Barclay's (NYSE: BCS) stock is falling today after the company announced a 1.1B GBP loss for Q1, including a 1.7B GBP charge, mostly related to write-downs of credit market losses. The company also did not announce rights issue to raise capital, which has surprised analysts. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on BCS.
After hitting a one-year high of $61.55 in July, the stock hit a one-year low of $31.31 in March. This morning, BCS opened at $32.44. So far today the stock has hit a low of $32.35 and a high of $33.17. As of 12:25, BCS is trading at $32.97, down 0.34 (-1.0%). The chart for BCS looks bullish but deteriorating, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bearish hedged play on this stock, I would consider a September bear-call credit spread above the $40 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 7.5% return in four months as long as BCS is below $40 at September expiration. Barclays would have to rise by more than 21% before we would start to lose money. Learn more about this type of trade here.
BCS hasn't been above $40 by more than a little bit since January and has shown resistance around $37 recently. This trade could be risky if the financial markets execute a turnaround, but even if that happens, this position could be protected by resistance BCS might find at $40, where the stock has topped out twice int he past two months.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in BCS.
Jarrett Lilien, E-Trade Financial Corporation's (NASDAQ: ETFC) president and COO, who lost out on the CEO job last month to Donald Layton, is going to resign from the online brokerage firm, the Wall Street Journal reported; Layton doesn't plan to fill the position.
Chinese Internet search firm Baidu.com Inc (NASDAQ: BIDU) is poised for aggressive growth but must also confront a number of obstacles, according to the Wall Street Journal's "Heard in Asia," including a number of lawsuits regarding its music services and a vacancy in the CFO position.
Alibaba Group, a Chinese Internet company , is in advanced talks with investors to finance its acquisition of Yahoo! Inc's (NASDAQ: YHOO) stake to expand its management independence, the Wall Street Journal reported.
OTHER PAPERS:
According to inside sources, the New York Post reported that billionaire Joseph Lewis and former Bear Stearns Companies Inc (NYSE: BSC) CEO Jimmy Cayne are looking for a white knight that could surpass JPMorgan Chase & Co's (NYSE: JPM) takeover offer for Bear Lewis and Cayne have reportedly reached out to several private equity firms and overseas banks, including Barclays Plc (NYSE: BCS) and Credit Suisse Group (NYSE: CS).
WEB SITES:
Medical supplies boss Michael Mastromarino, accused of stealing the body parts of around 1,000 corpses, has pleaded guilty to several charges in a deal with prosecutors. The BBC News reported that the Biomedical Tissue Services company shipped bones, skin and tendons to tissue-processing companies such as LifeCell Corporation (NASDAQ: LIFC) and Tutogen Medical Inc (AMEX: TTG), which are in turn facing hundreds of civil lawsuits.
Well, it isn't surprising that following the sale of Bear Stearns to JPMorgan, may of the financials are in focus this morning with investors, while hoping there will not be another Bear Stearns, also wanting to make sure they steer clear of any such possibility. With Lehman Brothers (NYSE: LEH) often mentioned as having the closest problems to those that plauged Bear, its shares are seen plummeting nearly 27% in premarket trading to $28.69 after closing at $39.26 Friday. This is despite Moody's Investors Service affirming Monday its A1 rating on the senior long-term debt of Lehman. The broker is scheduled to report results Tuesday.
Goldman Sachs (NYSE: GS), also scheduled to report results Tuesday, is expected to "announce asset writedowns worth about $3bn," according to the Telegraph. Goldman shares are dropping 8.8% in premarket trading. Meanwhile in Europe, banks are falling as well. Swiss bank UBS (NYSE: UBS) declined over 11%, was one of the worst performers, down 11.1%, as was British mortgage lender HBOS. Royal Bank of Scotland declined 8.6% and Barclays (NYSE: BCS) was down 8.1%. This gives an indication at the very least of how some of these banks will do when U.S. markets open.
Whenever Wall Street starts packaging a product for the masses that's used by sophisticated investors, you know that there is big trouble ahead. There is no way that an individual investor will be able to value and understand the drivers of that investment's value. And it's fairly certain that Wall Street is packaging the security to enrich itself with fees. Wall Street doesn't have to concern itself with whether its investors make money.
