Monday, April 23, 2012

FNFG WMT/Added 100 FTE at $13.17/Sold 50 PYT at $17-Roth IRA

I thought this was an interesting cartoon on the trickle down economic theory, used to justify more tax breaks for the wealthy who contribute mucho money to those politicians who advocate it.

An article in Bloomberg pointed out that Governor Scott Walker of Wisconsin promised voters 250,000 jobs with his business tax breaks but the state instead lost 16,500 jobs. As noted in that Bloomberg article, Walker was criticizing the governor of Illinois for "killing jobs" when Illinois had created 32,000 jobs in the past 12 months.  Tennessee has 44,000 more jobs now than at the beginning of the year. Regional and State Employment and Unemployment Summary

The Vatican has taken over the largest group of American nuns due to "serious doctrinal problems". NYT  CBS News A bishop was appointed to take over the nuns' organization. The Vatican believed the nuns were  promoting "radical feminist themes", such as supporting Obama's healthcare legislation and allegedly questioning the male-only priesthood. Support of Obama's healthcare program, in opposition to the clear directives given by the bishops, was apparently tantamount to a sin. A bishop recently compared Obama to Hitler and Stalin for including contraceptives in health insurance.

The NYT published the findings of its investigation into widespread corruption at Wal-Mart de Mexico, and the efforts undertaken by WMT's top management to sweep those illegal activities under the rug rather than to report them to the authorities.  I thought that the article was just devastating to WMT's image. The current CEO may be taking early retirement soon, an observation made by Reuters or anyone reading the NYT exposé.

The absence of any meaningful prosecutions by the Justice Department against those responsible for the Near Depression shows that there are persons in the U.S. who are in fact above the law. So far above the law that it is not even necessary to defend themselves against criminal charges, since those charges will not even be sought. And those people not only escaped prosecution, but frequently became absurdly wealthy due to their activities.

During last night's broadcast, Sixty Minutes highlighted part of the case against former executives at Lehman Brothers, which of course has not been brought by either the SEC or the Justice Department. CBS News Instead, that story raised an issue that government employees, who were ensconced at Lehman's headquarter's before the collapse, knew about materially misleading financial statements issued by Lehman, and did not warn investors who were still buying the common stock and other securities in the months leading up to Lehman's bankruptcy filing on September 15, 2008. That may explain why no charges have been filed against Lehman executives.
1. First Niagara (own 350+ shares: Regional Bank Basket Strategy): First Niagara reported adjusted earnings of 19 cents per share, or 16 cents on a GAAP basis which included merger related and acquisition charges.  If one wanted to also exclude the carrying costs of the funding needed to close the purchase of the HSBC branches, then the 1st quarter earnings were comparable to the 24 cents earned in the first quarter of 2011. 

Net interest margin for the first quarter was 3.34%, a 14 basis point drop from the 2011 4th quarter. As of 3/31/2012, the efficiency ratio was 59.08%; NPAs stood at .34% of total assets; the return on average assets was .73%; the Texas ratio was 8.73%; the allowance for loan losses to NPLs was 111% (down from 137.7% as of 12/31/2011); the tangible common equity ratio to tangible assets was 8.13%; and the total risk based capital ratio was 15.65%.

While management patted themselves on the back for this report, Sandler O'Neill cut the stock to hold, and Barclay's reduced the price target to $11 from $12. Before the earnings report, Citigroup started FNFG with a hold and a $10 price target. Item # 3 FNFG

First Niagara Financial Group declined 12 cents last Friday to close at $9.07.

First Niagara: Just Another Incompetent Bank Board of Directors
First Niagara Dividend Slash

2. Added 100 FTE at $13.17-Averaged Down Last Thursday (see Disclaimer): France Telecom has been hitting new 52 weeks regularly since I reinitiated a position at $14.82 about five weeks ago. I have nothing to add to that discussion other than the stock has become cheaper since that purchase. FTE Key Statistics Based on the closing price last Friday of $13.26, the trailing P/E is 6.88; price to sales is .58; and price to book is .94. 

Other than the routine news items about Europe's problems, I have not seen anything about FTE in particular that would account for the weakness. Over the past several weeks, the prospects of Nicolas Sarkozy winning reelection have faded, and the Socialist Francois Hollande appeard likely to win a run-off election on May 6th.  MarketWatch

On June 5, 2012, FTE will go ex dividend. Normally FTE will pay dividends twice a year. The dividend is €.8 per ordinary share (share dividend), and FTE is an ADR equal to one ordinary share. 

Morningstar has a five star rating on FTE shares with a consider to buy price at $19.6 or below. 

On the day of my purchase, France Telecom ordinary shares, FTE.PA, close at €9.92, down 3.15% on the Paris exchange. Based on a conversion rate for the EUR/USD, the NYSE listed ADRs would have a value of $13.02. The shares in Paris traded as high as €10.32, approximately equivalent to an ADR price of $13.55. I bought the ADR shares after the shares started to slide on the Paris exchange but before they finished sliding last Thursday. 

France Telecom rose 18 cents in trading last Friday to close at $13.26.

3. Sold 50 PYT at $17 Roth IRA (see Disclaimer): PYT is a Synthetic Floater in the Trust Certificate form of ownership. I have elected for now to go with 100 of a similar security, GYB, that was purchased in March 2012. Bought Back 100 of GYB at 17.2-Roth IRA.

The PYT shares were bought at $16.24.

Both securities have as their underlying security a GS TP maturing in 2034. Both have $25 par values. Both securities pay the greater of their respective minimum coupons or .85% above the 3 month LIBOR rate. GYB has a minimum coupon of 3.25% and a maximum coupon of 8.25%, while PYT is lower by .25% on both the minimum and maximum coupons. 

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