Dean Foust of Businessweek wrote a story abut the continuing pressure on Ken Lewis, the CEO of Bank of America. For more than a year Liberum has placed Ken Lewis on our CEO Watch. Foust’s piece is a good analysis of where Lewis stands and what might hapen going forward. Check it out.
This week The Wall Street Transcript has released a new report on the The Financial Crisis in the Banking Sector. This unique 742-page document tracks the thinking and perspective on the major sectors of finance, from 2000 through to 2009, with particular emphasis on the period from 2003 to 2006 when the seeds of today’s crisis were sewn.
The following is a excerpt for the report:
07/19/2004 A. Scott Keys – Executive Vice President and Chief Financial Officer – IndyMac Bancorp, Inc. (NDE)
Mr. Keys: I think the big fear for all mortgage companies is it’s fairly clear that interest rates are going to rise. If they rise very precipitously, it is possible that the housing market could slow down. As I said before, I don’t see an overall reduction in real estate values, but certainly, if rates were to go up 2%-3% from here, that would have a dampening effect on home sales and consumers’ willingness to take additional equity out of their homes. That’s probably the number one thing for us. We have found though that in those types of environments, when rates are rising and the mortgage market is falling in terms of overall mortgages being originated, then our company tends to gain market share. In fact, if you look back to the first quarter of 2003, and compare it to the first quarter of 2004, we were one of, I think, three of the top 50 lenders in the United States that actually had our production grow year over year. And I think we’ll see that trend continue for us. This is because of our focus on the mortgage broker business and the Alt-A business, these are businesses that are a little bit less influenced by the refinancing cycles, and tend to be more focused on purchase business. So that’s a strategy that has been very good for us, and as rates rise going forward, will allow us to differentiate ourselves from some of the other players that are much more dependent on refinancing.
This is a record of in-depth verbatim interviews conducted and published at the time, probably the only long-form, first-hand account of what exactly people were thinking as the crisis unfolded.
Portfolio Manager Oliver Marti is Managing Director of Columbus Circle Investors. Mr. Marti specializes in investing in Healthcare Stocks. In his latest interview with TWST, he had some interesting things to say about Healthcare in politics, and what this means for investors:
Mr. Marti: Many in Washington see the under-investment in information technology across the healthcare space as part of the reason for many of the medical errors and inefficiencies in the system. As a result, there is a large effort to increase the utilization of HIT to prevent these errors and reduce costs in the healthcare system. However, as I mentioned above, in the near term, the environment for HIT products and services continues to be difficult, given the negative impact that weak economic conditions are having on HIT customers, i.e.,hospitals, doctors. Furthermore, there is still much uncertainty regarding important terminology and logistics around the funding, which is causing a further slowdown in purchasing of HIT. As a result, we believe that expansion of
HIT might not be as rapid as people think; we see the positive impact for these companies not coming until 2010.
For the latest Investing Strategies report, including a full interview with Mr. Marti as well as a variety of other portfolio managers, click here.
Marcus Leroux wrote a story in the U.K.’s Times Online that examined the dramatic management changes Sir Stuart Rose, the head of troubled retailer Marks and Spencer, has taken to try and turn the retailer around.
The M&S executive chairman effectively promoted two of his lieutenants and announced the imminent departure of a third, as part of measures that he said would accelerate a change in fortunes for the 125-year-old retailer.
…The reshuffle came as the company reported a 40 per cent plunge in profits and a 33 per cent cut in the final dividend.
Carl Leaver, who had led the international division, homewares and e-commerce businesses, is to leave by mutual agreement in the next three months, removing another potential successor to Sir Stuart…
… Steve Rowe is to be put in charge of the online business, while Kate Bostock, head of fashion, has been given additional responsibility for homewares.
Ian Dyson, the finance and operations director, is to be placed in overall charge of the latest initiative to reinvigorate the retailer, called Doing The Right Thing…
… The shake-up suggests that Mr Dyson and Ms Bostock have pulled ahead in the race to succeed Sir Stuart. It is understood the retailer would prefer an internal candidate.
If interested in retailing or what executives sometimes do to try and turn things around check out the story. I have discussed Marks and Spencer and its current Executive Chairman, Sir Stuart Rose, for sometime and believe his moves are worth watching.
