Talking about Brookfield Asset Management (BAM) and Brookfield Properties (BPO) that were first featured in this post
Go to Wall St. Media for more video
Note: Late Friday Monish Pabrai disclosed a stake in Brookfield Properties
Disclosure (“none” means no position):none
Readers. This book is perhaps the best investing book (for me) that I have read. It changed the way I looked at Value Investing and has made this year my best to date (so far). Please do yourself a favor and read it….
“Value investing” DOES NOT EQUAL “buy and forget”
From Vitaliy:
A presentation/speech of Vitaliy Katsenelson’s book (on Active Value Investing. This presentation/speech explains why we are likely suffering through a range-bound market. I updated the data; found a better way to explain old and new topics; changed my mind on some things; and answered questions that have been raised by readers. I have to warn you this PDF is 20 pages long. However, a lot of space is consumed by charts and tables thus don’t let the size scare you. Kill some trees, don’t kill your eyes – print it.
Avi Presentation
Disclosure (“none” means no position):
So I am sitting there at the kids hockey practice Friday afternoon having a blast watching son #1 score some pretty goals and son #2 go “Abu Ghraibe” on a few kids when my blackberry starts going nuts. “Ackman sold GGP shares” were the emails and a few twitter DM’s said the same. Buzz kill…..
You see Pershing Square filed its 13F late Friday and General Growth was not listed as a holding….
Here is the story. General Growth Properties (GGWPQ) is no longer classified as a “reportable security” for the purposes of 13F filings by the SEC. Don’t ask we why they say it isn’t (my guess is because it is in bankruptcy) I make no claim as to being able to discern why the SEC does what it does, it just is…
BUT, as a member of the Board of General Growth, his activity as it relates to the stock would be reportable on a Form 4 filing. Because of that, if/when he does sell/buy actual shares, we will be notified ASAP as Form 4’s must be promptly filed….
Interesting note his being back in McDonalds (MCD)….
Here is the filing:
Disclosure (“none” means no position):Long MCD, GGWPQ
It would appear Einhorn is not a believer in the recent rally as he added puts in the S&P (.INX) and GE (GE) to his portfolio in the last quarter.
Maybe this is why? From Bespoke
A P/E ratio rising from 10 to 18.35 is what happens when the S&P 500 rallies 50% (the P) while earnings (E) continue to decline. Below we provide a chart of the S&P 500 price to earnings ratio since the start of the 2002 bull market using trailing 12-month diluted earnings per share from continuing operations.
The S&P’s P/E ratio reached its highest level since the end of 2004 earlier this week. While P/E expansion is not unusual during bull markets, investors will remember that the S&P 500’s P/E actually declined from the start to the finish of the ’02-’07 bull. This is because earnings grew even faster than stock prices. When looking at the chart below, you can see that the P/E did expand in the early days of the ’02-’07 bull before earnings finally started to grow again in late 2003 and early 2004. Obviously if the current bull is going to have any sustainability at all, earnings will have to start growing again. But for now, as evidenced by the skyrocketing P/E ratio, investors are paying up on the hopes of future earnings growth.
Full Filing
greenlight13f_082009
Disclosure (“none” means no position):
It would appear Einhorn is not a believer in the recent rally as he added puts in the S&P (.INX) and GE (GE) to his portfolio in the last quarter.
Maybe this is why? From Bespoke
A P/E ratio rising from 10 to 18.35 is what happens when the S&P 500 rallies 50% (the P) while earnings (E) continue to decline. Below we provide a chart of the S&P 500 price to earnings ratio since the start of the 2002 bull market using trailing 12-month diluted earnings per share from continuing operations.
The S&P’s P/E ratio reached its highest level since the end of 2004 earlier this week. While P/E expansion is not unusual during bull markets, investors will remember that the S&P 500’s P/E actually declined from the start to the finish of the ’02-’07 bull. This is because earnings grew even faster than stock prices. When looking at the chart below, you can see that the P/E did expand in the early days of the ’02-’07 bull before earnings finally started to grow again in late 2003 and early 2004. Obviously if the current bull is going to have any sustainability at all, earnings will have to start growing again. But for now, as evidenced by the skyrocketing P/E ratio, investors are paying up on the hopes of future earnings growth.
