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6:25 PM, July 31, 2008
Some things are just too easy -- like attacking Exxon Mobil Corp. for yet another quarter of record earnings.
Of course Exxon made a lot of money in the second quarter. It sold $138 billion worth of oil, natural gas, chemicals, gasoline and other energy products.
The net profit on those sales: $11.68 billion, which just happens to be the largest quarterly profit ever earned by a U.S. company.
 But Exxon’s net profit margin of about 8.5% -- net income as a percentage of revenue -- pales when compared with what many other blue-chip companies earned in the latest quarter.
Yes, this is the argument the oil industry always trots out when its earnings are under fire. But that doesn’t make it less true.
If companies such as Walt Disney Co. and Eli Lilly & Co. could rack up Exxon-like sales while maintaining their current profit margins, nobody would pay much attention to Exxon’s results. Instead, there would be demonstrations in Anaheim demanding that money-grubbing Disneyland cut the price of churros and cotton candy on Main Street.
Disney earned $1.28 billion last quarter on sales of $9.2 billion, for a profit margin of 13.9%. Apply that margin to revenue of $138 billion and Disney would rake in $19.2 billion.
Drug maker Lilly would do even better -- much better. Its second-quarter profit was $959 million on sales of $5.15 billion, for a margin of 18.6%. On Exxon’s sales base, Lilly would earn a stunning $25.7 billion.
There are plenty of companies with profit margins well below Exxon’s, of course. Wal-Mart Stores Inc.’s net margin in its fiscal first quarter was a mere 3.2%.
And by some financial yardsticks Exxon is indeed earning spectacular returns, even if its net margins don’t stand out. The company’s return on equity last year -- a measure of how well it deployed shareholders’ investment -- was 34%, compared with 15% for Disney, according to Bloomberg data.
Consumer activists say their real beef with Exxon is that it isn’t spending enough of its loot to find new oil and gas reserves. Wall Street may even agree, to a point: The company’s shares slumped $3.95, or 4.7%, to $80.43 today, in part on concern that Exxon’s overall oil production is declining.
Then again, name a oil-rich country on the planet that is welcoming American energy giants and promising to make it worth their while to come in and drill.
Venezuela? Russia? Iran? California?
Photo: Sign at a recent L.A. mini-protest against high gas prices. Mel Melcon / Los Angeles Times
2:11 PM, July 31, 2008
If only he could keep his thoughts to himself.
Former Federal Reserve Chairman Alan Greenspan helped send the stock market reeling in the last half-hour of trading today, after he warned in a CNBC interview that the U.S. was living through a "once-in-a-century" crisis tied to the housing market’s plunge.
 He said falling home prices were "nowhere near the bottom," and he supported the idea of nationalizing mortgage giants Fannie Mae and Freddie Mac, saying they were a "major accident waiting to happen."
Note, though, that this is the same Fed chairman who on June 13 said that "the worst is over in the financial crisis or will be very soon." Hopefully no one took that as a sign to buy bank stocks in mid-June.
Greenspan has, at least, been consistent on the home-price issue. On May 8 he said the housing crisis would go on "at least until the end of the year, if not [into] next year, before it gets rectified."
When his latest comment about housing prices crossed the tape at 12:19 p.m. PDT today, the Dow Jones industrial average was off about 106 points. At the closing bell, 41 minutes later, the Dow was down 205.67 points, or 1.8%, to 11,378.02.
Fannie Mae slid 71 cents, or 5.8%, to $11.50; Freddie Mac lost 56 cents, or 6.4%, to $8.17. Both had been in positive territory earlier in the session.
The Dow, however, was in the red the entire session, after the latest economic data deepened concerns that the U.S. might not be able to avoid recession. (Greenspan opined that the odds of an official recession were "50-50." Way to hedge your bet, Mr. Chairman!)
Still, the Dow managed to eke out a 0.2% rise in July, only its second monthly increase since November. The broader Standard & Poor's 500 index, which fell 1.3% today, was off 1% for the month. The Nasdaq composite, down 0.2% today, was up 1.4% for all of July.
Photo: Alan Greenspan. Win McNamee/Getty Images
12:57 PM, July 31, 2008
Inflation surged in the second quarter with soaring energy and food costs, as any consumer can attest.
The growth in workers’ compensation, however, remained flat with the first quarter and down from a year earlier, the government’s latest data show.
