Mudd, Cullen, Frugality, Moody’s
– Please read this. Note the opening quote…no wonder they failed…they just did not listen
– James nailed Wells Fargo (WFC) and USB (USB)
– We could use a little
– Is anyone still listening?
Visit the ValuePlays Bookstore for Great Investing Books
Did you get burned on housing, Fannie (FNM) or Freddie (FRE)? Did you not buy Altria (MO) in 2000, yielding over 9% and miss out on 24% a year since? If you did it is because you have not read James Grant’s Interest Rate Observer or, if you did, you ignored it to your own peril.
First the boilerplate stuff:
Collected from speeches and editorials by Grant, the editor of Grant’s Interest Rate Observer, these essays are remarkable for their prescience: two years before subprime mortgages collapsed, the author described them as “not one borrower left behind” and when other analysts were worried about the effect of a Fed interest rate increase, he foresaw that the “risk to house prices lies not with interest rates but with lending standards.” Other chapters attack bubbles in stocks and the dollar with erudition and wit (“Economics, mistaking itself for physics, is wont to turn up its nose at history, but the past has much to teach”; “as dress on Wall Street has become more casual, so have the monetary arrangements… the gold standard and swallowtail coats have given way to Greenspan and open-neck shirts”). It’s hard to imagine reading any other investment newsletter even a week after publication. Grant’s is the exception; it paints on a larger canvas and is infused with the author’s generous spirit and rich sense of humor. (Nov.) — Publishers Weekly, September 22, 2008
Collected from speeches and editorials by Grant, the editor of Grant’s Interest Rate Observer, these essays are remarkable for their prescience: two years before subprime mortgages collapsed, the author described them as “not one borrower left behind” and when other analysts were worried about the effect of a Fed interest rate increase, he foresaw that the “risk to house prices lies not with interest rates but with lending standards.” Other chapters attack bubbles in stocks and the dollar with erudition and wit (“Economics, mistaking itself for physics, is wont to turn up its nose at history, but the past has much to teach”; “as dress on Wall Street has become more casual, so have the monetary arrangements… the gold standard and swallowtail coats have given way to Greenspan and open-neck shirts”). It’s hard to imagine reading any other investment newsletter even a week after publication. Grant’s is the exception; it paints on a larger canvas and is infused with the author’s generous spirit and rich sense of humor. (Nov.) –Publishers Weekly
The book:
Grant is a scathing critic of the Fed and its now decade use of low interest rates to prop up economic growth. In the mid 1990’s Grant predicted, almost to the tee, the current situation we find ourselves in today. Article after article warned of the tenuous (at best) situation at Fannie and Freddie and described in detail how gluttonous subprime lending, caused by irresponsibly low interest rates (and government mandate) was going to cause a collapse of the housing market, and then due to securitization, a banking crisis. Anyone read the papers lately?
Grant avoids to common thread today of laying blame on a political party or a particular person. He instead lays the majority of it at the feet of the Fed. Grant argues, successfully I think, that massive Fed liquidity injections and 1% interest rates, causing an actual negative real rate of interest (the interest you receive minus the rate of inflation) lead to yield hunting. The easiest way to accomplish it was to lend the money to hungry home buyers and owners. When the AAA rated buyers were exhausted, yield hunters moved down the credit chain.
When they reached the bottom of the yield chain, they moved on to alternate mortgages (interest only, no money down, no verification etc.). All the while, the loans were being combined, sliced and diced in to CDO’s, MBS’s and a whole litany of cryptic letter denominated securities. These were sold to other yield hunters and provided more cash for additional lending.
Grant argues that much of what we are experiencing today may have been avoided had we accepted 3% plus GDP growth was not a mandate, kept interest rates at more of a sane level, fought inflation rather than accepting it and kept the dollar from depreciating.
For over a decade, Grant laid out a thesis that doing the above would avoid the mess we find ourselves in today. Now ,agree or not with what he says, it would be hard to believe and make a convincing argument he was this right for all the wrong reasons.
When you put this book down you will say what I did 1/4 of the way through, “Had I only read James Grant 10 years ago”. You could have made a bundle, or, more importantly saved one..
