Friday, January 15, 2010

JP Morgan Mortgage Barnacles

JPMorgan Chase (JPM) announced results and included some information on mortgage loss mitigation.

Jamie Dimon, Chairman and Chief Executive Officer commented that by March 31, 2010“We will have opened 51 Chase Homeownership Centers across the country, and we already have more than 14,000 employees dedicated to mortgage loss mitigation.”

These guys are not generating new positive spread business. While the costs do not show up in loan losses they do balloon up the non interest expense and rob the income statement. Not sure what the 51 Chase Homeownership Centers will cost but 14,000 employees will be expensive. If you assume say $50,000 per year in total compensation that will be an annual cost of $700 million; before bonuses of course.

Judging a banks loan portfolio quality is difficult at best. If we can track how many people are involved in the process of mortgage loss mitigation we can at least determine how efficiently they are responding to the problem. In the mean time shareholders bleed.

Thursday, January 14, 2010

SAP Financial Strip Tease

SAP (SAP) released preliminary Q4 and year end results without management comment. They kindly promise to provide further details on the preliminary numbers by Jan 27, 2010.

This form of financial strip tease is not in the best interests of investors. This is a large and complex company. Releasing information bit by bit has a danger of misleading investors and lulling them to sleep.

What is the governance policy? If the news is bad will they release it first or will they release the good news and then slip in some problems when the market has been anaesthetized.

This is how black Swan Events occur.

Wednesday, January 13, 2010

Google Geopoliitcally Naive

Google (GOOG) takes on the Chinese government. Google has mismanaged its China card and has satisfied no one. While they may be brilliant at technology they are naive geopolitically. Going toe to toe with the Chinese is a weak proposition. Missing out entirely on the Chinese market is not satisfactory to shareholders. Other companies have been able to navigate the Chinese market. Google seems to have been consumed. Is this the high water mark for Google.

Kraft Guidance Timing Suspicious

Kraft (KFT) issued a three cent guidance increase trying to strengthen its stock at a critical time. As we complete our turnaround, we're delivering high-quality earnings growth, despite the difficult economic environment," said Kraft Foods' Chairman and CEO Irene Rosenfeld. The interesting comment was “This increased guidance reflects strong operating gains as well as a significant increase in marketing investments versus the prior year” This means that they will be spending money but still feel confident in increasing guidance.

It’s all about the timing. Are they speaking to Warren Buffett? Are they speaking to Cadbury shareholders? Are they whistling through the graveyard?

Tuesday, January 12, 2010

Alcoa Will China Hurt?

Alcoa (AA) if 2009 was all about demand destruction then 2010 should be about demand recovery. Commercial airlines, housing and auto’s all continue to be major question marks. If you follow James Chanos over at Kynikos Associates you fear the Chinese Bubble. Alcoa seems to be positioned to experience significant fall out from the China Bubble. Short interest is some 66 million shares or about two days worth of trading. The problem with management comments in both the earnings release and the conference call is they do not segment local markets and market verticals in their financial data. They look at alumina as one global market and ignore specific drivers. Yet they will refer to demand destruction of 2009.

Monday, January 11, 2010

Jarden Chocolate Covered Disclosure

Jarden (JAH) sent market signals that made its stock jump. Less than two weeks after their year end they are reporting unaudited numbers and cash positions while at the same time reporting a bond deal that should term out some liabilities that are coming due shortly. They make a big deal of saying audited results will be announced Feb 18 with an investor day Mar 10 at the NYSE. So to sell the bond deal they are announcing chocolate covered financial results so that everyone gets that warm fuzzy feeling.

Management is sticking their neck out. The numbers are not yet audited so what of the role of the auditor to protect shareholders? The cart is in front of the horse when it comes to governance. Did the bond investors really need this extra assurance which was delivered in a dented compliance package? If management felt it need the buzz how weak was the deal in the first place. Debt markets are never wrong. There is risk here.