Full Filing
greenlight13f_082009
Disclosure (“none” means no position):
Brookfield Properties Corporation (BPO) is a North American commercial real estate company. The Company operates in two principal business segments: the ownership, development and management of commercial office properties in select cities in North America, and the development of residential land. As of December 31, 2008, the Company’s commercial property portfolio consisted of investment in 108 office comprising 74 million square feet in 12 United States and Canadian markets. The Company’s primary markets are the financial, energy and government center cities of New York, Boston, Washington, D.C., Houston, Los Angeles, Toronto, Calgary and Ottawa. Brookfield Properties is 50.2% owned by Brookfield Asset Management (BAM)
Q1 Results:
Brookfield Properties Corporation (BPO: NYSE, TSX) today announced that net income for the three months ended March 31, 2009 was $38 million or $0.10 per diluted share, compared to $23 million or $0.06 per diluted share during the same period in 2008.
Funds from operations (“FFO”) was $127 million or $0.32 per diluted share for the three months ended March 31, 2009, compared with $126 million or $0.32 per diluted share during the same period in 2008.
Commercial property net operating income for the first quarter of 2009 was $327 million, compared to $340 million during the first quarter of 2008.
During the first quarter, Brookfield Properties leased 1.8 million square feet of space in its managed portfolio, improving the company’s five-year lease expiry profile by 160 basis points. The company’s managed-portfolio occupancy rate finished the quarter at 95.6%.
Q2 Results:
–Jul. 29, 2009– Brookfield Properties Corporation (BPO: NYSE, TSX) today announced that net income for the three months ended June 30, 2009 was $60 million or $0.15 per diluted share, compared with $45 million or $0.11 per diluted share during the same period in 2008.
Funds from operations (“FFO”) was $148 million or $0.38 per diluted share for the three months ended June 30, 2009 compared with $157 million or $0.40 per diluted share during the same period in 2008.Commercial property net operating income for the second quarter of 2009 was $338 million, compared with $341 million during the second quarter of 2008 as a result of the impact of a weaker Canadian dollar and a lower contribution from non-managed properties. Absent these items, commercial property net operating income increased 3% over the same period in the prior year.
During the second quarter, Brookfield Properties leased 725,000 square feet of space in its managed portfolio at an average net rent of $25 per square foot, which represents a 32% improvement versus the average expiring net rent of $19 on this space in the quarter.Additionally, the company has improved its five-year lease rollover exposure by 240 basis points since the start of the year. Year-to-date leasing totals 2.5 million square feet. Brookfield’s managed portfolio occupancy rate finished the quarter at 95%
Here is what makes Brookfield so interesting to me at this time..
From the BPO Press Release:
Brookfield Asset Management Inc. (NYSE/TSX/Euronext: BAM) and Brookfield Properties Corporation (NYSE/TSX: BPO) (collectively, “Brookfield”) today announced the formation of a US$4 billion Investor Consortium dedicated to investing in under-performing real estate. The Consortium will invest in equity and debt in under-valued real estate companies or real estate portfolios where value can be created for stakeholders in a variety of ways, including financial and operational restructuring, strategic direction or sponsorship, portfolio repositioning, redevelopment or other active asset management. Investments will be targeted at corporate property restructurings with a minimum US$500 million equity commitment, and pursued on a global basis, but with a focus on North America, Europe and Australasia.
In addition to Brookfield, the participants in the Consortium consist of a number of institutional real estate investors who have each allocated between US$300 million and US$1 billion to the Consortium. Brookfield has allocated US$1 billion to the Consortium with opportunities in the office sector being funded by Brookfield Properties, at its option, and opportunities in other sectors being funded by Brookfield Asset Management. The Consortium participants have expertise in investing across different geographies and property types and this expertise will be pooled together to maximum advantage in individual investment opportunities.
“This is the next step in our global property growth plan, as it combines our strength as one of the world’s leading real estate operating companies with our extensive expertise in corporate restructurings and strategic acquisitions,” said Ric Clark, CEO of Brookfield Properties.
Brookfield Properties and Brookfield Asset Management will each own 25% of the fund.
So we know based on results these guys know how to buy property that will hold up during the worst of times. So, when we are in the worst of times, doesn’t it make sense to go with the guys that have near $5B to pick up the pieces?
BUT, the big fear on any real estate company is their debt. Can they roll it/pay it or will it undo them? Here is Brookfield immediate picture:
Leases you say?
Lease expiration schedule:
The beauty of investing in real estate this way is that you get the benefit of these folks expertise which, based on results, is tops in the industry. You also get a global opportunity and the patience they have to execute the right deals at the right time.