Pre-order the book here:
Disclosure (“none” means no position):Long MO, None
Visit the ValuePlays Bookstore for Great Investing Books
Here is the latest on Pershing and Borders (BGP)
This calculation is based on 75,238,934 shares of common stock of Borders Group, Inc. This figure is based on 60,538,934 shares of Common Stock outstanding as of August 29, 2008 as reported in its quarterly report on Form 10-Q for the quarterly period ended August 2, 2008 and warrants covering 14,700,000 shares of Common Stock described in Item 4.
This Amendment No. 8 (this “Amendment No. 8”) amends and supplements the statement on Schedule 13D, as amended to date (the “Schedule 13D”), by (i) Pershing Square Capital Management, L.P., a Delaware limited partnership (“Pershing Square”), (ii) PS Management GP, LLC, a Delaware limited liability company (“PS Management”), (iii) Pershing Square GP, LLC, a Delaware limited liability company (“Pershing Square GP”), (iv) William A. Ackman, a citizen of the United States of America and (v) BGP Holdings Corp. (collectively, the “Reporting Persons”), relating to the common stock (the “Common Stock”) of Borders Group, Inc., a Michigan corporation (the “Issuer”). Unless otherwise defined herein, terms defined in the Schedule 13D shall have such defined meanings in this Amendment No. 8.
As of October 1, 2008, as reflected in this Amendment No. 8, the Reporting Persons are reporting beneficial ownership on an aggregate basis of 25,297,880 shares of Common Stock (approximately 33.62% of the outstanding shares). This includes warrants covering 14,700,000 shares of Common Stock, which represents 9,550,000 warrants received on April 9, 2008 (as previously disclosed) and an additional 5,150,000 warrants (as further described below in Item 4). The Reporting Persons own cash settled, total return equity swaps covering 4,805,463 notional shares of Common Stock (as previously disclosed). The notional shares that underlie such swaps are not included in the totals set forth in the charts earlier in the Schedule 13D. The aggregate economic exposure of the Reporting Persons to shares of Common Stock, including the aggregate shares of Common Stock beneficially owned by the Reporting Persons plus the aggregate notional shares underlying such swaps, represents approximately 40.1% of the sum of the outstanding shares of Common Stock and the shares of Common Stock underlying such warrants.
Item 4. Purpose of Transaction
Item 4 is hereby supplemented, as follows:
On October 1, 2008, Pershing Square received from the Issuer warrants to purchase 5,150,000 shares of Common Stock at $7.00 per share for a term of 6.5 years, in accordance with the terms of the Warrant Agreement referred to in Item 6, which is filed as Exhibit 99.3 hereto and is incorporated herein by reference.
Full Filing
Disclosure (“none” means no position):Long BGP
Visit the ValuePlays Bookstore for Great Investing Books
Probably the most dramatic week in recent history…
Disclosure (“none” means no position):
Visit the ValuePlays Bookstore for Great Investing Books
Here are the notable items from the Wells Fargo (WFC), Wachovia (WB) merger call.
– The synergies will be a $5 billion in that number on an annual basis, it’s about 10% of the combined costs of the expenses of the two organizations.
– Merger costs around $10 billion and target the closing for the fourth quarter. The due diligence has all been completed and the remaining approvals we need are regulatory approvals and shareholders’ approvals from Wachovia.
– Will have an industry leading 6,675 banking stores & an industry leading core deposits, or total deposits of just over $700 billion.
– Wachovia Corporation has some $498 billion in loans and the securities portfolios.
The losses are estimated in the asset portfolios of the company which on current estimates total $74 billion. The $74 billion figure is comprised of both credit and rate marks. The bulk of that estimated loss will be taken in the form of purchase accounting adjustments at close. The balance of that $74 will be realized in the form of charge offs over time.
– Combined capital ratios of the organization will be roughly the same to slightly lower at that point than Well Fargo’s capital ratios before the transaction. They are estimating tier one risk based capital at 7.5% compared with 8.2% at the end of June and total capital for the combined organization at the start being 11%, roughly the same as Wells’ standalone capital ratio at the end of June, 2008.