As part of out Digital Media Report we spoke with Ralph Schackart of William Blair. With Netflix already entrenched in the $50 billion dollar DVD market it has begun to position itself into the digital content market;
Mr. Schackart: What is attractive about Netflix is that its digital content can go global. And let’s say DVD is a $50 billion plus market worldwide. Netflix does not have to go find a $50 billion market; it’s right there. It’s not going to be a transfer or a change overnight. But our position is that if 2% of the market is digital today, that number will likely go up to 10% or 15% in the next five years. Just too many people know what to do with a shiny disc today. There are 265 million DVD players in the US alone, not including PCs. Hollywood studios have traditionally moved at the speed of an iceberg. They have a lot of different models and you just cannot change consumer behavior that quickly. So as it relates to Netflix, they are going to have a nice core DVD rental business by mail and they are going to attract more consumers, both with their current product and the nice feature on the streaming end. And we will see how quickly the market transitions over time to digital.
The DVD is not going to disappear overnight but it will go away and Netflix is getting ready for that eventuality.
In our last issue, one of our special focuses was on Investing in Utilities. We spoke with analyst Heike Doerr of Janney Montgomery Scott, who told us which companies she was recommending in this space and why:
For the complete Investing in Utilities report, including a full interview with Ms. Doerr, as well as other analysts and top CEOS in this space, click here.
In our recent Aerospace and Defense Report our Roundtable Forum with Alex P. Hamilton of Jesup & Lamont. and Richard Tortoriello of Standard & Poor’s U.S. Equity Research focused on the defense budget and how cuts in spending would impact the sector:
Mr. Hamilton: My coverage of defense, by design, is to avoid some of the platform names. Those would include Lockheed Martin, Northrop, General Dynamics; those are the names that are historically associated with making platforms. That being said, I think what happens is when the defense budgets start getting cut, if I’m the defense contractor on several of these programs that are being cut and I’ve come off of record years of cash flow, I’m going to sit there and acquire some of the smaller names.
Mr. Tortoriello: I cover the large defense contractors. I’m neutral on them, on Lockheed, Northrop, Raytheon (RTN), and General Dynamics, but the neutral opinion is primarily just a reflection of the low valuations currently as the stocks have already come down in anticipation of weak defense spending ahead. That being said, I wouldn’t recommend getting into these names at this point. I think we’re in a long-term environment of constraint in defense spending. I do agree that there will be spending in other areas – cyber security is certainly one of them – but I don’t think that that spending will be enough to offset the cuts that I believe we’re going to see over the next several years to the defense budget.
We talked with analyst Richard Tortoriello of Standard & Poor’s Financial Services regarding the Aerospace & Defense space in the recent issue of TWST. Here’s what he had to say about how events in the last few years have shaped the current status of the airline industry:
Mr. Tortoriello: …Airlines were getting hit in 2008 and 2007 with soaring fuel prices, so they had to respond to that. They began taking planes out of service last year before anyone was really screaming about a recession. Now they’re a little ahead of the game, and I think that means that some of the worst pain has hit us already. Not that things are going to get better fast, but that there probably aren’t going to be a lot more planes coming out of service and the airlines have probably de-stocked their inventory of aftermarket parts to some extent, and they’re going to have to start ordering a little more.
For the complete Aerospace & Defense report, including a roundtable discussion, and interviews with top CEOs in the space, click here.
Ken Lewis lost his battle today to continue as both CEO and chairman of Bank of America. Shareh
olders voted to rest the chairmanship away from Lewis. Lewis has been under a cloud ever since the Bank of America acquisition of Merrill Lynch and in some people’s minds since the bank’s acquisition of Countrywide the mortgage company. The real question many people are asking is whether or not Lewis will continue as the bank’s CEO much longer. According to a story by Louise Story for The New York Times,
… the vote to separate the chairmanship from the company’s executive leadership raised questions about how much longer Mr. Lewis could steer the bank as shareholder anger mounts over his handling of the bank’s takeover of Merrill Lynch.
Mr. Lewis has worked at the bank and its predecessors for 40 years and run it as chief executive since 2001.
It is very unlikely this is the end of the story. The bank replaced Lewis as Chairman with Walter E. Massey, a longtime board member and former president of Morehouse College.
For more:
SEIU blog
Economic Times
Wall Street Journal
Huffington Post
Financial Times
Los Angeles Times
In his interview with TWST, portfolio manager Craig Stone recommends the energy resource company EQT Corporation (EQT). Here’s why:
Mr. Stone: EQT is a fully integrated energy company, focusing on the Appalachian natural gas region. We like EQT because this is Appalachian’s largest exploration and production company and they own about 3.4 million acres of low-risk resource plays in multiple zones. All the acreage is held by the company with no expiring leases. EQT has one of the lowest cost structures in the industry. The company’s three-year F&D costs (finding and development costs) are some of the lowest in the industry at below $1 per Mcfe (million cubic feet per equivalent) and the company is also a technological leader in air drilling, which over time has helped the company to further lower total operating expenses.
For the complete Investing Strategies report, including a full interview with Mr. Stone, his associate Jon Christensen and a series of full interviews with other portfolio managers, click here.
