Thursday, January 10, 2008

Paperstand (C, MER, SLM, SNE, GT)

The WSJ reports that 2 of the biggest names on Wall St. are going hat in hand, again, to foreign investors. Citigroup (C) and Merrill Lynch (MER) are in discussions to get additional infusions of capital from investors, primarily foreign govts. Merrill is expected to get $3-4bn, much of it from a Middle Eastern govt investment fund. Citi could get as much as $10bn, likely all from foreign govts. Such large investments would be the latest sign big banks are undergoing a rapid recapitalization to stabilize their shaky financial foundations. Already, foreign govts have invested about $27bn in Merrill, Citi, UBS and Morgan Stanley. The new investments are sure to complicate the so-far successful efforts of Wall St. firms to keep these purchases below the Washington radar screen. Multiple investments from govt funds will get closer scrutiny from regulators for signs the funds could work together and exercise control. Any questions will lengthen the time regulators need to review the deals. And federal lawmakers, who've given the string of govt investments a pass, will take another look in this election year. "The goal is to get a [page] B6 story in the WSJ and have no one mention it," said a Washington lobbyist.

“Heard on the Street” column out saying that raising $30bn of debt in today's credit mkts isn't an easy task, but it is especially tough for student lender SLM (SLM). The co is seeking to raise that sum to refinance an existing loan while trying to restore its reputation with investors and as the profitability of student lending is declining. Sallie Mae said Mon that it had appointed Anthony P. Terracciano as Chmn. Mr. Terracciano has helped revive the fortunes of several stricken banks over the past 10ys, so his appointment may reassure prospective creditors. The loan that needs to be replaced is large, however, and doubts remain about Sallie Mae's future profitability, so credit mkts remain nervous about the lender. And the refinancing may be expensive. Sallie Mae's credit-default swaps have widened to 425bps from 300bps at the end of last year. That means the annual cost of protecting $10m of Sallie Mae bonds for 5ys now costs $425K vs $300K at the end of ‘07. "The key driver behind that increase is growing concern that, first, Sallie Mae won't be able to refinance this $30bn, and, second, that if they do refinance it, the cost of a new loan may be high," Richard Hoffman, of CreditSights, said.

Barron’s Online out saying that Sony’s (SNE) win with its Blu-ray format for HD DVD this wk could signal a turning point for the co. All this wk, consumer electronics firms have had perhaps their best shot to convince Street's bean counters they'll be on top in ‘08. As the CES has unfurled across hotel suites and conventions halls here, analysts are dazzled by the seemingly endless progress offered by wave upon wave of new gadgets. While it's best to be skeptical of that warm fuzzy feeling, it's hard to deny that one co, Sony, seems to be on something of a roll. On Fri, the co was given a late birthday present, when Time Warner's Warner Brothers Entertainment announced that it will be making all of its HD DVD releases in the Blu-ray format. The move could put Blu-ray over the top in its battle with Toshiba's HD DVD, and that could lead to a lucrative royalty stream for Sony. Analysts have an average price tgt of $69 for Sony.

“Inside Scoop” section reprots that TPG-Axon Capital Mgmt disclosed it owned 13.25m shares, or a 5.5% stake in Goodyear (GT). TPG-Axon Capital, led by former Goldman Sachs partner Dinakar Singh, had no holdings in Goodyear prior to the 3Q07. It is now Goodyear's 2nd-largest shareholder behind Eton Park Capital Mgmt, which reported owning 16.15m shares or a 7.7% stake in a Dec. "TPG-Axon Capital and Eton Park have both been buying aggressively in the last couple of mo’s and both firms are very value focused," says Ben Silverman, of "Goodyear fits [the profile] these firms look for of strong financials and strong mgmt, and good cash-flow generation. Their cost reduction program is an appealing value-unlocking catalyst."

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