From Q & A
Jason Goldberg – Barclays Capital: “A couple of headlines flowing across I would hope you could react to; the first thing, Citi Believes It Has Exclusive Rights to the Wachovia Branch Operations and secondly, Fed Cautious About Wells Fargo Bid for Wachovia. If you could just talk to conversations with Citi and how that deal was structured with respect to this transaction? Why you think believe this deal supersedes that and any rights Citi may have, any breakup fees, etc.? And secondly, any comments you’ve had with the regulators with respect to this transaction?”
Richard M. Kovacevich: “We think that this deal is solid. We’re not aware of any merger agreements that had been consummated at the time. And as far as other issues, I haven’t seen anything in terms of issues that Citi has or doesn’t have. We feel very confident that this transaction has been done appropriately and we’ll continue and be consummated and we’ll go forward with it.”
This is a brilliant move by Wells. They get a quality bank (unlike Washington Mutual (WM) or Bear Stern (LEH), acquired by JP Morgan (JPM)) and vastly expand their presence throughout the US. The $5 billion in cost savings essentially mean a cost of $10 billion for the bank $4.62, dirt cheap..
Disclosure (“none” means no position):Long WFC
Visit the ValuePlays Bookstore for Great Investing Books
AutoNation’s (AN) Mike Jackson did the following interview yesterday on PBS
JEFF YASTINE: Earlier today, I spoke with Michael Jackson, CEO of AutoNation, the largest chain of auto dealerships in the country. I began by asking him how soon his business will feel the impact of the plan and when his customers will be able to get loans.
MICHAEL JACKSON, CEO, AUTONATION: As far as I`m concerned, the sooner the better, but it is going to be tough to predict exactly when it is going to happen. The banks have been saying no, looking for every excuse to say no, and they`re saying no to good costumers with good credit, with business that is very good for them. So clearly the banks are out of money to lend, and hopefully with the Treasury`s initiatives here, they can be back in business as soon as possible.
YASTINE: Now you`re the nation`s largest auto retailer, how bad is business, really?
JACKSON: Well, you know, it is a difficult economy to begin with. We`ve been struggling with it for the past two years, and we had the gasoline crisis in May, and by August, our business had stabilized from that. But then the credit squeeze turned into a credit crisis and a credit panic in the month of September, and it has impacted business by another 10 to 15 percent.
YASTINE: Do you think this bailout is enough boost consumer confidence, and restore trust in the financial system again?
JACKSON: It was — it is an absolute essential step on the journey back. Without it, there is no chance. But with this, I think that you`ll gradually rebuild trust and confidence, both with the banks and customers, and at least we can get the credit panic behind us. But we still, then, have to deal with the fundamentals of a weak economy, which are going to take more time to get through.
YASTINE: What are you telling your dealers at a time like this?
JACKSON: Just keep the visibility, and tell everybody it is not them, it is the environment. And we will get through this. We`re still solidly in the black and we`ll manage through this.
YASTINE: You know, one of the big Chevy dealers in the Southeast went under, went bankrupt last week. Will you be forced to close dealerships in a similar fashion, closing them in this environment?
JACKSON: Well, our business model is very different than what is happening — what happened to that Chevy dealer and some of our other competitors. They ran a business model of huge inventories with huge marketing budgets, high pressure tactics with razor thin margins. And that business model, with overcapacity and a dramatic decline in the business simply will not work.
YASTINE: You know, Mike, do you think we`re actually in a recession, and if so, the crystal ball question, of course, how long will it last?
JACKSON: I think the third quarter will show negative growth, and that`s even before the credit crisis and the credit panic really took off at the end of the quarter. So the economy is in serious trouble. What you cannot have, though, is a weak economy combined with a credit crisis/credit panic. You know, you have to go back to 1900 or 1930 to find similar circumstances. But when business is already weak and credit availability dries up, and by the way, the other shoe to drop will be that interest costs actually go up. If you look at the spread rates on LIBOR, because of the credit crisis, they`ve expanded by 200 basis points. So that`s a toxic combination that simply cannot exist for long or you do tremendous damage to the economy. Thank goodness Congress has acted and given the resources to Mr. Bernanke and Mr. Paulson, who are fighting this battle for our economy. And hopefully they take these new resources and apply them effectively to the market place and we can get things moving again as soon as possible.
