Businesses controlled by Mexican billionaire Carlos Slim bought $250 million worth of senior unsecured debt from the New York Times Co. (NYT) yesterday. The notes pay 14.053% interest and come with warrants to purchase 15.9 million of the company's class-A common stock at $6.3572 per share. NYT closed yesterday at $6 a share.
On September 30, 2008, less than four months ago, the 10 largest U.S. banks by asset size had a combined market capitalization of $722.73 billion, according to American Banker. As of January 20, it stood at just $237.83 billion, a drop of approximately two-thirds.
I wonder which of those numbers is closer to the real intrinsic value of those banks? It's probably good for the banks and the people who run them that nobody knows exactly what they own or has any clue what it's all worth.
Bank of America and JPMorgan Chase CEOs are buying their own stock. Ken Lewis paid around $6 a share for 200,000 shares of BofA, while Jamie Dimon paid about $23 for 500,000 shares of JPMorgan. It's impossible to say who got a better deal, since both businesses are impenetrable black boxes... but Lewis paid about 25% of book value, Dimon about 65%.
No matter what happens, our government is dumb enough to believe there's something special and sacred about certain large financial institutions and will prop them up come what may. I say, let them succeed or fail on their own merits, rather than the caprice of the Washington D.C. power merchants.
Even the most successful businesses are feeling pain these days. The world's largest software company, Microsoft, and the world's largest semiconductor manufacturer, Intel, both announced job cuts. Microsoft will ax 5,000 employees across all divisions – 1,400 will get the boot today, the first layoffs in the company's history. Intel will close five factories and consolidate operations, which will eliminate around 6,000 positions.
And more expected layoffs: High-end kitchenware retailer Williams-Sonoma announced 1,400 layoffs. Swiss bank UBS said it will cut around 5,000 employees by year's end.
Bank of America made a cut today. It fired... er... accepted the resignation of John Thain, former CEO of Merrill Lynch. Other high-ranking Merrill executives have been let go, but Thain's exit probably has something to do with Merrill Lynch accelerating bonus payments by one month last year, paying billions of dollars to employees just three days before closing its sale to Bank of America.
Merrill paid $15 billion in bonuses for 2008, only 6% less than in 2007. The following quarter, Merrill announced a record $15.3 billion loss – which was absorbed by Bank of America and ultimately us taxpayers (BofA received $45 billion in TARP funding, $25 billion of which was earmarked to help with the Merrill takeover).
The once-mighty AIG is now selling for 5% of book value. It's 35 cents away from becoming a penny stock as I write. Any takers? I'll pass, even though I'm pretty sure there are some very good businesses in it.
Apple seems to be weathering the storm. It posted record fourth-quarter revenue on strong sales of Macintosh computers and iPhones. Sales jumped 5.8% to pass $10 billion for the first time, and profits increased 1.5%. It will be interesting to see how long Apple can keep this up. Soon, every U.S. citizen will have an iPod and an iPhone. And with Steve Jobs' leave of absence – the SEC is currently examining how Apple disclosed his health issues – we'll see if Apple can continue with its advances in technology and design.
Another technology juggernaut, eBay, isn't faring so well... The company's fourth-quarter earnings dipped 31%, and revenue fell 6.7% – the first quarterly-revenue decline in the company's history. While its online payment and communications grew, its core marketplace business – which accounts for 55% of revenue – fell 16%. eBay, the largest online retailer by volume, is losing ground to fixed-price retailers like Amazon.
New highs: none.
If you have anything to say that has nothing to do with Barack Obama, e-mail us: feedback@stansberryresearch.com.
"This is for Joann Slate; When you refer to President Bush correctly, you may have some chance of reciprocity for your new President. You're right, about President Obama, he's done noting wrong yet. Give him time. By the way, the real guilt in the mess we are in lies not on President Bush, but on the Congress; their lack of restraint in spending, their willful attempts to ignore existing laws relating to arrest and deportation of illegal aliens, and above all the continuing climate of corruption in Washington is responsible for the corruption we find in business today. Oh, and yes, we know who controls Washington; we did indeed lose. More than we know, yet." – Paid-up subscriber Ken Wallace
"I was disappointed in Dan Ferris's response to mailbag entries on 1/20/09. He took the opportunity to counter the comments of Amy Dennis, who expressed thoughtful and optimistic hope for the leadership of President Obama (Dan said in essence, 'I think you will be wrong'), but left unchallenged the laughable assertions of 'Anonymous', who is still promoting the fearful myths that Obama is not born in Hawaii and is muslim. Give me a break!! It takes only minimal research to show that those assertions are false. To be clear, count me among those who are seriously concerned about the proposed massive spending spree of the incoming administration, and financial regulation that will follow. But to leave unchallenged that regurgitated pre-election crap is unwarranted. Dan, I expected better of you. But in the end, knowledge will overcome ignorance." – Paid-up subscriber Jim Wenger
Ferris comment: Aside from the fact that some of the people who started this country were here to escape persecution based on their birthplace and religion, I don't care if Obama was born in a Bangkok whorehouse and worships the Golden Arches. He's a government employee who won a popularity contest.
Regards,
Dan Ferris
Medford, Oregon
January 22, 2009