Obamanomics | The Investment Blog from Advantage 'zyaada'

Sep 9, 2009 0

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Socialone.info is a sister blog of Advantages.us and focusses on the US economy and the aftermath. It showcases the pain at AIG and C, the troubles and the tribulations of new acquisitions and governmnt holdings at WFC and JPM, as also celebrates GS and the other winners of the crisis. It shows the new way US must adopt and how the current spending spree implies cautious undertones well into 2012. Why one can’t write on the dealmaking one is part of..well because it is a deal and then only some because one can’t disclose client and deal confidentiality. But then a person who evaluates a blog writer for an executive position is anyway starting on the wrong foot.. The blog is just building a information base and does not give away his character at work, his business models or his work content necessarily. We can analyse any industry current events and if you need, custom models to discover the truth

Gaining market share in Life Insurance

The New York Life Insurance Company, 9th till last year, jumped to No. 2 in market share behind Metlife with a near 6% market share in Life taking a leaf out of the book of the World’s best. AIG dropped just 4 places in the whole melee of the stimulus and this continuing depression. New York Life simply ‘educated’ prospects about how it was properly capitalised and fully ready in case of any further financial breakdown, bringing it a whole lot of new business ( see story: Slump spurs grab for Markets)

NY Life always had a vibrant sales force and with its diligent processes and adequate attention to current relationships, it has also managed to keep its existing customers happy, increased its share in market friendly Variable Life plans and kept its leadership in Whole Life plans for more than a decade. There is definitely one underlining factor that believers in the risk driven markets model do not realise. The underlying fact in winning is sanity in leadership and focus on the good pieces of business. It is not about Richard Branson and other half baked half thinking brazen tomfoolery like at BofA after the purchase of Merill ( there are some Indian examples that you can also read at http://zyaada.info Or http://india.advantages.us ) or the GOP reaction to Obama’s healthcare plans. ( And how is Obama’s plan going to make insurance cheaper? It does not seem to be the issue at all!!)

New York Life also lost $3.5 billion on its investment portfolio like the other big banks and AIG but Metlife having taken all of the business headed for AIG ended up with a sky rocketing 12% market share and NY Life managed to increase market share by a further 180 basis points. True, NY Life is but a can of soup for those hit by the recession opportunity..because there are other ways to beat the old leaders in the recession.

One of these popular ways this time has been to give jobs to out of work investment bankers from Goldman Sachs, Lehman and others at Deutsche Bank and some boutiques, that were not owned by these ex bankers. However, Deutsche Bank has already been caught in trying to beat the losers of the recession, continually facing funds shortages in the market and hungry for Capital after market adjustments caught up with its losses.

Yet it is relatively easier, and thus there is an opportunity during a bad recession to catch up with the falling Joneses and come up ahead in the race. It visibly happens in retail in the Coke vs Pepsi and the P&G vs others wars (Unilever in Asia and Europe) or in GM vs Ford, but is equally vehement in markets in banking and insurance. Competition is the life blood of the economy and without such acts it is very difficult to beat any recession.

On a relatively obscure note, that is also why banks running away from Asia are unlikely to survive in the coming decade, as the growth and the money here ensure that the growth is sustainable, and Life and P&C entrants in this market would also do well to learn more regulatory control from the economies in Asia that remained capitalized and capable despite investments sinking..but then that is another article altogether.

One more bidder withdraws from AIG unit bid? | Thedeal.com

The recent laundry list of asset sales planned by AIG (see here) continues to find conflict of interest in almost each of its deals, as AIG remains the buck stopper of the entire industry’s claims good or bad..

Bloomberg reports that Morgan Stanley’s (NYSE:MS) private equity fund pulled out of the bidding group Chinatrust Financial Holding Co. is leading. Morgan Stanley’s private equity fund apparently dropped out of the bidding due to a perceived conflict of interest because Morgan Stanley is advising and funding costs for AIG and the sale of the Nan Shan Life Insurance Co. auction along with Blackstone Group LP (NYSE:BX). Morgan Stanley owns 9.9% of Chinatrust.

So is Chinatrust still in the bidding? It was in a bidding group that also included Bain Capital LLC and Oaktree Capital Management LLC, according to the Bloomberg report. Reuters reports that Chinatrust may still ready to bid.

“We are capable of running Nan Shan,” said chief investment officer Daniel Wu in response to questions from reporters. “But I’m not going to say if we have an interest (in acquiring it) or anything else.”

The sale of the unit is expected to bring in about $2 billion, but it could have trouble hitting that price target as the unit is under as much financial pressure as its parent. Nan Shan was forced to raise $1.45 billion in a rights offer last year to avoid slipping below a regulatory capital requirement as unprofitable policies eroded its reserves.

So who else is in the bidding for the unit?

Carlyle Group, which joined Fubon Financial Holding Co.

Cathay Financial Holding Co.

China Strategic Holdings Ltd. may have joined Primus Financial Holdings Ltd.