YASTINE: Mike, thanks for your time on the program.
JACKSON: Thank you. My pleasure.
YASTINE: Our guest, Michael Jackson, CEO of AutoNation.
Original Post
Disclosure (“none” means no position):Long AN
Visit the ValuePlays Bookstore for Great Investing Books
FOR IMMEDIATE RELEASE:
October 03, 2008
WILLIAM ACKMAN TO SPEAK ABOUT PERSHING SQUARE'S INVESTMENT IN WACHOVIA
Presentation at Value Investing Congress this Monday
New York, NY – William Ackman will speak about Pershing Square Capital Management's investment in Wachovia (NYSE: WB) on Monday, October 6, 2008 at the 4th Annual Value Investing Congress.
Date: Monday, October 6, 2008
Time: 11:40 a.m.
Place: Rose Theater
Frederick P. Rose Hall
Home of Jazz at Lincoln Center
Time Warner Center, 5th Floor
(Columbus Circle at West 60th Street)
Thank you,
Todd Sullivan
Sent from my BlackBerry® wireless device
From Bloomberg
William Ackman’s Pershing Square Capital Management LP bought a 9 percent stake in Wachovia Corp., now valued at $1.2 billion, according to a person with direct knowledge of the purchase.
The shares were acquired following Citigroup Inc.’s (C) Sept. 29 agreement to buy the bank and before Wells Fargo & Co. (WFC) announced a rival offer today, said the person, who declined to be identified because the purchases haven’t been publicly disclosed.
The purchase inserts Ackman, 42, into the latest skirmish in the credit crisis, a pitched battle over Wachovia’s (WB) deposits and branches after the Charlotte, North Carolina-based company went to the brink of collapse
Full Article\
Disclosure (“none” means no position):None
Visit the ValuePlays Bookstore for Great Investing Books
AutoNation’s (AN) Mike Jackson gives some real world examples of the current credit situation. It’s not good…
Watch this, he is talking about 3,000 MORE dealerships closing in 2008-2009. AutoNation will pick up huge market share through this process.
My interview with Mike Jackson
Disclosure (“none” means no position):Long AN
Visit the ValuePlays Bookstore for Great Investing Books
Here is the new closing information on the Alria (MO) & UST (UST) deal.
SECTION 1. Amendment to the Merger Agreement.
(i) Section 1.2 (Closing) of the Merger Agreement is hereby deleted in its entirety and replaced with the following:
“Unless otherwise mutually agreed in writing between the Company and Parent, the closing for the Merger (the “Closing”) shall take place at the offices of Hunton & Williams LLP, 200 Park Avenue, New York, NY at 10:00 a.m. (Eastern Time) as promptly as practicable (but in no event later than the third (3rd) business day) following the satisfaction or waiver of the conditions set forth in Article VII (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions), provided that (a) if any required pre-approval of any authority regulating the wine Business Unit has not been obtained at the time all conditions set forth in Article VII have been waived or fulfilled (other than those conditions that by their nature are to be satisfied at the Closing), then Parent by written notice to the Company may extend, from time to time, the Closing up to a date not beyond the four (4) month anniversary of the date of this Agreement), and (b) at its sole discretion, Parent by written notice to the Company may extend, from time to time, the Closing up to a date no later than January 7, 2009 (the “Closing Date”). For purposes of this Agreement, the term “business day” shall mean any day other than a Saturday or Sunday or a day on which banks are required or authorized to close in the City of New York.”
FULL FILING
Disclosure (“none” means no position):Long MO
Visit the ValuePlays Bookstore for Great Investing Books
A sign of the times, the deal will get done, just a month later..
-Altria Group, Inc. (Altria) (NYSE: MO) and UST Inc. (UST) (NYSE: UST) today announced that the companies have amended the September 7, 2008 agreement pursuant to which Altria has agreed to acquire all outstanding shares of UST. The amendment sets forth Altria’s and UST’s agreement to extend, at Altria’s option, the closing date of the transaction to a date that is no later than early January 2009 in the event conditions for closing are met prior to the end of 2008. While Altria currently has fully committed financing to complete the transaction, Altria’s lenders advised that it would be preferable to close the transaction in 2009. The parties also agreed to increase the “reverse termination fee” from $200 million to $300 million under certain circumstances, which are detailed in the amendment. In addition to the regulatory review process, completion of the transaction remains subject to UST shareholder approval and certain other customary closing conditions. The agreement and the amendment are filed with the Securities and Exchange Commission on September 8 and October 3, respectively.