It’s another sign that the pain in your wallet is real -- and maybe worse than you think.
The Labor Department today said its employment cost index, which measures what employers shell out for wages and benefits, rose 0.7% in the second quarter, matching the first-quarter increase.
 Last quarter’s rise was down from a 0.9% increase in the second quarter of 2007, a clear indication that employers have been feeling less pressure to boost compensation as jobs overall are harder to find.
Now, look at the annualized numbers: In the 12 months through June, total employment costs were up 3.1%. By contrast, inflation as measured by the consumer price index was up 5% in the same period.
Another negative trend for workers: The benefits component of the employment cost index rose just 0.6% last quarter, also flat with the first-quarter increase and less than half the 1.3% rise in the second quarter of 2007.
Employers’ cost of benefits is down "because employees are paying more of their own costs," notes Diane Swonk, economist at Mesirow Financial in Chicago. Think medical care co-payments, for instance.
One more dismal report today: The government said new claims for unemployment benefits rocketed to 448,000 last week, an increase of 44,000 from the previous week and a five-year high.
Analysts noted that the big increase might have partly reflected an influx of claims by people who had exhausted their benefits and were reapplying under a federal extension program that took effect earlier this month.
Even so, the need for extended benefits by a bigger chunk of the worker population doesn’t paint an encouraging picture of the job market. People wouldn't be applying for extended benefits "if they were not losing jobs in the first place," Goldman, Sachs & Co. economists noted in a report today.
All of this is setting the scene for the government’s report on Friday on July employment trends. The consensus forecast is for a loss of 75,000 jobs this month, which would be the seventh consecutive monthly decline in payrolls.
Photo: Tim Boyle/Getty Images
7:36 AM, July 31, 2008
From Times staff writer Walter Hamilton:
The credit crisis now is playing out in courthouses around the country.
After declining in recent years, the number of investor class-action lawsuits is up sharply this year thanks to a surge in cases related to the collapse of the subprime mortgage market, according to a study from NERA Economic Consulting.
All told, there were 139 investor class-action cases filed in the first half of this year, by NERA’s count. At that rate, 280 cases would be filed this year, a 42% jump from last year and the most since 2002 -- when suits were flying in the aftermath of the technology-stock bust.
Slightly more than half the cases filed this year are subprime-related, including cases involving so-called auction-rate debt securities, the study found. And the subprime cases are for big money: The claimed investor losses are 10 times higher than in non-subprime cases, according to NERA.
The median loss alleged in the subprime cases is $4.5 billion, according to NERA. Some of the largest cases top $10 billion.
Not that investors are likely to get back much of the purported losses. The median investor recovery in class-action suits always has been small, and has dropped even further in recent years. The median recovery of settled cases so far this year is a measly 2.8% of claimed losses, down from 7.1% in 1996, NERA data show.
In part, the low recovery figures reflect that investor attorneys always claim the highest possible losses when they file a case. It also can be hard to extract much from deeply troubled companies, some of which already may be bankrupt, said Ronald Miller, a NERA vice president.
If there’s a bright side, it’s that investors who have losses tied to the subprime bust, and who had given up hope, "may be surprised to find out they’re getting something back," Miller said.
9:24 PM, July 30, 2008
From Times staff writer Edward Silver, who follows green-investing trends:
Kaydon Corp.’s wind-power business fanned interest in its shares this spring. But like some other companies with green in their mix, the firm's mainstream businesses now are putting a brake on growth. And that has taken a blade to the stock price.
Tagged as an industrial components maker, Kaydon owns half the U.S. market for ball bearings that allow wind turbines to cut the air with high power and low friction.
The Ann Arbor, Mich., company’s second-quarter results, reported Tuesday, made clear that the wind build-out still is in full swing. Kaydon said wind-power sales are likely to top $90 million this year, almost triple the haul in 2007.
 Unfortunately, that segment is a fraction of Kaydon’s total sales -- only about 7% at the start of the year, although that’s likely to double by year’s end. Between now and then, however, Kaydon expects tepid returns in its mainstream markets --aerospace and electronics among them -- and funding delays in, of all things, its military contracts. And the high price of steel is creating stress on the cost side.
Although second-quarter profit of 64 cents a share, on sales of $140 million, nosed ahead of forecasts, investors focused on the outlook. The shares dived $7.64, or 13.7%, to $48.31 after the report Tuesday, wiping out the last of their year-to-date gain. They eased further on Wednesday, to $48.24.
