More good news/bad news: Wall Street seems determined to make a not-so-hot earnings report seem encouraging. Bank of America became the latest major financial institution to report a sharp drop in net income, much of it real estate related, but not as sharp a drop as had been expected. Not included in those numbers was a $2.3-billion loss at Countrywide, which B of A has just acquired. Investors fear that more big-time losses are possible, not to mention all the Countrywide legal battles that could involve billions more. But Bank of America said the deal was ahead of projections. (WSJ, NYT)
"Buy Banks - Selectively": That's the headline on this week's cover story in Barron's. The basic message is that most financial companies should have enough earnings power to offset all the bad loans - without having to solicit big amounts of additional capital.
U.S. financial stocks beckon because nearly every major company now trades for under 10 times projected 2009 profits. Though there is considerable uncertainty about '09 profits, considering the tough economic outlook, what is comforting is that many financials combine low forward P/Es with and low ratios of price-to-book value, derived by subtracting liabilities from assets and dividing by the company's outstanding shares. It historically has proven profitable to snap up major financials around book value because purchasers effectively are getting the ongoing businesses for nothing.
SF home prices fall: Dataquick's numbers for June show that even the more affluent areas have seen erosion. The median prices in SF and Marin County dropped by about 12 percent - to $846,000 and $726,750, respectively. Grim reaper economist Chris Thornberg says he knew it all along - "It was eminently predictable if you had a realistic view of the world," he told the SF Chronicle. But as with Socal, price drops were the steepest - and sales volumes strongest - in the counties where foreclosures were widespread.
Who would want IndyMac?: Federal regulators might have a hard time unloading the mortgage lender, both because it has relatively few branches and because only a small portion of its deposit base is made up of core deposits, which are the tried-and-true checking and savings accounts that tend to remain in an institution for long periods. Non-core is made up of brokered deposits, or hot money, that chase after high yields. The Business Journal reports that regulators have enlisted Lehman Brothers to find an acquirer.
On the other hand, the FDIC has some things to offer any buyer. For starters, IndyMac does not have large numbers of subprime loans, attorney Joseph Lynyak pointed out. Lynyak, a partner in the bank regulatory practice at Los Angeles law firm Venable LLP, also said that the FDIC was able to step in before management had bled the company of its most marketable assets. “Conservatorship freezes management from making any sudden decisions, especially from selling off quality assets while leaving the government holding a bag full of leftover junk loans,” Lynyak said in an e-mail.
L.A. gets venture boost: Thanks to a $148-million investment in a Pasadena solar energy company, L.A. venture capital activity jumped 33 percent in the second quarter, to $415 million. Including all of Socal, venture activity totaled $868 million. The Bay Area topped all regions, at $2.17 billion. The numbers are from the research firm Dow Jones VentureSource. (LAT)
Explaining "Batman" blast: The performance of Heath Ledger is cited as helping boost "The Dark Knight" well past opening weekend expectations. The $155.3-million is the biggest opening in history (unadjusted for inflation), beating out last summer's "Spider-Man 3," which grossed $151.1 million. Helping boost the weekend was a strong opening by "Mamma Mia!" ($27.6 million). All of which supports the long-held view that Hollywood is not only resistant to economic downturns but can often take advantage of them (movies being cheaper than other forms of entertainment). But is that true? From the WSJ:
In recent years, any increases in box-office revenue have generally been the result of higher ticket prices, not increased attendance. Film admissions of 1.4 billion in 2007 came in below some years in the 1990s and 2000s, according to box-office tracker Media by Numbers, as attendance has been eroded by competition from other media, like the Internet, and the rise of better home-entertainment systems that persuade more people to wait for a film on DVD. Indeed, even with this weekend's big sales, ticket sales for the year to date at $5.51 billion are down by about 1.3%, according to Exhibitor Relations Co. Actual attendance is down by more than 4% from last year; revenue isn't down as much because of higher ticket prices.
LAX service reduced: Fuel-related cutbacks in airline service will result in a 16.4 percent reduction in flights beginning in November (make your holiday plans soon!). That means 163,600 fewer seats will be available each week. It also means the loss of millions of dollars worth of landing fees and parking fees, which help pay for airport operations. The Daily Breeze reports that airport officials are looking at increasing landing fees. American, United and Delta have all announced bug service cuts, but Southwest does not plan any reductions so far.
Fearing the Milkens: Michael and his brother Lowell are managing partners in an investment firm called Blesbok - and Blesbok has increased its stake in the education concern Nobel Learning Communities to above 30 percent. Wynnefield Capital, a $400 million New York investment firm that owns a 12.5 percent stake, believes that the brothers Milken might be preparing for a takeover - and it wants the company to institute a poison pill. "A creeping takeover is what I'm afraid of," said Nelson Obus, a founding partner at Wynnefield. (NY Post)