Disclosure (“none” means no position):
Visit the ValuePlays Bookstore for Great Investing Books
This is a classic..why can’t Frank just admit he screwed up when it comes to Fannie (FNM) and Freddie (FRE)? A simple “we were wrong” would do just well. Watch how Barney tries to twist his own statement on Fannie and Freddie “going forward will be just fine”. Two months later they were done…
Disclosure (“none” means no position):None
Visit the ValuePlays Bookstore for Great Investing Books
We knew Wells Fargo (WFC) was going to do something. This begs the question again, is this bailout really so urgent?
Wells Fargo & Company (NYSE:WFC) and Wachovia Corporation (NYSE:WB) said today they have signed a definitive agreement for the merger of the two companies including all of Wachovia’s banking operations in a whole company transaction requiring no financial assistance from the Federal Deposit Insurance Corporation (FDIC) or any other government agency.
Under the agreement, Wells Fargo will acquire all outstanding shares of common stock of Wachovia in a stock-for-stock transaction. In the transaction, Wells Fargo will acquire all of Wachovia Corporation and all its businesses and obligations, including its preferred equity and indebtedness, and all its banking deposits.
Under terms of the agreement, which has been approved unanimously by the boards of both companies, Wachovia shareholders will receive 0.1991 shares of Wells Fargo common stock in exchange for each share of Wachovia common stock. The transaction, based on Wells Fargo’s closing stock price of $35.16 on October 2, 2008, is valued at $7.00 per Wachovia common share for a total transaction value of approximately $15.1 billion. Wachovia has almost 2.2 billion common shares outstanding. The agreement requires the approval of Wachovia shareholders and customary approvals of regulators.
Wells Fargo will record Wachovia’s credit-impaired assets at fair value. The acquisition is expected to exceed Wells Fargo’s internal rate of return goal and add to Wells Fargo’s earnings per share in the first year of operations, excluding integration costs, write-downs, transaction charges, and credit reserve build. Wells Fargo expects to incur merger and integration charges of approximately $10 billion. To maintain its strong capital position, Wells Fargo intends to issue up to $20 billion of new Wells Fargo securities, primarily common stock.
“We at Wachovia have great admiration and respect for the people and businesses at Wells Fargo and we are extremely pleased to join forces with this outstanding company,” said Robert K. Steel, President and CEO of Wachovia Corp. “Today’s announcement creates one of the strongest financial firms in the world and is great for all Wachovia constituencies: our shareholders, customers, colleagues and communities. This deal enables us to keep Wachovia intact and preserve the value of an integrated company, without government support. The market presence and composition of our businesses, along with our service-oriented cultures, are extraordinarily complementary and this combination creates great potential for sustained stability and growth.”
“This agreement represents a compelling value for Wachovia shareholders,” said Wells Fargo Chairman Dick Kovacevich. “It provides superior value compared to the previous offer to acquire only the banking operations of the company and because Wachovia shareholders will have a meaningful opportunity to participate in the growth and success of a combined Wachovia-Wells Fargo that will be one of the world’s great financial services companies. We are combining the industry’s number one ranking customer service culture of Wachovia with the industry’s number one sales and cross-selling culture of Wells Fargo. The best in service and the best in sales, an unbeatable combination. Wachovia shareholders also will benefit from holding the stock of a strong financial institution, the U.S. bank with the highest credit ratings and with a long history of increasing dividends on its common stock. Wachovia’s brokerage and asset management businesses, which would have been left behind in the prior proposal, are tightly interwoven with Wachovia’s core banking business – and this agreement avoids the complexity and unavoidable loss of value in trying to separate them, which would have disrupted Wachovia’s team members and customers. We also bring to this merger agreement our 157 years of experience in financial services and the unparalleled convenience we can offer Wachovia customers through one of the most extensive financial services distributions systems in North America. We have the highest regard for the quality and commitment and caring of Wachovia team members. We believe their demonstrated commitment to outstanding customer service and their highest standards of community leadership are identical to our own values. And, of course, this agreement won’t require even a penny from the FDIC.”
