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Massive Hack Targets Customers From Citigroup, Walgreens, TiVo, Capitol One, HSN, College Board

by Adam J. Rose on April 4, 2011

Huffington Post…

(Reuters) – The names and e-mails of customers of Citigroup Inc and other large U.S. companies, as well as College Board students, were exposed in a massive and growing data breach after a computer hacker penetrated online marketer Epsilon. In what could be one of the biggest such breaches in U.S. history, a diverse swath of companies that did business with Epsilon stepped forward over the weekend to warn customers some of their electronic information could have been exposed. Drugstore Walgreens, video recorder TiVo Inc, credit card lender Capital One Financial Corp and teleshopping company HSN Inc all added their names to a list of targets that also includes some of the nation’s largest banks. The names and electronic contacts of some students affiliated with the U.S.-based College Board — which represents some 5,900 colleges, universities and schools — were also potentially compromised. No personal financial information such as credit cards or social security numbers appeared to be exposed, according to the company statements and e-mails to customers. Epsilon, an online marketing unit of Alliance Data Systems Corp, said on Friday that a person outside the company hacked into some of its clients’ customer files. The vendor sends more than 40 billion e-mail ads and offers annually, usually to people who register for a company’s website or who give their e-mail addresses while shopping. “We learned from our e-mail provider, Epsilon, that limited information about you was accessed by an unauthorized individual or individuals,” HSN, also an e-commerce operator, said in an e-mail to customers on Sunday. “This information included your name and e-mail address and did not include any financial or other sensitive information. We felt it was important to notify you of this incident as soon as possible.” Citigroup customer names and some credit card customers’ e-mail addresses — but no account information — were part of the data breach, the third-largest U.S. bank said on Saturday. The College Board, which administers the SAT admissions tests, on Saturday warned students about the breach and asked them to be cautious about receiving “links or attachments from unknown third parties,” according to two e-mails reviewed by Reuters. The not-for-profit organization is in contact with more than 7 million students, according to its website. It did not immediately return calls for comment. PROBING FOR ANSWERS Law enforcement authorities are investigating the breach, though it was unclear on Sunday how many customers or students had been exposed. Epsilon is also looking into what went wrong. “While we are cooperating with authorities and doing a thorough investigation, we cannot say anything else,” said Epsilon spokeswoman Jessica Simon. “We can’t confirm any impacted or non-impacted clients, or provide a list (of companies) at this point in time.” Capital One, which also runs a bank, and Walgreens, the largest U.S. drugstore, said the Epsilon hacker accessed its customer e-mail addresses, but no personally identifiable information. TiVo, a maker of digital video recorders, said the information that was obtained was limited to e-mail addresses and clients’ first names. The incident comes three years after hackers penetrated Heartland Payment Systems, a credit and debit card processor, in one of the biggest identity-theft cases in U.S. history. In that case, notorious hacker Albert Gonzalez led a ring that stole more than 40 million payment card numbers, and was later sentenced to 20 years in prison. On Friday, JPMorgan Chase & Co, the second-largest U.S. bank, and Kroger Co, the biggest U.S. supermarket operator, said that some customers were exposed as part of the Epsilon data breach. Citigroup announced that it had been affected on Saturday evening. Spokesman Sean Kevelighan said the bank started informing its customers of the breach on Friday through a link on its website. Some of Epsilon’s other clients include Verizon Communications Inc, Blackstone Group LP’s Hilton Hotels, Kraft Foods Inc, and AstraZeneca. (Reporting by Jonathan Spicer and Maria Aspan, editing by Maureen Bavdek, Diane Craft and Gunna Dickson) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Allstate Sues BofA, Mozilo Over Countrywide Losses

by on December 28, 2010

NEW YORK (By Jonathan Stempel) – Allstate Corp has sued Bank of America Corp, its Countrywide lending unit and 17 other defendants for allegedly misrepresenting the risks on more than $700 million of mortgage securities it bought from Countrywide. Allstate, the largest publicly traded U.S. home and auto insurer, alleged it suffered “significant losses” after Countrywide misled it into believing the securities were safe, and the quality of home loans backing them was high. The lawsuit also names several former Countrywide officials as defendants, including longtime Chief Executive Angelo Mozilo. Countrywide was the largest U.S. mortgage lender before Bank of America bought it in July 2008. Allstate said that starting in 2003, Countrywide quietly decided to boost market share and ignore its own underwriting standards by approving any mortgage product that a competitor was willing to offer, in a “proverbial race to the bottom.” Countrywide then passed on the added risks to investors who bought debt backed by the mortgages, Allstate said. “Defendants knew the loans offloaded onto Allstate were a toxic mix of loans given to borrowers that could not afford the properties, and thus were highly likely to default,” said the 150-page complaint filed on Monday in Manhattan federal court. Allstate seeks to undo its securities purchases, which took place between 2005 and 2007, plus unspecified damages. The Northbrook, Illinois-based company joined Charles Schwab Corp, the Federal Home Loan Banks and others in suing lenders for allegedly misleading them about mortgage securities. Bank of America, the largest U.S. bank by assets, last month said it faced lawsuits over $54 billion of such debt. A spokesman, Bill Halldin, in an email said the Charlotte, North Carolina-based bank is reviewing the complaint. “This unfortunately appears to be a situation where a sophisticated investor is looking for someone to blame for a downturn in the economy and losses on an investment it made,” he said. David Siegel, a partner at Irell & Manella LLP who represents Mozilo, said in an email that Allstate has “retread allegations with no merit; and certainly no basis to name Mr. Mozilo other than to try to capture publicity.” Daniel Brockett, a partner at Quinn Emanuel Urquhart & Sullivan LLP who represents Allstate, did not return a call seeking comment. PROBES Mozilo agreed in October to a $67.5 million settlement of a U.S. Securities and Exchange Commission civil fraud lawsuit. The SEC accused Mozilo of misleading investors about Countrywide’s health and risk-taking, and generating roughly $140 million of improper gains from insider stock sales. Mozilo was the first top executive personally punished over alleged wrongdoing tied to the nation’s housing collapse. Bank of America agreed to cover two-thirds of his penalty. Mozilo did not admit wrongdoing in agreeing to the SEC accord. Bank of America also is among banks including Citigroup Inc, Goldman Sachs Group Inc, JPMorgan Chase & Co and Wells Fargo & Co to face SEC subpoenas as the regulator examines how mortgages were packaged for sale to investors, people familiar with the probe said. The U.S. Justice Department and all 50 U.S. state attorneys general also are probing wrongdoing in mortgages, while Arizona and Nevada accused Bank of America in a lawsuit of misleading borrowers about home loan modifications. Shares of Bank of America closed up 7 cents at $13.34, while those of Allstate closed down 9 cents at $32. The case is Allstate Insurance Co et al v. Countrywide Financial Corp et al, U.S. District Court, Southern District of New York, No. 10-09591. (Reporting by Jonathan Stempel in New York; Additional reporting by Dan Levine in San Francisco and Joe Rauch in Charlotte, North Carolina; Editing by Steve Orlofsky and Carol Bishopric) Copyright 2010 Thomson Reuters. Click for Restrictions .

