Tuesday, January 15, 2008

Paperstand (C, DAL, MBI, MER, CKR)

The WSJ reports that Citigroup (C) is expected to announce a sizable dividend cut, cash infusion of at least $10bn and write-down of as much as $20bn in mortgage-related investments as part of its 4Q earnings report. CEO Vikram Pandit also is expected to unveil a cost-cutting plan that is likely to include substantial job cuts. The moves are part of his push to shore up the co's finances, including replenishing its depleted capital. At a board meeting yesterday, Citigroup directors were poised to sign off on Mr. Pandit's recommendation to cut the bank's quarterly dividend payment. The size of the cut wasn't clear, but analysts and some investors have been bracing for it to get sliced roughly in half.

According to the WSJ, Delta Air (DAL) has opened merger negotiations with both UAL’s (UAUA) United Airlines and Northwest Airlines (NWA), and hopes to negotiate a merger agreement with one of the airlines over the next 2 wks. Delta's board gave permission to CEO Richard Anderson on Fri to begin simultaneous talks with both carriers. Either scenario would create the largest airline in the US. Delta execs, who completed a round of preliminary discussions with United and Northwest before seeking board permission for formal talks, plan to move swiftly and present the preferred partner to Delta directors when they next meet in early Feb. A deal could be announced as early as mid-Feb.

The WSJ reports that a unit of Japanese megabank Mizuho Financial will later today announce a ¥140bn ($1.3bn) investment in Merrill Lynch (MER). As part of the deal, Merrill will sell Mizuho Corporate Bank, the core unit of the Japanese banking group, preferred shares which will likely convert to common stock at some point in the future. The deal could close before the end of the month.

“Heard on the Street” column discusses MBIA (MBI), whose stock is up more than 50% from a 52w low hit just 5 days ago, investors should consider a few outstanding issues before getting too comfortable: mounting mortgage-related losses; soaring capital-raising costs; and a tougher playing field for its core business of insuring municipal bonds as well-capitalized newcomers, such as Warren Buffett's Berkshire Hathaway Assurance, line up new clients. Nobody knows where the bottom is for this credit cycle, or what the ultimate losses are going to be," says David Havens, of UBS. That isn't to say investors don't have some reason to cheer. MBIA, whose triple-A rating is under threat of downgrade by rating agencies, could squeak by with a clean bill of health after privately placing $1bn of bonds in a debt issue last week that MBIA says was oversubscribed, perhaps b/c of the 14% yield MBIA agreed to pay. Warburg Pincus says it is still firmly behind MBIA. "We have been and remain 100% committed to closing this deal," David Coulter, a Warburg managing director, said.

According to the Barron’s Online one fund manager likes GEO, CRN, BPHX, SNDA, CROX, KVA, CXW, ATHR and SUNH.

“Inside Scoop” section reports that GSO Capital Partners bought $3m worth of stock of CKE Restaurants (CKR). The hedge fund now owns 1.9m shares of the co, or approximately 3.4%. GSO director, Matthew Goldfarb, sits on the CKE board. Ben Silverman, of InsiderScore.com, says GSO's purchase has added weight thanks to Goldfarb's connection. The transaction is a "good sign of confidence not just from an institutional investor but from somebody with board representation," he says. Silverman adds that the firm's willingness to stray from its leveraged-finance focus also is of interest. "I think the investment is based on the fact that [Goldfarb] understands the co and has faith in the co."

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