Friday, October 23, 2009

Schlumberger Just A Couple of Points

Schlumberger (SLB) reported results and pontificated that “The worst, provided the economy continues to show signs of recovery, is behind us.” That’s great guidance. Anyone can come up with that one.

A couple of balance sheet items catch investor’s attention.

Fixed Income investments held to maturity reached $625 million up from $470 million nine months ago. No real explanation as to why we need the fixed income investments in this magnitude, no information about the securities themselves or why they are held to maturity. Schlumberger is not a bond fund.

Post retirement benefits dropped by approximately $1.1 billion in the past nine months. Is this all attributable to a drop in head count? How did this come to be? The performance in this line item is stellar and could use a few words of comment. The guy who did this deserves a big fat bonus.

Thursday, October 22, 2009

US Airways Confuses Liquidity Presentation

US Airways Group (LCC) announced results and glossed over liquidity issues. Under current assets they report Cash, cash equivalents and investments in marketable securities of approximately $1,242 million. Under other assets they report $228 of investments in marketable securities. No tangible information on what type of tangible securities, yields, maturities or anything else that an investor could use to come to a rationale conclusion. This is a lack of transparency about liquidity.

Wednesday, October 21, 2009

Morgan Stanley -- Cannot Find Key to Vault

Morgan Stanley (MS) came out with some better earnings and some rather strange statements in their press release. Look at the headline where they say “Continued Improvement in Morgan Stanley’s Debt-Related Credit Spreads Reduced Earnings per Diluted Share by $0.36” What improves and then reduces earnings?

Then John J. Mack, Chairman and CEO, said “Although we still have work to do in sales and trading, it offers our single biggest opportunity for growth as we build out our client flow business and pursue disciplined risk-taking.” This implies that disciplined risk-taking is a new concept in this house. Given that they feel they are struggling in this category it sounds like they have not developed a model or formula that they are comfortable with. The discipline they are looking for is profitability. They still have not figured out where the key to the vault is.

Tuesday, October 20, 2009

Galleon Legal Conundrum

Raj Rajaratnam has more than his fair share of legal problems. Everyone is focused on the spectacular insider trading issues. But the authorities first discovered him when they were investigating terrorist financing for the Tamil Tigers. There are probably still further charges to be laid on those accounts. Which may inadvertently implicate white collar insider trading with terrorism and money laundering.

The government may follow a two track system of prosecution. Insider trading and criminal money laundering for terrorist purposes. Wall Street may forgive him maybe even forget him but in the shady world of terrorist financing he may be dead man walking.

By the way he needed accomplices. Just like Bernie Madoff needed help Raj did not do the black finance stuff on his own. I am waiting to hear who is on the second team around the main players.

Monday, October 19, 2009

CIT -- Fair Value Clashes with Distress Pricing

CIT Group (CIT) received an offer from Carl Icahn. CIT is clearly in trouble in more ways than can be counted. The drama is high. Enter Egan-Jones an independent credit rating service which also has a proxy service and counter-party surveillance services is publicly recommended that the Carl Icahn’s offer is not fair value.

OK I have a problem here with the word independent. Egan-Jones is taking a position in a problematic credit. They are relying on their own models to arrive at conclusions of value. But in this case who hired them and why? The reality is that CIT is bankrupt. Their own board drove them into bankruptcy. The concept of fair value does not dovetail with the concept of financial distress.

It’s all about buy low sell high. CIT has screwed its own shareholders and stakeholders. Is the board looking for cover when their own incompetence led them into deals that destroy wealth?

Hasbro Balance Sheet Issues

Hasbro (HAS) came in with some weak numbers but banged their fists on the table and said the brands are strong even if sales are down. They have refinanced some short term liabilities into long term debt. But their cash position is down. Sales have dropped but receivables are up significantly and inventories are down. So what does this mean for Christmas if the inventories are down? Their customers are starting to drag out payments and Hasbro is trying to protect itself with lower inventories. Not good. What is worse management just keeps serving up the brands are strong mantra.