U.S. stock futures were marginally higher early Thursday morning as once again investors await data on the economy to give them direction. Several deals and earnings are also in the spot light this morning.
U.S. stocks received a boost Wednesday from lower-than expected inflation numbers, given extra credence by the fall in crude-oil prices. While most companies reporting earnings Wednesday didn't proved good news, a smaller-than-forecast loss for Freddie Mac helped lift sentiment. The Dow industrials rose 66 points, or 0.52%, the S&P 500 rose 6 points, or 0.40%, and the Nasdaq Composite edged up more than a point, or 0.06%.
This morning, more inflation data is due out. Consumer level inflation reported Wednesday managed to surprise the Street, but can the economic releases today do the same? At 8:30 a.m., weekly initial jobless claims will be released, as well as May NY Empire State Index. At 9:00 a.m., March Net Foreign Purchases will be reported to be followed some time later with April capacity utilization and industrial production. At 10:00 a.m., after the market opens, the Philadelphia Fed index is due and is expected to show another decline. Finally, a housing index is also due today.
According to people familiar with American International Group Inc's (NYSE: AIG) board, some directors feel that another big loss in the current quarter could prompt them to re-evaluate their support for CEO Martin Sullivan. The sources said a decision on Sullivan's fate isn't likely to be made until the company sees results over the next several months, the Wall Street Journal reported.
The Boeing Company (NYSE: BA) closed a helicopter production line for several hours yesterday due to possible irregularities found in two military helicopters, the Seattle Times reported. The company did not disclose exactly why it shut down the production of the H-47 Chinooks.
WEB SITES:
According to Mac Rumors, citing French LeMatin.ch, a source in Swisscom AG (OTC: SCMWY) said Switzerland will be getting the iPhone device from Apple Inc (NASDAQ: AAPL) this summer, and it will feature GPS, Video Conferencing and Mobile TV.
Former Barclaycard Marc Howells can relax a bit. Even though he was forced to quit on the last day of 2007, his comment that the company's results were "like Muslims - some were good, some were Shi'ite" is no longer the most offensive joke uttered by a corporate figure that ended up in the hands of the media in the past 6 months.
According to MarketWatch's David Weidner, Blackstone Group (NYSE: BX) head Stephen Schwarzman actually said the following in a speech to investors in Boca Raton: "Trying to buy a mortgage bank in the midst of the subprime crisis was the equivalent of being a noodle salesman in Nagasaki when the atomic bomb went off. Not a lot of noodles left or even a person -- and that's what happened to us on this deal."
Wow. Just wow. Making jokes about the atomic bomb in a speech to investors is ... ambitious? Weidner points out that "the analogy probably went over pretty well at Blackstone's brand-spanking new Tokyo office," and then proceeds to compare Schwarzman to Marie Antoinette. Ouch.
I'm sure he'll have to issue a tail-between-the-legs apology, but most Blackstone Group shareholders are probably more worried about the billions of dollars in market value that have evaporated since the company's IPO. After hitting a high of $38 on June 22nd, the stock has settled in at right around $19.
The earnings party of last week was full of fun and frolic. For the most part, if you followed my list of recommendations, you would have had your very own "Fiesta de Finance." (See Week in Preview – May 5)
The earnings season is still in full swing and should provide a great deal of action for the companies that will be reporting. But these companies will have to fight through a few new economic barriers. With oil pushing past historic levels and questions beginning to surface concerning the ability of the investor to continue to support a market that has so many headwinds, the mood is likely to shift moving forward. It is time for discipline, short and simple. Now, more than ever investors need a plan. I cover this strategy in my book, The Disciplined Investor.
In the last installment of The Week in Preview, I was looking for party opportunities in honor of Cinco de Mayo. This week, Misery is the theme. That is the only word that comes to mind with oil at a level that you would have never expected, a massive and unrelenting credit and housing crisis and a banking system that is defunct.
Monday - May 12
We start the week with a report from IndyMac Bancorp (NYSE: IMB). This bank is smack in the middle of the housing problem. It is primarily a lending company that facilitates loans for single-family homes. It's also involved in the origination and trading of mortgages. How does that sound to you as an investment? Shares have slid from $23 in October 2007 to an unbelievable level of $3.50 recently. Ouch... If you are a shareholder still holding on with hope and a prayer for something...anything, keep on dreaming. The good news is that the stock is sporting a yield of 29%. But, if you think that yield is going to be maintained, I have a bridge for sale. Estimates are for a loss of $1.92 per share for the quarter.
So-called "trader talk" can be pretty rough. After all, Wall Street can be stressful (especially lately).
But, when you are the CEO of a major financial services company, you are expected to keep your language PG.
Well, Steve Schwarzman -- who is the CEO of The Blackstone Group, L.P. (NYSE: BX) -- perhaps didn't get the memo. Actually, maybe he thinks he still runs a private firm.
