Friday, October 12, 2007

Countrywide: Time To Look At The Board

Countrywide (CFC) Founder/CEO/Chairman/Director Angelo Mozilo is attracting the wrath of North Carolina State Treasurer Richard Moore who has asked the SEC to investigate stock sales made by said CEO. Moore is questioning changes that Mozilo made to his arranged stock selling program that enabled the CEO to increase sales. Duh. This one has been suspicious for a long time. Most of that executive team has been unloading for a long time. These guys are good at pulling levers and operating the system.

CFC is clearly a mess. Time to look at the board’s composition. How did these supposedly intelligent guys let it get so bad.

Culprit 1 Lead Director Harley W. Snyder has been the President of HSC, Inc., His background and interests seem to be exclusive to the real estate development business. Was he too close to the situation.

Culprit 2 Remaining Directors all seem to come from wheeler dealer types of industries where connections and networks are important; Financial and Investment Services, Consulting and political appointments all figure prominently. No one really seems distinguished at operating a business.

Culprit 3 Robert T. Parry is the retired President and Chief Executive Officer, effective May 2004, of the Federal Reserve Bank of San Francisco. How do we connect these dots. A former very senior Fed Reserve guy is on the board of the company that is ground zero for the sub prime mortgage mess. I would love to see minutes of board meetings and see what remarks could be attributed to this guy.

Thursday, October 11, 2007

GM VEBA; Investors Need To Pay Attention

GM (GM) UAW workers have ratified the new contract with the brand new VEBA. GM corporately does not want to embarrass the union. But who got a better deal? There has been a lot of hype so here are some facts which may surprise you.

The best source of information comes from the UAW web site in the message to Retirees. GM will hold a conference call on Oct 15 to discuss the labor contract. They have promised an 8K in the next four days.

GM will transfer $24.1 Billion in cash in Jan of 2008. But they will continue paying retiree health care benefits until Jan of 2010 without any changes. The market is under the impression that the changes are almost immediate whereas they really have another two years before they kick in.

GM will also issue a convertible debenture to the VEBA. This note will have a face value of $4.3725 billion. The interest rate is currently undisclosed. The maturity date is undisclosed. The conversion rate is undisclosed. This is essentially a non cash transaction. But if you are trying to track the EPS and want to know what the float is this convertible will form a critical part of your calculations.

If GM is shedding a $51 Billion obligation they have done well. If the stock goes up they have avoided some large cash payments. The debenture needs to be assessed in light of the health care issue and not compared to market pricing.

GM investors both large and small need to understand how this debenture works. The market cannot rely on union leadership selling a deal to their own membership for disclosure information.

Wednesday, October 10, 2007

AXA Research What Is This?

AXA (AXA) Launches Euro 100 Million Research Fund to Promote Academic Research blares the headline that I just cut and pasted. Sounds really nice promoting academic research. Is this a Trojan Horse of some description? What's this all about?

Fundamentals first. The 100 million Euros will be spread out over five years. The fund will be launched in Jan 08 at which time they will announce the governance structure. The fund will be led by an independent director from their Supervisory Board, and managed by a Scientific Board chaired by Ezra Suleiman professor of political science at Princeton University.

100 million Euros. When you Google the company, Google finance shows equity of approximately 45 million euros and a cash position of approximately 20 million euros. The announcement is equal to 500% of their current cash position and 200% of their equity. AXA you need to explain how you will fund this. Insurance company accounting is an art form in itself. But this should not involve re-insurance pools.

Conspiracy theory now follows. The research fund will place bets I mean fund research on following areas associated with AXA's business of Financial Protection:

-- Comprehension and prevention of core risks for the human being and his
environment: health and pandemics, population ageing and long term care,
environment and climate
-- Finance theories and financial markets
-- Sciences, technology and information systems: web 2.0 and
virtual worlds
-- Marketing, consumer expectations and behaviours
-- Human sciences and sociology of organizations.

Finance theories and financial markets. Hmm. Will they try to capture the budding quant market and hire the theoreticians when they are still starving grad students? It also sounds like some mad scientist is going to figure out how we think and then AXA can underwrite the correct risk less policy.

One critical question will be who owns the intellectual property rights to the research and how will it be exploited. AXA of course. But research pipelines as the pharmaceuticals will tell you are not sure things. So why make a flashy 100 million Euro announcement?

How and when will the shareholder benefit from this one?

Tuesday, October 09, 2007

LDK Encircled by Wolves

LDK (LDK) a maker of Solar Panels is attracting the attention of the litigation types. LDK which in the past week has seen its stock drop dramatically after a senior financial type suddenly resigns saying the inventories are mispriced. Asensio issues an email that was not immediately encouraging for existing investors. Barrons is warning investors that all is not well. Just yesterday the Law Offices of Eric J. O'Bell, L.L.C. announced initiation of an investigation into LDK Solar Co.

Piper Jaffray issued a note last week saying that the inventory problems are over stated. Piper Jaffray was accused of Blodget like behaviour. No one listened as the stock dropped like a stone. Blueshirt an investor relations company in their recent Sep newsletter listed LDK as a shiny new client. (Hey who brought that account in?)

OK its a mess. This is a Chinese company that is solely listed on the NYSE, which should count for something. The resignation/termination was not the smoothest move by either party. Crunch date was supposedly Sep 25. Charley Situ the former well placed employee sent emails to everyone causing the public perception of a problem. He was only hired in March of 07.

You have to question managements handling of the situation. From LDK's press release of Oct 4 they claim to have immediately done a physical count of the inventory and not found any material inconsistencies. LDK goes on to state that an independent audit firm has been hired to investigate and that they will report its findings once the boards audit committee reviews the report. They did not mention who it was. (Widely believed to be KPMG)

There seem to be credible reports that the recent scrap rates at the plant are unacceptable. The finger was pointed at purchases of poor quality raw materials. Hence Charley Situ's comments.

The real question is not the inventories. One day, hopefully soon,they will be sorted out. If Charley Situ's superiors leaned on him so hard that he was forced to resort to desperate whistle blower tactics, can you trust LDK's management.