Saturday, February 28, 2009

Corporations Can Not Be Counted on for Dividends in Retirement/ Nocera on AIG Financial Products Unit/More on GE/Citi Preferred

Joe Nocera has an excellent article about the infamous AIG for anyone who wants to understand what actually went wrong. There is no doubt in my mind that AIG bears a great deal of responsibility for the blowup in the world's financial system.   In fact, the actions undertaken by AIG's Financial Products unit in London are the most important cause, Number 1, of the top ten causes of the worldwide mini-depression.  It is not only the destruction of AIG that can be laid on their doorstep but the AIG Financial Products created the vessel that spread the credit bubble disease around the world, as Nocera explained in his article and I have done in several prior post. 

See, e.g.,

And how many people even know their names or could identify any of them in a line up?  As the government struggles to figure out how to save AIG for a few more weeks this weekend, so that the seeds sown by AIG Financial Products do not blow up the world's financial system even more than they already have, I have been thinking again that the governments around the world need to round up these clowns, suspending all of those liberal wimp laws like trial by jury, and just send them all to the worst prison in the Muslim world, or maybe to one in the tribal area of Pakistan, brand them on their foreheads with the phrase "I Love George Bush" and then bring the worlds' worse sex offenders to reside with them for the remainder of their miserable lives. I keep working on this idea and anyone is free to borrow and implement it. Normally, I am a stickler about the Bill of Rights but I am willing to make an exception for these individuals who reaped hundreds of millions for themselves.  This treatment would actually be more than they deserve, far too lenient for the damage they have wrought and continue to bring.     

I noticed on the WSJ dividend declaration page that CB & L Properties declared its regular 37 a share dividend and its full preferred share dividends. But, the cash part of the common share dividend can not exceed 40% of the total amount paid by CB & L. The preferred dividends are all cash. I own both the common and CBLPRC and will take whatever I am given on my common share position. The entire position is small.  The TC containing a senior Goodyear Tire bond, XKK, is scheduled to go ex interest on 3/11 with its semi-annual interest payment. My position in XKK is larger than the total exposure to CBL, though still negligible at 550 shares.  I also have positions in KSA and KCC, two TCs containing a junior debt obligation of Unum, and the WSJ page shows that they go ex interest also on 3/11. (Barron's had yet another negative article on Unum this weekend: I am now just happy to receive scheduled payments without an elimination, cut, or deferral.  I am making a note of any company that honors its obligations and those that do not for future reference.  The ones that maintain executive pay and cut pay to the shareholders will be in my disfavor from now on. None of the securities mentioned in this paragraph are eligible for purchase under my existing trading restrictions, since they consist of  common and preferred stock, a junior investment grade bond and a senior junk rated bond. Only a senior investment grade bond is eligible for purchase now as an individual security. 

I noticed that the GE dividend cut was the first one in 71 years. Immelt declined a 12 million bonus for 2008 after the stock fell more than 50% from $37.01 on 12/31/2007 to $16.2 on 12/31/08. My question is why would he be eligible for any bonus, let alone a 12 million dollar reward?  He obviously was paying scant attention to the growing fiasco within GE Capital.  

I am also still curious why GE would call a dividend reduced by 68% "competitive" and "attractive". GE Rub that salt in the wound is my response, because those terms are used to describe the dividend yield payable now at the 10 cent quarterly rate for a stock purchase made at $8 now- after an almost 80% decline in the stock price since 12/31/07.  After GE tried to make it sound like they were doing the shareholders a favor by a two thirds cut I decided that I would not forgive them after all. Tell me about the bonuses handed out to GE execs for their 2008 performances again. How much was gifted to the wizards at GE Capital? To say there is a huge disconnect between what executives believe they are worth and even entitled to receive like some welfare recipients, and what is actually deserved, is an understatement to say the least.  Executive compensation, frequently for pathetic or mediocre performance, is now at 400 times an average worker's pay, up from 40 times in 1980.  Does anyone really believe, other than the executives of course, that the shareholders are getting value for the increased costs? CBS NewsBUY OF 50 KSA IN IRA AT 16.31/BAC Management: Failure is to Kind a Word to Use/CB & L

It is time for individual shareholders to start voting against every proposal presented to them relating to executive compensation. I recognize that the mutual funds and other institutional investors will do nothing to change the system but that is no excuse for individual investors to continue supporting the status quo by not voting or by voting with the Boards recommendation. It is very easy to vote your shares online now. I am unaware of a single Board of Directors of an American company that is actually representing the interests of the shareholders, maybe that statement has a little hyperbole in it.  

Toyota has an appropriate model. While workers have been trimmed from 40 to 36 hours with no bonuses or overtime, and no lay offs in the U.S., top executives will see pay cuts of 30% while middle managers will also be cut 20%.  CBS News In that model, I would be okay with accepting a dividend cut. This is part of a collective responsibility or shared sacrifice ethos that American executives will not voluntarily accept, and it will simply have to be imposed on them by the shareholders.  

The main lesson to learn from GE's action is that those nearing retirement or in retirement can not rely on American corporations to pay dividends as part of their retirement strategy. No reliance can be placed whatsoever on any financial institution to continue paying a dividend, let alone maintaining or increasing it. A Citigroup shareholder is holding a near worthless piece of paper now that pays nothing. Most banks have substantially cut or eliminated their dividends. This realization is going to lead me to emphasize more senior bonds where management simply does not have the latitude to screw their investors while maintaining their oversized share of the corporation's funds.    In the coming years I will also take advantage of treasuries when they start to yield something worthwhile, which will happen, but not this year or even in 2010.   

Buffett's letter to his shareholders is available online and is worth a read.  He says the economy will be in shambles in 2009 and probably for well beyond. I did own at one time the baby Berkshire shares which have almost been cut in half from their 52 week high. BRK-B: Summary for BERKSHIRE HATH I do not remember my sales price but it was around $2000 bucks higher than the current price. I will just keep an eye on it. I am prohibited from buying it now but I am keeping a daily log of my cash flow that I will be able to invest when and if the S & P 500 has a monthly close above 815.   

I was interested in the long WSJ article about Raoul Wallenberg. I was familiar with his story, his efforts to save 20000 Jews from Nazi extermination and his capture by the Soviets and disappearance into Stalin's penal system. I was generally aware that the Swedish government did nothing to pressure the Soviets to release this diplomat, and the U.S. was almost equally at fault. I did not know however the full extent of the evil sanctioned by the Swedish government. The Swedish ambassador told the Russians. "It would be splendid if the mission were to be given a reply...that Wallenberg is dead."  In other words, Sweden was not only going to do nothing to secure Wallenberg's release but in effect told the Soviets to kill him to get rid of the problem.   

Norway's government is celebrating Knut Hamsun with a 20 million museum and statue. Hamsun was a Nazi collaborator and welcomed the Nazi occupation of Norway during WWII.  He gave his nobel prize to Joseph Goebbels as a gift. In 1945, Hamsun wrote an article saying Hitler was a warrior and "a prophet of the gospel of justice for all nations". The Pope recently revoked  an excommunication of a bishop, Richard Williamson, who denied the existence of Nazi gas chambers in televised remarks. Now, after that provoked some outrage, the bishop says he needs to review evidence supporting the existence of the holocaust. 

I assume that Andrew Bary knows what he is talking about when he stated in his Barron's article this week that the Citigroup Trust Preferred shareholders will continue to receive dividends.

No comments:

Post a Comment