In a recent investor conference, Schwarzman was quite colorful in describing it's aborted $1.7 billion buyout of PHH Corp. (which got ensnared in the subprime mess).
Can you believe oil put in another monster day with oil up $1.91 at $121.88 today. This morning started out looking just like March with financials way down, and commodities up. That abated toward the end of the day. An analyst prediction of $150 to $200 oil helped propel oil today. Below are today's unofficial closing prices:
The Blackstone Group L.P. (NYSE: BX) announced today $1.3 billion has been raised to invest in high quality loan assets by closing three CLOs. Blackstone pointed out that the CLOs are not an attempt to remove risky assets off balance sheets. The newly acquired GSO Capital Partners now manages 26 CLOs for a total of $14 billion. Shares actually fell 0.75% by the end of the day to $19.57.
Cowen & Co kept its "outperform" on Flextronics (NASDAQ: FLEX) after the company offered an upbeat forecast according to the AP.
Merrill Lynch downgraded Blackstone (NYSE: BX) from "buy" to "neutral," according toBriefing.com. According to the news service Wachovia downgraded CBS (NYSE: CBS) from "outperform" to "market perform."
BP plc (NYSE: BP) was raised to "outperform" at Credit Suisse according to a report from 24/7 Wall St.
Since 1992, the The Blackstone Group L.P. (NYSE: BX) has been a top real estate investor with 229 transactions for over $132 billion. With lots of firepower remaining, the firm is striking yet more deals.
The latest is for Synergy, a major real estate development and management firm in India.
The investment amount comes to $18 million, relatively low for the folks at Blackstone, but it's a highly strategic deal.
Synergy has developed a variety of projects – spanning 100 million square feet -- for office buildings, hospitals, hotels and so on. In other words, the firm should be a nice way to source lucrative deals in the fast-growing Indian market.
Tom Taulli is the author of various books, including The Complete M&A Handbook (www.mergerbook.com) and is also a principal in Averiware, which provides an ERP system to small and midsize businesses.
FT.com reports that spreading a false rumor and selling short ahead of that rumor can get you into trouble. Paul Berliner is one such short-seller charged with spreading false stories about the Blackstone Group (NYSE: BX)'s acquisition of Alliance Data Systems (NYSE: ADS) while selling ADS shares short. If the SEC is serious, this could lead to other indictments since this practice appears rampant.
In this case, the SEC had evidence. On November 29 Berliner sent instant messages to traders at brokerage firms and hedge funds suggesting that Blackstone's deal to acquire ADS for $81.75 was being renegotiated at $70 a share. The rumor was picked up by the media and caused ADS's shares to fall 17%. Berliner agreed to settle the charges to disgorge $26,129 in profits, pay a $130,000 fine, and is banned from working for any broker or dealer.
As I posted last month, I received reports that hedge funds went a step further than Berliner. In that case, hedge funds may have caused the collapse of The Bear Stearns Companies (NYSE: BSC) and profited from its fall. A hedge fund manager in that post said: "Bear's collapse didn't surprise me. We've been short Bear for five days. All the hedge funds have been pulling their prime brokerage business from Bear."
If that hedge fund manager was telling the truth, does that make what he did legal?
Alliance Data Systems (NYSE: ADS) seems ready to fight its buy-out dispute with Blackstone Group (NYSE: BX) all they way to the Supreme Count. But, it gave up the ghost, perhaps thinking that, even if it won the action, it would takes years and cause management distractions.
The original buy-out deal was for $6.76 billion or $81.75 a share. The stock now trades at $52.84. According to Reuters, ADS has now sued Blackstone for a much more modest "$170 million business interruption payment." The two companies had looked at compromises to keep the deal on track, but nothing works.
The news is not only a victory for Blackstone. It shows that private equity firms can walk away from many of the deals that they made in early 2006. Weak credit markets are the cause of breaking the deals because they have driven higher interest rates and an economy that could hurt profits at the businesses they planned to buy.
None of that states the core of the new reality, which is that financial buyers can take whatever promises they made and throw them out the window. No matter what they said, they can claim no obligations. It is an ethical collapse just as much as it is a financial one.
Douglas A. McIntyre is an editor at 247wallst.com.
Founded in 1864, Gerresheimer AG is a modern powerhouse. Based in Duesseldorf, Germany, the company provides packaging solutions for the pharma and life sciences business.
Back in December 2004, Gerresheimer joined Blackstone (NYSE: BX) in a buyout of about $703 million. Then last June, the company went public.
Well, now it's time to harvest some gains, and Blackstone is selling a 25% stake in the company. That should translate to $386 million million or so. With such a large number of shares hitting the market, the stock price of Gerresheimer did take a hit (about 10%).
