Wednesday, April 11, 2007

Paperstand (WFC, DCX, NDAQ, FCX, VIAB, TRMP)

The WSJ’s “Heard on the Street” column out saying that Wells Fargo (WFC) has hit some ruts, b/c of its exposure to risky subprime loans. Shares of Wells Fargo are taking an unusually harsh beating as many investors worry that the end of the subprime sector's woes is nowhere in sight. Wells Fargo originated $83bn in subprime loans last year. This has caused some concern since Wall St. seems increasingly leery of any subprime exposure. Grumbling aside, there is plenty of evidence to suggest Wells Fargo isn't a disaster about to happen. In recent weeks, execs have been telling analysts that the bank is shielded from any problems on about 65% of the subprime loans. The reason: Wells Fargo says most of its subprime loans are made under what it calls "co-issue arrangements," in which it acts only as the servicer of the loans. In such cases financial risk is borne by investment banks and other firms that securitize the subprime mortgages. The deals eliminate the possibility that the bank will be forced to repurchase loans if borrowers miss payments. Wells Fargo is "very smart with credit," concludes Sam Lippe, of Tamarack Value Fund. It holds about 230K shares of the co. "We don't see the co blowing up at all," Mr. Lippe says.

The WSJ reports that ConocoPhillips (COP) became the first major US-based oil co to add its voice to the call for a federal global-warming-emission cap. ConocoPhillips said it was joining the US Climate Action Partnership, a group of corporations that have called for a US emissions cap and have outlined broad principles that they want any cap to include. "We believe that the science is quite compelling and that climate change is certainly attributed to human activity and to the substantial use of fossil fuels," said Jim Mulva, Chmn and CEO of ConocoPhillips.

According to the WSJ, a top DaimlerChrysler (DCX) exec is scheduled to meet in NY this week with bidders for the Chrysler unit, but it appears that Kirk Kerkorian's Tracinda isn't among those invited. Tracinda was working up to the last minute in hopes of being included in the scheduled round of meetings with DaimlerChrysler exec Rüdiger Grube. Among the issues: DaimlerChrysler and its bankers are questioning whether Tracinda's bid, which came with several significant conditions, is competitive given proposals from 3 rival groups. Mr. Grube is scheduled today to kick off meetings with representatives from the tandem of Blackstone Group and Centerbridge Capital; Cerberus Capital; and a partnership between Magna Intl. (MGA) and Ripplewood.

The WSJ reports that Nasdaq (NDAQ) is in talks to buy the Philadelphia Stock Exchange. A move would give the Nasdaq a sizable foothold in the options business. The two exchanges have been talking for months, but a deal isn't expected anytime soon, and may take several weeks to put together. The discussions between the two mkts have intensified in recent weeks as Nasdaq looks for its next step after a failed bid to buy London SE. Some followers of the Philadelphia exchange say that with increased exchange valuations in recent years, the co could be valued at $250-300m.

The WSJ reprots that Federal regulators said they will seek a temporary restraining order and preliminary injunction to halt Western Refining's (WNR) $1.13bn acquisition of Giant Industries (GI). The FTC said the proposed buyout would lead to reduced competition for the bulk supply of light petroleum products, including motor gasoline, to northern New Mexico.

“Inside Track” section reports that 5 board members of Freeport (FCX) reported buying more than $16m worth of co shares last month before and after Freeport completed its acquisition of Phelps Dodge. research director Ben Silverman said the directors' purchases are a bet on strong demand and high prices for copper. "I think that this buying is really a bullish bet on copper pricing more than anything else," Mr. Silverman said.

Barron’s Online out saying that there’s plenty of value in Viacom's (VIAB) ultra-cheap stock, value that could reward patient investors as Redstone and other top execs fix what's broken with Viacom's old-media operations while bringing in rising rev from new media. With shares trading at 10x this year's projected EBITDA, compared to 15x for News Corp., Viacom shares could see 20% or better returns this year as its film business turns out more hits and its Websites start to contribute meaningfully to the top line. "Destination content will become more valuable b/c there will be more and more ways to make money off of it," says Bill Nygren, of Oakmark Fund. Henry Berghoef, Oakmark's director of research, says Viacom is perhaps the most undervalued Big Media co around, based on what are very reliable cash flows at the cable networks.

“Inside Scoop” section reports that Carl Icahn’s investment groups reported that in the last 2 weeks they have raised their holdings in Motorola (MOT) to 69.1m shares, or a 2.9% stake. That's up from 64.9m shares, or a 2.7% stake. Icahn said he intends to send his own letter out to investors on April 13 asking for support at the co's May 7 AGM.

The NY Times discusses Trump Entertainment Resorts (TRMP), saying that 2 of the 3 TRMP casinos in Atlantic City rank dead last in terms of gambling revs among the 11 casinos in town. And in an industry that sometimes seems like a legal means of printing money, the co lost $19m last year, in no small part b/c it is freighted with a staggering $1.4bn in debt. “Most casino co’s tend to be awash in cash, but we are not,” said COO Mark Juliano. “As a result, reinvestment was not done until fairly recently, causing the hotels to become somewhat less competitive from a facilities point of view. “You’ve got casinos here spending like mad to remake themselves and go up-mkt,” said the general manager at one rival property. “And you’ve got casinos with their heads in the sand who aren’t doing much of anything.” And then there’s the Trump Plaza, Trump Marina and Trump Taj Mahal, which he said occupy a third category by themselves. “You almost have to feel sorry for them,” this exec said. “They’re trying, but you have to wonder if they can pull it off.” “These properties are not earning what they could or should be earning,” said Adam Steinberg, of Morgan Joseph.

No comments: