch Super Stocks (competing for worst title ever) Kenneth Fisher Corporate Turnaround: How Managers Turn Losers Into Winners! Donald B. Bibeault Who Says Elephants Can't Dance?: Leading a Great Enterprise through Dramatic Change by Louis V. Gerstner The Profit Zone: How Strategic Business Design Will Lead You to to Tomorrow's Profits (good case studies: GE, Disney, Coke, SMH) by Adrian J. Slywotzky, David J. Morrison and Bob Andelman Profit from the Core: A Return to Growth in Turbulent Times by Chris Zook Beyond the Core: Expand Your Market Without Abandoning Your Roots by Chris Zook