Wind has hit the energy landscape this year like a bracing squamish. T. Boone Pickens, once identified solely with oil, has had a notable influence, throwing billions of dollars at a massive turbine project in Texas and proselytizing politicians.
But stymied investors know that wind pure plays are scarce in the U.S. Firms raising wind units can’t escape outsize costs for materials and cooling demand in their traditional lines. General Electric Co. is the poster child for the problem: Its windmill business is No. 2 worldwide to Denmark’s Vestas, but that hasn’t made up for GE’s woes in other areas, such as home appliances.
Up to now, Kaydon has been known for strong profit margins, reflected in the stock's lofty price-earnings ratio of around 20 based on 2008 estimates. Those margins may wilt some in the second half. Yet the company now boasts its biggest order backlog ever -- stuffed, of course, with wind deals.
Other positives include cash of $8 a share on the balance sheet and a rising dividend.
The longer-term bull case, though, is mostly about the company’s positioning in renewables. As foreign windmill giants invade U.S. territory, looking for domestic suppliers, they know where to find Kaydon.
Photo: Wind turbines near Palm Springs. Mark Boster/Los Angeles Times
4:29 PM, July 30, 2008
The Federal Deposit Insurance Corp. has its work cut out to get failed IndyMac Bank in shape for a potential buyer or buyers, FDIC Chairwoman Sheila Bair suggests in a Bloomberg TV interview to be broadcast this weekend.
"There are a number of things about this institution that, to be honest with you, make it unattractive to a potential purchaser," Bair says in the interview, according to a preview story from Bloomberg.
 She cites the Pasadena bank’s mortgage losses, its reliance on brokered deposits and its relatively small "core deposit base," Bloomberg says.
"What we're trying to do now is do what we can to strengthen it, strengthen the asset quality, strengthen the servicing portfolio, so we can sell it off and get a better value, hopefully," Bair said.
Not much news in that, but it made me wonder if Bair was signaling that the FDIC won’t be able to sell IndyMac within 90 days, as per the plan it announced when it took control of the bank July 11. A spokesman for the FDIC, however, said the agency still was expecting to make the sale in that time window.
Meanwhile, HousingWire.com has a good story on the complications the FDIC faces in finding a buyer or buyers for IndyMac’s huge loan-servicing business, which handles $200 billion in mortgages, most of which have been securitized.
"There aren’t but four or five firms that could take on this big of a portfolio in one piece, and so far, it’s anyone’s guess if there’s interest there enough to make it the least costly scenario the FDIC will look for," one banker tells HousingWire.com.
Read the full story here.
Photo: FDIC Chairwoman Sheila Bair. Dennis Brack/Bloomberg News
2:38 PM, July 30, 2008
From Times staff writer Walter Hamilton:
Like other mutual fund companies in the "socially responsible" investing niche, Pax World Management Corp. is supposed to follow strict ethical codes in how it picks securities.
Turns out its fund shareholders could have benefited from one more criterion: truth in advertising.
Pax World agreed today to pay $500,000 to settle a Securities and Exchange Commission probe into whether its funds misled investors by violating basic principles of socially responsible investing, such as steering clear of alcohol and gambling companies.
From 2001 to 2005, two of the firm’s funds -- its Growth fund and its High Yield fund -- bought 10 securities that violated the company's own socially responsible guidelines, according to the SEC. Those picks were within a group of 41 securities that Portsmouth, N.H.-based Pax had purchased without screening to see if they squared with its ethics rules, the SEC said.
In one case, according to the SEC, the Growth fund invested in an oil-exploration company even though it had thrice failed Pax’s internal test of acceptable companies.
No doubt the funds’ shareholders would love to know the names of the individual stocks, but the SEC opted not to identify them in the complaint. It said only that each security violated the firm’s standards on one or more of these counts: alcohol, gambling, defense contracting, environmental issues or labor ethics.
The agency wanted to make the bigger point, which is that "advisers simply cannot tell investors they are going to do one thing with their funds and then not follow through on those promises," said Linda Chatman Thomsen, head of the SEC's enforcement division.
Pax World’s CEO, Joseph F. Keefe, said in a statement that the $2.6-billion-asset company has done a "top-to-bottom reorganization" to "help us assure that mistakes of this nature are not made in the future." Since 2005, Pax has canned senior management and its director of social research.
