Wednesday, April 21, 2010

Sold ALL PJS /Earnings: GS RF JNJ KO MI RNST TRST FFIC/Sold all PVX at $7.85/National Bank of Australia

1. Coca Cola (owned): Coca-Cola reported adjusted E.P.S. of 80 cents for the 1st quarter, beating the consensus view of 75 cents. Revenue rose 5%, less than expected, to 7.53 billion. On a GAAP basis, KO had net income of 69 cents per share. The analyst consensus was for revenues of 7.72 billion. Cash from operations increased 52% from the year ago ago. The North America market continues to be the problem, with a unit case volume decline of 2% purportedly due to unseasonably cold weather. Most of the sales growth, however, was due to favorable foreign exchange. A more upbeat analysis of this report than the one given by the market yesterday can be found at Barrons.com.

2. Johnson & Johnson (own via PPH): When I bought 100 shares of PPH the other day, I own indirectly 26 shares of JNJ. I would review the earnings report released today regardless of that tidbit since I am interested in quality companies like JNJ. Johnson & Johnson reported an adjusted E.P.S. of $1.29, beating expectations by 2 cents. The company lowered its guidance for 2010 slightly to a range between $4.80 to $4.9 due to currency exchange issues. Revenue rose 4% to 15.63 billion. Worldwide pharmaceutical sales fell by 2.5% versus the prior year. JNJ has a similar problem to KO, in that foreign sales are providing the growth while the U.S. is a drag. JNJ's foreign sales grew 14.3%, while the U.S. shrank by 4.9%.

3. Goldman Sachs (own bonds in TC form only-JBK, PJI, PYT and GYB): Needless to say, as an owner of GS bonds only, I am satisfied with the 1st quarter earnings report from GS. The firm earned 3.3 billion or $5.59 per share, handily beating the analyst consensus estimate of $4.16 per share.

The Fabulous FAB is on indefinite paid leave, and has been de-registered by GS with the U.K.'s regulator.

GS says that the government blindsided it with the suit, and had no contact with the firm after GS responded to the SEC's inquiry in September 2009. WSJ The suit was filed on the same day as a scathing report by the SEC inspector general on the agencies handling of the "alleged" Ponzi scheme of Allen Sanford. The head of the SEC had that report since at least April 1st and neglected to release it until the SEC filed the Complaint against Goldman. WSJ An article in the WSJ. focuses on the expertise of ACA Management in evaluating mortgage securities and how that will play into GS's defense of the case.

I thought that I would excerpt some comments made by the GS General Counsel on the conference call pertaining to some important material facts left out in the SEC's Complaint:


"As to the case and by way of background, there were only two professional institutional investors other than ABN Amro acting as counterparty credit intermediary involved in this transaction. Both of these investors are institutions with significant resources and extensive experience in the CDO market.

At year end 2006, ACA, a specialty financial services company, managed 22 similar CDOs with $15.7 billion in assets. IKB, a large German bank, had a separate mortgage group and was an active participant in the CDO market indeed.

As of January 2007, according to IKB, they had launched and managed more than $16.8 billion of CLOs and CDOs and viewed securitization in CDO investments as an integral part of their business model.

From the outside, the transaction enabled ACA, IKB and Paulson, each to achieve certain desired exposures to Baa2 rated subprime securities of the 2006 vintage. Our role as a financial intermediary and market maker is to bring together such market participants.

ACA and IKB were positioned to benefit from an increase in the value of the reference portfolio of securities and Paulson was positioned to benefit from a decline in the value of this portfolio.

As professional investors they fully understood that a synthetic CDO transaction must have both a buyer and a seller, that is both on a long and a short side and each had the resources necessary to analyze the reference portfolio of securities which was completely itemized for them.

In the process of selecting the reference portfolio ACA, which is both the portfolio selection agent and overwhelmingly, the largest investor, evaluated every proposed security. Although ACA received input from both Paulson and IKB, ACA had full responsibility for determining and did determine the final portfolio and was paid a fee for performing that role.

ACA used proprietary models and methods of analysis to develop its own independent view of the relative risk units of each security. To that point, ACA rejected more than half of the securities suggested by Paulson."

