Mover Mike

Bank of America Agrees to Buy Countrywide for $4 Billion The deal rescues the country's largest mortgage lender and expands the financial services empire of the nation's largest consumer bank. The transaction would value Countrywide at $7.16 a share.

Bank of America faces $20 billion to $30 billion in write-downs once the deal closes because it has to mark Countrywide's loan portfolio to market, according to Paul Miller of Friedman Billings Ramsey, who said in a research note Monday that Bank of America should cut its price from $7 a share to $2 a share or less.

Nau Inc. (pronounced "now") was a sustainable clothing e-tailer. It had plans to open 20 stores this year and 140 by 2010. Just two weeks ago it opened in Los Angeles. Yesterday, it closed its doors permanently.

Nau's appeal: With every sale we donate 5% to environmental or humanitarian organizations working to create positive change. Their partners are Conservation International, Heifer International, 1000 Friends of Oregon, Ecotrust and The Oregon National Desert Association. NAU also has a blog, The Thought Kitchen and an interesting post I’m Dreaming of a Green Christmas, Part 1 NAU has four stores, one in Bridgeport, Boulder, CO, Chicago, IL and Bellevue, WA.

I believe a company's sole business is to make money and reward shareholders. Make so much money for shareholders that they can choose to spend their money funding bleeding heart causes, which are probably all anti-Capitalist, and, in turn, will try to kill the golden goose.

Which is better: Nau giving 5% of sales to environmental groups or growing the business to the point that hundreds of people work at Nau, get salaries and health and retirement benefits, and spend all the hard earned money in the communities, who, in turn, contribute to the art museums, and support plays and ballet and OPB, and feel so prosperous that they vote on funding for the schools?

I'm sorry to see Nau go under. I really like their clothes even though they seemed pricey. The good news: one more time a goody-goody concept bit the dust and their clothes and accessories are 50% off, while supplies last!

On Friday, the bedding and home furnishings chain filed for Chapter 11 bankruptcy protection in Delaware -- just two weeks after its vendors required "cash before delivery" payment and three weeks after the company hired Financo to look for a buyer.

Linens 'n Things will ask the bankruptcy court to let it close 120 of its 589 stores, including five of its 20 Georgia stores. The stores will close over the next few months, a spokeswoman said.

[...]

Linens 'n Things blamed the current bad economy, but signs of trouble began when it was taken private by three investors in 2006. Saddled by debt from the $1.3 billion transaction, Linens 'n Things never caught up to rival Bed Bath & Beyond in terms of sales per square foot.

Ceres, which is partly owned by XL Reinsurance America Inc (XL.N:)

and Stanfield Capital Partners had assets of $1 Million and liabilities between $50 million and $100 million! "SIV assets have been difficult to value since the mortgage market collapse..."

I posted last week that Linens 'n Things May File Chapter 11 Tuesday. Gifts & Decorative Accessories wrote Sunday

...at least two retail liquidators have already conducted inventory valuations and store closing assessments in upward of 100 Linens ’n Things (LNT) units that might be shuttered.

At the same time, many suppliers, including at least some of its majors, have either stopped shipping LNT or placed them on COD status, people familiar with the situation said.

[...]

The beleaguered retailer has apparently been preparing for that eventuality for at least two weeks, not long after its fourth quarter conference call in which it reported a steep net loss of $62 million on anemic sales of $962.9 million. During that time, LNT merchants and others have been calling around to vendors gathering formal corporate information on them — including mailing addresses and names of senior executives — the kind commonly included in court filings listing unsecured creditors.

Update:

A GE spokesman confirmed that its Commercial Finance unit is the lead agent on a $700-million revolving credit facility to Linens 'n Things, but declined to comment further.

Apollo Global Management bought Linens in a LBO and has filed a prospectus to go public "and is negotiating (with a couple of other firms) to buy $US12 billion of leveraged debt from Citigroup," which would help Citigroup.

Like Sun Capital "some of Apollo's other buyouts are said to be finding it tough, including real estate group, Realogy, the parent of the real estate companies Coldwell Banker and Century 21, and another chain, Claire's Stores, a jewelery, cosmetic and accessories chain catering for young women."

The New Jersey-based company, Linens 'n Things, whose products range from sheets and curtains to cookware and massage chairs, has 600 stores nationwide and $2.79 billion in net sales last year.