So, armed with $4.9B to invest (which is, by the way, more than the current market cap of the company) I think folks looking into real estate would have a hard time going wrong here…
Full Report:
bpo
Here is their current portfolio Q2, 2009 (XLS)
Link to SEDAR documents (Canadian version of SEC)
Disclosure (“none” means no position):None
Talking about Stocktwits and General Growth Properties (GGWPQ)
Disclosure (“none” means no position):Long GGWPQ
Talking about Stocktwits and General Growth Properties (GGWPQ)
Disclosure (“none” means no position):Long GGWPQ
From “considering acquisitions” to “on the hunt” in a month. Great news
Here is the appplicable portion of the interview:
Because of the significant improvements from the financial turmoil that befell the U.S. financial markets last year, and AutoNation’s ability to weather this most recent downturn, the company has begun to ramp up its orders for new cars and trucks …..AutoNation is also “on the acquisition hunt”.
The conditions for opportunity are beginning to outweigh the recent “risk environment” for the company, Mike Maroone concludes, ….consequently, AutoNation will be moving forward.
Mike Maroone on NBC 8-12-09 from http://marccannon.vox.com/
AutoNation has already gobbled up market share where it does business and acquisitions will multiply that effect. Note, this may not translate into dramatically more “metal moved” but will mean better pricing (although one has to expect more than 2008). When you couple that with the cost cuts already enacted, that is a very good recipe for earnings growth….
Disclosure (“none” means no position):Long AN
From “considering acquisitions” to “on the hunt” in a month. Great news
Here is the appplicable portion of the interview:
Because of the significant improvements from the financial turmoil that befell the U.S. financial markets last year, and AutoNation’s ability to weather this most recent downturn, the company has begun to ramp up its orders for new cars and trucks …..AutoNation is also “on the acquisition hunt”.
The conditions for opportunity are beginning to outweigh the recent “risk environment” for the company, Mike Maroone concludes, ….consequently, AutoNation will be moving forward.
Mike Maroone on NBC 8-12-09 from http://marccannon.vox.com/
AutoNation has already gobbled up market share where it does business and acquisitions will multiply that effect. Note, this may not translate into dramatically more “metal moved” but will mean better pricing (although one has to expect more than 2008). When you couple that with the cost cuts already enacted, that is a very good recipe for earnings growth….
Disclosure (“none” means no position):Long AN
Am I missing something here? After reading the headlines yesterday one would believe Bill Ackman reduced his ownership stake in Target. I don’t see it. Let’s look…
Here is the applicable portion of his SEC filing:
Item 4 of the Schedule 13D is hereby supplemented as follows:
As of May 26, 2009, the date of the last amendment to this Schedule 13D, the Reporting Persons beneficially owned approximately 7.8% of the then outstanding shares of Common Stock, consisting of 3.3% in shares of Common Stock and 4.5% in stock-settled call options. As a result of the transactions reported in this Amendment No. 9, the Reporting Persons sold options and engaged in net purchases of shares of Common Stock, resulting in a net increase of Common Stock ownership of 0.2% and a decrease of beneficial ownership to 4.4%, consisting of 3.5% in shares of Common Stock and 0.9% in stock-settled call options.Item 5. Interests in Securities of the Issuer.
(a), (b) Based upon the Issuer’s quarterly report on Form 10-Q for the quarterly period ended May 2, 2009, there were 752,279,589 shares of Common Stock outstanding as of June 3, 2009. Based on the foregoing, 32,994,586 shares of Common Stock (which includes Common Stock and physically-settled listed and over-the-counter American-style call options), representing 4.4% of the shares of Common Stock issued and outstanding, are reported on this Amendment No. 9.
As of the date hereof, none of the Reporting Persons owns any shares of the Common Stock other than as reported herein.
So, what seems to be the issue is the type of ownership he had/has.
To help put this into context wee need to look at Target’s (TGT) case against him in this spring’s proxy battle:
Target made apparently a compelling (I say so because he lost the proxy battle, not because I believe it) case that since much of Ackman’s ownership consisted on “call options”, that he truly was not a long term investor.
The options are not “ownership” per se but an interest in the outcome of the stock price. Because of that the interest in those shares cannot be voted and it was this structure that Target harped on to diminish Ackman’s plans as “short term”. The options mentioned above were stock settled. So, he did not sell them for cash but essentially converted them to stock.