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Loews CEO Tisch Says U.S. Rang Hotel `Death Knell,’ Hurt AIG With Pay Curb

February 9, 2010

By Jamie McGee Feb. 9 (Bloomberg) — Jim Tisch , the leader of Loews Corp. , said the U.S. did a “good job of killing” the hotel business by lambasting corporate travel and hurt American International Group Inc. ’s ability to return bailout funds by curbing pay. “The criticism that took place of group travel was really a death knell for the industry,” Tisch said yesterday in an interview at an office of the New York-based holding company, which owns hotels. “It’s easy for the politician to get the sound bite. What they are doing with those sound bites is putting maids and bellmen out of work.” Loews’s hotel unit posted a $34 million loss in 2009, compared with a $40 million profit in 2008. Tisch, the chairman and chief executive officer of Loews, said group travel comprises about half the firm’s hotel business, and operations suffered as lawmakers disparaged corporate trips amid the $700 billion rescue of financial firms. In 2008, bailed-out AIG canceled about 160 events costing a total of $80 million. Loews’s fourth-quarter average room rates fell 14 percent from the year-earlier period to $217. Occupancy decreased to 61.6 percent from 65.8 percent, Loews Chief Financial Officer Peter Keegan said yesterday in a conference call. President Barack Obama last year said companies receiving aid should curtail travel and pay. “You are not going to be able to give out these big bonuses until you’ve paid taxpayers back,” Obama said at a town hall meeting in February 2009. “You can’t get corporate jets. You can’t go take a trip to Las Vegas or go down to the Super Bowl on the taxpayers’ dime.” ‘A Phenomenal Job’ Loews also owns natural gas exploration operations and the majority of commercial insurer CNA Financial Corp. , which competes against AIG selling commercial insurance. Loews reported its third straight quarterly profit yesterday on improved results from gas exploration and Chicago-based CNA. Loews has hired AIG staff, primarily to manage investments, who “do a phenomenal job for us,” Tisch said. New York-based AIG has a harder time retaining the “best and the brightest” managers after lawmakers criticized the company’s retention bonus awards and the Obama administration limited compensation for top executives, he said. “Last time I looked we don’t have indentured servitude in the United States,” he said. “The situation is such that the good people have every incentive to leave to maximize their income.” AIG CEO Robert Benmosche has said the insurer is attracting leaders committed to helping the company repay its $182.3 billion bailout. Managers have “voted with their feet” in joining AIG, Benmosche said in a statement yesterday announcing the hiring of Peter Hancock , a former CFO of a predecessor to JPMorgan Chase & Co., to oversee finance and risk. Loews’s fourth-quarter net income of $403 million, or 94 cents a share, compares with a loss of $958 million, or $2.20, in the same period a year earlier. To contact the reporter on this story: Jamie McGee in New York at jmcgee8@bloomberg.net

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BlackRock Hires Ex-Goldman Sachs Banker Kendrick Wilson as Vice Chairman

January 29, 2010

By Zachary R. Mider Jan. 29 (Bloomberg) — BlackRock Inc. , the world’s biggest money manager, hired former Treasury official and Goldman Sachs Group Inc. banker Kendrick Wilson III as a vice chairman to work with the firm’s clients. Wilson, 63, was one of the world’s top advisers to banks and other financial institutions during more than two decades as an investment banker at Goldman Sachs and other firms. He joined the U.S. Treasury Department in 2008 to help Secretary Henry Paulson grapple with the global financial crisis. “His unique perspective, informed by his vast experience in the industry, will be valuable to our clients as they consider the changing landscape and their investment and risk management strategies,” said Laurence Fink , BlackRock’s chief executive officer, in the statement. As an investment banker at Goldman Sachs, Wilson helped arrange some of the biggest rescues of the financial crisis, including Countrywide Financial Corp.’s sale to Bank of America Corp. and a $7 billion cash infusion for National City Corp. Wilson had been advising banks since working for Salomon Brothers Inc. in the 1980’s. He joined the former Lazard Freres & Co. in 1989 and switched to Goldman Sachs in 1998. To contact the reporter on this story: Zachary R. Mider in New York at zmider1@bloomberg.net

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Travelers Posts Record $1.29 Billion Quarterly Profit on Investment Gains

January 26, 2010

By Jamie McGee Jan. 26 (Bloomberg) — Travelers Cos., the insurer added to the Dow Jones Industrial Average, posted its biggest quarterly profit as investment results improved on the sale of a stake in actuarial data provider Verisk Analytics Inc. Fourth-quarter net income rose 60 percent to $1.29 billion, or $2.36 a share, from $801 million, or $1.35, in the same period a year earlier, the New York-based insurer said today in a statement. Operating income, which excludes some investment results, was $2.12 a share, compared with the $1.48 average estimate of 18 analysts surveyed by Bloomberg. The stock gained in early trading. Travelers remained profitable throughout the credit crisis while competitors including American International Group Inc. and CNA Financial Corp. reported losses on investments tied to subprime mortgages. Chief Executive Officer Jay Fishman has said the insurer raised prices in all three of its business segments in the six months ended Sept. 30 even as rates dropped industrywide. It’s “good underwriting discipline that’s allowed them to hold onto profitable business and avoid the bad stuff,” Paul Newsome , an analyst at Sandler O’Neill & Partners LP, said in an interview before the results were released. Travelers reported a $130 million realized investment gain after tax, compared with a $138 million loss in the fourth quarter of 2008. The profit includes $103 million related to the sale of half its stake in Verisk, which had an initial share sale in October. Book Value Gain Travelers earned $3.62 billion for all of 2009, compared with $2.92 billion a year earlier. The insurer’s book value per share, a measure of assets minus liabilities, rose to $52.54 a share on Dec. 31, its fifth straight quarterly increase. The insurer’s book value was $51.25 a share on Sept. 30. The insurer gained $1.51, or 3.1 percent, to $50.40 in early trading at 7:30 a.m. in New York. Travelers projected 2010 operating earnings of $5.20 to $5.55 a share, compared with the $5.53 average estimate of analysts surveyed by Bloomberg. The insurer spent 16.6 cents per every premium dollar on claims and expenses in the quarter, compared with 14.1 cents a year earlier. Premium revenue fell to $5.34 billion from $5.43 billion. Travelers pulled $328 million from reserves after taxes, as the company reduced the amount it estimated it would need to pay claims from past quarters. Fishman increased Travelers’s dividend in October and the board authorized the repurchase of $6 billion in shares after the company scaled back its buyback program in 2008 to build capital. New Business “Companies like Travelers are basically willing to forego growth to buy back shares because new business isn’t very attractive,” Newsome said. U.S. commercial insurance rates fell 5.6 percent industrywide in the fourth quarter when compared with the same period a year earlier, a smaller decline than the 5.8 percent drop in the three months ended Sept. 30, according to the Council of Insurance Agents and Brokers . Prices have declined in every quarter since 2004. Travelers advanced about 30 percent in New York Stock Exchange composite trading in the past 12 months through yesterday, closing at $48.89. The 30-company Dow index , which Travelers joined in June, rose 26 percent in the same period. To contact the reporter on this story: Jamie McGee in New York at jmcgee8@bloomberg.net .

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Rusal Said to Raise $2.2 Billion in First Hong Kong IPO by Russian Company

January 21, 2010

By Bei Hu and Yuriy Humber Jan. 22 (Bloomberg) — United Co. Rusal Ltd. , the world’s largest aluminum producer, priced its Hong Kong initial public offering at HK$10.80 a share, said two people familiar with the sale. The offering, delayed by regulators at least twice on concern about Rusal’s borrowings, comes less than two months after the Moscow-based company completed Russia’s biggest corporate debt restructuring. Billionaire Oleg Deripaska, who controls the company, persuaded three Russian state-run banks to bid for new shares, as well as Hong Kong billionaire Li Ka-shing , Malaysia’s Robert Kuok and New York hedge fund Paulson & Co. “Most interest will be on how the stock trades after it is listed,” Chris Weafer , chief strategist with UralSib Financial Corp., said in Moscow before the pricing. A positive debut “will likely lead to further placings in Hong Kong by Russian companies. It will establish a second option for many beyond the traditional route to London.” OAO Russian Railways, operator of the world’s longest rail network, may raise as much as $4 billion from IPOs of two units, possibly in Hong Kong, Dmitry Novikov, an adviser to the president, said Jan. 21. OAO Ilyushin Finance Co., a Russian aircraft-leasing company, said Dec. 24 it would study selling about $250 million of shares in Moscow or Hong Kong. While Hong Kong’s Securities and Futures Commission approved Rusal’s IPO, it ruled the offering couldn’t be marketed to the city’s retail investors. Rusal sold shares to international institutions, professional investors and wealthy individuals ordering at least HK$1 million of stock. Cut Debt BNP Paribas SA and Credit Suisse Group AG led others including Bank of America Merrill Lynch, BOC International Holdings Ltd., Nomura Holdings Inc., Renaissance Capital Ltd., OAO Sberbank and VTB Capital SA in arranging the sale. The proceeds will help cut Rusal’s debt. Borrowings almost doubled after the company bought a quarter of OAO GMK Norilsk Nickel before commodity prices collapsed in 2008. The aluminum producer cut its borrowings to $14.9 billion from $17 billion, while extending repayments to as long as seven years, in the debt restructuring completed in December. Rusal posted a net loss of $868 million in the first half of 2009, compared with net income of $1.4 billion a year earlier. Profit won’t be less than $434 million for the full year, it said in the IPO prospectus. A review of Rusal’s IPO application with the Hong Kong exchange was delayed to Dec. 7 as some members couldn’t attend the meeting, two people familiar with the matter said. They postponed the decision again that day as members needed to study documents, three people familiar said at the time. To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net Yuriy Humber in Moscow at yhumber@bloomberg.net ;