Binding offers are due for submission on Aug. 28, according to the reports. – Maria Woehr

via Morgan Stanley, ChinaTrust to drop AIG unit bid? (Dealscape – Private capital).

Citi divests non performing arms

Citigroup plans to sell 20 businesses in consumer finance area, many of them located in Europe, its CEO Vikram Pandit said in an interview with Singapore’s Business Times.

He said the move was due to the shift in the consumer finance market where “there is less funding availability and they are probably less robust as businesses.” Pandit also said that the group’s capital position following the completion of the exchange of preferred shares for common equity in July, reflected an “incredible financial strength.” “On the completion of our exchange offer, we had 12.7 percent tier 1 capital and more than 9 percent tier 1 common capital,” Pandit said during his recent trip to Singapore.

The New York-based bank has said in July investors have agreed to swap $32.8 billion of preferred securities for common stock, and the US government, which will officially take a 34 percent equity at the bank and become its largest shareholder, will swap $25 billion. The US third-largest lender conducted the offers after heavy credit losses and writedowns prompted a series of bailouts, including a $45 billion injection of taxpayer funds from the Troubled Asset Relief Program.

Citigroup reported a quarterly profit of $4.28 billion, compared to a year-earlier loss of $2.5 billion. However the second quarter was boosted by $6.7 billion gain from the sale of its Smith Barney brokerage. Without that one-off gain the lender would have reported a $3.7 billion loss.

via Economic Times – Pandit in Singapore

Should You Invest In Mortgage-Backed Securities? – WSJ.com

ZYAKAIRA(AMIT MITTAL) NOTES:

YES YOU SHOULD. The Distressed prices can recover quickly once there is liquidity in the market, as it has already done for those that were TARPed with the real cash. Also the debt market is in the best place for a rebound right now and it’s easy money for you, no Madoff

NO, NEVER: US could fail in the next 12 months if you think so..because without this debt coming back, you couldn’t print enough money..That said, however, the underlying documentation is incomplete, sold multiple times and if there is default, no one is paying..

YES, YOU SHOULD: Mortgage prices will recover once the real estate market recovers from the bottom. Cherry pick if you can..don’t touch UBS or any other bank that has already failed. Ask for the end user mortgage in each case and be convinced about it.

Remember Fink(Blackrock) is the king! Read the rest of this entry »

Tarnished Citigroup Looks Like It Could Shine Again – WSJ.com

Citigroup has been garnering investor interest amid optimism on Wall Street that the worst is over for the beleaguered banking company.

Citi shares have been pounded in the past two years, falling to around $3 from $55 because of heavy losses and a huge increase in its shares outstanding as a result of a $58 billion preferred-stock exchange offer designed to shore up the company's equity capital base.

Citi stock is down 50% this year alone, while J.P. Morgan Chase shares have risen 20%, to a recent $38, and Goldman Sachs has surged 90%, to a recent $162.

The Worst Is Past

The bullish case for Citi is that it has put concerns to rest about its viability and capital adequacy.

And, based on tangible book value, a conservative measure of shareholder equity, its stock looks inexpensive. (Book value is the value at which assets are carried on a company's balance sheet — or the value of a company if it sold off all its tangible holdings.)

Citi has been trading at about 70% of its book value of $4.30 a share, pending completion of the preferred exchange offer that probably will boost its share count to 23 billion from the current 5.5 billion.

In contrast, J.P. Morgan and Goldman fetch about 1.6 times tangible book; Wells Fargo commands twice its book value.

“Citi is the one stone that investors haven't turned over,” says John McDonald, a banking analyst at Sanford Bernstein who carries a price target of $4 on Citi shares.

via Tarnished Citigroup Looks Like It Could Shine Again – WSJ.com.

Claims by Wash. Post on DC achievement gap

Using recent proficiency tests as a benchmark, Michelle Rhee, Chancellor of the District of Columbia Public Schools, has claimed to have narrowed the achievement gap between White and African-American students.

Under Ms. Rhee's leadership, the school district adopted several tactics to drill students to pass the 2009 Comprehensive Assessment System proficiency tests.

Her students made substantial progress compared to previous years at the elementary level in passing math tests, modest progress on elementary reading tests, and minor improvements for middle and high school students on reading and math exams.

In a July 13 press release, the district claimed “The achievement gap between African-American and White students continues to close across all grade levels and subject areas.”

The Washington Post echoed the district, “The achievement gap between African-American and White students shrank.”

The Post's publisher had been a consistent supporter of Ms. Rhee's reform efforts.

The silliness here is you cannot determine whether actual achievement levels between African-American and White students are becoming similar based on minimum skills tests.

If teachers drill African-American high school students all year long to prepare for the tests, and the their White counterparts are reading Brothers Karamazov and Jane Eyre, writing extensive research papers, and doing Calculus, proficiency test scores are radically misleading as to whether educational outcomes are truly becoming more equal.

Ms. Rhee has told a thousand media interviewers a thousand times how much she cares about kids, but test preparation techniques designed to improve proficiency scores have little to do with real school reform or genuine education or closing the real achievement gap, or placing kids on a different life trajectory. They are about gaining short-term political capital.

via Claims by Washington Post and school leaders about DC achievement gap.