4. Regions Financial (own Category 1-Regional Bank Strategy): RF has suffered mightily from self-inflicted wounds. I do not have a favorable opinion of this bank, even though the stock has more than doubled since my purchase at $3.47 in March 2009. For reasons that are clear only to the RB who made that purchase, the one cent a share quarterly dividend is being used to buy additional shares. Regions reported a loss of 21 cents in the 1st quarter, better then the consensus estimate of a 27 cent loss. Allowance for credit losses increased to 3.69% of total loans. The net interest margin was a paltry 2.77%.

5. Sold 76 PJS at $24.65 in the Roth and 150 in the main taxable account at $24.75 (See Disclaimer): The 76 share transaction is just a continuation of the saga that began on Monday when Knight Trading filled my round lot limit order first with 4 shares and then with 20, leaving me with 76. Once I saw some volume late in the afternoon, I went ahead and sold the 150 shares held in the main taxable account. This TC was a rewarding investment.

6. National Bank of Australia ( NABZY )(own-Bought 50 NABZY at 24.7): While I am certainly no authority on Australian banks, or any bank for that matter, I suspect that the price of NABZY has been hurt some recently by its acquisitive nature. The shares rose yesterday after NAB received an adverse ruling from Australia's competition regulator blocking NAB's 13.3 billion AUD offer to acquire AXA's business in the Asia-Pacific region: WSJ.com

7. Sold All Provident Energy at 7.85 (PVX)(See Disclaimer): I owned 207 shares, plus some fractional shares, that had been acquired in increments. PVX was already on the chopping block before yesterday due to the tax reporting complexities associated with the Canadian energy trusts converting to regular corporations, which has not yet happened with PVX. This gave me a fit with one that converted last year. Warnings on Canadian Trusts Converting to Corporations The straw that broke the camel's back was the report yesterday of a complicated merger transaction with Midnight Exploration on the Provident's upstream assets, resulting in a split up of the company, and causing far more of tax headache for me than I want to even consider given my pre-existing less than lukewarm interest in PVX: Provident Announces Strategic Transaction to Separate Its Upstream and Midstream Businesses Some of my buys of PVX are discussed in these blogs: Bought 50 PVX at 6.4 Bought PVX at 5.39

8. TrustCo (TRST)(own- CAT 1- Regional Bank Stocks): TrustCo Bank reported net income in the 1st quarter of 6.9 million, up 9.2% over the prior year period. ex_99 This translates into an E.P.S. number of 9 cents per diluted share. The net interest margin grew to 3.62%, up from 2.96% in the 1st quarter of 2009. The total risk based capital ratio increased to 13.6 as of 3/31/2010 from 13.3 at the end of 2009. The total risk adjusted capital increased to 12.35% from 12.04.

I have nothing positive to say about the report from Synovus (SNV) (own-Category 1), which was released after the close yesterday. The company did say that it was exploring all capital raising measures in response to regulatory expectations. Reuters I might need to do something about this one simply to avoid looking at it again.

9. Marshall & Illsley (MI)( own-Category 1 Regional Bank Stocks) MI rose almost 10% in trading yesterday after releasing its first quarter report. My purchase was at 5.84. This is another one where it is impossible for me to have a positive outlook. Why the surge in the price? Well, MI had a narrower loss than the analysts were expecting, a mere 27 cent per share loss when the market was expected 13 more cents. TheStreet.com I guess that is an improvement to some people, not to me. For those banks in Category 1 of this basket strategy, I knew that there nothing to like. Since my entry point was so low, in many cases at 20 year lows in the stock price, and I was treating those banks in Category 1 as nothing more or less than Lottery Tickets, I could afford to wait for one or more of them to turn their business around, hopefully restoring profitability and even their dividends, provided I was willing to take the very long term view. It will be a slow process.

10. Flushing Financial (FFIC) (own -regional bank strategy): Flushing Financial Corporation reported core E.P.S. of 27 cents (GAAP 26 cents), up from 20 cents a year ago. Tangible common equity to tangible assets increased to 8.45%. Tangible book value per share increased to $11.31 from $10.26 as of 3/31/2009. Net interest margin was 3.39% up from 2.72% as of 12/31/2009. The earnings beat expectations by 2 cents.

11. Renasant (RNST)(own-Regional Bank Strategy): Renasant Corporation missed expectations by a penny, reporting an E.P.S. of 17 cents. The dividend is currently 17 cents per quarter. The net interest margin was 3.27%. Tangible book value per share was $10.42. Nonperforming loans as a percentage of total loans was 2.37%. The total risk based capital ratio was 12.44%, all numbers as of 3/31/2010. I would characterize this report as adequate, but not impressive.

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