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Rusal Said to Price Hong Kong Initial Public Offering at HK$10.80 a Share

January 21, 2010

By Bei Hu and Yuriy Humber Jan. 22 (Bloomberg) — United Co. Rusal Ltd. , the world’s largest aluminum producer, priced its Hong Kong initial public offering at HK$10.80 a share, said two people familiar with the sale. The offering, delayed by regulators at least twice on concern about Rusal’s borrowings, comes less than two months after the Moscow-based company completed Russia’s biggest corporate debt restructuring. Billionaire Oleg Deripaska, who controls the company, persuaded three Russian state-run banks to bid for new shares, as well as Hong Kong billionaire Li Ka-shing , Malaysia’s Robert Kuok and New York hedge fund Paulson & Co. “Most interest will be on how the stock trades after it is listed,” Chris Weafer , chief strategist with UralSib Financial Corp., said in Moscow before the pricing. A positive debut “will likely lead to further placings in Hong Kong by Russian companies. It will establish a second option for many beyond the traditional route to London.” OAO Russian Railways, operator of the world’s longest rail network, may raise as much as $4 billion from IPOs of two units, possibly in Hong Kong, Dmitry Novikov, an adviser to the president, said Jan. 21. OAO Ilyushin Finance Co., a Russian aircraft-leasing company, said Dec. 24 it would study selling about $250 million of shares in Moscow or Hong Kong. While Hong Kong’s Securities and Futures Commission approved Rusal’s IPO, it ruled the offering couldn’t be marketed to the city’s retail investors. Rusal sold shares to international institutions, professional investors and wealthy individuals ordering at least HK$1 million of stock. Cut Debt BNP Paribas SA and Credit Suisse Group AG led others including Bank of America Merrill Lynch, BOC International Holdings Ltd., Nomura Holdings Inc., Renaissance Capital Ltd., OAO Sberbank and VTB Capital SA in arranging the sale. The proceeds will help cut Rusal’s debt. Borrowings almost doubled after the company bought a quarter of OAO GMK Norilsk Nickel before commodity prices collapsed in 2008. The aluminum producer cut its borrowings to $14.9 billion from $17 billion, while extending repayments to as long as seven years, in the debt restructuring completed in December. Rusal posted a net loss of $868 million in the first half of 2009, compared with net income of $1.4 billion a year earlier. Profit won’t be less than $434 million for the full year, it said in the IPO prospectus. A review of Rusal’s IPO application with the Hong Kong exchange was delayed to Dec. 7 as some members couldn’t attend the meeting, two people familiar with the matter said. They postponed the decision again that day as members needed to study documents, three people familiar said at the time. To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net Yuriy Humber in Moscow at yhumber@bloomberg.net ;

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US Pacific City Financial Corp merges With North Asia Investment Corp

January 14, 2010

US Pacific City Financial Corp merges With North Asia Investment Corp

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Citigroup Stock Sale Discount Prompts Treasury to Delay Disposal of Stake

December 17, 2009

By Michael J. Moore and Michael Tsang Dec. 17 (Bloomberg) — Citigroup Inc. , the last of the four largest U.S. banks to seek funds to exit a taxpayer bailout, raised $17 billion by selling stock for a price so low that the U.S. delayed plans to shrink its one-third stake in the lender. Citigroup sold 5.4 billion shares at $3.15 apiece, less than the $3.25 the government paid when it acquired its stake in September. The New York-based bank said the Treasury won’t sell any of its shares for at least 90 days. Investors demanded a bigger discount from Citigroup than Bank of America Corp. or Wells Fargo & Co. , which together raised more than $31 billion this month to exit the Troubled Asset Relief Program. Wells Fargo, which trumped Citigroup Chief Executive Officer Vikram Pandit ’s bid to buy Wachovia Corp. last year, leapfrogged its rival by completing a $12.25 billion share sale Dec. 15. JPMorgan Chase & Co. repaid $25 billion in June. “The market cast its vote and they’re low down on the ballot,” said Douglas Ciocca , a managing director at Renaissance Financial Corp. in Leawood, Kansas. “Citigroup needs to show steps to reinstall the quality of the brand.” With the sale, Citigroup’s common shares outstanding increased to 28.3 billion. That’s up from 22.9 billion as of Sept. 30 and 5 billion at the end of 2007. “More shares outstanding means less value per share,” said Edward Najarian , an analyst at International Strategy and Investment Group in New York, who has a “hold” rating on the shares. “The whole structure of their deal to pay back TARP wasn’t very good for common shareholders and that is being reflected in the pricing.” Price Discount The lender’s shares fell 30 cents, or 8.7 percent, to $3.15 in New York trading at 6:52 a.m. The $3.15 price on the new shares is a 20 percent discount from the closing price on Dec. 11, before Citigroup announced the plan to repay TARP. “Wells Fargo proved they can execute better,” said Michael Johnson , chief market strategist at M.S. Howells & Co., a Scottsdale, Arizona-based broker-dealer. Pandit, 52, is “sitting on one of the best investment banks in the world and Wells, which really doesn’t have an investment bank, still outperforms him,” Johnson said. The government decided not to participate in the equity offering based on the pricing of the shares, according to a Treasury official. The U.S. expects to divest its ownership stake in Citigroup shares during the next 12 months, the official said. Equity Units The bank said it also raised $3.5 billion by selling “tangible equity units,” securities that make quarterly payments of 7.5 percent a year and include a requirement to buy Citigroup shares in 2012. The total of $20.5 billion was the largest public equity offering in the history of U.S. capital markets, according to Citigroup. Citigroup’s Dec. 15 announcement that Abu Dhabi Investment Authority was trying to abort an accord to buy $7.5 billion of Citigroup stock may also have hurt confidence in the bank’s secondary stock offering, said Blake Howells , an analyst at Becker Capital Management in Portland, Oregon. Abu Dhabi “certainly couldn’t help,” Howells said. Citigroup said earlier this week that it would sell at least $20.5 billion of equity and debt to exit TARP. After that announcement, the Treasury said it would sell as much as $5 billion of its stake, in conjunction with the bank’s secondary offering, with the rest to be sold over the next year. Treasury’s Stake The Treasury holds $25 billion in common stock in Citigroup, along with a $20 billion preferred equity stake and further preferred shares granted in connection with an asset- guarantee agreement. At the offering price of $3.15, the 7.7 billion shares are valued about $770 million less than the Treasury’s cost. Bank of America, the largest U.S. lender, raised its funds on Dec. 3. The Charlotte, North Carolina-based bank, which yesterday named Brian Moynihan as its new chief executive officer, sold 1.286 billion so-called common equivalent securities at $15 each, a 4.8 percent discount to its closing price that day. Wells Fargo, whose largest shareholder is billionaire investor Warren Buffett’s Berkshire Hathaway Inc., completed its sale at a 1.9 percent discount. To contact the reporters on this story: Michael Moore in New York at mmoore55@bloomberg.net ; Michael Tsang in New York at mtsang1@bloomberg.net .