Linens 'n Things has seven stores in Oregon: TANASBOURNE TOWN CENTER, CASCADE PLAZA in Beaverton, FORUM SHOPPING CENTER in Bend, ROGUE VALLEY MALL in Medford, two stores in Portland and the LANCASTER MALL in Salem.

...the U.S. housing downturn and weak economy have exacerbated the company's problems, since consumers have reined in spending on home goods.

Washington Mutual Inc.’s stock continued its roller-coaster ride today, on speculation that the Seattle-based thrift was nearing a deal for $5 billion in capital.

WaMu’s stock was up 17% as of 10:30 a.m. Eastern time today, as investors rallied on the news that private equity firm TPG and others would shore up the bank’s capital position. In the past six weeks, the bank’s stock [ticker: WM] has dropped more than 40%.

WaMu has been hit especially hard by the mortgage crisis, being referred to by some as technically insolvent. In January, the lender said it planned to set aside as much as $2 billion for credit losses in the quarter. But last month Moody’s predicted that WaMu would have to set aside far more — $12 billion of loan-loss reserves. At the time, the rating agency slashed WaMu’s debt rating to one step above junk status.

Though it appears WaMu’s shareholders have been assuaged, their relief may be short-lived if Moody’s predictions are correct.

Washington Mutual (WM) TPG Mover Mike

Journal Register (NYSE: JRC) may be the first large, listed newspaper company to go into Chapter 11. With falling revenue and high debt, the company ...publishes a number of papers including the New Haven Register.

[...]

The newspaper industry is dying more quickly now and there will be other defaults in the next year or two. Large chains like McClatchy (NYSE: MNI) face severe debt problems. Its lenders may end up owning the company.

From Forbes,

In the financial sector MBIA (nyse: MBI) made the afternoon headlines, after Fitch Ratings cut its long-term rating to A from AA, dropped its insurer financial strength rating to AA from AAA. The rating agency also said the bond insurer's losses on collateralized debt obligations could reach $4.9 billion, according to TradeTheNews.com.

The MBIA news appeared to spark the late selling trend that saw the market coast to its mixed finish.

Meantime, the third largest insurer suffered another cut: Fitch cuts FGIC insured-only municipal ratings to BBB, outlook negative.

MBIA (nyse: MBI) FGIC Mover Mike

Banks Sued Over Clear Channel
The dispute over Clear Channel escalated as private-equity firms filed suit, seeking to force lenders to fund the $19 billion buyout. A failed deal could cost Bain Capital and Thomas H. Lee Partners nearly $1 billion combined.

Last year, (Thomas H.) Lee's $508 million investment in Refco, formerly the largest independent futures brokerage, seemed like a winner.

Refco Thomas H. Lee Partners Clear Channel

Update:

Now the NY Times reports an independent report commissioned by a division of the Justice Department concludes “improper and imprudent practices” by New Century were condoned and enabled by its auditors, KPMG.

The 580-page report documents how New Century lowered its reserves for loans that investors were forcing it to buy back even as such repurchases were surging. Had it not changed its accounting, the company would have reported a loss rather a profit in the second half of 2006. The company first acknowledged that its accounting was wrong in February 2007 and sought bankruptcy protection less than two months later as its lenders stopped doing business with it.

The profit was important because it allowed executives to earn bonuses and convince Wall Street that it was in fine shape financially when in fact its business was coming apart, the report contended.

Another indication that the rush to open online stores is failing. Maybe the competition is too fierce or the margins too low. What ever the case Pier 1 Imports with 1,000-plus stores is no slouch in retailing.

However, in a piece The Debt Shuffle by Jesse Eisinger, Eisinger's concludes:

The picture emerging is that of an investment bank that is dancing as fast as it can

• Lehman’s balance sheet isn’t shrinking, as we’d expect. - Other financial institutions are taking down their exposure right now amid the market turmoil to be prudent
• Lehman got more leveraged, not less. - The investment banks “gross” leverage hit 31.7 times equity, up from the fourth quarter and way up from last year’s 28.1.
• Lehman includes debt in its calculation of equity. Say what?
• Lehman reaped substantial earnings gains because investors thought it is more likely to go bankrupt.
• Lehman’s write-downs seem tiny. - The bank only wrote these assets down by 3 percent. And its Level III assets —the hardest to value portion of these instruments—were written down by only the same percentage.