Based on this, while the % of shares he holds an interest of some sort in has fallen, his monetary interest probably is not all that unchanged or likely has risen. Look at this example. I buy 2 $40 call options for Target and pay $100 each for them. I have an economic interest in 200 shares (each option =100 shares) but ownership of none. Then, at expiration, I convert 1 of the 2 options into shares. The cost of doing that would be $4000 for the stock based on the price of it. In this case, the “economic interest” I have based on the number of shares in the stock has fallen but my monetary interest has risen, considerably.
So, in Ackman’s case, if he intends on making another run at the board next year, what matters more than anything is not the total economic interest he has through swaps/options/ownership but simply his outright ownership of shares. That structure will eliminate the argument from management and bolster the ideas he has for the company. For this reason, if he eliminated all the option and swap contracts he has and simply owned 3.5% to 4% of the common shares, based on recent results, this would be a more meaningful position in the company in the eyes of shareholders vs the 7.7% he had through the above mentioned agreements.
Because of this the headlines out to have been “Ackman Increases Target Ownership” as Pershing had a “net increase” in shares directly held.
Disclosure (“none” means no position):None
First Eagle Funds Senior Advisor Jean-Marie Eveillard on the recent rise in the market and what to expect for the second half of the year.
The guy has a great track record and for that, what he has to say bears listening to. What is fascinating is how a single article he read in 2006 lead him to take action that saved his funds from the worst of the downturn.
Disclosure (“none” means no position):
This is a huge, huge win for General Growth Properties (GGWPQ). Interesting comments from debt holders that they acknowledge the CMBS market is effectively closed. So, if we know we are no going to liquidate, we know we cannot refinance because the debt markets are closed, then all that remains is debt maturity extensions, right?
There are some very telling statements in the ruling:
There was no evidence to counter the Debtors’ demonstration that the CMBS market, in which they historically had financed and refinanced most of their properties, was “dead” as of the Petition Date,32 and that no one knows when or if that market will revive. Indeed, at the time of the hearings on these Motions, it was
anticipated that the market would worsen, and there is no evident means of refinancing billions of dollars of real estate debt coming due in the next several years.The following testimony of Allen Hanson, an officer of Helios, is telling: “Q. Helios is aware that there are debt maturities that will occur in 2009, 2010, 2011 and 2012 that the CMBS market will not be able to handle through new CMBS issuances, correct? A. Based on the circumstances we see today, yes.”
Regarding SPE structure as “bankruptcy remote”:
There is no question that the SPE structure was intended to insulate the financial position of each of the Subject Debtors from the problems of its affiliates, and to make the prospect of a default less likely. There is also no question that this structure was designed to make each Subject Debtor “bankruptcy remote.” Nevertheless, the record also establishes that the Movants each extended a loan to the respective Subject Debtor with a balloon payment that would require refinancing in a period of years and that would default if financing could not be
obtained by the SPE or by the SPE’s parent coming to its rescue.Movants do not contend that they were unaware that they were extending credit to a company that was part of a much larger group, and that there were benefits as well as possible detriments from this structure. If the ability of the Group to obtain refinancing became impaired, the financial situation of the subsidiary would inevitably be impaired.
Later:
Delaware law in turn provides that the directors of a solvent corporation are authorized – indeed, required – to consider the interests of the shareholders in exercising their fiduciary duties. In North American Catholic Educational Programming Foundation, Inc. v. Gheewalla, 930 A.2d 92 (Del. 2007), the Delaware Supreme Court held for the first time that the directors of an insolvent corporation have duties to creditors that may be enforceable in a derivative action on behalf of the corporation. But it rejected the proposition of several earlier Chancery cases that directors of a Delaware corporation have duties to creditors when operating in the “zone of insolvency,” stating [w]hen a solvent corporation is navigating in the zone of insolvency, the focus for Delaware directors does not change: directors must continue to discharge their fiduciary duties to the corporation and its shareholders by exercising their business judgment in the best interests of the corporation for the benefit of its shareholder owners. 930 A.2d at 101 (emphasis supplied).34
This statement is a general formulation that leaves open many issues for later determination – for example, when and how a corporation should be determined to be insolvent. But there is no contention in these cases that the Subject Debtors were insolvent at any time – indeed, Movants’ contention is that they were and are solvent. Movants therefore get no assistance from Delaware law in the contention that the Independent Managers should have considered only the interests of the secured creditor when they made their decisions to file Chapter 11 petitions, or that there was a breach of fiduciary duty on the part of any of the managers by voting to file based on the interests of the Group.