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Citigroup Stock Sale Discount Prompts Treasury to Delay Disposal of Stake

December 17, 2009

By Michael J. Moore and Michael Tsang Dec. 17 (Bloomberg) — Citigroup Inc. , the last of the four largest U.S. banks to seek funds to exit a taxpayer bailout, raised $17 billion by selling stock for a price so low that the U.S. delayed plans to shrink its one-third stake in the lender. Citigroup sold 5.4 billion shares at $3.15 apiece, less than the $3.25 the government paid when it acquired its stake in September. The New York-based bank said the Treasury won’t sell any of its shares for at least 90 days. Investors demanded a bigger discount from Citigroup than Bank of America Corp. or Wells Fargo & Co. , which together raised more than $31 billion this month to exit the Troubled Asset Relief Program. Wells Fargo, which trumped Citigroup Chief Executive Officer Vikram Pandit ’s bid to buy Wachovia Corp. last year, leapfrogged its rival by completing a $12.25 billion share sale Dec. 15. JPMorgan Chase & Co. repaid $25 billion in June. “The market cast its vote and they’re low down on the ballot,” said Douglas Ciocca , a managing director at Renaissance Financial Corp. in Leawood, Kansas. “Citigroup needs to show steps to reinstall the quality of the brand.” With the sale, Citigroup’s common shares outstanding increased to 28.3 billion. That’s up from 22.9 billion as of Sept. 30 and 5 billion at the end of 2007. “More shares outstanding means less value per share,” said Edward Najarian , an analyst at International Strategy and Investment Group in New York, who has a “hold” rating on the shares. “The whole structure of their deal to pay back TARP wasn’t very good for common shareholders and that is being reflected in the pricing.” Price Discount The lender’s shares fell 30 cents, or 8.7 percent, to $3.15 in New York trading at 6:52 a.m. The $3.15 price on the new shares is a 20 percent discount from the closing price on Dec. 11, before Citigroup announced the plan to repay TARP. “Wells Fargo proved they can execute better,” said Michael Johnson , chief market strategist at M.S. Howells & Co., a Scottsdale, Arizona-based broker-dealer. Pandit, 52, is “sitting on one of the best investment banks in the world and Wells, which really doesn’t have an investment bank, still outperforms him,” Johnson said. The government decided not to participate in the equity offering based on the pricing of the shares, according to a Treasury official. The U.S. expects to divest its ownership stake in Citigroup shares during the next 12 months, the official said. Equity Units The bank said it also raised $3.5 billion by selling “tangible equity units,” securities that make quarterly payments of 7.5 percent a year and include a requirement to buy Citigroup shares in 2012. The total of $20.5 billion was the largest public equity offering in the history of U.S. capital markets, according to Citigroup. Citigroup’s Dec. 15 announcement that Abu Dhabi Investment Authority was trying to abort an accord to buy $7.5 billion of Citigroup stock may also have hurt confidence in the bank’s secondary stock offering, said Blake Howells , an analyst at Becker Capital Management in Portland, Oregon. Abu Dhabi “certainly couldn’t help,” Howells said. Citigroup said earlier this week that it would sell at least $20.5 billion of equity and debt to exit TARP. After that announcement, the Treasury said it would sell as much as $5 billion of its stake, in conjunction with the bank’s secondary offering, with the rest to be sold over the next year. Treasury’s Stake The Treasury holds $25 billion in common stock in Citigroup, along with a $20 billion preferred equity stake and further preferred shares granted in connection with an asset- guarantee agreement. At the offering price of $3.15, the 7.7 billion shares are valued about $770 million less than the Treasury’s cost. Bank of America, the largest U.S. lender, raised its funds on Dec. 3. The Charlotte, North Carolina-based bank, which yesterday named Brian Moynihan as its new chief executive officer, sold 1.286 billion so-called common equivalent securities at $15 each, a 4.8 percent discount to its closing price that day. Wells Fargo, whose largest shareholder is billionaire investor Warren Buffett’s Berkshire Hathaway Inc., completed its sale at a 1.9 percent discount. To contact the reporters on this story: Michael Moore in New York at mmoore55@bloomberg.net ; Michael Tsang in New York at mtsang1@bloomberg.net .

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Capital One’s Warrant Sale Signals Less Taxpayer Profit From TARP Auctions

December 4, 2009

By Peter Eichenbaum Dec. 4 (Bloomberg) — Capital One Financial Corp. warrants held by the U.S. government’s bank bailout program sold for $146.5 million, signaling taxpayers may get less reward than some analysts had predicted for rescuing the financial system. The Treasury Department’s first auction of warrants held by the Troubled Asset Relief Program drew $11.75 each for 12.7 million of the securities, the agency said today in a statement. The results may influence prices in the pending auction for warrants in JPMorgan Chase & Co. and a decision by Bank of America Corp. on whether to buy back its TARP warrants, in which billions of dollars are at stake. “Taxpayers and the government did not appear to get a ‘good deal’” when compared with some private-sector forecasts, Dan Greenhaus , chief economic strategist at Miller Tabak & Co., said in an e-mail. “But if that is what people are willing to pay for the warrants, then that is what they’re worth.” The Treasury demanded warrants from banks that took bailout funds to compensate taxpayers for the risk of investing in the lenders during the worst of last year’s credit crisis. The auctions were set after the agency and the banks failed to agree on a price for buying back the warrants. Some analysts advocated public sales instead of negotiated deals to ensure taxpayers received full value. The warrants give investors the right to buy shares at $42.13 until Nov. 14, 2018. Capital One rose 70 cents, or 1.9 percent, to $37.62 at 3:33 p.m. in New York Stock Exchange composite trading. The warrants advanced 40 cents to $12.15. ‘Looks Cheap’ “It looks cheap to us,” said Gary Townsend , chief executive officer of Hill-Townsend Capital LLC, who estimates the Capital One warrants should be worth $13.34, assuming stock of the McLean, Virginia-based firm appreciates to $45 within three years, and $19.83 if the shares rise to $55 in that time. Demand was oversubscribed for the warrants , which sold for 57 percent more than the minimum bid of $7.50, according to a person familiar with the Treasury’s auctions. That was considered a fair value by the agency and will strengthen the department’s position as it bargains with other companies, including Charlotte, North Carolina-based Bank of America, by setting a floor on the price, the person said. Clay Struve of Chicago-based CSS LLC said he bought some of the Capital One warrants and that the Treasury received a “reasonable” price. More Auctions “It was a little higher than what I had expected,” said Struve, who is looking ahead to next week’s auction of 88.4 million JPMorgan warrants, which he estimates could fetch $1 billion. That would be the biggest sale of warrants “at any one time ever before in the history of mankind,” Struve said. Linus Wilson , an assistant finance professor at the University of Louisiana at Lafayette who tracks TARP returns, had estimated the Capital One warrants were worth $227 million to $376 million. Wilson said he’ll be adjusting his forecast for future auctions based on today’s results, after predicting taxpayers might get as much as $3.17 billion from sales tied to Capital One, JPMorgan and TCF Financial Corp. U.S. taxpayers may reap more gains through the auction of 3.2 million warrants from TCF Financial based in Wayzata, Minnesota. Capital One, New York-based JPMorgan and TCF previously bought back preferred stock they sold to the Treasury’s $700 billion bailout fund and were given the first opportunity to buy the warrants at a negotiated price. Government Role Investors may have submitted lower bids because they expect Capital One shares to fluctuate less than they did during the financial crisis, said Aswath Damodaran , a New York University finance professor. The most a buyer can lose is the price paid for the warrants and the upside is theoretically unlimited, so greater price swings, or volatility , make bigger profits more likely before the warrants expire, he said. Investors also may have been more cautious due to the government’s role in the sale and the potential for a political backlash against the banks if they “make too much money” after exiting TARP oversight, Damodaran said. The warrants, if exercised, also will add to the number of outstanding common shares, diluting their worth, he said. These factors “could potentially explain the lower value the government is getting,” Damodaran said. “If this had been an arranged deal where there’s only one buyer, then you can look for conspiracies, but this was an auction and this is the price they could get.” Backing the Treasury The Treasury set up the auction process after agreeing to sell warrants back to some lenders at prices that Wilson said were as low as 32 percent of their true value. The agency hired Robert Jarrow , an economics professor at Cornell University and former managing editor of the journal Mathematical Finance, to review its approach. Jarrow reported in September that the Treasury’s method had been “fair to both the participating banks and the U.S. taxpayers.” Bank of America, the biggest U.S. lender, hasn’t decided whether to buy back its warrants, the company said Dec. 2 when it disclosed plans to repay $45 billion in TARP funds. The closing for the Capital One warrants, which will conclude the Treasury’s investment in the credit-card issuer, is scheduled on or about Dec. 9, the department said in the statement. Capital One spokeswoman Julie Rakes declined to say whether her company was among the winning bidders because the auction is not yet final. To contact the reporter on this story: Peter Eichenbaum in New York at peichenbaum@bloomberg.net