The combined company will have a strong presence in Charlotte, which will be the headquarters for the combined company’s East Coast retail and commercial and corporate banking business. St. Louis will remain the headquarters of Wachovia Securities. In addition, three members of the Wachovia Board will be invited to join the Wells Fargo & Company Board when the transaction is completed.
Kovacevich said, “This agreement is an outstanding opportunity for Wachovia common and preferred shareholders and debt holders, team members and customers, for the Charlotte and St. Louis communities and indeed all of the communities that Wachovia serves, and for the U.S. government and our banking system. It makes compelling business and strategic sense and is simply an incredible fit that will result in an immensely strong, stable financial services company that will carry on Wachovia’s proud tradition of being one of the very best financial institutions in the world.”
“We know this has been a time of great uncertainty for Wachovia team members and many of its customers as their company has gone through a very painful and challenging time of unprecedented change in our industry,” said Wells Fargo President and CEO John Stumpf. “We want to assure them we’ll do everything we can to make the integration of our operations as smooth as possible. An important measure of success for this integration will be our ability to retain as many of the talented Wachovia team members as possible so they can continue to provide outstanding service and financial advice to their customers and continue their careers with Wells Fargo.”
Wells Fargo’s Chief Financial Officer Howard Atkins said Wells Fargo used conservative assumptions in evaluating this opportunity. “As always, we only consider acquisitions that add to earnings per share no later than the third year after purchase and earn an internal rate of return of at least 15 percent,” said Atkins. “This acquisition comfortably exceeds all our financial requirements. This is a unique opportunity to expand both our Community Banking and Wholesale Banking presence in current markets and enter some new markets by acquiring another full service financial services retail banking company with a strong culture of customer service and community involvement very similar to ours.”
Wells Fargo and Wachovia will create the nation’s premier coast-to-coast community banking presence. The combined company will have community banks in 39 states and the District of Columbia. The acquisition will establish a Wells Fargo Community Banking presence for the first time in Alabama, Connecticut, Delaware, Florida, Georgia, Kansas, Maryland, Mississippi, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Tennessee, Virginia and Washington, D.C. Wells Fargo already has a Community Banking presence in Alaska, Arizona, Arkansas (pending), California, Colorado, Idaho, Illinois, Indiana, Iowa, Michigan, Minnesota, Montana, Nebraska, Nevada, New Mexico, North Dakota, Ohio, Oregon, South Dakota, Texas, Utah, Washington, Wisconsin, and Wyoming.
The combined company will be #1 in deposit market share2 in 17 of its 39 Community Banking states: Alaska, Arizona, California, Colorado, Florida, Georgia, Idaho, Minnesota, Iowa, Montana, Nebraska, New Jersey, New Mexico, North Carolina, South Dakota, Texas, and Virginia. Ninety-three percent of its deposits will be in states in which it ranks #1, 2 or 3 and the combined company will rank #1 in ten of the nation’s 20 largest Metropolitan Statistical Areas (MSAs) in deposit market share.2
2 excludes deposits greater than $500 million in a single banking store
Wells Fargo also is the nation’s:
* #1 small business lender,
* #1 agricultural lender,
* #1 commercial real estate broker,
* #2 largest mortgage originator,
* #2 largest mortgage servicer,
* #2 largest debit card issuer,
* #1 financial services provider to middle market businesses in the western U.S. and a national presence in commercial banking (29 states),
* largest bank-owned U.S. insurance brokerage
In connection with the agreement, Wachovia and Wells Fargo entered into a share exchange agreement under which Wachovia is issuing Wells Fargo preferred stock that votes as a single class with Wachovia’s common stock representing 39.9 percent of Wachovia’s voting power
Disclosure (“none” means no position):Long WFC
Visit the ValuePlays Bookstore for Great Investing Books
From the Milken Institute..
A surge in subprime loans,
Let to a surge in forclosures,
And a collapse in home prices..
The bad news? Based on the charge we have lower to go in home prices and again, based on the chart it’ll take about a decade for them to recover..