AIG: You Cannot Be Serious!

Presented without comment because I'm officially speechless:

AIG facing another $10 billion in previously undisclosed losses on "speculative trades."  Details to come.

AIG handing out cash retention bonuses between $92,500 and $4 million to employees earning salaries between $160,000 and $1 million. 

Can it Get Any Worse For Cerberus?

While lawmakers were busy attempting to hammer out a bailout plan for the automakers, somebody looked up, scratched his head, and said "Wait a minute, isn't Chrysler owned by a private equity firm?  Don't we hate those guys for contributing to the credit crisis by piling on debt to cyclical companies, laying off employees under the guise of "efficiency" and then driving them to bankruptcy because they didn't really know what they were doing and it was just a bubble?  Don't we also hate them for paying themselves all kinds of money and getting favorable tax treatment?  Wait a minute!  Didn't they hire John Snow, a guy who was so bad as the Treasury Secretary that he was forced out by the worst President in the history of the US?  More importantly, isn't Dan Quayle on their payroll????!"  Bailing out the public automakers, GM and Ford, that have been shut out of the capital markets is one thing.  But why should the government bailout Chrysler, privately owned by the three-headed dogs at Cerberus?  Don't the dogs have loads of capital that they can inject?  Details of the bailout plan will be forthcoming, but I hope Cerberus is at least required to pony up some cash alongside the government.

In other Cerberus Sucks news, GMAC's application to become a bank holding company was denied due to insufficient capital.  GMAC is attempting to complete an old-crappy-debt-for-new-crappy-debt swap to restructure. Again.  After the last restructuring didn't work.  So far, only 25% of investors are going for it.  Without the debt swap, the company's prospects are not looking so hot.  Apparently, there are only so many financial engineering tricks investors are willing to fall for before they throw in the towel and decide to take their chances in bankruptcy court.  Did Cerberus really think that guarding the gates of hell would be easy? 

China Growth Machine Hitting the Wall

China's exports and imports both shrank unexpectedly in November.  And by "unexpectedly," I mean "Holy cow! Fire the economists!."  Exports fell 2.2% from a year earlier, compared to expectations of a rise of 15%, while imports dropped by 17.9% compared to expectations of a rise of 12%.  China was widely anticipated to buck the global credit and now economic crises, by continuing to grow, albeit at a slower pace.  But it looks like that isn't going to happen, despite the Chinese government's plan to spend 4 trillion yuan ($586 billion) to boost infrastructure spending and its move to slash interest rates to stimulate the economy.  A slight weakening in the yuan allowed by the government last week raised eyebrows and caused many to speculate that the government would move to depreciate the currency further to help boost exports.  Make no mistake, if China's economy starts contracting significantly, the rest of the world is in big trouble.  We were depending on China to grow us out of this mess. If they aren't going to do it, who will? 

Rescue Plan For the Credit Unions?

If you thought the automaker rescue plan was the only one in the works, think again.  According to the Wall Street Journal, federal regulators are preparing a rescue plan to shore up the finances of some of the large credit unions.  The plan will tap the $41 billion lending facility that Congress made available to credit-union regulators in September.  Apparently, corporate credit unions are reeling from paper losses (i.e. probably real losses by now) on MBS.  The Chairman of the National Credit Union Administration (NCUA) is not calling the lending facility a taxpayer-funded bailout.  It is instead a short-term "mechanism to stabilize the credit-union system" while regulators work on other steps (i.e. the actual taxpayer-funded bailout.)  A related program also to be announced by the NCUA will provide $2 billion in inexpensive loans to credit unions to reduce mortgage interest rates for homeowners.  

What are corporate credit unions and who cares about them?  Here is the WSJ's quick description:

"Credit unions are member-owned cooperatives that act much like banks, taking deposits and offering loans. At the end of last year, there were about 8,400 credit unions in the U.S. with $775 billion in assets. Most are faring fine financially.

The rescue plan is aimed at shoring up the network of corporate credit unions, which are wholesale-style institutions that provide financing, investment and clearing services to retail credit unions. The retail credit unions are cooperative owners of the corporate credit unions.

As part of their role, corporates take deposits from retail credit unions, then invest that money in longer-term assets. But some of the largest corporates invested in mortgage-backed securities, and lately have suffered paper losses."