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Capital One’s Warrant Sale Signals Less Taxpayer Profit From TARP Auctions

December 4, 2009

By Peter Eichenbaum Dec. 4 (Bloomberg) — Capital One Financial Corp. warrants held by the U.S. government’s bank bailout program sold for $146.5 million, signaling taxpayers may get less reward than some analysts had predicted for rescuing the financial system. The Treasury Department’s first auction of warrants held by the Troubled Asset Relief Program drew $11.75 each for 12.7 million of the securities, the agency said today in a statement. The results may influence prices in the pending auction for warrants in JPMorgan Chase & Co. and a decision by Bank of America Corp. on whether to buy back its TARP warrants, in which billions of dollars are at stake. “Taxpayers and the government did not appear to get a ‘good deal’” when compared with some private-sector forecasts, Dan Greenhaus , chief economic strategist at Miller Tabak & Co., said in an e-mail. “But if that is what people are willing to pay for the warrants, then that is what they’re worth.” The Treasury demanded warrants from banks that took bailout funds to compensate taxpayers for the risk of investing in the lenders during the worst of last year’s credit crisis. The auctions were set after the agency and the banks failed to agree on a price for buying back the warrants. Some analysts advocated public sales instead of negotiated deals to ensure taxpayers received full value. The warrants give investors the right to buy shares at $42.13 until Nov. 14, 2018. Capital One rose 70 cents, or 1.9 percent, to $37.62 at 3:33 p.m. in New York Stock Exchange composite trading. The warrants advanced 40 cents to $12.15. ‘Looks Cheap’ “It looks cheap to us,” said Gary Townsend , chief executive officer of Hill-Townsend Capital LLC, who estimates the Capital One warrants should be worth $13.34, assuming stock of the McLean, Virginia-based firm appreciates to $45 within three years, and $19.83 if the shares rise to $55 in that time. Demand was oversubscribed for the warrants , which sold for 57 percent more than the minimum bid of $7.50, according to a person familiar with the Treasury’s auctions. That was considered a fair value by the agency and will strengthen the department’s position as it bargains with other companies, including Charlotte, North Carolina-based Bank of America, by setting a floor on the price, the person said. Clay Struve of Chicago-based CSS LLC said he bought some of the Capital One warrants and that the Treasury received a “reasonable” price. More Auctions “It was a little higher than what I had expected,” said Struve, who is looking ahead to next week’s auction of 88.4 million JPMorgan warrants, which he estimates could fetch $1 billion. That would be the biggest sale of warrants “at any one time ever before in the history of mankind,” Struve said. Linus Wilson , an assistant finance professor at the University of Louisiana at Lafayette who tracks TARP returns, had estimated the Capital One warrants were worth $227 million to $376 million. Wilson said he’ll be adjusting his forecast for future auctions based on today’s results, after predicting taxpayers might get as much as $3.17 billion from sales tied to Capital One, JPMorgan and TCF Financial Corp. U.S. taxpayers may reap more gains through the auction of 3.2 million warrants from TCF Financial based in Wayzata, Minnesota. Capital One, New York-based JPMorgan and TCF previously bought back preferred stock they sold to the Treasury’s $700 billion bailout fund and were given the first opportunity to buy the warrants at a negotiated price. Government Role Investors may have submitted lower bids because they expect Capital One shares to fluctuate less than they did during the financial crisis, said Aswath Damodaran , a New York University finance professor. The most a buyer can lose is the price paid for the warrants and the upside is theoretically unlimited, so greater price swings, or volatility , make bigger profits more likely before the warrants expire, he said. Investors also may have been more cautious due to the government’s role in the sale and the potential for a political backlash against the banks if they “make too much money” after exiting TARP oversight, Damodaran said. The warrants, if exercised, also will add to the number of outstanding common shares, diluting their worth, he said. These factors “could potentially explain the lower value the government is getting,” Damodaran said. “If this had been an arranged deal where there’s only one buyer, then you can look for conspiracies, but this was an auction and this is the price they could get.” Backing the Treasury The Treasury set up the auction process after agreeing to sell warrants back to some lenders at prices that Wilson said were as low as 32 percent of their true value. The agency hired Robert Jarrow , an economics professor at Cornell University and former managing editor of the journal Mathematical Finance, to review its approach. Jarrow reported in September that the Treasury’s method had been “fair to both the participating banks and the U.S. taxpayers.” Bank of America, the biggest U.S. lender, hasn’t decided whether to buy back its warrants, the company said Dec. 2 when it disclosed plans to repay $45 billion in TARP funds. The closing for the Capital One warrants, which will conclude the Treasury’s investment in the credit-card issuer, is scheduled on or about Dec. 9, the department said in the statement. Capital One spokeswoman Julie Rakes declined to say whether her company was among the winning bidders because the auction is not yet final. To contact the reporter on this story: Peter Eichenbaum in New York at peichenbaum@bloomberg.net

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U.S. Stocks Retreat for First Week in Three; Boeing, Boston Scientic Drop

