Friday, January 22, 2010

American Express -- Is It Really Better??

American Express (AXP) released stellar results and would have you believe that “We still face the challenge of high unemployment levels, depressed real estate values, and shrunken household balance sheets, but the overall economy and our company are in stronger shape than they were a year ago.” But they say that now they are able to shift their focus for growth but still expect the economy to be growing slowly.

Stated in another way they claim their portfolio is pristine and has stopped hemorrhaging losses. That’s entirely unique from the rest of the credit sector even if American Express is supposedly crème de la crème. The stock sold off along with the rest of the market. But if earnings are going to be so damn good why not do a dividend signal and reward long suffering shareholders. The current dividend yield is about 1.7% with the stock near their 52 week high. If the house is in order then act like it. Otherwise it’s just management talking through their hat.

Wednesday, January 20, 2010

AMR Same Old Same Old

AMR Corporation (AMR) the parent of American Airlines reported Q4 losses which were almost the same size as last year. From some strange perverse reason investors bid the stock up. Management reported on seat miles and other traditional metrics. They claim to have some fuel hedges in place but cannot explain what the costs would be if fuel costs fluctuate radically. This is the single most volatile cost component that can turn on a dime. I have said this about other airlines in the past. They continue to expand horizontally buying up each other and competing for routes. The biggest business challenge they have is cost control and they have done nothing substantial to protect themselves. They just assume that they can pass the costs onto the consumer and go from there. New equipment may be more cost effective but not totally cost effective. Same old tired thinking from the board and senior officers.

Tuesday, January 19, 2010

Citigroup -- Loss Mitigation Follies

Citigroup (C) announced Q4 results and the anticipated loses. No one expected black ink. They make a big point about repaying TARP loans. They also make a big point about net new credit extended to the consumer. Then of course they discuss their credit losses. This is what will drive future profitability and they are controlled by government programs and definitions.

Citi makes frequent use of the term loss mitigation. This is highly sanitized terminology that can mean anything from credit collection to foreclosures and power of sale proceedings. Read this snippet that is found under Citi Holdings

Net credit losses in North America residential real estate lending declined 7% sequentially to $2.1 billion due primarily to lower losses on second mortgages reflecting the impact of portfolio re-positioning and loss mitigation. In addition, increasing volumes of trial modifications of first mortgages under the HAMP contributed to the sequential decline in losses; the loan loss reserve was increased to offset this impact. “

It is impossible to hold the management to accountability when this kind of manoeuvre is permissible. Portfolio repositioning and loss mitigation. This comes dangerously close to admitting it’s just a shell game.