1:16 PM, July 30, 2008
Wall Street is scaling back its dreams for shares of DreamWorks Animation SKG.
The Glendale studio’s stock tumbled today after the firm’s second-quarter earnings report late Tuesday.
Although DreamWorks’ profit of 28 cents a share (excluding a tax benefit) beat the consensus estimate of 23 cents, analysts are reining in their expectations for earnings growth over the next year.
 Goldman, Sachs & Co. analyst Ingrid Chung said she still considered the stock a "buy" but pulled it from the firm’s highlighted "conviction buy list." She cut her 2009 earnings estimate to $1.75 a share from $1.87, citing expectations for higher foreign marketing costs for the hit "Kung Fu Panda" and for DreamWorks’ next movie, "Madagascar: Escape 2 Africa" (due Nov. 7).
That’s the problem of the weak U.S. dollar coming home to roost: It’s costing DreamWorks more to market its films abroad.
Another expected drag on the bottom line -- although great for Glendale and environs -- is the company’s plan to spend $85 million over the next two years to expand and improve the Glendale studio, including for 3-D productions. DreamWorks sort of buried that announcement in the earnings press release.
Michael Pachter, who follows the company at brokerage Wedbush Morgan Securities, downgraded the stock today to "hold" from "buy" and trimmed his 2009 profit estimate to $1.71 a share from $1.78, also citing expected higher costs.
Analysts still are upbeat about the company’s long-term outlook given its movie successes and the likelihood of profitable spin-offs (such as the upcoming stage show "Shrek the Musical"). But with the studio warning on costs, Wall Street is retreating until future profit streams have more "visibility," as Pachter put it.
The stock ended down $2.72, or 8.7%, to $28.57, after falling as low as $27.20. It's still beating the market year to date, up almost 12% after falling 13% last year.
Photo: "Kung Fu Panda." DreamWorks Animation SKG
9:22 PM, July 29, 2008
No reason to mess with success: The Securities and Exchange Commission voted late Tuesday to extend through Aug. 12 its curbs on potentially abusive short selling of major financial stocks.
After six weeks of plummeting bank and brokerage share prices, the SEC on July 15 announced an unprecedented plan aimed at preventing "naked" shorting of 19 of the biggest stocks in the financial sector, including Bank of America Corp., Citigroup Inc., Merrill Lynch & Co. and Fannie Mae.
Maybe it was just a coincidence, but the stock market overall bottomed on July 15. And since then many financial issues have rebounded sharply.
 SEC Chairman Christopher Cox has said the agency has no problem with legitimate short sellers -- bearish traders who borrow stock and sell it, betting the price will drop.
But the SEC, Cox said, wanted to prevent so-called naked shorting, which is selling stock without having the borrowed shares lined up. Naked shorting can lead to a "bear raid" on a stock, pummeling it mercilessly.
The temporary rule that took effect on July 21, and would have expired Tuesday if it wasn't extended, requires that "anyone effecting a short sale in these securities arrange beforehand to borrow the securities and deliver them at settlement."
That shouldn’t have been a big deal for legitimate short sellers. But it’s entirely possible the SEC’s targeting of the 19 financial issues has had a muffling effect even on the shorts who follow the rules. Why give the securities cops a reason to put you under the magnifying glass?
Or maybe the SEC was just very lucky with its timing -- assuming one of its unstated goals was to halt the market meltdown.
The agency said Tuesday that it won’t extend the rule for the 19 stocks beyond Aug. 12, but expects immediately thereafter to propose "additional protections against abusive naked short selling" for the entire market.
Photo: SEC Chairman Christopher Cox. Chip Somodevilla/Getty Images
5:27 PM, July 29, 2008
A good reminder of how "free" markets work in China:
With the Olympic Games looming, China’s equivalent of the U.S. Securities and Exchange Commission has warned domestic money managers against any public statements that might be construed as negative toward the already deeply depressed stock market, reports Don Straszheim, a China expert at Roth Capital Partners in Newport Beach.
 "Fund company executives, fund managers and other important staff should be very careful about their speeches and blog content which may cause market fluctuations," the China Securities Regulatory Commission advised.
"Stability is the top priority of the regulator and everything that the regulator does is just for the sake of a harmonious and successful Olympic Games," it said.