October 24, 2009

By Lynn Thomasson and Mary Childs Oct. 24 (Bloomberg) — U.S. stocks fell for the first time in three weeks as companies from Burlington Northern Santa Fe Corp. to Boston Scientific Corp. forecast earnings that are below analysts’ estimates. Boeing Co. plunged 6.2 percent, the steepest drop in the Dow Jones Industrial Average, after posting a loss that was bigger than analysts estimated and reducing its full-year profit projection. Boston Scientific fell the most since February on signs heart-device sales are slowing. Burlington Northern slumped 8.4 percent, the most since March, on concern shipments of consumer products will remain weak. “Given that the market has moved up so far, investors are looking for more demand,” said Richard Sichel , chief investment officer at Philadelphia Trust Co. in Philadelphia, which manages $1.3 billion. “The earnings get more difficult to beat when it needs to come from sales, rather than just cost cutting.” The S&P 500 fell 0.7 percent to 1,079.60. The Dow Jones Industrial Average lost 23.73 points, or 0.2 percent, to 9,972.18. The Russell 2000 Index dropped 2.5 percent to 600.86. The S&P 500’s 60 percent rally since March 9 propelled the index to a one-year high on Oct. 19 and pushed the valuation of its companies to more than 20 times their reported operating income, the most expensive level since 2004. Nine of 10 industries in the S&P 500 retreated this week, led by raw- materials producers, health-care companies and industrial shares. Housing Starts Stocks also dropped following government reports that showed housing starts rose less than forecast in September and initial applications for jobless benefits were higher than estimated. Profits at companies that reported third-quarter results have dropped 14 percent, adding to a record eight straight quarters of earnings declines. Boeing fell 6.2 percent this week, the most since June, to $49.89 after posting a loss that was the biggest in Bloomberg records dating to mid-1983. The world’s second-largest airplane maker was hurt by $3.5 billion in charges for the delayed 787 Dreamliner and 747-8 jumbo jet programs. Since the start of the third-quarter reporting period, 80 percent of the companies in the S&P 500, including Apple Inc. , Caterpillar Inc. and Morgan Stanley this week, have released better-than-expected results, according to Bloomberg data . That’s the highest proportion in data going back to 1993. Loan Losses Marshall & Ilsley Corp., BB&T Corp. and Zions Bancorporation dropped at least 7.4 percent as more borrowers fell behind on payments and losses from construction loans increased. Housing starts increased 0.5 percent to an annual rate of 590,000 from a 587,000 pace in August that was lower than previously estimated, figures from the Commerce Department showed. Permits, a sign of future construction, fell for the second time in the past three months. Initial applications for jobless benefits rose to 531,000 in the week ended Oct. 17, topping the average analyst estimate by 16,000 and up from a revised 520,000 the prior week that were the fewest in nine months, the Labor Department said. “The stock market is up so high right now,” said Robert Calabretta , managing director for Huntington, New York-based Waypoint Capital, which oversees $60 million. “I agree with a lot of skeptics that say the economy hasn’t come along with that.” Health-Care Shares Boston Scientific plunged 13 percent to $8.75. Full-year earnings, adjusted for some items, will be 75 cents to 79 cents a share, lower than the 82 cents to 86 cents, the medical-device maker said. The drop in Boston Scientific pushed a measure of health- care shares in the S&P 500 to a 1.7 percent loss. Burlington Northern fell 8.4 percent to $79.12. The largest U.S. railroad forecast fourth-quarter profit of $1.10 to $1.20 a share, trailing the average analyst estimate of $1.31 a share in a Bloomberg survey. State Street Corp. slumped 14 percent to $45.70. The world’s largest money manager for institutions cut its earnings projection and California sued the company for overcharging two state pensions. Earnings Beat Estimates Amazon.com Inc. soared 24 percent to a record $118.49. The world’s largest online retailer reported third-quarter earnings after discounts and the Kindle electronic book reader fueled sales. Apple jumped 8.5 percent, the most in three months, to $203.94. Soaring iPhone and Macintosh computer sales and speculation that Chief Executive Officer Steve Jobs will unveil new gadgets next year pushed the company to close at $205.20 on Oct. 22, an all-time high. New York Times Co., PNC Financial Services Group Inc. and Capital One Financial Corp. rallied more than 12 percent after their quarterly results exceeded estimates. More than 150 S&P 500 companies will report earnings next week, including Exxon Mobil Corp., Procter & Gamble Co. and Verizon Communications Inc. The world’s largest economy probably expanded in the third quarter at the fastest pace in two years as government stimulus programs helped bring an end to the worst recession since the 1930s, economists said before reports next week. To contact the reporters on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net ; Mary Childs in New York at mchilds4@bloomberg.net .

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JPMorgan Credit-Card Defaults May Signal Extension of Industrywide Losses

October 14, 2009

By Peter Eichenbaum Oct. 14 (Bloomberg) — JPMorgan Chase & Co. , the biggest U.S. credit-card lender, said the unit’s third-quarter write- offs rose and the company forecast more next year, signaling that the industry’s record losses may have longer to run. Card write-offs, excluding loans acquired from Washington Mutual Inc., rose to 9.41 percent on an annualized basis, from 8.97 percent in the previous quarter, JPMorgan said in its quarterly earnings statement today. That means September defaults probably increased, said Michael Taiano , an analyst at Sandler O’Neill & Partners LP. A similar rise at other card issuers would push the industry’s U.S. losses beyond the record 11.49 percent set in August, as measured by Moody’s Investors Service. The nation’s six biggest card issuers, including Bank of America Corp. and Citigroup Inc. , are scheduled to release monthly data tomorrow. The companies have blamed the recession and rising joblessness . “With unemployment ticking higher, you’d expect these losses to get worse before they get better,” said Joseph Mason , a Louisiana State University banking professor and former economist at the Office of the Comptroller of the Currency. “We’re definitely not out of the woods yet.” JPMorgan’s credit-card division posted a $700 million quarterly loss, its fourth straight, and the deficit may widen to $1 billion in the first period of next year, Chief Executive Jamie Dimon said today on a conference call with analysts. The card unit’s losses for 12 months total $2.29 billion. The entire company earned $3.59 billion during the third quarter, the most since the subprime mortgage market collapsed in 2007. Credit-card defaults typically track the U.S. jobless rate, which climbed to 9.8 percent in September, the highest since 1983. Card losses may peak at 12 percent to 13 percent in mid- 2010, Moody’s has said. ‘Big 6’ Bank of America, the second-biggest credit-card lender after JPMorgan, said write-offs rose to 14.54 percent in August, the highest of the “Big 6” issuers that typically report default data on the 15th of each month. Soured loans at New York-based Citigroup, the third-biggest, climbed to 12.14 percent last month. Credit-card losses for U.S. issuers could total $82.4 billion, almost a quarter of all loans, if write-offs reach 18 percent to 20 percent, the Federal Reserve said May 7 after stress tests on 19 lenders, including Charlotte, North Carolina- based Bank of America. American Express Co., the only card issuer among the six to report a decline in both defaults and delinquencies for August, is scheduled to post write-off data tomorrow, along with McLean, Virginia-based Capital One Financial Corp. and Discover Financial Services, based in Riverwoods, Illinois. To contact the reporter on this story: Peter Eichenbaum in New York at peichenbaum@bloomberg.net

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Bank of America to Settle on `Emergency’ CEO for Lewis This Week, WSJ Says

October 5, 2009

By Joost Akkermans Oct. 5 (Bloomberg) — Bank of America Corp. plans to make a decision on the appointment of an “emergency” chief executive officer this week in case Kenneth D. Lewis steps down before the end of the year, the Wall Street Journal reported, citing unidentified people familiar with the situation. Work on the contingency plan started before Lewis announced his retirement as CEO, the Wall Street Journal said today, citing the person. Rob Stewart , a spokesman at Bank of America in Hong Kong, didn’t immediately return a call from Bloomberg seeking comment. Lewis said on Sept. 30 he will resign as CEO at the end of the year, ending a 40-year career at the Charlotte, North Carolina-based bank, including the last eight as CEO. The bank didn’t name a replacement. Lewis oversaw more than $130 billion in acquisitions, including the takeover of Merrill Lynch & Co. in January. Shareholders stripped Lewis of the chairman’s title earlier this year, with dissidents saying he failed to tell them about spiraling losses at Merrill Lynch and bonus payments at the New York-based firm before they voted on the merger. Bank of America created a board search committee headed by Chairman Walter Massey to find a replacement for Lewis, Robert Stickler , a spokesman for the lender, said Oct. 2. The committee will meet this week to discuss the search, he said at the time. The committee will include Thomas May , Thomas Ryan , Donald Powell , Charles “Chad” Holliday Jr. and Charles Gifford , according to Stickler. May, Ryan and Gifford are former directors at Fleet Boston Financial Corp., which Bank of America acquired in 2004. Gifford is a former Fleet CEO. To contact the reporter on this story: Joost Akkermans in Hong Kong at jakkermans@bloomberg.net

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Stocks in U.S. Gain as Goldman Advises Buying Industrial Shares; GE Climbs

