Sunday, March 23, 2008

JPMorgan Chase makes $1B-plus on Visa IPO

Thanks to its stake in Visa's initial public offering this week, JPMorgan Chase & Co. has enough money to pay for its Bear Stearns purchase and still have about a billion dollars left over.

JPMorgan (JPM, Fortune 500) made at least $1.36 billion in Visa (V)'s IPO Wednesday, according to federal filings. JPMorgan is the largest of six principal bank stockholders of the the card processor, who all reaped big bucks from the offering. The debut was so successful that Visa sold additional shares, boosting the banks' takes.

"JPMorgan had a great week," said John Fitzgibbon Jr., founder of, an independent IPO rating service. "They walked away with $1 billion in their pocket and that's after buying Bear Stearns."

JPMorgan scooped up embattled Bear Stearns for the bargain basement sum of $342.6 million, based on the bank's closing share price on Thursday.

The Visa windfall couldn't come at a better time for banks, which are struggling to raise much needed funds amid a credit crunch on Wall Street and a faltering economy. It will help boost banks' first-quarter earnings, provide them more reserves for loan losses and improve their capital, an important measure of an institution's financial health.

"It's hard to raise that kind of cash in today's market," said Chip MacDonald, partner in the capital markets group of Jones Day law firm. "It gives them more flexibility."

The IPO should increase banks' first-quarter earnings by about $5.4 billion, Keith Horowitz, analyst at Citi Investment Research, wrote in a research note, according to the Associated Press.

Other banks receiving big windfalls from the IPO include: Bank of America Corp. (BAC, Fortune 500), $675.3 million; Citigroup Inc. (C, Fortune 500), $324 million; U.S. Bancorp (USB, Fortune 500), $298.7 million, and Wells Fargo & Co. (WFC, Fortune 500), $295 million, according to the IPO prospectus filed with the SEC.

National City Corp., which was listed in the prospectus as getting $470.5 million, announced Thursday that it would see a gain of $530 million from redeeming 39% of its stake.

The banks still hold a significant stake in the card processor. Based on Thursday's closing price of $64.35 per share, their ownership was worth $4 billion for JPMorgan, $2 billion for Bank of America, $1.4 billion for National City, $952 million for Citigroup, $878 million for U.S. Bancorp and $866 million for Wells Fargo.

Before its $19.1 billion IPO, which was the world's second largest, Visa was an association owned by its 16,600 member banks. The largest IPO was Industrial & Commercial Bank of China, which raised $21.9 billion in October 2006.

Saturday, March 8, 2008

High-cost mortgages just got cheaper

The size of loans that can be guaranteed by Freddie Mac and Fannie Mae was raised today by the Office of Federal Housing Enterprise Oversight. The new, higher loan limits will stay in effect through the end of the year, allowing the government sponsored enterprises (GSEs), to buy much higher-priced mortgages in some areas of the country.

Also today, the size of the loans that the Federal Housing Authority (FHA) can insure was raised by Housing and Urban Development (HUD).

Both moves will lower borrowing costs for buyers of higher priced homes, and aim to boost flagging real estate markets.
Best time to buy a home in four years

Previously, Fannie and Freddie could only insure mortgages of up to $417,000, called conforming loans. That meant, assuming a 20% down payment, that only buyers of homes costing $521,500 or less were eligible for mortgages with GSE backing.

The new loan limits for Fannie and Freddie vary by area based on local median home prices and go as high as $793,750 in Honolulu. (For details, see table below).

Loan limits for FHA-insured loans were even lower; no more than $362,790. Now mortgages of up to $729,750 will qualify for FHA insurance.

The problem was that there are whole swaths of the nation where the typical home cost far more than that, and non-conforming or "jumbo loans" carry interest rates of about a point higher. For a $500,000 mortgage, that's an additional spending of $330 a month.

In many parts of the country prices are much higher. In San Jose, Calif, the median priced home costs nearly $850,000, according to the latest figures from the National Association of Realtors. In San Francisco, the figure is nearly $780,000; in Anaheim, Calif.; $657,000; in Honolulu $625,000; and in the New York metro area, $525,000. That means more than half the loans in those markets would not qualify under conforming loan limits.