Presumably, upbeat comments are still allowed. The market could use some: The Shanghai composite stock index, at 2,850.31 on Tuesday, is down 53% from its record high reached in October, although it has inched up 7.5% from the 16-month low it hit July 1.
The Chinese might like to think they’re in control, but remember the talk last fall that the government would never allow a bear market to unfold before the Games?
Maybe they'll have better luck controlling the air in Beijing.
Photo: National Stadium in Beijing. Luo Xiaoguang / New China News Agency
2:38 PM, July 29, 2008
The commodity bull market has developed a serious limp.
Crude oil futures slid again today, losing $2.54 to $122.19 a barrel, the lowest closing price since May 6. Gasoline futures fell to $3 a gallon, down from $3.07 on Monday and the lowest since May 2.
But there’s more to the pullback in raw materials prices than what’s going on with energy. The Reuters/Jefferies CRB index of 19 major commodities eased 0.5% today, the 10th decline in 12 sessions. It has fallen 13.1% since reaching a record high July 2.
 Almost anywhere you look in the commodities markets, prices are well off their recent highs. Corn, soybeans and wheat have slumped in recent weeks. So have nickel and copper. Gold tried to retake the $1,000-an-ounce mark earlier this month but has been pushed back to $928.
For consumers, this reversal of fortune in the prices of hard assets is good news, of course. Not so for investors who only recently jumped on the commodity bandwagon. The share price of the Pimco Commodity Real Return mutual fund, popular with many individual investors who wanted to bet on raw materials, is off about 16% from its peak reached July 3.
The Standard & Poor’s 500 stock index, by contrast, is up fractionally in that period.
Many futures traders say commodity prices are just taking a cue from signs of slowing economic growth worldwide, figuring that can’t be bullish for raw-materials demand.
With gasoline, in particular, "The evidence is there, certainly in the U.S., that people are cutting back," notes Ron Goodis, head of futures trading at Equidex Brokerage Group in Closter, N.J.
William O’Neill, veteran commodities trader at Logic Advisors in Upper Saddle River, N.J., says there also has been talk that some institutional investors have been pulling back from commodity funds this month, wary of Congress’ efforts to paint them as villains that have helped to stoke the surge in prices over the last few years.
Or maybe they’re just recognizing that too many investors had blithely hopped aboard this bull market in the first half of this year.
The comfort level with buying commodities had become "too easy," Goodis said. "It was the ‘in the know’ trade."
Whenever anything in the markets begins to look like a sure bet, it’s usually an invitation to a smack-down.
1:02 PM, July 29, 2008
From Times staff writer Walter Hamilton:
Will the fire sale at Merrill Lynch & Co. force similar moves by other investment banks?
That was the big question on Wall Street today following Merrill’s surprise decision to dump a huge chunk of troubled mortgage bonds for pennies on the dollar.
Merrill CEO John Thain said late Monday that the brokerage would sell so-called collateralized debt obligations once valued at $30.6 billion for a mere 22 cents on the dollar.
 Analysts generally applauded the move, saying that clearing away the residue of the subprime mortgage bust was an essential step toward helping Merrill get its business back to normal.
The move also could help the economy. Some financial-industry critics say the longer banks and brokerages take to get past the subprime crisis, the greater the risk that they’ll plunge the economy into a prolonged downturn like the one that wracked Japan in the 1990s.
But blue-light specials for troubled assets can mean a lot more pain for shareholders. Merrill had to write off an additional $5.7 billion -- bringing its total subprime write-offs over the last year to almost $52 billion, according to Bloomberg data.
To bolster its withered capital, the company also issued $8.6 billion of new stock today, diluting existing shareholders by a whopping 38%.
The company’s shares dived 11.6% on Monday to a 10-year low before the announcement. The stock opened lower today but has rebounded with the broad market. With a few minutes to go in today’s session, Merrill was at $26.03, up $1.70, or 7%.
Merrill’s decision to jettison its toxic CDOs could put a lot of pressure on Citigroup Inc. in particular, several analysts wrote in notes to clients today.
Citigroup still has $22.5 billion of subprime assets, the largest of any investment bank, according to Meredith Whitney, an analyst at Oppenheimer & Co. UBS is next at $15.6 billion.
What’s more, Citigroup values its subprime portfolio at 55 cents on the dollar, according to William Tanona, an analyst at Goldman, Sachs & Co. Citigroup would have to write off $16.2 billion if it had to value its holdings at 22 cents on the dollar, Tanona said.