September 9, 2009

By Jeff Kearns Sept. 9 (Bloomberg) — U.S. stocks gained for a fourth day as Goldman Sachs Group Inc. advised buying shares of multi- industry companies and the Federal Reserve said the economy is stable or improving in most of the country. General Electric Co. climbed above its highest close since January and Illinois Tool Works Inc. jumped the most since June as Goldman Sachs said multi-industry companies tend to outperform the market when manufacturing returns to growth. EBay Inc. rallied 3.8 percent as Sanford C. Bernstein & Co. said its core online auction business is “turning around.” The dollar dropped to an almost one-year low against six major trading partners. The Standard & Poor’s 500 Index increased 0.6 percent to 1,030.98 at 2:34 p.m. in New York as a slump in Apple Inc. limited gains. The Dow Jones Industrial Average rose 21.31 points, or 0.2 percent, to 9,518.65. Europe’s benchmark index added 0.9 percent, climbing for a fifth straight day, while Asia’s slumped 0.3 percent. “When you look at some of those industrial stocks they really haven’t gone back to near their levels of late last year,” said Eric Teal , who helps oversee $5 billion at First Citizens BancShares Inc. in Raleigh, North Carolina. “That’s where analysts are looking for upgrades. If you get a recovery then there’s the potential for higher returns.” Beige Book The Fed said 11 of its 12 regional banks reported signs of a stable or improving economy in July and August, signaling that the worst U.S. recession in seven decades is over. Five districts “mentioned signs of improvement,” the Fed said today in its Beige Book business survey, published two weeks before officials meet to set monetary policy. The exception was the St. Louis district, which said the contraction’s pace “appeared to be moderating.” The S&P 500 has rebounded 53 percent from a 12-year low on March 9 as economic reports signaled the recession is easing and companies from Johnson & Johnson to Goldman Sachs posted results that beat analysts’ estimates. Investor Michael Price said today the U.S. stock market resembles 1975-1982, when the S&P 500 doubled. “We made very good returns from ‘75 to ‘82,” Price, who managed some of the best-performing mutual funds during the 1980s and 1990s and now runs New York-based MFP Investors LLC, said in an interview on Bloomberg Radio and Television. “Pick your spots, pick your stocks, do your work, and somebody’s going to be selling something too cheaply.” General Electric added 2.6 percent to $14.88. Illinois Tool Works, the maker of Hobart food mixers and Duo-Fast nail guns, rallied 4.7 percent to $43.82 after Goldman Sachs added the company to its “conviction buy” list. Industrial Momentum Goldman upgraded multi-industry companies to “attractive” from “neutral,” saying the stocks tend to outperform the S&P 500 when the Institute for Supply Management’s gauge of manufacturing climbs “sustainably above 50.” The index for August rose more than forecast to 52.9 on Sept. 1, with readings above 50 signaling growth. Goldman said that industrial momentum will continue to build, with low risk of a “mid-cycle pause.” Industrial shares in the S&P 500 added 1.4 percent today, the steepest advance among 10 groups. The gauge of 56 companies is up 8.9 percent in 2009 compared with a 14 percent gain for the S&P 500. EBay, owner of the most visited U.S. e-commerce Web site, rallied 3.8 percent to $22.67 after Bernstein raised its rating to “outperform” from “market perform” and lifted its share- price estimate 17 percent to $28. Credit Cards MasterCard Inc., the second-biggest credit-card network after Visa Inc., rose 1.2 percent to $209.95. Capital One Financial Corp., the McLean, Virginia-based credit-card company, climbed 5.1 percent to $37.24. “The credit cycle has begun to recover for U.S. credit cards,” Citigroup Inc.’s Donald Fandetti wrote in a report. Morgan Stanley climbed 2.6 percent to $28.53. The sixth- biggest U.S. bank by assets was raised to “overweight” from “neutral” by analysts at JPMorgan Chase & Co., who said they are “switching preference from investment banks to credit banks on regulatory changes.” SanDisk Corp. added 5.5 percent to $19.22, the highest in 11 months. The world’s largest maker of cards that store digital pictures was upgraded to “buy” from “hold” at Deutsche Bank AG, which said a supply cut since 2007 will lead to “an extended period of price stability and higher margins.” Stock Valuations The six-month rally has pushed valuations for the S&P 500, the benchmark for U.S. equities, to about 18.9 times the reported earnings of its companies, near the highest level since June 2004, according to weekly data compiled by Bloomberg . “Investors should be prepared for some additional near- term corrective action,” Robert Doll , the global chief investment officer at BlackRock Inc., wrote in an e-mail to journalists yesterday. “Stocks are no longer as cheap as they were several months ago. Conditions may be overbought and there is still a great deal of uncertainty over the outlook.” Lazard Ltd. dropped 4.3 percent to $37.33 after the investment bank led by Bruce Wasserstein said some shareholders agreed to sell 5.22 million shares in an underwritten public offering. Lazard said it won’t receive proceeds from the sale. Vivus Inc. soared 71 percent to $11.81. The developer of treatments for sexual dysfunction and obesity said its Qnexa drug helped patients lose enough weight in studies to allow the biotechnology company to seek U.S. approval to sell the treatment this year. To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net .

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Bank of America Loses Bid to Have Countrywide Suit Heard in Federal Court

August 19, 2009

By David Mildenberg and Jody Shenn Aug. 19 (Bloomberg) — Bank of America Corp. lost its bid for a federal trial of a lawsuit aimed at forcing Countrywide Financial Corp . to buy back mortgages sold to trusts when a U.S. judge ordered the case tried in a state court. Countrywide, the lender acquired by Bank of America , was sued last year by hedge fund Greenwich Financial Services Fund over claims the value of trusts used to package its mortgages into securities will fall if it revises 400,000 loans in an agreement with 15 state attorneys general. The fund claims investors would be harmed by the settlement Charlotte, North Carolina-based Bank of America reached to aid home-loan borrowers by a combined total of $8.4 billion. The bank said two U.S. laws aimed at helping owners keep their homes gave loan servicers the right to modify any mortgage loans, without repurchasing them, if certain guidelines are maintained. “Congress passed two statutes within a year of each other to address the mortgage crisis,” Judge Richard Holwell of the Southern District of New York said yesterday in his order. “In neither of these statutes did Congress federalize the case before this court.” Bank of America, the biggest U.S. bank by assets, is reviewing the judge’s order and considering its options, spokeswoman Shirley Norton said. In the proposed class action, or group lawsuit, the Greenwich, Connecticut-based fund demands a declaration that Countrywide must purchase modified mortgage loans for the full unpaid amount that it sold to any of the 374 securitization trusts. The suit is Greenwich Financial Services Distressed Mortgage Fund 3 v. Countrywide Financial Corp., New York State Supreme Court (Manhattan). To contact the reporter on this story: David Mildenberg in Charlotte, North Carolina, at 6587 or dmildenberg@bloomberg.net

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Mortgage-Bond Rally Fueled by Erroneous Investor Assumptions, Amherst Says

August 12, 2009

By Jody Shenn Aug. 12 (Bloomberg) — The rally among home-loan bonds without government backing is being fueled by errors made by “most market participants” in translating current prices to potential returns, Amherst Securities Group LP analysts said. Investors are overestimating potential yields in part because they are failing to consider how many loans are becoming delinquent for the first time and in part because they are arriving at incorrect conclusions on how long it will take to liquidate seized homes, the New York-based analysts led by Laurie Goodman wrote in a report yesterday. Those issues can influence both the size of foreclosure losses and how quickly bonds get paid down . “Do your homework, and sell securities which are being evaluated incorrectly by the marketplace,” the analysts wrote. Non-agency home-loan bonds have soared from record lows or near-nadirs in March amid speculation that Treasury Secretary Timothy Geithner’s Public-Private Investment Program, or PPIP, will add as much as $40 billion of demand to the market, and that the longest U.S. recession and worst housing slump since the Great Depression are easing. For example, the most-senior classes of 2006 and 2007 securities backed by prime-jumbo mortgages have rallied to more than 80 cents on the dollar, from as low as 55 cents, according to Amherst. So-called super-senior bonds backed by “option” adjustable-rate mortgages have jumped to about 48 cents, from the “low 30s,” the analysts wrote. Investors also have been doing too little analysis of the differences, such as the level of home equity, among borrowers with currently non-delinquent mortgages backing non-agency bonds, which lack guarantees from government-supported Fannie Mae and Freddie Mac or U.S. agency Ginnie Mae, they said. Looking at Countrywide After correcting two of the three common mistakes by investors, the potential yield on a Countrywide Financial Corp.- issued option ARM bond now trading at 48 cents on the dollar would fall to 6.49 percent, from 12.67 percent, assuming the London interbank offered rate remains unchanged, Amherst said. Adjusting for all three reduces the yield on a Wells Fargo & Co. jumbo-mortgage note bought at 85 cents to 7.15 percent, from 11.52 percent, the analysts wrote. That is “much lower than most market participants believe they are receiving on the security,” they said. “Moreover, the yield must be evaluated in conjunction with the level of uncertainty about our assumptions” around whether borrowers will continue to refinance at the “fast” pace of recent months and how many borrowers with “negative equity” will default. Top-Ranked Team Goodman is the former head of fixed-income research at UBS Securities LLC whose team there was top-ranked for non-agency mortgage debt in a 2008 poll of investors by Institutional Investor magazine. Amherst is a securities firm specializing in trading and advising investors on home-loan debt. The U.S. government announced July 8 that the PPIP would begin with nine managers raising as much as $10 billion, and receiving as much as $30 billion in taxpayer capital and loans to buy mortgage bonds originally rated AAA. Jumbo mortgages are larger than Fannie Mae or Freddie Mac can finance, currently $417,000 in most areas to as much as $729,500. Option ARMs allow borrowers to pay less than the interest they owe, tacking on the difference to their debt and creating the potential for bills to spike. A Markit ABX index of credit-default swaps tied to a type of subprime-mortgage bond rated AAA when issued in the first half of 2007 climbed to 29 yesterday, up 18 percent from a June low, according to Markit Group Ltd.’s Web site . The swaps offer protection if the securities aren’t repaid as expected, in return for regular insurance-like premiums. Subprime mortgages went to borrowers with poor or limited credit or high debt. To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net or