So, really, no need to worry about the retail credit unions.  They are faring fine.  The problem is that they all rely on the corporate credit unions, which are apparently blowing out. Retail credit unions are pulling deposits exacerbating an already difficult situation for the corporates. The stabilization plan to be announced has two steps:

• Retail credit unions borrow from a lending facility at a favorable rate (1.5%) and then deposit that money with a corporate credit union with a federal guarantee and a small additional rate of return.
  
• Retail credit unions borrow up to $2 billion at a favorable rate (1.25%) and use the money to subsidize interest-rate relief for troubled homeowners.

Mind you, these are temporary financing measures that don't address the capital issue.  Perhaps a new administration will be more willing to help the plight of the credit unions as Hank Paulson chose to exclude them from the TARP.  A chart from the Journal depicts the mounting losses at the largest corporate credit unions:  

FedEx, TXN Spoil the Market's Party

A string of several positive days for the equity markets has nudged all the bottom-callers out from under their desks to confidently proclaim yet another bottom.  Unfortunately, they have been smacked in the face this afternoon by the official start of pre-announcement season.  Both FedEx and Texas Instruments pre-announced worse-than-expected earnings.  While FedEx said it expected to meet second quarter earnings estimates,  the company sharply lowered guidance for fiscal 2009 from $4.75 to $5.25 share to $3.50 to $4.75 a share.  

Meanwhile, in Techland, Texas Instruments said it expects fourth quarter earnings of $0.10 to $0.16 per share, and revenue of $2.30 to $2.50 billion.  The chip maker's prior estimates called for earnings of $0.30 to $0.36 a share and revenues of $2.83 billion to $3.07 billion a share.  Shares in FedEx are down roughly 11%, while Texas shares are off 3% in after hours trading.  Can the market sustain yet another rally tomorrow in the face of such sobering news from two important companies?  If we get a government bailout of the auto industry tonight, maybe.  But I wouldn't hold my breath if I were you.

Tribune Files For Bankruptcy, Fitch Downgrades Debt

In a widely anticipated move, Tribune filed for Chapter 11 bankruptcy protection this afternoon.  Despite the many headlines in the morning warning of a likely bankruptcy filing by the newspaper outfit, the crack analysts at Fitch waited until AFTER the bankruptcy filing to downgrade the company's debt.  Furthermore, the crack reporters at Market Watch reported the Fitch downgrade as if it was relevant news.  Because somewhere an investor must care that the bonds he holds of a now-bankrupt company have been downgraded to 'D' from 'CCC.'  Mock the Market's new rating for Fitch? F-!   

Wagoner Pressured to Resign, Thain Looking for Bonus

The front page of the Wall Street Journal rarely crackles with irony as much as today.  Clearly it was a fairly slow news day when two of the top stories revolve around CEOs.  Senator Chris Dodd is calling for Rick Wagoner's head (figuratively) if the government follows through with the billions in loans that GM has requested.  Meanwhile, in a separate, yet somehow completely related story, Merrill's John Thain is tussling with his board over a $10 million bonus, which he claims he deserves.  Mr. Thain believes that he saved the firm from imminent collapse by selling the company to Bank of America.  For this Herculean feat he is asking his (shocked? appalled? incredulous?) board for $10 million in comp.  I still firmly maintain, as I've stated many times before, that selling Merrill to B of A is not what averted the investment bank's collapse.  Sure, it was a shrewd move.  What saved Merrill was billions upon billions of financing from the Federal Reserve through a variety of new and unprecedented lending facilities, in addition to billions in direct capital injections from the Treasury.  Merrill's survival is due to actions by Ben Bernanke and Hank Paulson, not John Thain.  If Merrill's board is going to write a check to anyone, it should be to those two.      

Again, it is interesting that our lawmakers are even hesitating for a moment about helping the auto-industry, given how easily they showered their largesse over the banking system.  Furthermore, it is a bit hard to stomach that the bailouts were handed out to banks without any restrictions on dividends and pay.  The fact that Merrill's CEO is even thinking of asking his board for compensation in these politically charged times is unbelievable.  Even the heads Goldman Sachs, a firm that actually made money this year instead of losing billions like Merrill, gave up compensation.  Mr. Thain is demonstrating that what he lacks in common sense, he more than makes up for in cojones.    

Update:  The Wall Street Journal is reporting that Mr. Thain met with Merrill's board and will be passing on a bonus this year.