"Families in high-cost states have been priced out of FHA-backed loans," HUD Secretary Alphonso Jackson said earlier today, in a speech before the Las Vegas Association of Realtors. "This has created a vacuum, filled by exotic subprime loans."

During the liquidity squeeze that began during the summer of 2007, jumbo loans became very difficult to find even for well-qualified borrowers. that made it hard to buy homes in certain regions, freezing up real estate markets.

By making it easier for buyers to get loans, regulators hope to get these markets moving again.

The new loan limits affect 71 metropolitan areas, as well as 21 counties outside of those metro areas.

Bush: 'Economy has slowed'

President Bush said Friday that "it's clear our economy has slowed," hours after a government report showed a decline in payrolls for the second straight month.

But he said the long-term outlook is good, with a stimulus package enacted last month by Congress providing support for the economy.

"I know this is a difficult time for our economy," the president said. "But we recognized the problem early and we provided the economy with a booster shot."

Bush said the effects of the stimulus package are "just starting to kick in" and that the plan will "put money into the hands of American workers and businesses."

Earlier in the day, Bush's chief economic adviser Edward Lazear said that the nation's economy could contract in the current quarter. But he added that, "we expect that the economy will get stronger, primarily in the third quarter."

The statements come after the Labor Department said employers made their deepest cut in staffing in almost five years during February, highlighting concerns that a recession is imminent.

Senate Majority Leader Harry Reid, D-Nev., said in remarks made on the Senate floor that Americans are "burdened by an economy that is spiraling downward every day."

Reid noted that Bush does not think the economy is headed for a recession, but argues that the facts prove otherwise.

"This morning, all signs point in that direction," Reid said. "But regardless of what label we use, there is no doubt whatsoever that the American people are suffering."

Meanwhile, oil prices spiked to a record high above $106 a barrel Friday, raising concerns that higher gas prices will hurt consumers and increase inflation.

On Wall Street, stocks fell to their lowest level in nearly 18 months as recession fears continued to spook investors.

Friday, March 7, 2008

Goldman CEO Gets $54M in Compensation

Goldman Sachs Group Inc. Chairman and Chief Executive Lloyd Blankfein did better than any of his colleagues in 2007, a year in which the world's largest investment bank profited despite the subprime market collapse.

Blankfein, the highest-paid CEO among the investment banks, received compensation valued at $54 million.

He drew $600,000 in salary plus a performance-related bonus of $27 million, according to documents filed Friday with the Securities and Exchange Commission. He also received restricted stock and stock options valued at $26 million on the day they were granted.

Other compensation Goldman Sachs awarded Blankfein _ $384,157 in 2007 _ includes a car and driver and security.

The AP's total pay calculations include executives' salary, bonus, incentives, perks, above-market returns on deferred compensation and the estimated value of stock options and awards granted during the year.

The calculations don't include changes in the present value of pension benefits, and they sometimes differ from the totals companies list in the summary compensation table of proxy statements filed with the Securities and Exchange Commission.

Blankfein has come out of the credit crisis relatively unscathed so far compared to some colleagues at competing firms. Jimmy Cayne, the longtime leader of Bear Stearns Cos., was forced to give up the CEO title to remain chairman; while Merrill Lynch & Co. CEO Stanley O'Neal was ousted from the company.

Morgan Stanley CEO John Mack passed up his bonus after racking up steep write-downs in 2007, as did Cayne and other top Bear Stearns executives. Lehman Brothers Inc.'s Richard Fuld received compensation valued at $22.1 million in 2007.

Goldman Sachs was able to largely avoid the mortgage-losses that plagued its competitors, leading it to post record profits during the year. Goldman Sachs posted $3.17 billion in profit in its fourth quarter alone, far surpassing its peers.

Shares, which fell about 13 percent in fiscal 2007, rose $1.42 to $160.07 on Friday.

Wednesday, March 5, 2008

Top Google exec jumps to Facebook

Now it's Google's turn to be hounded by an upstart. Facebook, the popular social networking site, has lured top Google executive Sheryl Sandberg to serve as its chief operating officer.

Sandberg, who ran Google's online sales unit, is the first senior executive to jump from Google's management team to another company. George Reyes, Google's chief financial officer, announced his retirement in August, but is staying on until a successor is named.