This is the first thing that came to mind when I read a Bloomberg News story Barclays Plc (NYSE: BCS) introduced a new product that put a scare into Vanguard Group Inc. and the rest of the $13 trillion U.S. mutual-fund industry. The product? An exchange-traded note (ETN). I really don't know what it is but the story says that it allows individual investors to buy a type of forward contract linked to commodities and assets ranging from oil to currencies to foreign stock indexes. It has lower fees than mutual funds, is less regulated and, for now, lets holders defer taxable income indefinitely.
It sure sounds great and that's probably why the mutual fund industry is so afraid of it. But before you go out and buy one of those ETNs, make sure you understand how its value is set and what makes that value go up and down everyday. Otherwise you could be in for a rude awakening. Can't figure out how to value an ETN? Then I suggest you hold onto your wallet with two tightly clasped fists. When Wall Street comes calling on Main Street for such complex securities.
Barclays analysts say banks that obtained $72 billion in funding to replenish capital depleted by subprime-related losses may need another $143 billion in capital infusions if credit rating agencies downgrade bond insurers several levels, Bloomberg News reported Friday.
Barclays analyst Paul Fenner-Leitao Banks wrote in a research report published Friday that banks will need at least $22 billion if bonds covered by insurers MBIA (NYSE: MBI) and Ambac (NYSE: ABK) are cut one level from the current AAA and six times that if they are cut four levels, Bloomberg said. The capital amount is based on Barclays' estimates that the banks hold as much as 75% of the $820 billion of the structured securities guaranteed by bond insurers.
Meanwhile, the markets awaited word on New York Insurance Superintendent Eric Dinallo's meeting with banks on a bail-out package for bond insurers. Shares of some key bond insurers fell after Dinallo issued a statement that the negotiations were complicated and would take time, leading some in the market to doubt the New York agency's ability to marshal private resources for the initiative.
MBIA fell 79 cents to $13.61, Ambac gained 15 cents to $11.48, PMI Group (NYSE: PMI) rose 17 cents to $8.97, and MGIC Investment (NYSE: MTG) declined 6 cents to $16.68.
The FTSE has moved up 4.3% to 5,851. The DAXX is trading higher by 6.1% to 6,834, and the French CAC 40 is up 5% to 4,867.
Shares in miner BHP Billiton (NYSE:BHP) are rising 7.2% and Barclays (NYSE:BCS) is up 8.1%. Siemens (NYSE:SI) is higher by 4.3% and French financial services company AXA (NYSE: AXA) is up 10%.
Douglas A. McIntyre is an editor at 247wallst.com.
Barclays (NYSE: BCS) claims in its lawsuit filed yesterday against Bear Stearns Asset Management (BSAM) and other related parties that the "BSAM Defendants concealed the fund's falling net asset value ("NAV") from Barclays and investors in the related feeder funds ... This cover-up and failure to respond in accordance with BSAM's fiduciary duties to Barclays only caused greater losses and a more spectacular collapse of the Enhanced Fund."
Barclays also claims that Bear Stearns (NYSE: BSC), as part of this cover-up, tried to save its skin by making plans to sell another investment, Everquest IPO, to "improperly offload poor quality CDOs" and thereby "to offload its risk to the public." It calls the BSAM portfolios "dumping grounds for toxic assets, including many Bear Stearns-related assets."
As you read the lawsuit, you get an upfront and personal look at the behind-the-scenes dealings of CDOs and how little was truly known about their values. Barclays insists that they were promised the portfolio for their leverage investment would not include the risky investment vehicles that ultimately imploded in this portfolio in May. The lawsuit includes an extensive set of "Investment Guidelines" that were signed, spelling out the level of risk Barclays would accept.
A Bear Stearns spokeswoman told Bloomberg they had not yet seen the suit, but said, "This lawsuit is an attempt by Barclays to avoid taking responsibility for its own actions" and that Barclays made "its own assessments that did not anticipate what, in hindsight, turned out to be a historically difficult market.''