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Mortgage-Bond Rally Fueled by Erroneous Investor Assumptions, Amherst Says

August 12, 2009

By Jody Shenn Aug. 12 (Bloomberg) — The rally among home-loan bonds without government backing is being fueled by errors made by “most market participants” in translating current prices to potential returns, Amherst Securities Group LP analysts said. Investors are overestimating potential yields in part because they are failing to consider how many loans are becoming delinquent for the first time and in part because they are arriving at incorrect conclusions on how long it will take to liquidate seized homes, the New York-based analysts led by Laurie Goodman wrote in a report yesterday. Those issues can influence both the size of foreclosure losses and how quickly bonds get paid down . “Do your homework, and sell securities which are being evaluated incorrectly by the marketplace,” the analysts wrote. Non-agency home-loan bonds have soared from record lows or near-nadirs in March amid speculation that Treasury Secretary Timothy Geithner’s Public-Private Investment Program, or PPIP, will add as much as $40 billion of demand to the market, and that the longest U.S. recession and worst housing slump since the Great Depression are easing. For example, the most-senior classes of 2006 and 2007 securities backed by prime-jumbo mortgages have rallied to more than 80 cents on the dollar, from as low as 55 cents, according to Amherst. So-called super-senior bonds backed by “option” adjustable-rate mortgages have jumped to about 48 cents, from the “low 30s,” the analysts wrote. Investors also have been doing too little analysis of the differences, such as the level of home equity, among borrowers with currently non-delinquent mortgages backing non-agency bonds, which lack guarantees from government-supported Fannie Mae and Freddie Mac or U.S. agency Ginnie Mae, they said. Looking at Countrywide After correcting two of the three common mistakes by investors, the potential yield on a Countrywide Financial Corp.- issued option ARM bond now trading at 48 cents on the dollar would fall to 6.49 percent, from 12.67 percent, assuming the London interbank offered rate remains unchanged, Amherst said. Adjusting for all three reduces the yield on a Wells Fargo & Co. jumbo-mortgage note bought at 85 cents to 7.15 percent, from 11.52 percent, the analysts wrote. That is “much lower than most market participants believe they are receiving on the security,” they said. “Moreover, the yield must be evaluated in conjunction with the level of uncertainty about our assumptions” around whether borrowers will continue to refinance at the “fast” pace of recent months and how many borrowers with “negative equity” will default. Top-Ranked Team Goodman is the former head of fixed-income research at UBS Securities LLC whose team there was top-ranked for non-agency mortgage debt in a 2008 poll of investors by Institutional Investor magazine. Amherst is a securities firm specializing in trading and advising investors on home-loan debt. The U.S. government announced July 8 that the PPIP would begin with nine managers raising as much as $10 billion, and receiving as much as $30 billion in taxpayer capital and loans to buy mortgage bonds originally rated AAA. Jumbo mortgages are larger than Fannie Mae or Freddie Mac can finance, currently $417,000 in most areas to as much as $729,500. Option ARMs allow borrowers to pay less than the interest they owe, tacking on the difference to their debt and creating the potential for bills to spike. A Markit ABX index of credit-default swaps tied to a type of subprime-mortgage bond rated AAA when issued in the first half of 2007 climbed to 29 yesterday, up 18 percent from a June low, according to Markit Group Ltd.’s Web site . The swaps offer protection if the securities aren’t repaid as expected, in return for regular insurance-like premiums. Subprime mortgages went to borrowers with poor or limited credit or high debt. To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net or

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Dodd, Conrad Cleared by Senate Ethics Panel in Countrywide Mortgage Probe

August 7, 2009

By Jonathan D. Salant Aug. 7 (Bloomberg) — The Senate Ethics Committee said Senate Banking Committee Chairman Chris Dodd of Connecticut and fellow Democrat Kent Conrad of North Dakota didn’t violate ethics rules in refinancing their home mortgages with Countrywide Financial Corp. The panel said it found “no substantial credible evidence” that the mortgages violated Senate ethics rules. Even so, the committee, which includes equal numbers of Democrats and Republicans, said both senators should have “exercised more vigilance” to “avoid the appearance” of preferential treatment. Dodd, ranked as the most vulnerable incumbent Democratic senator by Congressional Quarterly, claimed vindication. “There was no ‘sweetheart’ or special deal; the allegations are and have always been false,” Dodd said in a statement. “I hope that today’s dismissal will go a long way towards restoring the bond of trust and confidence that I’ve worked long and hard to build with the people of our state.” A phone call to Conrad’s office wasn’t immediately returned. To contact the reporter on this story: Jonathan D. Salant in Washington at jsalant@bloomberg.net .

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Brokers, Bankers, Regulators Get Notice That Taylor, Bean Halts Mortgages

August 5, 2009

By David Mildenberg and Jody Shenn Aug. 5 (Bloomberg) — Taylor, Bean and Whitaker Mortgage Corp. , the 12th-largest U.S.

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Federal Reserve Is Set to End Treasuries Purchases, Former Governors Say

August 5, 2009

By David Mildenberg and Jody Shenn Aug. 5 (Bloomberg) — Taylor, Bean and Whitaker Mortgage Corp. , the 12th-largest U.S. home-loan company, shuttered its mortgage-lending business after being suspended by federal agencies

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Bank of America CEO Scrum Begins as Lewis Revamps Management, Settles Case

August 4, 2009

By David Mildenberg Aug. 4 (Bloomberg) — Bank of America Corp., under pressure to overhaul management and reduce risk, set up a five-person competition to replace Kenneth Lewis as chief executive officer.

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Bank of America Sets Succession Plan, Hires Krawcheck to Lead Wealth Unit

August 3, 2009

By David Mildenberg Aug. 3 (Bloomberg) — Bank of America Corp. shuffled senior management and hired former Citigroup Inc. executive Sallie Krawcheck to run wealth management as the lender prepares for the eventual departure of Chief Executive Officer Kenneth Lewis

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Bank of America May Cut Branches as Customers Use Internet, Mobile Phones

July 29, 2009

By David Mildenberg July 29 (Bloomberg) — Bank of America Corp. , the largest U.S. bank, may cut branches over the next three years because customers increasingly rely on the Internet and mobile phones to manage their accounts, an executive said. “We’re seeing a strong acceleration in our customers using our virtual channels,” Liam McGee , president of consumer and small-business banking, said yesterday in a telephone interview.

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Security Bank’s Units in Georgia Shut Down as Lender U.S. Failures Hit 64

July 24, 2009

By Ari Levy and Margaret Chadbourn July 24 (Bloomberg) — Security Bank Corp.’s six Georgia subsidiaries and Waterford Village Bank in New York were seized by regulators, pushing this year’s toll of failed U.S. lenders to 64, the most since 1992. The six units of Macon-based Security Bank, with total assets of $2.8 billion and deposits of $2.4 billion, were closed by the Georgia Department of Banking and Finance, and the Federal Deposit Insurance Corp. was named receiver, the FDIC said today in a statement .

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