"We continue to believe they would struggle to obtain their prices in the marketplace today," Tanona wrote.
Some analysts doubted Citigroup would match Merrill’s 22-cent valuation because Citi has long maintained that many of its mortgage holdings were originated before the excesses of the subprime crisis struck.
Nevertheless, Citi might have to write off an additional $8 billion this quarter, which could force it to raise more capital, according to Michael Mayo, a Deutsche Bank analyst.
"The decision about raising new capital could be closer than we previously thought," Mayo wrote.
Still, Citi’s shares rallied today with the rest of the market: They were up $1.14, or 6.5%, to $18.57 shortly before the closing bell.
Photo: John Thain of Merrill Lynch
8:11 PM, July 28, 2008
U.S. financial regulators on Monday put their collective weight behind the Old World concept of "covered bonds" as a way for banks to fund mortgages -- as opposed, perhaps, to leaving it up to Wall Street’s remaining rocket scientists to devise another New World, alphabet-soup catastrophe like CDOs.
Covered bonds, really simplified, are bonds backed by assets on a bank’s balance sheet. The investor who buys the securities gets a set interest rate based on what the assets (such as mortgages) pay. And because the bank holds on to the assets, theoretically the institution would be less reckless in its underwriting than if it knew (as with conventional mortgage-backed securities) that it was fobbing the loans off on hapless investors around the globe.
By selling a stake in the loans, the bank gets back capital to re-lend.
Sounds logical. One big question, though, is how useful this would be to banks at the moment -- when the only mortgages many of them want to make are loans they can immediately sell to Fannie Mae or Freddie Mac.
One blogger wonders about a more sinister Wall Street motive at work. "London Banker," who identifies himself as a former central banker and securities markets regulator, began a post on the subject this way on Friday: Whenever Henry Paulson at Treasury, Ben Bernanke at the Fed and Sheila Bair at FDIC agree on anything, American taxpayers should check for their wallets to see if they are being mugged. As a result, my eyebrows rose a bit when these three started pressing in concert for covered bond issuance in U.S. markets some weeks ago.
He goes on to question whether covered bonds might be a way for savvy investment banks to corral the good assets within failing banks, leaving the dreck for the Federal Deposit Insurance Corp. to clean up. (Although the FDIC's job is cleaning up the dreck in failures, anyway.)
Maybe we’re all just getting too paranoid, but the post is worth a read, including the comments.
Meanwhile, this Bloomberg story points out that things aren't going so well for the covered-bond market in Europe this year.
2:56 PM, July 28, 2008
Wall Street’s way of thanking Congress for the new housing rescue bill: another stock market dive, led by the companies the bill is supposed to help the most.
A heavy sell-off in financial and builder shares pulled the market broadly lower today, a sign investors see little hope for a turnaround soon in the housing bust despite the government’s latest efforts.
"There aren’t any quick fixes," said Joe Battipaglia, market strategist at brokerage Stifel Nicolaus & Co.
 The Dow Jones industrials slid 239.61 points, or 2.1%, to 11,131.08. That wiped out another chunk of the rally that had lifted the index 670 points, or 6.1%, in six sessions after it hit a two-year low on July 15.
Another 170 points off the Dow and we’ll be at a new bear-market low.
Broader indexes lost a little less than the Dow today, but it was a dismal session across the board.
Bank, brokerage and builder stocks were down sharply for a third day in a row. Bank of America slid $1.52, or 5.1%, to $28.06, Citigroup fell $1.42, or 7.5%, to $17.43 and Merrill Lynch dropped $3.19, or 11.6%, to a new 10-year closing low of $24.33. After the market closed, Merrill announced a $5.7-billion write-off tied largely to its toxic CDOs, or collateralized debt obligations.
A Standard & Poor’s index of 15 major builder stocks slumped almost 5% for the day.
The housing rescue bill, shepherded by Treasury Secretary Henry M. Paulson Jr. and passed by Congress over the weekend, is supposed to help stem the worst effects of the bust. One provision could help an estimated 400,000 homeowners avoid foreclosure by refinancing into mortgages insured by the Federal Housing Administration.
But lenders that participate in that program will have to share the pain by writing down some of the principal. How many will be willing to do that, as opposed to trying to arrange a loan workout on their own, remains to be seen. After all, many banks can’t well afford more hits to their withered capital.