The record at bar does not explain exactly what the Independent Managers were
supposed to do. It appears that the Movants may have thought the Independent Managers
were obligated to protect only their interests. For example, an officer of ING Clarion testified that “the real reason” he was disturbed by the Chapter 11 filings was the inability of the Independent Managers to prevent one:Well, my understanding of the bankruptcy as it pertains to these borrowers is that there was an independent board member who was meant to, at least from the lender’s point of view, meant to prevent a bankruptcy filing to make them a bankruptcy-remote, and that such filings were not anticipated to happen.(Altman Dep. Tr. 159:7-13, June 5, 2009.)
However, if Movants believed that an “independent” manager can serve on a board solely for the purpose of voting “no” to a bankruptcy filing because of the desires of a secured creditor, they were mistaken. As the Delaware cases stress, directors and managers owe their duties to the corporation and, ordinarily, to the shareholders. Seen from the perspective of the Group, the filings were unquestionably not premature.
Conclusion:
The Debtors here have established that the filings were designed “to preserve value for the Debtors’ estates and creditors,” including the Movants. Movants are wrong in the implicit assumption of the Motions that their rights were materially impaired by the Debtors’ Chapter 11 filings. Obviously, a principal purpose of bankruptcy law is to protect creditors’ rights. See Young v. Higbee Co., 324 U.S. 204, 210 (1945). Secured creditors’ access to their collateral may be delayed by a filing, but secured creditors have a panoply of rights, including adequate protection and the right to post-petition interest and fees if they are oversecured. 11 U.S.C. §§ 361, 506(b).
Movants complain that as a consequence of the filings they are receiving only interest on their loans and have been deprived of current amortization payments, and Metlife complains that it is not even receiving interest on its mezzanine loan, which is secured only by a stock interest in its borrower’s subsidiary. However, Movants have not sought additional adequate protection, and they have not waived any of their rights to recover full principal and interest and post-petition interest on confirmation of a plan. Movants complain that Chapter 11 gives the Debtors excessive leverage, but Metlife asserts it has all the leverage it needs to make sure that its rights will be respected.
It is clear, on this record, that Movants have been inconvenienced by the Chapter 11 filings. For example, the cash flows of the Debtors have been partially interrupted and special servicers have had to be appointed for the CMBS obligations. However, inconvenience to a secured creditor is not a reason to dismiss a Chapter 11 case. The salient point for purposes of these Motions is that the fundamental protections that the Movants negotiated and that the SPE structure represents are still in place and will remain in place during the Chapter 11 cases. This includes protection against the substantive consolidation of the project-level Debtors with any other entities.
There is no question that a principal goal of the SPE structure is to guard against substantive consolidation, but the question of substantive consolidation is entirely different from the issue whether the Board of a debtor that is part of a corporate group can consider the interests of the group along with the interests of the individual debtor when making a decision to file a bankruptcy case. Nothing in this
Opinion implies that the assets and liabilities of any of the Subject Debtors could
properly be substantively consolidated with those of any other entity.These Motions are a diversion from the parties’ real task, which is to get each
of the Subject Debtors out of bankruptcy as soon as feasible. The Movants assert
talks with them should have begun earlier. It is time that negotiations commence in
earnest.
Disclosure (“none” means no position):Long GGWPQ
Etrade (ETFC) is essentially two businesses. The first is a very healthy brokerage/market making business. The second is an ill-timed foray into the mortgage backed securities markets. Losses in that area have brought the company to its knees so to speak. But, if they can make it through (I expect they will), the return for those buying now will be fantastic.
Let’s look at the loan portfolio (all quotes from most recent 10Q at end of post):
Regarding Loan Loss Provisions:
Provision for loan losses increased $85.4 million to $404.5 million and $305.5 million to $858.5 million for the three and six months ended June 30, 2009, respectively, compared to the same periods in 2008. The increase in the provision for loan losses was related primarily to deterioration in the performance of our one- to four-family and home equity loan portfolios. We believe the deterioration in both of these portfolios was caused by several factors, including: home price depreciation in key markets; growing inventories of unsold homes; rising foreclosure rates; significant contraction in the availability of credit; and a general decline in economic growth. In addition, the combined impact of home price depreciation and the reduction of available credit made it increasingly difficult for borrowers to refinance existing loans. Although we expect these factors will cause the provision for loan losses to continue at historically high levels in future periods, the level of provision for loan losses in the second quarter of 2009 represents the third consecutive quarter in which the provision for loan losses has declined when compared to the prior quarter. While we cannot state with certainty that this trend will continue, we believe it is a positive indicator that our loan portfolio may be stabilizing.