Deal with Wachovia good for Wells Fargo | Amit 'zyaada' Mittal

THIS WFC PICK WAS MADE ON 01/25/09 and has performed beyond expectations with a 50% return

Carolinas and Phils have both been handed over to Wachovia guys. That is a very positive sign for this rodeo. The acquisition is being handled much better than the one by BAC as on date. The following is from strtribune.com of the 17th January 2009 The CEO of Wells Fargo & Co., now the nation’s fourth-largest banker, said Friday the bank has ample capital and has grown its loan portfolio by about 20 percent in the past year as it has taken business from weaker competitors in the beleaguered financial services industry.

The brass at Wells Fargo, which recently acquired capital-short Wachovia Corp, the North Carolina institution that operates in the Southeast, also said they believe they can pull off a successful merger similar to that of the Minneapolis-based Norwest buying larger Wells Fargo a decade ago. “I like this deal more than I did at first,” said Wells Fargo CEO John Stumpf, 55.

“This is not our first rodeo. This can be a wonderful long-term deal for our shareholders. We think we’re building something for the ages.” Stumpf’s optimism, however, did not temper a bad day on Wall Street for the financial services industry. Shares of Wells Fargo and other major players swooned as Bank of America and Citigroup, two of the industry’s once-proud performers, announced a combined $10 billion in fourth-quarter net losses on credit and other woes. Meanwhile, the federal government has redoubled its efforts to support a financial system that has shown few signs of recovery despite massive capital injections and restructuring in recent months.

IS Capital One really good at analytics and targeted marketing? | Amit 'zyaada' Mittal

New government restrictions on credit card issuers may force Capital One Financial, which revolutionized the credit card industry through customized marketing and granular data research, to reinvent itself for a new age of regulation. Capital One is not alone. The Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 will restrict many industry practices when it takes effect next year, and some companies could face a rough transition, analysts said.

The legislation, for instance, will require Capital One and other lenders to take new steps to ensure that customers know what fees they will pay if they exceed the limits on their credit cards. This could hurt Capital One’s business, because it relies more than most other issuers on late fees for revenue. But the legislation could help Capital One by placing new limits on “teaser rates” and deals on balance transfers, which are used more widely by Capital One’s competitors.

The restrictions could help level the playing field for recruiting new customers. Capital One Chairman Richard D. Fairbank told analysts recently that the new law could jolt the industry at a vulnerable time, particularly if the nation is still in a recession when it takes effect. “We’ve driven industry reinvention before,” Fairbank told analysts. “The transition will be rough, and we may face a particular sour spot beginning in the second quarter of 2010. But in the long run, I believe that we’ll be in a very strong position to drive industry reinvention and thrive in the new credit card industry.”

McLean-based Capital One, founded in 1988 by Fairbank and business partner Nigel Morris, helped drive a credit card boom over the past 20 years through innovations like direct-mail solicitation, using sophisticated computer programs to micro-target potential customer groups. The techniques, some of which reached people with poor credit, allowed Capital One to customize interest rates and card fees based on a cardholder’s behavior rather than applying a one-size-fits-all approach. In response to article at www.washingtonpost.com

Healthcare Tweets – Reform agenda for 09

The Congressional Budget Office estimates that #Healthcarespending will reach 48% of the GDP by 2050 and is already 16% today2 minutes ago from TweetDeck

US seems to be paying its Doctors more than twice Europe because of the costs Doctors have to bear from the Insurance Companies #Healthcare half a minute ago from TweetDeck

One-sixth of the American Pop remains uninsured #Healthcare 3 minutes ago from TweetDeck

At $12700 per family, Employer Sponsored Benefits are getting costlier for Employers and they continue to cut back on coverage#HEalthcare 3 minutes ago from TweetDeck

Have we solved the problems of the Blue Dog Coalition by proposing to pay Medicare +5% in rural areas to remove disparity#Healthcare 7 minutes ago from TweetDeck

Obamanomics? :: Tweets from the Market – July 24, 2009: Do remember to va.. http://digg.com/u19Lex @zyaada @zyakaira 7 minutes ago from twitterfeed

Senate is not going to be able to vote on the bill before the recess and the House does not want to vote without knowing the Senate’s mind10 minutes ago from TweetDeck

The surtax slab to be applied for the tax has now gone up to those earning $1m and more #Healthcare 10 minutes ago from TweetDeck

House leaders have proposed a surtax on high-income Americans to generate $544 bn to pay for the cost of the $1 tr, 10 year bill #Healthcare 11 minutes ago from TweetDeck

Many House Democrats are also anxiously awaiting word from the Senate Finance Committee over how that panel will propose to pay #Healthcare 12 minutes ago from TweetDeck

On Healthcare: Are we closer to solving the problem for the Blue Dog coalition by offering Medicare+5% to reduce disparities in rural areas?12 minutes ago from Tweetdeck