Another provision in the bill authorizes the Treasury to rescue mortgage-finance giants Fannie Mae and Freddie Mac if they are in danger of running out of capital because of rising loan losses.
Shares of Fannie and Freddie fell for a third straight session, with Fannie off $1.24, or 10.7%, to $10.31 and Freddie down 55 cents, or 6.6%, to $7.72. The stocks’ renewed downturn could be a sign that Wall Street figures the Treasury will inevitably have to bail out the companies -- which presumably would lead to a total loss for shareholders.
Paulson today was pushing yet another solution to the housing crisis: so-called covered bonds. Banks would make home loans, then issue bonds backed by homeowners’ payments. Unlike with traditional mortgage-backed securities, however, the home loans would stay on the issuing bank’s books -- which in theory would give the lender more incentive to underwrite only high-quality borrowers (what a concept!), and give bond investors more confidence about buying the securities.
Covered bonds have been common in Europe, but relatively rare in the U.S. So we have something to learn from the Old Country, after all?
Photo: Henry M. Paulson Jr. Pablo Martinez Monsivais/Associated Press
11:56 AM, July 28, 2008
There should be plenty of joy in Thousand Oaks this morning.
Shares of biotech giant Amgen Inc., the city’s best-known employer, have soared to their highest level in 14 months after the company on Friday reported positive trial results for its potential blockbuster drug to treat the bone-thinning disorder osteoporosis.
Wall Street, which had hammered Amgen’s shares for the last three years on fears the firm had lost its status as a growth company, suddenly is taking a much sunnier view of the future -- despite what’s expected to be a lousy second-quarter earnings report after the closing bell today.
The stock was trading at $60.10 at about 11:45 a.m. PDT, up $6.18, or 11.5%, from Friday.
In a three-year study involving 7,800 women, Amgen said its experimental drug denosumab, or D-mab, "significantly" reduced spine and hip fractures. Although the company didn’t release specifics, it said it was pleased with the safety results of the trial as well. Full results of the study are expected in September.
 With sales of its lucrative anti-anemia drugs Aranesp and Epogen tumbling because of health risks now associated with the treatments, Amgen has needed a new wonder drug to revive investors’ interest.
D-mab could be it. The drug could be approved for post-menopausal osteoporosis in 2009 and could rack up sales of at least $1 billion in 2010, analyst Bret Holley at Oppenheimer & Co. said in a report today. The company’s total sales in 2007: $14.8 billion.
Analysts are falling over themselves to raise earnings estimates for the company and price targets for the stock. Goldman Sachs & Co. now expects Amgen’s earnings to rise at a 13% average annualized rate from 2009 to 2012. The brokerage, which had previously forecast no net growth in 2009-12, also raised its 12-month price target for the shares to $74 from $63.
Morgan Stanley, Jefferies & Co. and Thomas Weisel Partners raised their ratings on the stock to "buy" from "hold."
If only they had piled on a few months ago: Even before today’s surge, Amgen’s shares had been rebounding after hitting a five-year low of just under $40 in mid-March.
Despite the problems with its anemia drugs, Amgen still is expected to earn at least $4 a share this year. So at the stock’s low in March it was selling for a price-to-earnings ratio of just 10.
Photo: Amgen's campus in Thousand Oaks. Credit: Anne Cusack/Los Angeles Times
12:33 PM, July 27, 2008
People with uninsured deposits at IndyMac Bank learned the hard way that the Federal Deposit Insurance Corp. wasn't kidding about its insurance limits.
But will the FDIC be able to stick with its rules as the number of failed banks rises?
My column in The Times this weekend looks at some of the risks posed to the banking system by the same deposit insurance that's designed to protect the system. One issue is that the expanded awareness of the insurance limits, after IndyMac's high-profile failure, could hasten deposit runs as rumors fly about other troubled banks.
A run on deposits can virtually guarantee a bank's failure -- and make things worse for the FDIC, which already figures its caseload is going to balloon because of bank loan losses from the housing bust.
IndyMac had about $1 billion in uninsured deposits.
I note that some bank industry analysts think it would make more sense for the government to protect all deposits rather than maintain the insurance limits. Japan decreed blanket protection from 1997 to 2002 amid a severe loss of faith in its banking system.
Mike Shedlock (Mish) at Global Economic Trend Analysis has another idea about deposit insurance: He says it should be scrapped entirely, except for unlimited insurance on checking accounts. Read his views here.
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