Here is the current loan portfolio (click to enlarge)
Here is the key chart regarding the performance (click to enlarge):
If this trend continues into Q3, Etrade fortunes improve markedly.
Loans, net decreased 10% to $21.9 billion at June 30, 2009 from $24.5 billion at December 31, 2008. This decline was due primarily to our strategy of reducing balance sheet risk by allowing our loan portfolio to pay down. We do not expect to grow our loan portfolio for the foreseeable future. In addition, we plan to allow our home equity loans to pay down, resulting in an overall decline in the balance of the loan portfolio.
Loans held-for-sale of $12.6 million as of June 30, 2009 represents loans originated through, but not yet purchased by, a third party company that we partnered with to provide access to real estate loans for our customers. The product is offered as a convenience to our customers and is not one of our primary product offerings. The third party company providing this product performs all processing and underwriting of these loans and is responsible for the credit risk associated with these loans, which minimizes our assumption of any of he typical risks commonly associated with mortgage lending. There is a short period of time after closing of the loans in which we record the originated loan as held-for-sale prior to the third party company purchasing the loan.
We have a credit default swap (“CDS”) on a portion of our first-lien residential real estate loan portfolio through a synthetic securitization structure that provides, for a fee, an assumption by a third party of a portion of the credit risk related to the underlying loans. As of June 30, 2009, the balance of the loans covered by the CDS was $2.6 billion, on which $17.8 million in losses have been recognized. The CDS provides protection for losses in excess of $4.0 million, but not to exceed approximately $30.3 million. During the three months ended June 30, 2009, we began to receive cash recoveries from the CDS for amounts reported in excess of the $4.0 million threshold. We expect to recognize the remaining benefit over the next twelve months, which is reflected in the allowance for loan losses as of June 30, 2009.
Deposits
Regarding the balance sheet:
The decrease in total assets was attributable primarily to a decrease of $2.5 billion in loans, net, offset by an increase of $1.7 billion in cash. The decrease in loans, net was due to our strategy of reducing balance sheet risk by allowing our loan portfolio to pay down. For the foreseeable future, we plan to allow our home equity loans to pay down, resulting in an overall decline in the balance of the loan portfolio. For the remainder of 2009, we also plan to allow total assets to decline in order to release additional regulatory capital which we are required to hold against these assets.
The decrease in total liabilities was attributable primarily to the decrease in wholesale borrowings which was partially offset by an increase in customer payables and deposits. The decrease in wholesale borrowings was a result of paying down our FHLB advances and securities sold under agreements to repurchase in the first half of 2009. Customer payables increased due to higher trading activity during the first half of 2009 and net new brokerage customer acquisition. While our deposits increased by $287.6 million during the first half of 2009, we expect these balances, particularly the non-sweep deposit balances, to decrease over the remainder of 2009 as we focus on decreasing total assets.
Here is the Corp. debt picture (click to enlarge):
While not a huge fans of debt, Etrade has done a good job extending that debt into the future in which at such time they ought to have rid themselves of most of the RMBS portfolio freeing up reserves held for losses on it for debt repayment.
Management believes that our common stock offerings combined with the expected completion of the pending debt exchange offer, will substantially improve the regulatory capital levels at E*TRADE Bank as well as significantly enhance parent company liquidity, especially through the end of 2011. As a result, we believe we will be in a position to take advantage of favorable market conditions with regard to any additional capital planning actions, such as further debt-for-equity exchanges, additional cash capital raising activities or sales of any non-core assets.
During the fourth quarter of 2008, we applied to the U.S. Treasury for funding under the Troubled Asset Relief Program (“TARP”) Capital Purchase Program. We continue to view TARP funding as a possible component of our capital planning program. We cannot predict when or if our application will be acted upon. However, given the success of our capital raising efforts to date, we believe that our financial health is not dependent upon receiving TARP funding.