Sovereign Wealth Funds (SWFs) -- the $3 trillion worth of capital managed by countries to invest their oil or foreign exchange profits -- got quite a bit of attention earlier this year when they bought big chunks of the U.S. finance industry. But yesterday at a conference at Stanford, a Fed official suggested, without officially saying it, that despite their big wallets, SWFs are not the brightest investors on the block.
I spoke on a panel regarding SWFs at the Forum for American/Chinese Exchange at Stanford (FACES). I was joined on the panel by Brad Setser of the Council on Foreign Relations and Reuven Glick of the San Francisco Federal Reserve. I suggested that China, which in June 2007 bought a big stake in Blackstone Group (NYSE: BX) (for reasons I discussed here) may not have even read the prospectus before buying a $3 billion stake. If China had read the prospectus, it could have saved itself the embarrassment of what is now an investment trading 46% below its purchase price.
During our panel discussion, Glick unofficially argued that if China or any other SWF wanted to make an investment in a U.S. company, they were welcome to do so. He noted that in retrospect, China might be viewed the way Japan was when it famously overpaid for Rockefeller Center and Pebble Beach in 1989. Both investments were subsequently sold at a loss. When I summarized Glick's remarks: "So the Fed thinks that China is a greater fool." He smiled and said, "I didn't say that."
A newly published report by Standard & Poor's said that the performance of organizations such as Federal National Mortgage Association (NYSE: FNM), or Fannie Mae, and Federal Home Loan Mortgage Corporation (NYSE: FRE), or Freddie Mac, could directly affect the U.S. economy and the country's credit rating, especially if they have to be rescued by the government, according to the Wall Street Journal's "Credit Markets" column.
Seagate Technology LLC (NYSE: STX), a hard drive maker, filed a patent infringement suit in San Francisco against STEC Inc (NASDAQ: STEC) over four patents related to technology used to store data on computer chips, the Wall Street Journal reported.
The Financial Times reported that Citigroup Incorporated (NYSE: C) is allowing private equity groups such as Apollo, The Blackstone Group LP (NYSE: BX) and TPG that are bidding for up to $12B of its leveraged loans to 'cherry-pick' from a wide range of assets with different credit ratings and prices.
Apollo Management, which is one of the largest private equity firms, has traded on Goldman Sach's (NYSE: GS) private exchange, GSTrUE OTC. Unfortunately, the shares are down 40% (since August). Of course, other alternative asset managers – such as Blackstone (NYSE: BX) and Fortress Investment Group (NYSE: FIG) – have suffered plunges as well.
So what's the next step for Apollo? Well, the firm plans to trade on the NYSE. The IPO filing calls for raising $475 million of capital.
Apollo got its start in 1990 and profited handsomely from distressed investments (keep in mind that this was after the buyout boom). Now, the firm manages $40.3 billion and has recently raised a fund for $12.5 billion. Over the past 18 years, Apollo has generated an impressive 29% net internal rate of return.
Citigroup (NYSE:C) would like to get a number of troubled loans off its balance sheet before its reports earnings. Accordingly, it is close to selling $12 billion in leveraged loans and bonds to private equity firms Apollo, Blackstone (NYSE:BX) and TPG. The debt would be sold at "an average price slightly below 90 cents on the dollar," according toReuters.
Citi has, by its own calculation, about $43 billion of these loans on its balance sheet. It is anxious to get rid of as much of the exposure as possible. But, the potential deal raises a point. If the haircut on the loans is only 10% and the smartest equity firms in the world want the paper, why is Citi so anxious to sell it?
The answer is panic. At this point American banks are taking so much risk off of their balance sheets that some assets, which are only modestly impaired, are being sold along with those that have relatively low inherent value.
In Citi's haste to solve its problems, the baby may be exiting with the bathwater.
U.S. stock futures were marginally higher early Thursday morning as once again investors await data on the economy to give them direction. Several deals and earnings are also in the spot light this morning..gif){kind=logo}
The earnings party of last week was full of fun and frolic. For the most part, if you followed my list of recommendations, you would have had your very own "Fiesta de Finance." (
So-called "trader talk" can be pretty rough. After all, Wall Street can be stressful (especially lately).
Since 1992, the 
Sovereign Wealth Funds (SWFs) -- the $3 trillion worth of capital managed by countries to invest their oil or foreign exchange profits -- got quite a bit of attention earlier this year when they bought big chunks of the U.S. finance industry. But yesterday at a conference at Stanford, a Fed official suggested, without officially saying it, that despite their big wallets, SWFs are not the brightest investors on the block..gif){kind=logo}
Citigroup
Oil hits record $127.43 on supply concerns, raised Goldman forecast
Icahn's 'shock and awe' on Yahoo -- a gutsy play
Housing starts surprisingly rise in April on apartment construction