If Lehman fails, how much will the FED have to spend this time and will JP Morgan ride again to the rescue?

Lehman borrowed the money through the facility, which was announced over the weekend and makes money available to securities firms on much the same conditions as the Fed's discount window, late on Tuesday, the paper reported, citing an unnamed person familiar with the transaction.

The Wall Street Journal also reported that Goldman Sachs Group Inc is likely to tap the facility before the end of the week.

With regulators essentially ready to bail out just about any financial institution facing crippling capital pressures, the worst is yet to come.

...today’s talk focuses on National City Corp. and Washington Mutual Inc.

The stocks of both regional banks have been hammered — National City’s because of rumors it has put itself on the sales block and WaMu’s because its debt rating was cut on Friday to one step above junk status. Moody’s predicted WaMu would have to set aside $12 billion of loan-loss reserves, far more than previously predicted.

Though I don’t have a great sense for the potential fallout at Nat City, I have heard some talk that WaMu is technically insolvent. The issue revolves around the Seattle-based bank’s mark-to-market strategy for its whole loan and mortgage portfolio.

Of WaMu’s $328 billion of assets at yearend, 22% are non-real-estate-related. That leaves $256 billion worth connected to prime single-family residence and mortgage-backed securities, home equity and consumer loans, multi-family and commercial real estate, and subprime mortgages.

The way I understand it, WaMu only needs to mark down its loans to market value once they become "substandard." At that point, I’m afraid, it would be too late.

Bear Stearns plunges 50% in opening minutes and rattles the market. Rumors have rebounded across the country that the "Bear" was dying.

The company (Bear Stearns) has struggled since the middle of 2007 due to the fallout in the mortgage and credit markets. Last summer, two hedge funds worth billions of dollars managed by Bear Stearns collapsed because of bad bets on securities backed by subprime mortgages -- loans given to customers with poor credit history.

Bear Stearns (BSC) JP Morgan Chase (JPM) Mover Mike

Thornburg Mortgage Inc. lost more than half its market value after the home lender failed to meet $270 million of margin calls and a Citigroup Inc. analyst said bankruptcy is possible.

Thornburg Mortgage Inc. (TMA) Citigroup Inc. (C) Mover Mike

Reuters reports that Sharper Image has filed Chapter 11, "citing declining sales, three straight years of losses and litigation involving its Ionic Breeze air purifiers."

The company deals with about 650 vendors and suppliers on a credit basis, many of whom began to request cash upon delivery, according to court papers.

"Sharper Image is in a severe liquidity crisis," Chief Financial Officer Rebecca Roedell said in a separate filing.

Sharper Image Chapter 11 bankruptcy Mover Mike

UPDATE:

Federal law allows a company to stop honoring store gift cards when it files Chapter 11 bankruptcy, and that's exactly what's happening at San Francisco-based Sharper Image. Sales clerks are telling customers they can no longer accept the plastic cards as payment, and the cards are no longer accepted when customers try to use them online.

Sharper Image could be sitting on as much as $25 million dollars in gift card money, according to an estimate by Brian Riley, a senior analyst with the Needham, Mass.-based TowerGroup, a research and advisory services firm. Riley follows Sharper Image.

Switzerland's No. 1 bank said it still holds $27.59 billion in securities linked to U.S. subprime residential mortgages, down from $38.77 billion in September.

UBS also disclosed further exposure of $11.4 billion in leveraged finance and $26.6 billion in alt-A mortgages.

UBS also said it got a Wells Notice last week from the Securities and Exchange Commission related to a municipal bond probe.

UBS (UBS) Wells Notice Mover Mike

Both companies were among about 30 firms subpoenaed in November 2006 in a federal price-fixing probe related to the bidding of guaranteed investment contracts, which state and local governments use to park proceeds of municipal bond sales.

[...]

The SEC, the Internal Revenue Service and the U.S. Justice Department in November 2006 started an industry-wide investigation of how municipal bond proceeds are invested.

...had a secret agreement with the provider of a guaranteed investment contract for bonds issued in 1999 by an authority in Gulf Breeze, Florida, The deal allowed CDR to increase its fees if none of $220 million in bond proceeds was used for its intended purpose -- affordable housing.