What to do? First, this is only for those with patience and strong stomachs. Loan portfolio’s take time to wind down and the ride in doing so is a bumpy one. Because of that, the ride will be rocky. But in Etrades case, they have a stable and strong brokerage business that is adding new accounts at a very healthy pace. That ought to buffer investors and its performance will begin to take more precedence as the loan portfolio is wound down.
I bought yesterday at $1.40 a share. I will be watching one thing. The loan portfolio. If it continues it recent improvement, the stock will appreciate. If it falters, I will pull the trigger on it. Simple…
Another side point, as Etrade lower is loan risk, priced at this level it does become dramatically more attractive to a potential suitor. While I would not invest based on this possible event alone, one does have to take it into account here in conjunction with other factors
Full 10Q
Etrade Q2 10Q
Disclosure (“none” means no position):
When the boys at Brookfield Asset (BAM) are buying, I am intrigued.
August 08, 2009 David Friend
THE CANADIAN PRESS
Executives at investment giant Brookfield Asset Management Inc. are confident they can scour the international market for distressed assets and acquisition deals for at least two more years, even if the economy starts to recover and the U.S. housing market rebounds.“While the capital markets are more positive than they have been for a long period of time, that doesn’t mean that people who overfinance their properties – or are in extreme distress – are fixed,” chief executive Bruce Flatt said on a conference call. “There are still a lot of opportunities out there, and we think there will be for 24 months minimum. I don’t think we feel any rush to be doing anything.”
Flatt told analysts that the company has spent the last year and a half buying out partners, acquiring rights offerings and making other deals for distressed assets. “We still believe this is one of the greatest investment periods for these type of assets that we’ve seen in a long time,” he said. He also said Toronto-based company wants to put capital into “distressed opportunities as we find them, and where we have an operating base.”
Brookfield said profits in the second quarter rose by 33 per cent to $147 million (U.S.), or 24 cents per share for the quarter ended June 30, up from a year-earlier profit of $110 million or 17 cents per share. Cash flow from operations declined during the period to $276 million or 46 cents per share, compared to $378 million or 62 cents. Brookfield said last year’s cash flow was boosted by special items. Total quarterly revenue fell to $3 billion from $3.4 billion a year ago.
Brookfield’s massive office property portfolio – including Brookfield Place and the Exchange Tower in Toronto, Bankers Hall in Calgary, New York’s World Financial Center in and Bank of America Plaza in Los Angeles – is 95 per cent occupied. The company reported that it has also contracted about 80 per cent of its renewable power generation until the end of 2010.
Chief financial officer Brian Lawson expressed some optimism for the company’s residential business.“The results from our number of our shorter duration businesses, such as our residential operations, appear to have bottomed out, albeit at pretty low levels,” he said. Flatt said Brookfield has spent the past six months buying residential land, and invested $250 million in its U.S. residential business. “We believe we are past the worst of the down cycle in housing,” he said. “While we don’t expect a robust return, we believe we have or will soon see a bottom in many of the key U.S. housing markets.”
Brookfield controls Fraser Papers Inc., wood panel producer Norbord Inc., Great Lakes Hydro Income Fund and the Brookfield Real Estate Services Fund, that includes Royal LePage and other brands. The holding company’s forestry assets have been battered by the global economic downturn, with Fraser Papers being forced to file for creditor protection in Canada and the United States in June. Fraser Papers reported that it lost $8 million or 36 cents a share for the quarter ended June 30, down from $15.6 million or 31 cents a share for the same 2008 period.
During the second quarter, Fraser booked a net gain of $12.5 million from unwinding its foreign exchange hedging program.Shares in the company gained 12 cents to close at $21.86 yesterday on the Toronto Stock Exchange.
What does it all mean? Notice what he said “the next 12-24 months”. No matter what anyone says, housing NEVER has a “V” recovery. It is a Nike Swoosh recovery. A steep fall followed by a long bottom and then a very gradual climb out. What Flatt is saying is that we are nearing that bottom part and will enter the prolonged bottom dredge.
This goes to what we have been saying here for a while, 2010 will be the bottom in housing and then we will sit and then begin the climb out.
Why is all this positive? It means the dramatic price falls are a thing of the past. We more than likely have some more downside 10%-15% and then we flatline before climbing out. When do prices recover to 2006-07 levels? If history tells us, it will be 7 years based on the 1990-91 housing bust. Now, it should be noted that fall was from far less loftier levels that this one. Because of that 7-10 years would seem to be the more realistic scenario.
Disclosure (“none” means no position):