News of Sandberg's exit comes amid a steady drop in Google shares. Since hitting a high of $747 in December, Google shares have dropped 41% as the days of hyper growth appear to have ended for the Net colossus.

Sandberg's move to the No. 2 job at Facebook was first reported by Kara Swisher on her BoomTown blog, which is run by The Wall Street Journal, and confirmed by Fortune's GoWest blogger Adam Lashinsky.

At Google, Sandberg ran the automated advertising operations for the search giant, the unit responsible for a large part of the company's profits and revenue.

Sandberg is expected to apply her deep operations skills to Facebook and transform the social networking site into a full-fledged business. She replaces Owen Van Natta, who announced his exit last month.

"The focus for Facebook is scaling," Sandberg said in an interview Tuesday. "That's what I've done at Google. Another similar challenge is building an advertising network, which I also did at Google."

Facebook has become the leading challenger to MySpace the online social networking unit of News Corp (NWS, Fortune 500). Facebook was founded by Mark Zuckerberg, who is also chief executive.

This isn't the first time Facebook has raided Google. In the last seven months, it brought in Gideon Yu, the former chief financial officer of YouTube, a Google (GOOG, Fortune 500) unit, as its CFO. Facebook also nabbed Benjamin Ling, the engineer credited with creating Google Checkout, to run its software platform.

Sandberg joined Google in 2001, three years before it went public.

Yahoo buys time to handle Microsoft bid

Slumping Internet pioneer Yahoo on Wednesday postponed a key deadline in a looming battle with spurned suitor Microsoft, hoping to gain more wiggle room as it tries to escape a takeover.

The Sunnyvale-based company's maneuver means that March 14 is no longer the deadline for Microsoft to nominate a slate of candidates to replace Yahoo's current board - the 10 directors who rejected the world's largest software maker's initial takeover offer of $44.6 billion.

Microsoft had already signaled it was prepared to oust the board if Yahoo didn't come to the negotiating table before March 14.

Yahoo hasn't offered a new nominating deadline. It will be set once Yahoo announces the date of its annual shareholders meeting. Microsoft will have up to 10 days after the public notice to nominate directors and begin what's known as a "proxy" battle.

"Our objective here is to enable our board to continue to explore all of its strategic alternatives for maximizing value for stockholders without the distraction of a proxy contest," Yahoo Chief Executive Jerry Yang and Chairman Roy Bostock wrote in an e-mail sent to the company's employees.

Microsoft didn't immediately respond to requests for comment.

Yahoo could wait a few more months before announcing its annual meeting, which can be held as late as July 12 this year. But Yahoo is more likely to set the date within the next week or two, according to a person familiar with the company's thinking. The person wasn't authorized to speak publicly.

Monday, March 3, 2008

Dollar falls to 3-year low against yen

The dollar plunged to a three-year low against the yen Monday in Asia on concerns about the state of the U.S. economy.

The dollar traded at 103.18 yen at midafternoon, down from 103.96 yen late Friday in New York. It fell earlier in the day to 102.92 yen, its lowest point since Jan. 28, 2005, when the greenback stood at 102.37 yen.

The euro, meanwhile, rose to $1.5215 from $1.5194.

The dollar began its descent last week after U.S. economic indicators, such as consumer sentiment data, were weaker than expected.

"The bottom line is that players think the U.S. economy may be entering, or already has entered, a recession," said Jun Kato, a senior dealer at Shinkin Central Bank.

Kato said even if the U.S. Federal Reserve cuts its rates further, that wouldn't help the U.S. economy and unit recover much.

"Long-term interest rates are still at high levels, meaning banks are reluctant to lend," he said. "If people can't borrow the money they need, the U.S. economy won't be able to pick up in the near term."

Finance Minister Fukushiro Nukaga told reporters that exchange rates are "moving on various economic indicators," adding that he didn't feel it was "appropriate" for him to comment on rate moves.

The yen's strength, which hurts Japan's exporters by making their products more expensive abroad, has also helped push Japanese stocks lower. The benchmark Nikkei 225 index fell 4.5% Monday.

The dollar was mostly higher against other Asian currencies. It rose 0.37% against the Philippine peso to 40.525 and gained 0.82% against the South Korean won to 946.6. The U.S. unit also rose 0.30% against the Taiwan dollar to 31.009.

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