Friday, July 17, 2009

Dems Gone Wild-CBO Assessment of Health Plan/BAC GE WBS Earnings/Marty Whitman on Forest City

1.  General Electric-Not Impressed  :  I own both the GE common and a step-up bond, GEP.  While the earnings reported by GE this morning were better than expected at $ .26 from continuing operations,  this was down 52% from a year ago, far greater than the decline in revenues of 17% (or a 12% decline ex currency).  The consensus estimate was 23 cents.  Revenues at 39.08 billion missed the estimate of 42.16 billion, which is huge.  The company generated 7.1 billion in cash from operations. 

GE Capital earned 590 million down from 2.903 billion in the year ago quarter.   It has completed funding for 2009 and has pre-funded about 1/3 of its funding needs for 2010.  Leverage at GE Capital was reduced to 5.6 to 1.  The company did experience growth in its industrial business in several emerging markets with revenues growing  46% in India and 31% in China. Energy Infrastructure earnings did grow 13%.  NBC Universal earnings plummeted 41%.   I can make a positive comment about this report, it appears GE Capital may not need to be rescued by the government.  GE Capital's Tier 1 common ratio did rise to 7.4% from 5.7% at the end of 2008.   GE shares have has fallen about 24% this year prior to today.  

Another potential problem for General Electric, as well as many other large multinationals, is Obama's tax plan which would increase tax rates for overseas income.   A long term issue is the pension and other benefits for retirees who now outnumber current employees.  GE has lost its AAA credit rating and cut its dividend for the first time since the Great Depression. So, it is becoming increasingly difficult to see the light at the end of the tunnel for this once great American company.

GE stock has fallen over 5% to $11.75 in early trading this morning.  It is extremely difficult to remain upbeat on this company. 

ADDED 2:18:   GE Capital had a 678 million dollar tax credit.  Without that tax credit, GE Capital would have had a 312 million dollar loss, and GE would have missed its earnings estimate.   This was just a dismal report.  

2. Bank Of America-Okay Report Under the Dire Circumstances:  BAC now has about 64% more shares than it did a year ago, something for all BAC shareholders to keep in mind, as a result of its capital raising efforts over the past several months.  Earnings did beat expectations at 33 cents per share, compared to the estimate of  28 cents. The Tangible Equity Ratio rose to 4.7% from 3.2%.  Nonperforming assets increased 21% to 30.98 billion.  The nonperforming asset ratio was 3.31% at the end of the quarter, up from 2.64% as of 3/31/2009.   The provision for credit losses was steady at 13.38 billion.  Book value per share was 11.66 as of 6/30/09. 

BAC was helped by a 5.3 billion pre-tax gain from selling shares in China Construction Bank,
and record trading profits of 6.7 billion.

3. Marty Whitman and Forest City Senior Debt: In this  interview,  Whitman  explains why his fund owns senior Forest City debt with a 3.625% coupon maturing in 2011.   I previously owned just 50 shares of an exchange traded senior debt issue maturing in 2034,  which obviously carries more risk than a shorter term bond maturing in 2011.    FCY: Forest City Enterprises Senior Bond (FCY) I sold that bond at a profit, and decided to use the entire profit to buy the common shares as a lottery ticket. LOTTERY TICKET PURCHASE: 50 SHARES OF FCEA-FOREST CITY COMMON/ SOLD FCY  Whitman said in this interview that he was a long term holder of Forest City common stock, which I already knew, and he was far more positive about its future than I am at the current time.  I have been critical of the management of this company for entering the recession with a boatload of debt, and allowing its position to deteriorate to such a point that it had to sell stock at $6.6, a 1996 price. 

4. CBO Says Dems Gone Wild Health Plan Will Not Slow Health Care Cost Rise But Will Pile on an Expensive New Program to the Already Out of Control Debt Problem:  I saw a commercial yesterday that touted the Democrats healthcare plan as basically the only way to control health care costs.  Does anyone believe that representation? The CBO told Congress, to great consternation of Harry Reid and his pal Nancy, that the Democrat plan will not meet Obama's goal of slowing the rise in medical costs.   The Washington Post called the testimony of Douglas Elmendorf, director of the non-partisan Congressional Budget Office, a "devastating  assessment".

5. Webster  FINANCIAL (WBS) (owned):   WBS is another lottery ticket purchase, with shares bought at $4.58, and its earnings report for the Q/E 6/09 was okay under the circumstances.  The Tangible Capital ratio increased to 7.58% from 6.79% in the year ago quarter.  Nonperforming loans hit 3.02% of total loans, up from 2.61% as of 3/31/09.   The net income available to common shareholders was 16.8 million.   Deposits grew 480 million.  Tangible book value was 13.15 compared to 17.57 a year ago.  In early trading this morning the stock has risen almost 13% to $ 9.73

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