Whatever the legal result of Barclays' (NYSE: BCS) lawsuit against Bear Stearns (NYSE: BSC) over hedge fund losses, the UK bank should have know better.
Much of the current problem related to mortgage-related securities bought and held by big financial companies is why the "due diligence" was so thin.
According to Reuters, "Barclays Bank Plc accused Bear Stearns Co Inc on Wednesday of loading one of its hedge funds with about $500 million in troubled assets just weeks before it collapsed with another fund."
Barclays has a case if Bear Stearns simply dumped risky securities into the fund without any warning. But the UK bank certainly knew the overall asset mix of the pools and was still making a bet that mortgage-related securities would do well.
Did Bear Stearns lie to Barclays? Did it mislead the big bank? Perhaps. But the greed that drove big banks to invest in these instruments was not limited to Barclays. Neither was the lack of understanding about how the securities worked, or what their risks were.
Barclays can blame itself on those counts.
Douglas A. McIntyre is an editor at 247wallst.com.
Marketwatchreported this morning on the Royal Bank of Scotland (NYSE: RBS)'s earnings event. Shares surged upwards to the tune of 7.3% on news that the U.K.'s second-largest bank expects operating profit and earnings per share to be "well ahead" of the market consensus.
I wrote yesterday about the U.K.'s real fear that the subprime meltdown that the U.S. is experiencing may rear its ugly head in the U.K. throughout 2008. RBS' relatively cheery (actually, just not as bad as everyone was predicting) forecast relieved some of the stress on the financial industry this morning.
In the same article, Marketwatch reported that RBS said "Credit market troubles in the second half of the year are expected to result in write-downs of 950 million pounds ($1.96 billion) on its exposure to subprime mortgages, which was lower than many analysts had forecast." This news drove up the shares of Barclays (NYSE: BCS), UBS (NYSE: UBS), and CSFB (NYSE: CS) -- three other banks pushed down by the overhang of a massive mortgage rate reset.
Zack Miller is Managing Editor of IsraelNewsletter.com. Disclosure: Author has no position in any stock mentioned as of 12/04/07.
Imagine we lived in a world where CEOs were held accountable for their screw ups -- I know it's a fantasy but humor me -- and where companies really cared about making shareholders happy. If this were reality, it would cost shareholders $1 billion to oust the CEOs of companies that are the most closely associated with the subprime meltdown, according to a study by The Corporate Library.
Unbelievable.
"The subprime mortgage crisis has already claimed two CEOs -- Stan O'Neil at Merrill Lynch (NYSE: MER) and Charles Prince from Citigroup (NYSE:C)," said report author Paul Hodgson in a press release. "No one can predict how many others may be encouraged to "retire early," but it has been amply demonstrated that terminating CEOs is a very expensive business, with or without an employment agreement. The "good news'" is that, largely due to the destruction in equity value many of them have overseen, it would have been over $360 million more expensive to have fired them at the end of 2006."
It's not every season that Wall Street analysts greet losses or write-downs with smiles, but such is the case in the 'subprime watch' era.
Barclays (NYSE: BCS) Thursday said it wrote-down $2.7 billion of credit-related securities tied to the U.S. subprime mortgage market.
Investors once again appeared to be relieved that a major bank's subprime losses, while not small, weren't catastrophic. Barclays' shares fell just 44 cents to $43.44 in mid-morning trading Thursday. Further, Barclays' shares are up more than 10% for the week, an indication that investors may be regaining an appetite for the United Kingdom's third-largest bank.
Barclay's (NYSE: BCS) stock is falling today after the company announced a 1.1B GBP loss for Q1, including a 1.7B GBP charge, mostly related to write-downs of credit market losses. The company also did not announce rights issue to raise capital, which has surprised analysts. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on BCS.
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Whenever Wall Street starts packaging a product for the masses that's used by sophisticated investors, you know that there is big trouble ahead. There is no way that an individual investor will be able to value and understand the drivers of that investment's value. And it's fairly certain that Wall Street is packaging the security to enrich itself with fees. Wall Street doesn't have to concern itself with whether its investors make money.
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